UNCTAD has launched its annual review of investor-State arbitrations. The IIA Issues Note reviews developments in treaty-based investor-State dispute settlement (ISDS) in 2015. It contains the latest numbers on ISDS cases, summaries of selected new cases and an in-depth analysis of arbitral decisions.

Key information on each of the 696 ISDS cases is available on UNCTAD’s ISDS Navigator, a comprehensive, user-friendly and free-of-charge database of treaty-based international arbitrations between investors and States.

Latest trends in ISDS

In 2015, the number of ISDS cases reached a record high with a continued large share of cases against developed countries. Investors initiated 70 known investor-State dispute settlement (ISDS) cases pursuant to international investment agreements (IIAs), which is the highest number of cases ever filed in a single year. As arbitrations can be kept confidential under certain circumstances, the actual number of disputes filed for this and previous years is likely to be higher. As of 1 January 2016, the total number of publicly known ISDS claims has reached 696. So far, 107 countries have been respondents to one or more known ISDS claims.

As in the two preceding years, in 2015 the relative share of new cases against developed countries stood at about 40 per cent. Prior to 2013, fewer cases were brought against developed countries. In all, 35 countries faced new claims last year. Spain was the most frequent respondent in 2015, followed by the Russian Federation. Six countries – Austria, Cabo Verde, Cameroon, Kenya, Mauritius and Uganda – faced their first (known) ISDS claims.

Developed-country investors brought most of the 70 known cases in 2015. This follows the historical trend in which developed-country investors have been the main ISDS users, accounting for over 80 per cent of all known claims. The most frequent home States in ISDS in 2015 were the United Kingdom, followed by Germany, Luxembourg and the Netherlands.

Applicable investment treaties

Whereas the majority of investment arbitrations in 2015 were brought under BITs – most of them dating back to the 1990s –, the ECT was invoked in about one third of the new cases. Looking at the overall trend, the ECT is by far the most frequently invoked IIA (87 cases), followed by the North American Free Trade Agreement (NAFTA) (56 cases). Among BITs, the Argentina-United States BIT (20 cases) remains the agreement most frequently relied upon by foreign investors.

In addition to the ECT (23 new cases), three other treaties were invoked more than once in 2015:

• Russian Federation-Ukraine BIT (1998) (6 cases)

• NAFTA (3 cases)

• Czech Republic-United Kingdom BIT (1990) (2 cases)

Some other IIAs invoked by claimants in 2015 included the Commonwealth of Independent States (CIS) Investor Rights Convention (1997), the Unified Agreement for the Investment of Arab Capital in the Arab States (1980), and the Investment Agreement of the Organization of the Islamic Conference (1981). In one case, the claimants relied on four legal instruments at once, including the WTO General Agreement on Trade in Services (GATS). This is the first known ISDS case invoking GATS as a basis for the tribunal’s jurisdiction.

Economic sectors involved

About 76 per cent of the cases filed in 2015 relate to activities in the services sector, including:

• Supply of electricity and gas (23 cases)

• Construction (7 cases)

• Financial and insurance services (7 cases)

• Transportation and storage (7 cases)

Primary industries accounted for 14 per cent of new cases, while the remaining 10 per cent related to investments in manufacturing. This is broadly in line with the overall distribution of the 696 ISDS cases filed so far: about 66 per cent of all cases arose in the services sector, 20 per cent in primary industries, and 14 per cent in manufacturing.

Affected sustainable development sectors

A number of 2015 ISDS claims concerned sustainable development sectors such as infrastructure and climate-change mitigation. Approximately 30 per cent of cases concerned the regulation of renewable energy producers, all of which were brought against EU member States (Bulgaria, Italy and Spain). Some of the 2015 cases concerned environmental issues, indigenous protected areas, anti-corruption and taxation.

Measures challenged

Investors in 2015 most frequently challenged four types of State conduct:

• Legislative reforms in the renewable energy sector (at least 20 cases)

• Alleged direct expropriations of investments (at least 6 cases)

• Alleged discriminatory treatment (at least 6 cases)

• Revocation or denial of licences or permits (at least 5 cases)

Other challenged measures included cancellations or alleged violations of contracts or concessions, measures related to taxation, placement of enterprises under external administration, as well as bankruptcy proceedings. In several cases, information about governmental measures challenged by the claimant is not publicly available.

ISDS outcomes

Publicly available arbitral decisions issues in 2015 had a variety of outcomes, with States often prevailing at the jurisdictional stage of the proceedings, and investors winning more of the cases that reached the merits stage.

2015 decisions and outcomes In 2015, ISDS tribunals rendered at least 51 decisions in investor-State disputes, 31 of which are in the public domain (at the time of writing). Most of the public decisions on jurisdictional issues were decided in favour of the State, while the majority of those on merits ended in favour of the investor. More specifically, in 2015:

• Ten decisions principally addressed jurisdictional issues, with one upholding the tribunal’s jurisdiction (at least in part) and nine denying jurisdiction.

• Out of 15 decisions on the merits, 12 accepted at least some of the investors’ claims, and 3 dismissed all of the claims. In the decisions holding the State liable, tribunals most frequently found breaches of the fair and equitable treatment (FET) provision and the expropriation provision.

• Ten decisions awarded compensation to the investor, ranging from $8.6 million to $383.6 million. The average amount awarded was $120.2 million and the median $48.6 million.

• Six decisions related to annulments. ICSID ad hoc committees rejected five applications for annulment and partially annulled one award. Eleven cases were reportedly settled by the disputing parties, and another four proceedings discontinued for other or unknown reasons.

Overall outcomes

By the end of 2015, a total of 444 ISDS proceedings are known to have been concluded. About one third of all concluded cases were decided in favour of the State (claims dismissed either on jurisdictional grounds or on the merits) and about one quarter were decided in favour of the investor, with monetary compensation awarded.

Of the cases that ended in favour of the State, about half were dismissed for lack of jurisdiction. Looking at the totality of decisions on the merits (i.e. when a tribunal made a determination of whether the challenged governmental measure breached any of the IIA’s substantive obligations), around 60 per cent were decided in favour of the investor, and 40 per cent in favour of the State.

Other developments related to ISDS

UNCITRAL Transparency Rules

The United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor-State Arbitration are now applicable to a number of treaties concluded after 1 April 2014. The UNCITRAL Transparency Rules set out procedures for greater transparency in investor-State arbitrations conducted under the UNCITRAL Arbitration Rules9 and provide for a “Transparency Registry”, which will be a central repository for the publication of information and documents in treaty-based ISDS cases.

UN Transparency Convention

Sixteen States signed and one State, Mauritius, ratified the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration. The Convention was opened for signature on 17 March 2015; it will enter into force once three ratification instruments have been deposited. The Convention enables States, as well as regional economic integration organizations (REIOs), to make the UNCITRAL Transparency Rules applicable to ISDS proceedings brought under their IIAs concluded prior to 1 April 2014 and regardless of whether the arbitration was initiated under the UNCITRAL Arbitration Rules.

New claims in 2015: some highlights

Cases relating to reforms in the renewable energy sector

A total of 20 new cases relate to reforms in the renewable energy sector in Spain, Italy and Bulgaria. Most of these cases – 16 out of 20 – were filed against Spain and relate to a series of measures adopted by the country in 2012 (including the imposition of a 7 per cent tax on power generators’ revenues and a reduction in subsidies for renewable energy producers). Meanwhile, Spain prevailed in the first decided case that relates to the same measures: in January 2016, the tribunal in Charanne v. Spain rejected all claims on the merits, finding that the measures did not breach Spain’s obligations under the ECT. In 2015, solar investors launched three cases against Italy, which relate to governmental decrees to cut tariff incentives for some solar power projects. The investors, all from EU member States, base their claims on the ECT. In the meantime, Italy withdrew from the ECT, effective from 1 January 2016.

First ever case invoking the GATS

The year 2015 saw the first ever ISDS case where the claimants invoked, inter alia, the WTO GATS. The case concerns the provision of aircraft ground-handling services at the Dakar airport in Senegal. One of the two claimants is a company incorporated in Luxembourg. It argues that – in the absence of a BIT between Senegal and Luxembourg – the company is entitled to benefit from the Netherlands-Senegal BIT. This because, the argument goes, the company qualifies as a “service supplier” under the GATS, and the latter’s most-favoured nation (MFN) treatment clause entitles it to access investor-State arbitration under any BIT signed by Senegal, since Senegal did not exempt ISDS or BITs from the GATS MFN clause as some other WTO Members have done. In other words, the claimant does not allege any breaches of the GATS itself, but uses the GATS as a “bridge” to a BIT otherwise unavailable to it.

Tax-related disputes

Companies have used the ISDS mechanism to challenge decisions regarding the payment of taxes in the host State. For instance, in Hanocal and IPIC International v. Korea, two Dutch companies allege that a tax was wrongly levied on the 2010 sale of their controlling stake in a Korean petroleum and refinery company. Specifically, the claimants contest the non-application of the Korea-Netherlands double taxation treaty under which they should have allegedly benefitted from tax exemptions; they demand damages of US$168 million. In Cairn v. India, the claimant challenges inter alia a draft assessment order issued by the Indian tax authority in respect of the fiscal year 2006/7 in the amount of US$1.6 billion plus any applicable interest and penalties. Cairn argues that legislative amendments, which serve as a basis for the draft assessment, “seek to tax prior year transactions” in a retrospective manner. Finally, in Total E&P v. Uganda, 30 the claimant maintains that a stamp duty was unlawfully imposed by the Uganda Revenue Authority upon the acquisition of interest in an oil and gas block in the Lake Albert region.

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Top 9 developments in investor-State arbitrations in 2015:

• A record high of 70 ISDS cases were filed in 2015. The overall number of publicly known ISDS claims reached 696.

• By the end of 2015, a total of 444 ISDS proceedings have been concluded, with 36 per cent of cases decided in favour of the State, 26 per cent in favour of the investor and 26 per cent of cases settled.

• Following the recent trend, a high share of new cases in 2015 (about 40 per cent) was brought against developed countries, including many cases by European investors against European Union member States.

• The majority of new cases invoked bilateral investment treaties (BITs), most of them dating back to the 1990s. In about one third of all cases last year foreign investors relied upon the Energy Charter Treaty, which by now is the most frequently invoked treaty (87 cases), followed by the North American Free Trade Agreement (56 cases), and the Argentina-United States BIT (20 cases).

• State conduct that was most frequently challenged by investors in 2015 included legislative reforms in the renewable energy sector, alleged direct expropriations of investments, alleged discriminatory treatment, and revocation or denial of licences or permits.

• Newly filed cases include, among others, claims related to events in Crimea, a mass claim arising out of the Eurozone crisis, a case concerning the prohibition of gaming, a first-ever claim invoking the WTO General Agreement on Trade in Services, and several tax-related disputes.

• In 2015, ISDS tribunals rendered at least 51 decisions, of which 31 are in the public domain. Most of the public decisions on jurisdiction were decided in favour of the State, while the majority of those on merits ended in favour of the investor.

• Arbitral decisions adopted in 2015 touch upon a number of important legal issues concerning the scope of treaty coverage, the conditions for bringing ISDS claims, the meaning of substantive treaty protections, the calculation of compensation and others. On some issues, tribunals followed previous decisions, while on some other issues they adopted approaches that departed from earlier decisions.

• Some of the prominent decisions rendered in 2015 concern investor nationality, ownership and control. This topic – including approaches, implications and policy challenges – receives in-depth coverage in UNCTAD’s World Investment Report 2016 scheduled to be launched on 21 June.

The IIA Conference at UNCTAD’s World Investment Forum 2016, taking place on 19 July 2016 in Nairobi, Kenya, offers the opportunity to discuss key and emerging IIA issues.