Book Symposium Investment Law: A reply to Prof. Tullio Treves’ comments

[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).]

First of all, we would like to thank Prof. Treves for his kind words on our chapter, and for his very interesting ‘think outside the box’ comments.

Prof. Treves’ observations contain three main points:

• Alternative dispute resolution mechanisms as an alternative to arbitration
• The recent denunciation of the ICSID convention by a number of state parties
• The possibility to mirror the ‘prompt release’ procedure set out in art. 292 of the UN Law of the Sea Convention in international investment law.

We will address Prof. Treves’ points in that order.

Prof. Treves is right to point out that our chapter only superficially addresses alternative dispute resolution (ADR) mechanisms as an alternative to arbitration. There are two main reasons for this superficial treatment. First of all, it is likely that alternative dispute resolution mechanisms will not remedy the defects of investor-state arbitration. True, ADR are gaining prominence as the discontent with arbitration is gaining ground, and as some ‘new generation’ model BITs (like Art. 23 of the 2004 and 2012 US Model BITs) now expressly provide for the possibility to resort, for example, to ‘Consultation and Negotiation’, including ‘the use of nonbinding, third-party procedures’. However, recourse to ADR is usually framed only as a possibility, not as a requirement or a prerequisite, and does therefore not replace arbitration altogether for solving investor-state disputes. If ADR may offer obvious advantages, like the possibility to reach a (cheaper) negotiated outcome agreeable to both parties, in the current BIT context it is also not impossible to imagine that the continued possibility resort to arbitration may be used as a negotiating gambit by a foreign investor in order to reach an imbalanced outcome through ADR.

Second, ADR, as they focus on process-oriented, non-binding and non-adversarial methods of dispute settlement, have the potential to be even less transparent than arbitration: a formal claim may not have to be presented, no documents need to be exchanged, procedural rules are very flexible, no legal reasoning is provided in a final decision, etc. Therefore, when a high level of public interest is involved, ADR should be regarded with as much caution as arbitration for what regards transparency and rule of law guarantees. As such, therefore, recourse to ADR is unlikely to respond on its own to our concerns about protecting the public interest in an accountable manner in investor-state dispute settlement.

Concerning Prof. Treves’ comment about the recent denunciation of the ICSID Convention by Latin-American member states, we indeed see it as a manifestation of the growing discomfort of host states regarding arbitration as a means of settling investment disputes. However, in terms of ‘implications,’ for the moment we consider that this phenomenon is too limited to draw conclusions on its potential to lead to a widespread reflection about whether or not arbitration should be done away with in investor-state disputes. First of all, these denunciations are limited to a few countries (Bolivia, Ecuador, Venezuela) located in the same region and governed by political figures sharing a very outspoken and radical Bolivarian ideology. Therefore, these denunciations should be taken for what they are: the coherent implementation of anti-liberal policies limited to a few states, rather than the sign of a concerted action from host states to topple the arbitral system. Even Argentina, arguably one of the host states most targeted by investment claims, still has not denounced the ICSID Convention, despite recent muscle-showing statements hinting at that possibility. Let us also not forget that denunciations are only effective for the future, and that all claims arising before the denunciation of the ICSID Convention and of corresponding BITs are still in theory arbitrable.

Finally, we thank Prof. Treves for his suggestion to examine the extent to which the ‘prompt release’ procedure under Art. 292 of UNCLOS could be mirrored in international investment law. This sort of mechanism indeed would have several advantages such as, as mentioned by Prof. Treves, bringing the home state back in the picture. This would step up the public character of investment disputes and would allow home states to play a filtering role in those cases where the arbitral process may be abused or fail to present the rule of law guarantees required for the preservation of the public interest. Also, from the moment the investment dispute is clearly characterized as a dispute between two states, and therefore as a public law trial, the seal of confidentiality currently laid on investor-state becomes less justified and more difficult to hold on to.

A mechanism like this one may thus alleviate certain concerns about investor-state dispute settlement, though not all, and not automatically as long as the dispute would remain located in the arbitral realm (it would still be up to disputing states to waive confidentiality, to appoint competent and impartial arbitrators, etc.). Therefore, the analogy with Art. 292 of UNCLOS is only imperfect in the current state of international investment law, since it opposes the ad hoc investment arbitral mechanism with the established permanent and independent Law of the Sea Tribunal. So the ideal solution would perhaps reside in the establishment of a permanent investment court allowing investors to directly litigate certain disputes on behalf of their home state.