The ISDS reform process at UNCITRAL Working Group III provides a unique opportunity to consider new institutional dispute settlement designs. As EJIL:Talk! Readers will know from earlier blogs on this reform process, a standing mechanism to resolve investment disputes is one of the key proposals in the strengthening of the institutional design, with a Draft Statute for the mechanism up for discussion in this month’s session.
Previous debates on the standing mechanism touted enforcement as a “key feature of any system of justice” and essential to ensure the effectiveness of the standing mechanism (see [62] of the Report on the 38th session). Early work on enforcement options for the standing mechanism suggested limited concerns with compliance, commenting anecdotally that “most decisions by ISDS tribunals were voluntarily complied with” (see [74] of the Report on the 38th session). Consequently, the current Draft Statute for the standing mechanism continues the arbitral tradition of enforcement proceedings in domestic courts as a means to ensure compliance (see Articles 25 and 36). Domestic court enforcement proceedings were considered appropriate “to maximise the chances of having [the standing mechanism’s] decisions enforced” (see [102] of the Report of the Singapore Intersessional).
Working Group III participants have shown a willingness to learn from other international courts about what works and does not (for instance, with regard to a code of conduct and advisory centre), yet, enforcement is not a topic where comparative study has been undertaken. In this blog, we ask: are there lessons to be learned from the European Court of Human Rights’ (ECtHR) compliance mechanisms? Like ISDS, the ECtHR also adjudicates cases relating to the expropriation of property and provides redress in the form of compensation to individuals under international law. There are also some notable cases which have overlapping claims in both forums, such as the Yukos decisions against Russia, that suggests the similarities of the two systems may provide some food for thought in the enforcement space.
Comparative lessons are timely with recent and comprehensive data collection on compliance with ISDS treaty-based awards revealing a much more complicated picture than the Working Group III discussions suggest. If States in the UNCITRAL Working Group III reform process really are invested in strengthening the institutional support of ISDS, they should turn greater attention to the resolution of the underlying dispute, not simply the finality of an award. The reliance on time-consuming, complex and opaque enforcement proceedings across a range of domestic jurisdictions does not resolve the tensions between foreign investors and states. By providing new comparative data on compliance with ISDS and ECtHR, this post addresses whether bringing more transparency to the post-award phase would be a fruitful endeavour for ISDS reformers.
Comparing ISDS and ECtHR: Compliance in Numbers
Compliance information in ISDS is difficult to come by, depending solely on the willingness of States or investors to disclose the information. Within the COPIID project, our team has tried to assemble the most up-to-date database of which decisions have been complied with. What the available information reveals is significant variation in behaviour. Many States voluntarily resolve disputes, with over 30.6% resulting in payment of compensation and a further 20.8% through negotiated settlement. A further 9% of disputes appear to be resolved in some other way, albeit not through the payment of compensation. However, for a significant proportion of ISDS awards, the resolution of the dispute remains unknown. In the remainder of the disputes, States are either openly hostile to the payment of the award, stating that they will not pay the award, or there is evidence to conclude that the award has not, nor ever will be paid.
This compliance data not only calls into question the anecdotal assumption that “most decisions are voluntarily complied with” but also raises concern with reliance on domestic enforcement procedures. Around 40% of ISDS awards have been subject to domestic enforcement proceedings. However, this step certainly does not “maximise the changes of having decisions enforced”: almost half of the awards in which enforcement proceedings are initiated remain unpaid (45%).
Human rights scholars often express consternation about low levels of compliance with awards, yet seen in comparative perspective, the rate and speed of compliance is promising for ISDS scholars. Although the ECtHR system relies on the willingness of states to voluntarily pay the monetary part of the award and to undertake general measures in response to a judgment, the majority of damage awards are voluntarily complied with by the state. The statistics reveal that in property cases alone, more than 70% of all compensation awards are paid, usually within the mandated 90 days of the finality of the judgment.
Graph showing the percentage of compensation awards that have been voluntarily paid by respondent states
Compliance Monitoring in the ECtHR: Transparency Lessons for ISDS?
Compliance in ISDS is left entirely in the hands of the parties, leading to large variation in the willingness and capacity to bargain and negotiate. While legal avenues of enforcement are available, the key to the resolution of the dispute is much more dependent on how much each party has to offer and what is of real interest to the other party.
In contrast, in the European human rights system, the task of monitoring compliance falls to the Committee of Ministers. The Committee is made up of the ambassadors of each member State to the Council of Europe, holding meetings four times a year to monitor compliance with judgments. According to Article 46(2) of the Convention, the Committee’s task is to supervise the execution of a judgment and assess whether the respondent state has fulfilled its responsibility. This means that once a judgment of the ECtHR is rendered and the respondent state is under the obligation to comply with the judgment, the respondent state is responsible for reporting to the Committee about how it intends to comply with the judgment. In this context, states first have to report whether and when they have paid the compensation to the victim. Although the Committee is a political body that decides on the appropriateness and sufficiency of non-monetary remedies, the damage amount never gets re-litigated in the compliance/execution process. The number set by the Court is treated as final and states must pay the monies within 90 days, or they become liable for payment of interest. The average compliance rate with the compensation element of the judgment is traditionally very high and compensation is paid within the required timeframe. Most of the time, the only compliance issues that arise – and with which the Committee is especially concerned – relate to non-monetary remedies.
The Committee of Ministers’ compliance monitoring function may only be one of the factors explaining a higher level of voluntary and prompt compliance with ECtHR compensation awards than ISDS. However, a version of such a monitoring function could theoretically be introduced in ISDS under the auspices of a standing body in order to bring greater clarity to the compliance process. One of the positive outcomes for such a monitoring body would be the increased transparency of compliance procedures in ISDS. Transparency concerns in ISDS have been most concentrated with the public disclosure of the existence of disputes and their subsequent awards. But, the amount of public information available on the resolution of disputes also varies widely across the ISDS universe. Only 35% of ISDS awards have direct evidence of the resolution of the dispute. Direct evidence refers to verifiable documents from claimants or Respondent States referring to payment of compensation, a negotiated settlement or successful annulment of the dispute. For the remaining resolved disputes, we have to rely on indirect or secondary evidence, such as leaked information to investment news sources. While some States appear to be increasingly transparent around the ISDS award procedure, this transparency does not necessarily extend to the compliance process. For example, Canada and the Czech Republic provide significant information on the ISDS award procedures, up until the award is issued. Yet, only 40% of Canada’s and 50% of the Czech Republic’s adverse awards have publicly available information on the resolution of those awards.
In the ECtHR system, all of the decisions in which an award was made by the ECtHR are available publicly on HUDOC.echr.coe.int and the data on compliance is available at hudoc.exec.coe.int. This means that for the purposes of this study, we were able to generate a database of 1749 cases involving Article 1 Protocol 1 judgments. We know when these judgments were rendered, whether an award was made, the quantum of the award, we know when the award was paid, whether it was paid with interest, we know whether NGOs intervened in the compliance process, whether the Committee held a meeting to discuss the case and what recommendations or resolutions it adopted in turn. In this regard, the ECtHR system is entirely transparent about the award, the compliance process, and the remedies adopted to resolve the case.
Conclusion
Of course, the introduction of a monitoring mechanism is no guarantee of enhanced compliance, especially for hostile states that refuse to pay the awards (e.g. Yukos remains unpaid in both systems). Yet, the introduction of a standing mechanism through the UNCITRAL Working Group III reform procedure could make great strides in addressing some of the procedural issues with ISDS. Thus far, in considering the design of the standing mechanism, the reform discussions have paid insufficient attention to different ways to address compliance with international investment awards. The difficulties with obtaining payment through enforcement proceedings in ISDS suggests we need to be more innovative. A compliance reporting procedure inspired by the Council of Europe’s Committee of Ministers could go a long way towards addressing the black box of ISDS compliance and could even include the monitoring of payment of adverse costs awards by investors. Whether such a mechanism would lead to higher and prompter rates of payment, or rather more civil/political contestation of payments is uncertain, nevertheless, the increased transparency would be a fundamental and welcome shift in the compliance framework of ISDS.