“Corporate Environmental Responsibility in Investor-State Dispute Settlement” by Tomoko Ishikawa

[This is my draft review – for the Manchester Journal of International Economic Law – of an excellent new book (Cambridge University Press, 2023, ISBN 978-1-316-51397-2) by one of Japan’s leading international investment law and dispute resolution scholars, Professor Tomoko Ishikawa of Nagoya University’s Graduate School of International Development. She was previously Associate Professor at Tsukuba University and Assistant Professor at Waseda University. Unusually for a Japanese academic, Prof Ishikawa also served as a judge of the Tokyo District Court (2002-5) and working on international law matters in the Ministry of Foreign Affairs (2010-12). She has been appointed to the Panel of Conciliators by the Chairman of ICSID over 2017-23. Her research intersects with my current book project with Nobumichi Teramura and Bruno Jetin on corruption and investor illegality in Asian investment arbitration.]

This thought-provoking, extensively researched and well-argued book combines two hot topics for international economic law experts as well as the general public: corporate environmental responsibility, comprising both hard law and voluntary Corporate Social Responsibility (CSR) and investor-state dispute settlement (ISDS). It is highly recommended for scholars, practitioners and policy-makers, including national delegates, observers and the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL) engaged in ongoing multilateral reform deliberations on ISDS since 2019.

Chapter 1 outlines how ISDS arbitration reinforces substantive protections offered through international investment agreements (IIAs) to foreign investors typically going beyond customary international law, notably against discrimination, uncompensated indirect as well as direct expropriation, and violation of fair and equitable treatment (FET) including denial of justice in national courts and administrative procedures. Yet burgeoning IIAs and ISDS cases have highlighted how foreign investment can adversely impact the environment and often related human rights in host states. The book’s key concern is how the ISDS system, which seems “asymmetrical” in only allowing foreign investors to claim against host states, also does or can significantly allow counterclaims by host states to offer relief against environmental degradation.

Professor Tomoko Ishikawa’s well-structured book (pp17-21) devotes the first part of chapter 2 (pp 24-48) to the challenges of regulating and pursuing the responsibility of transnational corporations (TNCs) in domestic legal orders (including poor governance capacity and access to impartial justice), but also the persistent lack of effective general mechanisms internationally. Ishikawa examines the paucity of customary and treaty-based international law obligations and enforcement mechanisms, recent attempts to expand the international human rights obligations of corporations, and some “soft law” instruments to promote corporate social responsibility (including private initiatives involving CSR). The second part analyses 1000 randomly selected IIAs and Model IIAs (pp 49-55). There is a trend especially over 2010-19 to add express provisions reinforcing the host state’s general “right to regulate” (such as “no lowering of standards” or general exceptions clauses). Yet very few IIAs (39) set express investor obligations (plus six out of 56) Model IIAs), although somewhat more (54) refer to voluntary CSR in the preamble or especially main text (plus 11 Model IIAs), and both types of provisions have also emerged particularly over the last decade or so.

Chapters 3-5 delve into the procedural mechanism of counterclaims potentially under IIAs. Chapter 3 outlines the benefits compared to pursuing investor responsibility under domestic law (pp 60-65). These include problems with the rule of law (such as judicial corruption, mentioning some notable cases) and cross-border enforceability, which I would add are essentially the flipside of problems faced by foreign investors without (especially ISDS-backed) IIAs.

In addition, Ishikawa deals with a fascinating and little-discussed issue, pointing out that in some cases the actual victims of environmental harm may not benefit from the host state proceeding with a counterclaim. A primary conclusion is that ISDS arbitral tribunals should be able to rule it inadmissible based on due process concerns (as a general principle of international law) if allowing the counterclaim “would result in effective deprivation of remedy for the victims” (p84). One factor in this determination will be the host “state’s representation of the interests of its people” (p84), presumed if it has representative democracy but rebutted for example if the host state colluded with the investor in causing the damage. A second suggested factor is doubts about the distribution to victims of compensation potentially awarded. Nonetheless, Ishikawa rightly concludes that in proving such matters, the investor faces “a difficult task. After all, there is a strong presumption that the host state acts on some public purpose, and tribunals would be very reluctant to interfere with internal political affairs by second-guessing the issues of representation and fair distribution” (p85, footnotes omitted).

Chapter 4 first deals with jurisdiction or consent to counterclaims. Again, Ishikawa makes good use of her empirical dataset. She agrees with some other commentators that treaties’ (typical) “absence of reference to the host state’s right to file a counterclaim, which is already responsive to the principal claim, is a logical choice and does not necessarily indicate the parties’ intention to exclude counterclaims” (p97, footnote omitted). She argues this conclusion is buttressed because 706 IIAs out of the 1000 sample contain seemingly narrow locus standi provisions (only expressly mentioning the investor’s right to claim) but 263 go on to provide narrow definitions of investment disputes and claims (pp 98-99). Only the latter subset of treaties, Ishikawa contends, impede tribunals taking jurisdiction over counterclaims because such IIAs allow only for disputes and claims over host state obligations assumed under the treaty. She further argues that a narrow applicable law clause (not expressly referring to domestic law, but only international law: 140 IIAs and 12 Model IIAs) does not imply exclusion of domestic law in ISDS as tribunals “always possess the incidental jurisdiction to apply domestic law to questions that cannot be answered by international law” (p101).

Nonetheless, the second half of Chapter 4 investigates whether tribunals, despite taking jurisdiction under (most) treaties, should rule counterclaims as inadmissible (pp 104-115). Ishikawa argues that there need only be a factual not legal nexus between the principal claims and counterclaims. More complicated is whether a parent’s counterclaim for damage caused by its subsidiary should be inadmissible due to the principle of limited liability. Ishikawa concludes otherwise, noting for example that investment treaties often allow conversely for parent companies to bring claims on behalf of local companies they control or (more controversially nowadays) have shareholdings in. She further concludes that “the question of whether the parent company directly owes a duty of care or is shielded from liability in a particular case must be considered at the merits stage, in accordance with a careful interpretation and application of the relevant domestic law” (p115). This sub-topic, and perhaps the arguments about jurisdiction presented in this Chapter, nonetheless will likely generate some significant divergences among other commentators and tribunals.

Chapter 5 turns to assessing the merits to be considered by tribunals for counterclaims (pp. Ishikawa first elaborates quite compellingly the argument that tribunals generally can and should apply aspects of domestic law, including those imposing responsibility for environmental harm. Concerns about the legitimacy of international adjudicators applying such laws can be addressed by them adopting a “domestic jurisprudence” approach (like the Permanent Court of International Justice), considering a wide range of domestic law sources (pp 128-9) and more use of local legal experts (although very few sampled treaties provide expressly for tribunals to appoint ex curia experts, and only for factual issues: p 131).

The second half instead considers counterclaims based on international law (pp 135-56). An interesting but ambitious argument is that for some instruments imposing liability on TNCs but not expressly providing for remedies or others not yet implemented into national laws, host states might seek to fill that gap through tribunals applying domestic law (as for example in some US case law). Ishikawa also argues that violation of proliferating CSR commitments through treaties (as well as national laws, evolving corporate practices and representations) might generate civil tort claims under at least some domestic laws.

Having considered an investor’s environmental responsibility as a ground for the host state’s counterclaim, Chapter 6 discusses the effects of such responsibility in assessing the investor’s principal claims. Problems usually arise with environmental harm during the performance phase, and Ishikawa argues that misconduct at that stage will usually have only a limited impact on a tribunal’s jurisdiction and even admission of the claim (pp 159-66). However, when considering the merits, host state liability for lack of FET (especially “legitimate expectations”) can arguably be obviated by the investor’s performance-phase misconduct as part of the principle’s balancing exercise and (more controversially) the evolving notion of a corporation’s “social licence to operate” (pp 166-191). More commonly found in investment arbitration and other international law for a is the application of contributory fault to reduce relief awarded, although Ishikawa urges sufficient reasoned explanation over percentages applied by ISDS tribunals (pp 191-98).

Chapter 7 concludes with “implications for reform”. Although the book mainly argues that there is already most scope for counterclaims under many IIAs than most have appreciated, Ishikawa suggests that more explicit rights to counterclaims in treaties would be useful. Substantively, moreover, treaties should expressly provide obligations on investors to comply with host state laws, but if and when extra international standards are set they should be “clearly specified so as to constrain the interpretative discretion of tribunals” (pp 204-5) and provide secondary rules determining consequences for breach (rather than tribunals having to invoke domestic law).

By contrast, a reform option of requiring exhaustion of local remedies before ISDS claims is unclear concerning the extent this “would contribute to advancing the victims’ interests” given “the known cases suggesting corruption and a lack of political independence in the judiciary in the context of TNCs’ misconduct” (p206). Ishikawa also suggests that the most drastic reforms, allowing host states and affected third parties to initiate claims against TNCs (rather than responding with counterclaims) is better pursued outside the IIA regime (eg through the 2019 Hague Rules on Business and Human Rights Arbitration). Otherwise, the regime including its legitimate interests for investors could unwind: “ISDS reform should strike a careful balance between the need to keep its value for the regime’s participants and the need to advance responsible investment” (p208).

The most detailed reform proposal, not really prefigured in the preceding chapters, involving promoting third party participation in investor-state mediation. This more consensus driven dispute resolution procedure has been promoted in recent years by various institutions and commentators due to growing concerns about ISDS arbitration, including its costs and delays.[1] Ishikawa interestingly highlights how some UNCITRAL reform discussions have mentioned that participation by affected third parties through mediation could allow more public interest to be represented, while some scholars support including “non-disputant” stakeholders in mediation (p213). Various suggestions are made to make this process work well for cases involving alleged environmental harms, including appointing co-mediators with relevant expertise, partially lifting confidentiality and reporting and establishing best practices through capacity building and other initiatives.

However, Ishikawa shares scepticism with some other commentators about reforming IIAs by mandating mediation before arbitration – including through a multilateral instrument retrofitting such a step to old treaties, along the lines of the UN’s 2019 Mauritius Convention on transparency (pp 214-5). She notes only a few treaties currently provide a mandatory mediation step, while acknowledging the 2019 Indonesia-Australia FTA (Art 14.23), 2019 Hong Kong – UAE BIT (Art 8), and the Investment Agreement for the COMESA Common Investment Area (Art 26(4) of the 2007 version).[2] Nonetheless, the general argument that mandating mediation goes against its consensual essence is challenged by developments in domestic legal systems (with courts often requiring some initial good faith mediation attempt) and cross-border resolution (with many contracts now committing to mediation before arbitration). Recent empirical research into investment dispute settlement patterns also challenges other concerns often expressed about mediation.[3] Ishikawa’s proposals for mediation, to involve third parties in resolving disputes involving environmental issues, could therefore be bolder on this point. Overall, this book is comprehensive, erudite and balanced, articulating many compelling insights for a variety of legal experts interested in counterclaims and other mechanisms to reassess ISDS and the IIA system. It richly deserves to inform ongoing debates on ISDS reform in UNCITRAL and other fora internationally and domestically, treaty negotiators, future academic research, and investment arbitration practice – even if some of Ishikawa’s more innovative arguments do not prevail among investment tribunals.


[1] See also eg Claxton, James and Nottage, Luke R. and Williams, Brett G. and Williams, Brett G., Mediating Japan-Korea Trade and Investment Tensions (December 3, 2019). in Nottage, Luke; Ali, Shahla; Jetin, Bruno; Teramura, Nobumichi (eds), “New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution”, Wolters Kluwer, (2021), https://ssrn.com/abstract=3497299 (with an earlier version in Journal of World Trade).

[2] The relevant provision in the latter treaty, as revised in 2017, is Art 34(4)). Ishikawa also refers to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (Art 9.18) but that does not mandate mediation (emphasis added): “(1) … the claimant and the respondent should initially seek to resolve the dispute through consultation and negotiation, which may include the use of non-binding, third party procedures, such as good offices, conciliation or mediation”. See further: Ubilava, Ana and Nottage, Luke R., Novel and Noteworthy Aspects of Australia’s Recent Investment Agreements and ISDS Policy: The CPTPP, Hong Kong, Indonesia and Mauritius Transparency Treaties (March 4, 2020). in Nottage, Luke; Ali, Shahla; Jetin, Bruno; Teramura, Nobumichi (eds), “New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution”, Wolters Kluwer, (2021) https://ssrn.com/abstract=3548358; and (with James Claxton) http://arbitrationblog.kluwerarbitration.com/2020/09/05/pioneering-mandatory-investor-state-conciliation-before-arbitration-in-asia-pacific-treaties-ia-cepa-and-hk-uae-bit/ (updated and elaborated in Volume XIII of the Indian Journal of International Economic Law (2022) via https://ijiel.in/volume-xiii).

[3] Ubilava, Ana, Amicable Settlements in Investor-State Disputes: Empirical Analysis of Patterns and Perceived Problems (March 13, 2019). Journal of World Investment and Trade, Vol. 21, 2020, pp. 528-557, https://ssrn.com/abstract=3352181; incorporated into her PhD thesis based book (2022) https://brill.com/display/title/63844?rskey=uPsqiO&result=6.

Australia’s (Dis)Engagement with Investor-State Arbitration: A Sequel

A seminar held on 10 November 2022 during the Australian Arbitration Week, organised by the UNCITRAL National Coordination Committee for Australia (UNCCA) and hosted by Allens in Melbourne, discussed “Australia’s engagement in the ISDS [investor-state dispute settlement] reform process”. My presentation divided successive governments’ approach into three significant eras over the last decade or so: anti-ISDS (2011-13), case-by-case ISDS (2014-21), and uncertainty (2022-).

Some of the uncertainty in this current third era has dissipated since the seminar. On 14 November Australia’s current Trade Minister Dan Farrell declared that the new Labor Government “will not include ISDS in any new trade agreements” and would attempt to reduce their impact in existing agreements. On the latter point, he stated that “when opportunities arise, we will actively engage in processes to reform existing ISDS mechanisms to enhance transparency, consistency and ensure adequate scope to allow the Government to regulate in the public interest”. The announcement has already generated concern from commentators from the Business Council of Australia and legal practice, including Dr Sam Luttrell (who also presented at the UNCCA seminar). Below I locate the Trade Minister’s announcement in context and sketch some implications, drawing partly on my 2021 book of selected essays on investor-state and commercial arbitration, focusing on Australia and Japan in regional and global contexts. 

Before this sequel, in the first era beginning in 2011, the centre-left (Labor/Greens) Gillard Government had declared that Australia would no longer agree to any form of ISDS in future bilateral investment treaties (BITs) or FTA investment chapters. That stance derived partly from the Productivity Commission’s recommendation (by majority) in its 2010 report into international trade policy more generally, which favoured more unilateral liberalisation measures and was skeptical about proliferating FTAs from a more laissez faire perspective. On ISDS provisions, the draft and then final reports asserted that there was no good evidence that offering them led to more FDI flows, Australian investors did not invoke investor-state arbitration, and ISDS could lead to “regulatory chill”. Additionally, the Gillard Government anti-ISDS policy from 2011 was driven by concerns from the political left about investment and trade liberalisation generally. It was probably also influenced by Philip Morris Asia initiating the first-ever ISDS dispute against Australia around this time, challenging Australia’s tobacco plain packaging legislation under the (then) BIT with Hong Kong. The anti-ISDS policy delayed conclusion of major FTAs with China, Korea and Japan, large exporters of capital to Australia which pressed for such provisions.

However, after the centre-right Coalition government won the election in late 2013, it reverted to the pre-2011 approach of agreeing to ISDS provisions on a case-by-case assessment. FTAs were soon concluded with China and Korea, including ISDS. The FTA concluded with Japan did omit ISDS, but probably because it did not offer Australia sufficient extra export market access or other benefits, at a time when the Coalition Government had difficulties passing legislation through the upper house of Parliament. Japan’s longer positive experience of investing in Australia also meant it could play the long game and seek ISDS-backed protections through other treaties, which it eventually achieved in fact through both countries ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership mega-regional FTA (CPTPP, in force for both states from 2019). The Labor Opposition voted with the Government to pass tariff-reduction legislation needed to ratify these ISDS-backed treaties, unlike the Greens, declaring the Labor Party’s continued opposition to ISDS but assessing the FTAs as overall in the national interest.

Additionally over this second era, the Coalition Government omitted ISDS in the PACER-Plus FTA with Pacific Island micro-states, given their limited inbound investment prospects and capacity as host states to defend ISDS claims; and in the Regional Comprehensive Economic Partnership (RCEP) ASEAN+5 FTA, probably because almost all pairs of its 15 member states have at least one ISDS-backed treaty among themselves anyway. The Coalition Government also renegotiated a few early FTAs and BITs (eg with Singapore, Uruguay and Hong Kong), replacing them with CPTPP-like provisions to clarify provisions or make them somewhat more pro-host-state in light of emerging investment treaty case law. It also solicited public submissions to inform a review of older treaties, although the Government did not then publish a report (let alone any Model BIT) formalising its evolving negotiating preferences. Australia further ratified the Mauritius Convention in 2020 to help retrofit transparency provisions on older treaties, although this will bite primarily only if other states also ratify the Convention and so far few have done so.

Australia’s renewed nuanced approach towards ISDS over 2014-21 may have been influenced by some (but not very strong) evidence, in Asia and more widely, that ISDS provisions do in fact have significant positive impacts on FDI flows. Also, ratifying investment treaties globally certainly impacted FDI, meaning that a minority of states increasingly holding out against all ISDS would have instead reduced ratifications and therefore FDI flows. Other empirical research, highlighted by Dr Sam Luttrell at the recent UNCCA seminar, adds that ISDS-backed treaties reduce the cost of syndicated loan finance for cross-border investors.

Luttrell’s presentation further reinforced how Australian investors (particularly in long-term resources projects) not only take into account ISDS protections but also started commencing outbound investor-state arbitrations under Australian treaties (or contracts) alleging host states have violated their substantive commitments. This is especially so since the successful White Industries v India award in 2010, which the Productivity Commission seems to have been been unaware of. Concerns about “regulatory chill” also seem to have declined as Australia defeated Philip Morris Asia on jurisdiction in 2015 (and Uruguay later defeated the parent company on the merits regarding its own tobacco packaging measures), and as no further inbound ISDS arbitrations were commenced against Australia. Nonetheless, perhaps because ISDS remained a live issue in parliamentary treaty ratification hearings and successive Coalition Governments did not control the upper House, Australia does not seem to have been particularly vocal in multilateral ISDS reform discussions in UNCITRAL or ICSID, although it has participated.

After Labor won the general election in May 2022, the new Government had not publically declared its policy approach towards ISDS, until the Trade Minister’s announcement on 14 November. At the UNCCA seminar the week before, I noted that the foreign ministry’s website still stated that Australia assesses ISDS on a case-by-case assessment. However, setting policy going into the election, the Labor Party’s 2021 National Platform had reiterated that “Labor will not enter into agreements that include ISDS provisions” (p9 para 45). In addition, it stated (p94, paras 33-34):


“Labor in government will review ISDS provisions in existing trade and investment agreements and seek to work with Australia’s trading partners to remove these provisions. While this process is underway, Labor will work with the international community to reform ISDS tribunals so they remove perceived conflicts of interest by temporary appointed judges, adhere to precedents and include appeal mechanisms.

Labor will set up a full time negotiating team within the Department of Foreign Affairs and Trade whose sole job will be to negotiate the removal of ISDS clauses …”

Until 14 November 2022, there had been no public announcement about any such initiatives.

* * *

Accordingly, at the UNCCA seminar, I pointed out that Australia’s major ongoing FTA negotiations involving investment were with India (with a provisional agreement reached only on trade related matters) and the European Union. India unilaterally terminated its BIT with Australia in 2017, as part of its broader policy of winding back protections for foreign investors since the White Industries award and successive claims against India under other older treaties. Although India’s new Model BIT from 2016 retains ISDS, it provides a narrow window and its substantive protections are heavily circumscribed, and India has been able to only conclude a few new investment treaties from this negotiating position. Even maintaining the second era’s case-by-case assessment policy, I therefore considered it quite possible that Australia and India could end up agreeing on a parallel investment treaty that leaves only inter-state arbitration, especially if India offered significant preferential market access to Australian investors.

Omitting ISDS is now the only possibility, under the newly announced Labor Government stance, but India now may not offer as much market access or other benefits to Australia. A better compromise, given problems encountered by foreign investors in India as well as JNU Prof Jaivir Singh’s empirical evidence that ISDS-backed treaties cumulatively have had positive impact on FDI inflows for India, could have been a CPTPP-like investment treaty with some further innovations. Those might include a mandatory mediation step before arbitration, as Australia agreed upon (unusually) with Indonesia in 2019 but not with Hong Kong.

Australia is also still negotiating an FTA with the EU. Since 2015, as a partly political compromise internally, the EU offers only an “investment court” alternative to traditional ISDS, on a take it or leave it basis. Singapore took this option, for example, but Japan did not (preferring to stick with pre-existing BIT with EU member states with traditional ISDS, and watching longer term multilateral reform discussions). Australia should probably take the investment court option, to secure an overall better FTA deal, as I have argued (with Prof Amokura Kawharu) also for New Zealand after it too from 2018 mimicked Australia’s first anti-ISDS policy. Arguably, this option is not “ISDS” so it would not conflict with the Labor Party’s 2021 platform and now the 14 November 2022 Labor Government’s anti-ISDS position. Although the EU’s investment court model allows foreign investors the right to directly commence arbitration, they cannot nominate arbitrators; they instead are pre-selected only by the home and host states, and then randomly assigned to hear the claim (and any appeal). If Australia adopts this interpretation of its stance eschewing ISDS, to conclude a deal with the EU, this would also signal to other regional players and UNCITRAL delegates that there is scope to be flexible in investment treaty negotiations.

However, one wild card for Australia has been that a right-wing politician and mining magnate (Clive Palmer) escalated complaints in 2020 by formally seeking consultations with the federal Government and then notifying a dispute through his Singaporean company (Zeph), after unsuccessful constitutional and other domestic law challenges. They allege expropriation and breach of fair and equitable treaty (denial of justice) related to Western Australian state legislation impacting on iron ore rights and related past domestic arbitration awards. Given his high public profile, and rights originally held by his Australian company being transferred to Zeph in Singapore, if and when an ISDS arbitration is commenced (potentially from early 2023) under one of Singapore’s multiple treaties with Australia, this risks another Philip Morris Asia moment. An arbitration filing would certainly rekindle media and political interest in ISDS, which peaked in Australia over 2010-16.

In addition, concerns were reportedly being raised last week about potential ISDS claims brought by Asian and other investors and in Australian gas resources under the Labor Government’s plans to deal with the global energy crisis. Announcing now a renewed anti-ISDS policy may help pre-empt public criticisms in this respect as well. However, any such claims would be preserved under existing treaties, while substantive commitments made under Australia’s treaties (especially FTAs) anyway give the host state considerable scope to introduce emergency measures.

Whatever the impact of these potential claims on its policy-makers, Australia’s renewed anti-ISDS posture will make it even more difficult for RCEP to add ISDS protections, unless the Labor Government backtracks or loses the next elections in 2025. ISDS must be discussed again among member states within 2 years of RCEP coming into force, with a decision then on whether and how to add ISDS to be reached within another 3 years (Art 10.18). Any implications for Australia’s recently concluded review of its FTA with New Zealand and Australia have yet to be spelled out. In addition, the new Labor Government policy will probably have further ripple-on effects particularly across the Asia-Pacific region. It could also potentially impact on wider multilateral discussions about ISDS in UNCITRAL, and even on the “modernisation” of or withdrawal from the ISDS-backed Energy Charter Treaty (which Australia signed in 1994 but never ratified), especially if the Australian government can articulate more specifically the arguments and evidence for adopting this renewed anti-ISDS position.

“Crisis as an Opportunity for Development of Japanese Law”

Following on the inaugural ANJeL-in-Europe symposium organised by Prof Giorgio Colombo for UPavia in late 2019, Dr Wered Ben-Sade and other attendees or associates are participating online in this law-related session on the first day of the Sixth Bi-Annual International Conference of the Israeli Association for Japanese Studies (15-17 November 2022).

Chair: Wered Ben-Sade Bar-Ilan University, Israel

CRISIS AS AN OPPORTUNITY FOR DEVELOPMENT OF JAPANESE LAW
Chair: Wered Ben-Sade
Crises create new opportunities for development, particularly when traditional perceptions and customs (or habits) are questioned and reexamined. Similarly as “Necessity is the mother of invention” (Plato), crises push us out of our comfort zone while simultaneously lowering the risks of change, thus motivating us to operate differently in order to solve them or improve our response. This is true both at the micro, personal level, and at the macro level of society. Understanding this mechanism at the macro level can facilitate us when we encounter a personal crisis and inspire us to search for the opportunity that is encapsulated within.
Five presentations will examine how crises serve as an opportunity for the development of Japanese law, both in the past (from the second half of the 19th century) and now. Some of the most debated challenges that Japan and the world are currently facing, such as inclusiveness of women, legal education, Covid19 impact and sustainability (in the context of corporate governance), will be discussed.

Béatrice Jaluzot Lyon Institute for Political Sciences & Lyon Institute for East Asian Studies
Crisis as an opportunity for development from a historical perspective: The choice of a positivist legal system following the signature of the Unequal Treaties
In the second half of the 19th century, Japan experienced the collapse of a thousand-year-old culture based on the Chinese model and the emergence of a society inspired by Western models. The disappearance of the old regime, caused by the imperialist movements of the time, gave way to a country that was profoundly renewed in all its fundamental structures. Among them, the country’s legal system was one of the essential novelties and one of the main achievements of the new leaders. They were thus able to set up institutions that are still largely those of today. The aim is to present how this legal system is the result of this brutal overthrow of the regime, but also to understand how the accelerated transition from which it emerged took place. This rupture gave rise to the powerful and efficient structures we know today.

Makoto Messersmith University of Hawaii at Manoa, USA
Insights on the possibility of inclusiveness of women in law studies of Japan
When we look at the status quo and history of female law professors in the U.S. and Japan, it shows that unlike the U.S., Japan has not experienced great improvement regarding inclusiveness of women into law studies, yet. Although it seems that Japan has made some efforts to encourage more women to enter the field of law, women in law studies are still facing unique challenges. For instance, in many universities, female law professors are still less than 20%. In my talk, I will explore their challenges and discuss how we can encourage more women to be included in law studies.

Luke Nottage University of Sydney, Australia and Ken’ichi Yoneda, Kagoshima University, Japan
Introducing ICT into Japanese Legal Education:
The Postgraduate Law School Movement and Covid-19 as Cornerstones
This report explains the evolution of online legal education in Japan, particularly in its universities. Three phases can be discerned: before and after the introduction from 2004 of a new postgraduate Law School system to improve and expand core legal professionals, as part of a wider justice system reform program, and a more dramatic expansion prompted by the COVID-19 pandemic since 2020. The Law School reforms had trickled down somewhat to undergraduate legal education, building on and linking to wider nationwide and university-sector initiatives in Information and Communications Technology. This fortunately positioned Japanese legal education quite well for pandemic-related challenges, although the transitions have not been easy.


Ying Hsin Tsai College of Law, National Taiwan University
The Development of Shareholder Activism following the COVID-19 Pandemic
The development of shareholder activism in Japan, thanks to the COVID-19 pandemic, creates new opportunities. The Japanese company law designs assorted ways by which shareholders can participate in shareholders’ meeting, even if they cannot attend in person (e.g. proxy, written voting and electronic voting). Due to the pandemic, the shareholders’ meeting could not be held in-person, and instead these other ways were gradually put to use. In this presentation I will discuss the practical merits and legal drawbacks surrounding these ways. The overall picture that emerges is that while providing a variety of ways for shareholders to participate in the shareholders’ meeting itself can certainly enhance the practice of shareholder activism, how to design these ways in a manner which overcomes the legal issues remains a challenge.


Kozuka Soichiro Faculty of Law, Gakushuin University, Japan
Introducing Sustainability into the Japanese Corporate Governance
Japan’s corporate governance practice is making rapid developments towards engaging with sustainability. Japan has already the largest number of companies in the world, which have announced support for the TCFD (Taskforce on Climate-related Financial Disclosures) framework. The development towards sustainability will probably continue, induced by the external global crisis of the need for sustainability, and by the internal pressure of the institutional investors. In this presentation I will evaluate the current and expected developments. The Japanese nuances in both regulation and practice of corporate governance will also be discussed.

Japan: Sustainable Corporate Governance and ‘Gradual Transformation’

[ANJeL Program Convenor Prof Souichirou Kozuka and I have written a shorter chapter on Japan for the 5th edition of Principles of Contemporary Corporate Governance (by Jean Jacques du Plessis, Anil Hargovan and Jason Harris): see our longer manuscript version reproduced here for the 4th edition published by Cambridge University Press in 2018). As indicated in the introduction below, we pay particular attention to the hot topic internationally of ESG (environmental, social and governance) factors in corporate activity and investment, highlighting changes and (mostly) continuities in the corporate governance system behind Japan’s rapid uptake of ESG and sustainable or responsible investment.]

Japan developed vibrant commercial activity domestically towards the end of the Tokugawa Shogunate era (1603-1867), when it largely closed itself off to the world. As the country re-opened and expanded industrialisation over the Meiji Era (1868-1912), codifications and legal institutions were introduced following the European civil law tradition. Stock exchanges were established and investment grew into often family-owned companies, resulting in considerable emphasis on shareholder primacy before World War II.

However, after the US-led Allied Occupation (1946-51) until at least the 1980s, Japan became renowned for its stakeholder approach to corporate governance. More emphasis was placed on the interests and roles of employees (especially those in “lifelong employment”), creditors (especially “main banks”) and key suppliers or corporate customers (including in “keiretsu” corporate groups, and/or involving significant cross-shareholdings). These three practices influencing corporate governance, only loosely underpinned by relevant legislation, started to unravel after an asset bubble collapsed and Japan entered a “lost decade” of economic stagnation from the 1990s. Growing foreign investment into the Japanese stock market also supported a “gradual transformation” toward more shareholder primacy. This has involved some more protection for minority shareholders, and partial shifts towards a “monitoring” rather than executive board especially in listed companies (as elaborated in Part 11.2 of our new chapter).

The transformation since the 1990s has been reinforced by the creation of a new legislative regime (Part 11.3) and more recent “soft law” Codes for corporate governance and engagement or stewardship by institutional investors (Part II.4). Japan has experienced three major waves in the development of corporate law, at roughly half-century intervals. The Meiji-era Commercial Code enacted around the turn of the 20th century was followed by US-inspired reforms during the post-war Occupation, then much more wide-ranging reforms from around the turn of the 21st century prompted by Japan’s economic slowdown. Even in terms of formal legislative changes, the trajectory has not been one of straightforward ‘Americanisation’, and the overall position now reached is also very different from US law, as evidenced by the partial persistence of the statutory auditor governance structure inspired by German law. Also evident are some influences from – or at least parallels with – aspects of English law. These are epitomised recently in listing requirements, including a ‘comply or explain’ Corporate Governance Code since 2015, and an earlier tendency in takeover regulation to give priority to decisions of shareholders over those of directors. The impact of German law, filtered sometimes nowadays through EU law, remains important too. Japan’s complex corporate law landscape is also influenced by  the three distinctive features of post-War corporate governance practice mentioned above, even though they too have been undergoing gradual transformations.

Much discussion has emerged recently also around ESG issues for investors and managers in Japan, as in many other jurisdictions with large securities markets (Part II.5). A key question is whether this means even-greater shareholder primacy, as foreign institutional investors in particular pushed for further ESG initiatives from Japanese firms, or whether it marks their return towards more stakeholder-based corporate governance. The answer is important for predicting likely future directions (Part II.6).

Corruption and Illegality in Asian Investment Arbitration

Written by: Asst Prof Nobumichi Teramura (UBD-IAS, CAPLUS affiliate) and Luke Nottage

[Updates: I have co-authored draft introductory and Thailand chapters for this book project proposed with Springer, and will present them at an invitation-only webinar for book contributors hosted by UBrunei on 15 June 2022, as well as at Griffith University’s Law Futures Centre on 21 July, NUS ISEAS on 22 September, and at Monash Law (Melbourne CBD) on 9 November 1-2pm.]

The Institute of Asian Studies at the Universiti Brunei Darussalam (UBD-IAS) has recently funded a conference volume project on this important topic, involving several professors from the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS).

Bribery and other serious illegal behaviour by foreign investors are widely condemned in any society. The problem is that people seem not to have reached a consensus on the consequences of corruption and illegality in international investment and especially in investment arbitration – a transnational procedure to resolve disputes between a foreign investor and a host state. A core issue is whether a foreign investor who violated a host state’s law would be awarded protection of its investment, as per its contract with the host state and/or the applicable trade or investment agreement between the home state and the host state. Some suggest such protection would be unnecessary, as the investor committed a crime in the host state, while others attempt to establish an equilibrium between the investor and the host state. Some others claim to protect investment, invoking the sanctity of promises made. This research explores ‘Asian’ approaches toward the issue, considering the extent to which significant states in Asia are likely to become ‘rule makers’ rather than ‘rule takers’ regarding corruption and serious illegality in investor-state arbitration. To this end, we will employ a comparative method, inviting scholars from the Asia-Pacific region, including UBD-IAS and other institutions.

The Principal Investigator is Dr Nobumichi Teramura, the Co-Principal Investigator is Assoc Prof Bruno Jetin (UBD-IAS Director), Luke Nottage (appointed also now a Visiting Professor at UBD) is another contributor and the others are listed below. Many have previously worked together on related Asia-focused projects, notably their co-edited volume with Shahla Ali on New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution (Wolters Kluwer 2021) and Luke Nottage’s book co-edited with Julien Chaisse on Investment Treaties and International Arbitration Across Asia (Brill, 2018; expanding on country reports from a 2017 JWIT special issue on ASEAN with Prof Sakda Thanitcul as joint special editor and supported by the Sydney Southeast Asia Centre).

This new project’s primary purpose is to examine Asian approaches and case studies regarding corruption and serious illegality in international investment arbitration. It focuses on corruption-related disputes between private parties and public sector entities. It also covers other serious illegal conduct by foreign investors  related to or broadly equivalent to corruption and bribery, including serious non-compliance with key provisions of national laws regulating the admission or operation of foreign investment.

Regional free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership Agreement (RCEP Agreement) mandate member states to combat corruption and other illegal conduct. However, they remain silent on how specifically to deal with public-private disputes arising from corruption and illegality. Trade and investment law experts have become well aware of the problem, and some suggest treaty reforms even at a global level. Against this backdrop, the research aims to accumulate Asian perspectives, for Asia to build the foundation of leading the next rounds of treaty reforms. In particular, it intends to address the following questions:

  1. Whether Asia has been and will remain ‘ambivalent’ about international law prohibiting corruption and illegality. How have Asian countries been combatting corruption and other illegal activities particularly as to foreign investment? What laws and rules exist, and how do they operate in respective jurisdictions? What are the recent developments?
  2. Whether and how Asian countries have dealt with corruption and illegality in relation to foreign investment projects. If they have faced any international investment cases, what are the outcomes and consequences?
  3. Whether Asian countries have been or are more likely to become ‘rule makers’ rather than ‘rule takers’ in international investment law (as explored generally in the Brill and Wolter Kluwers books mentioned above) regarding corruption and illegality.

Those questions will support us to achieve the central objective: to examine Asian approaches toward  corruption and illegality in international investment arbitration. As we enter an age in which Brunei is increasing its engagement with foreign companies, it is probable that there will be disputes that need to be arbitrated, and corruption and illegality in investment arbitration are issues which other countries in the region are already facing. This research project will help the Bruneian authorities and the academic community, and counterparts in other Asia-Pacific jurisdictions as well as further afield especially when engaging with this region, learn more about such topical issues and potential counter-measures.

More specific expected outcomes include:

  1. One international online research workshop in mid 2022 and one international symposium in early 2023 (depending on pandemic travel restrictions), both in Brunei, for the contributors to present their papers and exchange opinions.
  2. An edited volume in the IAS-Springer Book Series on “Asia in Transition” based on the research papers by the contributors. (A further grant will be applied for to assist with related copy-editing etc, and CAPLUS interns and other Sydney Law School resources will assist particularly with the chapters authored by CAPLUS members.)
  3. A journal article co-authored by Professor Nottage, A/Professor Jetin and Dr Teramura for a Q1 Scopus journal.

Contributors based at UBD:

Name and FICsDescription of contribution
Dr Nobumichi TERAMURA (UBD-IAS)Principal Investigator – general editor and author of chapters for the edited volume in the IAS-UBD “Asia in Transition” series
Associate Professor Bruno Jetin (UBD-IAS)Co-Principal Investigator – general editor and author of chapters for the edited volume in the IAS-UBD “Asia in Transition” series
Yang Amat Mulia Pengiran Indera Negara Pengiran Anak Haji Puteh ibni Al-Marhum Pengiran Pemancha Pengiran Anak Haji Mohamed AlamGeneral contributor (re corruption, investment, arbitration and the Asia-Pacific) and author of the forewords of the edited volume
Professor Ahmed Masood Khalid (UBD-SBE)Contributor (re business and corruption)
Dr Masairol Bin Haji Masri (UBD-SBE)Contributor (re business and corruption)
Dr Hammeed Abayomi Al-Ameen (UBD-SBE)Contributor (re business law and corruption)

Other Contributors:

Professor Luke NottageUniversity of Sydney, Australia (CAPLUS Associate Director); UBD (visiting professor)Co-organiser – general editor and author of chapters for the edited volume in the IAS-UBD “Asia in Transition” series
Dr Colin Ong QCArbitration Association of Brunei Darussalam; and Colin Ong Legal ServiceContributor (re standard of proof for corruption allegations)
Professor Sakda ThanitculFaculty of Law, Chulalongkorn University, ThailandContributor (re Thailand)
Professor Sirilaksana KhomanFaculty of Economics, Chulalongkorn University; National Anti-Corruption Commission (NACC), ThailandContributor (re Thailand)
Mr Antony CrockettHerbert Smith Freehills, Hong KongContributor (re Indonesia)
Professor Simon ButtUniversity of Sydney (CAPLUS Co-Director)Contributor (re Indonesia)
Professor Romesh WeeramantryNational University of Singapore; Clifford ChanceContributor (re Lao Republic)
Justice Anselmo ReyesSingapore International Commercial CourtContributor (re corruption regulations for economic warfare)
Professor Vivienne BathUniversity of Sydney (former CAPLUS Director)Contributor (re China and Hong Kong)
Professor Joongi KimYonsei Law School, South KoreaContributor (re South Korea)
Professor Dai TamadaKyoto University, JapanContributor (re Japan)
Dr Prabhash RanjanSouth Asian University, IndiaContributor (re India)
Dr Martin JarrettMax Planck Institute, Heidelberg, GermanyContributor (re general investment law and investor misconduct)
Professor Tim LindseyUniversity of Melbourne, AustraliaContributor (re Indonesia)
Dr Jocelyn CruzDe La Salle University, the PhilippinesContributor (re the Philippines)

Publications and Webinars on Asia-Pacific arbitration and ISDS

On 23 March 2022 Kyoto University awarded Luke Nottage an LLD by publications for his book of selected/updated and some new essays on International Commercial and Investor-State Arbitration: Australia and Japan in Regional and Global Contexts (Elgar, 2021). In addition, a Transnational Dispute Management report of (Young-OGEMID listserv) Q&A about the book was published in February 2022.

On 2 March 2022 Prof Luke Nottage joined Dr Michael Hwang SC (Singapore), Neil Kaplan CBE QC SBS (Hong Kong), Hafez Virjee (Paris) for a public webinar entitled “Between Theory and Practice”, discussing the development of international arbitration particularly in the Asia-Pacific region and the place of Australian practitioners in this global market: watch the recording here. The webinar also discussed the benefits of pursuing international arbitration as an elective course, in the context of the large range of international arbitration materials made available to Sydney Law School students and staff through the Delos Dispute Resolution platform thanks to a subscription donated by Dr Hwang.

On 25 February Luke Nottage was interviewed for a podcast recording by a Bosnia-based association for arbitration, discussing the hot topic of transparency vs confidentiality particular in investor-state dispute resolution. Below is the outline of key points discussed.

In addition, Luke Nottage spoke on ISDS and investment treaties at the UoW Transnational Law and Policy Centre‘s co-hosted symposium on topics being negotiated in the Australia-India FTA (recording here), focusing on mandatory mediation before investors arbitrate disputes, and was then invited to speak on ISDS reform more generally for a symposium hosted by the Indian government’s Centre for Trade and Investment Law.

Some of Luke Nottage’s related recent publications include an overview chapter for a new book on the Asian Turn in Foreign Investment, an econometric analysis of ISDS-backed treaties on FDI flows, international arbitration and society at large (in the new Cambridge Compendium), professional diversity in international arbitration, and a review forthcoming in the Australian Law Journal of a new book on International and Australian Commercial Arbitration.

* * *

25 February 2022 webinar on Transparency in ISDS:

  • Pros and cons of transparency in international arbitration generally?
    • Fewer costs and delays in procedures and award-writing if procedure limited to the parties/counsel and arbitrators, not wider public
    • vs leads to more info asymetries in this market for services (arbitrators, especially lawyers, even expert witnesses) hence potential costs and delays: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2987674
    • If diminishing net cost savings, even in intl commercial arbitration, less attractive balance from rule of law perspective, undermining legitimacy of international arbitration compared to (more public) litigation – see (Menon CJ article, quoted in my JoIA article on ACICA Rules 2021 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3931086: incidentally, those don’t relax confidentiality but do require disclosure of third-party funders)
    • Especially in investor-state arbitration, given its inherent greater public interests, and growing media attention (and polarisation)
  • Current regime:
    • Already considerable (surprising) transparency in ISA re awards (2/3): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3227401 **
    • ICC Rules (mostly an ICA org, occasionally ISA): no confidentiality imposed on parties
    • ICSID Convention / Rules (2/3 of ISA cases): likewise, but eg „shall promptly“ publish „excerpts of legal reasoning“ in awards, need consent of parties for full award (or leak!)
    • Ad hoc arb UNCITRAL Rules (eg 2010): likewise, can publish awards if parties consent, arbitrator discretion re other transparency (eg Philip Morris v Australia procedural order)
      • Revised 2013 for transparency in all treaty-based arbs, then 2014 Mauritius Convention to extend transparency to pre-2014 treaties (whether UNCITRAL or other Rules)
  • The recent amendments of investment arbitration rules (most notably ICSID) and dispute resolution clauses in IIAs [eg] to allow third-party submissions.
    •  ICSID already in 2006 had amended its Rules for Convention and AF cases to somewhat expand confidentiality – https://icsid.worldbank.org/resources/rules-and-regulations/amendments/about
    • Recently decided further ICSID Rules revisions (since late 2016) align AF Rules (which also now can be adopted even without any party being member of the ICSID Convention) with expansive transparency across all stages as in UNCITRAL Rules; plus for ICSID (Convention states) Arb Rules eg at https://icsid.worldbank.org/resources/rules-amendments
      • [Proposed Rule 62] Automatic publication of award if 60 days pass and no objection lodged by a party (cf earlier debate that such „deemed consent“ too incompatible with Convention, which would need to be then amended but too many member states!)
      • [Rule 63] Publish excerpts of legal reasoning re decisions other than awards, eg on jurisdiction (eg recently under Australia-Egypt BIT: do treaties providing that a host state „shall“ consent to ISA provide advance consent to that procedure? Earlier see my https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2424987)
      • [Rule 64] publish other docs lodged (eg party submission) also if agreed by parties or tribunal discretion / weighing
      • [Rule 65] shall allow non-parties to attend hearings (and publish transcript or recording) unless a party objects
      • [Rule 66] but subject to redaction etc for „confidential information“ (listed types below)
      • [Rule 67] expanded provisions so tribunals MAY allow submissions etc by „non-disputing parties“ eg amicus curiae – text below bolded
      • [Rule 68] provisions so tribunals SHALL allow „non-disputing treaty parties“
  • Tension between the transparency concerns expressed by the States in the context of ISDS and the lack of actual application of the transparency rules in practice. 
    • Yet only 9 ratifications of Mauritius Convention, few of the big players (eg Canada 2016, Switzerland 2017, Australia 2020 alongside review of old BITs – but no public report!): lose control / treaty negotiating leverage? Prefer incorporating tailored regime in treaties, anyway need to do so (Rules options provided, and/or amendments) for post-2014 treaties as Mauritius Convention doesn’t apply to those
    • Some host states have been reticent about too much transparency, including in treaty (re)drafting or UNCITRAL reform deliberations: exposes their (even alleged) poor governance (hence many investors favour transparency, potentially even encouraging settlement: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2065636), impede settlement (only partly empirically justified? ** and see further Ubilava at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3352181), more costs and delays (arguments over exceptions to transparency: Prof Zachary Douglas at https://www.claytonutz.com/ialecture/previous-lectures/2020)
  • Impact of legal tradition and culture on the approach to transparency in ISDS?
    • Less determined by say civil vs common law tradition, more eg socialist law / governance (eg Vietnam etc haven’t even ratified ICSID Convention, Chinese treatise were slow to incorporate much transparency) or developing country status (eg India?)
    • Culture might have some (small) impact: surveys etc show Eastern parties / counsel see confidentiality as advantage over litigation compared to Western, more generally think of eg https://en.wikipedia.org/wiki/The_Farewell_(2019_film) ?
  • Possible solutions to the improvement of transparency, while maintaining the benefits of confidentiality that the parties desire
    • States party should try to agree in treaties in advance
    • or during proceedings (but then host state and investor, and often acrimonious generally)
    • Otherwise, tribunals and counsel need to be aware of the competing interests, pros and cons of transparency (especially for costs and delays) as discussed above, when weighing whether and how to allow disclosures.

New ICSID (Convention) Arbitration Rule 66

Confidential or Protected Information

For the purposes of Rules 62-65, confidential or protected information is information

which is protected from public disclosure:

(a) by the instrument of consent to arbitration;

(b) by the applicable law or applicable rules;

(c) in the case of information of a State party to the dispute, by the law of that State;

(d) in accordance with the orders and decisions of the Tribunal;

(e) by agreement of the parties;

(f) because it constitutes confidential business information or protected personal

information;

(g) because public disclosure would impede law enforcement;

(h) because a State party to the dispute considers that public disclosure would be

contrary to its essential security interests;

(i) because public disclosure would aggravate the dispute between the parties; or

(j) because public disclosure would undermine the integrity of the arbitral process.

Rule 67

Submission of Non-Disputing Parties

(1) Any person or entity that is not a party to the dispute (“non-disputing party”) may

apply for permission to file a written submission in the proceeding. The application

shall be made in the procedural language(s) used in the proceeding.

(2) In determining whether to permit a non-disputing party submission, the Tribunal

shall consider all relevant circumstances, including:

(a) whether the submission would address a matter within the scope of the dispute;

(b) how the submission would assist the Tribunal to determine a factual or legal

issue related to the proceeding by bringing a perspective, particular knowledge

or insight that is different from that of the parties;

(c) whether the non-disputing party has a significant interest in the proceeding;

(d) the identity, activities, organization and ownership of the non-disputing party,

including any direct or indirect affiliation between the non-disputing party, a

party or a non-disputing Treaty Party; and

(e) whether any person or entity will provide the non-disputing party with financial

or other assistance to file the submission.

(3) The parties shall have the right to make observations on whether a non-disputing

party should be permitted to file a written submission in the proceeding and on any

conditions for filing such a submission.

(4) The Tribunal shall ensure that non-disputing party participation does not disrupt the

proceeding or unduly burden or unfairly prejudice either party. To this end, the

Tribunal may impose conditions on the non-disputing party, including with respect

to the format, length, scope or publication of the written submission and the time

limit to file the submission.

(5) The Tribunal shall issue a reasoned decision on whether to permit a non-disputing

party submission within 30 days after the last written submission on the application.

(6) The Tribunal shall provide the non-disputing party with relevant documents filed in

the proceeding, unless either party objects.

(7) If the Tribunal permits a non-disputing party to file a written submission, the parties

shall have the right to make observations on the submission.

** “… around 85% of cases where either the investor or the state have won are fully Public, and almost all the rest are only Partly Confidential. For settled cases, as italicised, 41% are Public or Partly Confidential.  This suggests that minimising costs and delays through early settlement may often be facilitated by keeping the outcome at least partly private, but not necessarily in all situations.”

Guest Blog: The Role of Independent Directors in Contemporary Asia

Written by: Joseph Black (CAPLUS law student intern, 2021)

On 26 October 2021 the Contemporary Asia International Forum Series coordinated a timely panel event entitled ‘The Role of Independent Directors in Contemporary Asia’. The panel was moderated by Dr Edith I Tzu Su, Associate Professor at the National Chung Hsing University in Taiwan, the host institution. The event was supported by the Centre for Asian and Pacific Law at the University of Sydney. Panelists were Dr Indraijt Dube, Professor of Intellectual Property Law at the Indian Institute of Technology Kharagpur; Dr Anil Hargovan, Associate Professor at the University of New South Wales; Dr Luke Nottage, Professor of Comparative and Transnational Business Law at the University of Sydney; and Dr Chun-Ren Chen, Professor at the National Cheng Kung University in Taiwan. We had the opportunity to explore key and original themes: the roles of independent directors in India; the roles of independent directors in Southeast Asia; and more. A few major questions reverberated throughout the session: are independent directors (although not executives or employees) de facto part of a wider managerial team; what are the implications of transplanting non-Asian laws and norms into Asian contexts (with a stronger blockholder tradition even in listed companies) and how are Asian companies distinguished from non-Asian companies? What made the webinar particularly interesting is that speakers had diverse insights and answers to these very topical and pressing questions.

After Dr Su commenced the session and introduced speakers, and Dean Chang Yen Li of the National Chung Hsing University delivered a cordial welcome, Dr Nottage commenced the discussion on corporate governance and independent directors, sketching the growth of sharemarkets in ASEAN and other parts of Asia, focusing on Malaysia and more briefly Cambodia. He proposed comparisons focusing on why and when independent director requirements are introduced, how this happens, what they are, and where they actually or potentially have impacts. Dr Nottage noted that Malaysia presents interesting data on independent directors given its peculiar history. Amid and after the Asian financial crisis in 1997, the World Bank and IMF encouraged (without requiring) changes and new corporate governance regulations in Malaysia. Notably, Malaysia was an early leader calling for independent directors (implementing requirements before Australia), but commentators have wondered wonders if this was ‘window dressing’ to lure back foreign investors (and regain foreign investors who had fled after the financial crisis). While they may have tried to introduce independent director requirements, it is critical to consider that there are always problems with legal transplants. Malaysia developed (like Thailand[1]) a three-tiered system of mandatory listing rules, ‘comply or explain’ Corporate Governance Code higher standards, and even higher independent director requirements that listed companies can voluntary disclose (but for which they do not need to explain non-compliance). A particular innovation – somewhat paralleling Indian corporate law reforms in 2013 – is is to require a two-tier vote (including a majority of the minority) for directors serving more than 12 years.

By contrast, Cambodia has a much newer and smaller sharemarket, with a less well-resourced regulator, so relies just on mandatory minimum standards. Those exclude from independent directors any individuals serving in competing firms, as in Thailand, perhaps reflecting the weakness of competition law and enforcement.[2] It will be interesting to observe how the country changes and independent director requirements start to be tightened in an effort to make them more functional. Following Dr Nottage, Dr Dube’s discussion largely focused on the role of independent directors in contemporary India. Dr Dube posed interesting questions – such as whether Indian corporate governance needs to be ‘Indianised’ – and explored the emergence of diverse laws in tandem with growing conceptualisations of independent directors in the Indian context. Dr Dube seemed to use a very interesting word – calibrating – to define continuity and change in this area in India in recent years. Dr Dube discussed the mandatory appointment of women independent directors; declaration of independence; auditing independence; the theory that independent directors played significant roles in raising market size, profitability, and sustainability; and evidence-based research finding a positive correlation between influences of independent directors and companies’ policies on health, safety, and environmental audits. Dr Dube noted the Tata Group Supreme Court case in 2016 (regarding the removal of then chairman Cyrus Mistry from office and later the company’s board) and implications (i.e., normalising independent directors in this context?).

Later, Dr Hargovan and Dr Chen posed as commenters and critically appraised Dr Nottage and Dr Dube. Dr Chen particularly analysed the concept of novel law on independent directors as window dressing to attract foreign investment, whether independent directors are supposed to serve as managers or a check against managers, tensions in boardrooms, incumbent directors refusing independent directors access to certain corporate data in Taiwan, seemingly inevitable conflicts between majority and minority shareholders, and implications of declaring independence (i.e., is it just a declaration?). Dr Hargovan referred to minority interests in family-dominated companies in Asia, independence from whom and for what (definitional issues), the perils of the legal transplant, optimal board composition (taking into account local conditions and cultures), characteristics of Asian companies (tangential to varieties of capitalism), the Kotak Committee Report in India (2017), and indicia of independence (interestingly similar between say Australia and India). Dr Hargovan noted that listed companies in Asia are more likely to be controlled by promoters than in Australia, where ownership is typically more diffused and the participation of institutional investors in corporate ownership follows a different pattern. Dr Hargovan closed by noting that the Anglo-Australian model is not guaranteed to be successfully transplanted to Asian countries; a lot depends on the economy and other factors, as illustrated by his recent article on Indian developments.[3]

Dr Nottage and Dr Dube closed with a few short words in response, although time was limited. To view the recording and for further Contemporary Asia International Forum Series events, please contact Dr Edith I Tzu Su at edithsu@nchu.edu.tw.

***

Joseph Black is a Juris Doctor student at the University of Sydney and anticipates commencing his Masters of International Law program from February 2022. Joseph is an intern with the CAPLUS and is interested in Japanese Law, Chinese Law, Indonesian Law, East Asian Studies, and other fields.


[1] Nottage, Luke R., Independent Directors and Corporate Governance in Thailand: A New Frontier (May 13, 2020). Journal of Transnational Law and Policy, 31 (Forthcoming, early 2022), Sydney Law School Research Paper No. 20/26, Available at SSRN: https://ssrn.com/abstract=3599705

[2] Nottage, Luke R., Fledgling Corporate Governance and Independent Directors in Cambodia’s Securities Market (November 14, 2019). Australian Journal of Corporate Law, 35, 2020, pp. 208-234, Sydney Law School Research Paper No. 19/60, Available at SSRN: https://ssrn.com/abstract=3459361

[3] Hanrahan P; Hargovan A, 2020, ‘Legislating the concept of the independent company director: Recent Indian reforms seen through Australian eyes’, Oxford University Commonwealth Law Journal, vol. 20, pp. 86 – 114, http://dx.doi.org/10.1080/14729342.2020.1773018

ANJeL/JSAA “Japanese Law in Context” Podcasts Project – Going Live

The Australian Network for Japanese Law (ANJeL) in collaboration with the Japan Studies Association of Australia (JSAA) and thanks to Mini-Grant funding from the Japan Foundation Sydney awarded in November 2020, has completed 20 podcasts introducing Japanese Law in comparative and socio-economic contexts. The interviews include segments on the current or likely impact of the COVID-19 pandemic across the diverse sub-fields of Japanese law and society. The podcast “playlist” is here on Youtube and a report is here on the design and some key points from the podcasts, written by Melanie Trezise (PhD candidate and research assistant at the University of Sydney Law School, and past ANJeL Executive Coordinator).

The expert interviewees have taught in the Kyoto and Tokyo Seminars in Japanese Law, co-organised by ANJeL and Ritsumeikan University‘s postgraduate Law School since 2005 for Japanese, Australian and other international students, and/or the interviewees have been ANJeL visitors or advisors. Interviewers are ANJeL co-directors Prof Luke Nottage (University of Sydney Law School) and A/Prof Leon Wolff (QUT), along with Micah Burch (Senior Lecturer at Sydney Law School) and Melanie Trezise (who was also primarily responsible for the editing). Others who helped make this possible include Dr Nobumichi Teramura (now Assistant Professor at the University of Brunei) and the terrific tech team from Sydney Law School (Lana Kolta, Andy Netherington and Ross West).

ANJeL and JSAA are very grateful to all who supported this project. We hope that these resources available via their websites (or directly via Youtube) will be useful for the wider public when engaging with the fascinating and ever-changing world of Japanese law. The sub-topics and interviewees are listed below, with video-recordings edited to around 15-20 minutes each. There are also several mostly longer Bonus Features as well as a shorter introduction (by Luke Nottage), such as reflections about the innovative Kyoto and Tokyo Seminar program from some of its key architects (including past ANJeL Co-Director Kent Anderson and Ritsumeikan University Professor Naoya Yamaguchi). Other Seminar program organisers over the years include Professors Makoto Ibusuki (Program Convenor: ASEAN-in-Japan), Tsuneyoshi Tanaka and Chihara Watanabe.

  • Introduction to the Podcast Series – Luke Nottage (USydney)
  • Pop Culture – Leon Wolff (QUT)
  • Comparative and Theoretical Perspectives- Tetsuro Hirano & Chihara Watanabe (Ritsumeikan) with Luke Nottage
  • Mediation – James Claxton (Rikkyo / Waseda U) & Kyoko Ishida (Waseda U)
  • Arbitration – Giorgio Colombo (Nagoya U), Tatsuya Nakamura (Kokushikan U) & Nobumichi Teramura (UBrunei)
  • Civil Procedure – Yoko Tamura (Tsukuba U)
  • Lawyers – Jiri Mesteky (Kitahama Partners) & Yoshihiro Obayashi (Yodoyabashi & Yamagami)
  • Criminal Justice – Kent Anderson (ANU / Advisor to Australia’s Education Minister) & Makoto Ibusuki (Seijo U)
  • Government – Narufumi Kadomatsu (Kobe U)
  • Gender – Kyoko Ishida (Waseda U)
  • Labour – Takashi Araki (U Tokyo)
  • Contracts – Veronica Taylor (ANU/ ANJeL Advisor) & Tomohiro Yoshimasa (Kyoto U)
  • Consumers – Marc Dernauer (Chuo U)
  • Corporate Governance – Souichirou Kozuka (Gakushuin U)
  • Finance – Akihiro Wani (Morrison & Forster)
  • Tax – Justin Dabner (formerly JCU) with Micah Burch (USydney)
  • Bonus: Sports – Matt Nichol (CQU) with Micah Burch
  • Bonus: Gender, Past & Present – Masako Kamiya (Gakushuin U)
  • Bonus: Pandemic & Japanese Law – Compilation
  • Bonus: Kyoto and Tokyo Seminars – Kent Anderson, Leon Wolff & Naoya Yamaguchi (Ritsumeikan) with Luke Nottage

UNCCA conference (video) presentation: “Australia’s investment treaties and reviews”

Written by: Prof Luke Nottage & Ana Ubilava

[This posting and linked video presentation, reproduced from Erga Omnes, relates also to my book in press with Elgar comparing international arbitration in Australia and Japan in regional and global contexts.]

The UNCITRAL Coordination Committee for Australia (UNCCA) and the Commercial Law Association (CLA) is holding an online seminar on Monday 26 October 2020 partly to celebrate the fortieth anniversary on the CISG (UN Convention on Contracts for the International Sale of Goods). The live, interactive seminar will be supplemented by a full conference package including pre-recorded presentations. A longer (30-minute) version of a pre-recording by UNCCA Fellow Dr Luke Nottage (Professor of Comparative and Transnational Business Law) and Ana Ubilava (PhD student at Sydney Law School and ANJeL Executive Coordinator) can be viewed here. Our presentation is entitled “Australia’s recent investment treaty ratifications and reviews: The UN Transparency Convention and investor-state mediation”. It is based on Ana’s recent postings on investor-state mediation (her PhD thesis topic) for the Kluwer Mediation Blog (reproduced here) and for the Kluwer Arbitration Blog with Luke and Prof James Claxton, as well as her lead-authored chapter with Luke for his co-edited book on Asia-Pacific international business dispute resolution due out from Kluwer by end-2020:

Ubilava, Ana and Nottage, Luke R., Novel and Noteworthy Aspects of Australia’s Recent Investment Agreements and ISDS Policy: The CPTPP, Hong Kong, Indonesia and Mauritius Transparency Treaties (March 4, 2020). in Nottage, Luke; Ali, Shahla; Jetin, Bruno; Teramura, Nobumichi (eds), “New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution”, Wolters Kluwer, (Forthcoming) , Sydney Law School Research Paper No. 20/12, Available at SSRN: https://ssrn.com/abstract=3548358 or http://dx.doi.org/10.2139/ssrn.3548358

Our presentation updates for recent developments including DFAT’s public consultation to review Australia’s remaining BITs, with Luke’s Submission here and a related thought-provoking Clayton Utz / University of Sydney International Arbitration Lecture this year by Prof Zachary Douglas; but a summary of our original chapter manuscript is as follows.

Abstract: Investment treaties, and especially investor-state dispute settlement (ISDS) provisions, became a political hot potato from around 2011 when Philip Morris brought the first-ever ISDS claim against Australia under an old bilateral investment treaty (BIT) with Hong Kong. A Labor-Greens Government declared that it would no longer agree to ISDS provisions in future treaties, but when a centre-right Coalition Government regained power from 2013 it reverted to concluding treaties containing ISDS clauses on a case-by-case assessment. Australia therefore agreed to ISDS in FTAs with Korea and China, but not bilaterally with Japan. However ISDS-backed provisions apply between Australia and Japan since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can into force between them (and five other Asia-Pacific nations so far) from January 2019. Yet the Australian parliament engaged in robust debate about ratification of the CPTPP, with Labor Opposition (and Greens) parliamentarians continuing to voice concerns over ISDS provisions, despite the Philip Morris claim against Australia’s tobacco plain packaging having been rejected on jurisdictional grounds in 2015.

This paper examines how (US-style) CPTPP drafting compares with two important recent investment agreements subsequently signed by Australia over 2019, namely with Indonesia as part of a wider free trade agreement (IA-CEPA), and with Hong Kong (AHKIA, alongside a bilateral FTA covering non-investment matters). AHKIA came into force from 17 January 2020, while IA-CEPA has been ratified by Australia but not yet by Indonesia. IA-CEPA adds a provision unique in the universe of over 3000 investment agreements world-wide, probably proposed by the Indonesian side: a compulsory mediation step prior to arbitration, if the host state requests mediation after the foreign investor initiates ISDS. The paper also highlights other features of both treaties that may help reduce delays and hence costs in ISDS. The paper summarises empirical data about delays and costs, as well as transparency around ISDS as another growing public concern, including some of our own empirical data provided as evidence to an Australian parliamentary inquiry into ratifying the CPTPP.

We also examine the 2019 parliamentary inquiry that agreed with the submission that Australia should ratify the Mauritius (“UN ISDS”) Convention, thereby retrofitting extensive transparency provisions on pre-2014 treaties between Australia and other states that might also accede to that framework Convention. Even if Mauritius Convention ratifications proliferate, however, it will not retrofit extra transparency provisions to treaties concluded even after 1 April 2014 even among those states (say between Australia and Indonesia, where the investor chooses the ICSID Rules rather than UNCITRAL Rules option for arbitration). Accordingly, states ratifying the Mauritius Convention will still need to agree bilaterally to expand any still-limited transparency provisions in such post-2014 treaties, which is quite inefficient compared to a multilateral solution. Nonetheless, we conclude from these new developments that Australia is now better placed to play a more active role in guiding the future path of international investment treaty-making multilaterally and especially in the Asia-Pacific region.

Pioneering Mandatory Investor-State Conciliation Before Arbitration in Asia-Pacific Treaties: IA-CEPA and HK-UAE BIT

Reproduced from the Kluwer Arbitration Blog, which subsequently ran a series on investor-state mediation; and written by: James Claxton (Rikkyo University), Luke Nottage (University of Sydney & Williams Trade Law), and Ana Ubilava (University of Sydney).

Arbitration has been the default dispute resolution mechanism in the investor-state dispute settlement (ISDS) regime for a long time. Provisions for third-party procedures other than arbitration have been relatively rare in older generation bilateral investment treaties (BITs). Even where those have provided in advance for the option of ICSID (Convention or Additional Facility) Conciliation Rules, investors have rarely invoked them. Only 13 cases have been filed since 1982 with four filed since 2016. The latest Conciliation Rules case was filed by Barrick Niugini Ltd against Papua New Guinea on 22 July 2020 under a mining lease contract. Barrick Niugini is a joint venture between Chinese Zijin Mining and Canadian Barrick Gold. In parallel, Barrick Gold’s Australian subsidiary instituted ICSID Convention arbitration on 11 August 2020 under the 1990 Australia-PNG BIT.

Over the past decade, calls have grown for other alternative dispute resolution mechanisms with a special focus on mediation. Mediation is believed to be a time- and cost-efficient dispute resolution mechanism that can prevent disputes from escalating to arbitration. Various stakeholders have taken up the call to facilitate and promote investor-state mediation. UNCITRAL Working Group III is discussing mediation in the context of ISDS reform and so is the Academic Forum on ISDS (see, for example, a March 2020 paper circulated for discussion). Mediator trainings are being offered for investor-state disputes, and ICSID is promulgating mediation rules for the first time that will be available even if neither the home nor host state has ICSID membership status. The UN Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) is also set to come into force from 12 September 2020. While this Singapore Convention does not extend expressly to investment disputes, there is broad agreement that at least some settlement agreements resulting from investor-State mediations will fall within its scope.

Some newer treaties include additional express references to mediation or conciliation in ISDS clauses, but disputing parties must agree separately and later to those procedures.1) While the use of such voluntary mediation may be growing, until recently there has been little to no interest in mandatory mediation – as a pre-condition to arbitration. Some still see mediation as unlikely to be or even incompatible with the aims of ISDS. Perceived obstacles include: (a) some States may have difficulty determining an authority to conclude settlements on their behalf; (b) settling an investment dispute could be associated with risks of personal liability and criminal prosecution (especially in developing economies or totalitarian States with weak rule of law); (c) settling a dispute could be considered an admission of guilt by the respondent State; (d) settlements do not pay as much as what a Claimant could be awarded through a successful award; (e) some investment disputes have non-monetary claims that require certain legislative or policy measures from the Respondent State which would go beyond the capacities of mediation; and (f) settlements promote secrecy of outcomes.

Several such arguments have been challenged through a recent empirical study analysing 541 concluded, treaty-based investor-state arbitration cases with the focus on settlement outcomes. The findings suggest that none of the key factors — such as the economic industry of the investment, size of the initial claim (or whether it was monetary or non-monetary), or the economic development status of the respondent state (and claimant home state) — have a negative impact on settlements. The study also found that in settlements the average compensation rate is 32%, very similar to that of the awarded-to-claimed compensation rate (31%). In addition, settlement agreements have been reached on non-pecuniary terms even when the claim was monetary, suggesting that the non-pecuniary claimed relief is not an unsurmountable impediment to reaching a settlement agreement. The study did find that settlements are associated with increased confidential outcomes compared to those ending in arbitration awards, but recently the rate of confidentiality for all outcomes has remained stable while the rate of settlements keeps falling. This suggests that leaving investor-state disputes to arbitration does not guarantee increased transparency either. Such findings, highlighting more potential for amicable settlements generally than many may have assumed, dovetail with emerging interest by investors and States in mandatory mediation. A forthcoming report by Queen Mary University of London finds that 64% of respondents (mostly in-house counsel plus some management representatives of firms investing internationally) favour integrating mediation as a mandatory pre-condition to arbitration in ISDS.

Already, the new Hong-Kong-United Arab Emirates BIT (HK-UAE BIT) and the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA) free trade agreement, add unusual provisions for mandatory conciliation as a pre-condition to arbitration. These provisions mark a break with existing IIAs that do not even mention mediation or conciliation – much less make such provisions mandatory. Under the HK-UAE BIT and IA-CEPA, both signed in 2019, respondent States can require claimant investors to attempt conciliation before they can raise their claims in arbitration. Investors do not have the same right to mandatory conciliation. Both of the treaties carve dispute resolution out of their most-favoured nation provisions (Art. 14.5(3) of IA-CEPA and Art. 4(8) of the HK-UAE BIT), which means that there is no risk that this conciliation requirement can be circumvented by investors on the basis of MFN treatment.

These provisions mark an innovative approach to conciliation and a significant rethinking of its place in the ISDS system. They coincide with ongoing attempts to put States on better footing to manage and defend investor claims that include control mechanisms on treaty interpretation, procedures to address frivolous claims, and the potential creation of a multilateral advisory centre. The State option to require mediation as a precondition to arbitration could serve as a model for other treaties, although the forthcoming Queen Mary report suggests that there may also be appetite for mandatory mediation among investors. Quite similarly, some commentators have argued that greater transparency around investor-state disputes can appeal to investors, not just host states, by highlighting state practices (such as discrimination in favour of well-organised local interests) that diminish overall welfare among more disparate citizens. Accordingly, in advocating compulsory investor-state mediation, reformers may find more widespread support than expected.

Nonetheless, to minimise the risks of just adding extra time and expense to ISDS proceedings, such provisions need to be well drafted. A separate analysis already identifies some uncertainties in interpretation, including for different timeframes established by IA-CEPA compared to the HK-UAE BIT. In theory, different timelines might be expected if the treaty involves a developing country, likely to have more inbound than outbound ISDS claims. Indeed, Indonesia seems more likely to have proposed the compulsory mediation step than Australia, as it has been subject to 7 inbound treaty-based claims according to UNCTAD (including a high-profile one brought ultimately unsuccessfully by Australian/British mining companies under the now-terminated 1992 Australia-Indonesia BIT). Indonesia has also mentioned mediation in UNCITRAL reform deliberations, whereas no compulsory mediation step was included in the Australia-Hong Kong BIT – even thought that too was signed in 2019.

Nonetheless, the HK-UAE BIT shows that even developed economies can be willing to add a compulsory investor-state mediation step. It seems more likely to have been proposed from the UAE side, as the latter has experienced 4 inbound claims (although its outbound investors have also initiated 12), whereas Hong Kong has not been subject to any – although Hong Kong has also been trying to position itself as a hub for investor-state mediations generally. Just as Lauge Poulsen’s earlier empirical research showed a significant (though temporary) slowdown in investment treaty signings after a host state’s first inbound ISDS claim, it may be that states subject to several claims become more likely to negotiate for compulsory investor-state mediation provisions. Australia instead has only been subject to one serious inbound claim, albeit the very high-profile Philip Morris Asia claim brought unsuccessfully under the now-terminated 1993 BIT with Hong Kong, and its government may be mindful that Australian investors (especially resources companies) are now initiating quite a few outbound claims. Accordingly, even if a counterparty proposes a compulsory mediation step (like Hong Kong may have done for the new BIT), Australia may be less likely to agree unless pressed strongly (as Indonesia may have done with IA-CEPA).

If such hypotheses are plausible, it may take more sustained effort to “nudge” more states towards adding such compulsory investor-state mediation provisions in addition to the default arbitration clause. This could be done through international bodies (UNCITRAL, ICSID, UNCITRAL and the OECD) but also widespread consultation among stakeholders domestically, including firms or industry groups interested in outbound investment as well as the civil society groups that are typically more concerned about inbound ISDS claims. Broader discussion is needed anyway as Poulsen’s study reveals how “status quo bias” extends to treaty negotiators, and jurists may be particularly risk averse and wedded to precedent. A rethink may be particularly timely as concerns are emerging, including in Australia, about potential ISDS claims in the wake of the COVID-19 pandemic. The Australian government has also just announced public consultation to review remaining older bilateral investment treaties. One question for stakeholder submissions is whether those should incorporate modern provisions from Australia’s FTA practice. Compulsory mediation before arbitration is not specifically mentioned but is worth considering.