In association with the International Commission of Jurists

October 2013

01 Oct

[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”.
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01 Oct

[Nicolas Hachez is a PhD student at the institute for International Law and Leuven Centre for Global Governance Studies and Jan Wouters is Professor of International Law and International Organizations, Jean Monnet Chair Ad Personam EU and Global Governance, and Director of the Leuven Centre for Global Governance Studies and Institute for International Law at the University of Leuven (KU Leuven).] This chapter, entitled ‘International investment dispute settlement in the twenty-first century: does the preservation of the public interest require an alternative to the arbitral model?’ takes a close look at the arbitral mechanism which is the preferred dispute settlement mode in investment disputes between foreign investors and host states, and reviews the criticism which arbitration is currently facing in this context. The starting point of such criticism is that investor-state disputes concern questions of public law as they allow for the review of domestic legislations. Arguably, the arbitral model would not be suitable to settle disputes which directly engage the public interest. The argument is usually articulated around the following concerns:
  • The arbitral model is designed after commercial arbitration and would fail to live up to the rule of law requirements of administrative review. This is evidenced notably by the fact that arbitral proceedings are one-off procedures not amenable to appeal, thereby allowing for inconsistent decisions, or by the fact that proceedings involving questions of public interest are untransparent as confidentiality is the rule in commercial arbitration.
  • Arbitral tribunals would lack independence, as there are no incompatibilities for arbitrators and remuneration by the claim would be an encouragement for arbitrators to take legal positions that encourage the lodging of future claims and therefore increase the arbitration business. Likewise, it has been noted that a number of arbitrators are also practicing lawyers regularly advising multinational corporations, and would therefore have an interest to adopt pro-investor decisions so as to serve the interest of their clients.
  • Arbitrators would lack impartiality, as the arbitral system would be structurally biased towards investors’ interests and towards the application of investment disciplines even when they potentially conflict with other bodies of international or domestic law.
The result of such deficiencies would be that the arbitral model for settling investor-state disputes disregards issues of public interest which such disputes naturally entail, and would be biased towards preserving the private economic interests of foreign investors. In the face of such criticism, the international investment arbitration regime (notably under the impulsion of ICSID, UNCITRAL, the PCA, and through the amendment of certain investment treaties like NAFTA) underwent reform under several counts aiming at increasing consideration of issues of public interest: 
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