UN: Nearly 1,200 ISDS cases initiated as at end 2021, says UNCTAD
Published in SUNS #9633 dated 10 August 2022

Geneva, 9 Aug (Kanaga Raja) -- The total count of known investor-State dispute settlement (ISDS) cases reached 1,190 at the end of 2021, according to the UN Conference on Trade and Development (UNCTAD).

In a recent Issues Note on international investment agreements (IIAs), UNCTAD reported that at least 68 ISDS cases were initiated under IIAs in 2021, with the new ISDS cases in 2021 being brought against 42 countries.

Five countries - Cambodia, Congo, Finland, Malta and the Netherlands - faced their first known ISDS claims, it added.

According to the Issues Note, two IIAs signed in the 1990s - the Energy Charter Treaty (ECT, 1994) and the North American Free Trade Agreement (NAFTA, 1992) - continued to be the instruments invoked most frequently.

UNCTAD data also suggests that investors have challenged tax-related measures in 165 ISDS cases based on IIAs.

TRENDS IN ISDS

According to the Issues Note, in 2021, investors initiated 68 publicly known ISDS cases under IIAs. As of 1 January 2022, the total number of publicly known ISDS claims had reached 1,190.

As some arbitrations can be kept confidential, the actual number of disputes filed in 2021 and in previous years is likely higher, said UNCTAD.

To date, it said 130 countries and one economic grouping are known to have been respondents to one or more ISDS claims.

UNCTAD said that in 2022, the war in Ukraine brought into the spotlight past and potential future ISDS claims relating to armed conflict.

In this context, the Issues Note explained that ISDS cases can arise out of events related to war and armed conflict.

In the past, at least 30 ISDS cases brought against States arose out of destruction or harm caused to investments in the context of war, armed conflict, military operations and civil unrest, it said.

This includes the first known ISDS case based on an IIA brought in 1987: AAPL v. Sri Lanka, which arose out of the alleged destruction of the claimant's investment during a military operation conducted by Sri Lankan security forces.

UNCTAD said out of the 30 ISDS cases identified in this context, the Russian Federation and Libya were the most frequent respondents, with 10 cases each.

It said the cases against the Russian Federation related to the events in Crimea in 2014, including nationalizations in different economic sectors.

Ukrainian companies and businesspeople invoked the Russian Federation-Ukraine bilateral investment treaty (BIT, 1998), alleging the expropriation of assets by the Russian Federation (e.g. Ukrenergo v. Russia; Oschadbank v. Russia; Naftogaz and others v. Russia).

The cases against Libya mostly related to the alleged failure to protect foreign investments during times of war and civil unrest in the country (e.g. Trasta v. Libya; Cengiz v. Libya).

In addition to the 30 identified ISDS cases, several cases were related to economic sanctions and the suspension of diplomatic relations (e.g. Qatar Pharma and Al Sulaiti v. Saudi Arabia; beIN v. Saudi Arabia), said UNCTAD.

According to the Issues Note, the new ISDS cases in 2021 were initiated against 42 countries, with Peru being the most frequent respondent, with six known cases, followed by Egypt and Ukraine with four known cases each.

Five countries - Cambodia, Congo, Finland, Malta and the Netherlands - faced their first known ISDS claims.

As in previous years, the majority of new cases (about 65 per cent) were brought against developing countries, said UNCTAD.

In the past 10 years, Spain, Egypt and Venezuela have received the largest share of claims, it added.

Looking at the 1,190 known ISDS cases filed since 1987 (the year of the first treaty-based ISDS case), Argentina (with 62 cases), Spain (55 cases) and Venezuela (55 cases) have been the most frequent respondent States, said the Issues Note.

It said that developed-country claimants brought most - about 75 per cent - of the 68 known cases in 2021.

The highest numbers of cases were brought by claimants from the United States (10 cases), France (5 cases), the Netherlands (5 cases) and the United Kingdom (5 cases).

UNCTAD said that in the past 10 years, investors from the United States, the Netherlands and the United Kingdom have filed the largest number of claims.

"Overall, these three countries have been the three most frequent home States of claimants in known ISDS cases filed from 1987 to 2021."

About 75 per cent of investment arbitrations in 2021 were brought under bilateral investment treaties (BITs) and treaties with investment provisions (TIPs) signed in the 1990s or earlier, said the Issues Note.

The ECT (1994) was the IIA invoked most frequently in 2021, with seven cases, followed by NAFTA (1992) in combination with the United States-Mexico-Canada Agreement (USMCA, 2018), with four cases, it added.

It said overall (1987-2021), about 20 per cent of the 1,190 known ISDS cases have invoked the ECT (145 cases), NAFTA (76 cases) or the Investment Agreement of the Organisation of Islamic Cooperation (OIC, 16 cases).

In 2021, ISDS tribunals rendered at least 54 substantive decisions in investor-State disputes, 31 of which were in the public domain at the time of writing.

UNCTAD said that 11 of the public decisions principally addressed jurisdictional issues (including preliminary objections), with 4 upholding the tribunal's jurisdiction and 7 declining jurisdiction.

The remaining 20 public decisions were rendered on the merits, with 12 holding the State liable for IIA breaches and 8 dismissing all investor claims.

In addition, six publicly known decisions were rendered in annulment proceedings at the International Centre for Settlement of Investment Disputes (ICSID), said the Issues Note.

ICSID ad hoc committees rejected the applications for annulment in five cases; in one case, the award at issue was partially annulled.

Overall, UNCTAD said that by the end of 2021, at least 807 ISDS proceedings had been concluded.

It said thirty-eight per cent of all concluded cases were decided in favour of the State (claims were dismissed either on jurisdictional grounds or on the merits), and 28 per cent were decided in favour of the investor, with monetary compensation awarded.

Nineteen per cent of the cases were settled; in most cases, the terms of settlement remained confidential.

In the remaining proceedings, either the cases were discontinued or the tribunal found an IIA breach but did not award monetary compensation.

Looking at the totality of decisions on the merits (i.e. where a tribunal determined whether the challenged measure breached any of the IIA's substantive obligations), UNCTAD found that 56 per cent were decided in favour of the investor (breach found and damages awarded).

The remainder were dismissed on the merits or breaches were found but no damages awarded, it said.

TAX-RELATED ISDS CASES

Focusing in particular on tax-related ISDS cases based on IIAs, the Issues Note said that investors have challenged tax-related measures in 165 ISDS cases based on IIAs.

A wide working definition of the term "tax" was used to identify tax-related ISDS cases based on IIAs, it noted.

From 2000 to 2021, the absolute number of tax-related cases has grown at the same speed as overall ISDS cases.

Tax-related claims accounted for about 15 per cent of the 1,190 publicly known ISDS cases filed overall as of the end of 2021.

According to the Issues Note, several tax-related ISDS cases and awards have attracted public attention. High- profile examples include cases challenging the following types of State conduct:

* Imposition of capital gains taxes (Cairn v. India, Vodafone v. India (I) and (II)).

* Initiation of tax investigations and large tax assessments (Hulley Enterprises v. Russia, Veteran Petroleum v. Russia, Yukos Universal v. Russia).

* Increases in windfall profit taxes and royalties (Burlington v. Ecuador, ConocoPhillips v. Venezuela).

* Legislative reforms in the renewable energy sector related to feed-in tariffs and incentives for solar energy (The PV Investors v. Spain, Charanne and Construction Investments).

* Withdrawal of subsidies or tax exemptions (Micula v. Romania (I)).

UNCTAD said tax-related claims played a major role in many of the 165 ISDS cases. In other tax-related cases, tax measures were one element among the alleged breaches but did not feature as the major subject matter.

Overall, it said the types of tax-related ISDS claims that have arisen under IIAs were diverse (e.g. withdrawal of incentives, increases in windfall profit taxes) and often intertwined with non-tax measures (e.g. forced liquidation, interference with or termination of contracts).

Sixty per cent of the tax-related cases were brought against developed countries; the remaining 40 per cent were directed at developing countries, said the Issues Note.

Spain was the most frequent respondent with 42 cases (about 25 per cent of all tax-related ISDS cases), followed by Ecuador and Italy with 10 cases each. Overall, 47 respondent States have faced at least one known tax-related ISDS claim.

Developed-country investors brought over 90 per cent of tax-related IIA claims. The highest numbers of such cases were initiated by claimants from the Netherlands (30 cases), the United States (26 cases) and Germany (24 cases).

About 40 per cent of all tax-related ISDS cases were so-called intra-EU disputes brought by EU claimants against EU respondent States (63 cases).

UNCTAD said that the ECT (1994) was the IIA invoked most frequently in tax-related ISDS cases, with 68 cases, followed by NAFTA (1992) with 12 cases and the Ecuador-United States BIT (1993) with 6 cases.

Most of the tax-related cases under the ECT were intra-EU disputes related to investments in the renewable energy sector (57 cases).

UNCTAD said about 60 per cent of the tax-related ISDS cases related to activities in the services sector: supply of electricity, gas, steam and air (75 cases); information and communication, e.g. telecommunications (11 cases); wholesale and retail trade (7 cases); construction, e.g. construction of buildings and civil engineering (4 cases); arts, entertainment and recreation, e.g. gambling and betting activities (3 cases); transportation and storage (3 cases); financial and insurance activities (3 cases).

Primary industries (mostly consisting of mining and quarrying activities) accounted for about 25 per cent of the new cases and manufacturing for about 15 per cent, said the Issues Note. +