Chevron and the Rise of Arbitral Power: A Comment by Anthea Roberts–Arbitral Power Over Domestic Courts or Arbitral Power Dependent on Domestic Courts?

[Anthea Roberts holds a joint appointment as a Professor of Law at Columbia Law School and a Senior Lecturer in Law at the London School of Economics and will be in residence at Columbia Law School from 2013-2015.]

Michael Goldhaber has written an interesting and timely article charting the rise of international arbitrators exercising power over and with respect to domestic courts. He gives examples ranging from Chevron to Saipem to White Industries. This is an important and growing phenomenon that has not yet received adequate attention. I believe that the rise of arbitral power over domestic courts that Goldhaber describes is the first stage in what will ultimately become a longer and more contested saga about the respective powers of arbitral tribunals and domestic courts. That is because arbitral tribunals not only exercise power over domestic courts, but their own power is also dependent on domestic courts.

The power of arbitral tribunals ultimately comes down to whether their decisions will be enforced by domestic courts. While Goldhaber charts the first stage in the battle between arbitral tribunals and domestic courts where arbitrators are in the position of authority, we are likely to witness a second stage when domestic courts are asked to pass judgment on whether arbitral tribunals have exceeded their jurisdiction or violated public policy by hearing these sorts of cases or ordering certain relief. Arbitral tribunals will sit in judgment of domestic courts and domestic courts will sit in judgment of arbitral tribunals. Neither reigns supreme.

BG Group v Argentina represents an early example of this type of phenomenon. The tribunal in that case chose not to enforce the requirement in the treaty that the investor resort to the domestic courts for 18 months prior to bringing an arbitral claim. Many other tribunals adopted the same approach, often painting the issue as one of admissibility rather than jurisdiction or viewing domestic remedies as futile rendering resort to them unnecessary. But when the Court of Appeals for the District Court of Columbia was asked to enforce the resulting award, it refused to do so on the basis that the tribunal had exceeded its jurisdiction because Argentina had only consented to arbitration on certain conditions, one of which was not met.

It remains to be seen what will happen in the US Supreme Court in this case, but it is an important reminder that domestic courts have the power to set aside or refuse to enforce non-ICSID awards for being in excess of jurisdiction or violating public policy. If they choose to exercise this right with respect to how arbitral tribunals have exercised power over or with respect to fellow domestic courts, they could create a powerful check on arbitrators overstepping the bounds of their authority. Whether they robustly use this power in investment treaty cases remains to be seen.

Yves Fortier states that:

“Far from evidencing any tension, [these cases] rather demonstrate the harmony between arbitral tribunals and sovereign courts as long as each adjudicating body remains within its sphere of competence.”

The underlined point is key because a decision on the scope of competence is going to be made by both arbitral tribunals and courts. But, of course, not all domestic courts are likely to end up on the same side of this equation. The domestic courts in states that are subject to investor-state arbitrations (whose actions are reviewed or subject to an injunction) are not necessarily the same as the domestic courts in the states that will be asked to set aside or enforce resulting arbitral awards. Accordingly, this will not only be a story about the power of arbitral tribunals vis-à-vis the power of domestic courts, but of the power of certain domestic courts (often from developed states) with respect to other domestic courts (often from developing states).

Ultimately, I believe that we will not be able to tell this story as simply a vertical exercise of arbitral power over domestic courts. Instead, we need to tell it as a triangulated story of arbitral power over domestic courts in State A and power by domestic courts in State B over arbitral tribunals. Goldhaber captures the start of the first stage and now I am interested to watch whether and how stage 2 develops.