Investment treaty arbitration – that is, arbitration between foreign investors and host states about rights and obligations arising under international investment treaties – is one of the most vibrant and fastest growing fields of international dispute settlement.Footnote 1 It is the result of both an unprecedented increase in foreign investment flows, in particular since the end of the Cold War, and an expansion of substantive and procedural protection for foreign investors under international law. Today, more than 2,600 bilateral investment treaties (BITs),Footnote 2 as well as some multilateral treaties like the North American Free Trade Agreement and the Energy Charter Treaty, grant substantive rights to foreign investors, including national and most-favoured-nation (MFN) treatment, fair and equitable treatment, full protection and security, protection against direct and indirect expropriation without compensation, and free capital transfer. In breaking with the traditional means of settling international investment disputes through interstate channels by diplomatic protection, most investment treaties also empower investors to enforce those rights by initiating arbitral proceedings directly against the host state.Footnote 3
While investment treaty arbitrations are governed by public international law as the applicable law, the proceedings are conducted on the basis of arbitral rules that, in essence, are rules for resolving disputes between private commercial actors. The proceedings can be conducted under a variety of arbitral rules, including under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention),Footnote 4 the UN Commission on International Trade Law (UNCITRAL) Arbitration Rules, the Rules of Arbitration of the International Chamber of Commerce, and the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce.Footnote 5 Except for the ICSID Convention, these rules were created in order to resolve disputes between private parties about contractual matters and, in consequence, enshrine the principles and purposes of commercial arbitration without modifications due to one party being a public entity. The arbitral rules in question are based on the premise that the proceedings have the sole purpose of resolving a specific dispute between two parties. The process, in consequence, is owned and driven by the parties, who can, at least partly, appoint the arbitrators and agree on the governing law, on whether a dispute is to be resolved in law or in equity, and on the confidentiality of the proceedings. The same also holds true for the ICSID Convention, which, even though it was specifically created to resolve investor–state disputes, is fashioned on the commercial arbitration model.
Investment treaty arbitration, by ensuring access of private investors to an impartial and independent forum to resolve disputes with states, has remedied some of the deficiencies that existed in foreign investment protection in an earlier age.Footnote 6 Nevertheless, investment treaty arbitration is the target of various critiques, coming from states, non-governmental organizations, and commentators. A considerable amount of literature meanwhile even intimates that investment law and arbitration may already be, or may soon come to be, in a veritable ‘legitimacy crisis’.Footnote 7 An indication of this crisis is seen in the recent withdrawal of some Latin American states from their investment treaties and the ICSID Convention,Footnote 8 and in the re-crafting of the substance of investment treaties, for example by the United States, in a way that reflects concerns about jurisprudential trends in arbitration.Footnote 9 While the most sweeping, but not mainstream, critique by some states and commentators attests to the system of international investment protection a built-in pro-investor bias, more nuanced concerns relate to the perceived vagueness and indeterminacy of some of the standard investors’ rights, which, as a consequence, result in an increase in the decision-making power of arbitral tribunals that is difficult for states to control.Footnote 10 Likewise, conflicting interpretations by arbitral tribunals of standard principles of international investment law that are enshrined in the various treaties or inconsistent findings with respect to identical facts are targeted as putting the stability and predictability of international investment law into question.Footnote 11
Finally, the fact that investment treaty arbitrations increasingly involve subject matters that have an effect beyond the parties to the proceedings, namely those relating to the scope and limits of the host state's powers to act in the public interest, for example in reacting to economic emergencies, or when controlling and banning harmful substances to protect public health, has resulted in a critique of certain features that are typical of arbitral proceedings, in particular the confidentiality of arbitral proceedings, and brought about calls for more transparency and for accepting interventions of non-parties through amicus curiae submissions. Some commentators go even further in considering that the resolution of what are essentially public law disputes by arbitration is an impermissible privatization of global justice that needs to be remedied by establishing an International Investment Court with tenured judges who, unlike party-appointed arbitrators, have no incentive to compromise their decision-making activity in view of future appointments.Footnote 12
While the above-mentioned concerns are seemingly varied, they all relate, it is submitted, to the tension resulting from the merger in investment treaty arbitration of classical international law sources and commercial-style arbitration as a mechanism to resolve what are essentially public law disputes about the conformity of the exercise of the host state's regulatory and administrative powers with its obligations under international law. The various critiques thus relate to the fact that investment treaty arbitration combines a public law regime under international lawFootnote 13 with what is essentially a private dispute settlement mechanism that is focused on resolving a specific dispute with no effects on non-parties and does not sufficiently take into account the public interests involved. They all share the call for increased attention to public law values in the resolution of investor–state disputes and consider the view of investment treaty arbitration as a form of commercial arbitration as problematic. They all, however, suggest different ways by which to tackle the problem at stake.
Indeed, various tribunals, followed by changes to the ICSID Rules in 2006, have reacted to some of those concerns by increasingly applying public law considerations in investor–state arbitration such as transparency of arbitral proceedings and the acceptance of amicus submissions.Footnote 14 Likewise, many tribunals stress the need for systemic consistency in arbitral jurisprudence and advocate the development of a jurisprudence constante as a solution to the problem of inconsistent decisions. Again, other tribunals adopt more deferential standards in reviewing host state conduct vis-à-vis foreign investors, or engage in proportionality reasoning in order to balance investor rights and the public interest.Footnote 15 Yet plans to establish an appeals mechanism within the ICSID system and thereby increase the consistency of arbitral jurisprudence have failed.Footnote 16
This article equally subscribes to the view that investment treaty arbitration to a large extent involves the resolution of public law disputes that have an effect not only on the parties to the proceedings. It also advocates that the resolution of investor–state disputes under investment treaties needs to be conceived of in terms of public law values. Unlike the more radical critique that advocates an abolishment of investment treaty arbitration as a dispute resolution mechanism and the establishment of a permanent international investment court, it puts forward a different proposition. While submitting that investment treaty arbitration has to be understood as having a public function – that is, one going beyond the resolution of the individual dispute, and as having a public effect on third-party actors – it argues that public function and effect do not require overturning the current system of dispute resolution as such. Instead, it submits that the public function of investment treaty arbitration can be accommodated by partial modifications of the commercial arbitration model in view of public law rationales. The key, as argued here, is to develop mechanisms that pay sufficient tribute to the public function and nature of investment treaty arbitration and ensure the accountability of arbitrators towards those affected by their dispute settlement activity – that is, not only the parties to the arbitration, but also other investors and states. This article thus focuses on how the role of the arbitrator in investment treaty disputes can be understood and conceptualized in view of the public function they exercise.
As a first step this article discusses in section 1 the different approaches to conceptualizing the functions of investment treaty arbitration by those active in actual dispute resolution as counsel and arbitrators. It points out that the different perceptions are largely due to the different professional socializations of lawyers with a background in private commercial arbitration and public international lawyers. Section 2 analyses the extent to which investment treaty arbitration differs from commercial arbitration in exercising a public function that goes beyond the resolution of individual disputes. While noting that many features of the arbitral process in investment treaty arbitration and commercial arbitration are identical, it discusses the essential differences between both fields and points out the different dimensions of publicness that embed investment treaty arbitration firmly in a system of public order. Section 3 then discusses, by way of example, how the public function of investment treaty arbitration should shape the normative understanding of the role of arbitrators in investment treaty cases, including their professional and ethical obligations and the way they exercise their procedural powers in conducting arbitral proceedings. This understanding, it is argued, suggests modifications of the commercial arbitration model in view of public law rationales.
1. Different conceptions of investment treaty arbitration
To public international lawyers it might be surprising that arbitration as a dispute settlement mechanism in international law has been criticized harshly, given that this way of resolving disputes is not alien to classical international law. Indeed, interstate arbitration has a long tradition in public international law and has been the precursor of present-day international courts.Footnote 17 However, investment treaty arbitration is sufficiently different from interstate arbitration, not only because it involves the claim of a private investor against a foreign state and thus breaks with the traditional notion of international law as interstate law,Footnote 18 but also because, as a field of international dispute resolution, it is subject to different understandings by those active in practice as regards its nature and function. Thus investment treaty arbitration brings together practitioners, as counsel and arbitrators, with different professional and formative backgrounds from classical interstate arbitration, who perceive investment arbitration not as a continuation of the interstate arbitral process, but as a qualitatively different dispute settlement mechanism.
Above all, investment treaty arbitration, unlike interstate arbitration, is not solely a domain of public international lawyers, but equally is populated by counsel and arbitrators with a background in private commercial law and arbitration. The differences between these groups come to light not only in sometimes different approaches to the interpretation of investment treaties,Footnote 19 or the style of reasoning of arbitral decisions,Footnote 20 but also in their approaches to understanding the nature and function of dispute settlement and the role of arbitrators. While public international lawyers arguably have a specific sensitivity to the character of states as public entities and the character of international law as public law, commercial lawyers often tend to equate investment treaty arbitration with commercial arbitration between private parties without the need to treat states differently from private parties or considering that the state's obligation to act in the public interest should impact the arbitral process.
Thus for many commercial lawyers investment treaty arbitration is but a special form of commercial arbitration that has an exclusively private function, namely the resolution of a dispute between equals with no effect on non-parties and without affecting the legitimate interests of outsiders.Footnote 21 Understanding investment arbitration in private terms aligns with the typical ethos of a commercial arbitrator, which is characterized by the perception that dispute resolution in investment treaty arbitration is of a discrete nature, has no systemic effect, focuses exclusively on the parties to the proceedings without affecting non-parties, is backed by confidentiality of the proceedings, and involves dispute resolvers who, rather than strictly apply the rule of law, need to hand down a decision that satisfies the parties to the proceedings and enables them to continue a business relationship.Footnote 22
In consequence, for them rationales and principles of commercial arbitration reign equally in investment treaty arbitrations – above all, equality of parties, party autonomy (encompassing the constitution of the tribunal, arbitral procedure, remedies and applicable law), and confidentiality of proceedings.Footnote 23 Investment treaty arbitration, in this view, has only a private function – that is, ‘“to do justice” between the litigant[s], and to render a judgment or award which takes account of all relevant facts, which is limited to the petitum of the dispute and which is made with final and binding force’.Footnote 24 Whether the arbitrators are qualified to handle the dispute, whether they correctly find the applicable law, whether their decision is adequately reasoned and whether it is consistent with other arbitral decisions is irrelevant for non-parties, because they are unaffected by a process that is only ‘a vehicle for settling disputes between private parties about private rights’.Footnote 25 Similarly, in this view, investment treaty arbitration can draw its legitimacy solely from the consent of the parties that are involved in the specific arbitration. Developments like the increased transparency of investment treaty proceedings or the involvement of amici, by contrast, are sometimes even perceived as a threat to the private function of settling the dispute at hand.
Other proponents in the field, mostly public international lawyers, stress the differences between commercial arbitration and investment treaty arbitration, conceding that the latter needs to be equated more with the dispute settlement function usually exercised by domestic or international courts. In their view, while the commercial arbitration model furnishes the forms and procedures of dispute settlement, investment treaty arbitration has a significant public function that is closer to administrative, or even constitutional, judicial review, given that treaty-based investor–state disputes regularly involve review of the legality of alleged abuses of government powers vis-à-vis foreign investors under the applicable investment treaty.Footnote 26 Investment treaty arbitration therefore has a domesticating function for the past and future behaviour of a public entity.
In addition, investment treaty arbitration is regarded as serving an even broader policy purpose beyond the private function of resolving an individual dispute. By promoting and protecting foreign investment, enhancing the rule of law, creating employment, and enhancing trade opportunities, in particular in developing countries, investment treaty arbitration assumes a public function in backing up the international order created by international investment treatiesFootnote 27 and, in consequence, ‘is . . . conducive to the positive creation of norms which can generate obedience among members of the community being regulated by that system of norms’.Footnote 28 Investment treaty arbitration in this understanding has a public function, as it ‘does not merely clarify the meaning of the law, remitting the parties to private ordering of their affairs, but itself establishes a regime ordering the future interactions of the parties and of absentees as well’.Footnote 29 In other words, it involves an interest of the international community in the implementation of an international investment order.
According to this understanding, principles of commercial arbitration, in particular unfettered party autonomy as well as confidentiality, can only be applicable to investment treaty arbitration with qualifications. Likewise, consistency in arbitral jurisprudence becomes a more prevalent concern if dispute settlement not only serves a dispute-specific function but has broader implications. In addition, appreciating the public function of investment treaty arbitration suggests responsibilities of arbitrators towards the system of international investment protection which come to bear when public interests beyond party consent or system-level considerations are at stake. Finally, questions concerning the legitimacy of dispute resolution in investment treaty arbitration, in this view, cannot be limited to the consent of the parties to the proceedings but need to take into account the fact that the disputes often have effects on those not party to the proceedings.
2. The public function of investment treaty arbitration
This sections turns to exploring the different dimensions of publicness that are involved in investment treaty arbitration. Indeed, concerns about the suitability and legitimacy of arbitration as a dispute settlement mechanism in investor–states disputes would hardly exist if investment treaty arbitration had only a private function in settling an individual dispute without outside effects. Investment treaty arbitration, however, differs fundamentally from commercial arbitration, as its effects and implications are not limited to the parties. Instead, it fulfils a governance function in influencing the behaviour of foreign investors, states, and civil society more generally by crafting and concretizing international standards of investment protection. Investment treaty arbitration thus both establishes and operates as part of a public international economic order and serves a judicial function for a global system of international investment protection. It is not a creature of contracts between investors and states, or of isolated bilateral treaties between states, but is product and motor of a broader public system of international investment protection. Two aspects will be discussed in this section: first, the differences between investment treaty arbitration and commercial arbitration in terms of the subject matter of the disputes concerned and in view of the nature and basis of the tribunals’ jurisdiction, and, second, the function of investment treaty arbitration as an instrument of governance that has an impact on crafting and concretizing standards of behaviour for host states beyond individual investor–state disputes. In this latter respect, investment arbitration shares the public nature of international law in creating global interests and global goods relevant for the international community as a whole.
2.1. The differences between investment treaty arbitration and commercial arbitration
Investment treaty arbitration appears similar to international commercial arbitration in several regards.Footnote 30 First, investment treaty arbitration, like international commercial arbitration, originates in the claim by a private party before an arbitral tribunal that is largely party-appointed. Second, the procedural rules in investment arbitration are tailored after the model of commercial arbitration.Footnote 31 The procedure in investment treaty arbitration is essentially the same with respect to the major features and principles of commercial arbitration, including the constitution of the tribunal, the rules governing arbitral procedure, the rendering of the award, and so on. Finally, awards rendered in investment treaty arbitration can be enforced in a similar way to awards rendered in the context of commercial arbitration.Footnote 32 The essential procedural features of investment treaty arbitration and international commercial arbitration therefore coincide. As a consequence, many commercial arbitration practitioners equate investment treaty arbitration with commercial arbitration and use commercial arbitration as a blueprint for investment treaty arbitration.
Notwithstanding these similarities, investment treaty arbitration differs from international commercial arbitration in several regards, namely concerning the subject matter of the disputes, the relationship of the parties, the nature of the obligations at play, and the nature and scope of the host state's consent to arbitration.Footnote 33 First, unlike a commercial dispute, investment treaty arbitrations often involve questions about the scope and limits of the host state's regulatory powers in view of its investment treaty obligations, including, for example, disputes concerning limits of emergency powers,Footnote 34 regulatory oversight over public utility companies and the tariffs they charge,Footnote 35 control and banning of harmful substances,Footnote 36 protection of cultural property,Footnote 37 or implementation of non-discrimination policies.Footnote 38 As regards subject matter, investment treaty disputes thus involve public law rather than private law issues.
Second, investment treaty arbitrations involve obligations of a different nature compared with commercial arbitration. The rights invoked by a foreign investor do not originate from a freely negotiated contract, but from obligations the host state has assumed under an international treaty with the investor's home state. Third, the relationship between the parties in investment treaty arbitration differs from the relationship of the parties in commercial cases. Whereas commercial relations between private actors are characterized by equality of the parties, foreign investors and host states stand in a hierarchical relationship of super- and subordination. In principle, states, unlike commercial parties, are therefore able unilaterally to impose binding decisions on a foreign investor by administrative order or legislation.
Finally, the host state's consent to arbitration in investment treaty disputes is of a different nature compared with the commercial context. The basis of the tribunals’ jurisdiction is thus different. Arbitral jurisdiction in investment treaty arbitrations is not based on contractual arbitration clauses, but involves a unilateral offer by the host state in an investment treaty that anybody covered by the treaty's scope of application (ratione materiae, ratione personae, and ratione temporis) can accept by initiating arbitration against the state. This offer, which is usually given in generalized and prospective form,Footnote 39 is a ‘public offer of arbitration’.Footnote 40 It constitutes a sovereign actFootnote 41 that grants to foreign investors access to an independent and impartial dispute settlement mechanism, much like a state's submission to the jurisdiction of an international human rights court, such as the European Court of Human Rights (ECtHR), or the establishment of administrative or constitutional review of government acts by courts on the domestic level. The generalized and prospective consent to arbitration is also the main difference between investment treaty arbitration and other treaty-based mechanisms providing for investor–state dispute settlement, such as the mixed claims commissions that had repeatedly been established in reaction to systemic crisis after revolutions or wars, such as the United States–Mexican General Claims Commissions, or institutions like the Iran–United States Claims Tribunal (IUSCT). These institutions have had not only limited subject-matter jurisdiction, but also circumscribed jurisdiction in a retrospective manner. The IUSCT, for example, only allowed claims relating to ‘debts, contracts . . . expropriations and other measures affecting property rights’, which have arisen before a cut-off date in the past.Footnote 42
In essence, investment treaty arbitration, unlike commercial arbitration, is ‘arbitration without privity’.Footnote 43 This, above all, has the effect that the applicable law as well as the arbitral procedure are not to the same degree subject to negotiation and party autonomy, as is the case in commercial arbitration. Instead, in most investment treaty disputes applicable law and arbitral procedure are predetermined, based on the investment treaty in question and the consent of the state therein. Investment treaty arbitration, therefore, is an adjudicatory process according to rules of law by neutral, independent, and impartial decision makers,Footnote 44 not classic arbitration where the parties have full liberty to set the standards for the decision-making process and can control the way the dispute is resolved.Footnote 45
The differences between commercial arbitration and investment treaty arbitration illustrate one aspect of the public nature of investment treaty arbitration. Since one of the disputing parties in an investor–state dispute is not a private commercial actor but a state, investment treaty awards may directly affect the host state's population, in that the state, in order to be in compliance with its international law obligations, needs to adapt its behaviour according to what its treaty obligations entail. For example, an investment dispute preventing a state from lowering water or electricity tariffs because of promises made to the investor could have the effect of cutting off parts of the host state's population from access to that fundamental utility.Footnote 46 Similarly, investment treaty arbitrations increasingly involve complaints by foreign investors about general regulatory policies concerning, for example, the protection of the environment, labour standards, anti-discrimination policies, and so on.Footnote 47 The disputes submitted relate to subject matters that are concerned more often with questions of public law and judicial review of sovereign acts than with questions of the contracting behaviour of the state in its private capacity.Footnote 48 Decisions by arbitral tribunals on these matters may directly affect the social fabric in the host state and are thus of public interest. This dimension of publicness, defined in relation to the public of the host state, explains the repeated demands for increased democratic legitimacy of investment treaty arbitration,Footnote 49 transparency of the proceedings, and the participation of amici curiae.Footnote 50
2.2. Investment treaty arbitration as governance
Apart from effects on the host state's population, investment treaty arbitration also has effects on investors and states that are party to neither the specific proceedings nor the investment treaty at issue. This is surprising, as, in theory, disinterest in arbitral proceedings of unaffected third investors and states should be the case if investment treaty arbitration only had a private function, because both the substantive and procedural law applicable in investment treaty arbitrations are cast in a strictly bipolar way. First, international investment law is enshrined in largely bilateral treaties. Second, the procedural framework is set up to ensure that the effects of arbitral decisions are limited to the parties to the proceedings. Article 1136(1) of NAFTA, for example, explicitly provides that ‘[a]n award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case.’ Similarly, Article 53(1) of the ICSID Convention provides that ‘[t]he award shall be binding on the parties’, and only binding on them.Footnote 51 This would suggest that the effect of investment treaty arbitrations remains limited both to a specific treaty and to the parties to the proceedings and would thus be private from the point of view of other states and other investors.
The reality of investment treaty arbitration, however, is quite different and displays numerous ways in which non-disputing investors and states are interested and affected by arbitral proceedings. Far from conforming to the archetypical model of commercial arbitration, whose sole purpose is to resolve a specific dispute, investment treaty arbitration also functions as a mechanism of global governance that shapes the behaviour of foreign investors and host states more generally by crafting and concretizing principles of international investment law. Apart from its effect on host-state populations, investment treaty arbitration involves an additional dimension of publicness, namely one relating to the furtherance of global interests,Footnote 52 and involving the exercise of public authority at the international level.Footnote 53
This second aspect of publicness builds on the fact that investment treaty awards, unlike their counterparts in commercial arbitration, regularly become public, either because the parties agree to that effect, because ICSID publishes excerpts of the reasoning of the award,Footnote 54 because non-ICSID awards become public when a party to the arbitration requests to set them aside or opposes enforcement,Footnote 55 or because awards are leaked to the public domain. Investment treaty awards, thus, are largely accessible via the Internet and in print journals and are widely discussed in public media and academia.Footnote 56 The public availability of investment treaty awards has the effect that potential parties to investment treaty arbitrations – investors and states – as well as those acting as counsel and arbitrators, are informed about how investment treaties have been applied and interpreted in the past and, based on that information, build up expectations about how investment treaties will be and should be applied and interpreted in the future. In consequence, they introduce those expectations into future arbitral proceedings by citing previous investment treaty decisions. Arbitral tribunals, in turn, actively engage in building a system of treaty-overarching precedent in investment treaty arbitration, partly reacting to the parties’ expectations, partly driven by their own sense of direction in the interpretation of international treaties based on past experience and practice. This has the effect of crafting treaty-overarching, multilateral rules that govern investment treaty arbitrations and that generate an international public dimension in the settlement of individual investment disputes.Footnote 57
Although no system of binding precedent exists in investment treaty arbitration,Footnote 58 references to earlier investment treaty jurisprudence can be found in virtually every recent investment treaty decision or award.Footnote 59 Indeed, not only do ‘citations to supposedly subsidiary sources, such as judicial decisions, including arbitral awards, predominate’ in investment treaty arbitration in quantitative terms;Footnote 60 they also reflect the qualitative impact of precedent on subsequent awards. While arbitral tribunals emphasize the lack of de jure stare decisis, they nevertheless systematically turn to earlier decisions for guidance, in particular when it comes to interpreting and applying the standard substantive investor's rights that are contained in virtually all BITs.Footnote 61 For example, in interpreting the standard of fair and equitable treatment, arbitral tribunals often rely more on the discussion of applications of this standard in earlier case law than on an independent interpretation of the governing treaty. For example, in the NAFTA award in Waste Management v. Mexico the Tribunal extensively described prior investment awards on fair and equitable treatment in order to extrapolate a case-sensitive definition of this standard. Thus the Tribunal defined the standard of fair and equitable treatment based on earlier NAFTA decisions and observed,
Taken together, the S. D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process.Footnote 62
Yet, instead of critically analysing the earlier decisions, what primarily mattered for the Tribunal was, similar in style to a system of stare decisis, the application of the facts of the case to the standard developed from earlier NAFTA decisions, not its independent interpretation of the treaty text itself.Footnote 63
While the earlier case law taken into account in Waste Management consisted exclusively of earlier NAFTA awards, the jurisprudential development relating to fair and equitable treatment through reliance on precedent functions largely identically with respect to arbitral case law generated under wholly unrelated treaties. Thus, for purposes of interpreting fair and equitable treatment, the definition of that standard by the tribunal in Tecmed v. Mexico, which concerned a dispute under the BIT between Spain and Mexico,Footnote 64 has already become a locus classicus that other tribunals adopted or refined in relation to the application of fair and equitable treatment in BITs between countries as diverse as Chile and Malaysia,Footnote 65 Ecuador and the United States,Footnote 66 or Germany and Argentina.Footnote 67 This dynamic of generating a treaty-overarching investment jurisprudence can equally be observed in relation to other standards of treatment, such as direct and indirect expropriation, full protection and security, or most-favoured-nation treatment.Footnote 68
The reliance on precedent is also shared by the parties to investment treaty arbitration and partly a reaction to their expectations. The Tribunal in El Paso v. Argentina, for example, stated that it would ‘follow the same line [as earlier awards], especially since both parties, in their written pleadings and oral arguments, have heavily relied on precedent’.Footnote 69 The way the parties to the disputes rely on precedent therefore suggests the emergence of expectations that tribunals will decide cases not by abstractly interpreting the governing BIT, but by embedding their interpretation within the discursive framework created by earlier investment treaty awards. Over time, the expectation vis-à-vis investment tribunals that they will operate within a certain discursive framework will consolidate into the expectation that they will render consistent decisions even though the governing law is enshrined in bilateral treaties.Footnote 70 Accordingly, the Tribunal in Saipem v. Bangladesh observed:
The Tribunal considers that it is not bound by previous decisions. At the same time, it is of the opinion that it must pay due consideration to earlier decisions of international tribunals. It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases. It also believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.Footnote 71
Consequently, investment treaty arbitration and arbitral jurisprudence generate a public good, namely the emergence of a public international economic order for foreign investment protection that is independent of the BIT in question. Investment treaty arbitration therefore contributes to the creation of a treaty-overarching system of governance in international investment relations because the jurisprudence generates communicative authority that frames the discourse and arguments of later litigants and arbitrators and constitutes the focal points towards which the expectations of parties are directed.Footnote 72
Certainly, despite the significant impact of precedent in investment treaty arbitration, inconsistencies in arbitral jurisprudence are a recurring phenomenon.Footnote 73 They can result from parallel proceedings relating to an identical set of facts – for example, when independent claims are brought by shareholders at different levels of a corporate structure. Inconsistent decisions can also result from the different assessment of identical facts by different tribunals. Similarly, tribunals may disagree on the correct interpretation of the same provision in the same investment treaty.Footnote 74 Differences in interpretation may also stem from opposing views of different tribunals relating to the proper interpretation and construction of comparable treaty provisions in different treaties. A manifest split in investment treaty jurisprudence, for example, has developed with respect to the interpretation of umbrella clauses.Footnote 75 Similarly, arbitral tribunals differ fundamentally on the question whether MFN clauses can have the effect of extending the jurisdiction of an arbitral tribunal.Footnote 76
Notwithstanding, these inconsistent and conflicting decisions are not a phenomenon suggesting the lack of a treaty-overarching system of investment protection, nor do they counter the perception that investment treaty arbitration has a public function in crafting and concretizing multilateral standards for host state behaviour. Not only are inconsistent decisions a rather rare phenomenon,Footnote 77 but even these decisions deal, often extensively, with conflicting prior decisions, either by distinguishing cases on the basis of facts or by reading down a holding on a point of law from a rule to a principle or from a principle to an exception.Footnote 78 Furthermore, even in cases of open conflict, investment tribunals presuppose the existence of a treaty-overarching framework of international investment law, since, more often than not, they frame their disagreement in systemic terms, arguing not that they diverge because their function is restricted to solving a specific dispute, but that a certain interpretation of international investment law principles is unpersuasive as a general proposition.Footnote 79 Cases of dissent therefore show that, despite the disagreement about the interpretation of specific issues, investment tribunals have a deeply rooted perception of the unity of international investment law and of the need for consistency and, accordingly, perceive their own function as contributing to an international public order, rather than remaining in the privacy of bilateralism.Footnote 80
Finally, the interaction between investment treaty arbitration and investment treaty-making demonstrates the public dimensions of investment treaty arbitration.Footnote 81 Thus not only do investment treaty awards have an impact in generating expectations about the interpretation of investment treaties by arbitral tribunals, they also generate adverse reactions in the treaty-making of states if they do not agree with a certain decision rendered by an arbitral tribunal, even if it concerned an entirely unrelated set of parties. The interpretation of MFN clauses by the Tribunal in Maffezini v. Spain, for example, has had the effect of ‘anti-Maffezini’ clauses being included in investment treaties of wholly unrelated states.Footnote 82 Similarly, broad interpretations of fair and equitable treatment, or of the concept of indirect expropriation, have led several states, including the United States, to introduce more restrictive wording in their more recent BIT practice.Footnote 83 This effect of individual decisions illustrates the international public dimension of investment treaty arbitration and the impact the decision-making of arbitral tribunals has as an exercise of public authority. Indeed, if investment treaty arbitration operated in a purely private context and was of concern only to the parties to the proceedings, third parties would care little about tailoring their investment treaties in the light of arbitral jurisprudence.
In sum, one can therefore observe that investment treaty arbitration impacts third parties and their behaviour intensely, as the outcome of arbitrations, in particular the reasoning and the interpretation of the principles of international investment law, affect not only future interpretations of similar standards by other arbitral tribunals and shape the expectations of investors and states about the decision-making of tribunals, but also impact investment treaty-making. In this respect, investment treaty arbitration is embedded and engaged in exercising governance functions at the international level, with effects on the entire system of international investment protection. It contributes to the emergence of a multilateral system of investment protection and crafts and concretizes standards of good governance for host states concerning their treatment of foreign investors. The system-building in which arbitral tribunals engage is part of the public function of investment treaty arbitration.
3. Towards a public law understanding of the role of arbitrators
The public nature and function of investment treaty arbitration in the resolution of public law disputes and its differences from commercial arbitration go along with a different framework in which arbitrators as decision-makers operate. Whereas arbitrators in purely commercial disputes can be understood as ‘an adjunct to private ordering, whose primary function [is] the resolution of disputes about the fair implications of individual interactions’,Footnote 84 arbitrators in public settings exercise a different function and thus assume a different role in view of the implementation of public policies. Unlike their counterparts in commercial arbitration, arbitrators in investment treaty arbitrations can be understood as holding a public office, in the exercise of which they not only have to meet the expectations of the parties to the proceedings and incur obligations towards them, but must fulfil the expectations of a larger audience and its demands for consistency, predictability, accountability, and legitimate outcome. Accordingly, arbitrators exercising public functions also incur public – that is, system-level – obligations towards those affected but not participating in the proceedings. In other words, when considering the role and status of arbitrators in investment treaty arbitrations, including their professional and ethical obligations, system-level concerns surface, just as on the level of substantive law arbitral decisions influence the decision-making of other tribunals.
The public function of investment treaty arbitration suggests certain public law modifications of the commercial arbitration model that take into account the (domestic and international) public interest in investor–state dispute settlement, both in view of the effect of arbitrations on the host state's population and on unrelated investors and states. Public law modifications to the commercial arbitration model could help to strengthen the tenuous legitimacy on which investment treaty arbitration currently rests in view of the mounting criticism voiced against it.Footnote 85 Without attempting to address system-level obligations of arbitrators in investment treaty arbitrations comprehensively, this section explores some implications of the public function of investment treaty arbitration for the role and status of arbitrators. It addresses rules on conflict in investment treaty arbitration, the competence of arbitrators, the obligation of arbitrators to conduct independent legal research, the obligation of arbitrators, in limited circumstances, to engage in independent fact-finding, in particular with respect to international public policy issues, and the way in which arbitral decisions should be reasoned in investment treaty arbitrations.
3.1. Rules on conflicts
Since investment treaty arbitration has governance impacts on non-parties, it is crucial to ensure the independence and impartiality of the arbitrators, not only with respect to the parties to a specific proceeding, but with respect to the entire system. While it is recognized by the various arbitration rules, and buttressed through disclosure requirements and the possibility of arbitrator challenges, that the arbitrators’ impartiality and independence are central,Footnote 86 specific system-level problems arise in investment treaty arbitration when individuals act as arbitrator in one investment treaty dispute and as counsel in another. While assuming the role of an independent and impartial dispute resolver in one case and of party representative in another poses, in principle, fewer problems in the commercial arbitration context,Footnote 87 in investment treaty arbitration, where decisions serve as persuasive precedent in future arbitrations, so-called ‘issue conflicts’ can raise system-level concerns. Issue conflicts arise when the same law or facts are at issue in both arbitrations in which the individual is involved.Footnote 88 In such cases the intermingling of the role of counsel and arbitrator within the same dispute settlement system may create the appearance that, as arbitrator, the individual is influenced by a personal interest in the outcome of the proceedings which negatively affects his or her independence and impartiality, namely the interest in creating a favourable precedent for his or her client in the other case.
Accordingly, it is a matter of debate whether individuals, in principle, should be able to serve concurrently as counsel in some cases and arbitrators in others, even when no specific issue conflict is involved. Some commentators therefore suggest that the roles of arbitrator and counsel should be strictly separated ‘in order to ensure that an arbitrator will not be tempted, consciously or unconsciously, to seek to obtain a result in an arbitral decision that might advance the interests of a client in a case he or she is handling as counsel’.Footnote 89 A prohibition on practising as counsel would follow the public law rationale that judges in domestic and international courts cannot act as party representatives because such conduct would be incompatible with their impartiality and independence.Footnote 90 At the same time, however, one has to take into account the fact that in the current system, where arbitrators are appointed only for individual cases, only a few individuals could afford not to act as counsel in view of the need to gain a livelihood. At a minimum, therefore, close attention will need to be paid by arbitral institutions, appointing authorities, the parties to the proceedings, and arbitrators themselves to avoid issue conflicts in view of the system-level implications they have.Footnote 91 In addition, from a system-level perspective it would appear that issue conflicts are non-waivable by the parties to the proceedings to the extent that they affect not only the parties to the specific dispute.
3.2. The qualifications of arbitrators
The qualifications needed for serving as arbitrator in both commercial and investment treaty arbitration are, to a certain extent, similar. Both sets of arbitrators should be competent in applying the applicable substantive and procedural law and thus be able to resolve the specific dispute at hand. Yet, from a public order perspective, the significant influence arbitrators in investment treaty arbitration have on the development of international investment law mandates additional qualifications. Qualifications in commercial law and commercial arbitration are not necessarily enough to fulfil this task adequately. Instead, the competence required of arbitrators in investment treaty disputes should be no less stringent than that required for adjudicators in other areas of international dispute settlement, namely a proven record of qualification in the specific subject matter of the dispute settlement mechanism and/or competence in international law more generally.
The statutes of other international courts and tribunals can provide a yardstick in this respect. The Statute of the International Court of Justice (ICJ), for example, demands of judges ‘qualifications required in their respective countries for appointment to the highest judicial offices, or . . . recognized competence in international law’.Footnote 92 The Statute of the International Tribunal for the Law of the Sea demands ‘recognized competence in the field of the law of the sea’;Footnote 93 the Statute of the International Criminal Court requires ‘established competence in criminal law and procedure . . . or . . . established competence in relevant areas of international law’.Footnote 94 Similarly, the WTO Dispute Settlement Understanding requires members of the Appellate Body to be a ‘recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally’.Footnote 95
The ICSID Convention, by contrast, does not provide for any specific competence in international law in general or international investment law in particular. It merely requires that ‘[p]ersons designated to serve on the Panels shall be persons of high moral character and recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment.’Footnote 96 This broad description, which has been developed primarily in view of contract-based investment disputes,Footnote 97 has to be viewed critically in the context of investment treaty arbitration. In view of the governance impact of investment treaty arbitration, arbitrators should rather be ‘experienced in international law and investment matters’, as required under NAFTA's investment chapter.Footnote 98 With positive rules lacking in this respect, arbitrators who are approached to serve in investment treaty disputes should thus carefully consider whether they are qualified to handle such disputes as regards the applicable law. Not every commercial arbitrator will be fit for this purpose. Similarly, appointing authorities should pay attention to these aspects when called to appoint arbitrators in investment treaty disputes.
At the same time it is important to note that knowledge of international law by itself is not a sufficient qualification for a good arbitrator in investment treaty cases. Instead, what is equally needed is qualities regularly present in individuals with a background in commercial arbitration, namely an understanding of international business transactions and a thorough knowledge of and familiarity with the procedural law governing arbitral proceedings, including expertise and experience in complex fact-finding.Footnote 99
Both aspects are equally essential for living up to the mandate of investment treaty arbitrators to resolve the specific dispute at hand, as the parties to the dispute expect a context-related and business-minded implementation of international investment law by arbitrators who are able to find the facts of a case and know what effect their decision-making will have on foreign investment projects more generally. Ideally, the qualifications of arbitrators in investment treaty arbitrations would therefore encompass both an understanding of business transactions, competence in international investment law, and the ability to handle arbitral proceedings effectively, including the finding of evidence.
3.3. Independent legal research by arbitrators
Decision-makers exercising public functions, in particular when reviewing the legality of host state conduct, need to ensure, in view of the systemic impact of their decision, the correct and consistent application of the governing international law. This requires not only competence in international investment law in general, but knowledge of the specific issues involved, because it is crucial in public settings that the legal reasoning – the aspect that is most influential on unrelated third parties – is based on an informed, well-researched, and comprehensive understanding of the international legal issues involved. Consequently, arbitrators in investment treaty cases cannot rely solely on the presentation of the parties with respect to issues of the applicable international law, as is customary in commercial arbitration, and decide on that basis which arguments they consider more convincing. Instead, arbitrators in investment treaty cases, in applying and interpreting international investment treaties, should engage in independent legal research into the issues involved, comprising the recognized sources of international law, including customary law, treaty law, general principles, decisions by national and international courts and tribunals, and the writings of the most qualified publicists of international law.Footnote 100
In other words, the principle of iura novit curia, which is central to dispute settlement in international courts,Footnote 101 should equally apply in investment treaty arbitration, as awards influence the direction of international investment law as precedent. This presupposes that arbitral decisions reflect the state of international investment law on a specific issue in an accurate and convincing fashion without depending on the quality of counsel. The obligation of arbitrators to engage in a search for the relevant rules of international law that apply to the case is crucial, because the law, unlike the facts, is not part of the views of the parties and is beyond their disposition.Footnote 102 Independent legal research, however, should not, result in confronting the parties with a legal assessment of their case that they did not plead or were not reasonably able to foresee. Consequently, arbitrators should disclose the result of such independent legal research to the parties and allow them to comment on it before making a final decision.Footnote 103
The responsibility of arbitrators to know the law is closely tied with the selection process and the qualifications of arbitrators mentioned above. In addition, it is a question of the professional ethics of arbitrators. Providing external safeguards to ensure that the obligation to engage in an independent assessment of the law and its interpretation is actually implemented is more difficult. Reputation, however, will work towards ensuring that arbitrators are generally competent and engage in the legal research necessary for specific disputes.
3.4. Fact-finding and proprio motu inquiry into public policy issues
In commercial arbitration, the decision-maker can remain relatively passive with regard to fact-finding. Instead, it is up to the parties to present facts that support their claim or their objections to the other party's claim. Burden of persuasion and proof, accordingly, rest on the party making a factual allegation (actori incumbit probatio). In principle, this also holds true in investment treaty arbitration as well as other adversarial systems of international dispute settlement, for example the ICJ.Footnote 104 Under special circumstances, however, the public dimensions of investment treaty arbitration may require a more active approach to fact-finding by arbitrators than is customary in the settlement of private law disputes. While the facts in investment treaty arbitration, in principle, are owned by the parties and have no impact on actors outside the arbitral proceedings, certain questions relating to issues of international public policy militate towards requiring arbitrators to make use of independent fact-finding powers.
For example, if arbitrators have manifest grounds for suspecting that an investment project was fraught with corruption, international public policy aiming at suppressing corruption, as enshrined in various international instruments,Footnote 105 militates towards imposing a duty on arbitrators to engage in independent fact-finding on this point. The rationale for such an approach would be, in line with procedural principles of public law litigation in some domestic settings,Footnote 106 that arbitrators in investment treaty cases not only fulfil a function in settling the specific dispute at hand, but also are agents of the international community. Not looking beyond the parties’ submission, by contrast, would be insufficient to fulfil their public order function, in particular in situations where none of the parties may have an interest in uncovering behaviour, such as corruption, that violates international public policy. Similarly, making use of independent fact-finding powers could be apposite in order to alleviate the rigidity of the burden of proof in cases where the party bearing it is in a structurally weaker position to furnish the necessary evidence.Footnote 107 In such cases, arbitrators should give more weight to inquisitorial elements and make use of their fact-finding powers.
Available instruments for investigating and evaluating certain factual circumstances could include the request of documents from the parties, the independent examination of a witness without request by the parties, the appointment of an independent expert, collaboration with other international organizations, including other international dispute settlement fora that have dealt with the same situation,Footnote 108 or the invitation of amicus briefs by organizations having the requisite knowledge and expertise. Arbitral tribunals, in most cases, would also dispose of the necessary competence for independent fact-finding under such circumstances. Article 43 ICSID Convention, for example, provides for an ICSID tribunal's competence to ‘(a) call upon the parties to produce documents of other evidence, and (b) visit the scene connected with the dispute and conduct such inquiries there as it may deem appropriate’. Ultimately, one may draw on inherent powers of international courts or tribunal that are necessary to fulfil their task in administering justice.Footnote 109 It is important, however, to note that fact-finding proprio motu should be restricted to special circumstances where interests of non-participating parties are involved, such as issues of corruption. It should not lead to arbitrators assuming the role of inquisitors or counsel for the parties at hand. Instead, in principle, the decision to settle treaty-based investor–state disputes based on the commercial arbitration model should be respected. This, in principle, involves adhering to the adversarial model of dispute resolution.
3.5. Reasoning in investment treaty awards
One of the fundamental checks on the accountability of dispute resolvers is that decisions are reasoned. Article 48(3) ICSID Convention, for example, provides that an award ‘shall state the reasons upon which it is based’.Footnote 110 While giving reasons for arbitral awards primarily serves the purpose of enabling the parties to understand the ratio decidendi,Footnote 111 the reasoning in investment treaty disputes should be cast, in view of its public nature and function, in ways that equally live up to the expectations of non-participating stakeholders. It must be transparent not only from the point of view of the parties to the proceeding, but also for non-participating parties. This requires above all that the reasoning, to the extent it affects general principles of international investment law and arbitration, is not only comprehensible to non-parties, but also shows that the tribunal took into account the relevant sources of international law and fitted its decision into the larger framework of international investment protection, thereby aiming to achieve the consistency in arbitral jurisprudence which is expected by users, both investors and states, of the system of international investment protection and arbitration.
Reasoning that conforms to this yardstick is mostly present in ICSID arbitrations. ICSID awards generally involve extensive reasoning on the key legal issues and careful assessment of the facts. They also take into account decisions of other tribunals in investment treaty cases and thus contribute to an increasingly closely knit framework of investment jurisprudence that concretizes the vague principles of investment treaty law and enables investors and states to rely on an increasingly predictable corpus of international investment law. By contrast, investment treaty awards entertained under the administration and rules of commercial arbitration institutions are sometimes less well reasoned from the perspective of non-participating parties. Here the commercial arbitration style of awards prevails, putting more emphasis on an extensive presentation of the facts and being addressed exclusively to the parties to the proceedings.
An example of the latter approach is the Partial Award in Eastern Sugar B.V. v. Czech Republic, a dispute entertained under the rules of the Stockholm Chamber of Commerce. It involved violations of the Dutch–Czech BIT based on changes in the Czech legislation relating to the allocation of sugar quotas. The award extensively recounts in over 100 paragraphs the facts relevant to a claim based on a breach of fair and equitable treatment,Footnote 112 but finds a violation of that standard in a brief conclusion without identifying the normative content of the fair and equitable treatment standard. In particular, the reasoning does not show that the Tribunal interpreted fair and equitable treatment based on the accepted methodology of treaty interpretation, nor did the Tribunal make reference to arbitral precedent or academic writings on this point.Footnote 113 All one finds is a statement that a violation of the BIT ‘does not only occur through blatant and outrageous interference’, but ‘may also not be invoked each time the law is flawed or not fully and properly implemented by a state’.Footnote 114 This sounds much like the endorsement of the long-abandoned view that fair and equitable treatment is not a legal, but an equitable standard.Footnote 115 Considering, however, that fair and equitable treatment is a legal standard with independent normative content and not an authorization for arbitrators to render decisions ex bono et aequo, such reasoning is problematic.Footnote 116
The type of reasoning à la Eastern Sugar might be sufficient in settings where a dispute concerns only the parties to a proceeding and where awards do not become public. The parties might be satisfied or dissatisfied with the way the arbitrators handled, decided, and reasoned a case. In dispute settlement settings that affect only the parties to the proceedings the potential damage of such reasoning is negligible on a macro scale, as the award has no impact beyond the individual dispute. Such reasoning, however, becomes problematic when awards, such as investment treaty awards, become public and influence the predictability and stability of the interpretation of all investment treaties and not only of the Dutch–Czech Treaty with respect to a particular dispute. Predictability of investment jurisprudence is compromised when arbitrators do not lay out their normative understanding of the legal standards they apply. Although one cannot expect a watertight argument that reviews every possibly precedent, takes into account every possible writing, or discovers other jewels of international law, one can expect that tribunals do not plainly posit the content of a certain legal standard of investment protection without, it seems, any inquiry into international law sources and methodology. Such reasoning understandably fuels the fear that investment tribunals are unaccountable and apply legal standards that are vague and unpredictable and result in uncontrollable law-making powers of investment tribunals.
Similarly, when it comes to dealing with inconsistent decisions, the public order implications of investment treaty arbitration suggest that arbitrators have a specific duty to provide reasons when departing from earlier awards.Footnote 117 Although investment tribunals are not bound by earlier decisions and can thus diverge without committing an error of law, they nevertheless have a specific responsibility to explain why they diverge in a certain setting. While inconsistent decisions are undesirable and compromise the predictability and stability of international investment law, the only way to arrive, in the long run, at a jurisprudence constante which is accepted by investors and host states is for the tribunals to set out clearly the arguments for their approach and refute existing counterarguments in order to reach, in a deliberative fashion, consensus on the proper interpretation of investment law principles. In most cases of ‘inconsistent decisions’ arbitral tribunals, indeed, live up to this obligation. The Tribunal in SGS v. Philippines, for example, extensively engaged in a discussion of the earlier award in SGS v. Pakistan that suggested a contrary interpretation and application of umbrella clauses.Footnote 118 Likewise, the Tribunal in El Paso Energy v. Argentina, which preferred the solution in SGS v. Pakistan and disapproved of the ruling in SGS v. Philippines, engaged in an extensive discussion of why it followed one rather than the other approach.Footnote 119 Similarly, decisions on the interpretation of MFN clauses in general discuss, in a well-reasoned way, conflicting decisions by other investment tribunals.Footnote 120
It is, by contrast, a troubling approach to ignore existing decisions that would militate for the contrary result or to cite investment law precedent selectively. Examples of such approaches can be found in the ICSID decisions LG&E v. Argentina and Enron v. Argentina, which concern the legality of Argentina's emergency legislation under the US–Argentina BIT. While the decision in LG&E largely followed the earlier award in CMS v. Argentina concerning the assessment of Argentina's conduct under the substantive BIT obligations, it departed from the CMS decision with respect to the plea of necessity.Footnote 121 What is striking, however, is the way the LG&E decision dealt with this jurisprudential conflict. While it frequently concurred with the award in the CMS case, and even cited this award as support for its interpretation of the substantive BIT obligations, such as fair and equitable treatment and the concept of indirect expropriation,Footnote 122 it did not even mention that the CMS award differed concerning the interpretation of Argentina's necessity defence. Instead, the Tribunal in LG&E concealed the divergence and justified its decision without even addressing, safe rebutting, the arguments provided in the CMS award against the operation of necessity. Independent of the correctness of the decisions at hand,Footnote 123 it is objectionable that arbitral precedent is cited in such a selective way.Footnote 124 It upsets not only the comprehensibility of the reasoning for the parties but also the predictability of international investment law more generally. The award in Enron v. Argentina continued this troubling trend in selectively using arbitral precedent. While frequently citing the Decision on Liability in LG&E v. Argentina as support for its interpretation of fair and equitable treatment and the umbrella clause,Footnote 125 the Tribunal failed to mention that the LG&E decision diverged significantly with respect to Argentina's necessity defence.Footnote 126
Both decisions, the Enron case and the LG&E case, are remarkable in still another respect. In both cases, overlaps in the composition of the tribunals existed, but no dissenting opinion was issued. One of the arbitrators sitting in the Enron case had also sat in the LG&E tribunal; one of the LG&E arbitrators, in turn, had formed part of the tribunal in CMS v. Argentina.Footnote 127 While dissenting opinions are not common in commercial arbitration, they are a good tradition in many international dispute settlement fora, above all in the International Court of Justice. They serve an important function in developing international law and should equally be encouraged in investment treaty arbitrations in view of the public order implications of this type of dispute settlement system. In the absence of a central and permanent judicial institution that decides investment disputes, the only way of arriving at convincing and accepted solutions will be by transparently providing the arguments for possible solutions and trying to convince the parties, as well as non-participating stakeholders affected by investment treaty arbitrations, above all other states and investors, that a certain solution is preferable over conflicting solutions adopted by other tribunals.Footnote 128 Part of this is to disclose reasoned dissents. Accordingly, arbitrators should avail themselves of the possibility offered, for example, by Article 48(4) ICSID Convention to attach separate and dissenting opinions. While making use of this opportunity is not mandatory, it is ‘a sacred freedom. To be preserved, it must be used.’Footnote 129
4. Conclusion
This article has argued that investment treaty arbitration differs from international commercial arbitration in some essential aspects. While arbitrators in investment treaty disputes primarily engage, like their counterparts in commercial arbitration, in settling a specific dispute between the parties to the proceedings, their activity is not limited to retrospectively adjudicating mutual rights and obligations in a two-party relationship. Instead, investment treaty arbitration operates in a larger framework of international investment protection and has effects as a governance mechanism on stakeholders that are not parties to the proceedings. This is the case, above all, because awards in investment treaty arbitration often become publicFootnote 130 and influence, as non-binding precedent, not only the litigation behaviour of parties in other investment proceedings, but heavily influence the decision-making of arbitral tribunals themselves. Investment treaty arbitrations thus have a bearing on the interpretation, operation, and application of investment treaties beyond individual disputes. In this sense, investment treaty arbitration has a significant international public function that goes well beyond the private function of settling a specific dispute between the parties to the proceeding that is typical of commercial arbitration. Investment treaty arbitrations contribute to the creation of a treaty-overarching system of governance in international investment relations because their jurisprudence generates communicative authority that frames the discourse and arguments of later litigants and arbitrators and constitutes the focal points towards which the expectations of parties are directed. Furthermore, investment treaty arbitrations also concern the public interest as one of the parties is a state whose population will be affected by investor–state dispute settlement.
This public function explains the critique put forward against investment treaty arbitration concerning its lack of legitimacy, given that party-appointed and not democratically controlled arbitrators resolve disputes that are of concern to the states’ population but also to investors and states more generally. Instead of subscribing to the view that such a privatization of global justice should necessarily be replaced by a permanent international investment court, this article has argued that the public function of investment treaty arbitration has repercussions on the position and obligations of the arbitrators. Arbitrators, in these cases, should not be regarded as only having – as is the case for commercial arbitration – obligations vis-à-vis the parties to the proceedings, but vis-à-vis the system of international investment protection as a whole and those subject to it – particularly states and foreign investors more generally. Consequently, the role and status of arbitrators yield, in part, to rationales different from those applying in the commercial arbitration context and should, accordingly, be conceptualized differently. While investment treaty arbitration builds on commercial arbitration as the form and procedure of settling treaty-based investment disputes, the procedural principles governing commercial arbitration cannot always be adopted in investment treaty arbitration. Instead, in certain circumstances, the public function of investment treaty arbitration militates for a modification of the principles governing arbitral procedure in commercial arbitrations in view of public law considerations.
Thus conflict rules in investment treaty arbitration arguably need to be stricter than in commercial arbitration, in particular as regards issue conflicts arising out of parallel roles of individuals as arbitrator in one and counsel in another, even if factually unrelated, investment treaty arbitration. The public nature and function of investment treaty arbitration further suggests that arbitrators in such disputes need to be competent not only as regards arbitral procedure and commercial law, but also with respect to international investment law. Likewise, the work arbitrators have to perform requires, to the extent that it not only affects the parties to the proceedings but concerns the international community at large, a higher degree of accuracy concerning the facts. In special circumstances this militates towards assuming obligations of arbitrators to engage in independent fact-finding to the extent that aspects of international public policy are concerned, for example concerning corruption. Finally, as regards the reasoning of investment treaty awards, arbitrators should keep the public aspects of their dispute settlement activity in mind and embed their reasoning within an argumentative framework that is comprehensible not only to the parties but to other investors and states as well. Likewise, the reasoning of investment treaty decisions should address conflicting arbitral jurisprudence in order to help generate a well-reasoned jurisprudence constante in investment treaty arbitration. In general, modifying the commercial arbitration model in investment treaty disputes in view of public law rationales could contribute to increasing the legitimacy of this dispute settlement mechanism and to creating a system that, on the basis of the current dispute settlement procedure, appropriately balances state sovereignty and investment protection, is transparent and predictable, and thus acceptable to host states and investors alike.
