Book Symposium Investment Law: Observations on Hachez and Wouters’ Chapter

by Tullio Treves

[Tullio Treves is a Professor of International Law at the University of Milano and a Public International Law Consultant at Curtis, Mallet-Prevost, Colt & Mosle LLP in Milan]

This chapter is entitled “International investment dispute settlement in the twenty-first century: does the preservation of the public interest require an alternative to the arbitral model?” It is a detailed and well reasoned review of the criticisms raised against arbitration as the  mechanism dominating the settlement of international investment disputes, of the steps already taken or underway to attenuate the negative aspects addressed by such criticism, and of the more ambitious reforms that have been proposed.

Among the criticisms addressed are the following: that the arbitral model “fails to live up to the basic precepts of democracy and the rule of law” and shows a lack of consideration of the public nature of the interests involved;  that there exists a real or perceived bias of arbitrators (and of the arbitrators’ appointing authorities) in favor of investors due inter alia to the fact that many arbitrators are at the same time practicing lawyers in law firms which may have to cater to the interests of other clients not involved in the specific dispute; that the process lacks transparency; that contradictory decisions  involve a risk of fragmentation. Notwithstanding these criticisms, the authors’ “interim conclusions” are that “arbitration works well most of the times” but that “in view of the requirements of the rule of law and in light of the public interest, ‘working well most of the time’ is not enough” (p. 434).

The  “current reforms” examined by the authors and aimed at overcoming the criticisms concern transparency and the participation in proceedings by “non-parties” such as public interest non-governmental organizations as amici curiae. The assessment of the authors is summarized in the relevant chapter’s title: “too little, too late” and further elaborated  explaining that: “these reforms are unlikely to resolve the legitimacy crisis by themselves. … the transparency reforms remain subject to the consent of the parties and therefore do not institutionalise transparency per se” (p. 438).

The more ambitious proposals for reforming the system are considered in a chapter entitled “Doing away with arbitration?”. As a matter of fact, only a short passage about alternative disputes resolution methods (as mentioned in the US Model BIT) concerns alternatives to arbitration. Most attention is given to the proposals, which are far from being accepted so far, for eliminating from investment agreements the exclusion of the exhaustion of local remedies rule and for introducing an appellate level, possibly through  an institutionalized permanent body. The newly acquired European Union competence in the field of investment is seen as a factor that  might change the present situation in which important reforms (including that concerning an appellate body) seem impossible. In a chapter on “Doing away with arbitration?”, one could have expected a discussion of the implication of recent denunciation, by various States, of the ICSID Convention and of BITs, which seems to me the most radical aspect of recent practice for “doing away with arbitration”.

An interesting radical reform which could be discussed with a view to ensuring a better balance in the system could be inspired by the “prompt release” procedure set out in article 292 of the UN Law of the Sea Convention. This  article provides that cases concerning the violation of international obligations (concerning release of vessels detained by a State) may be submitted to the International Tribunal for the Law of the Sea not only by the State whose rights have allegedly been violated, but also “on its behalf” by the private entity concerned (such as the shipowner). In the investment field one might imagine that the primary right to claim violations of the relevant investment treaty  could be vested in the State of  the investor which would be the natural party to the arbitration, unless it authorizes the investor  to act on its behalf. In this way, national States of the investors could have the possibility to assess the political pros and cons  of authorizing its investor to engage in arbitration against the host State,  of engaging directly in such arbitration as well as  of  not engaging at all (directly or through the investor) in the arbitration. This would also give a say in decisions concerning dispute settlement to States which, while being parties to a BIT, have no real link with the investor. This idea could be discussed in negotiating new BITs or in elaborating new model BITs, contradictory decisions especially by States that are not satisfied with the dispute-settlement clauses in in most existing investment treaties.

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