Category: Corporate governance and FDI

Corruption in Asia: A Fuller Account

Over 4-6 August 2026 Keio Law School A/Prof Nobumichi Teramura (co-editor of my 2024 Springer book on “Corruption and Illegality in Asian Investment Arbitration”) and I will present at the National University of Singapore the first draft of our solicited chapter on “Anti-Corruption Law in Asia” for a new book co-edited by NUS Prof Mindy Chen-Wishart, “Comparative Law of the Global Majority”.

As the introduction of our shortened version explains: “Corruption remains a large problem in almost all parts of Asia, evidenced for example by the Corruption Perceptions Index (CPI) of Transparency International (TI). Decades of national law reform, increasingly supported by various international organisations, run up against mixed legacies from diverse customary and religious values (such as guanxi), colonial history, often authoritarian politics, and economic realities (including strong business-state links still in many countries). Some dramatic successes are mostly due to consistent and unbiased political will, and well-resourced anti-corruption agencies and other independent institutions. This chapter gives a sense of the regional diversity, focusing mainly on countries with varying scale for population, socio-cultural contexts, political regimes, economies and legal traditions: Singapore, Japan, South Korea, Malaysia, China, Indonesia and India (ranked from least to most corrupt by CPI).”

Here is a longer version (and we have an even longer draft, for middle sections!) and below are related Powerpoint slides:

Anti_Corruption_Law_in_Asia_Presentation LN02Download

Comparing (especially US) ESG Policies and Investment: 28 June symposium in Japan

As tenured Professor of Anglo-American Law at the University of Tokyo, cross-appointed with the University of Sydney Law School, I am happy to attend the 63rd annual Symposium of the Japanese-American Society for Legal Studies. This is a longstanding academic association for which my uTOkyo colleague sharing the same Chair – Prof Masayuki Tamaruya – is executive director, and led by Prof Futoshi Iwata (Kanagawa University) as the representative director. This year’s conference will be hosted on Sunday 28 June at Kwansei Gakuin University (established in 1889 with support from the South Methodist Episcopal Church in the US, plus the Canadian Methodist Church from 1910, now a highly-regarded non-denominational Christian private university). Registration and other details (in Japanese) can be found HERE, including abstracts of two presentations in English (by NYU Adjunct Prof Bruce Aronson on “ESG in the United States:  A Comparative Perspective”, then UC Berkeley Prof Adam Badawi on “Incentivizing ESG Performance or Greenwashing? Rewarding ESG in Executive Compensation”), and four in Japanese that (Claude and) I have translated as below along with an overview of the conference, which is focused on “Anti-ESG Policy in the United States and the Current State of ‘ESG Investing'”.

I am very much interested in learning more about the latest ESG developments in the US, beyond the often breathless media reports, not least because my eldest daughter Moana Nottage is a senior analyst for ESG investments in an Australian fund manager. Some of my own joint research led by USyd Prof Jeanne Huang has been focused instead on how the EU has been trying (with emerging controversy) to impose its norms around ESG by mandating carbon intensity and other “responsible sourcing” data disclosures through “digital product passports” associated with (initially) EV batteries imported into the the EU. These requirements, extending up the supply chain to eg lithium mines in Australia and manufacturers and recyclers particularly in Asia, are supposed to apply from February 2027, as we critically analysed in a recent journal special issue article HERE. The requirements seem quite likely now to be delayed and/or pared back in scope due to criticisms from various stakeholders about this regime, and others that the EU has tried to impose on the corporate sector in recent years to save the planet – and its economic bloc, especially perhaps against China. Jeanne also led a UN White Paper project comparing also other ESG-related traceability regimes for critical raw materials, and more broadly still we have recently submitted a major grant application and a proposal for a pioneering book to a major legal publisher.

“Anti-ESG Policy in the United States and the Current State of ‘ESG Investing'” (Outline of the conference, led by Aoyama Gakuin University Prof Yoichiro Hamabe)

The purpose of this symposium is to examine the current situation surrounding anti-ESG policies in the United States and ESG investing, and to explore ways in which Japan and other countries can move forward in encouraging corporate behavioral change that takes ESG considerations into account.

The attacks on ESG by the second Trump administration have had a significant global impact, and scrutiny of ESG investing has grown increasingly severe. Even within the legal field, debates surrounding corporate responses to ESG issues and ESG investing have become deeply complex.

From the outset, legal discourse on ESG investing has developed primarily around disclosure regulation in securities markets; however, the merits of such regulation extend beyond policy debates at the legislative level, inevitably raising questions about consistency with the fundamental theory of corporate law. In other words, foundational questions — such as the purpose of the corporation and for whom the corporate institution exists — are once again being called into debate, prompted by the rise of ESG investing. Furthermore, against the backdrop of issues surrounding financial markets and supply chains, as well as growing geopolitical risks, the legal questions around ESG investing now extend far beyond securities law and corporate law into a wide range of policy domains.

ESG investing in the United States had already been functioning poorly since the Biden administration, beset by a range of serious problems. Underlying this are structural and social factors inherent to the United States that make it difficult to advance ESG investing within the country’s basic institutional framework.

In light of this, the symposium aims to contribute to future discussions on ESG investing by examining the key legal and policy issues surrounding ESG — including those in corporate law — with reference to the situation in the United States, where anti-ESG policy movements are particularly pronounced, and by asking each presenter to consider how companies should approach ESG-related challenges going forward.

  • “Why Did ESG Investing Fail in the United States?” Yoichiro Hamabe (Professor, Faculty of Law, Aoyama Gakuin University)

Japan has looked to the ESG investment frameworks led by the EU and the United States as reference points; however, the tightening of disclosure regulation through hard law in the United States has not necessarily led to the resolution of ESG issues or to changes in corporate behavior. Indeed, it has itself become a cause of significant setbacks, and cracks are beginning to show in the EU’s own efforts as well.

This presentation examines the concept of shareholder primacy, shareholders’ participatory rights at general meetings, the structure of executive compensation regulation, the pursuit of liability for breach of duty arising from inadequate responses to ESG issues, capital market discipline, administrative regulation, and geopolitical and social factors — drawing on selected Japan-US comparisons — in order to analyze the background and causes of the failure of ESG investing in the United States. Drawing on the lessons derived from this analysis, the presentation will consider strategies for advancing ESG through measures such as revisiting approaches grounded in soft law and principles-based regulation.

  • “Sustainable Investment and the Influence of Evangelicalism in the US” Hiroyuki Bandō (Professor, Faculty of Law, Nagoya Gakuin University)

ESG initiatives in the United States have undergone repeated shifts with each change of administration. Since the first Trump administration, modifications to direction and policy — driven primarily by Republican administrations — have become increasingly pronounced across three main areas: (1) Department of Labor rules on ESG investing under ERISA (the Fiduciary Rule); (2) responses to the Paris Agreement; and (3) ESG disclosure by the SEC (covering both listed companies and investment managers).

This presentation analyzes the influence of SEC disclosure rules on ESG investing, with reference to Evangelical doctrine — which has supported the Republican Party and has shaped foundational values such as the view that the purpose of the corporation lies in maximizing shareholder returns

  • “The Law and Politics of ‘ESG and Corporate Governance’ in the United States” Sōichirō Kozuka (Professor, Faculty of Law, Gakushuin University)

Taking as its starting point the tendency in US corporate law to place excessive dogmatic emphasis on the principle of shareholder primacy, this presentation examines how the approach taken by pro-ESG corporate law scholars in the United States differs from debates on “ESG and corporate governance” in other regions such as Europe, and considers the characteristics of “anti-ESG” legislation that has been enacted in certain states against a backdrop of political polarization.

  • The Development of Japanese and US Debates on ESG and Directors’ Duties Gen Goto (Professor, Graduate Schools for Law and Politics, University of Tokyo)

Debates surrounding ESG and directors’ duties can be divided into two categories: those concerning whether directors are permitted to take ESG factors into account in relation to the principle of shareholder primacy, and those going further, concerning whether directors bear an affirmative duty to consider ESG factors. Drawing on this distinction, and focusing in particular on the question of how to respond to ESG-related risk disclosures, this presentation analyzes the development of debates on this issue in both Japan and the United States.

ANJeL-in-Europe events 2-9 November 2026

Professor Luke Nottage will give a series of lectures, partly coordinated kindly by ANJeL-in-Europe convenor Prof Giorgio Colombo (Ca’ Foscari, University of Venice) as follows, before supporting Team Australia students at the INC negotiation and arbitration moot competition in Tokyo over 12-17 November:

  1. 2 November, University of Frankfurt (hosted by Prof Moritz Baelz): “The Impact of EU Traceability Regulations for Asia’s EV Battery Manufacturers, Australia’s Critical Raw Materials Suppliers, Global Trade and Dispute Resolution”. This is based on a forthcoming book for Hart with Prof Jeanne Huang, and our article with this Abstract:
    • “The value chains for critical raw materials (CRM) used in electric vehicle (EV) batteries often involve mining in the Global South, Australia and Canada, production in Asia, and consumption in the Global North. Starting in 2027, EU law will require a ‘digital product passport’ (DPP) for market entry. These passports will provide EU consumers, investors, regulators and others with products and sustainability data throughout the entire value chain. The EU DPP aims to improve ESG (Environmental, Social and Governance) compliance by ensuring high transparency and verifiable data from miners, producers and recyclers. However, legal, geopolitical, commercial and technological factors suggest that major economies in the up-and mid-stream of the value chains, such as Australia, China and Japan, may maintain or develop their own traceability laws, which might only partially overlap with the EU’s system. These laws could potentially be linked through mutual recognition agreements with the EU. Our paper explores how such a system could function, with varying degrees of decentralisation, inspired partly by private international law mechanisms that have evolved to handle cross-border traceability of documents. Examples include systems for recognising marriage and other personal or commercial certificates, arbitral awards and foreign judgments.”
  2. 4 November, University of Turino (hosted by Prof Michele Graziadei): “Consumer Law Redress and Administration, Product Safety Regulation and Contracts in Japan and Australia” (based on article with Prof Souichirou Kozuka and published also in Italian, updated including by reference my National Report on Australia with Prof Jeannie Paterson for the September 2026 Berlin IACL Congress session / book on “Contractual Justice”):
    • “This paper explores developments in consumer law and practice in Japan, as an important area that has not seen much comparative scholarship in Western languages despite significant developments over the last 10-20 years. The paper connects developments to broader debates about the nature of contemporary Japanese law and society, and mainly compares Australia although other jurisdictions are also discussed. The comparative analysis first explains the persistent problems for consumer redress. It then focuses on issues and reforms in consumer affairs administration, including the functions of reforming and enforcing consumer laws, the relationship with competition law concepts and regulators, and the relationship between consumer affairs regulators and other government agencies or stakeholders. The paper then examines developments in consumer product safety law and contracts, including new challenges from e-commerce and digital technologies, before drawing some conclusions.”
  3. 6 November, University of Venice (hosted by Prof Colombo): “The Identity of Japanese Law: A Journey with History, Orientalism and Technicalities”, based on our manuscript for Luca Siliquini Cinelli et al (eds) Research Handbook on the Philosophical Foundations of Comparative Law:
    • “Japanese law is one of the favourite playgrounds for comparative lawyers. This is partly due to historical reasons: the Japanese legal system is a product of the joint influence of Chinese imperial law (starting from the 7th century), continental European law (in the second half of the 19th century), and US law (after WWII). All these influences have been filtered by the local legal culture, and the resulting product is of unmistakable charm for any comparative law expert. However, the identity of Japanese law is still heatedly debated. Generations of scholars, both Japanese and foreign, have tried to demonstrate that Japanese law is completely unique or very similar to other European civil law systems; that the influence of the American system on Japan is of utmost importance or almost negligible; that laws are scrupulously observed or light-heartedly disregarded in favour of local customs and traditions. So what isthe identity of Japanese law? Building on the vast corpus of available comparative research, the authors intend to deal with the most common representations of the Japanese legal system to critically assess their merits and shortcomings.”
  4. 9 November, University of Milan (Statale) (hosted by Prof Diana Urania Galleta) “The Interface of Inquests with Consumer Law and Policy: The Takata Airbag Debacle in Australia and Beyond“, based on my UNSWLJ 2026 article, with this Abstract:
    • “Unsafe Takata airbags remain in circulation, in Australia and worldwide, despite almost two decades of recalls and recent initiatives to improve consumer product safety regulation generally (Parts 1-3). The NSW coronial Inquest over 2019-2021 into Australia’s first known fatality in 2017 uncovered how Honda Australia and regulators were partly asleep at the wheel regarding voluntary recalls (Part 4). The fatality triggered a belated compulsory recall and legislative reform to allow the Transport Department such powers, both introduced in 2018, and by the end of the Inquest the Department was taking a clear lead role in vehicle recalls. The Inquest findings and recommendations for avoiding future harms from Takata airbag and other recalls, only released in November 2021, flew largely under the radar in the media but influenced some regulatory practices and could have had an impact on private litigation (Part 5). Such inquests and analogues overseas, little discussed in the legal literature, deserve wider scrutiny (Part 6). They can help identify serious product related risks and responses, assisting compensation claims and regulatory learning, while avoiding future harms and providing an extra resource for consumer product safety law reforms.”

Asian International Investment Agreements (IIAs) and Arbitration

Two of my recent articles in this area are now freely available in Open Access. The first below develops with Nobumichi Teramura an empirical argument comparing corruption-related provisions in IIAs across Asian states, including Japan as a very interesting case, building on our co-edited 2024 book. The other looks at wider regional developments around dispute resolution mechanisms in such agreements, including more focus on Australia. Both states have an opportunity to show regional and indeed global leadership for such mechanisms.

  1. Nobumichi Teramura, Luke Nottage, Corruption-related provisions in East and South Asian investment agreements: an empirical analysis, Journal of International Economic Law, 2025; jgaf013, https://doi.org/10.1093/jiel/jgaf013

This article analyses two types of provisions relevant to corruption in Asian international investment agreements (IIAs): clauses requiring (host) states to enforce anti-corruption laws and clauses that protect foreign investments made in accordance with host state laws. It tests whether IIA drafters act rationally regarding such clauses, or instead show status quo or other biases. This is complex first because rational strategies should depend on whether the state is a net exporter of foreign direct investment (FDI) or a net importer, but we explain how determining this status may be difficult. Secondly, rational strategies should depend on the relative extent of corruption in each state and, somewhat relatedly, the extent of inbound FDI claims. Despite such complexities and some instances of more ‘bounded’ rationality, overall states seem to be drafting both types of clauses rationally—even, and indeed especially, the net-FDI-importing states that tend to be transitioning economies. Adding to that empirical result from a more normative perspective, the article helps identify factors that could or should be considered by future IIA drafters, international bodies, or others tracking the trajectories of IIAs and corruption in Asia and beyond.

2. Luke Nottage, Australia’s Ambivalence Again Around Investor-State Arbitration: Comparisons with Europe and Implications for Asia, ICSID Review – Foreign Investment Law Journal, Volume 39, Issue 2, Spring 2024, Pages 320–346, https://doi.org/10.1093/icsidreview/siae029

In late 2022 Australia’s new Labor government declared that it would no longer agree to investor-State dispute settlement (ISDS) in future international investment agreements (IIAs). Section I reviews its previous anti-ISDS stance (governing with the Greens over 2011 to 2013) inspired by more articulated policy rationales but also the first claim against Australia, over tobacco plain packaging legislation. Then followed the centre-right coalition government’s return to including ISDS on a case-by-case assessment (2014–21) drawing partly on different arguments and evidence. Section II suggests that a new factor behind the latest policy shift comprises a second set of significant ISDS arbitration claims against Australia, from the Singaporean subsidiary of an Australian mining magnate and right-wing political leader. Section III draws parallels with the European Union (EU), whose developed economy member States reacted to inbound ISDS claims by replacing traditional ISDS from 2015 with an ‘investment court’ hybrid process, then influencing multilateral ISDS reform negotiations. Intra-EU ISDS claims are also being precluded by the Court of Justice of the EU, but in the context of European law and institutions providing an alternative pathway for European investors to hold other member States to account. Section IV considers the implications of Australia’s anti-ISDS stance for ongoing and potential IIA (re)negotiations with the EU and Asian States, including the feasibility of moving towards an EU-style investment court approach in Asia-Pacific IIAs. Section V concludes by linking these developments to ongoing debates about reforms to ISDS—locally, regionally and globally—as well as about incomplete investment IIAs.

Guest Blog – Corruption and Investment Arbitration in Asia: New Frontiers

Written by: Corinna Chen (CAPLUS research assistant, 2024)

On 1 August 2024, the University of Sydney Law School hosted an insightful seminar jointly presented by its Centre for Asian and Pacific Law (CAPLUS) and the Australian Network for Japanese Law (ANJeL). The event featured the local re-launch of a new book titled Corruption and Illegality in Asian Investment Arbitration (Teramura, Nottage and Jetin eds, published in Open Access in Springer’s Asia in Transition series in April 2024) as well as discussions on the latest research in the field.

Professor Simon Bronitt, immediate past Dean of Sydney Law School with personal research interests in criminal law and Indonesia, opened the session with a brief welcome and address. Assistant Professor Nobumichi Teramura from Universiti Brunei Darussalam – lead co-editor of the new book – then presented an overview of the book’s aims, research questions and key findings (also summarised in a recent piece here and in the East Asia Forum). Professor Luke Nottage from the University of Sydney, also co-editor, complemented this by sharing empirical results from his recent research on corruption-related provisions in international investment agreements (IIAs).

Various other contributing authors also spoke on their areas of focus within the book. These included Professor Vivienne Bath from the University of Sydney discussing China and the Hong Kong SAR, Professor Simon Butt from the University of Sydney and Antony Crockett from Herbert Smith Freehills (Hong Kong) discussing Indonesia, as well as additional commentary from Dr Amokura Kawharu, President of the New Zealand Law Commission. The seminar concluded with closing remarks from the Honourable Wayne Martin AC KC, former Chief Justice of Western Australia, who officiated the book re-launch.

* * *

Despite avid efforts to combat corruption through international treaties and domestic legislation, corruption and illegality in foreign direct investment (FDI) remains prevalent across many Asian countries. Associate Professor Teramura highlighted this as the key motivation behind the project, emphasising the book’s focus on illustrating ‘Asian’ perspectives towards corruption in investment arbitration and exploring the potential for significant Asian states to become ‘rule makers’ rather than ‘rule takers’ in this field (PDF of Powerpoints here). 

The research examines the practical impacts of corruption on FDI and local economies in Asia, as well as how illegality in foreign investment projects and disputes have been dealt with across various Asian jurisdictions such as China, Hong Kong, India, Japan, Lao Republic, the Philippines, the Republic of Korea and Thailand. Associate Professor Teramura noted that while some ‘Asian approaches’ are emerging, they are still far from establishing a uniform stance across the region.

The book concludes by proposing a roadmap for developing a more cohesive Asian approach. This includes establishing a regional forum for discussing FDI-related corruption, developing unified rules for handling corruption in investment arbitration, and considering the creation of an independent institution or permanent court to address allegations of corruption in Asian investment disputes.

Following this, Professor Luke Nottage presented compelling insights from his recent paper co-authored with Associate Professor Teramura: “Corruption-related Provisions in East and South Asian Investment Agreements: An Empirical Analysis” (PDF of Powerpoints here). The study revealed a nuanced and often rational approach by Asian countries in negotiating bilateral investment treaties, particularly in their treatment of anti-corruption provisions and legality clauses. 

The research found that net FDI-exporting countries like Japan tend to prefer anti-corruption provisions (59%) over direct legality clauses (16%) in their IIAs, aligning with the aim to reduce corruption in investment destinations and protect their outbound investors. Conversely, net FDI-importing countries such as China are more likely to include legality clauses (95%) and almost no anti-corruption provisions, as the former can be invoked to protect their government and domestic taxpayers from inbound ISDS claims. Overall, the empirical analysis found largely rational treaty drafting practices around these two types of provisions across most countries, based on their FDI status. 

However, Professor Nottage noted some curious exceptions to this rationality, particularly in the case of Singapore. Despite being virtually corruption free, Singapore rarely includes anti-corruption provisions in its IIAs (only 4%) but retains many legality clauses (61%). This apparent irrationality might be related to Singapore’s outbound FDI often coming from government-linked companies. Such instances of “bounded rationality” or status quo bias provide valuable insights for policymakers and IIA drafters, emphasising the need to consider these complex dynamics when addressing corruption and illegality in international investment frameworks. He concluded with the observation that although most countries appear to be acting rationally with regard to their national interests, such approaches may not be entirely conducive towards addressing the overall prevalence of corruption in the Asian region. 

Professor Vivienne Bath then presented insights on China and Hong Kong, based on her chapter with former student Dr Tianqi Gu. In particular, she highlighted several inconsistencies in China’s stance towards eliminating corruption. While China has increasingly sought to tackle these issues through extensive regulations, anti-corruption campaigns and signing the UNCAC, there is a notable lack of transparency with investigations and details of cases, both domestically and in investor-state dispute settlement proceedings. Official Chinese court databases feature very few corruption cases relating to foreign investors or FDIs. Professor Bath also pointed out the absence of legislation addressing corruption by companies and officials outside China, raising this as an important area for future development. 

Antony Crockett and Professor Simon Butt spoke on Indonesia, which is infamous for having high levels of corruption across its numerous levels of government. The pervasiveness of corruption in the Indonesian government was illustrated by reference to the three high-profile cases of Churchill / Planet Mining, Al Warraq and Rafat. They noted that judicial corruption dramatically increases the attractiveness of international commercial arbitration, as commercial parties lack confidence in the judiciary and therefore refuse to settle disputes locally. An in-depth analysis of corruption in Indonesian courts can be found in Professor Butt’s recent book, Judicial Dysfunction in Indonesia. This details 30 trials involving allegations of corruption against judges from the supreme court, constitutional court, administrative court, and most disconcertingly, the anti-corruption court itself.

Finally, Dr Amokura Kawharu, who wrote the foreword to the book, briefly discussed the perspective of New Zealand, currently ranked the third least corrupt country in the world. Despite this, New Zealand only ratified the UNCAC and enacted anti-corruption legislation in 2015. This, according to Dr Kawharu, might be explained by the difficulty policymakers face in competing for space on the legislative agenda, an issue compounded by the country’s short 3-year parliamentary terms.

The Hon Wayne Martin AC KC concluded the evening’s discussions with his perspective on the importance of continued efforts to tackle corruption and illegality, which strike at the heart of the rule of law. He added some caution towards the idea of establishing a permanent international court, citing practical challenges such as the inability to attract strong candidates for the bench as well as the customary process of state appointments giving rise to further risks of nepotism.

Zeph v Australia ISDS Arbitration Claims under AANZFTA

[Some of the background below is included in my posting on the Kluwer Arbitration Blog on 15 September 2024 entitled “Aggravating Australia’s Arbitration Ambivalence: Zeph’s ISDS Claims“. I conclude:

“… Overall, the Zeph claims against Australia, as well as parliamentary inquiries into ratification of IIAs like AANZFTA’s Second Protocol, are therefore likely to aggravate rather than assuage concerns in Australia over ISDS rekindled by the Labor Government’s new policy. This is despite tribunal rulings like those mentioned at the beginning [of the Blog posting, on interim measures], and considerable transparency in these multiple forums. Governments and stakeholders therefore need to work harder to promote productive debate and seek workable ways forward. An EU-style investment court or key features can be a useful discussion point for Australia and its counterparties to IIAs.”

***

The opportunity for nuanced public debate about Australia’s Labor Government’s late 2022 reversion to eschewing ISDS, and my proposed compromise of an EU-style investment court alternative process or key features thereof (such as a standing panel of arbitrators or an appellate review mechanism), is complicated politically by a succession of ad hoc arbitration claims brought by Singapore-incorporated Zeph. Controlled by Clive Palmer and his subsidiaries based in Australia, Zeph has filed several claims since 2023 under the 2021 UNCITRAL Arbitration Rules, pursuant to the investment chapter of the original AANZFTA (signed in 2009) rather than the Second Protocol agreed in 2022 and expected to be ratified by Australia from mid-2024 (after the positive recommendation from JSCOT’s inquiry in which I gave evidence). Those objecting to retaining ISDS in the Protocol, albeit subject to a Work Program where the states party agreed to review whether ISDS should be retained, highlighted these Zeph claims. However, the JSCOT Report did not specifically mention the claimant, and its links to Australian mining magnate and former right-wing politician Clive Palmer.

The first Zeph v Australia arbitration claim (commenced on 29 March 2023) impugns Western Australia legislation enacted in 2020 (unsuccessfully challenged under Australian constitutional law) interfering with rights awarded to his subsidiary Mineralogy in 2002 regarding an iron ore project, as confirmed by two commercial arbitration awards. By preventing also access to judicial and administrative review, the claim appears strong on the merits, as elaborated in a publically available Notice of Dispute of 14 October 2020 (albeit under the Singapore-Australia FTA) evoking breach of fair and equitable treatment, non-discrimination and other protections. However, the jurisdictional objections are significant. Was Zeph incorporated in Singapore (seemingly in 2019) when the dispute was “reasonably foreseeable”, so the tribunal loses jurisdiction under customary international law due to abuse of rights, under the test applied and found to be made out in Philip Morris Asia v Australia? Can Australia further invoke the ‘denial of benefits’ Article 11 in AANZFTA’s Investment Chapter 11, as Zeph is controlled by an Australian and arguably has “no substantive business operations” in Singapore?

Accordingly, interesting legal and factual arguments are expected in hearings scheduled for the week of 16 September 2024 (under Procedural Order No 1), for the arbitration with the seat decided by the tribunal to be Geneva (contrary to Australia’s preference for London as seat). These hearings may take place at the seat in Geneva. However, as the agreed repository for documentation in this first Zeph case is the Permanent Court of Arbitration (PCA) in The Hague, parties and the tribunal may instead decide to request use of the PCA’s well-appointed hearing rooms.

Procedural Order No 3 (issued 19 January 2024), setting out transparency in most aspects for this first arbitration, interprets AANZFTA Chapter 11 Article 26.3 to make public such hearings and their transcripts (unless a party seeks and justifies confidentiality around certain information). Paragraph 15.iii of the Order adds that the parties’ “main written submissions shall be published on the PCA website at the end of the hearing to which they relate, subject to any prior redactions” of confidential information).

Procedural Order No 2 largely rejected various interim measures applications by Zeph, including curiously that the JSCOT chair stop making public statements impugning ISDS generally. But some of these applications might be revived (if for example Western Australia invokes indemnities against Palmer and his interests, pursuant to its 2020 state legislation).

Secondly, the Zeph v Australia (II) arbitration impugns measures taken by the Queensland state government relating to a minerals exploration project of Palmer’s subsidiary Waratah Coal. The Attorney-General’s Department revealed to federal Parliament in mid-2023 that Zeph had initiated a second ISDS claim, reportedly by notice of dispute under AANZFTA on 21 February 2023 followed by a formal notice of arbitration on 29 May 2023, seeking around A$41 billion in compensation. The agreed repository for this arbitration is again the PCA in The Hague.

A decision of 26 September 2023, from the agreed Appointing Authority (PCA Secretary-General Dr Marcin Czepkelak) adds that the Notice of Arbitration includes alleged breaches of AANZFTA investment Chapter 11’s articles 6 and 9 (FET and expropriation) concerning the Queensland state government’s “decision to grant an environmental offset to a direct competitor of the Claimant over land in which the Claimant’s subsidiary had certain coal exploration permits”.

The Appointing Authority’s decision rejected Australia’s challenge to Zeph’s nomination of Geneva-based Charles Poncet as arbitrator, based on old proceedings involving in him in Italian courts. Other public sources had indicated that Australia nominated Prof Don McCrae (also for the first Zeph case, and earlier the Philip Morris Asia v Australia case) and that the presiding arbitrator is Laurent Levy (who works in the same Geneva law firm as Prof Kaufmann-Kohler, who is presiding arbitrator in the first Zeph case).

In late July 2024 three Procedural Orders from the Zeph II tribunal were also made available via the Zeph II arbitration’s PCA webpage. The first (dated 25 October 2023) sets the first hearing on preliminary objections as the week of 29 September 2024. Curiously, paragraph 10.5 observes that “In accordance with Article 25(4) of the UNCITRAL Rules, hearings shall be held in camera unless the Parties agree otherwise”.

By contrast, Procedural Order No 3 (25 June 2024) paragraph 2.3 adopts the identical reasoning of the first Zeph arbitration tribunal in the latter’s Procedural Order No 3 on Transparency: AANZFTA’s “Article 26(3) stipulates that information submitted to the Tribunal or to either Party shall be protected from disclosure to the public if specifically designated as confidential. A contrario this implies that, absent such a specific confidentiality designation, the information in the record may be disclosed to the public.” Consistently, later in the Zeph II tribunal’s Procedural Order No 3, paragraph 2.9 notes that the parties agreed to apply certain elements of the first Zeph arbitration tribunal including that: “Hearings (other than procedural conferences) shall be open to the public. … Transcripts of the hearings shall be made public, subject to the redaction of protected information. Sound and/or video recordings should not be made public.” Again, it will be interesting therefore to see from the hearings scheduled for the week of 29 September 2025 (in person or perhaps livestreamed, and via subsequent transcripts and submissions) what jurisdictional objections are raised by Australia, presumably very similar to those being raised in the first Zeph arbitration hearings (scheduled for a year earlier).

Paragraphs 1.3 and 1.4 further note in February 2024 the first Zeph arbitration tribunal had accepted Australia’s proposal to share information with the Zeph II arbitration tribunal, and that in March 2024 the parties agreed to adopt the first Zeph arbitration tribunal’s Procedural Order No 3 concerning procedures to protect any confidential information. Thus, despite there being only Prof Don McRae on both tribunals, there has been some alignment achieved and related procedural efficiencies achieved in the two parallel arbitrations. However, it seems regrettably inefficient for the same parties to hold hearings on presumably very similar jurisdictional issues in September 2024 and a year later, before partially overlapping tribunals.

In addition, Procedural Order No 2 (dated 28 March 2024) briefly notes Zeph’s withdrawal of its application for interim measures (filed 7 November 2023 before the Zeph II arbitration tribunal), on 12 February 2024. According to paragraph 2.1, that application seems largely to have requested measures similar to those sought in the first Zeph arbitration, but additionally asking the tribunal to order Australia ‘to refrain from granting any further environmental offsets or equivalent measures over land or property owned by the Claimant or its subsidiaries’. Zeph’s withdrawal, to avoid any hearing and decision, promotes efficiency as on 17 November 2023 the first Zeph arbitration tribunal dismissed or ruled premature the quite similar requests for interim measures.

Thirdly, Zeph v Australia (III) focuses on a Queensland Land Court judgment recommending against a coal mine application by Waratah Coal. This dispute includes allegations of bias on the part of its President Kingham, according to a Notice of Intention to Commence Arbitration (albeit again under SAFTA, dated 20 October 2023) that the Australian government has made public. There is otherwise little public information available yet about this case, including when the actual Notice of Arbitration was filed.

Overall, it is unfortunate that Notices of Dispute or Intention to Commence Arbitration and Notices of Arbitration, let alone Responses from Australia, are not uniformly made public. Such documentation, very important to understand the key factual and legal issues in the cases, is not mentioned in the Procedural Orders on transparency in the first two Zeph arbitrations, but those Orders do reason that the starting principle underlying AANZFTA is transparency.

In addition, it is noteworthy that the Zeph II arbitration webpage does not contain Terms of Appointment of the arbitrators, as for the first arbitration. There is also no decision on the seat in the Zeph II arbitration, but its Procedural Order No 3 ends by noting that it is Geneva. Perhaps Australia agreed to that after the first Zeph arbitration tribunal ruled as such in favour of Zeph, or a the second Zeph tribunal so ruled but did not give any reasons for the decision on the seat (as the UNCITRAL Rules, in Article 34(3), only require reasons for awards).
















Australia’s Anti-ISDS Approach Again: AANZFTA Protocol To Be Ratified

Around 21 May 2024, after I had presented a submission and oral evidence at a public hearing late March, the Australian Parliament’s Joint Standing Committee on Treaties (JSCOT) issued its Report 215 agreeing that the Australian government should proceed to ratify the ASEAN Australia NZ Agreement for a Free Trade Area (AANZFTA) Second Protocol. This is despite the Labor Government in November 2022 declaring that it will not agree to any form of investor-state dispute settlement (ISDS), relevantly arbitration, in future treaties; and will approach counterparties seeking to remove or otherwise revise ISDS provisions under existing treaties. The Protocol includes a Work Program to review the ISDS provisions, within 18 months of coming into force, which will proceed largely in parallel to a review of the investment chapter also in the Regional Comprehensive Economic Partnership (RCEP) FTA, which might involve adding ISDS provisions, as it includes the same 12 states party but also three big FDI exporting economies that have generally favoured ISDS: Japan, Korea and China.

In the JSCOT inquiry into ratifying the AANZFTA Second Protocol, the Australian Council of Trade Unions (ACTU) and a small NGO (the Australian Fair Trade and Investment Network, AFTINET, which has persistently objected to ISDS in IIAs in parliamentary inquiries) recommended against ratification due to the Second Protocol retaining ISDS for at least the next few years. My Submission recommended ratification, explaining some of the context for ISDS (along the lines and other cited writings mentioned above) and appending my 2020 Submission to DFAT’s review of old IIAs (reiterating where the Second Protocol’s work programme might make some further drafting improvements around ISDS, especially to further enhance transparency and efficiency). We three were then invited to give (concurrently) oral evidence to JSCOT on 25 March 2023.[1]

The ACTU and AFTINET presented a very broad (and curiously similar) definition of ISDS:  a procedure giving corporations additional rights to sue governments for compensation if they can argue a change in law or policy will harm or impinge on their future profits. They also both highlighted the three claims recently brought under AANZFTA against Australia by Zeph (a Singapore-incorporated company controlled by Australian mining magnate and politician Clive Palmer) and more generally the risks of regulatory chill to sovereign states particularly from fossil fuel investors, as well as the costs of defending claims even when states prevail. (Similar arguments were presented in the Open Letter from Australian academics and lawyers opposing ISDS, circulating from May 2024.[2]) AFTINET also asserted that there was no good evidence that ISDS-backed IIAs promoted FDI flows and that recent IIAs were omitting ISDS – including supposedly for India and New Zealand, but also the EU and Brazil.

My own evidence countered that ISDS claims require additionally proof of violation of substantive commitments offered by host states, that the Zeph claims face difficulties and anyway Australia does not close down its courts due to occasional aggressive litigants, while its outbound investors also protect their investments abroad through ISDS claims – particularly against states with governance issues. I also reiterated that there is some evidence ISDS-backed IIAs promote cross-border FDI, developing economies are failing to attract sufficient FDI to support the global energy transition,[3] and many states (including also eg Indonesia, India and Vietnam) are still offering ISDS in IIAs despite experiencing some inbound claims.

[1] The transcript of this Evidence is at ‘Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (ANAZFTA) Public Hearings’, Parliament of Australia (Transcript) <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Public_Hearings> and the video-recording is at https://www.aph.gov.au/News_and_Events/Watch_Read_Listen/ParlView/video/2299575.

[2] Open Letter on ISDS (May 2024) <https://docs.google.com/forms/d/e/1FAIpQLSddWDUB2NzZAHYlGJDOxg0DiA-JySOGEE7f_09ZdwQNhryr3g/viewform>.

[3] ‘World Investment Report 2023’, United Nations Conference on Trade and Development (Report) <https://unctad.org/publication/world-investment-report-2023>.

When JSCOT’s Report 215 was issued, contrary to my expectation and curiously as this departs from her party’s past practice where a treaty includes ISDS, the Greens Senator for Western Australia Dorinda Cox did not issue a dissenting report – nor even seemingly attend either parliamentary hearing. The Report’s summary emphasised that:[1]

“Notably, Australia successfully negotiated a review of the existing ISDS provisions in [… marking] an instalment of the Government’s commitment to review ISDS provisions in agreements where they already exist, while ensuring Australia does not agree to ISDS mechanisms in new agreements.”

The Report’s Conclusions added (after noting my call for transparency around this ongoing Work Program):[2]

“Considering the significant interest in this issue demonstrated by a range of stakeholders in this and previous JSCOT inquiries, the Committee will seek an update on the progress of the ISDS review work program commitment in due course, and in any case would expect the Department [of Foreign Affairs and Trade: DFAT] to draw any notable developments to the Committee’s attention.”

The Report also quoted evidence given by DFAT that it “will obviously be coming to government to seek a mandate for the positions that we take into that review’ of ISDS under the Work Program”.[3]

Interestingly, the Report did not specifically mention the Zeph claims, although it stated:[4]

“At the public hearing submitters to the inquiry pointed out that there are currently ISDS actions afoot, some of which involve arrangements between Australia and ASEAN nations. The Committee inquired as to the cost of these legal actions to the Australian taxpayer. The Attorney-General’s Department (AGD) said ‘the Attorney-General and the Prime Minister have instructed us to vigorously defend those matters and we are in the process of doing so, and that does accrue cost.

In addition, after recording the opposition to ISDS and hence treaty ratification from the ACTU and AFTINET, the Report noted my concerns about relying solely on more politicised inter-state dispute settlement or arbitration agreed under individual investment contracts, before observing:[5]

The Committee sought clarification as to the recent trend away from ISDS. Professor Nottage said, ‘I think that’s a good thing—that we try something; it has an effect; we realise some of its problems, so we try to fix the problems […] and come up with a new compromise solution’.

My quoted statement in fact followed more specifically from my observation about the question of a ‘retreat from the high water mark of pro-ISDS approaches’.[6] The Committee also did not go on to mention my point immediately following in evidence that the EU has not abandoned direct claims by foreign investors altogether, but come up instead with the investment court compromise. I had suggested that this model could be considered by Australia (and regional states) in future treaty practice even when not negotiating with the EU, for example in the ongoing review of ISDS under AANZFTA’s Second Protocol and RCEP. (Subsequently I developed this proposal in a letter dated 10 April to the Trade Ministers of Australia and New Zealand.)

Furthermore, the Report did not mention my written Submission urging again specific improvements, including restrictions on ‘double-hatting’ and compulsory mediation before arbitration.[7] Overall, therefore, it seems that parliamentary interest and scrutiny around the specifics of ISDS or possible alternatives remains quite limited, deferring largely to the executive branch of government.

[1] Report 215: AANZFTA Second Protocol, available at Parliament of Australia <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Report>, xv.

[2] ibid, para 2.95 (and 2.79).

[3] Ibid, para 2.74.

[4] Ibid, para 2.75. This level of generality may reflect a compromise reached between the Labor and Greens members (who might have preferred to mention Zeph and Clive Palmer specifically) and the Coalition members in drafting the joint Report.

[5] Ibid, para 2.80.

[6] Idem.

[7] Available at Parliament of Australia, <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Submissions>.

Compromise way forward on investment treaty/FTA (re)negotiations

[On 10 April 2024, following my submission and then oral evidence given to the Australian parliament inquiring into the AANZFTA Second Protocol ratification, I wrote as follows to the respective Trade Ministers of Australia (Hon Don Farrell) and New Zealand (Hon Todd McClay). The latter’s response dated 29 April, quite non-committal, is below and here. I also had (confidential) discussions with DFAT officials on 23 May 2024 regarding my proposal.]

I am a New Zealander working in Australia since 2001, specialising in international business law including international and domestic investment law and dispute resolution.[1] I have provided many submissions to Australian parliamentary inquiries into ratifications of bilateral investment treaties or investment chapters of Free Trade Agreements (FTAs), including giving related evidence on 28 March 2024 urging ratification of the Second Protocol to the (ASEAN+2) AANZFTA.[2] Representatives from the Australian Council of Trade Unions and AFTINET (Australian Fair Trade and Investment Network) opposed ratification of the Protocol especially as it retained investor-state dispute settlement (ISDS) provisions, albeit to be revisited in a Work Program. The latter will run largely in parallel to negotiations to consider instead adding ISDS to the ASEAN+5 Regional Comprehensive Economic Partnership (RCEP), which FTA also involves Australia and New Zealand.

Australia’s Labor Government from November 2022 has reverted to its stance, when in power over 2011-13, to opposing ISDS in new treaties, but seemingly does not extend this position to protocols to existing treaties like AANZFTA. The Labor Government also will approach counterparty states to review past treaties. Until losing the general election in October 2023, New Zealand’s Labor Government from 2018 had similarly opposed ISDS in new treaties. However, the new Coalition Government may revert to a more flexible approach towards ISDS provisions.

As a compromise way forward for both countries, with significantly shared economic and geopolitical interests, I proposed in the AANZFTA parliamentary inquiry that in that FTA’s Work Program as well as the parallel RCEP (re)negotiations concerning ISDS, serious consideration be given to substituting an EU-style “permanent investment court” hybrid form of dispute resolution to underpin the substantive commitments (like non-discrimination and fair and equitable treatment) offered in such treaties. Unlike ISDS, the foreign investor complainant does not nominate an arbitrator. Instead, the investor’s home state and the host state counterparty select in advance a panel of “judges”, who are then selected to decide the claim (albeit following arbitration rules and issuing awards). The model also provides for a second-tier review, by other adjudicators selected from the panel, for any serious error of law or fact. Such features make this investment court model sufficiently different from ISDS, in my view, to not conflict with the anti-ISDS policy of the current Australia’s Labor Government or the previous New Zealand Labour Government. Yet it still allows for foreign investors to initiate a claim, without having to lobby its home state to press for initiation of an inter-state arbitration. The latter mechanism is also provided in investment treaties, but is rarely used where the more direct ISDS route is available and is much more subject to (geo-)political vagaries – as we observe also with WTO inter-state adjudication.

Further, this compromise investment court model was developed in the EU almost a decade ago after extensive consultation with legal experts and other stakeholders there, and it has since been accepted in FTAs notably concluded by Canada, Singapore and Vietnam.[3] The model is also promoted by the EU in ongoing UN deliberations on reforming ISDS multilaterally. It is in the EU’s negotiating mandate for the FTA being negotiated with Australia, and if it is not accepted then that FTA unfortunately will not include provisions on investment protection (only instead on preferential market access for agreed investments, underpinned solely by inter-state arbitration). That was also the outcome in the FTA between the EU and Japan, which preferred to retain instead ISDS-backed protections for its investors into many individual EU states under older treaties. The New Zealand-EU FTA similarly does not include any provisions on investment protection, yet New Zealand’s outbound investors lack such BITs with individual EU member states. New Zealand’s new Coalition Government might now consider adding a protocol on investment protection, agreeing after all with the EU’s court mechanism, to encourage more cross-border investment flows.

Greater consideration by both New Zealand and Australia to the investment court model would also be useful as each continues to negotiate FTAs with the other non-EU counterparties, including across Asia (such as the Australia-India negotiations to conclude a treaty going beyond trade in goods). It would also open up space for greater bipartisanship with each country and therefore speed up FTA negotiations.

In fact, in late 2017 I wrote to your respective predecessors as Trade Minister with Dr Amokura Kawharu (then a professor at University of Auckland, now President of the New Zealand Law Commission). Drawing on recent research (which I have updated[4]), we urged even then Australia and New Zealand to consider the EU-style investment court model and coordinate more in progressing investment treaty negotiations, including for RCEP.[5] That FTA could then have been more easily and quickly agreed upon, and indeed included India which in 2019 withdrew from negotiations. Closer joint consideration of the investment court model deserves renewed attention from both Australian and New Zealand governments, as they look to (re)negotiate various investment treaties, including still AANZFTA. The investment court model may not be perfect but nothing ever is, and it promises a better way forward than the current flip-flops in each country around traditional ISDS.

I would be happy to confer with you or relevant staff to discuss this further, or provide additional information.

Yours sincerely

Luke R Nottage

[1] Profile and CV at https://www.sydney.edu.au/law/about/our-people/academic-staff/luke-nottage.html. My father (Richard Nottage) was former Secretary of Foreign Affairs in New Zealand and my brother (Hunter) was later Senior Trade Law Advisor with MFAT.

[2] See transcript and Submission via https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol

[3] For details see eg Moritz Keller (ed) EU Investment Protection Law: Article-by-Article Commentary (Beck/Hart, 2023).

[4] See eg, on the evolving studies on the impact of ISDS provisions on cross-border FDI, my submission in 2020 to DFAT’s review of Australia’s bilateral investment treaties (available at https://www.dfat.gov.au/trade-and-investment/discussion-paper-review-australias-bilateral-investment-treaties), summarised eg in my chapter “Rebalancing Investment Treaties and Arbitration in the Asian Region”, in Mahdev Mohan and Chester Brown (eds) The Asian Turn in International Investment(Cambridge University Press, 2021) 379-398.

[5] Our 2017 letters can be found at https://japaneselaw.sydney.edu.au/wp-content/uploads/2017/11/2017KawharuNottageTurnbullGovt_Combined_LN01.pdf, via https://japaneselaw.sydney.edu.au/2017/11/nz-renounces-isds-deja-vu/

Australia’s Anti-ISDS Approach Again: AANZFTA Protocol Ratification Hearing in Parliament

On 21 August 2023 Australia signed, with New Zealand and the ten member states of the Association of Southeast Asian Nations (ASEAN), the Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), after announcing in November 2022 substantial conclusion of the free trade agreement (FTA) review that had commenced in September 2018. This amended treaty added new chapters and updated many others, whereas the first Protocol in 2015 focused on streamlining certification for cross-border movement of goods.

For example, as I noted in my written Submission in January 2024 to the Australian Parliament’s Joint Standing Committee on Treaties (JSCOT) inquiry into ratifying the Second Protocol, it added more provisions on consumer protection generally (in Article 7 of Chapter 17, but setting narrow minimum standards for national laws and not subject even to the inter-state dispute settlement Chapter that could help give those commitments more bite, compared to the Australia-UK FTA signed in 2021) and for e-commerce (Article 18 of Chapter 10, underpinned by inter-state dispute settlement – unlike the ASEAN+5 Regional Comprehensive Economic Partnership or RCEP signed in 2020).

However, my Submission and others focused mainly on the Second Protocol’s update to Chapter 11 on Investment. The substantive commitments (in Section A, Arts 1-18) were adjusted largely in line with RCEP’s Investment Chapter, but the main controversy concerned Section B’s retention of the investor-state dispute settlement (ISDS) option allowing arbitration as with the original AANZFTA (in forced from 2010). A week before the Second Protocol was substantially agreed, Australia’s Labor Government had declared on 14 November 2022 that it would not agree to ISDS protections for foreign investors in any future treaties, and would seek to review and remove them in past investment treaties. The New Zealand government had also announced in late 2017 that it would not agree to ISDS in future treaties, mimicking the stance of an earlier Labor (with Greens) Government when in power in Australia over 2011-2013.

Compromises were made when retaining ISDS in the Second Protocol’s Investment Chapter. The parties will first suspend application of the National Treatment commitment (not to discriminate against foreign investors compared to local investors, subject to scheduled country-specific exceptions) for breaches arising within 30 months of the upgrade. This is quite significant as the Second Protocol enlivens a previously inactive (Article 3) obligation for National Treatment. The second compromise is Article 17, providing for a work program to review Section B on ISDS no later than 18 months after the date of entry into force of the Second Protocol, to be concluded within 12 months unless extended by the states party – so probably by the end of 2027. (The program also requires discussion about adding two extra prohibitions of performance requirements in Article 6.1.) Given the Australian Labor Government’s opposition to ISDS, it can be expected to press for the removal or otherwise significant curtailing of Section B on ISDS. However, it faces a general election by May 2025, and if it loses to the Coalition the latter will reinstate a more flexible approach – agreeing to ISDS on a treaty-by-treaty assessment of Australia’s national interests. New Zealand’s Labor Government also lost the general election in October 2023, and its new Coalition Government is also likely to be quite sanguine about retaining ISDS.

In parallel, RCEP’s investment chapter had instead omitted ISDS but Article 10.18 established a work program to reconsider whether or not and how to add ISDS. This negotiation was to be started within two years of this ASEAN+5 treaty coming into force (January 2022 for ten states), to be concluded then within three years – so by the end of 2025. The largest non-ASEAN member states of RCEP with large outbound investments such as Japan, Korea and even China, may press for adding ISDS. However, their outbound investors mostly have anyway at least one other ISDS-backed treaty to invoke even without RCEP (eg Japan and Australia have the CPTPP, even though ISDS was omitted also from their 2014 bilateral FTA).

My Submission, and oral evidence given (with video-recording here) in favour of ratifying the Second Protocol (contrasting with the evidence and submissions opposing ratification from the Australian Council of Trade Unions and AFTINET), identified likely net benefits from ISDS-backed treaties including this one but also options for further drafting improvements, drawing partly on my submission to the 2020 DFAT review of Australia’s standalone bilateral investment treaties. I also urged ongoing transparency and stakeholder involvement in the envisaged work program.

We can expect most JSCOT members to recommend that Australia ratifies the Second Protocol. After all, JSCOT always has a majority of Government parliamentarians on the Committee, and its own minister has already signed the Protocol (after review by Cabinet colleagues). In addition, the Coalition parliamentarians in opposition have always maintained a flexible approach towards ISDS provisions. The solitary Australian Greens member, however, seems likely to recommend against ratification, as its parliamentarians have done on committees considering treaties that contain ISDS provisions. What will be more interesting is what the Labor members say about ISDS, including the evidence given, and what that might imply for Australia’s ongoing negotiations regarding investment agreements with India and the European Union.

Japan’s International Investment, Evolving Treaty Practice and Arbitration Related to Corruption and Illegality

Written by: Luke Nottage and Nobumichi Teramura#

Abstract: This article forthcoming in 55 Journal of Japanese Law (mid-2023), part of an interdisciplinary book project on Corruption, Illegality and Asian Investment Arbitration [including a conference held in Brunei on 29 May 2023 (booklet here) supported by ANJeL and CAPLUS], addresses for Japan the difficult practical and policy question facing arbitration tribunals when a foreign investor claims mistreatment by a host state but the latter alleges that the investment was tainted by corruption or other similar serious illegality. By way of background, Japan emerged from the 1980s as a leading exporter of foreign direct investment (FDI). Yet it has low inbound FDI despite some significant growth since the late 1990s (Part II). This is despite Japan having comparatively very little corruption, which is often problematic for foreign investors (Part III).

To protect and promote outbound FDI after a hesitant start, over the last two decades, Japan has accelerated ratifications of standalone bilateral investment treaties (BITs) as well as investment chapters in free trade agreements (FTAs). Almost all allow foreign investors from the home state to directly initiate investor-state dispute settlement (ISDS) arbitration against host states to get relief from violations of substantive treaty commitments, such as non-discrimination or compensation for expropriation (Part IV.1).

Japan’s investment treaty practice on corruption and illegality is comparatively interesting for two reasons (Part IV.2). First, from around 2007, its treaties have often required host states to take measures against corruption. This should help Japan’s outbound investors, but these obligations are generally weakly phrased. Secondly, Japan’s treaties have been less consistent in expressly limiting their protections to foreign investments made in accordance with host state laws (including against corruption). This may be due to treaty drafters from Japan and counterparty states being less aware of the significance of such express legality provisions, which will often lead tribunals to decline jurisdiction if corruption is established, thus leaving foreign investors without treaty protections. Such outcomes may also incentivise host states to ensure a bribe is taken, to use as a treaty defence if foreign investors ever launch treaty claims, whereas other outcomes for tribunals are possible if there is no express legality provision. Another possibility is that this drafting is deliberate, again to benefit Japanese outbound investors as claimants because the absence of a legality provision renders more difficult defences from host states, which typically have more corruption than in Japan.

Japan may adopt more and clearer legality provisions if it becomes subject to more inbound ISDS arbitration claims, and/or if claims by Japanese outbound investors are mostly against well-governed host states with little scope for corruption. Yet both types of claims remain few (Part V). The shift may therefore come more from other counterparty states pushing for such legality provisions and Japan agreeing in its future treaties to demonstrate its overall commitment to combatting corruption, and to preserve the legitimacy of the ISDS arbitration system (Part VI).

# Respectively: Professor, University of Sydney Law School; Assistant Professor, Institute of Asian Studies, Universiti Brunei Darussalam.