PluriCourts and NGOs Discuss the Norwegian Model BIT
By Maksim Usynin, Research Assistant, PluriCourts
The recently released Draft of the Norwegian Model Bilateral Investment Treaty provoked an active discussion in Norwegian media. Being in the avant-garde of international legal studies, PluriCourts is interested in the debate and seeks to maximize its contribution to the progressive development of investment law. The consultative meeting with representatives of Norwegian NGOs was specifically arranged before the expiry of public consultations of the Model BIT in order to clarify possible legal questions and provide a comprehensive academic analysis of the BIT.
The discussion was held in the PluriCourts premises on August 11, 2015, and moderated by Professor Ole Kristian Fauchald. The attendees included such NGOs and civil society actors as Handelskampanjen (The Norwegian Trade Campaign), Kirkens Nødhjelp (The Norwegian Church Aid), Fellesrådet for Afrika (Norwegian Council for Africa), Latin-Amerikagruppene (The Norwegian Solidarity Committee for Latin America), a representative from the Centre Party’s Parliamentary group, and others.
Investment Arbitration and Constitution – Parliament can settle the controversy
The first question was connected with the alleged controversies between the Norwegian Constitution and the investment treaty regime. Investment tribunals often review states’ actions and evaluate them in accordance with BIT guarantees given to investors. At the same time, in accordance with the Constitution it is the national judiciary who is empowered to assess the legality of state’s acts. One may say that investment tribunals substitute the domestic courts in criticizing the matters beyond arbitral jurisdiction and contrary to the constitutional provisions. According to Dr. Ivar Alvik, the Investor-State Dispute Settlement (ISDS) is not problematic to Norwegian Constitutional law due the limited powers of investment tribunals and the parliamentary ratification of investment treaties. In accordance with treaty provisions, the powers of the Tribunal are limited to the assessment of compensation for violations of investors’ rights and cannot be broadened to allow an inquiry into Norwegian domestic law. And as long as the Norwegian Parliament agrees with the settlement of investment disputes not in domestic courts, the ISDS will be legitimate.
Another question concerned the autonomy of Norwegian municipalities and whether they need to give any consent before they are obliged to comply with the investment treaty provisions. According to Dr. Alvik, the Norwegian parliament has the power to bind the municipalities, and it is unlikely that such constitutional problem may arise. At the same time, Professor Fauchald noted the trend on municipalities’ right of self-determination and allowed the possibility of conflict between municipality and the Norwegian government over certain municipal actions hostile to the investor. The municipalities may have a degree of independence under the Norwegian law, but it’s the Government who is responsible for their actions under international law.
Professor Fauchald further clarified that the problem with ISDS related to the exemption of court review in the International Convention on the Settlement of Investment Disputes (ICSID). Norwegian Constitution gives the final adjudicatory power for the Supreme Court. In case of violation of investor’s rights, the tribunals cannot strike the conflicting measure down, but they can oblige the state to pay for it. Dr. Daniel Behn suggested that the court review could be reinstated by referencing in the Model BIT to the UNCITRAL tribunal and not the ICSID as a default dispute settlement forum.
Bondholders are likely to be protected during financial crisis
The next guest of the Center inquired whether the Model BIT has any protections in cases of financial crisis, namely, the governmental right to restrict capital flows and prevent manipulation with Norwegian sovereign bonds. According to Dr. Gus van Harten, the Model BIT’s provisions in this regard look close to the US Model BIT which is very progressive in recognition of state’s regulatory right. Dr. Behn noted that although the sovereign debts and transfer provisions were not extensively litigated in the practice of investment tribunals, governmental actions would probably be covered by the separate “essential security interests” exception in the Model BIT.
With regard to the recognition of sovereign bonds as investments, Professor Fauchald accentuated that the investment definition of property follows the popular broad definition and would cover more assets in case of expropriation than allowed by the Norwegian law. For example, the environmental permits would not be recognized as property in Norwegian law, but still fall under the definition of protected “investment” in the Model BIT. Dr. Alvik agreed with this concern and added that the definition of property is likely to be interpreted broadly by the tribunals as long as the assets in question involve a legitimate property expectation of the investor.
State policy considerations are guidance for the tribunal
Another criticism of the ISDS is connected to its alleged insensibility to human rights issues. In this regard Dr. Malcolm Langford noted that despite the previous signs of similarity between the US Model BIT and its Norwegian counterpart, the latter now is more in line with the European models being influenced by the jurisprudence of the European Court of Human Rights. Therefore the treaty text allows the tribunal to discuss broad policy considerations.
The lack of flexibility in old-style BITs is now actively discussed in connection with the Australian Philipp Morris case. Professor Andrew Mitchell noted that the case develops quite slowly while the legal expenses from both sides grow exponentially. The cause of action was to a high extent pre-determined by the old-style Australia-Hong Kong BIT, which has very limited space for state’s right to regulate public matters. Professor Mitchell expressed his satisfaction with the extensive public policy provisions in the Norwegian Model BIT.
The Model BIT has scope for development
Dr. van Harten posed three major questions to the current investment regime and their reflections in the Model BIT. Firstly, the Model BIT seems to adopt a regressive language of the so-called Salini criteria (which may be seen as the inherent criteria of investment: commitment of resources, investor’s risk, duration of investment for a certain period of time and, controversially, the requirement of contribution to the development of the host state), developed in the investment jurisprudence. The Model BIT does not require this set of criteria, potentially broadening the definition of investment beyond justifiable borders. Secondly, the major critique of the investment regime comes from the ISDS provisions, as the arbitration tribunals may lack independence and judicial fairness, being composed with free-for-profit arbitrators with corporate law background. Finally, the BITs are misbalanced in powers, giving rights and guarantees to investors and not making them responsible under international law.
Another question concerned the models of state behavior with regard to their BITs. Some states continue sign and ratify their BITs, while some now tend to terminate them. Some States impose their treaty patterns on other states. Where is Norway in this graph? According to Dr. Langford, Norway tends to be in the most progressive category, developing and promoting new treaty models among other states. Nevertheless, as noted by Professor Fauchald, it is not clear from the Commentary to the Model BIT what criteria should be applied for the choice of contracting states. The documents on the Model BIT lack any evidence of cost-benefit analysis and the authority to choose contracting states is given solely to the Government. This lack of established guidance brings a serious concern.
Dr. Theresa Squatrito posed a question concerning the transparency of the ISDS in the Model BIT and the availability of participation rights for third parties and civil society. Dr. Behn observed that the current investment regime leans towards better transparency of the proceedings and referred to the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the "Mauritius Convention on Transparency"). According to Professor Giuditta Cordero-Moss, the Convention was opened for signature quite recently and Norway still has the chance to sign it.
The final question concerned the prevention of treaty shopping (a situation of unfair use of treaty protections by the investor who objectively does not have a right for that, for example, by establishing an idle “postbox” company in some third country just to receive its treaty protections). According to Dr. Alvik, the careful treaty-making can prevent its unfair use, and the Model BIT recognizes these limitations to a certain extent. Dr. Langford noted that the application of BITs can be rather unpredictable in long-term prospective due to the changes in the international political situation. So the best strategy is to draft a text balanced for both parties