A Study On Preliminary Objection Procedure Of International Investment Arbitration

In recent years,the disadvantages of investor-state dispute settlement(ISDS)mechanisms have become increasingly apparent.In particular,many private investors abuse their rights,use loopholes in investment agreements or arbitration rules,and submit arbitration applications that clearly lack legal merits.This destroys the credibility of the arbitration mechanism and increases the arbitration fee of the host country.The host country,especially the developing countries,believed that the ISDS mechanism favored private investors(usually large multinational corporations)who initiated arbitration against the host country.In order to improve the efficiency of case handling and reduce the burden of the sued host country,the claims that are obviously lack of legal merits are rejected in the early stage of arbitration procedure to avoid entering the follow-up ordinary procedures.In the 2006 amendment to the ICSID arbitration rules,article 41(5)was added to establish the preliminary objection system and the corresponding preliminary objection procedure.Subsequently,similar mechanisms were adopted by major arbitration institutions,such as SIAC,SCC,ICC and HKIAC,but there is no such provision in UNCITRAL.In order to avoid the abuse of arbitration procedure by foreign investors to file claims without legal merits,which may lead them into meaningless litigation,some countries have set similar rules of procedure when signing investment agreements,such as the US BIT model and CETA.There are few preliminary objection clauses in China's investment treaties,which only appear in FTA between China and New Zealand,China and Chile with China and Australia,indicating that China's attitude towards the preliminary objection procedure is not intended to be vigorously promoted.Although there are some differences in the system design of the preliminary objection procedure between the arbitration institution and the investment agreement,there is no essential difference.From this point of view,this paper takes the basic principles of legal hermeneutics and the method of comparative study,briefly describes the background of the establishment of the preliminary objection system in arbitration rules and investment agreements,the provisions of relevant contents,and how China's arbitration institutions,BITs or FTA stipulate this.Applying the method of empirical analysis and comparative study,combining with typical investment arbitration cases,this paper analyzes the procedural and substantive elements of the preliminary objection procedure in practice.On this basis,the existing problems in the preliminary objection procedure are analyzed,and corresponding countermeasures are proposed.The most important aspect of the preliminary objection procedure is the examination of the standard of "manifestly lack of legal merits".In the practice of arbitration,the review of "manifestly lack of legal merits" has the following characteristics:(i)It's a high threshold,and the dissenting party should clearly,clearly and easily prove its objection;(ii)The arbitration tribunal shall assume that the claims of the applicant are true,but may not accept the factual accusations that the arbitral tribunal considers to be unbelievable,imprudent,unreasonable,inaccurate or malicious;(iii)The object of determination of "lack" is a legal merit,not a factual merit.However,the arbitral tribunal shall examine the factual issues that must be ascertained for the purpose of examination;(iv)Preliminary objections under article 41(5)of the arbitration rules include jurisdictional objections.There are many problems in the practical application of the preliminary objection procedure that need to be resolved urgently.On the one hand,when the opposing party abuses the procedure with the intention of increasing the arbitration fee of the other party and delaying the arbitration process,the arbitral tribunal can be empowered to allocate the arbitration fee based on the outcome of the lawsuit to prevent the dissident from abusing the preliminary objection procedure.That is to say,once the preliminary objection raised by the objector is deemed as a frivolous defense,the arbitration tribunal may also decide that it bears the arbitration expenses of the investor,and the high expenses usually make the parties weigh their interests when raising the preliminary objection,so it can restrain the behavior of the objector abusing the preliminary objection procedure to a certain extent.However,in practice,the arbitration tribunal has not formed a consistent approach to the distribution of arbitration fee,which should be stipulated in the arbitration rules and Bits or FTA.The arbitral tribunal may decide that the losing party shall bear the reasonable arbitration fee incurred by the winning party in raising or opposing the objection,thereby deterring frivolous claims and abuse of the objection procedure.On the other hand,when the opponent abuses the preliminary objection procedure and its preliminary objection is supported by the arbitration tribunal,according to the nature that the investment arbitration is final and cannot be easily revoked,the applicant will lose the relief.In this case,an appeal mechanism can be constructed to safeguard the interests of the applicant.