The International Business Transactions Blog

Schiefelbein Global Dispute Resolution Conference: Panel 1 Summary

For the next four days, the IBTBlog will summarize the panel discussions on international arbitration from the 2023 Schiefelbein Global Dispute Resolution Conference because of the importance of the discussions to international business disputes. Next week, we will resume reporting on major new developments in international business law itself.

By Sergey Harutynyants & John Contrera
Law Student Guest Editors

The theme of the first panel at the Schiefelbein Conference was Catastrophic Sovereign Events. The panel was moderated by Melinda Hodgson of Arnold & Porter Kay Scholer LLP. The panelists were:

  • Claudia Frutos-Peterson, Curtis, Mallet-Prevost, Colt & Mosle LLP
  • Prof. Chiara Giorgetti, University of Richmond School of Law
  • Baiju Vasani, international arbitrator at Twenty Essex
  • Jeremy Sharpe, independent international arbitrator. 

The panel started with discussion of the Russian invasion of Ukraine as an example of a catastrophic sovereign event.  Prof. Giorgetti emphasized that the Draft Articles on Responsibility of States for Internationally Wrongful Acts can be used to seek reparation from aggressor states.  She mentioned that, even though there are cases against Russia in the International Court of Justice and European Court of Human Rights, those actions have their limitations in scope and enforcement.  Prof. Giorgetti and Jeremy Sharpe suggested that ad hoc claims commissions are a quick way to compensate victims of catastrophic events.  Prof. Giorgetti offered the United Nations Compensation CommissionIran-US Claims Tribunal, and the Eritrea-Ethiopia Claims Commission as successful examples. Mr. Sharpe emphasized the large volume of claims arising from such catastrophic events. He argued that with that many claims using traditional adjudicative processes would overwhelm the courts, and pointed out that the commissions also improve diplomatic relations; deter future law-breaking by putting a price on aggression; provide reconciliation; and closure.

Baiju Vasani addressed the possibility of using bilateral investment treaties (BITs) in the case of Ukraine and argued that it sets a dangerous precedent. Mr. Vasani stated that when Russia annexed Crimea from Ukraine, investors with properties in Crimea brought claims against Russia under the Ukraine-Russia bilateral treaty, because Russia had appropriated their assets. Mr. Vasani argued this is problematic for three reasons. First, Crimea under international law is still considered Ukrainian territory. Second, investors must have invested under the host State’s laws and not the occupier’s laws to recover under a BIT. Finally, investment treaties are a quid pro quo transaction between states; they are not like human rights treaties, in which de facto control of territory creates obligations on the sovereign directly toward those within its power.

The panelists did not all agree as to who should bear the costs of catastrophic events. In case of climate change, Mr. Vasani defended the fossil fuel industry and argued that states should compensate the investors’ legitimate long-term investment expectations. Claudia Frutos Peterson and Prof. Giorgetti disagreed. Prof. Giorgetti asserted that under international law, a state’s rights to regulate is more prominent than fossil fuel companies’ expectation of long-term investment. She used the Phillip Morris Tribunal award as an example in which the investor knew that its product (tobacco) was dangerous, and was therefore expected to have anticipated government regulations. Ms. Frutos Peterson explained that in Continental Causality v. Argentina, the tribunal looking at US-Argentina BIT ruled that financial crisis can be an essential security interest justifying state regulations. She also explained that in Devas v. India, the tribunal ruled that states have more flexibility as to determining what is meant by “essential security interests” justifying regulations. She stated, however, in Deutsche Telekom v. India, the tribunal strictly interpreted the language of the treaty and ruled that the regulation had to be an “essential security interest.”  Presumably, preventing life-destroying climate change qualifies as such an interest.

The panel concluded with a discussion of possible solutions in BITs to address catastrophic events. Ms. Frutos Peterson observed the importance of drafting investment treaties carefully to address possible catastrophic events clearly and to include interpretative clauses to emphasize the intent of the state parties.