Chevron and the Rise of Arbitral Power: A Response

by Michael D. Goldhaber

[Michael D. Goldhaber serves as Senior International Correspondent and “The Global Lawyer” columnist for The American Lawyer and the ALM media group. His writes widely on human rights and corporate accountability, international arbitration, and global multiforum disputes. His e-book on Chevron will be published next year by Amazon. His first post can be found here.]

I’m grateful for the very gracious and insightful comments shared by the eminent arbitrator Christoph Schreuer, the scourge of eminent arbitrators Muthucumaraswamy Sornarjah, and the wunderkind of arbitration scholarship, Anthea Roberts. Having solicited a wide range of commentary on my Article, I now must defend myself from friendly jabs on both flanks.

Dr. Schreuer and Professor Roberts both argue thoughtfully that the relationship between tribunals and courts should be understood in a broader context. Along the way, Dr. Schreuer questions my realist view that arbitrators effectively review judges. In the course of a bracing systemic critique, Professor Sornarajah calls my desire for proportionality analysis and a plenary appeal within arbitration naive.

I stand by my position that arbitrators are increasingly at odds with judges, and that they functioned like reviewing judges in several of the final awards surveyed (although I perhaps could have been more attentive to terminology). Dr. Schreuer helpfully distinguishes between vacating a decision (in an annulment) and replacing it (in an appeal), and argues that arbitrators do neither. But consider the results. When the treaty tribunal in Saipem v Bangladesh reinstated a contract arbitration award that had been nullified by a national court, it effectively vacated the court decision, and replaced it with a decision confirming the commercial arbitration. In White v. India, the tribunal stripped the national courts of jurisdiction because they were too slow, and effectively stepped in to confirm a commercial arbitration award. In Chevron v. Ecuador I, the tribunal stripped the courts of jurisdiction for being too slow, and expressly decided the court cases de novo under Ecuadorian law. Surely these results were functionally equivalent to appellate review. Likewise, when ATA v. Jordan finally terminated an ongoing court proceeding, it emphatically resolved the case in ATA’s favor. I’m not sure how such a remedy should be categorized, but I cannot agree with Dr. Schreuer that it’s “much weaker” than appellate review.

I readily agree with Schreuer and Roberts on their main point: that judges and arbitrators interact in multifarious ways. My Article’s opening passage acknowledged as much, and explained that I would dwell on arbitral review because it is the most neglected facet of their relationship

Professor Roberts astutely observes that the relationship between tribunals and courts is triangular — in the sense that arbitrators tend to review judges from poor nations, but to be reviewed by judges from rich nations. What she leaves unsaid is that judges in rich nations have historically deferred to arbitrators (whether out of ideology, correct interpretation of the law, or sensitivity to cross-border competition among the arbitration elites). I would therefore predict that the U.S. Supreme Court will overturn the D.C. Circuit’s encroachment on arbitrators’ turf in BG v. Argentina. If not, arbitration will simply flow away from UNCITRAL tribunals sited in the U.S., toward tribunals that are governed by either ICSID or the laws of arbitration-friendly European states. But either way, if they wish to sustain their power, arbitrators should take the hint: At least some courts in rich nations are deferring less because they perceive arbitrators as overweening. A lack of internal review may lead to external review.

Although Professor Sornarajah and I share many perceptions — for instance the need for transparency –, he views me as any self-respecting revolutionary views a reformer. He cannot understand why I would wish to fix an edifice with rotten foundations, rather than to blow it up. (more…)

Chevron and the Rise of Arbitral Power: A Comment by Muthucumaraswamy Sornarajah

by Muthucumaraswamy Sornarajah

[Muthucumaraswamy Sornarajah is the CJ Koh Professor of Law, National University of Singapore and a Visiting Professor, Centre for the Study of Human Rights, London School of Economics.]

Michael Goldhaber’s well-argued piece on the extent of the powers that investment arbitration tribunals are arrogating to themselves is evidence of a general malaise that afflicts investment arbitration. The arbitrators have assumed powers far in excess of what states intended them to have when they made investment treaties and created a unilateral power in the investor to arbitrate disputes. Consistent with prevailing ideas generated by the Washington Consensus and its desire to bring about standards of global governance, arbitrators promoting their own self-interest went on a rampage of expansionist interpretation of treaties. Goldhaber highlights one of the most glaring instances of this neoliberal expansionism, the making of interim orders restraining a respondent state from enforcing judgments of their domestic courts made in cases involving third parties.

This phenomenon is but an aspect of a project to build up a neoliberal regime of inflexible investment protection. In the aspect of this project that Goldhaber describes, there has been an assiduous effort made by leading members of the “college of international lawyers”, entrusted the task of being bulwarks against injustice, promoting sectional interests of investors to the detriment of other values such as the protection of human rights and the environment.

The downsizing of the notion of denial of justice so that it could accommodate lesser standards enabling easy review of domestic judicial orders is a definite project that arbitrators and “highly qualified publicists” embarked upon. Arbitrators, whose legal competence is not tested or uniform, embarked on a course of review of domestic decisions. Golhaber describes these processes with competence. As he points out, while purporting not to act as appellate courts, this is precisely what the tribunals were doing. (more…)

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

by Anthea Roberts

[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.

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Chevron and the Rise of Arbitral Power: A Comment by Christoph Schreuer

by Christoph Schreuer

[Christoph Schreuer is a Professor at the Department of European, International Law and Comparative Law, University of Vienna] 

Michael Goldhaber’s erudite and well-researched article examines an important aspect of the many-sided relationship between domestic courts and investment tribunals. Other facets of this diverse relationship include the review of arbitral awards by domestic courts, anti-suit injunctions by domestic courts, the need to pursue remedies in domestic courts prior to international arbitration, the division of competences under the label of treaty claims and contract claims, fork in the road provisions, interim measures by domestic courts in support of arbitration and enforcement of awards by domestic courts. This complex relationship of courts and tribunals shows elements of competition, of obstruction, of mutual control and of support. It is startling and paradoxical because it defies any notion of a hierarchy of decision makers.

Goldhaber’s excellent analysis concentrates on two issues: antisuit injunctions by arbitral tribunals and denial of justice by domestic courts. But the potential for infringements of the international rules on investor protection by domestic courts is much wider. Practically each of the typical standards of protection contained in BITs can be violated by domestic courts and each of these violations is subject to the scrutiny of investment tribunals.

From the perspective of international law, an international review of domestic court decisions is neither new nor unusual. International judicial control over State activity has always included courts. The State’s responsibility for all types of the exercise of public authority is uncontested and is reflected in Article 4 of the ILC’s Articles on State responsibility.[1] There are good reasons for not differentiating between the different branches of government when it comes to State responsibility. This lack of differentiation is not merely designed to prevent states from hiding behind ‛independent’ organs. In real life the courts and other elements of the government interact in a way that defies the application of a separation of powers doctrine to questions of State responsibility. For example, court action to the detriment of foreign investors is often mandated by legislation.[2] Decisions of domestic courts are sometimes prompted by executive insinuations.[3]

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Chevron and the Rise of Arbitral Power: An Introduction by Michael D. Goldhaber

by Michael D. Goldhaber

[Michael D. Goldhaber serves as Senior International Correspondent and “The Global Lawyer” columnist for The American Lawyer and the ALM media group. His writes widely on human rights and corporate accountability, international arbitration, and global multiforum disputes. His e-book on Chevron will be published next year by Amazon.]

The ongoing media circus surrounding the Chevron v. Donziger trial in New York federal court makes it easy to forget that the arbitration between Chevron and Ecuador may be the main event in resolving the $19 billion environmental judgment entered against Chevron in Lago Agrio.

The unique willingness of arbitrators to check the power of a foreign judiciary came into sharp relief on Jan. 25, 2012, when the Chevron v. Ecuador tribunal issued interim orders that the Republic (including its courts) take all measures at its disposal to suspend enforcement of the judgment. The very next morning, the U.S. Court of Appeals for the Second Circuit vacated a worldwide injunction against enforcement of that same judgment by the Ecuadorian plaintiffs. In a striking choice of words, the Second Circuit declined to serve as “the definitive international arbiter of the fairness and integrity of the world’s legal systems.”

Early this year, I had the privilege of moderating an NYU Law School panel titled “Arbitrators v. Judges: The Latent Tension of Investor Arbitration Rises to the Surface,” featuring some of the world’s leading arbitrators. Two weeks later I attended a Stanford Law School conference titled “Lessons From Chevron.” The Stanford Journal of Complex Litigation has published a magnificent set of conference papers — including Judith Kimerling on indigenous rights, Stacie Strong on 1782 discovery, Howard Erichson on forum shopping, Manuel Gomez on international enforcement, Chris Whytock on transnational litigation, and Catherine Rogers on global legal ethics. Full text may be found online here.

I was struck at Stanford by how odd arbitration appears to U.S. scholars, who are mostly stunned by powers that arbitrators take as elemental. I was struck at NYU by the lack of a framework, within the arbitration community, to analyze the growing exercise of authority over national courts by investment arbitrators.

My resulting article — “The Rise of Arbitral Power Over Domestic Courts – will be the subject this week of an Opinio Juris mini-symposium. As geography is no object online, the three distinguished commenters represent three continents and an equally wide range of opinion. Christoph Schreuer of Vienna is an eminent arbitrator, perhaps best known for the Chevron precursor of Saipem v. Bangladesh, and a prolific scholar, perhaps best known for the definitive commentary on the ICSID Convention. Anthea Roberts of Columbia Law School, by way of Australia, is widely hailed as one of the brightest young stars in arbitration scholarship. Muthucumaraswamy Sornarajah of National University of Singapore is among the most eloquent and radical critics of investor-state arbitration. I am honored by their participation…