Private Actors in International Investment Law (European Yearbook of International Economic Law) 3030483924, 9783030483920

Citation preview

European Yearbook of International Economic Law Katia Fach Gómez Editor

Special Issue: Private Actors in International Investment Law

European Yearbook of International Economic Law Special Issue

Series Editors Marc Bungenberg, Saarbrücken, Germany Markus Krajewski, Erlangen, Germany Christian J. Tams, Glasgow, UK Jörg Philipp Terhechte, Lüneburg, Germany Andreas R. Ziegler, Lausanne, Switzerland

The European Yearbook of International Economic Law (EYIEL) is an annual publication in International Economic Law, a field increasingly emancipating itself from Public International Law scholarship and evolving into a fully-fledged academic discipline in its own right. With the yearbook, the editors and publisher intend to make a significant contribution to the development of this “new” discipline and provide an international reference source of the highest possible quality. The EYIEL covers all areas of IEL, in particular WTO Law, External Trade Law for major trading countries, important Regional Economic Integration agreements, International Competition Law, International Investment Regulation, International Monetary Law, International Intellectual Property Protection and International Tax Law. In addition to the regular annual volumes, EYIEL Special Issues routinely address specific current topics in International Economic Law.

More information about this subseries at http://www.springer.com/series/8848

Katia Fach Gómez Editor

Private Actors in International Investment Law

Editor Katia Fach Gómez University of Zaragoza Zaragoza, Spain

ISSN 2364-8392 ISSN 2364-8406 (electronic) European Yearbook of International Economic Law ISSN 2510-6880 ISSN 2510-6899 (electronic) Special Issue ISBN 978-3-030-48392-0 ISBN 978-3-030-48393-7 (eBook) https://doi.org/10.1007/978-3-030-48393-7 © Springer Nature Switzerland AG 2021, corrected publication 2021 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Katia Fach Gómez Stakeholders of Investment Arbitration: Establishing a Dialogue Among Arbitrators, States, Investors, Academics and Other Actors in International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . Paolo Vargiu

1

5

Investment Arbitration Counsel’s Role in the Progressive Development of International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elie Kleiman, Charles T. Kotuby Jr., and Iris Sauvagnac

27

Some Thoughts on the Independence of Party-Appointed Expert in International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sébastien Manciaux

45

The Nationality of Natural and Juridical Persons in International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carlo de Stefano

59

Risk Assessment and Third-Party Funding in Investment Arbitration . . . María Beatriz Burghetto

81

Third-Party Funding and Access to Justice in Investment Arbitration: Security for Costs as a Provisional Measure or a Standalone Procedural Category in the Newest Developments in International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 José Ángel Rueda-García A Quantum Expert’s Perspective on Third-Party Funding . . . . . . . . . . . 123 Richard E. Walck

v

vi

Contents

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in Investment Arbitration . . . . . . . . . . . . . . . . . . . 133 Ina C. Popova and Katherine R. Seifert Towards a Republicanisation of International Investment Law?: Conceptualising the Legitimatory Value of Public Participation in the Negotiation and Enforcement of International Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Karsten Nowrot and Emily Sipiorski Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The Application of the Monetary Gold Principle . . . . . . . . . . . . . . . . . . . . 175 Alvaro Galindo and Ahmed Elsisi Media Wars: Transparency and Aggravation in International Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Alina Papanastasiou Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities, and the Research Front . . . . . . . . . . . . . . . . . . . . 209 Niccolò Ridi and Thomas Schultz Private Counsel and the Proposed Reforms of Investor-State Dispute Settlement (ISDS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Rimdolmsom J. Kabre and Andreas R. Ziegler Correction to: Private Actors in International Investment Law . . . . . . . Katia Fach Gómez

C1

The book has now been revised with a new chapter at the end of the book and a paragraph relating its addition has been added in chapter 1. The correction to this chapter can be found at https://doi.org/10.1007/978-3-030-48393-7_15

Introduction Katia Fach Gómez

This edited volume published by Springer brings together a selection of peerreviewed chapters that were presented and discussed at the International Colloquium on “Actors in International Investment Law: Beyond Claimants, Respondents and Arbitrators”. The Colloquium took place at the University Paris II Panthéon-Assas on the 26th and 27th of September 2019 and was hosted by Catharine Titi. The call for papers of this colloquium noted the fact that traditional studies of actors in international investment law have tended to focus principally on arbitrators, claimant investors and respondent states, leaving a number of other seminal actors outside the main scope of this field of law, a view that was duly reaffirmed as the event unfolded. The book’s purpose is to redress this imbalance by critically reviewing some of the private actors in international investment law that typically remain outside the spotlight. While the role played by private actors such as lawyers, experts, funders, citizens, NGOs, amicus curiae, non-disputing parties, media, and scholars in shaping contemporary international investment law is specifically explored in this volume, stock is also taken of recent arbitral practice and scholarly contributions to reflect on present and future synergies among these private actors. The book also argues that the highly sophisticated area of international investment law is a suitable testing ground to show the increasing level of interaction between private and public law. There is, moreover, a direct connection with two other volumes published by Springer: Public Actors in International Investment Law (edited by Catharine Titi) and Transnational Actors in International Investment Law (edited by Anastasios Gourgourinis). These three books not only aim to make a relevant academic contribution to the aforementioned fields, but also to promote a scholarly discussion that lays the foundations for future legal debates on international investment law.

K. Fach Gómez (*) University of Zaragoza, Zaragoza, Spain © Springer Nature Switzerland AG 2021, corrected publication 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_1

1

2

K. Fach Gómez

This book opens with a chapter by Paolo Vargiu entitled “Stakeholders of Investment Arbitration: establishing a dialogue among arbitrators, states, investors, academics and other actors in international investment law”. The author argues that the duties of investment arbitral tribunals are not limited to merely addressing the questions posed to them by the parties, as they also deal with matters for a much broader audience with a palpable interest in the interpreting and applying of investment treaties and how international investment law is developed. The chapter aims to frame the role and functions of investment arbitrators vis-à-vis stakeholders other than the claimants and respondent. The analysis addresses ways in which such roles and functions can be theorised in isolation from formalistic approaches to investment arbitration that would call for positive actions, and in light of existing multilateral approaches that have contributed to the development of the international investment law field. Elie Kleiman, Charles T. Kotuby and Iris Sauvagnac have co-authored a chapter on the “Investment arbitration counsel’s role in the progressive development of international law”. The authors contend that private actors and their respective counsels have a sizeable effect on the progressive development of international investment law. The chapter stresses that international jurisprudence is contingent on the broad variety of ways in which counsels assist arbitral tribunals to reach wellresearched and well-reasoned decisions, which eventually contribute to the development of a more reliable jurisprudence constante in this area of law. “Private Counsel and the Proposed Reforms of Investor-State Dispute Settlement (ISDS)”, Jonathan R. Kabre and Andreas R. Ziegler examine the impact that a prospective ISDS reform more have on counsel’s activities. The authors discuss two specific promising amendments, namely the establishment of an Advisory Centre on Investment Law (ACIL) and the elaboration of a code of conduct for investment adjudicators. Sébastien Manciaux’s chapter offers “Some thoughts on the Independence of Party-Appointed Expert in International Arbitration”. The author reflects on the main characteristics and potential shortfalls of some key rules that require party-appointed experts in the investment arbitration milieu to be independent. Carlo de Stefano reflects on “The Nationality of Natural and Juridical Persons in International Investment Law”. De Stefano addresses the role of the investor’s home state as negotiator and drafter of its international investment agreements with regard to the definition of “national” applicable both to individuals and corporations. After dealing with some questionable phenomena such as treaty shopping, the author provides various types of treaty provisions that states can stipulate when negotiating or renegotiating their international investment agreements with a view to appropriately accommodating the policy concerns raised throughout this chapter. In a chapter entitled “Risk assessment and third-party funding in investment arbitration”, María Beatriz Burghetto uses the practitioner’s standpoint to explore the main case- and context-related risks assessed by third-party funders in investment arbitration claims. The chapter aims to provide a useful tool for counsels when presenting their clients’ funding applications to third-party funders, thus enabling them to acquire a better understanding of third-party funders’ stances and to be better equipped to interact with them and represent their clients’ interests.

Introduction

3

José Ángel Rueda-García’s chapter addresses the topic of “Third-party funding and access to justice in investment arbitration: security for costs as a provisional measure or a standalone procedural category in the newest developments in international investment law”. He claims that third-party funding can be viewed as a tool to allow the parties in an investment dispute to exercise their fundamental right to access to justice by having access to investment arbitration. The author argues that arbitral tribunals should take this proposition into consideration when dealing with requests to post security for costs in investment arbitration if the request arises from the fact that one party is relying on third-party funding. The chapter also examines a recent trend to treat security for costs as a standalone, independent from the procedural category of provisional measures. Richard E. Walck’s chapter provides “A Quantum Expert’s Perspective on ThirdParty Funding”. Walck reflects on the policy debate surrounding third-party funding in the context of investor-state dispute settlement. The author also focuses his attention on the International Council for Commercial Arbitration–Queen Mary Task Force on Third-Party Funding, which has begun the process of identifying and assessing these competing interests and has suggested a number of best practices on the basis of its work. The chapter co-authored by Ina C. Popova & Katherine R. Seifert and entitled “Gatekeeping, lawmaking, and rulemaking: lessons from third-party funding in investment arbitration” develops an empirical analysis to determine how thirdparty funders fit into the traditional framework of investment disputes. As a result of their study the authors perceive an inclination among the international arbitration community to embrace, rather than prohibit, the involvement of third-party funders in investor-state proceedings. Karsten Nowrot and Emily Sipiorski co-sign a chapter entitled “Towards a Republicanisation of International Investment Law? Conceptualising the Legitimatory Value of Public Participation in the Negotiation and Enforcement of International Investment Agreements”. The authors take a closer analytical look at the increasing and increasingly more formalised opportunities for interested citizens and other private actors to become actively involved in the preparation, negotiation and subsequent enforcement of international investment agreements. The chapter furthermore presents some thoughts on the usefulness and validity of a broader claim towards a republicanisation of international investment law as a normative ordering and guiding idea for conceptualising current trends in international investment law-making, as well as for the future evolution of this area of international economic law. Alvaro Galindo and Ahmed Elsisi’s chapter “Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The Application of the Monetary Gold Principle” makes a case for the distinction between the procedure for intervening in investment arbitration claims as a disputing party and participating as amicus curiae. The authors consider amicus participation likely to be an inadequate procedural tool to cover non-disputing parties’ rights, as it is granted at the tribunal’s discretion and the standards applied are unclear and difficult to meet. Alina Papanastasiou’s chapter on “Media Wars: Transparency and Aggravation in International Investment Arbitration” reflects on the role that the media can play in

4

K. Fach Gómez

an on-going investment arbitration “war”. It also discusses different facets and forms of press involvement in this context, as well as possible limitations. The book’s final chapter, “Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities, and the Research Front”, has been written by Niccolò Ridi and Thomas Schultz and provides a large-scale analysis of investment arbitration scholarship. The authors combine theoretical insights and empirical big data analysis to map the field, its actors and dynamics with a view to revealing latent patterns, not only through citations, topics, and publication dynamics, but also tribunals’ own use of literature. I wish to conclude this brief introduction by expressing my heartfelt thanks to the eighteen authors from ten countries around the world whose valuable work makes up this book. Thank you for joining this scientific project and for staying involved in it, even in these uncertain times of coronavirus. The fact that all the contributors not only submitted their well-thought out chapters on time but also endeavoured to complete the editing review process speedily is greatly appreciated. In the hope of holding more face-to-face conferences on international investment law in the near future, I have no doubt that readers will enjoy the intellectual fruits of the highly successful Paris II Panthéon-Assas conference. Katia Fach Gómez is tenured Lectured (Profesora Titular) of Private International Law at the University of Zaragoza (Spain). She was Adjunct Professor at Fordham University (New York), Visiting Scholar at Columbia Law School (New York) and Senior Humboldt Scholar in various German research institutions. Katia has also lectured at numerous European and Latin American Universities. She holds a European PhD summa cum laude from the University of Zaragoza, and an LLM summa cum laude (prize Edward J. Hawk) from Fordham University. Katia is the author of numerous monographs, book chapters and articles on international economic law, international arbitration, international mediation, private international law, and comparative law. Katia has also been involved in diverse international litigation and arbitration cases in the USA and Europe, and acts frequently as independent arbitrator or mediator in international and internal controversies. In 2020, she has been designated by the Kingdom of Spain as conciliator to the conciliators’ list of the International Centre for Settlement of Investment Disputes (ICSID).

Stakeholders of Investment Arbitration: Establishing a Dialogue Among Arbitrators, States, Investors, Academics and Other Actors in International Investment Law Paolo Vargiu

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Formal Duties of Investment Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Arbitrators and Their Role in the Context of the Investment Arbitral Regime . . . . . . . . . . . . . 4 Arbitrators and the Stakeholders of Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6 9 13 15 21 22

Abstract It is generally accepted that any arbitral award extends its effects solely on the parties to the dispute in which is rendered. In light of this, and the lack of either a system of precedent or a jurisprudence constante, investment arbitral awards should be considered as operating in a vacuum, outside of which the award and its substantive content are non-existent. However, the investment arbitral regime has over the years developed a de facto precedent system; moreover, the scholarship on investment arbitration addresses virtually all questions of investment law considering how such questions have been answered to by arbitral tribunals. Therefore, it is arguable that the duties of investment arbitral tribunals are not limited to merely addressing the questions posed to them by the parties, as they address matters for a much broader audience than the parties—an audience that includes other states, current and prospective investors, academics, NGOs and associations, and the taxpayers of each state acting as respondent before an arbitral tribunal. All these subjects are stakeholders of investment arbitration, as they all have a tangible interest in how investment treaties are interpreted and applied, and how international investment law is developed. There is, however, no international law instrument vesting investment tribunals with the responsibility to take all these concerns into account when deciding on a claim brought by an investor. This chapter is therefore aimed at framing the role and functions of investment arbitrators with regard to stakeholders

P. Vargiu (*) University of Leicester Law School, Leicester, UK e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_2

5

6

P. Vargiu

beyond claimants and respondent. The analysis addresses how such roles and functions can be theorised in isolation from formalistic approaches to investment arbitration that would call for positive actions, and in light of existing multilateral approaches that have contributed to the development of the field of international investment law.

1 Introduction Any arbitral award extends its effects solely on the parties to the dispute in which is rendered. This generally accepted principle of international arbitration (also explicitly stated in the ICSID Convention),1 together with the lack of either a system of precedent or a jurisprudence constante in investment arbitration,2 leads to the conclusion that investment arbitral awards should be considered as operating in a vacuum, outside of which each award and its substantive content are non-existent. A thorough look at the practice of investment arbitration, however, leads to question the validity of such conclusion. The investment arbitral regime has developed, over the years, a de facto precedent system through the constant reference, by arbitral tribunals, to earlier awards and decisions.3 Moreover, the scholarship on investment arbitration—which contributes to the development of investment law through the participation of academics in investment tribunals as well as the reference to scholarship by such tribunals4—addresses virtually all questions of investment law considering how such questions have been answered to by arbitral tribunals. The duties of investment arbitral tribunals, therefore, are hardly limited to merely addressing the questions posed to them by the parties.5 It is also arguable that the inclusion of the reasoning behind their answers is not simply due to the requirements of the various applicable instruments governing the enforcement of arbitral awards. 1 See e.g. Article 53 of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (International Centre for Settlement of Investment Disputes [ICSID]) 575 UNTS 159; Article 46 of the Stockholm Chamber of Commerce (SCC) Arbitration Rules, available at https://sccinstitute.com/media/293614/arbitration_rules_eng_17_web.pdf; Article 35 of the International Chamber of Commerce (ICC) Arbitration Rules, available at https://iccwbo.org/ dispute-resolution-services/arbitration/rules-of-arbitration/; Article 34 of the UNCITRAL Arbitration Rules, UN Doc A/31/98, 31st Session Supp No 17, available at https://uncitral.un.org/sites/ uncitral.un.org/files/media-documents/uncitral/en/uncitral-arbitration-rules-2013-e.pdf. 2 Gaillard and Banifatemi (2016), p. 104; Bjorklund (2008), p. 266; Vargiu (2009), p. 757; Kaufmann-Kohler (2007), p. 358; Schreuer and Weiniger (2008), p. 1189. 3 See a.o. Brower et al. (2009), p. 843; Kaufmann-Kohler (2007), p. 357; Ten Cate (2013), p. 418; Douglas (2010), p. 104; Reed (2010), p. 95; Gill (2010), p. 87; Paulsson (2010), p. 699; Commission J (2007), p. 129. 4 See a.o. Böckstiegel (2012), p. 581; Schreuer et al. (2009), p. 626. 5 See e.g. Article 48(3) of the ICSID Convention; Article 41 of the SCC Arbitration Rules; Article 32 of the ICC Arbitration Rules; Article 34 of the UNCITRAL Arbitration Rules.

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

7

In fact, investment tribunals address questions, and state reasons, for a much broader audience than the parties. Such an audience includes other states involved in investment relationships with foreign investors, investors that may at any point file a claim before an investment arbitral tribunal, scholars who analyse the case-law and teach the next generation of investment lawyers, NGOs and associations interested in the subject matter of the cases, and the taxpayers of each state acting as respondent before an arbitral tribunal. All these subjects fall within the broad definition of “stakeholders of investment arbitration”, as they all have a tangible interest in how investment treaties are interpreted and applied, and how international investment law is developed.6 There is, however, no international law instrument formally vesting investment arbitral tribunals with the responsibility to take all these concerns into account when deciding on a claim brought by an investor. It is, indeed, exceptionally rare that international tribunals are expressly required to consider, when deciding on a case, the interest of stakeholders with no direct interest in such case;7 and it is doubtful whether any instruments of soft-law may formally establish such duty upon arbitral tribunals. Nevertheless, an argument can be made that, even in absence of multilateral instruments extending the duties of arbitrators beyond the particular dispute they are appointed to hear, such duties exist, and should indeed be fulfilled. International investment law and international investment arbitration are commonly referred to in the same terms, and with the same systemic expectations, as actual multilateral systems (such as, for example, international trade law). However, one of the peculiarities of international investment law is that it is based on an extremely wide range of bilateral and plurilateral instruments.8 The common language and content of these instruments allows to treat them as expressions of a widely accepted multilateral regime. It can be argued that investment arbitrators represent the link among all these instruments and the various cases arising out of them: they are the sole subjects called to consider and interpret them in official decision-making (and, one may suggest, law-making) settings. Furthermore, the practice of repeated appointments has now culminated in the establishment of a relatively small group of individuals who can consider themselves professional, full-time arbitrators (rather than merely practitioners or academics who occasionally get appointed to investment arbitral tribunals). These individuals influence, if not direct entirely, the development of international investment law. It is therefore possible, as it will be done in this chapter, to refer to arbitrators as a group, overcoming the formalist objection that every dispute is self-referential and the arbitrators thereby appointed must only 6

Bonnitcha et al. (2017), pp. 6 and 223; Langford and Behn (2018), p. 557. Bennaim-Selvi (2005), p.774; Viñuales (2006), p. 235; Mourre (2006), p. 258; Fach Gómez (2012), p. 511; Kaufmann-Kohler (2013), p. 309. 8 On January 4th, 2020, the total number of bilateral investment treaties was 2896, of which 2337 currently in force; furthermore, there are 389 plurilateral treaties with provisions on investment protection, of which 314 are currently in force. Source: United Nations Conference on Trade and Development (UNCTAD) International Investment Agreement Navigator, at https:// investmentpolicy.unctad.org/international-investment-agreements. 7

8

P. Vargiu

concern themselves with its facts and applicable law. Arbitrators, being vested with the task of developing the international law on foreign investment, are therefore required to interact continuously with the afore-mentioned stakeholders of investment arbitration, besides the parties to particular disputes. The question should therefore be not whether such a relationship exists, but rather what its terms are. In this chapter, I will suggest an analysis of the relationship between arbitrators and the stakeholders of investment arbitration modelled upon Roland Barthes’ theory of the relationship between teachers and students. Roland Barthes was neither a lawyer nor a legal philosopher—in fact, he mostly ignored the law as a field of study in his literary and academic ventures. He was, however, an attentive and acute observer of human and social relations, as proven by his vast and diverse production generated in the 1950s, 1960s and especially in the 1970s, in the wake of his pivotal essay “The Death of the Author”.9 I would argue that, while the relationship between arbitrators and parties is purely contractual, arbitrators and stakeholders of investment arbitration are also bound by social—or socio-legal, loosely speaking—connections. Such connections replicate, mutatis mutandis, any setting where determined individuals are recognised as leaders and are called to guide the community they lead and respond to at the same time. Any social relationship entails duties and expectations from all the parties involved; as it will be seen in the remainder of this chapter, Barthes’ analysis of the teacher-student relationship can help addressing the duties and expectations of arbitrators and stakeholders in the context of the investment arbitral regime. Therefore, the aim of this chapter is to frame the role and functions of investment arbitrators with regard to stakeholders beyond claimants and respondent, and question how such roles and functions can be theorised (a) in isolation from formalistic approaches to investment arbitration that would call for positive actions, and (b) in light of existing multilateral approaches that have contributed to the development of the field of international investment law. This chapter is thus structured as follows: Sect. 2 will briefly address the nominal functions of investment arbitrators under the instruments in force regulating their duties; Sect. 3 will provide an overview of the actual role of arbitrators in the context of the investment arbitral regime, as briefly anticipated in this introduction; Sect. 4 will address the relationship between arbitrators and stakeholders of investment arbitration focussing on the duties and expectations of the leaders and the community they operate in. Finally, Sect. 5 shall provide a few concluding remarks.

9 Originally published in the American multimedia magazine Aspen, issue 5-6 (1967), and later reprinted in Barthes (1977a), p. 142.

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

9

2 The Formal Duties of Investment Arbitrators The duties to be commonly fulfilled by investment arbitrators can be divided in two macro-categories: the first includes their powers under the ICSID Convention—or, in ad hoc arbitral proceedings, under the applicable arbitration rules—and are expressions of the powers conferred by the parties to the arbitrators in order to settle disputes that, because of the presence of a state as one of the parties, retain significant public law and public international law aspects;10 the second category groups the procedural duties that the arbitrators must fulfil in the context the specific dispute they are arbitrating, and—save for the extent of the performances required—are generally similar to those of international commercial arbitrators. It is appropriate to begin the analysis with the tribunal’s power to decide on its own competence. This can be also construed as the duty to assess its own jurisdiction on the case, excluding the otherwise necessary competence of domestic courts.11 The so-called Kompetenz-Kompetenz principle is well-established in both international adjudication12 and arbitration.13 The Kompetenz-Kompetenz principle allows investment tribunals to avoid delaying or stalling tactics by one of the parties through the denial of the tribunal’s jurisdiction. Moreover, it gives tribunals the power to address any question of jurisdiction even in cases when consent to arbitration (especially under Article 25 of the ICSID Convention) is challenged or lacking. The arbitral tribunal is also under the duty to decide on the dispute “in accordance with such rules of law as they may be agreed by the parties”, and to identify the relevant applicable law—both domestic and international—should such agreement be absent.14 Evidence is another aspect of the procedure that must be managed by the arbitrators. The ICSID Convention requires the arbitrators to verify the necessity that the parties provide documents or other evidence, and allows them to visit and conduct inquiries on the locations connected to the dispute.15 Moreover, the arbitrators are vested with the delicate task of managing the parties’ participation to the procedure. Indeed, a party’s failure to appear or to present their case does not necessarily mean that they are defaulting the case; in fact, even if the other party In the interest of conciseness, and because of its field-specific relevance, I will address this first category from the perspective of the ICSID Convention; the powers of ad hoc arbitral tribunals do not differ from those of ICSID tribunals significantly. 11 Article 41 of the ICSID Convention. See generally Heiskanen (2014); Kreindler (2013); Steingruber (2013). 12 See e.g. Art. 36 of the Statute of the International Court of Justice, 18 April 1946, available at https://www.icj-cij.org/en/statute. 13 See a.o. Article 21 of the UNCITRAL Arbitration Rules and Article 16 of the UNCITRAL Model Law on International Commercial Arbitration 1985 (United Nations Commission on International Trade Law [UNCITRAL]) UN Doc A/40/17, Annex I, available at https://www.uncitral.org/pdf/ english/texts/arbitration/ml-arb/06-54671_Ebook.pdf. 14 Article 42 of the ICSID Convention. See generally Di Pietro (2005), p. 225; Gaillard (2004), p. 192; Parra (2001), p. 22. 15 Article 43 of the ICSID Convention. See generally Böckstiegel (2001), p. 1. 10

10

P. Vargiu

requests the tribunal to deal with the question in absentia and render an award, the arbitrators remain under the duty to ascertain that the party does not intend or present their case, or to grant a period of grace to such party.16 Also, the arbitrators are under a duty to hear ancillary claims17 and, when appropriate, recommend provisional measures.18 Finally, in the ICSID context, the tribunal is provided with the power to decide on procedural issues not covered by the Arbitration Rules of the Centre or other provisions of the ICSID Convention.19 As pointed out in the Schreuer Commentary, “[a]n ICSID tribunal’s power to close gaps in the rules of procedure is declaratory of the inherent power of any tribunal to resolve procedural questions in the event of lacunae”.20 However, this gap-filling role qualifies for much greater relevance in the context of the ICSID Convention, as the ICSID has played a central role in the establishment of a “system”, or more appropriately “regime”,21 of investment law and dispute settlement.22 This has been possible, though, mainly thanks to the fact that ICSID tribunals have traditionally treated earlier tribunals’ awards as “persuasive precedent”.23 One may be sceptical about the legitimacy of this technique; however, it is hardly questionable that a number of procedural aspects of investment arbitration have been developed by arbitral tribunals on the basis of Article 44 of the ICSID Convention and later embraced by other tribunals (within and outside the ICSID framework) due to this persuasive role given to earlier awards.24

16

Article 45 of the ICSID Convention. See generally Alexandrov (1995), p. 41. Article 46 of the ICSID Convention. See Mann (1988), p. 577; Schwebel (2005), p. 1; VeenstraKjos (2007), p. 1. 18 Article 47 of the ICSID Convention. See Brower and Goodman (1991), p. 431; Friedland (1986), p. 335; Rueda Garcia (2009), p. 1. 19 Article 44 of the ICSID Convention. See a.o. Boralessa (2004), p. 258; Cordero Moss (2008), p. 1210; Parra (2007), p. 58. 20 Schreuer et al. (2009), p. 688. 21 Bonnitcha et al. (2017), pp. 7 and 59–65. 22 Kinnear (2010), p. 81. 23 Ten Cate (2013), p. 420; Commission J (2007), p. 129; Grabowski (2014), p. 302. 24 The chief example of arbitral jurisprudence that has filled a gap in the ICSID Convention is the one that dealt with the definition of the term ‘investment’ in Article 25: Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction of 31 July 2001, https://www.italaw.com/cases/958; Ceskoslovenska Obchodni Banka, A.S. (CSOB) v The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, https:// www.italaw.com/cases/238; Mr. Patrick Mitchell v Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on Annulment, 1 November 2006, https://www.italaw.com/cases/709; Malaysian Historical Salvors, SDN, BHD v The Government of Malaysia, ICSID Case No. ARB/05/10, Award, 17 May 2007, https://www.italaw.com/cases/646. Examples of decisions that have not been used as persuasive precedent may be found especially in the earlier annulment case-law, such as Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Ad hoc Committee Decision on Annulment of May 3, 1985, https://www.italaw.com/cases/3373; Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on the Application for Annulment on May 16, 1986, https://www.italaw.com/cases/3475. 17

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

11

Alongside these procedural ones, there are also a number of other professional duties that arbitrators are subject to once appointed. Due to considerations of space and conciseness this chapter shall only provide a very brief account of such duties, and refer the reader to the relevant scholarship for an in-depth analysis.25 Such duties, as stated beforehand, are common of investment and international commercial arbitrators. However, the scope of the duties in question is arguably broader in investment disputes due to their particular characteristics—as a private subject and a public law entity face each other in disputes based on private law contracts but governed primarily by public international law instruments. The first duty arbitrators must fulfil once appointed is the duty of disclosure. Disclosure could be seen as a necessary pre-requisite for the fulfilment of the everpervasive duties of independence and impartiality. Indeed, investment arbitrators are required to declare, when accepting their appointment, their “past and present professional, business and other relationships [. . .] with the parties and [. . .] any other circumstance that might cause [their] reliability for independent judgment to be questioned by a party”.26 Disclosure, in other words, concerns the duty to ensure the integrity of the arbitral process from its earliest stages, and to minimize the chances that one of the parties could challenge one of the arbitrators during the proceedings (or challenge the award at the enforcement stage). Furthermore, arbitrators must possess a range of personal characteristics that make them qualified to hear a dispute of such high profile as an investment arbitration. Reference will be made, once again, to the ICSID Convention as a representative example of a legal source applicable to investment arbitrators that lists their desired qualities in detail.27 The ICSID Convention requires its arbitrators to be persons of “recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment”.28 Breaking down this provision, it is possible to identify a few other duties of investment arbitrators. The reference to field-specific competences highlights the need for arbitrators to have achieved the status of experts in the field of law, commerce, industry or finance, and to maintain such status should they desire to remain appointable. This entails a duty of continuous training, necessary to keep up to date with legal knowledge, and therefore to allow arbitrators to “be relied upon to exercise independent judgment”. The reference to independence in the same provision, requiring arbitrators to gain “recognised competence” in their field of expertise, leads to interpreting the term “independence” not simply in the sense of the ability to carry the required tasks without being influenced by one of the parties (or a third party). In fact, as pointed out by influential scholarship, “independence” means the

25

Fach Gómez (2019), pp. 25–190. Rule 6 of the ICSID Arbitration Rules. 27 Comparable provisions can be found a.o. in Article 13 of the ICC Arbitration Rules; Articles 17 and 18 of the SCC Arbitration Rules; Article 11 of the UNCITRAL Arbitration Rules. 28 Article 14 of the ICSID Convention. While the provision refers to the qualities required to be part of the Panel of Arbitrators, Article 40 of the ICSID Convention requires arbitrators appointed from outside the Panel of Arbitrators to possess the qualities stated in Article 14. 26

12

P. Vargiu

ability to hear the dispute and decide on the claims brought by the parties without any need for delegation of responsibilities.29 Fach Gómez efficiently groups these duties within the category of “personal diligence and integrity”,30 underscoring the strong link between the maintenance of the arbitrator’s personal qualities as required by the relevant arbitration rules and the integrity of the arbitral proceedings. Such integrity would indeed be frustrated by an arbitrator’s failure to maintain the required standards of knowledge, professionalism and behaviour. Amongst the duties of investment arbitrators stands the respect of confidentiality as agreed upon by the parties. Recent instances aimed at increasing the transparency of investment arbitration have put the confidentiality of proceeding in question.31 However, it is important to underscore that the increasing publicity of investment arbitral proceedings does not affect the duty of the arbitrators, as it is not their task to ensure transparency publishing decisions and awards. Arguably, the arbitrators’ duties remain those outlined in the ICSID Arbitration Rule 6, which provides that arbitrators “shall keep confidential all information coming to [their] knowledge as a result of [their] participation in this proceeding, as well as the contents of any award made by the Tribunal”.32 Finally, it is worth noting that instruments such as the IBA Rules of Ethics for International Arbitrators require arbitrators to ensure that the costs of the proceedings “do not rise to an unreasonable proportion of the interests at stake”.33 However, it is uncertain whether the enormous costs of investment arbitration can truly be controlled by the arbitrators, as most of the costs are not dependent by their fees or their requests but rather by contingent elements of the dispute.34 This perspective seems to be confirmed by the fact that a number of proposals for the reduction of costs have rightly focused on elements other than the conduct of the arbitrators.35 A convincing argument can be made, however, that one of the duties of the arbitrators—perhaps part of their more general duty of diligence—is to make sure that the costs of the proceedings do not increase further as a result of their behaviour or their requests to the parties.

29

Fach Gómez (2019), pp. 123–125. Fach Gómez (2019), p. 123. 31 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, available at https://www.uncitral.org/pdf/english/texts/arbitration/rules-on-transparency/Rules-on-Transpar ency-E.pdf. See also Petrochilos (2018), p. 19; Hong-Lin (2018), p. 94; Fry and Repousis (2016), p. 795; Boisson de Chazournes (2004), p. 333; Knahr (2007) p. 327; Mourre (2006) p. 257; Knahr and Reinisch (2007), p. 97; Mistelis (2005), p. 211. 32 For future perspectives on confidentiality in investment arbitration see Fach Gómez (2019), pp. 169–170. 33 Article 7 of the the IBA Rules of Ethics for International Arbitrators (1987), available at https:// www.trans-lex.org/701100/_/iba-rules-of-ethics-for-international-arbitrators-1987/. 34 Bondar (2016), p. 48. 35 Fach Gómez (2019), pp. 177–178. 30

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

13

3 Arbitrators and Their Role in the Context of the Investment Arbitral Regime The previous section of this chapter has provided a brief overview of the main duties of investment arbitrators. The common aspect among all those duties is that they pertain to the role of arbitrators within a particular dispute. Indeed, from a formalist standpoint, the duties of an investment arbitrator only cover the extent of the dispute they are called to hear. Furthermore, all the duties so far considered find their legal basis in a treaty on which the jurisdiction of the tribunal is based (such as the ICSID Convention, a bilateral investment treaty or a trade agreement with a chapter on investment protection) or the procedural rules chosen by the parties to govern their dispute. Even duties to be performed outside of a particular dispute—such as the duty of continuous training—are in fact linked to the chance that a certain individual is appointed as arbitrator, and are to be fulfilled with respect to such dispute. This view reinforces conventional perspectives, such as that investment arbitral proceedings only involve an investor and the state where the investment takes place; that the arbitrators only respond to the parties that appointed them; and that the elements that makes investment arbitration “mixed”,36 and ultimately different from international commercial arbitration, are the public law nature of one of the parties and the relevance of certain rules of public international law applicable to the dispute. I would like to challenge the conventional view, and redefine the role of investment arbitrators, moving from two axioms. The first is that if international investment law is a “system”, as commonly referred to,37 or even a “regime”, it is crucial to identify the trait d’union of the thousands of bilateral and plurilateral treaties, hundreds of awards and decision forming persuasive precedent, and tens of arbitration rules available to investors and states. Such linking factor is the role of arbitrators, who are called to interpret provisions from different treaties according to the mainstream interpretation of their terms, support their opinions with references to previous cases that do not bind them or the parties to the dispute they are hearing, and interpret procedural rules from various institutions in a uniform and consistent manner. A very good example of this aspect of the duties of investment arbitrators is the aforementioned Article 44 of the ICSID Convention. The combined effect of Article 44 ICSID and the “persuasive precedent” value of earlier decisions has contributed to reaching a certain degree of stability and predictability in a regime, such as investment law, characterised by a significant amount of vague, ambiguous or slightly differing provisions amongst different treaties. It could indeed be claimed that the very lack of a single multilateral instrument, and the room traditionally left by stakeholders of investment arbitration to arbitral activism, has led to the relative stability of the regime. Malcolm Shaw identified “the unique attributes” of international law as a system as “the network of relationships existing primarily, if not

36 37

Toope (1990). See a.o. Schill (2012).

14

P. Vargiu

exclusively, between states recognising certain common principles and ways of doing things”.38 Mutatis mutandis, the recognition of “certain common principles and ways of doing things” is likely at the basis of the success of the investment arbitral regime. The regime has flourished due to two main reasons. One is the presence of common principles shared by the state-actors in investment law— namely, the confirmation and development of the law on state responsibility and protection of aliens from injury39 and the appropriateness of a specialised international forum for the settlement of disputes arising out of an investment rather than the recourse to the domestic courts of the host State. The other is the development, by arbitral tribunals, of “ways of doing things” that the stakeholders of investment arbitration could agree with—by means of the gap-filling interpretation of the ICSID Convention and the use of the tribunals’ powers under Article 44 ICSID. The significance of these “ways of doing things” in the investment arbitral regime show how the duties of investment arbitration extend, in fact, beyond the dispute they are appointed to hear. The second axiom is that, in light of the prerogatives just described, arbitrators are never merely the decision-makers in a determined case. When deciding on a case, arbitrators are in fact actively participating to the development and shaping of international investment law. The impact of decisions and awards is not limited to the parties of the dispute in the context of which they are issued. As proven by the reasoning and referencing in any arbitral award, decisions and awards of investment arbitrators are also relevant for a wide range of other subjects: other states involved in investment relationships with foreign investors, investors that may at any point file a claim before an investment arbitral tribunal, scholars who analyse the investment arbitral case-law and teach the next generation of investment lawyers, NGOs and associations interested in the subject matter of the cases, and the taxpayers of the host states that shall, at some point, bear the costs of investment arbitral disputes in which their home state appears as respondent. From a strictly formal perspective, as stated beforehand, investment arbitrators carry no responsibility beyond deciding on the particular dispute they are appointed to arbitrate; certainly, neither treaty provisions nor procedural rules establish such responsibility. I would like to suggest, however, looking at investment arbitration from a different angle: rather than the states that negotiate the treaties, the actual motors behind the development of international investment law are the arbitrators. Schill considers that “the use of multilateral approaches to treaty interpretation by arbitral tribunals, including through the widespread use of arbitral precedent even across treaties” is in fact one of the structural elements of the investment treaty regime.40 Regardless of what one thinks of the appropriateness of such an activist approach by arbitral tribunals, it is hard to argue against the factual truth of the

38

Shaw (2014), p. 4. See in the vast corpus of literature on the topic Amerasinghe (1967); Sornarajah (1986); Hobe (2015), p. 7; Hofmann (2015), p. 49. 40 Schill (2018), p. 934. 39

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

15

perspective suggested by Schill. However, if arbitrators take it upon themselves to adopt an unsanctioned approach that transforms a regime based primarily on bilateral treaties into a de facto multilateral one, surely the scope of their duties must extend beyond the particular dispute they are hearing and towards the whole regime and its stakeholders. In absence of treaty provisions establishing these duties, and in light of the unorthodox manner in which investment law has developed over the decades after the first international instruments on investment protection,41 it may be necessary to look at the problem from a different angle—less black-letter oriented and more influenced by the social aspects, or effects, of investment arbitration.

4 Arbitrators and the Stakeholders of Investment Arbitration In a 1971 issue of the French avant-garde magazine Tel Quel, Roland Barthes—at the time director of studies at the École Pratique des Hautes Études in Paris— published an essay (later reprinted in the collection Image, Music, Text) suggestively entitled “Writers, Intellectuals, Teachers”.42 The essay addressed the dichotomy between the functions of teachers, delivering their intellectual product in speech, and writers, whose work Barthes celebrated for its openness, as opposed to the closure of speech. At the crossroads between these two positions stands the intellectual, defined by Barthes as “the person who prints and publishes his speech”.43 At the core of the essay lies Barthes’ attempt at resolving the dichotomy between the roles, models and languages of teachers and writers in the figure and function of the intellectual. Focussing on the role of teachers in the environment of the classroom, Barthes theorised an imaginary contract between the teacher and the student, with specific tasks and expectations brought into the contractual relationship by both parties. Barthes’ teachers are neither mere providers of information nor simply the means used by the school to educate students: instead, they are at once erudite, educators, mentors, instructors and tutors. The term magister may be more appropriate to define Barthes’ teachers: they carry the burden of not only instructing on specific tasks, but also to represent schools of thought, and to act as guides, almost gurus, towards enlightenment, knowledge, and skill. They are vested, in other words, with the duty of developing the community they guide—a duty that, rather than selfconferred, is given to them by such community. This can be compared to how the investment legal community looks at arbitrators for authoritative interpretations of international investment law—as “students”, in the Barthesian sense of the term, of

The first bilateral investment treaty was signed by Germany and Pakistan in 1959. See Vandevelde (2017). 42 Barthes (1977b), p. 190. 43 Barthes (1977b), p. 195. 41

16

P. Vargiu

the field—and criticises them when they are not perceived as performing such task adequately. Barthes’ vision of the teacher/student relationship focusses on the ideal “terms of employment” of the teacher. On the one hand, the teacher expects to be acknowledged in their function as authorities in a certain field of expertise, to see the student acting as relays, spreading the ideas of the teacher, allowing the experience to seduce them, and willingly acting as the object of the teacher’s job.44 On the other hand, the student expects the teacher to offer a “good professional training”; to gain scientific authority and, from that standpoint, to pass the knowledge to the student, revealing skills and techniques; to be “an instructor in ascesis, a guru”, represent a school of thought, and admit the student “into the complicity of a special language”; to guide them in the first experience of writing (a thesis), should they possess the necessary creativity, and to lend administrative services as required.45 At first glance, an application of Barthes’ theory should address investment arbitration in terms of it being a contract between the arbitrators and the parties. The arbitration clause on which an investment arbitral dispute is based is normally included in a bilateral investment treaty (BIT) signed by the host state and the state of nationality of the investor, and the dispute must arise out of an investment— normally based on a contract between the investor and the host state.46 Regardless of where one wants to place the root of the arbitral dispute, the analogy between the classroom contract and the arbitration contract makes sense. The nature and purpose of teacher-student relationship as theorised by Barthes is not very dissimilar, in comparison, from the relationship between an arbitrator and a party to the dispute the arbitrator is called to hear. Obviously, the relationship between an arbitrator and the parties is expressly contractual, with the arbitrator’s duties and the parties’ expectations clearly laid out. Nevertheless, it is arguable that the relationship also involves aspects beyond the content of the contract. Whilst the authority of the arbitrator derives directly from the terms of their appointment, the arbitrator also expects to see their role as authorities in their field respected by the parties. To talk about seduction in this context may be an exaggeration, but it can be argued that the arbitrators’ language is aimed at seducing—that is, convincing—the community they talk to. Moreover, it can be expected from the parties that they embrace the experience they have freely subjected themselves to, thus willingly acting as the subjects of the arbitrator’s job. Conversely, each party expects the arbitrator to provide their finest expertise; to provide the reasoning behind their decisions, to be consistent with the school of thought that led to their appointment; to provide an award based on the parties’ submissions; and to take care (directly or via the relevant institution) of the administrative aspects of the dispute.47

44

Barthes (1977b), p. 197. Barthes (1977b), p. 197. 46 Article 25 of the ICSID Convention. 47 See above, Sect. 2 of this chapter. 45

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

17

These duties, however, can all be traced back to the general duties of investment arbitrators arising out of investment treaties, the ICSID Convention and various procedural rules.48 As stated beforehand, a multilateral approach to investment arbitration allows to extend the classroom contract analogy further than the relationship between the arbitrators and the parties to a dispute. The lack of a formal precedent doctrine is compensated by the reference to previous cases as “persuasive precedent”. Earlier cases are used to write awards that later tribunals will also treat as quasi-binding precedent, extending their factual effects to virtually all the stakeholders of the investment arbitral regime. Arbitrators, in other words, have a relationship not only with the parties to a dispute, but also with the entire community of stakeholders; and when they “speak” (or rather write), they are speaking to the community as a whole. This relationship is in fact more akin to Barthes’ imaginary contract, in that arbitrators have no formal commitments towards the arbitral community; moreover, it is not beyond doubt that even “moral” commitments exist, at least if one adopts a purely contractual perspective. I would rather argue that such moral commitments do, in fact, exist. Investment law is a field that, especially in the age of first-generation BITs,49 has been mainly developed by the arbitral case-law. The scholarship performs a fine-tuning role— through their critique—on the definitions and interpretations provided for by arbitrators. Formally, every arbitral tribunal is independent. However, by virtue of the significance of arbitral awards as de facto precedent, arbitrators do perform a social function within the arbitral community, which affects all stakeholders of investment arbitration. Therefore, it is possible to apply Barthes’ theory of contract to the arbitrators-stakeholders relationship, in order to describe what would be the duties of arbitrators towards the investment legal community. First of all, it is reasonable for stakeholders to expect arbitrators to provide, by means of their awards, opinions and scholarship, advancements in the substantive knowledge of the field. The work of arbitrators towards the multilateralization of international investment law cannot be reduced to the aim of consistent interpretation of provisions from different treaties: examples like the Salini criteria50 or the definition of the content of the Most Favoured Nation Treatment standard51 show that arbitrators can—and often do—overcome the limits of their own dispute to try and solve outstanding issues of international investment law. Arbitrators have taken

48

Referred to above in Sect. 2 of this chapter. Reference is made to the bilateral investment treaties drafted according to the dominant model prior to 2004, when the release of first US Model Bilateral Investment Treaty, characterised by detailed and comprehensive provisions, showed a radical shift from the previous tradition of short, vague and similarly worded investment treaties used by virtually all the state actors in international investment law. 2004 US Model Bilateral Investment Treaty, available at https://ustr.gov/archive/ assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf. 50 Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction of 31 July 2001, https://www.italaw.com/cases/958. See also Vargiu (2009), Grabowski (2014) and Gaillard and Banifatemi (2016). 51 Batifort and Benton Heath (2017), Schill (2018) and Dumberry (2017). 49

18

P. Vargiu

this role upon themselves, either actively, as in the case of the Salini tribunal, or by reiterating the sort of arbitral activism that led to the Salini criteria. Either way, the stakeholders of investment arbitration can expect arbitrators to work towards the development of the field of international investment law. It is crucial that this duty is carried out seriously, since from its proper fulfilment depends the training of the next generation of lawyers. Whilst a number of arbitrators regularly lecture in universities and often train younger practitioners in their firms, an argument could be made that the next generation of lawyers are trained in law schools, rather than professional environments; therefore, the duty of training should be placed upon academics, rather than arbitrators. However, a field as specialist as international investment law cannot be effectively taught without reference to the case-law; for too much focus on theory and treaty provision would leave aside investment law in practice—that is, in the context of the cases where it is actually developed. The teaching of investment law, in other words, cannot disregard the arbitral case-law. In fact, I would argue that the case-law must be at the core of the teaching and, while room for critique must always be made in the context of higher education, serious engagement with the field requires the teaching of arbitrators’ perspectives on the core concepts of international investment law. It is thus crucial, for the healthy development of the field, that arbitrators take their readership and the future use of their decision and awards into consideration. This is also at the basis of other teachers’ duties identified by Barthes that can be analogically placed upon arbitrators: the duty to explain, thus sharing, their research and their decision-making methods, and to provide clear, reasoned and sound decisions and opinions that other writers can tap into. This duty is not limited to what provided for by Article 48(3) of the ICSID Convention, according to which “[t]he award shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based”. The duty to state the reasons behind the award is in line with the established practice in public international law.52 Furthermore, the importance of the reasons beyond the parties to the dispute was evident since the drafting stages of the ICSID Convention. Even though a preliminary draft of Article 48 stated that awards had to state the reasons “except as the parties otherwise agree”, the possibility to waive the requirement of the reasons was voted out by the majority.53 Decades of case-law have shown the importance of the system of de facto precedent in the development of international investment law as a field of practice and study. It is therefore appropriate to configure the duty to state the awards as a duty towards the entire investment legal community rather than merely the parties to the dispute. Finally, one of the duties Barthes places upon teachers is to adhere to, or establish, a school of thought. I would not stretch the argument as far as claiming that arbitrators should aim at establishing a school of thought of their own, and certainly they do not necessarily have to expressly adhere to an existing one. Nevertheless, it

52

Schreuer et al. (2009), p. 820. Documents Concerning the Origin and the Formulation of the [ICSID] Convention (1968)— ICSID History, Vol. II., pp. 664, 816. 53

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

19

is arguable that arbitrators have a duty to approach the questions posed to them rigorously, and that they do so in light of the lines of interpretations (which could be called “schools of thought”, broadening the scope of the expression) established in the case-law. This is crucial for the realization of a proper multilateral approach to investment law, one that may allow stakeholders to gain and maintain confidence in investment arbitration and that guarantees a coherent development of the regime. This does not mean that arbitrators must adhere to the established lines of interpretation, or that such established interpretations should not be subject to critique. However, it is fundamental that arbitrators take their existence in consideration when deciding their cases, and either consolidate them by using earlier case-law to back up their arguments or contribute to the development of the field challenging the status quo. If arbitrators are to be seen as vested with these additional duties towards the investment legal community, it would be reasonable to recognize what would be their additional expectations from said community. First, it can be argued that arbitrators are expectably acknowledged by peers, scholars and observers as authorities in the field, regardless of whether these stakeholders agree with the arbitrators’ opinions and interpretations. Decisions and awards have traditionally been subject to the scrutiny of the community. Nowadays, due to the almost immediate release online of decisions and awards and the rise of academic discussions on social media, such scrutiny has become almost simultaneous to the public release of such decisions and awards. The attention attracted by arbitrators’ opinions on legal principles and interpretations of treaty provisions certifies their recognition as experts by the community they operate in. It is also arguable that, to a certain extent, arbitrators expect to see their ideas and interpretations spread and shared. The de facto doctrine of precedent at the basis of the multilateral character of the investment arbitral regime confers authority status to earlier decisions and awards. Reference to earlier case-law spreads the reasoning of the arbitrators who reached the conclusions referred to. It can also be argued that such reference is, in practice, the seal of approval of the investment legal community (or at least part of it), and evidence that the community—at least part of it—has been “seduced” (again, according to Barthes’ meaning of this term) by the arbitrator’s expression of knowledge. Finally, arbitrators expect to be allowed, put simply, to do their job as decision-makers as well as second-degree law-makers. On the one hand arbitrators, as stated beforehand,54 are expected to ensure that their independent judgment is not influenced by any past and present professional, business and other relationships; at the same time, they expect not to be pressured into compromising their independence by the parties, the other arbitrators or any third parties.55 The issue of law-making, on the other hand, is more problematic to theorize: if arbitrators are to be considered as having responsibilities towards the wider community of stakeholders on top of the parties,

54 55

See above, Sect. 2 of this chapter. Nowrot and Sipiorski (2018).

20

P. Vargiu

then it is only fair that they expect to be able to exercise their de facto law-making prerogatives without external pressures. The analysis carried out above is exposed to an easy objection. From a purely positivist perspective, one may argue that there is no legal basis to extend the duties of arbitrators beyond the parties to the dispute and towards stakeholders that are, in respect to the dispute, more or less interested third parties. Furthermore, one may question whether arbitrators should be vested with the responsibility of answering to the entire investment legal community, unlike the other stakeholders of investment arbitration who can pursue each their own interests. However, neither objection seems entirely convincing. With regard to the first one, it is actually questionable whether the lack of a legal basis is enough, in the context of international investment law, to argue against the existence of arbitrators’ duties beyond those listed in arbitration rules and the ICSID Convention. As stated beforehand, international investment law is factually based on a wide range of bilateral investment treaties and investment protection chapters in free trade agreements (FTA). It is, however, treated as a single, homogeneous field due to a multilateral approach that finds its foundations and pillars in arbitrators’ constructions which have weak—if any—legal bases. There is no hard law stating that tribunals hearing different disputes should interpret different treaties in a consistent matter; the definition of “investment” commonly referred to in arbitral disputes has been construed in a few cases in the 1990s;56 the actual content of the most common standards of protection, included in investment treaties but lacking actual definitions, have been developed by various arbitrators sitting in a number of different arbitral tribunals.57 Nevertheless, arbitrators and the stakeholders of investment arbitration treat investment law, and write about it, as if its legal bases were solid and clear. In fairness, if there is a foundation for the whole investment law construction, it is the arbitral case-law—which, in turn, arbitrators and stakeholders consider as expression of a system when it is in fact a collection of awards from independent tribunals dealing with independent disputes. What is the reason, therefore, to approach the question of the arbitrators’ duties from a purely formalistic perspective, since the whole regime is based on a very liberal approach to their awards considered collectively? Furthermore, it is to be underscored that, just like the students in Barthes’ classroom choose their teachers, arbitrators are appointed by stakeholders of investment arbitration. Moreover, their continuing status as arbitrators—that is, their repeated appointments—is also decided by stakeholders. Those who are seen as leaders, teachers, gurus—to use Barthes’ deliberately hyperbolic language—continue to be chosen and appointed; those who are not return to their practice, or their 56

Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction of 31 July 2001, https://www.italaw.com/cases/958; Ceskoslovenska Obchodni Banka, A.S. (CSOB) v The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, https://www.italaw.com/cases/238; Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, 11 July 1997, https://www.italaw.com/cases/432. 57 Schreuer (2016) and Schill and Tvede (2015).

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

21

scholarship, and—as observers and commentators of the regime—reinforce the ranks of the stakeholders. The leaders are vested with the trust of the stakeholders, and the power to shape the current regime and the future of international investment law. Trust and power, however, come with duties and responsibilities. It would be simplistic, in light of these considerations, to maintain that the duties of the arbitrators only extend to the parties that appointed them: stakeholders are also affected, and must be taken into consideration.

5 Concluding Remarks It is almost customary, for a critique of the current situation of any legal issue, to conclude with a few recommendations for its reform. However, I do not believe that any recommendations are necessary—or even appropriate—to conclude this analysis. There is no actual need for any action or reform: what is really necessary is a widespread acceptance of the nature of international investment law and the relationship between arbitrators and stakeholders. The practical duties of arbitrators, as stated beforehand, are listed in instruments such as the ICSID Convention, the UNCITRAL Rules and the various institutional rules available to parties to a dispute. The extra duties I have identified in this chapter, on the other hand, do not require an express legal basis as they do not necessarily need to emanate from a formal contractual relationship. Just like in Barthes’ classroom contract, duties and expectations are rather at the basis of a functioning relationship between the arbitrators (teachers) and their audience. Such audience, arguably, is not made of the parties to a particular dispute only, but also the whole group of the stakeholders of investment arbitration. These stakeholders, in turn, are never interested in a single dispute. Investors and states look at other parties’ disputes for a preview of what may happen to them when they sit as claimants or respondents. Scholars, NGOs and associations look at investment arbitration as a regime, as there would be very little interest in any award if its effect were actually limited to the parties to the dispute. Arbitrators themselves do not look only at the applicable law, but constantly refer to earlier cases to back their arguments up and show their adherence to a certain line of jurisprudence. This, paired with the multilateral approaches rightly theorised by Schill, leads to two final considerations. First, the practice has now made theory obsolete. Investment law is de facto multilateral, or at least investment arbitration is. Therefore, multilaterally relevant questions can be addressed without having to look for a common legal basis (like a multilateral treaty), but rather accepting that the “ways of doing things” established in international investment law are sufficient to look at the regime as one, notwithstanding its remaining contradictions. Second, the real question is how to establish a dialogue between arbitrators and stakeholders without having to formalize the role of arbitrators with regard to the whole investment legal community. Applying a Barthesian perspective, the appointment of an individual as arbitrator has a significance beyond the mere role of decision-maker in a determined dispute. The appointment constitutes the recognition of such individual

22

P. Vargiu

as magister, whose task is to contribute to lead the community towards the development of international investment law. Such task cannot be performed without considering the needs and expectations of the whole investment legal community. I believe that formalising these further duties would lead to the undesirable result of a further limitation of the role of arbitrators, rather than an extension. Instead of a leading role, they would simply be presented with another checklist not dissimilar from the ones used to verify arbitrators’ potential conflicts of interest. On the contrary, recognising the existence of these duties as generic tasks to be carried out as leaders of international investment law would be consistent with the fluid nature of the field and ensure that stakeholders’ voices would be listened to—like teachers should do with their students.

References Alexandrov S (1995) Non-appearance before the international court of justice. Columb J Transnational Law 33(1):41–72 Amerasinghe C (1967) State responsibility for injuries to aliens. Oxford University Press, Oxford Barthes R (1977a) The death of the author. In: Image music text. Fontana Press, London, pp 142–148 Barthes R (1977b) Writers, intellectuals, teachers. In: Image music text. Fontana Press, London, pp 190–215 Batifort S, Benton Heath J (2017) The new debate on the interpretation of MFN clauses in investment treaties: putting the brakes on multilateralization. Am J Int Law 111(4):873–913 Bennaim-Selvi O (2005) Third parties in international investment arbitrations: a trend in motion. J World Invest Trade 6(5):773–807 Bjorklund A (2008) Investment treaty arbitral decisions as “jurisprudence constante”. In: Picker B, Bunn I, Arner D (eds) International economic law: the state and future of the discipline. Hart Publishing, Oxford, pp 265–280 Böckstiegel KH (2001) Presenting evidence in international arbitration. ICSID Rev Foreign Invest Law J 16(1):1–9 Böckstiegel KH (2012) Commercial and investment arbitration: how different are they today?: The Lalive lecture 2012. Arbitr Int 28(4):577–590 Boisson de Chazournes L (2004) Transparency and amicus curiae briefs. J World Invest Trade 5 (2):333–336 Bondar K (2016) Allocation of costs in investor-state and commercial arbitration: towards a harmonized approach. Arbitr Int 32(1):45–58 Bonnitcha J, Poulsen L, Waibel M (2017) The political economy of the investment treaty regime. Oxford University Press, Oxford Boralessa A (2004) The limitations of party autonomy in ICSID arbitration. Am Rev Int Arbitr 15 (2):253–311 Brower C, Goodman R (1991) Provisional measures and the protection of ICSID jurisdictional exclusivity against municipal proceedings. ICSID Rev Foreign Invest Law J 6(2):431–461 Brower C, Ottolenghi M, Prows P (2009) The saga of CMS: res judicata, precedent and the legitimacy of ICSID arbitration. In: Binder C, Kriebaum U, Reinisch A, Wittich S (eds) International investment law for the 21st century – essays in honour of Christoph Schreuer. Oxford University Press, Oxford, pp 843–864 Commission J (2007) Precedent in investment treaty arbitration: a citation analysis of a developing jurisprudence. J Int Arbitr 24(2):129–158

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

23

Cordero Moss G (2008) Tribunal’s power versus party autonomy. In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford, pp 1207–1244 Di Pietro D (2005) Applicable law under Article 42 of the ICSID Convention – the case of Amco v. Indonesia. In: Weiler T (ed) International investment law and arbitration – leading cases from the ICSID, NAFTA, bilateral treaties and customary international law. Cameron May, London, pp 223–279 Douglas Z (2010) Can a doctrine of precedent be justified in investment treaty arbitration? ICSID Rev Foreign Invest Law J 25(1):104–110 Dumberry P (2017) Shopping for a better deal: the use of MFN clauses to get ‘better’ fair and equitable treatment protection. Arbitr Int 33(1):1–16 Fach Gómez K (2012) Rethinking the role of amicus curiae in international investment arbitration: how to draw the line favorably for the public interest. Fordham Int Law J 35(2):510–564 Fach Gómez K (2019) Key duties of international investment arbitrators. A transnational study of legal and ethical dilemmas. Springer, Cham Friedland P (1986) Provisional measures and ICSID arbitration. Arbitr Int 4(1):335–357 Fry J, Repousis O (2016) Towards a new world for investor-state arbitration through transparency. New York Univ J Int Law Politics 48(3):795–865 Gaillard E (2004) The extent of review of the applicable law in investment treaty arbitration. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID awards. Juris Publishing, New York, pp 190–205 Gaillard E, Banifatemi Y (2016) The long march towards a jurisprudence constante on the notion of investment: Salini v. Morocco, ICSID Case No. ARB/00/4. In: Kinnear M, Fischer G, Minguez Almeida J, Torres L, Bidegain M (eds) Building international investment law: the first 50 years of ICSID. Wolters Kluwer, Alphen aan den Rijn, pp 97–125 Gill J (2010) Is there a special role for precedent in investment arbitration? ICSID Rev Foreign Invest Law J 25(1):87–94 Grabowski A (2014) The definition of investment under the ICSID Convention: a defense of Salini. Chicago J Int Law 15(1):287–309 Heiskanen V (2014) Ménage à trois? Jurisdiction, admissibility and competence in investment treaty arbitration. ICSID Rev Foreign Invest Law J 29(1):231–246 Hobe S (2015) The development of the law of aliens and the emergence of general principles of protection under public international law. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Hart Publishing, Oxford, pp 6–22 Hofmann R (2015) The protection of individuals under public international law. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Hart Publishing, Oxford, pp 46–63 Hong-Lin Y (2018) Transparency issue in the amendment of ICSID arbitration rules: public right to information vs public confidence? Int Arbitr Law Rev 21(4):94–105 Kaufmann-Kohler G (2007) Arbitral precedent: dream, necessity or excuse? Arbitr Int 23 (3):357–378 Kaufmann-Kohler G (2013) Non-disputing state submissions in investment arbitration: resurgence of diplomatic protection? In: Boisson de Chazournes L, Kohen M, Viñuales J (eds) Diplomatic and judicial means of dispute settlement. Brill Academic Publishing, The Hague, pp 307–326 Kinnear M (2010) ICSID: its role and possibilities. ICSID Rev Foreign Invest Law J 25(2):79–83 Knahr C (2007) Transparency, third party participation and access to documents in international investment arbitration. Arbitr Int 23(3):327–355 Knahr C, Reinisch A (2007) Transparency versus confidentiality in international investment arbitration – the Biwater Gauff compromise. Law Practice Int Courts Tribunals 6(1):97–118 Kreindler R (2013) Competence – competence in the face of illegality in contracts and arbitration agreements. Brill Academic Publishing, The Hague Langford M, Behn D (2018) Managing backlash: the evolving investment treaty arbitrator? Eur J Int Law 29(2):551–580

24

P. Vargiu

Mann F (1988) Compound interest as an item of damage in international law. U.C. Davis Law Rev 21(3):577–586 Mistelis L (2005) Confidentiality and third party participation: UPS v. Canada and Methanex Corp. v. United States. Arbitr Int 21(2):211–231 Mourre A (2006) Are amici curiae the proper response to the public’s concerns on transparency in investment arbitration? Law Practice Int Courts Tribunals Pract J 5(2):257–271 Nowrot K, Sipiorski E (2018) Approaches to arbitrator intimidation in investor-state dispute settlement: impartiality, independence, and the challenge of regulating behaviour. Law Practice Int Courts Tribunals Pract J 17(1):178–196 Parra A (2001) Applicable substantive law in ICSID arbitrations initiated under investment treaties. ICSID Rev Foreign Invest Law J 25(1):20–24 Parra A (2007) The development of the regulations and rules of the international centre for settlement of investment disputes. ICSID Rev Foreign Invest Law J 22(1):55–68 Paulsson J (2010) The role of precedent in investment arbitration. In: Yannaca-Small K (ed) Arbitration under international investment agreements: a guide to the key issues. Oxford University Press, Oxford, pp 699–718 Petrochilos G (2018) Transparency in commercial arbitrations involving states. Les Cahiers de l’Arbitrage 1:19–24 Reed L (2010) The “de facto” precedent regime in investment arbitration: a case for proactive case management. ICSID Rev Foreign Invest Law J 25(1):95–103 Rueda Garcia J (2009) Provisional measures in investment arbitration: recent experiences in oil arbitrations against the Republic of Ecuador. Transnational Dispute Management 6(4) Schill S (2012) System-building in investment treaty arbitration and lawmaking. In: Venzke I, Von Bogdandy A (eds) International judicial lawmaking: on public authority and democratic legitimation in global governance. Springer, Cham, pp 133–177 Schill S (2018) MFN clauses as bilateral commitments to multilateralism: a reply to Simon Batifort and J. Benton Heath. Am J Int Law 111(4):915–935 Schill S, Tvede K (2015) Mainstreaming investment treaty jurisprudence: the contribution of investment treaty tribunals to the consolidation and development of general international law. Law Practice Int Courts Tribunals Pract J 14(1):94–129 Schreuer C (2016) The development of international law by ICSID tribunals. ICSID Rev Foreign Invest Law J 31(3):728–739 Schreuer C, Weiniger M (2008) A doctrine of precedent? In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford, pp 1188–1206 Schreuer C, Malintoppi L, Reinisch S, Sinclair A (2009) The ICSID Convention: a commentary. Cambridge University Press, Cambridge Schwebel S (2005) Compound interest in international law. Transnational Dispute Manag 2(5) Shaw M (2014) International law. Cambridge University Press, Cambridge Sornarajah M (1986) State responsibility and bilateral investment treaties. J World Trade Law 20:79 Steingruber A (2013) Antoine Goetz and others v Republic of Burundi: consent and arbitral tribunal competence to hear counterclaims in treaty-based ICSID arbitrations. ICSID Rev Foreign Invest Law J 28(2):291–300 Ten Cate I (2013) The costs of consistency: precedent in investment treaty arbitration. Columb J Transnational Law 51(2):418–478 Toope S (1990) Mixed international arbitration: studies in arbitration between states and private persons. Cambridge University Press, Cambridge Vandevelde K (2017) The first bilateral investment treaties – U.S. postwar friendship, commerce, and navigation treaties. Oxford University Press, Oxford Vargiu P (2009) Beyond hallmarks and formal requirements: a “jurisprudence constante” on the notion of investment in the ICSID Convention. J World Invest Trade 10(5):753–768 Veenstra-Kjos H (2007) Counterclaims by host states in investment treaty arbitration. Transnational Dispute Manag 4(4)

Stakeholders of Investment Arbitration: Establishing a Dialogue Among. . .

25

Viñuales J (2006) Human rights and investment arbitration: the role of amici curiae. Int Law Revista Colombiana de Derecho Internacional 8:231–273

Paolo Vargiu is a Lecturer in Law at the University of Leicester, UK, where he teaches public international law, investment law and jurisprudence. He obtained a JD from the University of Cagliari, an LLM and a PhD from the University of Nottingham, and gained his Fellowship at the Higher Education Academy during his time at the University of Leicester. He has authored numerous publications in the fields of international investment law and arbitration, public international law, and human rights. Dr. Vargiu is a member of the Italian Bar and regularly advises clients in matters falling within his areas of expertise.

Investment Arbitration Counsel’s Role in the Progressive Development of International Law Elie Kleiman, Charles T. Kotuby Jr., and Iris Sauvagnac

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Counsel’s Contribution to Investment Treaty Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Counsel’s Duty to Identify Rules of Customary International Law . . . . . . . . . . . . . . . . . . . . . . . . . 4 Counsel’s Role in Establishing the Existence of General Principles of Law . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 29 34 37 41 43

Abstract Starting from the observation that international law remains largely perceived today as a state-centric product, this chapter argues that private actors and their respective counsel have a sizeable effect on the progressive development of international law. International jurisprudence—which is itself a subsidiary source of international law—is contingent on how counsel assist tribunals in reaching wellresearched and well-reasoned decisions, which eventually contribute to the development of a more reliable jurisprudence constante. In the realm of investment treaty arbitration, counsel have a role to play in assisting tribunals when it comes to treaty interpretation or the identification of rules of customary international law and general principles of law. Counsel might do so in a variety of ways, including by providing arbitral tribunals with relevant evidence to interpret the specific meaning behind a treaty provision, scrutinizing relevant state practice to identify a rule of customary international law, or conducting the necessary comparative work of divining the existence of a general principle of law in a variety of legal traditions. This chapter reviews some investment treaty cases where counsel have distinguished themselves in this regard.

E. Kleiman (*) · I. Sauvagnac Global Disputes at Jones Day, Paris, France e-mail: [email protected]; [email protected] C. T. Kotuby Jr. Global Disputes at Jones Day, Washington, DC, USA e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_3

27

28

E. Kleiman et al.

1 Introduction In his lecture at the Hague Academy of International Law, James Crawford characterized the development of international law as “the product of a process of claim and counterclaim, assertion and reaction, by Governments as representative of states and by actors at the international level”.1 This is slowly changing, however, as the definition of “actors at the international level” expands to include more than just states and state officials.2 As private investors under investment treaties act and interact with states “at the international level”, the role played by their respective counsel and representatives has a sizeable effect on the progressive development of international law.3 This effect is an important yet underexplored question,4 and is the subject of this chapter. Counsel’s role in this process is particularly acute in the light of the constraints placed on tribunals’ decision-making process. It can hardly be gainsaid that “[j] udicial decision-making is a process of making choices, choices which are premised on the presentation of the facts to the Court, and their indicated interpretation for the purposes of applying or interpreting the law”.5 International jurisprudence—which is itself a subsidiary source of international law6—is therefore contingent on how counsel handle submissions on points of law; more precisely, on how they gather, scrutinize and synthesize existing jurisprudence and other sources of law to convince arbitral tribunals as to why certain interpretations or applications of international law should be followed.7 The result of this process should be a more reliable and legitimized jurisprudence constante, which plays an important part in the progressive development of the

1

Crawford (2014), p. 20. See, e.g. Messenger (2017), p. 208. This view originated from the fact that states have traditionally been considered the main subjects of international law: see, e.g. Kotuby and Sobota (2017), p. 37. 3 In this regard, Martti Koskenniemi wrote “[w]ithout international lawyers, there would have been no international law. From Hugo Grotius to the International Criminal Court, international law has been a project carried out by international lawyers”: Koskenniemi (2008), p. 1. 4 See, e.g. Cohen (2013), pp. 1025–1040; Schneiderman (2017), pp. 232–251. On this question, it is interesting to note that the numerous ethical duties bearing on counsel acting in the realm of international arbitration (see e.g. IBA Guidelines on Party Representation in International Arbitration) stand at odds with the sparse literature available on the role of counsel in the development of international law. For the role played by investment lawyers in the promotion of investment-treaty arbitration outside the ‘courtroom’, see, Schneiderman (2015), pp. 15–17. 5 Messenger (2017), p. 227. 6 Article 38 of the Statute of the International Court of Justice refers to the three sources of international law (treaties, customary international law, and general principles of law), as well as the two “subsidiary means for the determination of rules of law” (judicial decision and the teaching of the “most highly qualified publicists”): Article 38 of the Statute of the International Court of Justice, https://www.icj-cij.org/en/statute. 7 With a similar view, see Schachter (1977), pp. 224–225. 2

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

29

regime and international law writ large.8 It is now well-accepted that, no matter the technical status of stare decisis in international investment law, tribunals still tend to “consider [precedents] in order to compare [their] own position with those already adopted by [their] predecessors...at least as a matter of comparison [or] inspiration”.9 So, when counsel ably interpret investment treaties (Sect. 2 of this chapter), synthesize customary international norms underlying those treaties (Sect. 3), and shape general principles of law before arbitral tribunals (Sect. 4), the machinery that generates rules at the international level develops more rapidly and holistically, taking into account the interests of all international actors—not just the interests of states.

2 Counsel’s Contribution to Investment Treaty Interpretation Bilateral investment treaties (BITs) are agreements concluded between two countries encompassing their reciprocal undertakings for the promotion and protection of private investments made by nationals of each contracting state. As state-negotiated

8 Bjorklund (2008), pp. 266 and 278; Paulsson (2018), para. 4.88: “In the end, there is no contradiction between the task of deciding an individual case—in principle the sole duty of ephemeral tribunals—and consciousness of contributing to the accretion of international norms”. See also Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction, 21 March 2007, para. 67: “[The Tribunal] 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”, https://www.italaw.com/sites/default/files/case-documents/ita0733. pdf; International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Separate Opinion of Thomas Wälde, 1 December 2005, para. 129: “In international and international economic law – to which investment arbitration properly belongs – there may not be a formal “stare decisis” rule as in common law countries, but precedent plays an important role. Tribunals and courts may disagree and are at full liberty to deviate from specific awards, but it is hard to maintain that they can and should not respect well-established jurisprudence”, https://www.italaw. com/sites/default/files/case-documents/ita0432.pdf. 9 AES Corporation v. The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, paras 30–31, https://www.italaw.com/sites/default/files/case-documents/ ita0011.pdf. The same reasoning is followed by ad hoc annulment committees: see Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Decision on annulment, 16 September 2011, para. 84: “it is in the Committee’s view to be expected that the ad hoc committee will have regard to relevant previous ICSID awards and decisions, including other annulment decisions, as well as to other relevant persuasive authorities. Although there is no doctrine of binding precedent in the ICSID arbitration system, the Committee considers that in the longer term the emergence of a jurisprudence constante in relation to annulment proceedings may be a desirable goal”, https://www.italaw.com/sites/default/files/case-documents/ita0231.pdf.

30

E. Kleiman et al.

instruments aimed at applying to a vast category of investors, these instruments create broad-based standards of protection, which lack specificity and often require an exercise of interpretation prior to their application to the particulars of a given dispute.10 This interpretative task has been traditionally carried out by investment arbitral tribunals in accordance with the rules of interpretation contained in Articles 31 and 32 of the Vienna convention on the law of treaties (VCLT).11 Some criticism has been raised against arbitral tribunals’ lack of regard for state practice in this interpretative process, which increases dissonance between states’ juridical expectations and tribunal decisions (and in turn erodes some of the perceived legitimacy of investor-state arbitration).12 This dissonance, however, is not always the fault of rogue tribunals; as Todd Weiler has observed, it may instead be attributable to “a failure on the part of counsel to provide tribunals with the evidence needed to do a better job”.13 In short, unless counsel take on the task of clarifying the specific meaning behind a treaty provision, arbitral tribunals might eventually not give effect to that intended meaning. Sometimes tribunals will simply ask parties to provide them with supplementary means of interpretation to help determine the meaning of a treaty.14 Sometimes the request bears fruit—sometimes it doesn’t. In Aguas del Tunari, S.A. v. Bolivia, the tribunal requested the parties to submit any evidence regarding the BIT’s interpretation and practice.15 The unsatisfactory outcome of this request led the tribunal to conclude that “[the BIT’s] sparse negotiating history thus offers little additional insight into the meaning of the aspects of the BIT at issue, neither particularly confirming nor contradicting the Tribunal’s interpretation”.16 While one might question whether this outcome arose out of parties’ litigation strategy or resulted from the mere unavailability of the material required by the tribunal, one cannot help thinking that the tribunal was left unsatisfied. Sometimes jurisprudence will elucidate the provisions of a treaty—even jurisprudence from the broader corpus of international law. In Ampal v. Egypt, for

10

Roberts (2010), p. 179. On the methods of treaty interpretation adopted by tribunals, see Schreuer (2006), pp. 129–139. 12 Fauchald (2008), p. 349; Roberts (2010), p. 179. 13 Weiler (2013), p. 50. 14 Article 32 of the VCLT: “Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) Leaves the meaning ambiguous or obscure; or (b) Leads to a result which is manifestly absurd or unreasonable”, https://treaties.un.org/doc/ publication/unts/volume%201155/volume-1155-i-18232-english.pdf. 15 Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, para. 268, https://www.italaw.com/ sites/default/files/case-documents/italaw10957_0.pdf. 16 Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, para. 274, https://www.italaw.com/ sites/default/files/case-documents/italaw10957_0.pdf. 11

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

31

example, the submitted proof and advocacy played a central role in assisting the tribunal’s treaty interpretation process. In that case, Egypt sought to deny Ampal the benefits of the Egypt-US BIT following the initiation of ICSID arbitral proceedings, and Ampal objected to Egypt’s belated attempt to invoke the denial of benefits provision as well as to Egypt’s failure to conduct prompt negotiations with the United States as required by the first paragraph of the Protocol to the Egypt-US BIT.17 After agreeing with claimants on the second point,18 the tribunal queried whether respondent could unilaterally trigger the denial of benefits provision after claimants initiated ICSID proceedings.19 In response to this query, counsel for claimants relied on ten cases (five investment arbitration cases and five International Court of Justice (ICJ) cases) placing particular emphasis on the Right of Passage case according to which “once the Court has been validly seized of a dispute, unilateral action by the Respondent State in terminating its Declaration, in whole or in part; cannot divest the Court of jurisdiction”.20 The tribunal ultimately agreed

Protocol to the US/Egypt BIT: “Each Party reserves the right to deny the benefits of this Treaty to any company of either Party, or its affiliates or subsidiaries, if nationals of any third country control such company, affiliate or subsidiary; provided that, whenever one Party concludes that the benefits of this Treaty should not be extended for this reason, it shall promptly consult with the other Party to seek a mutually satisfactory resolution of this matter”, https://2001-2009.state.gov/documents/ organization/43559.pdf; Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 106–113, https://www.italaw.com/sites/default/files/case-documents/italaw7310.pdf. 18 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 124–161, https://www.italaw. com/sites/default/files/case-documents/italaw7310.pdf. Interpreting the denial of benefits provision in the Protocol to the Egypt-US BIT, the tribunal concluded that “valid and effective consultations” should have taken place during the 6-month period after claimant notified Egypt of the existence of a legal dispute under the applicable BIT: Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 157–161, https://www.italaw.com/sites/default/files/case-documents/italaw7310.pdf. 19 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 163–164, https://www.italaw. com/sites/default/files/case-documents/italaw7310.pdf. 20 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, para. 111 and footnote 89: “Nottebohm case (Liechtenstein v. Guatemala), Preliminary Objections, Judgment of 18 November 1953, ICJ Reports 1953, CLA-234, p. 123; Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of the Congo v. Belgium), Judgement of 14 February, ICJ Reports 2002, CLA-127, pp. 12–13, para. 26; Case Concerning Questions of Interpretation and Application of the 1971 Montreal Convention arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. United Kingdom), Preliminary Objections, Judgment of 27 February 1998, ICJ Reports 1998, p. 9, CLA-235, 23–24, para. 38; Case Concerning Questions of Interpretation and Application of the 1971 Montreal Convention arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. United States of America), Preliminary Objections, Judgment of 27 February 1998, ICJ Reports 1998, p. 115, CLA-236, 129, para. 37; Ceskoslovenska Obchodni Banka, A.S v. The Slovak Republic, Jurisdiction, 24 May 1999, CLA-237, para. 31; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (“Enron v. Argentina”), ICSID Case No. ARB/01/3, Award, 22 May 2007, CLA-147, paras. 192 and 198; Teinver SA., Transportes de Cercanias SA. and 17

32

E. Kleiman et al.

with claimants in finding that the jurisdiction of the ICSID centre, which is to be determined at the time that the Request for Arbitration is registered, could not be retroactively nullified by respondent’s invocation of the Egypt-US BIT.21 Sometimes arbitral tribunals will hew to parsing the text—and even that can lend itself to the assistance of counsel. This is particularly the case when tribunals are faced with dual translations or definitions of a particular provision in two or more authentic versions of the same BIT. The awards in BG Group v. Argentina and ECE v. Czech Republic provide two notable examples. In BG Group v. Argentina, Argentina argued that BG’s contractual claims did not qualify as protected investments under the UK-Argentina BIT,22 as the wording “títulos de crédito” used in the Spanish version of that BIT was limited to “negotiable instruments”, a more restrictive definition than the “claims to money” appearing in the English version of the BIT.23 After noting that Argentina failed to identify the legal scholars or the sources for the definition put forward,24 the tribunal resorted to Article 33 of the VCLT which specifically addresses the interpretation of multilingual treaties.25 The tribunal eventually sided with claimant and found the English version of the BIT to be

Autobuses Urbanos del Sur SA. v. Argentine Republic, ICSID Case No. ARB/09/01, Decision on Jurisdiction, 21 December 2012, CLA-149, paras. 255; Case Concerning the Right of Passage over Indian Territory (Portugal v. India) (“Portugal v. India”), Preliminary Objections, Judgment of 26 November 1957, ICJ Reports 1957, p. 125, CLA-214, 142; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005, CLA-30, para. 178; Aguas del Aconquija v. Argentina, CLA-140”, https://www.italaw.com/sites/default/files/case-documents/ italaw7310.pdf. 21 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 168–169, https://www.italaw. com/sites/default/files/case-documents/italaw7310.pdf. 22 The UK-Argentina BIT has two authentic versions in Spanish and English languages: BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, para. 130, https://www.italaw.com/sites/default/files/case-documents/ita0081.pdf. 23 BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, para. 115, https://www.italaw.com/sites/default/files/case-documents/ita0081.pdf. 24 BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, footnote 125, https://www.italaw.com/sites/default/files/case-documents/ita0081.pdf. 25 Article 33 of the VCLT titled “Interpretation of treaties authenticated in two or more languages”: “1. When a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail. 2. A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an authentic text only if the treaty so provides or the parties so agree. 3. The terms of the treaty are presumed to have the same meaning in each authentic text. 4. Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted”, https://treaties.un.org/doc/publication/unts/volume%201155/volume1155-i-18232-english.pdf.

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

33

authoritative, notably on the grounds that “[a]doption of the Spanish term of the BIT as advocated by Argentina would considerably restrict the coverage of the treaty, discourage ‘greater investment’ and defeat the shared aspiration expressed by Argentina and the UK in executing this instrument”.26 Similarly, in ECE v. Czech Republic, the Czech Republic raised an objection to the jurisdiction of the tribunal on the ground that claimant’s shareholding and other participatory interests in companies incorporated in Czech Republic did not qualify as protected investments under the meaning of Article 1(1) of the Czech Republic-Germany BIT.27 In this case, the debate revolved around whether Article 1(1) limited the BIT’s protection to assets that were “contributed” (as per respondent’s understanding) or “invested” (as argued by claimant). Siding with the claimant, the tribunal found determinative that respondent did not dispute claimant’s conclusion that the German word “angelegt” could only be translated as “invested” as per a German-English dictionary.28 In addition, the tribunal upheld claimant’s argument that, under the presumption contained in Article 33(3) of the VCLT, the terms of treaties authenticated in different languages should have the same meaning in each authenticated treaty.29 While it has rightly been pointed out that counsel, depending on whether they represent foreign investors or states, might have a propensity to advocate for a more or less inclusive definition of a specific treaty provision,30 the above-mentioned

26

BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, para. 134, https://www.italaw.com/sites/default/files/case-documents/ita0081.pdf. 27 The Czech Republic-Germany BIT has two authentic versions in Czech and German languages: ECE Projektmanagement v. The Czech Republic, UNCITRAL, PCA Case No. 2010-5, Award, 19 September 2013, para. 3.153, https://www.italaw.com/sites/default/files/case-documents/ italaw4258.pdf. 28 ECE Projektmanagement v. The Czech Republic, UNCITRAL, PCA Case No. 2010-5, Award, 19 September 2013, paras 3.32, 3.151 and 3.156, https://www.italaw.com/sites/default/files/casedocuments/italaw4258.pdf. 29 ECE Projektmanagement v. The Czech Republic, UNCITRAL, PCA Case No. 2010-5, Award, 19 September 2013, paras 3.34 and 3.155, https://www.italaw.com/sites/default/files/case-docu ments/italaw4258.pdf. 30 This view was originally developed by Todd Weiler on the debate of whether the FET standard in BITs is an autonomous standard or a reference to the international law minimum standard of treatment of aliens: “Proponents of the former position, i.e. counsel for the respondents and statist academics and activists, are effectively arguing for a more permissive construction of the standard, which would result in fewer findings of State responsibility overall. Proponents of the latter position, i.e. counsel for the claimants and capital exporting States (albeit now with exceptions), are effectively arguing for a lower conduct threshold beyond which State responsibility would be found”)”: Weiler (2013), p. 15. For an example of treaty interpretation favourable to respondent, see e.g. Inceysa Vallisoletana S.L. v. Republic of El Salvador where the tribunal sided with El Salvador, expressly quoting parts of his submission, to conclude that “an interpretation of the Agreement that would afford protection to investments made fraudulently would have enormous repercussions for those states which signed agreements for reciprocal protection of investments and included the clause “in accordance with law,” in order to exclude from the protection of said treaties the investments not made in accordance with the laws and other norms of the State that receives the investment”. Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26,

34

E. Kleiman et al.

cases confirm that counsel have a clear role to play in assisting arbitral tribunals’ task of investment treaty interpretation.

3 Counsel’s Duty to Identify Rules of Customary International Law Article 38(1)(b) of the Statute of the ICJ refers to “international custom, as evidence of a general practice accepted as law”.31 International custom requires the demonstration of both a general practice (“state practice”), as well as its acceptance in international law (“opinio juris”), which can be defined by reference to the fact that states act out of a sense of legal obligation. International custom includes a wide range of sources, including diplomatic correspondence, policy statements, press releases, the opinion of government legal advisers, official manuals on legal questions, executive decisions and practices, orders to military forces, legislation, international and national judicial decisions, the practice of international organs and so on.32 Added to the variety of its sources, international custom often lacks “birth certificates”, with the effect of limiting its observers’ task to an “a posteriori revelation” based on evidence of state practice and opinio juris that a rule exists and is binding on states.33 We accordingly agree with David Schneiderman’s observation that “[i]nvestment lawyers, scholars and arbitrators are those best positioned, in short, to interpret and render coherent the ‘codification of customary international law’”.34 In the light of the comparatively limited resources available to arbitral tribunals and the adversarial nature of arbitral proceedings, tribunals have logically concluded that the burden of proving the existence of a rule of customary international law rests on the party that alleges it.35 The same reasoning applies to the identification of a Award, 2 August 2006, para. 250, https://www.italaw.com/sites/default/files/case-documents/ ita0424_0.pdf. 31 Article 38 of the Statute of the International Court of Justice, https://www.icj-cij.org/en/statute. 32 Crawford (2019), pp. 21–22. 33 Dumberry (2016), pp. 21–22. 34 Schneiderman (2017), p. 239. 35 Methanex Corporation v. United States of America, UNCITRAL, Final Award, 3 August 2005, Part IV, Chapter C, para. 26: “Customary international law has established exceptions to this broad rule and has decided that some differentiations are discriminatory. But the International Court of Justice has held that “[t]he Party which relies on a custom of this kind must prove that this custom is established in such a manner that it has become binding on the other Party”, https://www.italaw. com/sites/default/files/case-documents/ita0529.pdf; Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18 September 2009, para. 271: “A tribunal confronted with the task of ascertaining custom, on the other hand, has a quite different task because ascertainment of the content of custom involves not only questions of law but involves primarily a question of fact, where custom is found in the practice of States regarded as legally required by them. The content of a particular custom may be clear; but where a custom is not clear, or is

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

35

change in customary international law. As explained in the Glamis Gold v. USA final award: “the evolution of custom may be so clear as to be found by the tribunal itself. In most cases, however, the burden of doing so falls clearly on the party asserting the change”.36 The UPS v. Canada award provides an instructive example of how counsel are expected to conduct this identification task in practice. In this case, UPS notably tried to demonstrate that the minimum standard of treatment of aliens under article 1105 NAFTA imposed obligations on state parties to control anticompetitive behaviour as a matter of customary international law. After stating that “[t]o establish a rule of customary international law two requirements must be met: consistent state practice and an understanding that that practice is required by law”, and observing that customary international law “may and do evolve”, the tribunal concluded that “relevant [state] practice and the related understandings must still be assembled in support of a claimed rule of customary international law”.37 The tribunal ultimately rejected claimant’s claim on the grounds that it “did not attempt to establish that aspect or the practice element of a customary international law rule requiring the prohibiting or regulating of anticompetitive behaviour”,38 nor did it establish that “state practice reflects an understanding of the existence of a generally owed international legal obligation which, moreover, has to relate to the specific matter of requiring controls over anticompetitive behaviour”.39 This led the tribunal to conclude that “there is no rule of customary international law prohibiting or regulating anticompetitive behaviour”.40 Denial of justice cases also illustrate the decisive role played by counsel in identifying the content of customary international law, in particular procedural norms owing to foreign investors and the international law minimum standard of treatment of aliens. As explained by Jan Paulsson, the notion of denial of justice carries with it a degree of elasticity and fuzziness inherent to any legal abstract

disputed, then it is for the party asserting the custom to establish the content of that custom”, https:// www.italaw.com/sites/default/files/case-documents/ita0133_0.pdf; Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, Award, 27 September 2016, para. 350, https://www.italaw.com/sites/default/files/case-documents/italaw7875.pdf. 36 Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Final Award, 8 June 2009, para. 21, https://www.italaw.com/sites/default/files/case-documents/ita0378.pdf. 37 United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Decision on Jurisdiction, 22 November 2002, para. 84, https://www.italaw.com/sites/default/files/ case-documents/ita0884.pdf. 38 United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Decision on Jurisdiction, 22 November 2002, para. 85, https://www.italaw.com/sites/default/files/ case-documents/ita0884.pdf. 39 United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Decision on Jurisdiction, 22 November 2002, para. 86, https://www.italaw.com/sites/default/files/ case-documents/ita0884.pdf. 40 United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Decision on Jurisdiction, 22 November 2002, para. 92, https://www.italaw.com/sites/default/files/ case-documents/ita0884.pdf.

36

E. Kleiman et al.

concept of the kind,41 but has the advantage of adaptability to the evolving consensus of international due process required of national legal systems when they adjudicate foreigners’ claims.42 The threshold matter of domestic remedies exhaustion in the second Chevron v. Ecuador arbitration reveals how custom demonstrated by multilateral instruments, jurisprudence and state practice can elucidate the standard when properly unearthed by counsel. There, the tribunal was asked to adjudicate a novel application of the exhaustion of domestic remedies rule. Claimant’s legal expert (and later co-counsel) in the proceedings, Jan Paulsson, explained that: [t]he exhaustion of domestic remedies rule is designed to allow a state in which a breach of the standards of international law has occurred an opportunity to redress it by its own means; it is not designed to prevent a claim of denial of justice from being successful when a product of that state’s legal system has become exportable and the wronged party is at peril of enforcement in other jurisdictions as a result.43

Notably for present purposes, Professor Paulsson reached this conclusion by digging into early twentieth century landmark international arbitrations,44 and relying on sources as diverse as the Draft Articles on Diplomatic Protection of the International Law Commission (which bears the responsibility for systematizing and codifying existing customary international law),45 Sir Hersch Lauterpacht’s Separate

Paulsson (2005), p. 61: “[t]he phrase ‘denial of justice’, no matter how elaborately defined, will never yield instant clarity as to how actual cases are to be decided in a complex and untidy world. It seems futile to develop refined theories about what conduct is encompassed by a given expression of such elasticity. To some extent the debate is one of nomenclature; it does not concern the existence of an international delict, but what to call it”. 42 Paulsson (2005), pp. 68–69. 43 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Opinion of Jan Paulsson, 12 March 2012, para. 79 (emphasis added), https://www.italaw.com/sites/default/files/case-documents/ita0176_0.pdf. 44 “U.S. v Great Britain (Robert E Brown Case), Vol VI UNRIAA 120 (1923) p 129; Finnish Ships Arbitration (1934) 3 RIAA, P 1479; Panevezys-Saldutiskis Railway Case, PCIJ Series AlB, No 76 (1939) p 19; Ambatielos Claim (Greece v United Kingdom), Vol XII UNRIAA 83 (1956) pp 122–123; Interhandel Case (Preliminary Objections) [1959] ICJ Reports 6, pp 27–29” Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Opinion of Jan Paulsson, 12 March 2012, footnote 74 and “Claim of Finnish Shipowners against Great Britain in Respect of Certain Finnish Vessels during the War (1934) III UNRIAA 1479, 1543” Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Opinion of Jan Paulsson, 12 March 2012, footnote 78, https://www.italaw.com/sites/default/files/case-documents/ita0176_0.pdf. 45 Article 15 of the Statute of the International Law Commission, U.N. Doc. A/CN.4/4 and Corr.1: “the expression “codification of international law” is used for convenience as meaning the more precise formulation and systematization of rules of international law in fields where there already has been extensive State practice, precedent and doctrine”. and Article 18 of the Statute of the International Law Commission: “[t]he Commission shall survey the whole field of international law with a view to selecting topics for codification, having in mind existing drafts, whether governmental or not”, https://legal.un.org/ilc/documentation/english/a_cn4_4.pdf. 41

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

37

Opinion in the Norwegian Loans case,46 or the approaches adopted by the European Commission of Human Rights, the Inter-American Court of Human Rights and Jiménez de Aréchaga in his seminal treatise “International Law in the Past Third of a Century”.47 The tribunal ultimately upheld the view that the exhaustion of domestic remedies rule is not hyper-technical but rather one based on “reasonableness applied to the complainant, assessed at the relevant time”.48 The point, in the end, is that custom evolves, should be assessed as evolving, and it is counsel’s duty to trace, document and prove that evolution when customary international law is to be applied.

4 Counsel’s Role in Establishing the Existence of General Principles of Law When a dispute turns on what a party considers to be a general principle of law, counsel have the important (and sometimes onerous) duty of conducting the necessary comparative work of divining that general principle and finding acceptance in some cross-sections of domestic legal traditions in order to convince the tribunal that a given rule has reached the level of generality and universality specific to general principles of law.49 Arbitral tribunals are keen to recognize general principles of law when counsel have previously performed their critical task of scrutinizing relevant data and opinion from a wide variety of sources on the said principles.

46

Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Opinion of Jan Paulsson, 12 March 2012, para. 66, https:// www.italaw.com/sites/default/files/case-documents/ita0176_0.pdf. 47 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Opinion of Jan Paulsson, 12 March 2012, paras 68–70, https://www.italaw.com/sites/default/files/case-documents/ita0176_0.pdf. 48 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Second Partial Award on Track II, 30 August 2018, para. 7.123 (emphasis added), https://www.italaw.com/sites/default/files/case-documents/italaw9934. pdf. This finding echoes Jan Paulsson’s statement that “[w]hether a denial of justice has occured in any particular case cannot be determined by the application of a formula”. Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 200923, Opinion of Jan Paulsson, 12 March 2012, para. 12, https://www.italaw.com/sites/default/files/ case-documents/ita0176_0.pdf. 49 On this question, see Kotuby and Sobota (2017), p. 21: “[e]nsuring that a general principle abides in many legal systems–the concept reflected in Article 38(1)(c)’s archaic “recognized by civilized nations” requirement–promotes its legitimacy and acceptance. A horizontal survey simultaneously ensures a level of consensus and solidity while guarding against the imposition of legal precepts that are incident, evolving, or unsettled”. See also Schachter (1977), pp. 225–226; Pomson (2017), pp. 727–729, spec. p. 728: “[w]hereas the exact number of states in the international community that must have adopted or recognised the principle in their municipal legal system is a matter of controversy, it is nevertheless accepted that such principles must be found in a representative quantity of states, reflecting the dominant legal traditions of the world”.

38

E. Kleiman et al.

For instance, the Gold Reserve v. Venezuela award demonstrates claimant’s legal expert role in assisting the tribunal to find a general principle of legitimate expectations in international law. While most arbitral tribunals had previously upheld legitimate expectations as an element of the fair and equitable treatment standard,50 few of them had laid down a clear explanation as to its legal source in international law.51 After acknowledging its mandate to consider general principles of law as part of the applicable law,52 the Gold Reserve v. Venezuela tribunal stressed the importance of adopting a “comparative analysis of many domestic systems” in order to determine “the legal sources of one of the standards for respect of the fair and equitable treatment principle”.53 The tribunal then observed that this principle, “based on converging considerations of good faith and legal security”, finds its roots in the legal traditions of many national jurisdictions, including Germany, France and England in Europe and Latin American countries such as Argentina or “in Venezuelan administrative law, as indicated in the first legal opinion of Professor A. Brewer-Carías, annexed to Claimant’s Memorial”.54 Similarly, the World Duty Free v. Kenya award is illustrative of how counsel have successfully identified the status of the prohibition of corruption as a general principle of law. The tribunal had to adjudicate the validity of claimant’s restitution claim for the alleged wrongful termination of an agreement it had concluded in 1989 with the Kenyan government for the construction, maintenance and operation of duty-free complexes at the Nairobi and Mombasa airports. Counsel for respondent invoked the illegality and unenforceability of claimant’s contract procured upon the payment of a USD 2 million bribe to the former president of Kenya.55 In doing so, counsel for respondent first demonstrated that bribery is considered as criminal behaviour under the applicable law, namely Kenyan and English law.56 Respondent further drew the legal consequences attached to such illegality: the contract was

50

See e.g. Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 154, https://www.italaw.com/sites/default/files/case-documents/ ita0854.pdf. 51 Monebhurrun (2015), pp. 553–555. 52 Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, para. 575, https://www.italaw.com/sites/default/files/case-documents/ italaw4009.pdf. 53 Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, para. 576, https://www.italaw.com/sites/default/files/case-documents/ italaw4009.pdf. 54 Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, para. 576, https://www.italaw.com/sites/default/files/case-documents/ italaw4009.pdf. 55 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, paras 135, 182, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-vrepublic-of-kenya-award-wednesday-4th-october-2006. 56 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, paras 105–106, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-vrepublic-of-kenya-award-wednesday-4th-october-2006.

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

39

unenforceable as a matter of public policy both under Kenyan and English law.57 Counsel for respondent strengthened their argument by referring to international public policy. In support of their submission, they carefully referred to a broad range of sources aimed at demonstrating an emerging international consensus on the prohibition of corruption, including a 1963 International Court of Arbitration (ICC) case adjudicated by Judge Lagergren, the 1997 Organisation for Economic Co-operation and Development (OECD) Convention on combating bribery of foreign public officials in business transactions, and other conventions that had been concluded or were in preparation within the framework of the Council of Europe, the Organization of American States and the United States.58 On the international public policy argument, the tribunal started its reasoning by noting that bribery “as well as both active and passive corruption, are sanctioned by criminal law in most, if not all, countries”.59 The tribunal then referred to not less than four international conventions aimed at combating corruption,60 an African Convention on Preventing and Combating Corruption,61 a General Assembly Declaration against Corruption and Bribery in International Commercial Transactions, a General Assembly Convention Against Corruption,62 a Paris Court of Appeal decision,63 and eight ICC cases64 to reach the conclusion that “bribery is contrary to the international public policy of most, if not all, States” and that “claims based on contracts of corruption or on

57

World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 106, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 58 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 107, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 59 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 142, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 60 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 143, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 61 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 144, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 62 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 145, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 63 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 147, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 64 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, paras 148–156, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-vrepublic-of-kenya-award-wednesday-4th-october-2006.

40

E. Kleiman et al.

contracts obtained by corruption cannot be upheld by this Arbitral Tribunal”.65 The tribunal then analysed the contents of English and Kenyan Law, lengthily citing excerpts of the legal opinion submitted by Kenya,66 to unequivocally conclude that “Claimant is not legally entitled to maintain any of its pleaded claims in these proceedings as a matter of ordre public international and public policy under the contract’s applicable laws”.67 Conversely, the Yukos v. Russia award illustrates the potential consequences arising from counsel’s failure to conduct the required comparative analysis under municipal law when raising a general principle of law. In this case, Russia sought to invoke the “clean hands” doctrine as a general principle of law to deprive the tribunal of jurisdiction and render claimants’ claims inadmissible.68 In order to convince the tribunal that the clean hands requirement reached the status of a “general principle of law” within the meaning of Article 38(1)(c) of the Statute of the ICJ, respondent notably cited the ICJ’s decision in the Case Concerning the Gabčíkovo-Nagymaros Project and various dissenting opinions by ICJ judges, as well as a number of decisions of mixed claims commissions rendered in cases of diplomatic protection.69 In turn, claimants’ main strategy consisted in rebutting respondent’s assertion that the “clean hands” doctrine would exist as a general principle of law.70 Claimants notably demonstrated that all the inter-state cases relied on by respondent were inapposite in that they applied to the context of diplomatic protection, rather than to investor-State arbitration.71 After observing that respondent at best had managed to demonstrate the endorsement of “certain principles associated with the ‘clean

65

World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 157, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-v-repub lic-of-kenya-award-wednesday-4th-october-2006. 66 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, paras 163–164, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-vrepublic-of-kenya-award-wednesday-4th-october-2006. 67 World Duty Free Company v. Republic of Kenya, ICSID Case No. Arb/00/7, Award, 4 October 2006, para. 188, 3, https://jusmundi.com/fr/document/decision/en-world-duty-free-company-vrepublic-of-kenya-award-wednesday-4th-october-2006. 68 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, para. 1313, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf. 69 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, para. 1315, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf. 70 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, para. 1330, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf. 71 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, para. 1330, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf.

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

41

hands’ doctrine ... by the PCIJ and ICJ”,72 the tribunal concluded that this doctrine did not exist as a general principle of law on the ground that: [A]s Claimants point out, despite what appears to have been an extensive review of jurisprudence, Respondent has been unable to cite a single majority decision where an international court or arbitral tribunal has applied the principle of “unclean hands” in an inter-State or investor-State dispute and concluded that, as a principle of international law, it operated as a bar to a claim.73

While the terminological imprecision of the tribunal’s reasoning on the characterization of a general principle of law has been criticized, the outcome of this award further suggests that counsel’s failure to properly conduct the comparative analysis required for the demonstration of a general principle of law might play a decisive part in tribunals’ decision-making process and beyond in the progressive enshrinement of general principles of law in international investment arbitration.74

5 Conclusion The importance of providing arbitral tribunals with relevant academic and judicial discussion on a particular point of law for them to reach a well-researched and wellreasoned decision cannot be overstated. Investment case law demonstrates that counsel are expected to assist investment tribunals when it comes to treaty interpretation or the identification of international custom or general principles of international law. Counsel might do so in a variety of ways: providing arbitral tribunals with supplementary means of interpretation, researching into the conduct and statements of states to identify a rule or a change in a rule of customary international law, or adducing sufficient evidence as to the existence of a general principle of law in domestic jurisdictions. Where counsel fall short of assisting arbitral tribunals in their decision-making process, including by failing to scrutinize relevant sources of international law or missing out an applicable issue of law, arbitral tribunals may

72

Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, para. 1360, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf. 73 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Award, 18 July 2014, paras 1362–1363, https://www.italaw.com/sites/default/files/ case-documents/italaw3279.pdf. 74 Dumberry (2020), paras 4.154–4.163.

42

E. Kleiman et al.

refuse to make up for that failure to the detriment of the development of the law.75 This chapter’s review of some investment arbitration cases in which counsel had distinguished themselves show the example to be followed by the practising bar. Working with arbitral tribunals in providing a reasoned synthesis of where the law stands, particularly so when dealing with broad standards, rather than throwing a litany of block quotes from prior decisions which become some ‘assembly required’ work for tribunals with little discernible effort to apply the facts at hand, providing the necessary comparative work of divining general principles of international law and finding their acceptance in some cross-section of legal traditions instead of peremptorily asserting the existence of said principle, stand among the most salient features of the way forward in this regard.

75

In this regard, it is to be noted that arbitral tribunals can have recourse to the safety net of the iura novit curia principle, originally defined as courts’ duty to “consider on its own initiative all rules of international law which may be relevant to the settlement of the dispute” Fisheries Jurisdiction (United Kingdom v. Iceland), Merits, Judgment, I.C.J. Reports 1974, p. 3, para. 17, https://www.icjcij.org/files/case-related/55/055-19740725-JUD-01-00-EN.pdf. For its application in investment treaty arbitration, see Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste, ICSID Case No. ARB/15/2, Award, 22 December 2017, para. 109, https://www.italaw.com/sites/default/files/case-documents/italaw9450.pdf; Jürgen Wirtgen and others v. Czech Republic, PCA Case No. 2014-03, Final Award, 11 October 2017, para. 179, https://www.italaw.com/sites/default/files/case-documents/italaw9498.pdf; Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Excerpts of Award, 18 April 2017, para. 210, https://www.italaw.com/sites/default/files/case-documents/italaw9506. pdf; Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, 7 February 2017, para. 45, https://www.italaw.com/sites/default/files/ case-documents/italaw8208_0.pdf; Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40, Award, 6 December 2016, para. 236, https:// www.italaw.com/sites/default/files/case-documents/italaw7893.pdf; Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, para. 118, https://www.italaw.com/sites/default/files/case-documents/italaw7230.pdf; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 92, https://www.italaw.com/sites/default/files/case-documents/ italaw4389.pdf; Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL, Final Award, 23 April 2012, para. 177, https://www.italaw.com/sites/default/files/case-documents/ ita0933.pdf. Discussing the application of iura novit curia, the following tribunals have found that absent any agreement to the contrary by the parties, arbitrators are free to go beyond parties’ submissions provided parties’ right to be heard is duly ensured: see e.g. Adem Dogan v. Turkmenistan, ICSID Case No. ARB/09/9, Decision on Annulment, 15 January 2016, para. 219, https://www.italaw.com/sites/default/files/case-documents/italaw7086.pdf; Daimler Financial Services AG v. Argentine Republic, ICSID Case No. ARB/05/1, Decision on Annulment, 7 January 2015, para. 295, https://www.italaw.com/sites/default/files/case-documents/italaw4092.pdf; Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/08/ 12, Decision on the Annulment Application of Caratube International Oil Company LLP, 21 February 2014, para. 94, https://www.italaw.com/sites/default/files/case-documents/ italaw3082.pdf.

Investment Arbitration Counsel’s Role in the Progressive Development of. . .

43

References Bjorklund A (2008) Investment treaty arbitral decisions as jurisprudence constante. In: Picker C, Bunn I, Arner D (eds) International economic law: the state and future of the discipline. Hart Publishing, Oxford, pp 265–280 Cohen H (2013) Lawyers and precedent. Vanderbilt J Transnational Law 46(4):1025–1040 Crawford J (2014) Chance, order, change: the course of international law. The Pocket Books of The Hague Academy of International Law, The Hague Crawford J (2019) Brownlie’s principles of public international law, 9th edn. Oxford University Press, Oxford Dumberry P (2016) The formation and identification of rules of customary international law in international investment law. Cambridge University Press, Cambridge Dumberry P (2020) A guide to general principles of law in international investment arbitration. In: Arbitration Oxford international arbitration series. Oxford University Press, Oxford Fauchald OK (2008) The legal reasoning of ICSID tribunals – an empirical analysis. Eur J Int Law 19(2):301–364 Koskenniemi M (2008) International lawyers. In: Cane P, Conaghan J (eds) The new Oxford companion to law. Oxford University Press, Oxford Kotuby C, Sobota L (2017) General principles of law and international due process. Oxford University Press, Oxford Messenger G (2017) The practice of litigation at the ICJ: the role of counsel in the development of international law. In: Hirsch M, Lang A (eds) Research handbook on the sociology of international law. Edward Elgar, Cheltenham, pp 208–231 Monebhurrun N (2015) Gold Reserve Inc. v. Bolivarian republic of Venezuela enshrining legitimate expectations as a general principle of international law? J Int Arbitr 32(5):551–562 Paulsson J (2005) Denial of justice in international law. In: Hersch Lauterpacht Memorial Lectures. Cambridge University Press, Cambridge Paulsson J (2018) The role of precedent in investment arbitration. In: Yannaca-Small K (ed) Arbitration under international investment agreements: a guide to key issues. Oxford University Press, Oxford, pp 81–101 Pomson O (2017) The clean hands doctrine in the Yukos awards: a response to Patrick Dumberry. J World Invest Trade 18(2017):712–724 Roberts A (2010) Power and persuasion in investment treaty interpretation: the dual role of states. Am J Int Law 104(2):179–225 Schachter O (1977) The indivisible college of international lawyers. Northwestern Univ Law Rev 72(2):217–226 Schneiderman D (2015) The paranoid style of investment lawyers and arbitrators: investment law norm entrepreneurs and their critics. In: Alternative Visions of the International Law on Foreign Investment. SSRN Electronic Journal, https://papers.ssrn.com/sol3/papers.cfm?abstract_ id¼2670118 Schneiderman D (2017) International investment law as formally rational law: a Weberian analysis. In: Hirsch M, Lang A (eds) Research handbook on the sociology of international law. Edward Elgar, Cheltenham, pp 232–251 Schreuer C (2006) Diversity and harmonization of treaty interpretation in investment arbitration. In: Fitzmaurice M, Elias O, Merkouris P (eds) Treaty interpretation and the Vienna Convention on the law of treaties: 30 years on, Queen Mary Studies in International Law, vol 1. Martinus Nijhoff, Leiden, pp 129–151 Weiler T (2013) The interpretation of international investment law, equality, discrimination and minimum standards of treatment in historical context. In: Valencia-Ospina E, Malintoppi L (eds) International litigation in practice, vol 6. Martinus Nijhoff, Leiden

44

E. Kleiman et al.

Elie Kleiman partner at Jones Day, has 30 years of experience in dispute resolution, with a significant focus on cross-border litigation, international arbitration, and crisis management in a variety of sectors and industries. His practice focuses on complex commercial disputes and international investment. Elie is very active in the French legal community, serving as a member of several think tanks and promoting Paris as a hub for international dispute resolution. He writes on international arbitration and litigation and teaches at several Paris universities. Charles T. Kotuby Jr. partner at Jones Day, is an international law counsel who represents multinational corporations in complex international disputes across a range of sectors and industries. His practice is focused on investment arbitration and litigation involving foreign sovereigns and on novel issues of public and private international law, including political risk, investment protections, international border, and maritime issues. Charles is a Fellow in the Chartered Institute of Arbitrators, an adjunct professor of law at the University of Pittsburgh and the American University Washington College of Law, and a member of the United States Government Delegation to UNCITRAL Working Group III on Reforms to Investor-State Dispute Settlement and the U.S. State Department Advisory Committee on Private International Law. Iris Sauvagnac associate with the Global Disputes Department at Jones Day in Paris, focuses on commercial arbitration, investor-state arbitration, and complex disputes. She has experience advising private companies, states, and state-owned entities in commercial and investment treaty arbitrations under major institutional rules. Iris holds an LL.M. degree from Harvard Law School (2019), and a Master’s degree in business law from the Magistère Juriste d’Affaires at Paris II Panthéon-Assas University (2016).

Some Thoughts on the Independence of Party-Appointed Expert in International Arbitration Sébastien Manciaux

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Provisions on Experts’ Status in Legal Instruments Dedicated to International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Provisions on Experts in National and International Instruments Dedicated to International Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Provisions on Experts in Arbitration Rules Created by Arbitral Institutions and International Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Most Complete Provisions on Experts to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Declarations to be Made by Party-Appointed Experts: Does It Make Sense to Request Them to be Independent? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Rules Relating to the Declaration Required from Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Meanings of the Concept of Experts’ Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 What Should be Really Expected from Parties-Appointed Experts? . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46 47 48 49 51 52 52 55 55 57

Abstract Participation of experts in both commercial arbitration proceedings and investment arbitration proceedings is a well-known phenomenon for decades. A trend asking for parties-appointed experts to be independent is under development since the end of the twentieth century. The aim of this chapter is, at first, to make the point on this issue by analysing some of the most important current rules dedicated to international arbitration. The observation to be made is that the evolution described is not that developed so far in international arbitration. In a second time the need and relevance of this new requirement are addressed. It appears then that the meaning of this demand is far from being clear and its usefulness far from being obvious.

S. Manciaux (*) University of Burgundy, Dijon, France e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_4

45

46

S. Manciaux

1 Introduction Participation of experts in commercial arbitration proceedings is a well-known phenomenon, organized by arbitration rules,1 discussed in case law2 and analysed by leading authors for decades, but mostly in special articles3 rather than in general studies on international arbitration.4 Experts’ contribution to the settlement of disputes is scarcely questioned given the sophistication of the issues discussed before arbitral tribunals.5 Unsurprisingly, the development of investment arbitration has gone with the development of the use of legal or factual experts in this new area of dispute resolution.6 As it is in commercial arbitration, the possibility to appoint experts and their status during the procedure are more and more dealt with by rules applicable to investment arbitration.7 The appointment of experts by the tribunal and/or by the parties and the possibility for the parties to cross-examine experts are among the classical issues dealt with by investment arbitration rules. Proliferation of expert evidence and its impact on the length and cost of domestic procedures became a matter of concerns in the United Kingdom at the end of the twentieth century.8 Due to the adversarial nature of the British judicial system, focus has been made only on parties-appointed experts perceived as “hired-guns” tailoring their work to support the party by whom they were appointed and being thereby unable to assist tribunals. The reform proposed was based on the idea that parties-appointed experts have an overriding duty to assist the court impartially

1 For instance, Article 14.2 of the 1975 ICC Conciliation and Arbitration Rules provided “The arbitrator may appoint one or more experts, define their terms of reference, receive their reports and/or hear them in person”. Other provisions of the same ICC Conciliation and Arbitration Rules (kept unchanged in the 1988 ICC Conciliation Arbitration Rules) dealt with arbitration costs that include “fees and expenses of any experts”. 1975 and 1988 ICC Conciliation and Arbitration Rules may be consulted on the following website: https://www.international-arbitration-attorney.com, last visit on 1st March 2020. 2 See for instance ICC Cases n 2444 (1976), n 5418 (1987), n 4629 (1989), n 6653 (1993), etc., in Jarvin and Derains (1990), Jarvin et al. (1994, 1997). 3 See among others Kopelmanas (1979), Jolivet (2006), Kantor (2010), Thompson (2014), Altenkirch and Raheja (2018). 4 There are generally only a handful of paragraphs devoted to experts (role and appointment) in general works dedicated to international arbitration. See for instance, Fouchard (1996) pp. 718–720, Schreuer (2009), pp. 664–666, Born (2012), p. 170, Blackaby (2015), pp. 394–398. 5 But see Poudret (1994), p. 143: “Is not one of the main arguments in favour of arbitration that specialists well informed about the issues involved are used, thus obviating the need to consult experts?” 6 For a description of the use of experts in ICSID Arbitration, see for instance Schreuer (2009), pp. 664–666. 7 First version of the ICSID Arbitration Rules (1968) dealt with experts and expertises in article 33 to article 35. 1968 ICSID Arbitration rules may be consulted on the following website: https://icsid. worldbank.org/en/Documents/resources/ICSID, last visit on 1st March 2020. 8 Jones (2011), pp. 3–4.

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

47

and independently, and not to advocate the case of the party by whom they are retained.9 Shared by some other common law judicial systems, like in Australia, these concerns and the solution given to them have later developed in international arbitration. Commercial arbitration was the first affected in 2010 when the International Bar Association published its Rules on the Taking of Evidences in International Arbitration, even if these rules may also be applicable for the settlement by arbitration of investor-state disputes. Unsurprisingly, this evolution then formally reached investment arbitration with the current proposals for the Amendment of ICSID Arbitration Rules, joining in this sphere the trend for greater transparency developed for a decade. In a race for purity (or for puritanism?), it is commonly argued nowadays that experts, including parties-appointed experts, should be independent, like the arbitrators are. But is this evolution desirable or even rational? In order to address this issue, it is certainly desirable to first take stock of the current provisions relating to the status of experts, both parties-appointed experts (PAEs) and tribunal-appointed experts (TAEs), in some legal instruments devoted to international arbitration. Once this panorama has been drawn up, it will be possible to focus on the declarations to be made by PAEs with the following question in mind: does it make sense to request them to be independent?

2 Provisions on Experts’ Status in Legal Instruments Dedicated to International Arbitration It is hardly possible to review all the rules on this issue, and the choice of some of them always involves some arbitrariness. Choice has been made to select two national legislations that play an important role in international arbitration (i.e. the British and French and legislations), the matrix of a large number of other national laws on the topic (i.e. the UNCITRAL Model Law on Arbitration), and the leading international treaty regarding investment arbitration, the 1965 Washington Convention that created the International Centre for Settlement of Investment Disputes (ICSID). Some of the most known and used arbitration rules in investment arbitration (and in commercial arbitration as well for two of them) are part of a second set of rules under scrutiny: the ICSID Arbitration Rules (2006), the ICC Arbitration Rules (2017) and the UNCITRAL Arbitration Rules (2013). At last, it would have been a lack not to review the most complete text on expert to date, the International Bar Association (IBA) Rules on the Taking of Evidences in International Arbitration (2010), or to ignore the current proposals for the Amendment of ICSID Arbitration Rules as they appear in their last version, the working paper n 2 of February 2020. These two texts that most incorporate the current concerns about experts’ status will constitute the third sample under review in this study. 9

Ibid.

48

S. Manciaux

Table 1 National and international instruments dedicated to international arbitration

2011 French Decree on Arbitration 1996 UK Arbitration Act

Provision (s) on experts? Nob

Yes (art. 37)

1985 UNCITRAL Model Law on Arbitrationc

Yes (art. 26)

1965 ICSID Convention

Yes (art. 22)

Provision (s) on TAE? No

Yes, tribunals can appoint experts Yes, tribunals can appoint experts

No

Provision (s) on PAE? No

Clear distinction between TAE and PAE? No

Elements for an expert statusa? No

No

No

No

No

No

No

No

-Power of the TAE to get documents; -Examination by the parties. Experts benefit immunities

Source: table made by the author Excluding costs rules b To be exact, there is one reference to experts in article 1515 of the French Code of Civil Procedure regarding the existence of an arbitral award not written into French language. The Party seeking the recognition of the existence of this award must produce a translation made by a translator registered on a “judicial experts list” c As amended in 2006 a

Made under the form of three tables, the examinations of the provisions on experts in these different texts will be followed by comments. It was first decided to check for each text under review whether it contains provisions on experts, making then a distinction between provisions dedicated to TAEs and provisions dedicated to PAEs. The issue whether the text under scrutiny made a clear difference between TAEs and PAEs was then dealt with before exposing elements for an expert status provided by these set of rules if any (Table 1).

2.1

Provisions on Experts in National and International Instruments Dedicated to International Arbitration

It is difficult to find provisions on experts in these first set of rules: the 1996 UK Arbitration Act and the 1986 UNCITRAL Model Law on Arbitration are the only ones that contain some provisions on experts, and only regarding TAEs. Therefore, these texts are silent on the issue of the independence of PAE. It is certainly worth pointing out that two of the four texts have been enacted before concerns on PAEs

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

49

arose.10 And the latest, the 2011 French Decree on International Arbitration have been enacted in a country in the which, because of the inquisitorial nature of its judicial system, this issue is far less sensitive. Nevertheless, the lack of provisions on experts -especially on PAEs- in an instrument does not mean that the appointment of experts is not possible when this text applies.11 It only means that the possibility to appoint experts and their role in arbitration proceedings have to be ruled by other legal instruments. For instance, according to Article 1509 of the French Code of Civil Procedure, the parties are free to agree on the procedural rules to be followed by the arbitral tribunal. And the said provision continues by stating that failing this agreement, the arbitral tribunal has to organize the procedure, either directly or by way of reference to arbitration rules. Most of the time, the arbitration rules chosen by the parties or by the arbitral tribunal do contain provisions on the appointment of experts. And if such is not the case, there is this inherent power of arbitral tribunals to rule on matters that are not covered by the applicable procedural rules, whenever parties can’t reach an agreement on these matters.12 Thanks to this special power, arbitrators may address all the questions raised by the appointment and function of experts and fill any gap that would occur on this issue. This being said, arbitration rules contain some interesting provisions on experts, as it appears in Table 2.

2.2

Provisions on Experts in Arbitration Rules Created by Arbitral Institutions and International Organizations

The possibility for the parties to appoint experts (PAEs) is expressly foreseen in the three sets of rules when the power for arbitral tribunals to do so is only provided by the ICC and the UNCITRAL Arbitration Rules. Some elements for a legal status of experts appear in the three texts. For instance, there are provisions on the possibility for the parties to examine experts during the hearings, and the general rule is that it is up for the arbitral tribunal to organize this examination. The power of TAEs to get documents from the parties is only addressed in the UNCITRAL Rules. It is nevertheless an important issue, since it is well known that it is already difficult for counsels and experts to get the necessary documents from the Party that appointed them, for various reasons.13 And obviously it’s harder

10

The 1985 UNCITRAL Model Law on International Commercial Arbitration has been amended on 2006, but with no change regarding experts (article 26 unchanged). 11 Fouchard (1996), pp. 718–719. 12 Article 1509 of the French Code of Civil Procedure, article 34 of the UK Arbitration Act, article 19.2 of the UNCITRAL Model Law on International Commercial Arbitration, article 44 of the ICSID Convention, etc. 13 Because the party can’t find the document, or because the party thinks that the document is useless, or because the party wants to keep the document secret.

50

S. Manciaux

Table 2 Arbitration rules created by arbitral institutions and international organizations Provision (s) on experts? Yes (art. 34-36)

Provision (s) on TAE? No

Provision (s) on PAE Yes

Clear distinction between TAE and PAE? No

(ICC Arbitration Rules (2017)

Yes (art. 25)

Yes (art. 25§4)

Yes (art. 25§3)

Yes (see next box)

UNCITRAL Arbitration Rules (2013)

Yes (art. 17, 27-29)

Yes (art. 29)

Yes (art. 27,28)

Yes

ICSID Arbitration Rules (2006)

Elements for an expert statusa? -Declaration to be made -Examination by the parties -PAE may be heard by the tribunal. -TAE may be examined by the parties -Declaration by TAE (impartiality, independence); -Power of the TAE to get documents; -TAE and PAE may be examined by the parties.

Source: table made by the author Excluding costs rules

a

for a TAE who, by definition, has not been appointed by the parties, to get from these parties the necessary documents for his/her expertise. There is no provision on any declaration to be made by experts in the ICC Arbitration Rules unlike the two other texts. Nevertheless, ICSID and UNCITRAL Arbitration rules are quite different on this issue. As there is no provision on TAEs in the ICSID Arbitration Rules, the requirement to make a declaration is obviously only addressed to PAEs. UNCITRAL Arbitration Rules deal with both kind of experts but only TAEs are expressly required to make a declaration. But it is worth noting that article 28.2 of the same rules provides, for the sake of the hearings, that “Witnesses, including expert witnesses, may be heard under the conditions and examined in the manner set by the arbitral tribunal”. Requesting a prior declaration from PAEs can certainly be considered as a condition that an arbitral tribunal may set. The content of the declarations to be made is also different. Under Article 35.3 of the ICSID Arbitration Rules each PAE shall make the following declaration before making his statement: “I solemnly declare upon my honour and conscience that my statement will be in accordance with my sincere belief”. Article 29.2 of the UNCITRAL Arbitration Rules provides, on its side, that “The expert shall, in principle before accepting appointment, submit to the arbitral tribunal and to the parties a description of his or her qualifications and a statement of his or her impartiality and independence”, opening the possibility for each party to object as to the expert’s qualifications, impartiality and independence. Even though these rules contain more details about experts, they are not as complete as the third set of rules exposed in Table 3.

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

51

Table 3 Most complete provisions on experts to date

IBA Rules on the Taking of Evidence in International Arbitration (2010)

Proposals for the Amendment of ICSID Arbitration Rules (WP4 2-2020)

Provision (s) on experts? Yes (Introduction, art. 3-6 )

Yes (art. 38-39)

Provision (s) on TAE? Yes (art. 6)

Provision (s) on PAE Yes (art. 5)

Yes (art. 39)

Yes (art. 38)

Clear distinction between TAE and PAE? Yes (Definitions and two separate articles)

Yes and No

Elements for an expert statusa? -Declarations to be made (notably on independence), for both TAE and PAE (but not identical); -Power of the TAE; -TAE and PAE may be examined by the parties -Declaration for both TAE and PAE (but not identical); -Power of the TAE; -TAE and PAE may be examined by the parties

Source: table made by the author Excluding costs rules

a

2.3

Most Complete Provisions on Experts to Date

As indicated before, two texts must be put under scrutiny here: the IBA Rules on the Taking of Evidence in International Arbitration (2010) and the Proposals for the Amendment of ICSID Arbitration Rules (WP4 2-2020). These two texts are the most sophisticated set or rules regarding the involvement of experts in international arbitral proceedings. They systematically address all the issues raised previously, i.e.: (a) the possibility for the parties and for the arbitral tribunal to appoint experts; (b) the declaration to be made by experts; (c) the power of TAEs to get documents and data from the parties; and (d) the possibility for the parties to examine experts during the hearings. A clear distinction between PAEs and TAEs is expressly made in the IBA Rules, not in the Proposals for the Amendment of ICSID Arbitration Rules. This distinction is based on the person who appoints the expert and on the mission thereof. Indeed, article 1 of the IBA Rules contain, among others, the following definitions: “Party-Appointed Expert’ means a person or organisation appointed by a Party in order to report on specific issues determined by the Party”; “Tribunal-Appointed Expert’ means a person or organisation appointed by the Arbitral Tribunal in order to report to it on specific issues determined by the Arbitral Tribunal”. Timing and content of the declarations to be established by experts are also different in the two sets of rules and this issue deserves to be fully addressed now.

52

S. Manciaux

3 Declarations to be Made by Party-Appointed Experts: Does It Make Sense to Request Them to be Independent? As noted before, several set of rules, notably the most recent of them, contain provisions on the declarations that experts have to make. They appear in Table 4.

3.1

Rules Relating to the Declaration Required from Experts

Regarding the rules relating to the declaration required from experts, two points hold the attention: the time of the declaration and its content.

Table 4 Declarations to be made by experts

ICSID Arbitration Rules (2006) Proposals for the Amendment of ICSID Arbitration Rules (WP4 2-2020)

UNCITRAL Arbitration Rules (2013)

IBA Rules on the Taking of evidence (2010)

Declaration to be made by PAE Declaration to be made before making the statement (Rule 35.3) Declaration to be made before giving evidence (Rule 38)

No but an expert witness, may be heard under the conditions and examined in the manner set by the arbitral tribunal. (Art. 28) In the expert report (Art. 5)

Source: table made by the author

Declaration to be made by TAE Not applicable

Upon accepting an appointment by the tribunal, an expert shall provide a signed declaration in the form published by the Centre (Rule 39) “In principle before accepting appointment” (Art. 29)

Before accepting appointment (Art. 6)

Content of that declaration Statement will be in accordance with the expert’s sincere belief PAE: Statement will be in accordance with expert’s sincere belief (Rule 38). TAE: Rule 38 shall apply, with necessary modifications, to the tribunal-appointed expert. TAE: Statement on expert’s impartiality and independence

PAE and TAE: -declaration of his/her independence from the Parties, their legal advisors and the arbitral tribunal. -affirmation of his or her genuine belief in the opinions expressed in the expert report;

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

3.1.1

53

Time of the Declaration

Time of the declaration to be made seems to be the first major difference between party-appointed expert and TAE. While the TAE is required to make his/her declaration before accepting his/her appointment (article 6 of the IBA Rules (2010), article 29 of the UNCITRAL Rules (2013)) or upon accepting his/her appointment (Rule 39 of the Proposals for the Amendment of ICSID Arbitration Rules (2020)), the PAE is required to make his/her declaration latter, in the expert report (article 5 of the IBA Rules (2010)), before making his/her statement (Rule 35.3 of the ICSID arbitration Rules (2006)), before giving evidence (Rule 38 of the Proposals for the Amendment of ICSID Arbitration Rules (2020)). This difference comes from the possibility given to the parties to object the appointment of an expert by an arbitral tribunal when the prospective person does not present the qualities required for playing this function. Normally and conversely a PAE can’t be challenged by the other party, even if a recent decision on this issue rendered by an ICSID tribunal is not that clear. In the ICSID Case No. ARB/16/34, Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Republic of Panama, the tribunal dismissed an application to remove the Respondent’s expert witness (“expert”) on Panamanian Law on the basis of a telephone conversation that the Claimants’ counsel held with him “about him being engaged by the Claimants to advise on Panamanian law and to provide expert evidence on behalf of the Claimants”. The tribunal held in a first move that “there is a dearth of jurisprudence on the jurisdiction of an ICSID arbitral tribunal to disqualify an expert witness from giving evidence in an arbitration”, and noted that the Respondent has not really challenged the tribunal’s jurisdiction to accede to the Claimants’ application.14 But then the tribunal ruled that if an expert “is disqualified from acting as an expert witness or his participation in these proceedings in that capacity will involve a breach of confidence, legal professional privilege or other legal impropriety, it falls within our competence to rule that his evidence is not to be admitted”.15 Obviously, disqualifying an expert from giving evidence in an arbitration is one thing, ruling that his/her evidence is not be admitted is an other.

14

Ruling on Claimants’ Application to Remove the Respondent’s Expert as to Panamanian Law, December 13, 2018, § 11. Available on the ICSID website, last visit on 1st March 2020. Respondent’s argument on this issue was not very clear neither since it has submitted that:“[. . .] Claimants have not come anywhere close to demonstrating the type of impropriety that an investment tribunal must require before it takes the extreme and unusual step of publicly denouncing a person’s integrity by denying a party its right to put an individual forward as an expert.”, ibid. 15 Ibid., § 13.

54

3.1.2

S. Manciaux

Content of the Declaration

Content of the declaration to be made by the expert (or by the person contacted for being an expert) pursues another objective, ensuring that this person presents the qualities required for playing this function. The question is then: What are these expected qualities? The texts under study also differ on this matter. Regarding PAEs, sometimes they are required to declare that their expert report will be in accordance with their sincere belief, (Rule 35.3 of the ICSID arbitration Rules (2006) and Rule 38 of the Proposals for the Amendment of ICSID Arbitration Rules (2020)), sometimes they have to add that they are independent from the Parties, their legal advisors and the Arbitral Tribunal (article 5 of the IBA Rules (2010)). The situation is even more complicated regarding TAEs. Under article 6 of the IBA Rules (2010), they have to make the same declaration than parties-appointed experts. Under article 29.2 of the UNCITRAL Arbitration Rules (2013) they do not have to declare that their expert report will be in accordance with their sincere belief but they are required to make a declaration on their impartiality and independence. Rule 39 of the Proposals for the Amendment of ICSID Arbitration Rules (2020) is certainly the most blurred provision yet. Rule 39.3 provides that “Upon accepting an appointment by the Tribunal, an expert shall provide a signed declaration in the form published by the Centre”, but this form is not specified yet. And Rule 39.6 provides that Rule 38 (requiring the expert to declare that her/his report will be in accordance with the expert’s sincere belief) “shall apply, with necessary modifications, to the tribunal-appointed expert”. But the necessary modifications applicable to TAEs have not been unveiled so far. . . It is not trivial to add here that other texts have to be taken into account by prospective experts, in particular the provisions of certain investment treaties which prohibit an arbitrator from being appointed expert by parties (but strangely not by a an other arbitral tribunal), such as the Comprehensive Economic and Trade Agreement (CETA (2016), article 8.30) or the EU-Vietnam Free Trade Agreement (2016, article 14.1).16 This being said, not only the declarations requested from experts are very different from a set of rules to another, but rules requesting experts to be independent are not in majority yet, either regarding PAEs or, more surprisingly, regarding TAEs. But it is true that the meaning of the concept of “experts’ independence” is not clear either.

16

Fach Gómez (2019), p. 109.

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

3.2

55

Meanings of the Concept of Experts’ Independence

When independence and impartiality are required from experts (mainly from TAEs), these words or concepts are not defined. It seems however that these requirements stem from the same requirements weighing for centuries on arbitrators. But arbitrator’s independence and impartiality are not explained either in arbitration rules. This work has been done by the doctrine. Independence is generally considered to be concerned with questions arising out of the relationship between an arbitrator and one of the parties, whether financial or otherwise. These links between an arbitrator and a party can be objectively established (payments, business relationships, etc.).17 Impartiality is considered to be connected with actual or apparent bias of an arbitrator, either in favour of one of the parties or in relation to the issues in dispute. Impartiality involves primarily a state of mind and is a more subjective and abstract concept than independence.18 The lack of impartiality of an arbitrator is thus much harder to establish. Unsurprisingly, case law on arbitrators’ lack of impartiality is much more scarce compare to the one regarding arbitrators’ lack of independence. But this difference is not always made. For instance, in Gary Born book’s “Impartiality” cross-refers to “Independence” in the Index and some examples given for the illustration of the concept of independence are very much in fact about impartiality, like “Adversity to one party” or “Judge in own case” (a party can’t be an arbitrator in its own case).19 In the reform proposed in United Kingdom, independence and impartiality of parties-appointed experts aim to ensure their duty to assist the court and not to advocate the case of the party who appointed them.20 This is much more linked to impartiality rather than to independence. And in fact, PAEs can not be independent financially from the parties who pay them, independence in international arbitration being conceived first and foremost in financial terms. So, what should be really expected from PAEs?

3.3

What Should be Really Expected from Parties-Appointed Experts?

Uncertainty and vagueness about the status come from various initiatives, the addition of which leads to an incomprehensible result.

17

Blackaby (2015), p. 255, Fouchard (1996), pp. 580–587. Blackaby (2015), p. 255, Fouchard (1996), pp. 580–587. 19 Born (2012), pp. 134–135. 20 Jones (2011). 18

56

S. Manciaux

Firstly, it is not obvious that the problem experienced in the British judicial system and in other Common law countries are identical in international arbitration. Normally, arbitrators are chosen for their skills and competence which make them more suitable judges for understanding the issues at stake in a dispute and for weighing the experts reports that are presented by the parties. Secondly, the remedy of aligning the status of parties-appointed experts on the status of TAEs (not really known in most of Common law countries) does not seem appropriate. And most of the arbitration rules previously studied do not adopt this solution so far, still making differences between PAEs and TAEs. On this difference, the decision rendered in the ICSID Case No. ARB/16/34 Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Republic of Panama is very interesting. The tribunal started with the analogy to be drawn between arbitrators and TAEs before addressing the role of a PAE: § 14. “[. . .] The role of an arbitrator is to reach a determination of the dispute between the parties that is fair, objective and unbiased. At the outset of proceedings it is vital that the Arbitrator should have no reason to favour the case of one party rather than the other. An arbitrator must be both independent and impartial. [. . .]”. § 15. “Similar considerations apply to an expert who is appointed by the arbitrators to assist them. His role forms part of the adjudicative process. It is essential that he should be both independent and impartial.” § 16. “The role of a party-appointed expert witness is quite different. Such an expert is paid by one of the parties to give evidence in support of that party’s case. [. . .]”.21

At this stage of the reasoning, things were very clear. But unfortunately, the tribunal added the following sentences that seem to be in contradiction with the previous ones, or at least that make things much more difficult to understand: § 16. “[. . .]A party-appointed expert witness will normally be, and be expected to be, independent of the party calling him. The best expert witnesses will also be impartial. They will give their evidence honestly and objectively in accordance with their sincere beliefs and experience. [. . .]”. It seems preferable, more logical and easier to understand, for experts to adopt the status of those who appointed them. Thus, a general agreement may be reached on TAEs. As it is provided in the IBA Rules and as it has been ruled in Bridgestone, they have to be both independent and impartial. Regarding parties-appointed experts, as the parties that appoint them are not supposed to be independent and impartial in the dispute, they don’t have to be so either. Then, What should they be? Acting as an expert is not a question of belief or faith, but of seriousness, of intellectual reliability and professionalism.22 The function of a PAE, like witnesses or counsels, is to help the arbitral tribunal to reach a legal truth. Members of arbitral tribunals are perfectly aware that parties-appointed experts are paid by these parties.

21 Tribunal’s Ruling on Claimants’ Application to Remove the Respondent’s Expert as to Panamanian Law, December 13, 2018. 22 Kantor (2010), p. 334, quoting the late Thomas Walde.

Some Thoughts on the Independence of Party-Appointed Expert in International. . .

57

So the only thing that matters for arbitrators is the following: is the expert report reliable? Is the PAE trustworthy? As explained by Mark Kantor, the rules that a PAE must follow are actually far more likely to lie within the expert’s own profession than within international arbitration principles.23 And the seriousness that the expert put in the exercise of his/her mission will help both the tribunal in its search of the legal truth and the expert himself/herself in the building of his/her reputation and credibility that are so essential for the development of his/her business activities. The conclusion is that it is urgent not to add some rules regarding PAEs in international arbitration. Moreover, adding new rules on independence and/or impartiality should not make arbitrators thinking that they are exempted now from precisely assessing the expert report presented to them in order to know the weight that it should be given. If this was to be the result of ongoing reforms, the remedy would be worse than the disease. As the saying goes, hell is often paved with good intentions.

References Altenkirch M, Raheja R (2018) Quo Vadis Party-appointed experts. Global Arbitr Rev. https:// globalarbitrationnews.com/quo-vadis-party-appointed-experts Blackaby N, Partasides C, Redfern A, Hunter M (2015) Refern and Hunter in international arbitration, 6th edn. Oxford University Press, Oxford Born GB (2012) International arbitration: law and practice. Kluwer Law International, Alphen aan den Rijn Fach Gómez K (2019) Key duties of international investment arbitrators, a transnational study of legal and ethical Dilemmas. Springer Nature Switzerland, Cham Fouchard P, Gaillard E, Goldman B (1996) Traité de l’arbitrage commercial international. Litec, Paris Jarvin S, Derains Y (1990) Collection of ICC Arbitral Awards 1974–1985, vol. I. ICC Publishing SA/Kluwer Law/Taxation Publishers, Paris-New York/Deventer/Boston Jarvin S, Derains Y, Arnaldez JJ (1994) Collection of ICC Arbitral Awards 1986–1990, vol. II. ICC Publishing SA/Kluwer Law/Taxation Publishers, Paris-New York/Deventer/Boston Jarvin S, Derains Y, Arnaldez JJ (1997) Collection of ICC Arbitral Awards 1991–1995, vol. III. ICC Publishing SA/Kluwer Law International, New York/The Hague Jolivet E (2006) Le recours à l’expertise dans les procédures d’arbitrage commercial international. Cah Arb III:241–247 Jones D (2011) Party appointed experts: can they be usefully independent ? Transnl Disp Manage 8 (1):1–18 Kantor M (2010) A code of conduct for party-appointed experts in international arbitration - can one be found. Arbitr Int 26(3):323–380 Kopelmanas L (1979) Le rôle de l’expertise dans l’arbitrage commercial international. Rev Arb, 205–216 Poudret JF (1994) Conclusions. ICC Institute of international business law and practice, arbitration and expertise. ICC Publishing

23

Kantor (2010).

58

S. Manciaux

Schreuer C, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID Convention, a commentary, 2nd edn. Cambridge University Press, Cambridge Thompson D (2014) Are party-appointed experts a waste of time?. Global Arbitr Rev. https:// globalarbitrationreview.com/article/1033933/are-party-appointed-experts-a-waste-of-time

Sébastien Manciaux is Law Professor at the University of Burgundy, France, and a member of the Research Centre on Investment and International Trade Law (CREDIMI). He teaches International Investment Law, International Trade Law and International Arbitration to graduated students in France and abroad (Tunis, Marrakech, Quebec, Rio de Janeiro, Tehran, Kobe). He is frequently invited to international conferences and has written many articles and contributions dealing with International Arbitration and/or Investment Law in French, English and Spanish. He has been called as expert or counsel in several arbitration proceedings (ICSID, ICSID (AF), ICC or ad hoc arbitration proceedings).

The Nationality of Natural and Juridical Persons in International Investment Law Carlo de Stefano

Contents 1 Introduction: The Investor’s Home State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Natural Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Legal Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A Critique of Treaty Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60 61 69 75 77 79

Abstract This chapter addresses the role of the home state of the investor as negotiator and drafter of its international investment agreements (IIAs) with regard to the definition of “national”. Such a treaty definition comprises natural and juridical persons and is determinative of the jurisdiction ratione personae of international investment tribunals. As to individuals, the principle of effectiveness in single nationality determinations is critically investigated, whereas in dual nationality cases tribunals have usually applied the customary principle of dominant and effective nationality. However, Article 25(2)(a) of the International Centre for the Settlement of Investment Disputes (ICSID) Convention, which categorically prohibits claims by dual nationals of both the home and the host state, represents a relevant exception to the general rule under customary international law. As to corporations, the vast majority of international investment agreements (IIAs) adopts the incorporation test as sufficient and exclusive criteria for the definition of nationality. When confronted with such treaty provisions, arbitral tribunals have traditionally interpreted and applied them without requiring any thresholds of substantive bond between putatively covered investors and their alleged home state. Therefore, this chapter focuses on questionable phenomena of treaty shopping, including by shell companies and round tripping, which have been tolerated by arbitrators and

C. de Stefano (*) Postdoctoral Researcher in International Law, Department of Law, Roma Tre University; Associate, BonelliErede Studio Legale, Milan, Italy e-mail: [email protected]; [email protected]; [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_5

59

60

C. de Stefano

nonetheless accepted in the legal scholarship. Finally, the author provides various types of treaty provisions that may be stipulated by states when negotiating or renegotiating their IIAs with a view to appropriately accommodate the policy concerns that are raised in this chapter.

1 Introduction: The Investor’s Home State The role of the home state, i.e. the non-disputing party in investor-state dispute settlement (ISDS), has been recently emphasized as a way to enhance the narrative of the re-appropriation by states of the adjudication of international investment disputes. The academic debate on the “return of the state” involves the consideration whether investor-state arbitration is embedded (or not) in the inter-state dimension.1 This is at issue inter alia with regard to: (i) non-disputing party interventions; (ii) authoritative interpretations; (iii) renvoi of questions of fact and law to state representatives; (iv) state-to-state arbitration, and; (v) the projects of establishment of quasi-judicial bodies (investment court systems) for the adjudication of international investment disputes. This chapter assumes the classic asymmetric model of ISDS, especially treatybased,2 and focuses on the role of the home state as negotiator and drafter of its international investment agreements (IIAs) with regard to the definition of “national”, which comprises natural and juridical persons. Such a definition is determinative of the jurisdiction ratione personae of the arbitral tribunal established under the relevant IIA, either bilateral investment treaty (BIT) or multilateral investment agreement, such as the Energy Charter Treaty (ECT), to adjudicate the disputes arising from its interpretation and application.3 Indeed, along with the definition of investment (ratione materiae condition), the applicable time requirements (ratione temporis condition) and the effective consent to arbitration of the host state (ratione voluntatis condition), the satisfaction of the nationality test represents a preliminary requisite for investors to vindicate their protected rights under IIAs. In international investment law, an express definition of “investor” or “national”, be it a natural or a juridical person, is found in IIAs. As to natural persons, the nationality of investors is determined precisely upon reference to the law of citizenship applicable in the home state. As to legal persons, the applicable test of nationality may be incorporation (or seat), which is by far the most adopted criteria

1

Alschner (2014), pp. 293 et seq. Paulsson (1995), p. 232. 3 As to the jurisdiction ratione personae of international investment tribunals, see Broches (1972), pp. 354–361; Amerasinghe (1974–1975), p. 227; Sacerdoti (1997), pp. 310–320; Hirsch (1993), pp. 62–104; Vandevelde (2010), pp. 157–175; Schlemmer (2008), pp. 69–81; Sasson (2017), pp. 75–100. 2

The Nationality of Natural and Juridical Persons in International Investment Law

61

in IIAs, real seat or control, which may raise issues of treaty shopping based on the policy that is preferred by the home state itself.4 In relation to proceedings administered by the International Centre for the Settlement of Investment Disputes (ICSID), Article 25(1) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention or Washington Convention) merely requires that the investor be “a national of another Contracting State”. As regards natural persons, pursuant to Article 25(2)(a) the investor must be “any natural person who had the nationality of a Contracting State other than the State party to the dispute”. As regards juridical persons, Article 25(2)(b) sets forth that the investor must be “any juridical person which had the nationality of a Contracting State other than the State party to the dispute”. The ICSID Convention therefore adopts the fundamental principle of the diversity of nationality between claimant and respondent in international dispute settlement. This principle is of general application, not only in investment arbitrations under the ICSID Convention, whose jurisdictional “outer limits” are set forth in Article 25, but also under the aegis of other arbitral institutions, including the ICSID Additional Facility, United Nations Commission on International Trade Law (UNCITRAL), International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), and Arbitration Institute of the Stockholm Chamber of Commerce (SCC).5

2 Natural Persons The nationality of natural persons is determined by reference to the municipal law of the country whose citizenship is invoked by the investor.6 This is consistent with the general rule of customary international law, which is encapsulated in Article 4 of the

4

See Sect. 4 of this chapter. As to the application of the doctrine of jurisdictional “outer limits” in ISDS also outside ICSID arbitration in relation to the objective notion of “investment”, see Romak S.A.(Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award, 26 November 2009, para. 207; Alps Finance and Trade AG (AFT) v. The Slovak Republic, UNCITRAL, Award, 5 March 2011, para. 243; Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37, Award on Jurisdiction, 23 August 2019, para. 118. Contra, Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, 8 September 2006, paras 117–118 (holding that the only requirements that have to be fulfilled in order to confer ratione materiae jurisdiction on a non-ICSID tribunal are those under the BIT). 6 See, for instance, the Model BITs of France (2006), US (2012), UK (2008) and Germany (2008). Also the Germany-Pakistan BIT (1959), recorded as the first BIT in history, provided at Article 8 (3) as follows: “The term “nationals” shall mean: (a) in respect of the Federal Republic of Germany, Germans within the meaning of the Basic Law for the Federal Republic of Germany; (b) in respect of Pakistan, a person who is a citizen of Pakistan according to its laws”. See Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award, 7 July 2004, para. 55; 5

62

C. de Stefano

International Law Commission (ILC)’s Draft Articles on Diplomatic Protection (Draft Articles on Diplomatic Protection).7 This provision states that: “a State of nationality means a State whose nationality that person has acquired, in accordance with the law of that State, by birth, descent, naturalization, succession of States or in any other manner”, with the specification that such an acquisition of nationality should be “not inconsistent with international law”.8 This entails that nationality issues do not exclusively pertain to the domaine réservé of sovereign (home) states, which are not at unqualified liberty to diplomatically represent any subject they may recognise as their national.9 Indeed, in Nottebohm, the International Court of Justice (ICJ) famously stated that customary international law requires a “genuine connection” between the state exercising diplomatic protection and its protected subjects,10 thus “romantically” emphasising the political, economic and cultural bond attached to “real and effective” nationality.11 In ISDS, arbitral tribunals have usually declined to directly apply the Nottebohm rule to the determination of the nationality of investors and, hence, have adopted a

Champion Trading Company, Ameritrade International, Inc., James T. Wahba, John B. Wahba and Timothy T. Wahba v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003, para. 3.4.1; Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, paras 86–101; Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, paras 254 et seq.; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, para. 143, 195. 7 International Law Commission (John R. Dugard, Special Rapporteur), Draft Articles on Diplomatic Protection, with commentaries (ILC Commentary on Diplomatic Protection), Report of the International Law Commission on the Work of its Fifty-Eighth Session, 1 May-9 June and 3 July-11 August 2006, UN Document A/61/10, in YBILC, 2006, Volume II (Part 2), p. 23, document A/CN.4/SER.A/2006/Add.l (Part 2). See Crawford (2006), p. 19; Pellet (2008), p. 33. See also Nationality Decrees Issued in Tunis and Morocco (French Zone) on November 8th, 1921, Advisory Opinion, 7 February 1923, PCIJ Reports 1923, Series B, No. 4, p. 24. See also Convention on Certain Questions Relating to the Conflict of Nationality Laws, signed at The Hague on 12 April 1930, entered into force on 1 July 1937, 179 LNTS 89 (1930 Hague Convention), 99 (1937), Article 1: “It is for each State to determine under its own law who are its nationals. This law shall be recognised by other States in so far as it is consistent with international conventions, international custom, and the principles of law generally recognised with regard to nationality”. 8 ILC Commentary on Diplomatic Protection, p. 29. 9 See also Harvard Law School (Manley O. Hudson, Director), Research in International Law, Draft Conventions and Comments, Part I, “The Law of Nationality” (Richard W. Flournoy, Jr., Rapporteur), Article 2 (1929) 23 Special Number Am. J. Int’l L. Spec. Sup. 13, 24: “but under international law the power of a state to confer its nationality is not unlimited”. 10 Nottebohm (Liechtenstein v. Guatemala), Second Phase, Judgment, 6 April 1955, ICJ Reports 1955, p. 4, at 22–23: “nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties”. 11 Borchard (1915), p. 16: “The alien thus has rights as an individual and as member of a definite political group”.

The Nationality of Natural and Juridical Persons in International Investment Law

63

formalistic approach.12 The Saba Fakes v. Turkey tribunal held that the effectiveness of the investor’s nationality was irrelevant for the purposes of determining the tribunal’s jurisdiction. At the same time, it did not abstain from stating that the claimant’s links to its home state were “genuine and effective”.13 The test of effectiveness in single nationality determinations was instead advocated by Professor Francisco Orrego Vicuña in his partial dissenting opinion in the same case,14 whereas the majority of the tribunal questionably concluded that both claimants were exclusively Italian citizens, thus rejecting Egypt’s objections that they were Egyptians nationals or, at least, dual nationals of Egypt and Italy.15 As found by the Soufraki v. Egypt tribunal, an arbitral tribunal would accord “great weight” to the nationality law of the state in question and to that state’s interpretation of that law, including through the issue of certificates of nationality or passports, but should determine on its own whether (and when) the natural person concerned was in fact a national of that state.16 Therefore, a tribunal conducts its independent analysis on nationality under international law and in application of the Vienna Convention on the Law of Treaties (VCLT),17 upon scrutiny of the relevant

12

McLachlan et al. (2017), p. 159. See Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, paras 99 et seq.; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, paras 68–69; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, paras 198–199. 13 Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, paras 79–80. 14 Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Partial Dissenting Opinion of Professor Francisco Orrego Vicuña, 11 April 2007, p. 62: “As the ICSID Convention does not define nationality, the principles of international law governing this matter come into play instantly. Cardinal among such principles is that of effectiveness. Ever since the Nottebohm case, this has been the accepted premise in international law and the recent work on the diplomatic protection of persons and property of both the International Law Commission and the International Law Association so confirms”. 15 Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, paras 142–201. The two claimants were Ms. Clorinda Vecchi and Mr. Waguih Elie George Siag, her son. Ms. Vecchi was Italian from birth, but later married an Egyptian national and acquired Egyptian nationality, losing at the same time her Italian nationality. After the death of her husband, Ms. Vecchi reacquired the Italian citizenship pursuant to Italian law. Mr. Siag was Egyptian from birth. Then, he acquired Lebanese citizenship, maintaining his Egyptian nationality. Finally, he married an Italian national and acquired Italian nationality under Italian law. 16 Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award, 7 July 2004, para. 55. Accord, Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment, 5 June 2007, para. 93. This principle was already stated in the first edition of the Commentary Schreuer. See, as a confirmation, Schreuer et al. (2009), paras 641–656, pp. 265–269. 17 Vienna Convention on the Law of Treaties (VCLT), signed on 23 May 1969, entered into force on 27 January 1980, 1155 UNTS 331.

64

C. de Stefano

domestic laws and administrative documents.18 Where the determinations on nationality are contained in decisions rendered by the relevant judicial authorities, as contrasted to government officials, higher deference than under the Soufraki text is to be conferred by the arbitral tribunal. In this respect, the Bahgat v. Egypt tribunal held that a final judgment of the Finnish Supreme Administrative Court on the investor’s nationality under Finnish law could not be departed from by the arbitrators save for “exceptional circumstances that rise to the level of fraud or material error”.19 Issues of more intricacy may arise in connection with the jurisdictional standing of dual nationals (sujets mixtes) having also the nationality of the host state.20 The two alternative theories that intervene in this respect are the doctrine of active or dominant nationality and the doctrine of equality of sovereign states (also known as doctrine of non-responsibility of states for claims of dual nationals).21 The former posits that only the most connected or dominant among the nationalities of the claimant should be taken into consideration for the purposes of international protection, while the latter prevents from allocating greater effect to the nationality of any state irrespective of factual considerations about the genuine connection of the claimant with its alleged nationality. The practice of mixed arbitral tribunals22 and of the Iran-US Claims Tribunal23 reveals the adoption of the principle of effective and dominant nationality. Notably, in Case No. A/18, the Iran-US Claims Tribunal, echoing the ICJ in Nottebohm,24 included the following factors in the list of relevant

18

Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, para. 319; Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, para. 87; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, paras 148–153 and 193. 19 Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012–07, Decision on Jurisdiction, 30 November 2017, paras 170–174, 187. 20 García Olmedo (2017), p. 695; Michalopoulos and Hicks (2019), p. 121. See also Mahoney (1984), p. 695. 21 van Panhuys (1959), p. 74; Rode (1959), pp. 140–141; Leigh (1971), p. 459. 22 Canevaro Case (Italy v. Peru), Permanent Court of Arbitration (PCA), Award, 3 May 1912, 11 RIAA 397 (1912), in George Grafton Wilson (ed.), The Hague Arbitration Cases (Ginn 1915) 238, (1912) 6 Am. J. Int’l L. 746; Mergé Case (United States of America v. Italy), Decision No. 55, 10 June 1955, 14 RIAA 236, 247 (1955). Contra, Alexander Case (Great Britain v. United States of America), in John Bassett Moore, History and Digest of the International Arbitrations to which the United States has been a Party), vol. III (Government Printing Office 1898) 2529–2531; Salem Case (United States of America v. Egypt), Award, 8 June 1932, 2 RIAA 1161, 1187 (1932). See Basdevant (1909), p. 60. 23 Iran-United States Claims Tribunal, Full Tribunal, Case No. A/18, Decision on the Question of Jurisdiction over Claims of Persons with Dual Nationality, 6 April 1984, 5 IUSCTR 251, 263, 265 (1984-I); Iran-United States Claims Tribunal, Chamber Two, Nasser Esphahanian v. Bank Tejarat, Award No. 31-157-2, 29 March 1983, 2 IUSCTR 157, 160–161, 168 (1983-I); Iran-United States Claims Tribunal, Chamber One, Rana Nikpour v. The Islamic Republic of Iran and Foundation for the Oppressed, Interlocutory Award No. ITL 81-336-1, 18 February 1993, 29 IUSCTR 67, 75 (1993). See Brower and Brueschke (1998), pp. 288 et seq. 24 Nottebohm, at 22.

The Nationality of Natural and Juridical Persons in International Investment Law

65

elements to ascertain the dominant nationality of dual nationals: “habitual residence, center of interests, family ties, participation in public life and other evidence of attachment”.25 Article 7 of the Draft Articles on Diplomatic Protection finally codifies the principle of “predominant” nationality in relation to dual nationals having also the nationality of the respondent state.26 Some IIAs expressly provide for the rule of dominant nationality, such as the Dominican Republic–Central America Free Trade Agreement (DR-CAFTA), where Article 28.10 provides that “a natural person who is a dual national shall be deemed to be exclusively a national of the State of his or her dominant and effective nationality”.27 The investor should therefore be more foreign than domestic. However, as to ICSID arbitration, Article 25(2)(a) of the Washington Convention sets forth an express exception to the customary rule of dominant nationality, which categorically bars access to the Centre to claimants having the nationality of the host state and of another Contracting State, even though the latter is more effective.28 As established by the Iran-US Claims Tribunal in Case No. A/18, “the rule of real and effective nationality” is applicable “unless an exception is clearly stated”.29 Therefore, such an exception is not prevented by customary international law. Moreover, as the Report of the Executive Directors states, the jurisdictional ineligibility of dual nationals having also the nationality of the host state “is absolute and cannot be cured even if the State party to the dispute had given its consent”.30 By adopting the

25

Case No. A/18, p. 265. ILC Commentary on Diplomatic Protection, p. 34. 27 Article 10.28 of the DR-CAFTA. See Michael Ballantine and Lisa Ballantine v. The Dominican Republic, UNCITRAL, PCA Case No. 2016-17, Final Award, 3 September 2019, paras 503–600 (jurisdiction ratione personae denied under DR-CAFTA, since the Dominican nationality of the claimants was deemed to be dominant and to prevail over their American nationality). See also US Model BIT (2012), Article 1 and US-Colombia Trade Protection Agreement (TPA), Article 10.28. Instead, an isolated example of preclusion of claims by dual nationals seems to be found in Article 1 (e) of the Canada-Lebanon BIT (1997): “In the case of persons who have both Canadian and Lebanese citizenship, they shall be considered Canadian citizens in Canada and Lebanese citizens in Lebanon”. 28 Champion Trading Company, Ameritrade International, Inc., James T. Wahba, John B. Wahba and Timothy T. Wahba v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003, para. 3.4.1; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, paras 58–63; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, para. 198; Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, para. 241; Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/ 20, Decision on Jurisdiction and Admissibility, 24 September 2008, para. 100. 29 Case No. A/18, p. 265. 30 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Report of the Executive Directors), 18 March 1965, para. 29, 1 ICSID Reports 23, 29 (1993). 26

66

C. de Stefano

principle of equality to resolve issues of dual nationality, the ICSID Convention reflects the old rule under Article 4 of the 1930 Hague Convention.31 In non-ICSID arbitration, tribunals are not constrained by the express language of Article 25(2)(a) of the ICSID Convention. However, their practice on the treatment of dual nationals has not been uniform. In Serafín García Armas v. Venezuela, an UNICTRAL tribunal constituted under the Spain-Venezuela BIT (1995) upheld jurisdiction on the investment claims presented by dual nationals of Venezuela and Spain. Since the BIT’s definition of “investors” merely required natural persons to have the nationality of one Contracting Party pursuant to its legislation and, at the same time, to invest in the territory of the other Contracting Party, the arbitrators did not find any limitation in the BIT concerning the protection of dual nationals. In addition, the tribunal qualified as irrelevant the objection raised by Venezuela that the Spanish citizenship of the claimants was merely formal.32 In Manuel García Armas et al. v. Venezuela, eight members of the same family, the Garcías, presented an UNCITRAL claim under the same BIT and based on similar facts and causes of action.33 However, in this case, contrary to the previous tribunal, the arbitrators appropriately found that, in the silence of the IIA, the jus standi of dual nationals

1930 Hague Convention: “A State may not afford diplomatic protection to one of its nationals against a State whose nationality such person also possesses”. 32 Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela, PCA Case No. 2013-3, Decision on Jurisdiction, 15 December 2014, paras 197–206 (quoting inter alia Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Decision on Jurisdiction, 30 April 2010, para. 130). The decision on jurisdiction in Serafín v. Venezuela was partially set aside by the Court of Appeal of Paris on 25 April 2017 on the ground that the tribunal had failed to consider whether the claimants were Spanish nationals at the time they made their investment. See Court of Appeal of Paris, 1st Civil Division, Judgment, 25 April 2017, RG No. 15/01040. The Government of Venezuela challenged the decision of the Court of Appeal before the Court of Cassation, which held on 13 February 2019 that the lower court erred in so far as it neglected to draw all the legal consequences stemming from its findings. Thus, it reinstated the arbitral tribunal’s decision on jurisdiction and remanded the case to a different chamber of the Court of Appeal of Paris in order to decide Venezuela’s annulment application. See Court of Cassation, 1st Civil Division, Judgment, 13 February 2019, No. 157 F-D. In the meantime, on 26 April 2019, the arbitral tribunal rendered its final award whereby it found that Venezuela had breached the BIT and international law by illegally expropriating the claimants’ investment, adopting arbitrary measures and failing to ensure the standard of fair and equitable treatment. Therefore, it awarded as compensation to the investors the total sum of USD 214 million, plus interest. See Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela, PCA Case No. 2013-3, Final Award, 26 April 2019. The Serafín García Armas v. Venezuela decision on jurisdiction has been finally set aside by the Court of Appeal of Paris on 3 June 2020. The effects of the annulment decision extend also to the final award. See Court of Appeal of Paris, Pôle 5, 16 Division, Judgment, 3 June 2020, RG No. 19/03588. For a commentary, see de Stefano (2020), p. 885. 33 Manuel García Armas et al. v. Bolivarian Republic of Venezuela, UNCITRAL, PCA Case No. 2016-08, Award on Jurisdiction, 13 December 2019. An identically constituted tribunal is adjudicating a cognate claim under the ICSID Additional Facility Rules, see Luis García Armas v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/16/1. Decision on Jurisdiction, 24 July 2020, where the arbitrators affirmed their jurisdiction ratione voluntatis and ratione personae. 31

The Nationality of Natural and Juridical Persons in International Investment Law

67

should be determined upon reference to the customary rule of the dominant and effective nationality.34 UNCITRAL tribunals have recently addressed the relationship between the treaty provision containing the definition of “investor” and the arbitration clause for the purposes of contextual interpretation under the VCLT. In Rawat v. Mauritius, the claim was presented by Mr. Rawat, a binational of France and Mauritius, under the France-Mauritius BIT (1973), which did not contain any provision on dual nationality of investors and merely referred to the “resortissants” of either state. The claimant initiated UNCITRAL arbitration upon reliance on the most-favourednation (MFN) clause of the BIT itself and the arbitration clause in the FinlandMauritius BIT (2007) as comparator treaty. However, Article 9 of the FranceMauritius BIT also provided for the obligation of each Contracting State to insert ICSID arbitration in the investment contracts stipulated with protected “resortissants” of the other state. The tribunal interpreted this reference as necessarily including the provision of Article 25(2)(a) of the ICSID Convention. Therefore, based on a contextual interpretation pursuant to Article 31 of the VCLT, it concluded that the Contracting States had implicitly excluded the eligibility of any claim under the BIT by their dual nationals.35 In October 2019, in Heemsen v. Venezuela, an UNCITRAL tribunal constituted under the Germany-Venezuela BIT (1996) adopted a more far-reaching interpretation in relation to claims by dual nationals. Pursuant to Article 10 of the BIT, the Parties exclusively provided for ICSID arbitration, unless subsequently agreed otherwise by the investor and the host state. At the same time, the Protocol to the BIT established Germany and Venezuela’s consent to UNCITRAL arbitration, which was temporally confined to the period, if any, in which ICSID arbitration or, in the second place, ICSID Additional Facility arbitration would not be available. In fact, Venezuela ratified the ICSID Convention before the signature and entry into force of the BIT.36 Therefore, the envisaged “pre-ICSID period” never was in place and, accordingly, Venezuela’s offer to arbitrate under the UNCITRAL Rules never became effective.37 Having ascertained their lack of jurisdiction ratione voluntatis, the arbitrators added that in any event they would have denied their jurisdiction ratione personae. Indeed, the tribunal reasoned that dual nationals of Germany and

34

Manuel García Armas et al. v. Bolivarian Republic of Venezuela, UNCITRAL, PCA Case No. 2016-08, Award on Jurisdiction, 13 December 2019, para. 741. Accord, Enrique and Jorge Heemsen v. Venezuela, UNCITRAL, PCA Case No. 2017-18, Award on Jurisdiction, 29 October 2019, para. 440. 35 Dawood Rawat v. The Republic of Mauritius, UNCITRAL, PCA Case No. 2016-20, Award on Jurisdiction, 6 April 2018, paras 162–184. 36 The Bolivarian Republic of Venezuela signed the ICSID Convention on 18 August 1993. The Convention entered into force for Venezuela on 1 June 1995. The BIT was signed on 14 May 1996 and entered into force on 16 October 1998. The Republic denounced the ICSID Convention on 24 January 2012 with effects from 25 July 2012. 37 Enrique and Jorge Heemsen v. Venezuela, UNCITRAL, PCA Case No. 2017-18, Award on Jurisdiction, 29 October 2019, para. 410.

68

C. de Stefano

Venezuela would have been certainly prevented to present investment claims under the applicability of the ICSID Convention by virtue of Article 25(2)(a). This limitation had to be imported in the treaty definition of “national” to carve-out dual nationals of the home and host state from the entirety of protections offered by the BIT. Indeed, to construe the eligibility of such dual citizens to BIT arbitration under the UNCITRAL Rules in the “pre-ICSID period” or under the rules (different than ICSID) subsequently agreed between the investor and the host state would have led to an unreasonable result in the interpretation of the treaty.38 In the UNCITRAL case Manuel García Armas et al. v. Venezuela, which was mentioned above, the tribunal observed that the ISDS clause in the BIT established a primary and mandatory reference to ICSID arbitration or, should this be unavailable, to arbitration under the ICSID Additional Facility Rules.39 Only on a residual basis, in case of non-availability of the “ICSID system” or based on the agreement between the investor and the host state, the claimant could resort to UNCITRAL arbitration. The tribunal inferred that—given the hierarchy of fora in favour of the “ICSID system” under the treaty—any dispute that could be possibly submitted to UNCITRAL should be capable of submission before the Centre. Consequently, the arbitrators held that the rule of irresponsibility of states for the claims of binational citizens under Article 25(2)(a) of the Washington Convention permeated the entire BIT, whose definition of “investor” could not have different meanings depending on the forum elected by the claimant.40 Finally, the test of dominant nationality of a natural person is not required for dual nationals who do not have the nationality of the host state, but instead of a third state.41 This entails that even if the nationality of the third state is preponderant, the investor may still benefit from the protections, including ISDS, of the IIAs stipulated by its selected “home” state. Such a solution is therefore consistent with Article 6 (1) of the Draft Articles on Diplomatic Protection.42

38

Paras 417–418. Article XI(2)-(3) of the Spain-Venezuela BIT (1995). 40 Manuel García Armas et al. v. Bolivarian Republic of Venezuela, UNCITRAL, PCA Case No. 2016-08, Award on Jurisdiction, 13 December 2019, paras 718–723. 41 David R. Aven et al. v. Republic of Costa Rica, UNCITRAL Case No. UNCT/15/3, Final Award, 18 September 2018, para. 215; Eudoro Armando Olguín v. República del Paraguay, ICSID Case No. ARB/98/5, Award, 26 July 2001, paras 61–62; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, para. 62. As to the practice of mixed arbitral tribunals, see William Mackenzie, Individually and as Administrator of the Estate of Mary A. Mackenzie, Deceased, et al. (United States v. Germany), Award, 30 October 1925, 7 RIAA 288, 291 (1925); Salem Case (United States of America v. Egypt), Award, 8 June 1932, 2 RIAA 1161, 1188 (1932); Flegenheimer Case (United States of America v. Italy), Decision No. 182, 20 September 1958, 14 RIAA 327, 377 (1958). 42 ILC Commentary on Diplomatic Protection, p. 33: “Any State of which a dual or multiple national is a national may exercise diplomatic protection in respect of that national against a State of which that person is not a national.” 39

The Nationality of Natural and Juridical Persons in International Investment Law

69

3 Legal Persons The nationality of corporate investors is determined upon application of three main criteria, namely incorporation (or seat), real seat and control.43 Pursuant to Article 9 of the Draft Articles on Diplomatic Protection “the State of nationality means the State under whose law the corporation was incorporated”. Only the second sentence of Article 9 adds that: [h]owever, when the corporation is controlled by nationals of another State or States and has no substantial business activities in the State of incorporation, and the seat of management and the financial control of the corporation are both located in another State, that State shall be regarded as the State of nationality.44

As with natural persons, the attribution of nationality to legal persons is a prerogative of municipal law, but it is still for international law to govern the exercise of the diplomatic protection of such persons by their home states.45 In this respect, in Barcelona Traction, the ICJ required a “close and permanent connection” between the state exercising a diplomatic espousal and the protected corporation, which can be inferred, inter alia, by various corporate institutions and other elements of the company’s life attached to the country of incorporation for a continued period of time.46 The vast majority of IIAs adopts the incorporation (or seat) test as sufficient and exclusive criteria for the determination of the nationality of corporate investors.47 This entails that corporate groups articulated in multiple jurisdictions through holdings, affiliates, and even shell companies, are enabled to arbitrage between varieties of IIAs stipulated by the states where their units are incorporated. As a consequence, corporations may benefit from a more favourable IIA with the host country or even from an IIA when the “real” home country has none. This phenomenon is known as treaty shopping (or protection shopping)48 and is due in part to the treaty rules on determining the nationality of juridical persons, in part to the proliferation of the number of BITs that has entered into force. One of the most questionable forms of treaty shopping seems to be the so-called round tripping,

43

See Caflisch (1969), pp. 129–135; de Visscher (1961), p. 399 et seq.; Sacerdoti (1989), pp. 713–714; Seidl-Hohenveldern (1987), p. 8. 44 ILC Commentary on Diplomatic Protection, p. 37. 45 Barcelona Traction Light and Power Company, Limited (Belgium v. Spain), Judgment, Second Phase, 5 February 1970, para. 38, ICJ Reports 1970, p. 3, at 34. 46 Barcelona Traction, para. 71. The Barcelona Traction rule was subsequently upheld by the ICJ in Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, 24 May 2007, paras 61, 89–94, ICJ Reports 2007, p. 582. 47 Ex plurimis, see Model BIT of UK (2008). 48 Chaisse (2015), p. 228: “treaty shopping [is] the process of routing an investment so as to gain access to an IIA where one did not previously exist or to gain access to more favorable IIA protection”.

70

C. de Stefano

namely the practice of domestic undertakings to incorporate abroad and to channel from there an investment treaty arbitration against their genuine home state. To prevent treaty shopping states may insert in IIAs—usually in addition to the incorporation test—the requirement of real seat in the country of origin of the investor, which is frequently defined as “substantial business activities” (SBAs),49 and control by nationals of the home state.50 States may pursue the same objective also by means of a different drafting technique, namely through the adoption in their IIAs of denial of benefits clauses, as in Article 17 of the ECT. Such provisions empower the host state to deny treaty advantages in case the claimant is owned or controlled by nationals of a third state, or by its own nationals, and has no SBAs in the home state.51 However, denial of benefits clauses do not affect the jurisdiction ratione personae of an international investment tribunal, but rather entail an issue of admissibility of the claim.52 As to ICSID arbitration, as mentioned above, the Washington Convention does not define the nationality of legal persons, but only require in Article 25(2)(b) that an eligible investor may be “any juridical person which had the nationality of a Contracting State other than the State party to the dispute”.53 In addition, the second limb of Article 25(2)(b) of the ICSID Convention codifies an exception to the rule of diversity of nationality for companies that are incorporated in the host state, but are nevertheless controlled by foreign investors.54 Based on the combination of a subjective (i.e., the agreement of the parties) and an objective prong (i.e., the “foreign control”), this mechanism of “constructive nationality” is meant to allow formally domestic investors, which instead are substantively foreign, to benefit from 49

For instance, in the investment treaty practice of Switzerland, which adopts the requirement of “real economic activities” and, recently, in the new Dutch Model Investment Agreement (2019). See Alps Finance and Trade AG (AFT) v. The Slovak Republic, UNCITRAL, Award, 5 March 2011, para 215; Yaung Chi Oo Trading Pte. Ltd. v. Government of the Union of Myanmar, ASEAN I.D. Case No. ARB/01/1, Award, 31 March 2003, para. 52, 42 ILM 540, 550; Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/26, Award, 29 January 2016, paras 148–150; Orascom TMT Investments S.à.r.l. v. People’s Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Award, 31 May 2017, paras 316–323. 50 For instance, in the BITs of the Netherlands. See Mobil Corporation, Venezuela Holdings, B.V., et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 153, where the tribunal equated the corporate control with the ownership of the company (control as “ownership”), holding that Article 1(b)(iii) of the Netherlands-Venezuela BIT (1991) only required a situation of potential exercise of control (legal control), rather than the actual decisive influence on the management of the “controlled” legal persons. Contra, Guardian Fiduciary Trust, Ltd., f/k/a Capital Conservator Savings & Loan, Ltd. v. Macedonia, former Yugoslav Republic of, ICSID Case No. ARB/12/31, Award, 22 September 2015, paras 136–137, where the tribunal applied Article 1(b)(iii) of the Netherlands-Macedonia BIT (1998). 51 de Stefano (2016), p. 143. 52 Douglas (2009), pp. 468–469. 53 See Sect. 1 of this chapter. 54 The ICJ was confronted with this scenario in Elettronica Sicula S.p.A (ELSI) (United States of America v. Italy), Judgment, 20 July 1989, ICJ Reports 1989, p. 15.

The Nationality of Natural and Juridical Persons in International Investment Law

71

the international protection of their investment.55 The perusal of arbitral case law, especially in treaty-based arbitration, reveals that “control” is interpreted by the majority of tribunals as being effective and ultimate.56 This line of cases prevents phenomena of treaty shopping in so far as it frustrates the attempt to present investment claims by every single subsidiary in the chain of ownership of multinational corporate groups, which ultimately channel their investment through a locally incorporated vehicle. When the instrument of the state’s consent to arbitration explicitly provided for a test of nationality of juridical persons, arbitrators usually deferred to party autonomy. As already mentioned, the most adopted criteria in IIAs is incorporation (or seat), which is formalistically implemented by tribunals without requiring more substantive prongs not demanded by the applicable treaty.57 This appears to be a corollary of the consensual nature of the ISDS mechanism, famously defined as being the “cornerstone” in relation to the ICSID system.58 Instead, absent the parties’ indication, for instance in contract-based arbitration, the majority of tribunals interpreted incorporation or siège social (seat) as being the default test, based on its purported correspondence to the content of customary international law and to the solution most frequently codified in IIAs and domestic legal systems.59 Only in case of a

55

Hirsch (1993), pp. 96 and 102. TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award, 19 December 2008, para. 147; Burimi SRL and Eagle Games SH.A. v. Republic of Albania, ICSID Case No. ARB/11/18, Award, 29 May 2013, para. 121; National Gas S.A.E. v. Arab Republic of Egypt, ICSID Case No. ARB/11/7, Award, 3 April 2014, para. 136; Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Award, 5 June 2012, para. 337; Guardian Fiduciary Trust, Ltd., f/k/a Capital Conservator Savings & Loan, Ltd. v. Macedonia, former Yugoslav Republic of, ICSID Case No. ARB/12/31, Award, 22 September 2015, paras 125–140; Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent’s Application Under Rule 41(5), 20 March 2017, para. 90. To the contrary, see especially Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, paras 244–247 and 264. 57 KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, para. 114; Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, para. 36; ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 356 et seq., notably at para. 359; Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para. 229; The Rompetrol Group N.V. v. Romania, ICSID Case No ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008, para. 83, 93; AES Corporation v. The Argentine Republic, ICSID Case No. ARB/02/ 17, Decision on Jurisdiction, 26 April 2005, para. 77; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, UNCITRAL, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 415; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228, UNCITRAL, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 415. 58 Report of the Executive Directors, para. 23. See also Broches (1972), pp. 340 and 351–352; Delaume (1983), p. 794; Amerasinghe (1974–1975), pp. 229–230. 59 See, in contract-based arbitration, Niko Resources (Bangladesh) Ltd. v. People’s Republic of Bangladesh, Bangladesh Petroleum Exploration & Production Company Limited (“Bapex”) and 56

72

C. de Stefano

finding of abuse of process by investors, which does not pertain to the jurisdiction ratione personae, tribunals have disregarded corporate formality and consequently lifted the claimant’s corporate veil.60 In this respect, the doctrine of the abuse of process (détournement de procedure) operates on the grounds of rather restrictive conditions, namely the decisive legal motive and the retrospectivity of the corporate restructuring. The analysis of the numerous arbitral decisions on the determination of the nationality of corporate investors and the critical discussion on the underlying policy issues would require broad and in-depth treatise.61 For the sake of brevity, the following paragraphs will instead address the specific issue of round tripping, which nonetheless remains the paradigmatic instance of treaty shopping, since it frustrates the principle of diversity of nationality between claimant and respondent for the purposes of eligibility to the international protection. In this respect, the most important precedent is the decision on jurisdiction issued by the majority of the Tokios Tokelės v. Ukraine tribunal, whose interpretation has been subsequently confirmed by a unanimous tribunal in Rompetrol v. Romania.62 In Tokios Tokelės v. Ukraine, the two co-arbitrators retained jurisdiction over the claims presented under the Lithuania-Ukraine BIT (1994) by an enterprise, which did not maintain SBAs in Lithuania and had headquarters in Ukraine with 99% of its shares owned by and two-thirds of its management composed by Ukrainian nationals. The majority relied in the first place on the ordinary meaning of the text of Article 1(2)(a) of the BIT, holding that the Parties consented to formal incorporation as exclusive and sufficient criteria to determine corporate nationality without contemplating additional requirements, which represents a strict constructionist approach to treaty interpretation (ubi lex voluit dixit, ubi noluit tacuit).63 In addition, and upon reliance Bangladesh Oil Gas and Mineral Corporation (“Petrobangla”), ICSID Case No. ARB/10/11 and 10/18, Decision on Jurisdiction, 19 August 2013, para. 197; Autopista Concesionada de Venezuela (Aucoven) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction, 27 September 2001, para. 107, 134; Amco Asia Corporation, Pan American Development Limited and P.T. Amco Indonesia v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 14(ii)-(iii), 1 ICSID Reports 389, 394, 396 (1993); Kaiser Bauxite Company v. The Government of Jamaica, ICSID Case No. ARB/74/3, Decision on Jurisdiction, 6 July 1975, paras 19–20, 1 ICSID Reports 296, 303; Société Ouest Africaine des Bétons Industriels (SOABI) v. Gouvernement du Senegal, ICSID Case No. ARB/82/1, Decision on Jurisdiction, 1 August 1984, para. 29; Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award, 31 March 1986, 2 ICSID Reports 346, 351; Southern Pacific Properties (Middle East) Limited (SPP) v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Decision on Jurisdiction I, 27 November 1985, para. 46, 3 ICSID Reports 120. 60 Ex multis, Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 142. 61 For an extensive analysis of the determination of corporate nationality in international investment law, see de Stefano (2019), pp. 819–855. 62 The Rompetrol Group N.V. v. Romania, ICSID Case No ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008, para. 93. 63 Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras 28–29 and 36.

The Nationality of Natural and Juridical Persons in International Investment Law

73

on Barcelona Traction, the co-arbitrators did not apply the doctrine of piercing the corporate veil (Durchgriff), noting inter alia that this remedy is “exceptional” under municipal law.64 Finally, the tribunal established that the company (“a thing of real existence that was founded on a secure basis”) was created under the laws of Lithuania 6 years before the BIT’s entry into force and, consequently, the abuse of process doctrine could not be applied.65 Since the majority invoked Barcelona Traction, it could have considered that the ICJ also found that the links between the corporation concerned and its home state were “manifold” and not merely nominal.66 Accordingly, it cannot be concluded that Barcelona Traction posited the irrelevance of covered investors’ SBAs in their country of origin. Moreover, the second sentence of Article 9 of the Draft Articles on Diplomatic Protection, which the ILC adopted after the Tokios Tokelės decision on jurisdiction, establishes that a corporation, which is controlled by nationals of another state or states and has no SBAs in the state of incorporation, shall be treated as a national of the state where both the seat of management and the financial control of the corporation are located.67 These conditions, which the claimant itself admitted to be satisfied in Tokios Tokelės v. Ukraine, may assist tribunals in addressing cases of investors’ round tripping. Professor Prosper Weil, the President of the tribunal, rendered a harsh dissenting opinion and resigned from its office. His dissent relied on a teleological interpretation of the BIT and of the ICSID Convention, especially in relation to the object and purpose of Article 25.68 By acknowledging that the dispute was “in actual fact between a Contracting State and a corporation controlled by nationals of that State”, the President contended that the tribunal should not have retained its jurisdiction, since ICSID arbitration is not meant for disputes opposing investors against their own government.69 His argument that ICSID tribunals should first base their determinations on jurisdiction on Article 25 of the ICSID Convention and only at the second stage decide whether they have jurisdiction under the applicable IIA, posits the existence of an objective test for the determination of the “outer limits” of the jurisdiction of the Centre.70 At the same time, this approach may seem to overlook

64

paras 53–56. para. 29. 66 Barcelona Traction cit., para. 71. 67 ILC Commentary on Diplomatic Protection, p. 37. See also the early case of the S.S. “I’m Alone” (Canada v. United States of America), Joint Final Report of the Commissioners, 5 January 1935, 3 RIAA 1609, 1616 (1935), (1935) 29 Am. J. Int’l Law 327. See Fitzmaurice (1936), p. 104; Amadio (1967), p. 114. In the “I’m Alone” case, the arbitrators found that a vessel sunk by a US revenue cutter, although being a British ship of the Canadian registry, was de facto owned, controlled and managed by US nationals and, consequently, decided not to award any compensation for the loss of the ship or the cargo. 68 Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion, 29 April 2004, paras 2–5 and para. 13. 69 Paras 10 and 19. 70 Para. 14. 65

74

C. de Stefano

the consensual nature of ICSID arbitration.71 In addition, the President emphasised the requirement of the foreign origin-of-capital of the investment (“a transborder flux of capital”) within the determination of the real nationality of corporate investors. However, in a context of free movement and volatility of capitals the test of the foreign origin-of-capital may turn out to be impracticable and uncertain and, consequently, undermine efficiency in the arbitration proceedings. Finally, Prosper Weil found its analysis to be warranted by Article 25(2)(b) in fine of the ICSID Convention, which is based on the “rationale of giving effect to the economic reality over and above the legal structure”.72 Therefore, he impliedly relied on the reversibility of the “foreign control” exception (not only to expand, but also to restrict ICSID jurisdiction). However, absent the agreement of the Parties to treat the locally incorporated subsidiary of the claimant as a national of Lithuania, the tribunal could not appropriately resort to the second limb of Article 25(2)(b).73 Prosper Weil’s stance has not been widely followed in the subsequent arbitral case law74 and scholarship.75 The exceptions include the majority decision in TSA v. Argentina and the dissenting opinion of José Luis Alberro-Semerena in AdT v. Bolivia. To this extent, the TSA v. Argentina tribunal stated that the Tokios Tokelės v. Ukraine majority decision “may appear to go against common sense in some circumstances, especially when the formal nationality covers a corporate entity

However, see Report of the Executive Directors, para. 25: “While consent of the parties is an essential prerequisite for the jurisdiction of the Centre, consent alone will not suffice to bring a dispute within its jurisdiction”. 72 Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion, 29 April 2004, para. 23. 73 Para. 8. 74 KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, paras 114 et seq.; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, paras 252–255; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, UNCITRAL, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 432; ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 360; Rompetrol v. Romania cit., para. 110; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, para. 210; Mobil Corporation, Venezuela Holdings, B.V., et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 198; Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, para. 56; Saipem S.p.A. v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, para. 106. See, as to earlier cases, Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Award, 29 April 1999, paras 108–111; Eudoro Armando Olguín v. República del Paraguay, ICSID Case No. ARB/98/5, Award, 26 July 2001, para. 66, footnote 4; Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000, para. 126, 41 ILM 896, 819. 75 See, ex multis, Alexandrov (2005), pp. 37 and 40. 71

The Nationality of Natural and Juridical Persons in International Investment Law

75

controlled directly or indirectly by persons of the same nationality as the host State”.76 More recently, the Venoklim v. Venezuela tribunal declined its jurisdiction over a claim presented by a company incorporated in the Netherlands but owned by a Venezuelan entity, holding that the triumph of formality over the reality of the corporate relations would have resulted in the “betrayal” of the object and purpose of the ICSID Convention.77

4 A Critique of Treaty Shopping While incorporation through holding companies (e.g., regional headquarters) may be justified based on organizational and strategic considerations, the resort to shell companies and round tripping may be criticized as undesirable for the following reasons: (i) it allows legal formalities to prevail over the economic reality underlying the corporate structure of investors; (ii) it alters the aggregate balancing between the protections and obligations embodied in the applicable IIA; (iii) it encourages companies’ opportunistic behaviour, such as free riding or moral hazard (especially where the costs of establishment are minimal); (iv) it undermines the truly foreign character of the investment and allows unreasonable discrepancy with the treatment of domestic investors (in case of round tripping); (v) it permits the fabrication of international treaty-based jurisdiction not consented to (and not reasonably envisaged) by the Parties;78 (vi) it creates disparity with the treatment of natural persons, as expressly acknowledged by the arbitral tribunal in Soufraki v. UAE;79 and (vii) for these reasons, it undermines the legitimacy of ISDS. The reputation and credibility of the system of international investment arbitration is fundamental for its stability and preservation. This suggests that the policy against treaty shopping should be promoted also by those countries, such as the Netherlands, traditionally aiming to attract the incorporation in their territory (including through mailbox companies) as a

76

TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award, 19 December 2008, para. 145. 77 Venoklim Holding B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/22, Award, 3 April 2015, para. 156. See also Société Civile Immobilière de Gaëta v. Republic of Guinea, ICSID Case No. ARB/12/36, Award, 21 December 2015, paras 180–183 (consent to the jurisdiction of the Centre contained in the Guinean Investment Code). To closer examination, both the Venoklim and Gaëta tribunals were influenced by the requirement of effective control established by domestic statutes. 78 Vandevelde (2010), p. 161: “A country that concludes a BIT using the place of incorporation test may have in effect a BIT with the entire world”. 79 Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award, 7 July 2004, para 83: “had Mr. Soufraki contracted with the United Arab Emirates through a corporate vehicle incorporated in Italy, rather than contracting in his personal capacity, no problem of jurisdiction would now arise”. See also Accord, Champion Trading Company, Ameritrade International, Inc., James T. Wahba, John B. Wahba and Timothy T. Wahba v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003, para. 3.4.2.

76

C. de Stefano

platform for foreign businesses to invest elsewhere.80 Interestingly, the new Dutch Model Investment Agreement (2019) now requires that a legal person should have SBAs in the territory of a Party in order to qualify as covered “investor”.81 Protection shopping, which “is not illegal or unethical as such”,82 has been widely tolerated by arbitral tribunals83 and scholars,84 who have traditionally adopted or endorsed formalistic solutions—i.e., exclusively based on the incorporation test—in order to determine the nationality of companies.85 This has been justified upon the more substantial legal certainty provided by the application of the incorporation test and a strict constructionist interpretation of treaty definitions for the purposes of establishing arbitral jurisdiction. However, the ensuing possibility of legal arbitrage may engender even more unpredictability as to the IIAs forming the instrument of consent to arbitration. Furthermore, tribunals seem to be driven by the concept that the primary function of investment protection is to promote inflows of private capital, irrespective of their foreign source (as to round tripping) or origin from a contracting state to the relevant IIA (pecunia non olet), in order to promote the economic development of recipient states. However, the extant empirical studies do not clearly warrant an independent and direct correlation between investment protection and attraction of foreign direct investment (FDI).86 It may also be suggested that treaty shopping functions in a complementary fashion to the MFN treatment.87 In any event, the mechanism of MFN clauses does not operate with regard to the condition ratione personae to the jurisdiction of international investment tribunals.88 Accordingly, the rule of relativity of rights

80

With regard to the Netherlands, the UNCTAD, at the request of the Dutch Ministry of Foreign Affairs, undertook the study Treaty-based ISDS Cases Brought Under Dutch IIAs: an Overview (30 June 2015), http://investmentpolicyhub.unctad.org/Publications/Details/135, which found that “[i]n around three quarters of Dutch cases, the ultimate owners of the claimants are not Dutch. In two-thirds of those cases, the relevant foreign-owned group of companies does not appear to engage in substantial business activities in the Netherlands” (at 1). 81 Article 1(b)(ii) of the Netherlands Model Investment Agreement, text as of 22 March 2019. 82 Dolzer and Schreuer (2012), p. 52. 83 Ex multis, Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, para. 330(d). See also HICEE B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2009-11, Partial Award, 23 May 2011, para. 103. 84 See Schill (2010), pp. 234–235; Valasek and Dumberry (2011), pp. 58–59. 85 McLachlan et al. (2017), p. 159. 86 Ex multis, Pauwelyn (2014), pp. 380 and 405–407. 87 On MFN clauses and treaty shopping, see Schill (2009), pp. 187–188. 88 The conditions of the jurisdiction ratione personae of a treaty-based investment arbitration tribunal cannot be overridden and supplanted through the operation of MFN clauses. See Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Concurring and Dissenting Opinion of Professor Brigitte Stern, 21 June 2011, para. 64; HICEE B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2009-11, Partial Award, 23 May 2011, para. 149; Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Decision on the Objection to Jurisdiction for Lack of Consent, 3 July 2013, para. 29. More recently, the same principle has been re-affirmed in Enrique

The Nationality of Natural and Juridical Persons in International Investment Law

77

and obligations created by international treaties (pacta tertiis nec nocent nec prosunt)89 maintains plenary scope with regard to the requirements of investors’ jurisdictional eligibility to ISDS.90

5 Conclusion The emphasis on the home state of investors may induce renovated attention on the inter-state dimension in international investment arbitration, especially treaty-based, and its inclusion in public international law. As illustrated above, international investment law does not inhabit a realm that is completely apart from the law of diplomatic protection.91 The two systems are primarily rooted on public international law and, although being procedurally incompatible,92 have significant substantive overlaps, since they can cover the same subject matter.93 Accordingly, the importation of rules from the law of diplomatic protection into international investment arbitration is not invariably precluded, though not via automatic or exact application.94 The establishment of the jurisdictional standing of natural persons in international investment law does not require in principle an effective nationality test, as required by the ICJ in Nottebohm. However, tribunals have not refrained from observing, as obiter dictum, that the relevant link of the concerned claimant with the home state was not merely formal. As to dual nationals having the nationality of both the home and the host state, IIAs are usually silent. The treaties containing provisions on dual citizens usually codify the rule of dominant or effective nationality, consistent with customary international law. In addition, a fundamental distinction intervenes in this respect depending on the applicable arbitration rules. In ICSID arbitration, dual nationality comprising both the home and the host state strictly precludes the claim pursuant to Article 25(2)(a) of the Washington Convention. In non-ICSID arbitration, dual nationality claims (unless expressly barred by the treaty) do not encounter as such jurisdictional hurdles. However, also where the applicable IIA is silent, the tribunal should apply customary international law and, accordingly, be satisfied that

and Jorge Heemsen v. Venezuela, UNCITRAL, PCA Case No. 2017-18, Award on Jurisdiction, 29 October 2019, para. 408, and in Itisaluna Iraq LLC et al. v. Republic of Iraq, ICSID Case No. ARB/17/10, Award, 3 April 2020, para. 150. 89 Article 34 of the VCLT. 90 United Nations General Assembly, International Law Commission, Final Report, Study Group on the Most-Favoured-Nation clause, Sixty-seventh session, A/CN.4/L.852, 29 May 2015, para. 105. 91 Douglas (2009), p. 327. 92 Article 27 of the ICSID Convention. 93 See, as to the protection of companies, ILC Commentary on Diplomatic Protection, p. 43: “[d] iplomatic protection in respect of legal persons is mainly about the protection of foreign investment”. See Orrego Vicuña (2000), p. 342. 94 Amerasinghe (1974–1975), p. 256; Sasson (2017), p. 79; García Olmedo (2017), p. 723.

78

C. de Stefano

the nationality invoked by the claimant is dominant. In addition, the recent practice of UNCITRAL tribunals concerning the “new” Venezuelan arbitrations reveals interesting developments as to the contextual interpretation of treaties containing an arbitration clause that selects ICSID as primary forum for ISDS. In Heemsen and Manuel García Armas et al., the arbitrators held that the nationality requirements established by the ICSID Convention are to be imported into the definition of “investor” under the treaty and, therefore, to be applied also by tribunals constituted under the same treaty, but under the aegis of different rules. Such interpretations firmly rely on the objective nature of the jurisdiction of the Centre and, to this extent, may seem reminiscent of the dissent of Prosper Weil in Tokios Tokelės v. Ukraine. The determination of the nationality of corporate investors is basically remitted to the definition of “investor” contained in IIAs, which preponderantly adopt the test of incorporation (or seat) as sufficient and exclusive criteria. Based on its formalistic nature, this test is certainly more efficient to be administered by arbitrators, but also laxer in comparison to other criteria, in that it may fail to capture the economic substance behind the formal organization of legal persons. Arbitral tribunals have usually interpreted treaty definitions of “investor” according to their literal meaning and, accordingly, applied the incorporation test codified by the Parties without requiring more substantive qualifiers, even when confronted with questionable cases of treaty shopping, including by letter-box companies and round tripping. Treaty shopping is not validated by customary international law, at least pursuant to the Barcelona Traction ruling, where the ICJ affirmed inter alia that the links between a corporation and its purported home state should not be merely nominal.95 However, based on the analysis of arbitral decisions, whether to promote or combat treaty shopping ultimately remains in the discretion of states as Parties to IIAs. Concerning the determination of the nationality of investors, states may pursue the following avenues in treaty drafting or in the amendment of the existing IIAs. As to individuals, IIAs should codify, for greater certainty, the test of the dominant and effective nationality of dual citizens of both the home and host state. In addition, and ideally, the removal of the prohibition of claims by dual nationals under the Washington Convention would bring ICSID arbitration—in this respect—in line with customary international law. As to companies, apart from drafting denial of benefits provisions, those states promoting the policy to limit treaty shopping should adopt general definitions of corporate investors requiring, beyond incorporation, SBAs in the territory of the country of origin and/or genuine control or controlling interest by nationals of the home state. In addition, concerning ICSID arbitration, where the Parties to the treaty intend to treat a locally incorporated vehicle as an investor of another Party “because of foreign control” pursuant to the second limb of Article 25(2)(b) of the ICSID Convention, they should provide that such a foreign control be ultimate and effective, based on, for instance, managerial elements. These clauses would bar claims based on the nationality of shell companies situated in the chain of ownership or control of the corporate investor.

95

Barcelona Traction, para. 71.

The Nationality of Natural and Juridical Persons in International Investment Law

79

These are investment treaty provisions available to governments aiming to contain treaty shopping, at least in its most questionable forms. Furtherance of this policy would also foster the legitimacy of ISDS through the advancement of legal security and predictability.

References Alexandrov S (2005) The “baby boom” of treaty-based arbitrations and the jurisdiction of ICSID tribunals: shareholders as “investors” and jurisdiction ratione temporis. Law Pract Int Courts Tribunals 4:19–59 Alschner W (2014) The return of the home state and the rise of “embedded” investor-state arbitration. In: Lalani S, Polanco R (eds) The role of the state in investor-state arbitration. Brill-Nijhoff, pp 293–333 Amadio M (1967) Le contentieux international de l’investissement privé et la convention de la Banque mondial du 18 mars 1965. L.G.D.J, Paris Amerasinghe CF (1974–1975) Jurisdiction ratione personae under the convention on the settlement of investment disputes between states and nationals of other states. Br Year Book Int Law 47:227–267 Basdevant J (1909) Conflits de nationalités dans les arbitrages vénézuéliens de 1903-05. Revue de droit international privé 5:41–64 Borchard EM (1915) The diplomatic protection of citizens abroad or the law of international claims. The Banks Law Publishing Co, New York Broches A (1972) The convention on the settlement of investment disputes between states and nationals of other states. Recueil des Cours 136:331–410 Brower C, Brueschke J (eds) (1998) The Iran-United States claims tribunal. Martinus Nijhoff Publishers, The Hague Caflisch L (1969) La protection des sociétés commerciales et des intérêts indirects en droit international public. Nijhoff, The Hague Chaisse J (2015) The treaty shopping practice: corporate structuring and restructuring to gain access to investment treaties and arbitration. Hast Bus Law J 11:225–305 Crawford J (2006) The ILC’s articles on diplomatic protection. South Afr Yearb Int Law 31:19–51 de Stefano C (2016) Denial of benefits clauses in international investment agreements: burden of proof and notice to claimant. Diritto del commercio internazionale 30(1):143–159 de Stefano C (2019) Corporate nationality in international investment law: substance over formality. Rivista di diritto internazionale privato e processuale 55(4):819–855. de Stefano C (2020) Giustizia è fatta! L’annullamento del lodo Serafín García Armas c. Venezuela. Diritto del Commercio Internazionale 34(3):885–893. de Visscher P (1961) La protection diplomatique des personnes morales. Recueil des Cours 102:395–513 Delaume G (1983) ICSID arbitration and the courts. Am J Int Law 77:784–803 Dolzer R, Schreuer C (2012) Principles of international investment law. Oxford University Press, Oxford Douglas Z (2009) The international law of investment claims. Cambridge University Press, Cambridge Fitzmaurice GG (1936) The case of the I’m Alone. Br Year Book Int Law 17:82–111 García Olmedo J (2017) Claims by dual nationals under investment treaties: are investors entitled to sue their own states? J Int Disp Settlement 8:695–727 Hirsch M (1993) The arbitration mechanism of the international centre for the settlement of investment disputes. Martinus Nijhoff Publishers, Dordrecht Leigh GIF (1971) Nationality and diplomatic protection. Int Comp Law Q 20:453–475

80

C. de Stefano

Mahoney PE (1984) The standing of dual nationals before the Iran-United States claims tribunal. Virginia J Int Law 24:695–728 McLachlan C, Shore L, Weiniger M (2017) International investment arbitration: substantive principles, 2nd edn. Oxford University Press, Oxford Michalopoulos S, Hicks E (2019) Dual nationality revisited: a modern approach to dual nationals in non-ICSID arbitrations. Arbitr Int 35(2):121–148 Orrego Vicuña F (2000) Changing approaches to the nationality of claims in the context of diplomatic protection and international dispute settlement. ICSID Rev Foreign Invest Law J 15(2):340–361 Paulsson J (1995) Arbitration without privity. ICSID Rev Foreign Invest Law J 10(2):232–257 Pauwelyn J (2014) At the edge of chaos? Foreign investment law as a complex adaptive system, how it emerged and how it can be reformed. ICSID Rev Foreign Invest Law J 29(2):372–418 Pellet A (2008) The second death of Euripide Mavrommatis? Notes on the international law commissions draft articles on diplomatic protection. Law Pract Int Courts Tribunals 7(1):33–58 Rode Z (1959) Dual nationals and the doctrine of dominant nationality. Am J Int Law 53:139–144 Sacerdoti G (1989) Barcelona traction revisited: foreign-owned and controlled companies in international law. In: Dinstein Y (ed) International law at a time of perplexity. Essays in honour of Shabtai Rosenne. Nijhoff, Dordrecht Sacerdoti G (1997) Bilateral treaties and multilateral instruments on investment protection. Recueil des Cours 269:251–460 Sasson M (2017) Substantive law in investment treaty arbitration: the unsettled relationship between international law and municipal law, 2nd edn. Kluwer Law International, Alphen aan den Rijn Schill S (2009) The multilateralization of international investment law. Cambridge University Press, Cambridge Schill S (2010) International investment law and comparative public law. Oxford University Press, Oxford Schlemmer A (2008) Investment, investor, nationality, and shareholders. In: Muchlinsky P, Ortino F, Schreuer C (eds) International investment law. Oxford University Press, Oxford, pp 49–88 Schreuer C et al (2009) The ICSID convention: a commentary, 2nd edn. Cambridge University Press, Cambridge Seidl-Hohenveldern I (1987) Corporations in and under international law. Grotius Publications Limited, Cambridge Valasek MJ, Dumberry P (2011) Developments in the legal standing of shareholders and holding corporations in investor-state disputes. ICSID Rev Foreign Invest Law J 26(1):34–75 van Panhuys HF (1959) The role of nationality in international law: an outline. A.W. Sijthoff, Leiden Vandevelde K (2010) Bilateral investment treaties. In: History, policy, and interpretation. Oxford University Press, Oxford

Carlo de Stefano is Lecturer and Post-Doc Researcher in international law at the Department of Law of Roma Tre University and Associate in the Milan office of BonelliErede law firm. He is also Lecturer and Research Tutor for the Master of Laws in International Trade Law of the International Training Centre (ITC) of the International Labour Organization (ILO) in Turin. His book “Attribution in International Law and Arbitration” has been published by Oxford University Press in 2020.

Risk Assessment and Third-Party Funding in Investment Arbitration María Beatriz Burghetto

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 2 Main Characteristics of TPF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 2.1 Third-Party Funding Is Increasingly Being Used in International Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 2.2 Typical Process in a TPF Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 3 Types of Risks Evaluated by TP Funders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 3.1 Case-Related Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 3.2 Context-Related Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 4 Risk Assessment Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Abstract Third-party funding is a risky investment and, therefore, third-party funders strive to be very careful and thorough when assessing the risks of each claim that needs funding and the impact those risks may have on the cost, duration and quantum of the claim. In this chapter, we explore the main case-related and context-related risks that may be present in investment arbitration, which has certain specificities. We look at this from the practitioner’s standpoint, with the view to making practitioners aware of third-party funders’ motivation and priorities. This may be useful to counsel when they present their clients’ application for funding to third-party funders and also, generally, to gain a better understanding of third-party funders’ stance, so that they are better equipped to interact with them and represent their clients’ interest.

The comments in this chapter, other than those attributed to a specific source, reflect the author’s personal opinions and not those of any (law) firm or organisation. M. B. Burghetto (*) Carpentum Capital, Cham, Switzerland e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_6

81

82

M. B. Burghetto

1 Introduction Investors planning to go to arbitration or even states1 facing the possibility of being on the defendant side in investment arbitration may need financing or may prefer not to finance the arbitration costs with their own resources. Indeed, in practice, law practitioners increasingly have to deal with applications to third-party funders (TP Funder(s)) to obtain financing for their clients. A significant part of that task involves preparing a written presentation of the legal and monetary aspects of the case for the TP Funder. In doing so, lawyers, who are logically more used to assessing cases from the legal perspective, would be well advised to attempt to look at cases from the perspective of TP Funders, which may differ significantly from that of lawyers. This would not only help lawyers to increase their chances to effectively obtain financing, but it would also facilitate their understanding of TP Funders’ interests and viewpoints, which in turn would better prepare lawyers to defend their clients’ interests. A key aspect of TP Funders’ work is to assess the risks that investment in a given case presents. Consequently, lawyers tasked with helping their clients to obtain financing from TP Funders need to put themselves “in the shoes” of TP Funders and look at the cases from the latter’s perspective, thus bearing in mind other aspects of the case on which lawyers are probably less used to focusing. This chapter describes—from the viewpoint of a law practitioner and based on personal experience—a typical process of a third-party funding (TPF) operation, the risks inherent to investment arbitration cases and how TP Funders assess such risks and the aspects on which they concentrate when deciding whether to invest in a given claim. This chapter includes neither an analysis of the policy and other issues raised by TPF in investment arbitration nor an analysis of its impact on defendant states or on investment arbitration in general. Its aim is only to look at some practical aspects of TPF in investment arbitration.2 The observations made below apply to investment arbitration cases in general, although some observations are made specifically with regard to defendant states of developing countries, which constitute the majority of defendants, even though the past decade has seen an increasing number of cases against developed countries.3

1 The International Council for Commercial Arbitration (ICCA)’s Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018) (“the ICCA-Queen Mary Report”), refers to a “nascent market for funding states,” p. 223 (available at: https://www. arbitration-icca.org/publications/Third-Party-Funding-Report.html). 2 For a more comprehensive and theoretical approach to the subject, please refer to the books listed in the References section, at the end of this chapter. 3 See, for example, the exponential increase of investment arbitration cases against Spain, many of them arising out of the measures taken by that country in connection with renewable energies. At the time of writing, Spain had 31 pending ICISID arbitration cases against it: see https://icsid. worldbank.org/en/Pages/cases/AdvancedSearch.aspx.

Risk Assessment and Third-Party Funding in Investment Arbitration

83

2 Main Characteristics of TPF TPF or litigation funding may be defined as a financing arrangement whereby a third-party entity with no legal status in a dispute funds some or all of a party’s legal costs. In most cases, the claimant is the funded party (active funding), although defendants are not a priori excluded from financing (passive funding).4 In return for the funding, the TP Funder will receive a set portion of the amount recovered—usually between 20% and 30%, and up to 40%—or a multiple on the funder’s investment, whichever is higher,5 or a combination of both. In our experience, for example, a multiple of three times the TP Funder’s investment, plus a percentage that increments the longer the arbitration lasts and decreases the higher the amount recovered. In the case of passive (or defence) funding, i.e., funding a defence claim, the TP Funder will be remunerated with a share of the recovery for a valuable counterclaim.6 In the absence of a counterclaim, the funded defendant will have to pay the TPF’s profit share in case of a “win” or, more precisely, an avoidance of loss. Thus, the TP Funder’s profit could be based on a mutually agreed definition of the funded defendant’s “success,” which would lie somewhere between the two extremes, i.e., a settlement or award granting no compensation to the claimant and one granting the entirety of the claimant’s claim.7 The higher the avoidance of loss by the funded defendant, the higher the TP Funder’s share would be, even though, just like in claimant funding, a good alignment of interests should ideally exist between the TP Funder and the funded party.8 Alternatively, the costs of defending litigation can be subsidised by a portfolio of cases belonging to the same client or run by the same law firm. Indeed, “portfolio funding” or simultaneous funding of several claims is being more actively promoted lately by TP Funders: As per the 2018 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (“the ICCA-Queen Mary Report”):

4 Samra (2016), p. 2299; see also von Goeler (2015), p. 2, who uses “third-party funding” “as an umbrella term for all options available to a party involved in legal disputes to obtain financing by non-parties to this dispute (‘third-party funders’), pursuant to an agreement between funder and funded party (‘third-party funding agreement’) or otherwise.” We refer here to “professional thirdparty funding,” it being defined as “the comprehensive financial assistance provided to a claimant [or defendant] in an international arbitration by a company actively engaged in providing this kind of financial services on a professional basis, i.e. as its ordinary business.” (Mazzoni 2019, p. 300); see also, Mechantaf (2019), p. 28 (paragraph 38). 5 See Marguerat, J. and Navarro Blakemore, T. (2019), “It’s all about the money: Practical tips in securing third-party funding,” Froriep’s website: https://blog.froriep.com/en/its-all-about-themoney-third-party-funding-arbitration. According to the ICCA-Queen Mary Report, the TP Funder’s portion may go up to 40% (see the ICCA-Queen Mary Report, p. 26—available at: https://www.arbitration-icca.org/publications/Third-Party-Funding-Report.html). 6 See Hooven (2019), p. 2. 7 See Chopin (2019), question 2. 8 See, for further detail, Chopin (2019), question 2.

84

M. B. Burghetto [a] portfolio arrangement can be structured in many ways, but there are two major types of arrangements: (1) finance structured around a law firm, or department within a law firm, where the claim holders may be various clients of the firm; or (2) finance structured around a corporate claim holder or other entity, which is likely to be involved in multiple legal disputes over a relatively short period of time.9

These multi-case portfolios may consist of both plaintiff-side and defence-side claims, which the TP Funder will fund in exchange for a share in the overall recovery that may be higher than the share the TP Funder would get if it funded only plaintiffside claims, due to the higher risk undertaken by the TP Funder.10 TPF is non-recourse funding—i.e., not a loan which the funded party must refund—and, therefore, a high-risk investment. Accordingly, a TP Funder will seek to reduce the investment risk, accepting low or medium risk, and to maximise the return (high reward). TPF is thus comparable to asset management, i.e., the management of investments on behalf of others. Asset managers essentially have a dual mandate which involves the appreciation of a client’s assets over time while mitigating the risk. TPF has undeniable advantages, in that it allows parties who do not have the resources or who do not wish to use their own resources, to pursue (or defend) claims and eventually obtain justice. It is at the same time subject to certain concerns, not discussed here, i.e., issues concerning confidentiality, legal privilege, disclosure, conflicts of interests, cost issues and attorney-client relationship. Beyond its apparent advantages and disadvantages, the reality is that TPF plays an important role in many arbitrations today and is widely accepted both in commercial and investment arbitration.

9 See Chapter 3 of the ICCA-Queen Mary Report (2018), p. 38 (available at: https://www.arbitra tion-icca.org/publications/Third-Party-Funding-Report.html). 10 See Hooven (2019), p. 2.

Risk Assessment and Third-Party Funding in Investment Arbitration

2.1

85

Third-Party Funding Is Increasingly Being Used in International Investment Arbitration

A 2018 online survey by the TP Funder Burford Capital11 confirmed that TPF is perceived as being increasingly used and thought to increase in the future.12 Indeed, 70% of online survey respondents said that their organisation had used TPF, which represented a 637% increase since 2012.13 That research shows that clients and law firms are using TPF to solve key business challenges, such as hedging legal risk.14 And the upward trend is present in both commercial and investment arbitration.15 In investment arbitration, TP Funders may fund the claimant, a portfolio of cases (for claimant or for respondent, or alternatively, cases run by the same law firm) or the defendant state,16 as briefly discussed below. Some concerns have been raised by scholars about the impact that TPF in investment arbitration may have “on investors’ incentives, on respondent states’ exposure, liability and responses to investor-state dispute settlement (ISDS) claims, and on the investment law system itself.17” Two alternative policies have been proposed: either to ban it, as is the case of the 2018 Argentina-United Arab Emirates Agreement for the reciprocal promotion and

11

Burford Capital’s 2018 Litigation Finance Survey, available at: https://www.burfordcapital.com/ insights/insights-container/2018-litigation-finance-survey/. This research, conducted by Burford Capital every year since 2012, studies “the degree to which lawyers in in-house legal departments and at law firms know about, understand and use litigation finance.” It comprises one-on-one interviews “with leading in-house and law firm lawyers” (in this case, 38 lawyers from 10 different countries, the ample majority of them being in-house counsel) and “an online survey with a total of 495 lawyers, among them 318 lawyers at law firms and 177 in-house lawyers” of the US, the UK and Australia. Among other questions, the survey asks the participants what types of matters are being financed, distinguishing between different types of litigation, which includes international arbitration as a category (without discriminating between commercial and investment arbitration). 12 84% of respondents who have used third-party litigation and 77% of respondents who have not yet used it, but would consider to do so, agree that litigation finance is a growing and increasingly important area in the business of law (see page 25 of Burford Capital’s 2018 Litigation Finance Survey, available at: https://www.burfordcapital.com/insights/insights-container/2018-litigationfinance-survey/). 13 The online survey was conducted among in-house and law firm lawyers, who numbered 495 respondents in the US, UK and Australia (see page 18 of Burford Capital’s 2018 Litigation Finance Survey, available at: https://www.burfordcapital.com/insights/insights-container/2018-liti gation-finance-survey/). 14 See page 33 of Burford Capital’s 2018 Litigation Finance Survey, available at: https://www. burfordcapital.com/insights/insights-container/2018-litigation-finance-survey/. 15 Guven and Johnson (2019), p. 1. 16 Guven and Johnson (2019), section 2.2, pp. 5–11. 17 Guven and Johnson (2019), p. 43: “These [concerns] include third-party funding’s potential to generate inordinate costs for developing states, its ability to impact outcomes in particular cases and to shift the boundaries of the law in more funder-and/or claimant-friendly ways, its impact on incentives to sue and related retention of FDI, and its propensity to exacerbate situations of regulatory chill and overdeterrence.”

86

M. B. Burghetto

protection of investments,18 or to regulate it.19 The latter is the approach adopted, piecemeal, by some other investment treaties, by regulating only certain aspects of TPF in connection with the arbitral procedure, such as the funded party’s obligation to disclose the existence and address of the TP Funder,20 or the tribunal’s obligation to take into account the presence of a TP Funder when deciding whether to grant security for costs.21 Currently, the UNCITRAL Working Group III is analysing TPF in investment arbitration, as part of its deliberation on possible reform of the ISDS system.22 In addition, the ongoing ICSID Rules and Regulation Amendment Process is also considering TPF, from two standpoints: (i) avoidance of conflicts of interest between arbitrators and TP Funders, also requiring disclosure of the existence of TPF and the

Signed on 16 April 2018, not yet in force: see Article 24 of the treaty: “Third party funding is not permitted”; available at https://investmentpolicy.unctad.org/international-investment-agreements/ treaty-files/5761/download. 19 Guven and Johnson (2019), pp. 38–43. 20 See, for example, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) (provisionally in force since 21 September 2017), Article 8.26; the European Union-Viet Nam Investment Protection Agreement (signed on 30 June 2019), Article 3.37, among other treaties cited in the UNCITRAL’s Secretariat Note, “Possible reform of investor-State dispute settlement (ISDS) - Third-party funding – Possible solutions,” Thirty-eighth session, Vienna, 14–18 October 2019, p. 4 (footnote 7), available at: https://undocs.org/en/A/CN.9/WG.III/WP.172. 21 See European Union-Viet Nam Investment Protection Agreement (signed on 30 June 2019), Article 3.37: “When applying Article 3.48 (Security for Costs), the Tribunal shall take into account whether there is third-party funding. When deciding on the cost of proceedings pursuant to paragraph 4 of Article 3.53 (Provisional Award), the Tribunal shall take into account whether the requirements provided for in paragraphs 1 and 2 of this Article have been respected.” (UNCITRAL’s Secretariat Note, “Possible reform of investor-State dispute settlement (ISDS) Third-party funding – Possible solutions,” Thirty-eighth session, Vienna, 14–18 October 2019, p. 4 (footnote 8), available at: https://undocs.org/en/A/CN.9/WG.III/WP.172. 22 See UNCITRAL’s Secretariat Note, “Possible reform of investor-State dispute settlement (ISDS) - Third-party funding – Possible solutions,” Thirty-eighth session, Vienna, 14–18 October 2019— available at: https://undocs.org/en/A/CN.9/WG.III/WP.172. According to the latest publicy available information, the UNCITRAL Secretariat continues ist research on the topic of TPF and intends to prepare a draft text on its possible regulation (see “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session,” p. 20—Vienna, 20–24 January 2020, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_1004add1_for_submission_rev_002.pdf. 18

Risk Assessment and Third-Party Funding in Investment Arbitration

87

name of the TP Funder23 and (ii) decisions on security for costs, by categorising the involvement of a TP Funder.24 The 2018 ICCA-Queen Mary Report discusses policy and doctrinal issues that arise in connection with TPF in investment arbitration.25 It points out that parties should be aware that TPF is not permitted in all jurisdictions, such as in Ireland, due to the prohibition of champerty and maintenance,26 defined, respectively, as “a proceeding by which a person not a party in a suit bargains to aid in or carry on its prosecution or defence in consideration of a share of the matter in suit27” and “a proceeding by which a person not a party in a suit bargains to aid in or carry on its prosecution or defence in consideration of a share of the matter in suit.28” However, other common law jurisdictions that used to prohibit champerty, such as England & Wales, Hong Kong and Singapore, have liberalised their legislation in order to expressly permit TPF in international arbitration.29 Candidates for funding should therefore seek professional advice in this regard, before contacting a TP Funder. In general, lawyers have an important role in accompanying their clients in the process of obtaining funding from TP Funders, as described in Sect. 2.2 below.

The following is the most recent iteration of this rule: “Rule 14 Notice of Third-Party Funding (1) A party shall file a written notice disclosing the name of any non-party from which the party, its affiliate or its representative has received funds or equivalent support for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the dispute (“third-party funding”) // (2) A non-party referred to in paragraph (1) does not include a representative of a party. // (3) A party shall file the notice referred to in paragraph (1) with the Secretary-General upon registration of the Request for arbitration, or immediately upon concluding a third-party funding arrangement after registration. The party shall immediately notify the Secretary-General of any changes to the information in the notice.// (4) The Secretary-General shall transmit the notice of third-party funding and any changes to such notice to the parties and to any arbitrator proposed for appointment or appointed in a proceeding for purposes of completing the arbitrator declaration required by Rule 19(3)(b).” (Working Paper #3, Volume 1, August 2019, Proposals for amendment of the ICSID Rules, p. 37; available at: https://icsid.worldbank.org/en/ Documents/WP_3_VOLUME_1_ENGLISH.pdf. 24 Rule 52 Security for Costs: “(4) The Tribunal may consider third-party funding as evidence relating to a circumstance in paragraph (3) [a non-exhaustive list of all relevant circumstances to be considered by the Tribunal in determining whether to order a party to provide security for costs], but the existence of third-party funding by itself is not sufficient to justify an order for security for costs.” (Working Paper #3, Volume 1, August 2019, Proposals for amendment of the ICSID Rules, p. 58; available at: https://icsid.worldbank.org/en/Documents/WP_3_VOLUME_1_ENGLISH.pdf. 25 See Chapter 8 of the ICCA-Queen Mary Report (2018) (available at: https://www.arbitration-icca. org/publications/Third-Party-Funding-Report.html). 26 See the ICCA-Queen Mary Report (2018), pp. 186–187 (available at: https://www.arbitrationicca.org/publications/Third-Party-Funding-Report.html). 27 See Merriam-Webster dictionary, available at: https://www.merriam-webster.com/dictionary/ champerty. 28 See Merriam-Webster dictionary, available at: https://www.merriam-webster.com/dictionary/ maintenance. 29 See the ICCA-Queen Mary Report (2018), pp. 186–187 (available at: https://www.arbitrationicca.org/publications/Third-Party-Funding-Report.html). 23

88

2.2

M. B. Burghetto

Typical Process in a TPF Operation

A “typical” TPF process would unfold as follows: (i) A party (claimant or defendant) to a potential or an ongoing arbitration applies for funding to a TP Funder, ordinarily through its lawyers. Typically, the party’s lawyers approach several TP Funders they are acquainted with or the best-known ones in the market. They describe the case briefly to them and, if a particular TP Funder is interested, then the party (normally, through its lawyers) enters into a non-disclosure agreement (NDA) with the particular TP Funder. The NDA protects the confidentiality of all information, documents, etc., that the party transmits to the TP Funder in the framework of the party’s application for funding. (ii) Once the NDA is in place, the party (through its lawyers) sends the TP Funder (s) a more detailed application for funding, which generally includes a memorandum describing the profile of the parties, the facts of the case, its legal aspects (jurisdiction, merits, etc.), the profile of the legal team and experts, if they have been appointed, the estimated duration of the case and its budget (estimated costs). This memorandum will also attach any relevant legal opinion or expert report, if any has been prepared, in support of the party’s arguments on the case. (iii) The TP Funder will review the elements of the application, possibly ask for further information or clarification from the applicant or its lawyers and, if convinced, will put forward the “indicative terms” (ITs) it deems suitable for the applicant’s consideration. These ITs will include the amount to be financed by the TP Funder, the timing of each instalment in which the funds will be made available to the funded party and the TP Funder’s recompense, usually in the form of a multiple of the funds made available to the funded party, which can go from 2 to 4, roughly, plus (or alternatively to) a percentage of the compensation eventually awarded to the funded party, which can go up to 40%.30 The terms of TP Funders’ remuneration can vary greatly from one TP Funder to another and, needless to say, TP Funders are free to suggest any terms to the applicant, given that no aspect of TPF, let alone TP Funder’s fees, is currently regulated in the main jurisdictions where TPF has thrived so far. The applicant for funding may have some margin to negotiate the ITs with the TP Funder, especially if the applicant’s case is a rather solid one, because there may be other TP Funders that may be willing to offer more competitive terms.31 However, such margin may not be very significant, depending not

30

See the ICCA-Queen Mary Report (2018), pp. 25–26 (available at: https://www.arbitration-icca. org/publications/Third-Party-Funding-Report.html). 31 Typically, applicants send their requests for funding to several TP Funders at the same time, as noted in point (i) above.

Risk Assessment and Third-Party Funding in Investment Arbitration

89

only on the solidity of the applicant’s case, but also on whether it is under more or less strong pressure to get the funding, because of time or other constraints. (iv) Once the TP Funder and the applicant have agreed on the ITs, the TP Funder launches a due-diligence or “case assessment” process on the applicant’s case, which includes getting further information from the applicant, in order to assess the merits, quantum and risk exposure of the particular case.32 The process also frequently includes soliciting the expert opinion of an experienced lawyer with knowledge of the field and experience, in this case, in investment arbitration, and/or possibly that of other expert(s), depending on the characteristics of the case, such as quantum experts and/or a technical experts, in cases where the technical component is significant; for example, those dealing with engineering issues. The TP Funder normally bears the cost of this due-diligence process. It is at this point that the TP Funder assesses the risks discussed in this chapter, the three main factors being: (a) whether the applicant’s case has legal merits (is the applicant likely to win or reach a settlement?); (b) whether the case is financially sound (is the budget sound and is the TP Funder’s share soundly calculated, in case of a win?) and (c) whether the applicant would be able to convert the award into cash or other value (collectability).33 (v) If the result of the due-diligence process is positive, the TP Funder subsequently presents the funding agreement (FA) for the applicant—and its counsel—to review and sign, if it agrees with the terms. The FA sets forth the terms of the relationship between the TP Funder and the funded party. It normally reprises the basic economic terms already included in the ITs and develops them in more detail. Thus, the FA should stipulate the scope and extent of the funding, including whether it comprises (a) adverse costs resulting from a settlement or a court order; (b) any costs related to adverse cost insurance (known as “after the event” insurance); (c) security for costs and any other financial liability.34 Equally, the FA should stipulate how the proceeds from the award will be divided between the parties, which generally would be in accordance with the risks and costs assumed by each of them, with the funded party keeping the majority of the expected amount.35 Other important aspects

32

For a detailed description of the case assessment process, see von Goeler (2015), pp. 14–18, who describes the process as a “multi-disciplinary and rigorous process (. . .) a close cooperation between internal and external experts in dispute resolution, finance, risk assessment, quantum of damages, valuation of assets, and other areas as required by the individual case,” aimed at a rational and competent evaluation of the merits and quantum of the applicant’s case as well as of the associated risk exposures. 33 See Chopin (2019), para. 7. 34 See Article 10 of the Code of Conduct of the Association of Litigation Funders of England and Wales (January 2018), available at: http://associationoflitigationfunders.com/wp-content/uploads/ 2018/03/Code-Of-Conduct-for-Litigation-Funders-at-Jan-2018-FINAL.pdf. 35 See the ICCA-Queen Mary Report, pp. 191–192 (available at: https://www.arbitration-icca.org/ publications/Third-Party-Funding-Report.html).

90

M. B. Burghetto

of the FA are the scope of involvement by the TP Funder in shaping the procedural strategy of the funded party and crucial decisions such as those related to settlement agreements and also delineating the circumstances under which the parties, especially the TP Funder, may terminate the FA.36 In this latter regard, the Code of Conduct of the Association of Litigation Funders of England and Wales proscribes contractual terms establishing “a discretionary right” for the TP Funder to terminate the funding agreement unless the TP Funder either (a) “reasonably ceases to be satisfied about the merits of the dispute;” (b) “reasonably believes that the dispute is no longer commercially viable;” or (c) “reasonably believes that there has been a material breach of the [funding agreement] by the [f]unded [p]arty.37” Should a dispute arise between the parties to the FA, the latter may provide for (i) an expert determination on issues such as termination, or, for issues not covered by this means of dispute resolution, for (ii) arbitration or litigation, possibly via a multi-tiered clause that requires the parties to engage in negotiations or mediation prior to commencing arbitration or litigation.38 (vi) The TP Funder then “monitors” the development of the arbitral proceedings, i.e., follows the progress of the case, with various degrees of involvement, depending on the TP Funder and the terms of the FA,39 and mainly concentrating on the financial aspect of the case. Nonetheless, TP Funders would typically want to ensure that the funded party’s counsel are “diligently moving the case forward in an appropriate manner, the proper legal strategy is employed, the right experts are hired, and case expenses are minimised.40” Indeed, it is in the TP Funder’s interest to “remain involved by performing periodic reviews of the litigation strategy.41” In so doing, however, the TP

36

See Article 11 of the Code of Conduct of the Association of Litigation Funders of England and Wales (January 2018), available at: http://associationoflitigationfunders.com/wp-content/uploads/ 2018/03/Code-Of-Conduct-for-Litigation-Funders-at-Jan-2018-FINAL.pdf. 37 See Article 11.2 of the Code of Conduct of the Association of Litigation Funders of England and Wales (January 2018), available at: http://associationoflitigationfunders.com/wp-content/uploads/ 2018/03/Code-Of-Conduct-for-Litigation-Funders-at-Jan-2018-FINAL.pdf; see also the checklist of “questions and issues that funders and funded parties should consider before entering into a funding agreement” in the ICCA-Queen Mary Report, pp. 196–197 (available at: https://www. arbitration-icca.org/publications/Third-Party-Funding-Report.html). 38 von Goeler (2015), p. 37. This author points out that arbitration clauses seem to be preferred by TP Funders, mainly because it is (or can be) confidential. 39 For a discussion of scholarly opinions on the degree of control by the TP Funder that is desirable and the practice in this regard, see the ICCA-Queen Mary Report, pp. 193–195 (available at: https:// www.arbitration-icca.org/publications/Third-Party-Funding-Report.html). 40 Citation included in von Goeler (2015), p. 39, of the 2013 Annual Report & Accounts of Juridica Investment Limited, p. 9. 41 See Wheal et al. (2016), p. 3. This is a comment on the English Court of Appeal’s 2016 decision in Excalibur Ventures v Texas Keystone and others, [2016] EWCA Civ 1144, where the court ordered the TP Funders to bear part of the costs of the losing claimant, who was considered to have pursued a frivolous claim and to have misconducted itself, not because of any consideration of the

Risk Assessment and Third-Party Funding in Investment Arbitration

91

Funder must be wary of exerting a relatively high degree of influence on the funded party’s counsel that leads the latter “to cede control or conduct of the dispute to the Funder.42” In other words, TP Funders must attain a rightful balance when performing their monitoring tasks that allows them to protect their own interests and those of the funded party, respecting, at the same time, the latter’s autonomy. (vii) If the outcome of the proceedings is favourable for the funded party, based on a final award or a settlement agreement, the TP Funder gets its return on its investment, either from the losing party or from the funded party itself, if it is the defendant and it has filed no counterclaim. Enforcement litigation might be necessary if the losing party refuses to comply with the award and the question whether the TP Funder’s funding includes the cost of such litigation should also be included in the FA. The sequence described above may, in our opinion, loosely apply to TPF in litigation or arbitration, including investment arbitration, with little variation. The assessment of risks by the TP Funder may vary, however, in investment arbitration cases, given their specific characteristics. We explore this in Sect. 3 below.

3 Types of Risks Evaluated by TP Funders In Sect. 2.2 above, we mentioned that TP Funders typically assess three main aspects of the case, i.e., legal merits; financial soundness and collectability. When we look at the question in a more comprehensive manner that takes into account the specificities of investment arbitration, we can divide up risks in two large categories, i.e., those directly related to the case (“case-related risks”) and those more connected with the context surrounding the case or even with the TP Funder itself (“context-related risks”), such as the composition of the portfolio of cases the TP Funder is contemporaneously funding. Before we start analysing the risks to be assessed by TP Funders in investment arbitration, there are two observations to be made: Although rarer than claim funding, passive (or defence) funding is possible also in investment arbitration and, in practice, states have had recourse to TPF in the

TP Funders’ own behaviour, but rather because, since the latter seek to derive financial benefit from claims, just as much as funded claimants, the “derivative nature of a commercial funder’s involvement should ordinarily lead to his being required to contribute to the costs” on the same basis as the funded claimant (p. 1). 42 See Rule 9.3, Code of conduct for litigation funders, Association of Litigation Funders (ALS), January 2018; available at: http://associationoflitigationfunders.com/wp-content/uploads/2018/03/ Code-Of-Conduct-for-Litigation-Funders-at-Jan-2018-FINAL.pdf.

92

M. B. Burghetto

past—for example, Uruguay, in the arbitration brought against it by Philip Morris.43 Although the analysis below has been done with the claimant, i.e., the investor, in mind, as applicant for funding, many of the comments we make below also apply to those cases where the applicant for funding is a state. As a general approach, different from lawyers’ approach, TP Funders, whose staff frequently gathers lawyers, investment managers and other professionals in a multidisciplinary team, will assess risks from the standpoint of their double mandate as asset manager, thus carefully choosing cases to invest upon in order to maximise profit for their investors in the shortest possible time.

3.1

Case-Related Risks

As pointed out above, this category typically covers legal and financial risks, but it equally includes people-related risks, the human factor weighing practically as much as the other ones. Accordingly, we can distinguish (i) law-related risks, which comprise the factors on which TP Funders will base their forecast on the likelihood of success of the funded investor’s case; (ii) commercial and financial risks, i.e., those connected not only to the amount of funding needed, but also to the payment track-record of the party who would ultimately pay the TP Funder’s return; and (iii) people-related risks, such as the funded investor’s motives in pursuing a claim, the makeup of the legal team on both sides, among others.

3.1.1

Law-Related Risks

These risks, just like the other types of risks, are examined by TP Funders in light of the question how they may impact the length of the arbitration and, consequently, the possibility to secure the highest possible profit share as swiftly as possible. Therefore, TP Funders’ approach is not exactly the same as that of a lawyer who reviews a case brought by a client, but it does not differ greatly from it, either. Indeed, TP Funders must look in depth at the various legal aspects of the case, but their role as a kind of “asset manager” adds a layer to the analysis. Any good lawyer will factor in the duration and cost-benefit issues in their review of a case, but the TP Funder owes it to its investors to prioritise those aspects, not only with regard to the case at hand but also in connection with the other cases the TP Funder is funding at the same time. Focusing on investment arbitration cases, TP Funders will look at the following issues, among others, although not necessarily in this order:

43

Philip Morris Brans Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7, cited in Lamm and Hellbeck (2013), p. 103. However, some scholars regard this type of funding as “more theoretical than practiced” and not scalable (see Guven and Johnson 2019, p. 9).

Risk Assessment and Third-Party Funding in Investment Arbitration

93

(i) Jurisdiction and constitution of the arbitral tribunal: Jurisdictional objections are very frequent in investment arbitration and proceedings are usually bi-furcated, in order to deal first with these issues and consecutively with the merits. Another feature that is increasingly frequent is challenges against members of the tribunal. A TP Funder needs to anticipate how these frequent features may impact the duration of the arbitration. (ii) Security for costs: Although much rarer than in commercial arbitration, there are investment arbitration cases where the defendant’s application for security for costs was granted by the arbitrators,44 although exceptional circumstances were present in those cases45 and the existence of TPF was generally irrelevant to either the request for security for costs or to the final allocation of costs at the end of the case.46 However, some authors mention the rise of TPF as a possible trigger of the greater role played by security for costs in recent years.47 The TP Funder must assess certain factors that may influence the arbitrators’ decision when faced with an application for security for costs, such as those enumerated in Rule 51 of the Proposals for Amendment of the ICSID Rules (Consolidated Rules),48 i.e., whether the funded party would be willing and able to comply with an adverse decision on costs and the effect that providing security for costs might have on the funded party’s ability to pursue its claim (or counterclaim). (iii) “Preliminary” issues, such as, whether the claim is time-barred; whether the cooling-off period imposed by many bilateral investment protection treaties or applicable laws has been respected or is ongoing; whether the investor’s claim is a contract or a treaty-based claim (or both) and also, whether the investor has “clean hands” or, in other words, whether their claim is tainted by corruption, for example, or not. The first factor—the “cooling-off period”—will have an obvious impact on the duration of the arbitration, but it may also open a window to settlement negotiations, should both parties be open to that. Further, the categorisation of the claim as a contract claim must lead the TP Funder to explore further whether the investor has at least some prima facie plausible case 44

See RSM Production Corp v. Saint Lucia, ICSID Case No. ARB/12/10, Security for Costs Decision, 13 August 2014, upheld by the Annulment Committee on 29 April 2019, available at: https://www.italaw.com/sites/default/files/case-documents/italaw10600.pdf; see also García Armas v. Venezuela, PCA case No. 2016-08, Procedural Order No. 9, Decision on the Respondent’s application for interim measures, 20 June 2018, available at: https://www.italaw.com/sites/default/ files/case-documents/italaw9849_2.pdf (in Spanish). 45 In RSM Production Corp v. Saint Lucia, the arbitrators focused on the fact that RSM had previously initiated two ICSID arbitrations against Grenada, failing to pay required advances on costs and to reimburse Grenada for costs advanced on its behalf and in García Armas v. Venezuela, the arbitrators considered the fact that claimant’s third-party funding agreement did not cover a possible award on costs against that party (see Cilento and Guthrie 2019, p. 2). 46 See the ICCA-Queen Mary Report (2018), p. 221 (available at: https://www.arbitration-icca.org/ publications/Third-Party-Funding-Report.html). 47 See Cilento and Guthrie (2019), p. 3. 48 ICSID, Working Paper # 2, volume 2, March 2019, “Proposals for Amendment of the ICSID Rules – Consolidated Rules,” available at: https://icsid.worldbank.org/en/Documents/VOL_2.pdf.

94

M. B. Burghetto

under an applicable investment protection treaty or national investment law of the host state. Finally, the TP Funder will seek to satisfy itself that the investor’s claim or underlying investment is not tainted by corruption or any other violation of the law, because in that case the fate of the investor’s claim would be sealed. (iv) Merits: A thorough analysis of the legal basis of the investor’s case is central to the TP Funder’s assessment of the investor’s case. This may be based on investment arbitration “case law,” which is more easily accessible than in the case of commercial arbitration. However, the approach must be careful in this regard, given the different criteria applied by different arbitral tribunals when analysing similar situations and the absence of a consistent approach to certain concepts. Indeed, some arbitral awards have been set aside based on the type of source of law applied by the arbitral tribunal, for instance.49 Also, getting hold of necessary evidence to support the investor’s claim may prove to be more difficult in those cases where the host state is a developing country. (v) Amount of damages: The TP Funder will have to look at several possible methods to assess damages, each with different possible outcomes, especially in those cases where there is no track-record of the investment that is the subject-matter of the claim, because, for example, the asset at the centre of the investment has never become operational. Thus, the TP Funder may have to assess the possible amount of damages by applying one or more of the existing methods, such as the (a) cost or asset-based method; (b) market or transactionbased method and (c) income-based method:50 It is advisable for the TP Funder to instruct an independent expert to assess the damages suffered by the investor according to all of these methods, to the extent possible, or according to the one most suited to the case. (vi) Enforcement: TP Funders will also consider whether the arbitral award would be enforceable under the Washington Convention, which established the International Centre for Settlement of Investment Disputes (ICSID)51 or the New York Convention. In the former case, the award will have less obstacles to overcome, at least in theory, given the Washington Convention’s “selfcontained, delocalised [enforcement] system insulated from domestic laws and state court involvement,” which renders the ICSID system so popular

49

For example, Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007; Decision on the application for annulment of the Argentine Republic, 30 July 2010; available at: https://www.italaw.com/sites/default/files/case-documents/ ita0299.pdf. 50 See Friedman, M. and Lavaud, F. (2018), Damages Principles in Investment Arbitration, Global Arbitration Review, available at: https://globalarbitrationreview.com/chapter/1177418/damagesprinciples-in-investment-arbitration. 51 Convention on the settlement of investment disputes between states and nationals of other states (Washington, 1966), which entered into force on 14 October, 1966 and is currently in force in 154 states (available at: https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Conven tion%20English.pdf).

Risk Assessment and Third-Party Funding in Investment Arbitration

95

amongst stakeholders.52 The New York Convention, in contrast, provides a less favourable enforcement mechanism, because it “allows domestic courts to refuse recognition and enforcement of a foreign arbitral award based on specific grounds, such as the invalidity of the arbitration agreement, non-arbitrability or public policy of the enforcing State.” However, even within the ICSID system, local laws of the enforcing state applicable to the enforcement of local judgments, which govern the enforcement of ICSID awards, may provide for sovereign immunity of the particular state,53 or may otherwise have an impact on enforcement that is detrimental to the winning investor. In addition, the question whether the host state has seisable assets outside of its territory may be key in those cases where such state has a track-record of being extremely reticent to comply with arbitral awards. 3.1.2

Commercial and Financial Risks

TP Funders will look at the following aspects of the case, possibly among others and not necessarily in this priority order: (i) Amount of funding needed: TP Funders will typically fund up to 10% of the realistic amount claimed:54 they may take into account calculations made by experts during the due-diligence phase of the process, in order to determine the amount it is willing to consecrate to financing the claim. (ii) Expectation of settlement: Consistently with their mandate of raising the value of the fund they manage in the shortest possible time, TP Funders will prefer that the funded party obtains a settlement as early as possible, which may conflict with the funded party’s wishes or the advice given to it by its counsel. The latter must be very careful in this regard in order to avoid submitting to whatever pressure the TP Funder may exert on the funded party or even on counsel themselves.55 From the TP Funder’s standpoint, the key aspects will be

Káposznyák (2019), p. 427. Pursuant to Article 53(1) of the Washington Convention, “[t]he award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided in this Convention,” i.e., interpretation, revision and annulment based on a limited list of grounds and by an ad hoc annulment committee appointed by the President of the World Bank (see Section 5 of the Washington Convention). Under Article 54(1) of the same convention, “[e]ach Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” 53 Káposznyák (2019), p. 427. Article 54(3) of the Washington Convention provides: “Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.” 54 See the ICCA-Queen Mary Report (2018), pp. 25–26 (available at: https://www.arbitration-icca. org/publications/Third-Party-Funding-Report.html). 55 Some commentators have pointed out that an excessive degree of control by the TP Funder can lead to conflicts of interests for counsel, in the event of disagreements between the funded party (or its counsel) and the TP Funder. This is why the funding agreement “should clearly reflect the 52

96

M. B. Burghetto

(i) whether there is any legal obstacle, under the law of the defendant state, for example, to the settlement of the claim and (ii) from the strategic standpoint, when the right time to press for a settlement is and to identify the maximum amount that is reasonable to expect. To determine these latter points, TP Funders may look at the track record of the defendant state in this regard. (iii) Collectability: This type of risk logically has a significant weight in the TP Funder’s decision whether to fund the claim and may be related also to legal risks if, for example, the defendant state’s internal law provides that all judgment debts to be paid by the state must be paid in treasury bonds.56 The defendant state’s track-record, when it comes to satisfying judgment debts, will obviously play an important role in the TP Funder’s final decision. Interestingly, Venezuela, a country that has been suffering a socioeconomic crisis for the past 10 or more years and is the target of international economic sanctions, has a better track-record than Argentina, for example: the latter only paid its award creditors when international pressure was applied to it, especially by the US.57 In this regard, any TP Funder would want to avoid developments such as the incredible Chevron saga, where, just looking at the enforcement aspect, we have, on the one hand, the Ecuadorian claimants who have spent over 8 years unsuccessfully trying to enforce a very controversial judgment against Chevron58 and, on the other hand, Chevron, having to bring an investment arbitration against Ecuador for denial of justice that it has won on the liability aspect,59 but it is doubtful whether it will be able to enforce. This is objectively an enforcement fiasco, irrespective of the position one may adopt on the matter.

parties’ understanding of who has final say on management and strategy for the funded dispute, and what happens when there is an unresolved dispute over management and strategy.” (see the ICCAQueen Mary Report (2018), pp. 194–195, available at: https://www.arbitration-icca.org/publica tions/Third-Party-Funding-Report.html). 56 This is the case in Argentina, pursuant to Emergency Law N 25,344 (14 November 2002), as amended by Law No. 25,725, pursuant to which payments by the Argentinean state that became due prior to 2001 had to be paid in treasury bonds. 57 See Palmer, D., Obama says to suspend trade benefits for Argentina, Reuters, 26 March 2012, available at: https://www.reuters.com/article/us-usa-argentina-trade-idUSBRE82P0QX20120326; see also Hodges, P. et al. (2013) Argentina settles five outstanding investment treaty arbitration claims in historic break with its anti-enforcement stance, Herbert Smith website, https://hsfnotes. com/arbitration/2013/10/14/argentina-settles-five-outstanding-investment-treaty-arbitrationclaims-in-historic-break-with-its-anti-enforcement-stance/. 58 See Peltz-Steele, R., Human life, human rights are the losers in unraveling Chevron-Ecuador litigation, The Savory Tort, 22 May, 2019, http://www.thesavorytort.com/2019/05/human-lifehuman-rights-are-losers-in.html. 59 See Chevron press release: International Tribunal Rules for Chevron in Ecuador Case - Ecuador Found Liable for Violating International Law, Supporting Fraud and Corruption, September 2018 (https://www.chevron.com/stories/international-tribunal-rules-for-chevron-in-ecuador-case).

Risk Assessment and Third-Party Funding in Investment Arbitration

3.1.3

97

People-Related Risks

These risks comprise everything that has to do with the circumstances and the profile (or human factor) of the funded party and those of its counsel and other actors in the particular arbitral proceedings: (i) Funded party: The funded party’s financial situation, motivations to go to arbitration and general profile are also important aspects that TP Funders need to evaluate. As to the former, the risk for TP Funders is that the funded party enters into insolvency proceedings of any kind, because that would evidently have an impact on the performance (or possibly even the validity) of the funding agreement. Indeed, in the best-case scenario, the TP Funder would need to probably deal with or integrate a new interlocutor—the receiver—in connection with the funding agreement, while in the worst-case scenario, the validity of the funding agreement itself might be called into question. The funded party’s profile is equally important, because they will surely have an impact on the performance of the funding agreement. In this connection, the TP Funder would want to know more about the funded party’s decision-making process, for example, because the latter will have to make several important decisions throughout the arbitral proceedings, ranging from those related to the party’s procedural strategy to the decision whether to accept a settlement offer. The TP Funder would need to anticipate whether the funded party’s decision-making process is a protracted, rather bureaucratic one or the total opposite, i.e., rather centralised and autocratic and perhaps an impulsive one.60 In addition, the funded party’s motivation to go to arbitration may taint its decisions. Indeed, the motivations of the people involved in the decisionmaking process and vested with the power to make key decisions are of paramount importance. At one extreme, decision-makers driven by a personal vendetta may tend to seek the “punishment” of the opposing party above all,61 thus possibly jeopardising settlement talks. On the opposite end, if those running the funded party lack enthusiasm or interest in the arbitration, they may tend to take up a passive attitude that might not be conducive to the proper advancement of the funded party’s case. Accordingly, the TP Funder would need to prepare to better deal with these different approaches. (ii) Funded party’s (and opposing party’s) legal team and experts: The legal team, including not only lawyer(s) in charge, but also the other members of the team, will be one of the decisive factors—as in any litigation—in the outcome of the arbitration. The TP Funder will be interested in getting acquainted with the members of the legal team, their experience—especially, in investment

60 61

See Walker (2019), p. 2. See Walker (2019), p. 2.

98

M. B. Burghetto

arbitration-, track-record, the way they interact with each other and their work method. The same applies to the experts whose services the funded party and/or its legal team are considering to use, if they have been identified at that stage. In many instances, the opposing party’s legal team and/or experts are also known from the start, for example, because the host state may employ its own state attorneys (or the same law firm) and the same experts in all or most of the arbitrations in which it is a party. In that case, it is advisable for the TP Funder to learn as much as possible about the profile, experience, track-record and mentality of the legal team and/or experts of the opposing party. (iii) Arbitrators: The significance and impact of these actors in arbitration does not need to be spelled out, to the point that many believe that any given arbitration is as good as the arbitrator(s) acting in it. TP Funders should take advantage of the fact that, in the field of investment arbitration, it is arguably easier to have access to potential arbitrators’ opinions and tendencies, not only in connection with the merits of a given dispute, but also with the procedural aspect of cases, because most investment arbitration awards are published. There are also other potential sources of this kind of information, including arbitrators’ approaches to procedural issues, such as databases (Arbitrator Intelligence; the GAR Arbitrator Research Tool, etc.) and the more traditional ones, such as arbitration specialists’ views. (iv) Type of arbitration (institutional or ad hoc): Finally, the human factor involved in this aspect of the arbitration is also worth considering. Different arbitral institutions may administer arbitrations differently, partly because the people who work in those institutions are different, for example, from differing legal and cultural backgrounds. Furthermore, the involvement of an arbitral institution may have an impact on the behaviour of the parties and the arbitrators, at the very least because the institution may provide support to both and ensure the smooth development of the arbitral proceedings. This does not mean that the alternative, i.e., ad hoc arbitral proceedings, will in all cases be harder to handle, but it is submitted that in this type of arbitration, the personalities of the other actors—the parties, their counsel, the arbitrators, etc.—and the influence they may exert on the conduct of the arbitration become more significant, given that there is no institution to resort to in case of disagreement in this regard.

3.2

Context-Related Risks

These risks are linked to aspects that are related to the case itself in a direct or indirect manner, but that may potentially have a significant influence on TP Funders’ evaluation of the investment: (i) Duration of the arbitral proceedings: Usually, the funded party’s counsel will include an estimate of the duration of the arbitral proceedings in their presentation of the case to TP Funders. Investment arbitration cases generally last longer than commercial arbitration ones, which is another factor to be taken

Risk Assessment and Third-Party Funding in Investment Arbitration

(ii)

(iii)

(iv)

(v)

62

99

into account by TP Funders, in order to better plan the pace of the financing. The case-related aspects of the case mentioned above, such as the bi-furcation of the proceedings, the probability of settlement talks, etc., will have an obvious impact on the duration of the case. Counterclaims: Although much scarcer than in commercial arbitration, there are several investment arbitration cases where defendant states have brought counterclaims. From the TP Funder’s perspective, such possibility needs to be anticipated, to the extent possible, because it may lengthen the duration of the arbitration and render it more complex, which also implies more work for counsel on both sides. Other parties (potentially) interested in the case: Third parties, such as creditors of the claimant, a local community or government or even a third state, may be interested in the arbitration and they may take part in it via amicus curiae submissions. TP Funders need to consider how the potential intervention, albeit limited, of third parties in the arbitration might influence the conduct of the proceedings and also the arbitrators’ resolution of the case. For example, third states may exercise their right to intervene in an investment arbitration in connection with the interpretation of a treaty that is relevant to the arbitration, which may render the proceedings more complicated. Some states have done so in practice, resulting in the narrowing of investors’ rights or of the treaty provisions.62 Reputational risk: Increasingly, investors are claiming compensation for damages suffered as a result of regulatory changes made by states with socially desirable goals, such as environment protection or other sustainability-related areas TP Funders may need to reflect on whether the fact of financing this type of claims may affect their reputation and even have an impact on the value of their shares. Equally, TP Funders may face an ethical dilemma when asked to fund defence claims in cases where they may have little or no economic incentive to do so.63 Balance with other funded claims in the TP Funder’s portfolio: Before accepting to fund a case, a TP Funder will also have to assess how the funding requirements of the case will impact its other previous funding engagements, not only in terms of capital needed but also as to the time when the funds need to be available to the funded party. In addition, the TP Funder may be co-funding the claim, i.e., working with other TP Funders as part of a consortium that finances the claim. In this case, the TP Funder will also need to anticipate its options in the event another member of the consortium defects.

See Särkänne, K. (2018), Report on the 3rd EFILA Annual Conference on Parallel States’ Obligations in Investor-State Arbitration, European Federation for Investment Law and Arbitration https://efila.org/wp-content/uploads/2018/02/FULL-Report-EFILA-Annual-Conference-2018DEFINITE.pdf. 63 A solution to this may be portfolio funding, discussed above in Sect. 2 of this chapter.

100

M. B. Burghetto

4 Risk Assessment Methods Although each TP Funder has its own approach to risk assessment, TP Funders can generally be expected to carry out a quantitative and a qualitative assessment of the claim and to only fund those claims that pass this double control.64 The quantitative assessment concerns cost, duration and quantum (or recovery prospects) and an aprioristic assessment of the key legal variables and is usually the basis for the TP Funder’s proposition of ITs, as described in Sect. 2.2(ii) above of this chapter. The TP Funder may use risk matrices to represent different scenarios in terms of duration of the case and amount that the funded party may expect to recover. The TP Funder will normally adopt a conservative approach in connection with these variables, which will allow it to assign a value to the claim to be revisited once it receives further information and possibly verification of the prima facie valuation.65 During the due diligence stage and once it has been completed, the TP Funder will assess in more detail all the case-related and context-related risks, from a qualitative standpoint, based on its experience. At this point, the TP Funder will have to measure the probable impact of each risk on costs, duration and quantum and determine the degree of exposure it is prepared to accept. For instance, a TP Funder may decide that a claim that is otherwise a rather solid one is not worth funding because of a somewhat high risk of not being able to enforce the resulting award against the losing party. Conversely, it may discard a claim where the profile of the defendant does not call into a question collectability, but where the merits depend greatly on the discovery of documents from the defendant.66 This qualitative analysis is much closer to a lawyer’s approach to a case, although the TP Funder must give priority to its mandate to maximise the value of the investment in the shortest time possible. In sum, effective risk assessment may not rely exclusively on mathematical methods, such as matrices, and the quality of such assessment will depend not only on the information that is available to the TP Funder but also on the latter’s own ability to detect and correctly evaluate the risks discussed in this chapter.

5 Conclusion When assessing the value of a claim and whether it is worth funding, TP Funders focus on alignment of investment return in relation to assessment of legal merits of the possibilities for success as primary focus. In contrast, lawyers in many jurisdictions and arbitral seats may focus more on legal merits first, followed by

64

See Smith (2017), pp. 30–33, for an overview of a TP Funder’s valuation of a claim from the qualitative and quantitative standpoints, including the use of a matrix for the former type of analysis. 65 See Smith (2017), pp. 30 and 35. 66 See Smith (2017), p. 36.

Risk Assessment and Third-Party Funding in Investment Arbitration

101

considerations of cost and quantum or alternatively, these considerations may exist side by side in lawyers’ approach. In this chapter, we have looked at the main case-related and context-related risks that the TP Funder typically assess as to their probability and their impact on costs, duration and quantum (expected recovery) of a given claim, in order to make a decision on whether to fund it. These risks are present in both commercial and investment arbitration cases, although the latter have some specificities that must be taken into account. Their assessment may have its mathematical aspect, but it is equally based on their knowledge and experience of (investment) arbitration. TPF is increasingly used in investment arbitration and, since it is here to stay, practitioners who are aware of its mechanics and TP Funders’ viewpoints are better equipped to serve their clients’ interest.

References Chopin A (2019) Litigation funding: no longer sitting on defence, Practical Law Dispute Resolution. http://disputeresolutionblog.practicallaw.com/litigation-funding-no-longer-sitting-ondefence/ Cilento C, Guthrie B (2019) Is investor-state arbitration warming up to security for costs? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2019/06/18/is-investor-state-arbi tration-warming-up-to-security-for-costs/ Guven B, Johnson L (2019) The policy implications of third-party funding in investor-state dispute settlement, Columbia Center on Sustainable Investment (CCSI) Working Paper 2019, May 2019. Available at: http://ccsi.columbia.edu/files/2017/11/The-Policy-Implications-of-ThirdParty-Funding-in-Investor-State-Disptue-Settlement-FINAL.pdf Hooven B (2019) Defense funding: the next frontier for litigation financing, Proskauer’s Minding your business blog, 18 April 2019. https://www.mindingyourbusinesslitigation.com/2019/04/ defense-funding-the-next-frontier-for-litigation-financing/ Káposznyák A (2019) Chapter 25: the expanding role of the New York Convention in enforcement of international investment awards. In: Gomez KF, Lopez-Rodriguez AM (eds) 60 years of the New York Convention: key issues and future challenges. Kluwer Law International, pp 425–440 Lamm C, Hellbeck E (2013) Chapter 9. Third-party funding in investor-state arbitration introduction and overview. In: Cremades Sanzpastor BM, Dimolitsa A (eds) Third-party funding in international arbitration. ICC Institute of World Business Law Institute Dossier, pp 101–121 Mazzoni A (2019) Chapter 17: third-party funding in international arbitration: views from a conflict-of-law perspective and beyond. In: Tung S, Fortese F et al (eds) Finances in international arbitration: Liber Amicorum Patricia Shaughnessy. Kluwer Law International, pp 299–322 Mechantaf K (2019) Le Financement de l’arbitrage par les tiers – Une approche française et internationale, thèse doctorale N 2019PA01D002, Université Paris I – Panthéon-Sorbonne, Ecole de droit de la Sorbonne Samra E (2016) The business of defense: defense-side litigation financing. Univ Chic Law Rev 83 (4):2299–2341, Article 20 Smith M (2017) Mechanics of third-party funding agreements: a funder’s perspective. In: Bench Nieuwveld L, Shannon Sahani V (eds) Third-party funding in international arbitration, 2nd edn. Kluwer, London, pp 19–37

102

M. B. Burghetto

von Goeler J (2015) Third-party funding and its impact on international arbitration proceedings. Kluwer Law Arbitration Walker D (2019) Yes and no: how funders decide, Practical Law Dispute Resolution blog. http:// disputeresolutionblog.practicallaw.com/yes-and-no-how-funders-decide/ Wheal R, Brumpton P, Hart A, Wingfield T (2016) Excalibur litigation: court of appeal confirms that funders will be put to the sword, White & Case’s Client Alert/Commercial Litigation. https://www.whitecase.com/sites/whitecase/files/files/download/publications/excalibur-litiga tion.pdf

María Beatriz Burghetto is an Argentine and French qualified lawyer, also admitted to register as solicitor of England & Wales. She has practiced business law and arbitration in Buenos Aires, London and Paris, including as deputy counsel at the ICC Court Secretariat. She has a law degree from the University of Buenos Aires in Argentina and an LLM from Queen Mary College, University of London. She is also a member of the Chartered Institute of Arbitrators and of the ICC Commission on Arbitration and ADR. She publishes regularly on international arbitration topics and gives lectures at the University of Le Havre and Lyon’s Catholic University, among other prestigious venues.

Third-Party Funding and Access to Justice in Investment Arbitration: Security for Costs as a Provisional Measure or a Standalone Procedural Category in the Newest Developments in International Investment Law José Ángel Rueda-García

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Third-Party Funding: The Fundamental Right to Access to Justice and the Equality of the Parties in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Third Party Funding and Security for Costs: Where Do We Go in Investment Arbitration? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Treatment of Security for Costs as a Provisional Measure in International (Investment) Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 New Approaches in Investment Arbitration: Towards a Standalone Procedural Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104 104 107 108 109 120 120

Abstract Third-party funding (TPF) may be regarded as a tool to allow the parties in an investment dispute to exercise their fundamental right to access to justice by having access to investment arbitration. This proposition should be taken into consideration by arbitral tribunals when dealing with requests for posting security for costs in investment arbitration and the request comes from the fact that a party is relying on TPF. Security for costs has been treated traditionally as one of the many types of provisional measures that an arbitral tribunal can grant. However, a new trend has emerged to treat security for costs as a standalone figure, independent from This chapter is an extended version of the presentation made at Panel 3 (“Third-Party Funding/ Funders”) of the Colloquium Actors in International Investment Law: Beyond Claimants, Respondents and Arbitrators, University Paris II Panthéon-Assas, Paris, 26 September 2019. The usual disclaimer applies. J. Á. Rueda-García (*) Cuatrecasas, Gonçalves Pereira, Madrid, Spain e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_7

103

104

J. Á. Rueda-García

the procedural category of provisional measures. Special attention is paid to the newest approach by the Institute of International Law (IIL) as well as to those of the two leading administrative centres of investment arbitration proceedings: the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) and the Working Paper #3 of the International Centre for Settlement of Investment Disputes (ICSID) for the amendment of its Arbitration Rules.

1 Introduction Third-party funding (TPF) may be regarded as a tool to contribute to granting access to justice to the parties in an investment dispute and, consequently, to allow them to exercise their fundamental right to access to justice. Several implications emerge from this proposition, but this chapter will focus in particular on its effect over the requests for posting security for costs that we usually see in investment arbitration case law and the attention that arbitral tribunals should pay to such proposition, especially when one of the parties requests an order for security for costs because the other party is relying on TPF to pursue its claim or defence. Originally, security for costs has been treated as one of the many types of provisional measures that an arbitral tribunal can grant. However, a new trend has emerged to treat security for costs independently from the procedural category of provisional measures. Special attention will be paid to the newest approach by the Institute of International Law (IIL), as well as to those of the two leading administrative centres of investment arbitration proceedings: the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) and the International Centre for Settlement of Investment Disputes (ICSID), in all cases from the perspective of TPF.

2 Third-Party Funding: The Fundamental Right to Access to Justice and the Equality of the Parties in Investment Arbitration The main purpose behind the hiring of the services of a TPF provider is, in principle, to help an individual or a company to file a claim against their counterparty or to defend itself from a claim filed by its counterparty, in both cases when such individual or company does not have sufficient assets to finance that legal action. By committing its funds, and notwithstanding any expected earnings if the legal action is successful, the TPF provider is, in the end, helping an allegedly aggrieved person to exercise its fundamental right to access to justice as claimant or

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

105

respondent. Access to justice is considered a fundamental right in a plethora of international covenants,1 as well as national constitutions and bills of rights.2 TPF was traditionally banned in some common law jurisdictions as tort under the names of maintenance, champerty, or barretry.3 State-of-the-art jurisdictions like Singapore4 and Hong Kong5 are the latest ones to adopt the opposite position, even accepting this practice for the purposes of promoting themselves as international litigation and arbitration hubs. At the same time, many countries have established state-funded schemes to allow low-income people to afford the legal costs of claims as plaintiffs or defendants (legal aid).6 Consequently, the funding of claims by third parties is neither new nor exclusive to investment arbitration. Investment arbitration (whether under a treaty, a domestic investment statute, or a contract) is in many occasions the only reasonable remedy for an aggrieved investor to seek effective redress against damaging actions or omissions by the host state

1 See Article 8 of the Universal Declaration of Human Rights, UN GA Resolution 217 A, 10 December 1948, https://www.un.org/en/universal-declaration-human-rights/; Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights), 4 November 1950, 213 United Nations Treaty Series (UNTS) 222, https://www. echr.coe.int/Documents/Convention_ENG.pdf; Article 14 of the International Covenant on Civil and Procedural Rights, UN GA Resolution 2200A (XXI), 16 December 1966, 999 UNTS 171, https://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx; Article 8 of the American Convention on Human Rights, “Pact of San José, Costa Rica” (B-32), 22 November 1969, 1144 UNTS 123, https://www.oas.org/dil/treaties_B-32_American_Convention_on_Human_Rights.pdf; Article 7 of the African Charter on Human and Peoples’ Rights, 27 June 1981, 1520 UNTS 217, https://www.achpr.org/legalinstruments/detail?id¼49. 2 See Article 24 of the Italian Constitution, 27 December 1947, https://www.cortecostituzionale.it/ documenti/download/pdf/Costituzione_della_Repubblica_italiana_agg2014.pdf; Article 24 of the Spanish Constitution, 27 December 1978, Spanish official gazette BOE No. 311, 29 December 1978, https://www.boe.es/boe/dias/1978/12/29/pdfs/A29313-29424.pdf. 3 See in general Neuberger (2013). 4 The Civil Law (Amendment) Act 2017 was passed by the Singaporean Parliament on 10 January 2017 and, along with the Civil Law (Third-Party Funding) Regulations 2017, came into force on 1 March 2017. See Republic of Singapore’s Government Gazette, No. 8, 2017, 24 February 2017, https://sso.agc.gov.sg/Acts-supp/2-2017/ (Act) and https://sso.agc.gov.sg/SL-Supp/S68-2017/ Published/20170224?DocDate¼20170224 (Regulations). 5 The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, Ordinance No. 6 of 2017 (the Amendment Ordinance), was enacted by Hong Kong’s Legislative Council on 14 June 2017 “to ensure that third party funding of arbitration and mediation is not prohibited by the common law doctrines of maintenance and champerty.” This legislation came into force in general on 23 June 2017. See Hong Kong’s Government Gazette, No. 25, Vol. 21, https:// www.gld.gov.hk/egazette/pdf/20172125/es1201721256.pdf. 6 See, within the European Union, the website of the European Commission on the European Judicial Network in civil and commercial matters, section ‘Legal Aid’: https://e-justice.europa.eu/ content_legal_aid-55-en.do. See also Spain’s Act 1/1996, of 10 January, on legal aid, Spanish official gazette BOE No. 11, 12 January 1996, https://www.boe.es/boe/dias/1996/01/12/pdfs/ A00793-00803.pdf.

106

J. Á. Rueda-García

against its investment.7 Consequently, when a TPF provider decides to finance that investor in order to have access to arbitration, the former is also allowing the latter to exercise its fundamental right to access to justice. In a similar fashion, when a state pursues a claim against an investor in an investment arbitration proceeding, whether a direct claim or a counterclaim (in particular, under an investment contract,8 but also, in certain circumstances, under an investment treaty9), it may be also the sole remedy for that state to obtain effective redress against the investor’s actions and omissions. Consequently, when the TPF provider decides to finance that state to have access to arbitration, the former is also allowing the latter to exercise its fundamental right to access to justice. As a consequence, TPF may contribute to level the playing field for the parties, allowing them to be on an equal footing in terms of access to justice with no regard to their economic capacity.10 In this sense, the Resolution adopted by the IIL on August 28, 2019 in its Session of The Hague11 has confirmed this line of reasoning.12 The Resolution, entitled “Equality of Parties before International Investment Tribunals”, states in Article 2(1) (Access) that “both the State and the investor are equally

See Dolzer and Schreuer (2012), p. 236: “[t]he gap left by the traditional methods of dispute settlement (diplomatic protection and action in domestic courts) has led to the idea of offering investors direct access to effective international procedures, especially arbitration.” 8 See Pluspetrol Perú Corporation S.A. and others v. Perupetro S.A., ICSID Case No. ARB/12/28, Award, 21 May 2015, https://www.mef.gob.pe/contenidos/inv_privada/sicreci/c_arbitrales/Laudo_ Pluspetrol.pdf. 9 See Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. the Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, https://www.italaw. com/sites/default/files/case-documents/italaw8136_1.pdf. 10 Sahani et al. (2018), p. 52, note that “third-party funding is not only used by impecunious parties. There are many corporate entities that use third-party funding as a form of corporate finance to raise money for the company, allocate risk, maintain liquidity, or smooth out the dispute resolution costs line item on the company’s balance sheet, especially if the company finds itself with a steady stream of disputes.” The tribunal in South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Procedural Order (PO) No. 10, 11 January 2016, para. 76, https:// www.italaw.com/sites/default/files/case-documents/italaw7176.pdf, endorsed that “[i]t is possible to obtain financing for other reasons. The fact of having financing does not imply risk of non-payment,” denying Bolivia’s request for an order of security for costs even though the claimant was relying on TPF. 11 Rapporteur: Professor Campbell McLachlan; http://www.idi-iil.org/app/uploads/2019/09/18RES-EN.pdf. 12 The IIL’s concerns on TPF in investment arbitration is not new. See the Resolution adopted on 13 September 2013 in its Session of Tokyo entitled, “Legal Aspects of Recourse to Arbitration by an Investor Against the Authorities of the Host State under Inter-State Treaties” (rapporteur: Professor Andrea Giardina), http://www.idi-iil.org/app/uploads/2017/06/2013_tokyo_en.pdf. Article 8 of the 2013 Resolution provided that “[c]onflicts of interest shall be avoided in investor-State arbitration. Particular attention shall be given to problems that may arise from third-party funding.” The 2019 Resolution contains an elaborated response to TPF, but regarding conflicts of interests Article 3(3) forwards the problem to determination under the IBA Guidelines on Conflicts of Interest in International Arbitration. 7

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

107

entitled to submit a claim in relation to an investment to a tribunal, subject to the terms of the instrument of consent. . .” In terms of costs of the proceedings, the Resolution is courageous in recalling in Article 12(1) (Costs) that the lack of sufficient sources for funding an investment claim may affect both developing states and small- and medium-sized companies: “The ability of parties, whether investors or States, to pursue or defend claims before a tribunal should not be determined on grounds of cost. Particular regard should be paid in this context to the position of small and medium-sized enterprises and to that of developing States.” In our view, the Resolution supports the three main conclusions regarding TPF in investment arbitration that stem from the above: i) TPF may help the pursuit of either claims or defences (Article 12(2)), because a state can submit a counterclaim under a bilateral investment treaty, as Article 6 of the Resolution acknowledges, or even a claim under an investment contract;13 ii) TPF may help impecunious claimants or respondents to have access to arbitration and, consequently, access to justice in pursuit of claims or defences; and, iii) TPF contribute to materialize such access to justice in the form of the equality of parties to present their cases.

3 Third Party Funding and Security for Costs: Where Do We Go in Investment Arbitration? The issue of security for costs in investment arbitration has generated hot debates in practice as well as in academic circles. From a procedural point of view, we can see the ongoing transformation of the legal treatment of security for costs in international arbitration. At the beginning we had a conditional analysis of the facts of the case to be conducted by the arbitral tribunal to meet implicit legal criteria that form part of the concept of provisional measures in order to grant such a request for security for costs.14 Now we can see an apparent attempt to allow the more automatic granting of requests for security for costs no longer as a provisional measure and whenever some factual elements appear, in particular the existence of a TPF scheme behind one of the parties.

Garcia and Hough (2018), p. 2 consider that “[t]he vast majority of funding goes to claimants since financing claimants yields a greater “upside” (or profit) as compared to the funding of respondent states (which gain no financial award under the current BIT rules).” However, Lamm and Hellbeck (2013), p. 103, noted that states may enter into TPF arrangements to cover the legal defence or a portion thereof when they play the role of respondent, or to protect themselves “against a greater-than-expected amount of damages, if any, that the respondent might be ordered to pay in the event the claimant prevails.” 14 On the treatment of security for costs as a provisional measure see Yeşilırmak (2005), pp. 214–218. From the point of view of investment arbitration see Harwood et al. (2017), pp. 105–107. 13

108

3.1

J. Á. Rueda-García

Treatment of Security for Costs as a Provisional Measure in International (Investment) Arbitration

There have been multiple cases of requests for posting security for costs (cautio iudicatum solvi) as a provisional measure in investment arbitration, for example under Article 47 of the ICSID Convention15 or Article 26 of the UNCITRAL Rules of Arbitration.16 In the first cases, the states’ requests for security for costs derived from the fact that the claimant could be insolvent (Pey Casado v. Chile)17 or, simply, that a foreigner was claiming against the host state (Maffezini v. Spain).18 Only in more recent cases, particularly in the leading decision rendered by the majority in RSM v. Saint Lucia,19 one of the reasons behind the respondent state’s request for security for costs as a provisional measure (but not the sole reason) was that the claimant was receiving TPF.20

15

An exception to this approach is the impossibility for an ad hoc Committee dealing with the annulment of an ICSID award to order provisional measures, given that Article 52(4) of the ICSID Convention excludes the application of Article 47 of the ICSID Convention to annulment proceedings. See Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. Republic of El Salvador, ICSID Case No. ARB/09/17 (Annulment Proceeding), Decision on El Salvador’s application for Security for Costs, 20 September 2012, paras 39–42 and 45, https://www.italaw.com/ sites/default/files/case-documents/italaw1087.pdf, where the ad hoc Committee considered (and denied) a request for security for costs by El Salvador on the basis of “inherent powers to safeguard the integrity of the proceedings.” 16 See Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, PCA Case No. 2011-17, PO No. 14, 11 March 2013, para. 6, https://www.italaw.com/sites/default/files/casedocuments/italaw1331.pdf; South American Silver v. Bolivia, PO No. 10, para. 50; Manuel García Armas and others v. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, PO No. 9, 20 June 2018, para. 186, https://www.italaw.com/sites/default/files/case-documents/italaw9849_2.pdf. 17 See Víctor Pey Casado and Fundación Presidente Allende v. Republic of Chile, ICSID Case No. ARB/98/2, Decision on the adoption of provisional measures requested by the Parties, 25 September 2001, paras 78, 84, https://www.italaw.com/sites/default/files/case-documents/ ita0629.pdf. 18 See Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, PO No. 2, 28 October 1999, esp. paras 3, 24–26, https://www.italaw.com/sites/default/files/case-docu ments/italaw7939_0.pdf. 19 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, 13 August 2014, https://www.italaw.com/sites/default/files/ case-documents/italaw3318.pdf. See also EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, PO No. 3, Decision on the Parties’ Requests for Provisional Measures, 23 June 2015, para. 119, http://icsidfiles.worldbank.org/icsid/ ICSIDBLOBS / OnlineAwards/C3604/DC6416_En.pdf. 20 In RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, paras 77–78, the majority found that the claimant in that case as well as other physical persons related to it had not honoured their financial obligations in two ICSID cases against Grenada, so it considered that the request for security for costs submitted by Saint Lucia should be granted: “The Tribunal concludes from Claimant’s conduct in the Annulment Proceeding and the Treaty Proceeding that it was unwilling or unable to pay the requested advances (. . .). Hence, absent a material change of circumstances, the Tribunal is satisfied that also in this proceeding, there is a material risk that

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

109

In all those cases, the respondent state had to demonstrate to the competent tribunal that the request for security for costs met the implicit legal criteria set out in case law decisions for the granting of provisional measures: prima facie jurisdiction of the arbitral tribunal, the existence of a right to be preserved, necessity, urgency, and proportionality.21 Coherently, the arbitral tribunals then rendered their decisions based on the articles on provisional measures of the applicable arbitration rules, giving reasons as to why the requirements of provisional measures were met or not. Only the tribunal in RSM v. Saint Lucia (by majority) concluded that the provisional measure had to be granted.

3.2

New Approaches in Investment Arbitration: Towards a Standalone Procedural Category

Nowadays the approach towards security for costs in international arbitration is shifting to a treatment thereof separated from the concept of provisional measures, whether explicitly by regulating each of them in different provisions,22 or implicitly when the requirements for security for costs as a provisional measure depart from the general ones for other unnamed provisional measures.23 Following is an analysis of three recent developments in the investment arbitration field with a special focus on the impact that TPF may have for the consideration of the request for security for costs by the tribunal.24

Claimant would not reimburse Respondent for its incurred costs, be it due to Claimant’s unwillingness or its inability to comply with its payment obligations. Concerning Claimant’s potential inability, its statements in the present arbitration as cited in the Tribunal’s Decision of December 12, 2013, raise serious doubts” (para. 81). 21 See the analysis made of these requirements in Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, PO No. 3, paras 32–36. 22 See Article 23 (“Interim Measures of Protection and Emergency Relief”) and Article 24 (“Security for Costs”) of the 2018 Administered Arbitration Rules of the Hong Kong International Arbitration Centre (HKIAC), https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/2018_ hkiac_rules.pdf; Rule 27 (“Additional Powers of the Tribunal”, referring to security for costs in letters (j) and (k)) and Rule 30 (“Interim and Emergency Relief”) of the SIAC 2016 Rules of the Singapore International Arbitration Centre (SIAC), http://www.siac.org.sg/our-rules/rules/siacrules-2016. 23 See Article 25(2) of the London Court of International Arbitration (LCIA) Arbitration Rules (2014), https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2014. aspx#Article 25; Article 33(6) of the Vienna Rules and Vienna Mediation Rules 2018 of the Vienna International Arbitration Centre (VIAC), https://www.viac.eu/en/arbitration/content/vienna-rules2018-online. 24 Significantly, the Arbitration Rules of the International Court of Arbitration of the International Chamber of Commerce (ICC) in force as from 1 March 2017, https://iccwbo.org/content/uploads/ sites/3/2017/01/ICC-2017-Arbitration-and-2014-Mediation-Rules-english-version.pdf.pdf, which are also applied to a certain extent to investment arbitration cases, do not have any reference to security for costs.

110

3.2.1

J. Á. Rueda-García

Approach by the Institute of International Law (IIL)

First, the IIL has stated in Article 12(3) of its Resolution of August 28, 2019 that “[w]here on application the tribunal is satisfied that a claimant may be unable to pay an award of costs in the event that its claim is unsuccessful and that the provision of security is necessary to preserve the equal protection of the parties, the tribunal has discretion to order security for costs.” This provision appears just after the mention in Article 12(2) to TPF and is made under the overall title of Costs. In our view, this provision prompts three open questions that merit comments in this chapter even though the Resolution is not, technically speaking, a legal text—but it may have a persuasive effect on international tribunals due to the relevant scholars behind its drafting. The first one is philosophical in view of the principles inspiring the Resolution. Article 12(3) focuses on the claimant’s position (in most cases, the investor), but nothing is said about the respondent, that may be also in difficult conditions to pay a potential award on costs and that it may also be relying on TPF to defend itself from the claim. So, is this provision a departure from the principle of equality of parties underlying the whole Resolution? The second one is conceptual. The Resolution is silent about the treatment of a request for security for costs as a provisional measure. The same applies to the Final Resolution entitled “Provisional Measures” that the IIL adopted in its Session of Hyderabad on September 8, 2017.25 Consequently, does the IIL treat security for costs separately from the concept of provisional measures? The third one is legal. Reference to the tribunal’s discretion to order security for costs means that the tribunal would be empowered to decide about the need to make such an order without having followed any legal test to check the request against. Could this be a more automatic granting of the request for security for costs from now onwards? Could this be, at the same time, an invitation to the arbitral tribunal to disregard the need to consider the parties’ right to access to justice, that in requests for provisional measures is or may be included in the proportionality test?26

25

Rapporteur: Lord Collins of Mapesbury. Retrieved from: http://www.idi-iil.org/app/uploads/ 2017/08/3-RES-FINAL-EN-COR.pdf. 26 In terms of proportionality see Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para. 17, https://www.italaw.com/sites/default/ files/case-documents/ita0396.pdf: “The Tribunal ruled on the Respondent’s request for provisional measures in Procedural Order No. 3 issued on June 24, 2009, upon ICSID’s receipt of the Claimant’s advance payment shortly before the Hearing. It ruled that there was a serious risk that an order for security for costs would stifle the Claimant’s claims and that, in any event, it had not been shown that the measures requested were necessary and urgent.” See also Guaracachi v. Bolivia, PO No. 14, para. 9: “The same goes for the analysis required by Article 26(3)(a) of the UNCITRAL Rules of the balance of inconvenience, to find whether the harm, if the measure is not granted, “substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted.” The issue (. . .) of the appropriate balance between the right of access to justice of entities that have been allegedly expropriated and the protection of States

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

3.2.2

111

New Approach by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC)

Second, the SCC, one of the leading arbitral institutions in the field of investment arbitration,27 has recently introduced two elements to the arbitration proceedings conducted under its rules that are specifically related to TPF. On the one hand, on 11 September 2019, the SCC Board adopted a Policy on the “Disclosure of third parties with an interest in the outcome of the dispute.”28 The Policy encourages (rather than obliges) each party, in its first written submission in an SCC arbitration or any time afterwards during the course of the arbitration, to disclose the identity of any third party with a significant interest in the outcome of the dispute, including but not limited to (a) ultimate beneficial owners; (b) persons obligated to pay an award under an indemnification or other agreement; (c) persons entitled to receive proceeds of an award under a TPF scheme or other agreement; and (d) ultimate parent companies of a party. According to the SCC, the reasons for adopting the Policy lie in the fact that, pursuant to Article 18 of the 2017 SCC Arbitration Rules,29 the prospective or appointed arbitrators shall disclose any circumstances that may give rise to justifiable doubts of their independence or impartiality. For the moment, however, this Policy has not been formally included in the SCC Arbitration Rules, nor does the Policy refer to the availability of or the need to order security for costs whenever TPF is on the scenario. On the other hand, Article 38 of the same 2017 Arbitration Rules provides for the arbitral tribunal to order one of the parties in an active procedural role (i.e., claimant or counterclaimant) to provide security for costs. Article 38 is a special or independent provision by comparison with the tribunal’s general ability to grant interim measures enshrined in Article 37. Like in the case of the Policy, Article 38 does not refer expressly to the existence of TPF arrangements as a basis for ordering security for costs, but some of the elements that the arbitral tribunal shall have regard to in determining whether to order such security may be read as implicit but nonetheless clear references to the existence of TPF (like the party’s inability to comply with an adverse costs award):

against alleged frivolous claims by parties who may not have sufficient assets to guarantee the payment of an adverse costs award is a serious issue.” 27 See, in general, Oldenstam et al. (2019), pp. 119–131. 28 https://sccinstitute.com/media/1035074/scc-policy-re-third-party-interests-adopted.pdf. 29 Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, adopted by the Stockholm Chamber of Commerce and in force as of 1 January 2017, https://sccinstitute. com/media/293614/arbitration_rules_eng_17_web.pdf. Appendix III to the Rules contain some provisions specifically drafted for investment treaty disputes, but they are mainly aimed at the handling by the arbitral tribunal of applications for leave to intervene as non-disputing parties (whether amici curiae proper (Article 3) or by non-disputing treaty parties (Article 4)).

112

J. Á. Rueda-García

(1) The Arbitral Tribunal may, in exceptional circumstances and at the request of a party, order any Claimant or Counter-claimant to provide security for costs in any manner the Arbitral Tribunal deems appropriate. (2) In determining whether to order security for costs, the Arbitral Tribunal shall have regard to: (i) the prospects of success of the claims, counterclaims and defences; (ii) the Claimant’s or Counterclaimant’s ability to comply with an adverse costs award and the availability of assets for enforcement of an adverse costs award; (iii) whether it is appropriate in all the circumstances of the case to order one party to provide security; and (iv) any other relevant circumstances.

In our opinion, the reading of Article 38 and the Policy in conjunction should not prompt that SCC arbitral tribunals feel inclined to order security for costs for the mere fact that a party is relying on TPF. Otherwise, the tribunal would be ignoring the requirement of ‘actual risk of non-payment of an adverse costs awards’ that more or less qualifies as urgency or periculum in mora, one of the main legal requirements of provisional measures.

3.2.3

Proposed Amendments to the Arbitration and Conciliation Rules of the International Centre for Settlement of Investment Disputes (ICSID)

Third, the very recent Working Paper #3 of August 16, 2019 containing the Proposals for Amendment of the ICSID Rules30 currently under debate within ICSID includes some relevant provisions regarding TPF of arbitration claims.31

3.2.3.1

Specific Provisions on Third Party Funding and Security for Costs and Influences by ICSID Case Law

On the one hand, draft new Rule 14 of the Arbitration Rules32 sets out a so-called “Notice of Third-Party Funding,” whereby a party shall file a written notice disclosing the name of any non-party from which the party, its affiliate or its representative

30

https://icsid.worldbank.org/en/Documents/WP_3_VOLUME_1_ENGLISH.pdf. At the time of finalizing this Chapter, ICSID announced that it would issue a new paper (Working Paper #4) to summarize the comments received in writing and during the consultation meeting held with ICSID Member States in Washington, D.C., on 11–15 November 2019; https://icsid. worldbank.org/en/Pages/News.aspx?CID¼344. 32 A similar provision has been included in draft new Rule 23 of the new (Additional Facility) Arbitration Rules, draft new Rule 12 of the new Conciliation Rules and draft new Rule 21 of the new (Additional Facility) Conciliation Rules. Draft new Rule 14 of the Arbitration Rules appeared as draft Rule 21 in the Working Paper #1 (https://icsid.worldbank.org/en/Documents/Amend ments_Vol_Two.pdf) and as draft new Rule 13 in the Working Paper #2 of March 2019 (https:// icsid.worldbank.org/en/Documents/Vol_1.pdf). 31

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

113

has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the dispute. Draft new Rule 14(3) goes on stating that that party shall file such notice with the Secretary-General of ICSID upon registration of the request for arbitration or immediately upon concluding a TPF arrangement after registration. This provision is in line33 with provisions in modern investment treaties like Article 8.26.2 of CETA34 and Article 3.8 of the EU-Singapore Investment Protection Agreement.35 In addition, it resembles the order by the tribunal in Muhammet Çap v. Turkmenistan to the claimants, on the basis of its inherent powers (apparently, considering that they stem from Article 44 of the ICSID Convention), to disclose whether their claims were provided with TPF.36 On the other hand, the same Working Paper #3 includes draft new Rule 52 of the Arbitration Rules on Security for Costs,37 which is treated separately from draft new Rule 46 on Provisional Measures, although some relevant legal elements are applicable to both in a similar manner.38 It seems that ICSID’s Administrative Council

33

See Working Paper #3, p. 295, para. 52. See Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part, OJ L 11, 14 January 2017, https://eur-lex. europa.eu/legal-content/EN/TXT/PDF/?uri¼CELEX:22017A0114(01)&from¼EN. 35 See Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part, signed on 15 October 2018, https:// investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5714/download. 36 See Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, PO No. 3, 12 June 2015, paras 6 and 13, https://www.italaw.com/sites/default/files/ case-documents/italaw4350.pdf. 37 A similar provision has been included in draft new Rule 62 of the new (Additional Facility) Arbitration Rules. Draft new Rule 52 of the Arbitration Rules appeared as draft new Rule 51 in both Working Papers #1 and #2. Regarding draft new Rule 51 in Working Paper # 2 see Luttrell (2019), pp. 388–398. 38 Indeed, the procedures to be followed for a request for provisional measures in draft new Rule 46 (2) and for a request for security for costs and draft new Rule 52(2) are identical: 34

(a) the request shall specify [Rule 46] the rights to be preserved, the measures requested, and the circumstances that require such measures / [Rule 52] the circumstances that require security for costs; (b) the Tribunal shall fix time limits for written and oral submissions on the request, as required; (c) if a party requests [Rule 46] provisional measures / [Rule 52] security for costs before the constitution of the Tribunal, the Secretary-General shall fix time limits for written submissions on the request so that the Tribunal may consider the request promptly upon its constitution; and (d) the Tribunal shall issue its decision on the request within 30 days after the latest of: (i) the constitution of the Tribunal; (ii) the last written submission on the request; or (iii) the last oral submission on the request. Moreover, draft new Rule 46(5) and draft new Rule 52(7) order the parties to promptly disclose any material change in the circumstances upon which the tribunal recommended provisional

114

J. Á. Rueda-García

has read the pleadings of Judge Edward Nottingham in his dissenting opinion in RSM v. Saint Lucia requesting the Administrative Council to address “the general concerns about third-party funding and security for costs (. . .) if there is a problem that needs to be dealt with,”39 particularly whether such request falls within the concept of provisional measure envisioned in Article 47 of the ICSID Convention.40 Like in the case of the IIL in the August 28, 2019 Resolution, ICSID’s current response seems to be in the negative. Draft new Rule 52(1) sets out that, upon request of a party, the tribunal may order any party asserting a claim or counterclaim (like in SCC, a party in an active procedural role) to provide security for costs. Nothing is said when a party merely asserts a defence, although ICSID has justified in the Working Paper #3 that a suggestion that only claimants be required to provide security for costs was rejected.41 Moreover, according to draft new Rule 52(4), the tribunal may consider TPF as evidence relating to a circumstance to order a party to provide security for costs, but the draft Rule emphasizes that the mere “existence of third-party funding by itself is not sufficient to justify an order for security for costs.”42 The Working Paper #3 stresses such principle four times in the explanatory notes of the draft Arbitration

measures/ordered security for costs. Finally, draft new Rule 46(6) and draft new Rule 52(8) allow the tribunal at any time to modify or revoke the provisional measures/order on security for costs, on its own initiative or upon a party’s request. 39 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Dissenting Opinion by Judge Edward W. Nottingham, para. 20. 40 See RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, para. 54. See also Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Government of Grenada, ICSID Case No. ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs, 14 October 2010, para. 5.16, http://icsidfiles. worldbank.org/icsid/ ICSIDBLOBS /OnlineAwards/C980/DC1731_En.pdf, where Judge Nottingham also issued a dissenting opinion feeling that the tribunal lacked jurisdiction to order the posting of security for costs, among other reasons, because “there is no express provision allowing a Tribunal to order such a posting in the ICSID Convention or Arbitration Rules.” 41 See Working Paper #3, p. 334, para. 131: “On AR [Arbitration Rule] 52(1), a few States and one public commentator reiterated the suggestion that only claimants be required to provide security for costs. This suggestion has not been adopted. Consistent with the objective of rules balanced between investors and States, the rule is available to any party that incurs costs as a result of having to defend a claim or counterclaim.” See, in any event, Pey Casado v. Chile, Decision on the adoption of provisional measures requested by the Parties, para. 83, where the tribunal showed its surprise that the possibility to order security for costs was not foreseen in the ICSID Convention as far as payment of costs by claimants is concerned, “le paiement des dépens par un Etat ne suscitant, en revanche, aucun problème compte tenu à la fois de la solvabilité de l’Etat, souligné à juste titre par la Partie défenderesse, et du caractère internationalement obligatoire et exécutoire des sentences arbitrales dans le système CIRDI.” 42 An opposite view can be seen in Harwood et al. (2017), pp. 107–109, where it is argued that the claimant’s reliance on TPF does constitute a ground for making an order for security for costs and that “a third-party funder with confidence in the claims may well decide to finance the security, and some funders even consider this part of their normal commitment.”

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

115

Rules,43 noting in particular that “an automatic order for security for costs could unreasonably impede access to ICSID dispute resolution mechanisms, particularly for SMEs.”44 Draft new Rule 52(4) seems to support the findings of a number of arbitral tribunals, including those of the chairman of the tribunal in RSM v. Saint Lucia (Professor Siegfried Elsing), who found (in an apparent majority with co-arbitrator Dr. Gavan Griffith QC) that the existence of TPF ruled as an additional reason (but not the sole reason) to grant the respondent’s request for security for costs: “the admitted third party funding further supports the Tribunal’s concern that Claimant will not comply with a costs award rendered against it, since, in the absence of security or guarantees being offered, it is doubtful whether the third party will assume responsibility for honoring such an award.”45 Mention is made to the chairman of the tribunal only because the respondent’s co-arbitrator (Dr. Gavan Griffith, QC) issued so-called “Assenting Reasons” that raise serious doubts, in our view, on whether there was actually a majority on that point of the tribunal’s order for security for costs. Indeed, Dr. Griffith expressed very strong criticism46 against the “new industry of mercantile adventurers as professional BIT claims funders”47 and suggested a shift in the burden of proof of the solvency of the claimant whenever TPF arrangements appear to exist: “My determinative proposition is that once it appears that there is third party funding of an investor’s claims, the onus is cast on the claimant to disclose all relevant factors and to make a case why security for costs orders should not be made.”48 Draft new Rule 52 of Working Paper #3 is clearly not following such approach. On another note, Dr. Griffith supported the idea that, in the event of TPF schemes, the traditional requirement of demonstrating the tribunal’s jurisdiction prima facie for the granting of provisional measures should not be required when states request security for costs: Whilst under a BIT treaty claim an investor claimant may be required to establish prima facie jurisdiction to obtain an order for provisional measures, conceptually it is inadmissible to apply any such requirement upon a respondent State party’s application for security for costs orders. (. . .) For these reasons, I would recast the possibility hinted at paras 59 and 60 [of the Decision] to the level of an absolute proposition that there is no requirement for a respondent

43

See Working Paper #3, pp. 295–296, para. 57 (Rule 14); p. 334, paras 130, 133, 134 (Rule 52). Working Paper #3, p. 334, para. 133 (Rule 52). 45 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, para. 83. 46 Dr. Griffith was later challenged by the claimant in view of the contents of the Assenting Reasons, but the proposal was dismissed by the rest of the tribunal. See RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Claimant’s Proposal for the Disqualification of Dr. Gavan Griffith QC, 23 October 2014, paras 76–90, https://www.italaw.com/sites/default/files/ case-documents/italaw4062.pdf. 47 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Assenting reasons of Gavan Griffith, para. 14. 48 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Assenting reasons of Gavan Griffith, para. 18. 44

116

J. Á. Rueda-García

party applying for provisional measures to establish any, let alone prima facie, position on jurisdiction.49

Current Draft new Rule 52 leaves this question open, as does draft new Rule 46 for provisional measures. Moreover, draft new Rule 52(4) seems to be also in line with the findings of the tribunal in Muhammet Çap v. Turkmenistan, where the tribunal ordered the claimants to disclose the existence of TPF of their claim based on some factors, including the respondent state’s intention to apply for security for costs. The tribunal noted that “[i]t is unclear on what basis such application will be made, e.g. Claimants’ inability to pay Respondent’s costs and/or the existence of a third party funder.”50 However, the tribunal declared that it was “sympathetic to Respondent’s concern that if it is successful in this arbitration and a costs order is made in its favour, Claimants would be unable to meet these costs and the third-party funder will have disappeared as it is not a party to this arbitration.”51 Finally, draft new Rule 52 would be available also for ad hoc Committees dealing with requests for annulment of ICSID awards. In this regard, draft new Rule 71 does not prohibit the application of the specific provision on security for costs to the procedure applicable to interpretation, revision and annulment of awards.52

3.2.3.2

Analysis from the Point of View of the Access to Arbitration or to Justice

In order to categorize the new approach taken by ICSID regarding security for costs, and notwithstanding the final agreement of the ICSID Contracting States on the new Arbitration Rules, we can start by recalling that Judge Nottingham wondered in his dissenting opinion in RSM v. Saint Lucia as follows: “Is such funding [TPF] a legitimate tool allowing the pursuit of meritorious claims which otherwise could not be brought? Or is it a form of reprehensible barratry?”53 The solution reached for the moment by ICSID seems to support the first alternative, particularly when the Working Paper #3 affirms that “States generally recognize that TPF is a widely available mechanism that provides important

49

RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Assenting reasons of Gavan Griffith, paras 4 and 6. 50 Muhammet Çap v. Turkmenistan, PO No. 3, para. 10. 51 Muhammet Çap v. Turkmenistan, PO No. 3, para. 12. 52 See the problem in Commerce Group v. El Salvador, Decision on El Salvador’s application for Security for Costs, 20 September 2012, paras 39–42. The same conclusion of applicability to annulment proceedings can be seen in Luttrell (2019), pp. 390, 392–393 (referring to the provisions as numbered and drafted in Working Paper #2). 53 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Dissenting Opinion by Judge Edward W. Nottingham, para. 19.

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

117

systemic benefits, for example, by enhancing access to arbitration for small and medium enterprises (“SMEs”).”54 Such “access to arbitration” is of course “access to justice” in the circumstances of investment arbitration expressed at the beginning of this chapter. In this regard, although the expression ‘access to justice’ is not included as such in Working Paper #3, it did appear three times in Working Paper #2.55 This means, in our view, that ICSID is aware of the positive role to be played by TPF regarding access to arbitration or to justice of any party in an investment dispute. Consequently, ICSID arbitral tribunals applying the upcoming new Arbitration Rules (if their contents were in the end those included in Working Paper #3) must then consider this principle whenever TPF is concerned. In this regard, it is telling that, contrary to what happens with provisional measures under Rule 39(3) of the 2006 Arbitration Rules currently in force or what would happen with draft new Rule 46(4), draft new Rule 52 does not give the tribunal the express power to order security for costs on its own initiative, thus limiting the tribunal’s margin of appreciation to order such a measure.56 Second, Judge Nottingham also highlighted that security for costs is “a provision with the potential for significant limitation on investor-claimants’ access to ICSID.”57 Meanwhile, the majority in RSM v. Saint Lucia stroke a balance between the interests at stake when it decided to grant the measure requested by the host state: Against the background of the aforesaid, the Tribunal, after carefully balancing Respondent’s interest with Claimant’s right to access to justice, is confident that the described circumstances constitute sufficient grounds and exceptional circumstances as required by ICSID jurisprudence for ordering Claimant to provide security for costs.58

54

See Working Paper #3, p. 295, para. 51. See Working Paper #2, Vol. 1, March 2019, p. 120, para. 127 (on draft new Rule 13, now draft new Rule 14); p. 234, para. 357 and p. 235, para. 360 (on draft new Rule 51, now draft new Rule 52). 56 On another note, while Rule 39(3) of the 2006 Arbitration Rules and draft new Rule 46(4) allow the tribunal to recommend provisional measures different from those requested by a party, it seems that draft new Rule 52(5) will allow the tribunal to modify the party’s request when it “shall specify any relevant terms in an order to provide security for costs and shall fix a time limit for compliance with the order.” 57 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, Dissenting Opinion by Judge Edward W. Nottingham, para. 8. 58 RSM v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs, para. 87. In that case, the claimant had not disclosed the name of the TPF provider, nor had it identified the terms of the agreement it had entered into with it. The majority affirmed that “Against this background, the Tribunal regards it as unjustified to burden Respondent with the risk emanating from the uncertainty as to whether or not the unknown third party will be willing to comply with a potential costs award in Respondent’s favor” (para. 83). See also Assenting reasons of Gavan Griffith, para. 12: “It is increasingly common for BIT claims to be financed by an identified, or (as here) unidentified third party funder, either related to the nominal claimant or one that engages in the business venture of advancing money to fund the Claimant’s claim, essentially as a joint-venture to share the rewards of success but, if security for costs orders are not made, to risk no more than its spent costs in the event of failure.” 55

118

J. Á. Rueda-García

In this regard, draft new Rule 52(3) states that, in determining whether to order a party to provide security for costs, the Tribunal shall consider all relevant circumstances, including, letter (c) says, the effect that providing security for costs may have on the party’s ability to pursue its claim or counterclaim.59 This is not new,60 but a constant in the decisions on provisional measures rendered by ICSID tribunals when they assess the proportionality of the requested measure, as well as another intrinsic legal link between provisional measures and security for costs in ICSID arbitration.61 In this sense, as early as in 1999, the tribunal in Maffezini v. Spain rejected the request to require the claimant to post a guaranty, bond or similar instrument in the amount of the costs expected to be incurred by the respondent state in defending against that action62 because “[a] determination at this time which may cast a shadow on either party’s ability to present its case is not acceptable. It would be improper for the Tribunal to pre-judge the Claimant’s case by recommending provisional measures of this nature.”63 This principle has been endorsed systematically by ICSID arbitral tribunals like the landmark decision in Pey Casado v. Chile,64 as well as in the series of cases dealing with security for costs and TPF starting with RSM v. Grenada: “It is simply not part of the ICSID dispute resolution system that an investor’s claim should be heard only upon the establishment of a sufficient financial standing of the investor to meet a possible costs award.”65

59 Draft new Rule 52(3): “In determining whether to order a party to provide security for costs, the Tribunal shall consider all relevant circumstances, including:

(a) that party’s ability to comply with an adverse decision on costs; (b) that party’s willingness to comply with an adverse decision on costs; (c) the effect that providing security for costs may have on that party’s ability to pursue its claim or counterclaim; and (d) the conduct of the parties.” 60 Draft new Rule 52(3) in Working Paper #3 is more elaborated than Draft new Rule 51(3) in Working Paper #2. The Working Paper #2 text led Luttrell (2019), pp. 390–392 to rightly criticize that the proposal “[did] not contain any express wording to indicate that a particularly high threshold must be met for security to be granted, and indeed the Working Paper suggests that Draft Rule 51 is intended to lower the threshold that an applicant for security must meet.” The same author showed his concern that the draft rule would limit a party’s access to justice. 61 In fact, draft new Rule 46(3)(b) orders the tribunal, in deciding whether to recommend provisional measures, to consider, among all relevant circumstances, “the effect that the measures may have on each party.” 62 See Maffezini v. Spain, PO No. 2, para. 2. 63 Maffezini v. Spain, PO No. 2, para. 21. 64 See Pey Casado v. Chile, Decision on the adoption of provisional measures requested by the Parties, para. 86: “En d’autres termes, rien n’indique que, dans le système de la Convention, la requête soumise par un investisseur ne devrait être considérée comme recevable qu’à la condition pour le demandeur d’établir sa propre solvabilité. Pareille restriction à la protection des investissements serait certes concevable, mais elle aurait pu et dû être prévue expressément, que ce soit par la Convention de Washington ou par le Traité bilatéral entre le Chili et l’Espagne.” 65 RSM v. Grenada, Tribunal’s Decision on Respondent’s Application, para. 5.19.

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

119

The same applies to the conclusions reached by the tribunal in EuroGas v. Slovakia: The Tribunal is of the view that financial difficulties and third-party funding – which has become a common practice – do not necessarily constitute per se exceptional circumstances justifying that the Respondent be granted an order of security for costs.66

And, last but not least, Eskosol v. Italy: [P]roportionality is a critical part of any provisional measures analysis, and a party seeking provisional measures must demonstrate that its need for the measures are not outweighed by the hardships to which the other party would be subjected if the measures are granted. This type of proportionality analysis would be particularly critical where the burden of a potential measure is one that is said to impinge, at least potentially, on a party’s ability to pursue its claims or defenses at ICSID. A tribunal should not lightly recommend a provisional measure that could impede access to justice.67

Moreover, even in non-ICSID cases, arbitral tribunals have affirmed that the existence of TPF cannot be the sole reason for the granting of security for costs in light of the need to respect the right to access to justice: The Tribunal considers that while the existence of a third-party funder may be an element to be taken into consideration in deciding on a measure as the one requested by Bolivia, this element alone may not lead to the adoption of the measure. (. . .) The existence of the thirdparty funder alone does not evidence the impossibility of payment or insolvency (. . .) If the existence of these third-party funders alone, without considering other factors, becomes determinative on granting or rejecting a request for security for costs, respondents could request and obtain the security on a systematic basis, increasing the risk of blocking potentially legitimate claims.68

For the foregoing, reading in conjunction the positive approach towards TPF that the new Arbitration Rules would have in terms of access to arbitration or to justice and the draft new Rule 52, ICSID arbitral tribunals should not grant security for costs automatically whenever TPF is involved, but only in light of all the factual circumstances of the case and, in practice, only exceptionally.69

66

EuroGas v. Slovakia, PO No. 3, para. 123. Eskosol v. Italy, PO No. 3, para. 38. 68 South American Silver v. Bolivia, PO No. 10, paras. 75–77. 69 See EuroGas v. Slovakia, PO No. 3, para. 121. See also Pey Casado v. Chile, Decision on the adoption of provisional measures requested by the Parties, para. 86: “De cette première conclusion provisoire résulte seulement que la recommandation « d’une caution » pour le paiement d’éventuels dépens ne saurait être admise comme une mesure générale et ordinaire.” 67

120

J. Á. Rueda-García

4 Conclusion TPF is part of the financial sector for good and evil. But, at the same time, it is part of a wider effort to help parties to afford the right to present a claim or defence before a court or tribunal. As far as investment arbitration is concerned, TPF can help any of the parties, bearing in mind that investors may also be small- and medium-sized companies and that developing states may pursue counterclaims under investment contracts or even investment treaties. Contrary to more ambiguous approaches by the IIL and SCC, ICSID seems to be aware of the role played by TPF and is limiting arbitral tribunals’ discretion to order security for costs simply because a party acknowledges having funds from a TPF provider. Any other approach may lead arbitral tribunals to improperly establish barriers to the enforcement of the parties’ fundamental right to access to justice.

References Dolzer R, Schreuer C (2012) Principles of international investment law, 2nd edn. Oxford University Press, Oxford Garcia FJ, Hough K (2018) Third party funding in international investor-state arbitration. ASIL Insights 22:16. https://www.asil.org/insights/volume/22/issue/16/third-party-funding-interna tional-investor-state-arbitration Harwood MK, Batifort SN, Trahanas C (2017) Third-party funding: security for costs and other key issues. In: Legum B (ed) The investment treaty arbitration review, 2nd edn. The Law Reviews, London, pp 103–121 Lamm CB, Hellbeck ER (2013) Third-party funding and investor-state arbitration. Introduction and overview. In: Cremades BM, Dimolitsa A (eds) Third-party funding in international arbitration. International Chamber of Commerce, Paris, pp 101–121 Luttrell S (2019) Observations on the proposed new ICSID regime for security for costs. J Int Arbitr 36(3):385–400 Neuberger L (2013) From barretry, maintenance and champerty to litigation funding, Harbour Litigation Funding first annual lecture, Gray’s Inn. https://www.supremecourt.uk/docs/speech130508.pdf Oldenstam R, Löf K, Foerster A, Razani A, Ringquist F, Skogman A (2019) Mannheimer Swartling’s concise guide to arbitration in Sweden. Mannheimer Swartling Advokatbyrå, Stockholm Sahani V, Smith M, Deniger C (2018) Third-party financing in investment arbitration. In: Beharry CL (ed) Contemporary and emerging issues on the law of damages and valuation in international investment arbitration. Brill, Leiden, pp 27–56 Yeşilırmak A (2005) Provisional measures in international commercial arbitration. Kluwer Law International, The Hague

Third-Party Funding and Access to Justice in Investment Arbitration: Security. . .

121

José Ángel Rueda-García is an attorney-at-law (Senior Associate) at Cuatrecasas, Gonçalves Pereira, Madrid (Spain). He focuses his practice on public and private international law issues and international arbitration (both commercial and investment treaty). He has a Ph.D summa cum laude from the University of Alcalá (Madrid) since 2009. He has authored many articles and chapters on international law and arbitration topics.

A Quantum Expert’s Perspective on Third-Party Funding Richard E. Walck

Contents 1 The Policy Debate Over Third-Party Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A Quantum Expert’s Perspective: Some Practical Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123 126 130 130

Abstract Third-party funding (TPF) has expanded significantly in recent years, and in the process, it has generated considerable controversy, particularly as it has been used in the context of investor-state dispute settlement (ISDS). This chapter briefly outlines the policy debate. Those who support the use of TPF generally frame that debate as one of access to justice. Under this view, TPF enables claimants who have good claims, but little money, to finance the cost of bringing that claim to an arbitral venue. Detractors argue that TPF shifts the historic focus of the case from the client’s interest to the funder’s interest, making return on investment the key metric for bringing such claims. The ICCA—Queen Mary Task Force on Third-Party Funding has begun the process of identifying and assessing these competing interests, and it has suggested a number of best practices based on its work. Undoubtedly, the ground rules for TPF will be subject to change as the market gains more experience with it. In the meantime, this chapter offers some pragmatic suggestions that may be helpful to parties in implementing TPF in the resolution of disputes.

R. E. Walck (*) Global Financial Analytics LLC, Reston, VA, USA e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_8

123

124

R. E. Walck

1 The Policy Debate Over Third-Party Funding Supporters of TPF argue that it provides greater access to justice, particularly for small and medium sized companies or individuals who would otherwise lack the resources to bring a claim.1 While that role has been partially filled historically by law firms willing to take engagements on a contingent-fee basis, TPF opens new avenues for funding the costs of bringing a claim. Those new avenues, however, may give rise to unique challenges that the current dispute resolution mechanisms have not yet fully addressed. As Guven and Johnson note: [W]hen pursuing and settling contingency fee cases, lawyers are bound to act in the interests of their clients. In contrast, third-party funding creates a new role for another actor (or, in the case of ISDS, a new financial services industry) acting in its own interests in pursuit of a financial award.2

In a recent OGEMID discussion of third-party funding and ISDS, Prof. Georgio Sacerdoti pointed out that EuCJ Opinion 1/17 stated that “care must be devoted to ensure access to [the Investment Court in CETA] by small and medium size enterprises (SME), lest there be established a discrimination in the access to justice.”3 Other comments in that discussion thread indicated that, at times, TPF had been instrumental in being able to successfully bring a claim, while at other times, particularly for claims that are relatively small (say, in the €10 million–€20 million range), it is difficult to make TPF work successfully for all parties.4 Opponents of the use of TPF, particularly within the ISDS system, have at times been strident in their opposition. Some have argued that access to justice is not the issue, access to monetary return is the real goal. Frank Garcia writes: Traditionally access to justice has meant capacity-building for social justice, or, in other words, providing financing or other support for parties who lack the human and financial resources to litigate. In contrast, as TPF funders readily and publicly acknowledge, TPF in ISDS is primarily about balance-sheet management, offering well-resourced claimants the ability to minimize the risk associated with bringing a claim, and does not focus on providing funding to impecunious or disadvantaged claimants.5

Mr. Garcia is joined by Kirrin Hough in a later article, asserting that TPF should be regulated or banned by states in their investment agreements. The authors argue that, unlike in commercial matters, where the funder’s profits come from corporate

1

See in this volume, chapter by José Ángel Rueda-García, Third-party funding and access to justice in investment arbitration: security for costs as a provisional measure or a standalone procedural category in the newest developments in international investment law. 2 Guven and Johnson (2019), p. 4 (emphasis in original). 3 OGEMID discussion thread (2019), at https://www.transnational-dispute-management.com/mem bers/ogemid/2019/05/msg00083.asp?highlight¼eucj. 4 OGEMID discussion thread (2019), at https://www.transnational-dispute-management.com/mem bers/ogemid/2019/05/msg00083.asp?highlight¼eucj. 5 Garcia (2018), p. 2924.

A Quantum Expert’s Perspective on Third-Party Funding

125

shareholders, TPF profits in ISDS come from the public treasury, i.e., taxpayers.6 The authors’ statement implies that the result will be less favorable to the state, and its taxpayers, if TPF is used to fund the claim. This is perhaps a bridge too far, as it is the successful claimant who pays the cost of the proceeding, whatever the source of funding. If the amount of the award is based on a solid analysis of the merits of the quantum case, it should be the same whether funded by a third party or not. A more nuanced argument against TPF is set out by Tara Santosuosso and Randall Scarlett. Funders typically argue that they have no incentive to fund marginal cases, since the likelihood of return is uncertain. In assessing the likelihood of success, the authors argue that the analysis favors cases against underdeveloped countries: [T]he cost-benefit analysis performed by sophisticated funders necessarily involves analysis of the factors that contribute to the likelihood of success and, in turn, the likelihood of return on investment. This is concerning because empirical evidence points to a correlation between lower per capita income and weaker rule of law in the respondent state and increased likelihood of the investor-claimant’s success. [fn] The funder would necessarily factor this correlation into its risk analysis when selecting claims to fund, resulting in nonmerit-based factors driving claim selection and more claims being directed at the leastdeveloped countries (“LDCs”).7

Once again, care should be taken to ensure that causation is not carelessly imputed to TPF. The fact that claims are successfully brought against LDCs likely has a strong correlation to the existence of weaker legal systems in those countries, making the existence of circumstances that give rise to claims more likely. That may, in turn, make such cases more appealing to a funder, but it is unlikely that an unmeritorious claim would be funded by TPF simply because the respondent state is less developed. Furthermore, prior to even making such assertions, some researchers have found the initial premise that claims are brought chiefly against LDCs to be incorrect.8 The ICCA—Queen Mary Task Force on Third-Party Funding addressed these and many other policy issues in the use of TPF, noting at the outset that TPF has been viewed as the “arbitration antichrist” by some and as “the best thing since sliced bread” by others.9 The task force identified a series of policy questions for its members to address:

6

Garcia and Hough (2019). Santosuosso and Scarlett (2018), p. 6. 8 Guven and Johnson (2019), p. 23, citing the work of Krzystof Pelc: “[M]ost respondent countries are not rent-seeking regimes with low rule of law, but stable democracies with independent judiciaries.” 9 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), p. 5, fn. 12, citing from Sebastien Perry, Third-Party Funding: The Best Thing Since Sliced Bread?” (GAR, November 2012). 7

126

R. E. Walck

• Does third-party funding promote “access to justice”? From the perspective of claimants? States? Third parties? What do we mean by “access to justice”? Is third-party funding necessary for “access to justice”? • Does the use of third-party funding as a way to manage funds and a corporate balance sheet, as opposed to funding impecunious claimants, change the public policy issues surrounding third-party funding? Why or why not? • Does third-party funding impact the number of cases? The quality? Does thirdparty funding increase or decrease frivolous cases? What is meant by a “frivolous” case? • Does third-party funding ameliorate or exacerbate systemic power imbalances? How? • What are the policy arguments for permitting, and for not permitting, third-party funding in ISDS? • How does third-party funding ameliorate or exacerbate concerns about ISDS as a general matter?10 These important policy discussions will no doubt take time to debate and resolve, as will the many questions that arise regarding the potential of TPF to bring about conflicts of interest or to impact privilege. In the meantime, are there practical issues that arise which can be addressed without significant policy implications, and to the extent there are, what suggestions can be offered from the perspective of the quantum expert? The balance of this chapter will attempt to shed some light on that question.

2 A Quantum Expert’s Perspective: Some Practical Issues While the important policy issues occupy most of the debate over TPF, there are some practical issues that can, and should, be addressed in the process of arranging funding for a claim that, if well thought through at the outset, may help avoid problems once the case is underway. The ICCA-QM Report identified a list of best practices for parties, counsel, tribunals and funders to consider when assessing a TPF arrangement. These best practices include issues of disclosure, conflicts of interest, privilege, funding terms, case management and costs (including security for costs).11 One of the potentially vexing problems in implementing a TPF arrangement is keeping the interests of the funder and the client from becoming misaligned. Researchers have suggested that the risk appetite of the funder may differ from that of the claimant, leading to a distortion of the normal evaluation of potential 10

Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), pp. 236–237. 11 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), Chapter 7.

A Quantum Expert’s Perspective on Third-Party Funding

127

settlement.12 Others have suggested that by adding a “repeat player” to an ISDS claimant’s team, asymmetries between the one-time claimant and the repeat-player respondent state can be leveled.13 Much of the difficulty in consulting on projects that utilized TPF arises from the initial structure of the funding arrangement. While many commentators have observed that a crude rule of thumb is that the realistic anticipated recovery should be at least ten times the funding request14 (a rule I have seen funders use in my own practice), if given too much weight, it can lead to less than optimal results. What happens, for example, when the assessment of the “realistic anticipated recovery” is inaccurate? If the funder’s assessment is too low, the funding may be capped at an amount that is insufficient to fully fund the arbitral process, leading to the need for subsequent renegotiation of the funding agreement. As the ICCA-QM Report noted, “a light or overly optimistic budget may be a cause for concern. While the funding commitment will be limited to a fixed or staged sum, a case which exceeds the budget where there is no pre-agreed mechanism in place to deal with the overrun can be problematic for all parties. . .”15 Conversely, if the funder’s assessment of potential recovery is too high, unrealistic claims that lack sufficient support may be embraced long past the point at which they should have been jettisoned. Further, such unrealistic expectations may impede the possibility of a negotiated settlement on a more realistic basis, since the settlement proceeds would principally benefit the funder, but not the claimant. This, in turn, fuels the arguments of those who believe TPF incentivizes the bringing of unmeritorious claims.16 A successful funder will naturally engage in its own due diligence and assessment of the merits of the case, the likelihood of success on the merits, the potential recovery, and the potential enforcement of an award in evaluating whether to fund a claim.17 That initial evaluation should include additional consideration of all of the potential outcomes. In a binary world, a party might simply assess the likelihood of winning versus losing, and assuming a win, put some monetary range on the potential outcome. But the world of ISDS is not so binary. Some causes of action may fail, while others succeed, and the quantum outcome may differ considerably. A tribunal might order a non-monetary remedy, such as restitution of an expropriated property, making payment of the funder’s share difficult. While the proposed

12

See, e.g., Franck (2019), p. 311, fn. 71. Guven and Johnson (2019), p. 30. 14 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), p. 25. 15 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), p. 26. 16 It may also serve to stretch a potentially meritorious, but relatively small, claim into a much larger, but manifestly less meritorious claim. 17 See in this volume chapter by María Beatriz Burghetto, Risk assessment and third-party funding in investment arbitration. 13

128

R. E. Walck

restitution in settlement of an ISDS claim might be viewed by the claimant as an ideal solution, the funder may not be so happy with that resolution. An additional challenge exists when viable claims will likely result in a relatively small recovery. The ICCA-QM Report noted that this is a potential issue in obtaining funding in the first place: By far the most common reason for a potential opportunity to be turned down by a funder is not concerns over the legal merits of the case. Instead, when funders turn down a case it is more typically due to concerns that the quantum of the claim (or at least the realistic recovery or likely settlement value) will not be sufficient to justify the level of investment required to finance the arbitration budget.18

Claimants, of course, have a very similar analysis when deciding whether to bring a claim—will the likelihood of success, the expected legal costs and the potential recovery combine in a way that makes sense to the claimant? If TPF can enhance the chances of answering that question affirmatively, it can contribute positively to the claimant’s access to justice. If it simply adds another party to be paid from the same fixed settlement or award, it is of questionable incremental value. And if the need to pay the funder causes the claimant to stretch a small, but solid and well documented, claim into a larger, more speculative one, we can legitimately question whether that has, in fact, made things worse. Consider an alternative way to handle such smaller claims that focuses on potential settlement of the claim. As noted in the ICCA-QM Report, funding agreements commonly take the case duration into account, since a shorter duration puts the funder’s capital at risk for a shorter period. As the case progresses, and additional funding is needed, the funder’s return increases. The ICCA-QM Report suggests that such a structure can facilitate settlement.19 Using that as a starting point, a claimant might undertake a high-level initial study of the legal merits, as well as the quantum of likely recovery, with an eye toward engaging in settlement discussions, or alternatively, with the objective of filing a conciliation proceeding, rather than an arbitration. This would be well short of the “no stone left unturned” approach to contested proceedings that causes costs to balloon, and if successful, would provide claimant and its funder with a quicker, albeit lower, sum in settlement. This approach, of course, risks reversing the presumed leverage that many of the critics of ISDS claim rests with claimants, namely, that large, well-capitalized companies have the ability to push around small LDCs at the ultimate expense of the respondent country’s taxpayers. Smaller claimants can be more easily pushed around by respondent countries, including LDCs, who have the regulatory mechanisms to stymie an investment and the tax authority with which to fund their defense. While some respondent states may be tempted to resist settlement of a legally sound

18

Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), p. 25. 19 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), p. 27.

A Quantum Expert’s Perspective on Third-Party Funding

129

but thinly funded claim, other states may see the benefit of enhancing their reputation as a safe place to invest and one that honors its contractual and investment treaty commitments. All of these considerations point to the benefit of carefully structuring a funding arrangement, so that the needs of all parties are addressed, and in which misalignment of interests is avoided and mechanisms are put in place to identify and resolve issues early. This requires each of the parties to the agreement—client, funder and counsel—to assess realistically the costs, potential outcomes and duration of the project, and to look at ways that cost and duration might be lowered via settlement. It also requires the parties to structure the sharing of potential outcomes in a way that avoids providing incentives for sub-optimal behaviour. Finally, the question of recovery of costs should not be overlooked, particularly when dealing with a smaller claim. Much of the recent discourse on the impact of TPF on costs has focused on two issues: (a) should the presence of TPF impact the recoverability of costs (or the amount of cost recovery) and (b) should the tribunal consider TPF when deciding whether to grant a party security for costs?20 These questions, like the policy questions summarized in an earlier section of this chapter, will likely be debated for some time to come. There is, however, a practical aspect to the question of costs in which the quantum analysis place a key role. As Micha Bühler points out, several factors may be taken into account by a tribunal in fashioning an award of cost, the most significant of which is the degree of success. Bühler cites other considerations, including party conduct, the bona fides of the claims and the taking of unreasonable positions, as contributing factors in a tribunal’s analysis.21 For a claimant with TPF, it may be critically important to obtain an award of costs. That added monetary sum can make the difference between obtaining a result that pays the funder and counsel, but leaves little or nothing for the successful claimant, and one that provides a reasonable outcome for all. The best way to achieve that is to fashion a compact, well-supported claim that doesn’t wander far afield into the speculative world of assumptions about what might have happened under ideal circumstances, but stays focused on what is premised on documents and facts. And certainly respondent states shouldn’t argue if they do not have to go to the expense of defending an exaggerated claim. Ironically, a larger claim amount can result in a lower award amount, when that larger claim is more suspect and the cost award is reduced.

20

See, generally, Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018), Chapter 6; Franck (2019), Chapter 6; dos Santos (2017), pp. 926–928. 21 Bühler (2017), Chapter 18.

130

R. E. Walck

3 Conclusions The debate over the use of TPF, particularly in ISDS, has raged for some time and likely will not abate any time soon. The ICCA-QM Report makes important strides in addressing the somewhat polarized positions of stakeholders, providing a balanced assessment of those views along with a list of best practices. The temptation to stretch a claim, so that there is something left for the claimant at the end of the proceeding, can backfire. Claimants are best advised to consider various potential outcomes and contingencies in the negotiation of the funding arrangement, so that the claimant and funder can both take something from the settlement or award. From there, the focus should be on putting forth a solid, wellreasoned and well-supported calculation, rather than asking the quantum expert to reach a figure that is beyond that which can be supported by the evidence. The focus on a realistic, supportable quantum analysis is key to making successful arrangements with the funder and counsel, and serves to enhance the potential for cost recovery. The award of costs can make all the difference in the final outcome for the claimant.

References Bühler M (2017) Costs. In: Trenor J (ed) The guide to damages in international arbitration. Law Business Research Ltd, London, pp 253–270 Dos Santos C (2017) Third-party funding in international commercial arbitration: a wolf in sheep’s clothing? ASA Bull 35(4):926–928 Franck S (2019) Arbitration costs. Oxford University Press, New York Garcia F (2018) Third-party funding as exploitation of the investment treaty system. Boston College Law Rev 29:2911–2934 Garcia F, Hough K (2019) The case against third-party funding in investment arbitration. Columbia FDI Perspectives No. 253. http://ccsi.columbia.edu/files/2019/06/No-253-Garcia-and-HoughFINAL.pdf Guven B, Johnson L (2019) The policy implications of third-party funding in investor-state dispute settlement. Columbia Center on Sustainable Investment working paper. http://ccsi.columbia. edu/files/2017/11/The-Policy-Implications-of-Third-Party-Funding-in-Investor-State-DisptueSettlement-FINAL.pdf Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (2018) International Council for Commercial Arbitration. https://www.arbitration-icca.org/ media/10/40280243154551/icca_reports_4_tpf_final_for_print_5_april.pdf Santosuosso T, Scarlett R (2018) Third-party funding in investment arbitration: misappropriation of access to justice rhetoric by global speculative finance. Boston College Law School working paper. https://lawdigitalcommons.bc.edu/ljawps/8/

A Quantum Expert’s Perspective on Third-Party Funding

131

Richard E. (Rory) Walck is a partner and co-founder of Global Financial Analytics LLC. He has provided expert services on damages and valuation in several hundred matters, including international investment and commercial arbitration, domestic litigation and regulatory proceedings, and has provided expert testimony in several dozen of those contested matters. Mr. Walck holds undergraduate degrees with high honor in philosophy and business from the Honors College at Michigan State University and a Master of Business Administration degree from the University of Chicago. He holds numerous professional certifications in accounting, finance and valuation.

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in Investment Arbitration Ina C. Popova and Katherine R. Seifert

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Gatekeeping: Does Funding Facilitate Meritless Claims? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Lawmaking: Development of Novel Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Security for Costs and Costs Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Rulemaking: The Structural Response to Third-Party Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Rules Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third-Party Funding Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134 135 141 141 144 145 146 149 150 151 151 153

Abstract The increased involvement of third-party funders in international investment arbitration has prompted academics and practitioners to consider how these actors fit within the traditional framework of investment disputes. While some argue that the availability of third-party funding will result in an increased number of frivolous claims, others view alternative forms of financing as a mechanism to facilitate access to justice. In practice, third-party funders appear to play a gatekeeping role for meritorious claims and a modest empirical analysis tends to support this conclusion. Tribunals have served a quasi-lawmaking function by addressing the existence of third-party funders in investment arbitration proceedings, resulting in guidance on the issues of security for costs, costs awards, and disclosure obligations.

The opinions stated in this chapter are those of the authors and do not reflect the views or positions of Debevoise & Plimpton LLP or its clients. The authors are grateful to associates Sebastian Dutz and Jonathan Florez at Debevoise & Plimpton LLP for their invaluable assistance with this chapter. This chapter is current as of December 2019. Errors are ours alone. I. C. Popova (*) · K. R. Seifert Debevoise & Plimpton LLP, New York, NY, USA e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_9

133

134

I. C. Popova and K. R. Seifert

Instead of prohibiting the practice outright, arbitral institutions have demonstrated a tendency to integrate third-party funding into the regulation of investor-state disputes. These trends reveal an inclination among the international arbitration community to embrace, rather than prohibit, the involvement of third-party funders in investor-state proceedings.

1 Introduction In recent years, third-party funding (TPF) of investor-state law disputes has prompted debate among academics and practitioners who disagree over whether TPF promotes justice or erodes it. Though the breadth and complexity of potential financing arrangements makes a consensus definition elusive, TPF typically refers to an agreement by an entity that is not a party to the dispute to provide a party, an affiliate of that party or a law firm representing that party, (a) funds or other material support in order to finance part or all of the cost of the proceedings [. . .] and (b) such support or financing is either provided in exchange for remuneration or reimbursement that is wholly or partially dependent on the outcome of the dispute, or provided through a grant or in return for a premium payment.1

In short, a third party provides funding to a party to the arbitration as a form of investment in exchange for a prospect of financial return. The confidentiality of most TPF agreements makes it difficult to generate reliable statistics about its prevalence in practice. However, the 2018 Queen Mary University of London arbitration survey revealed that TPF is well known in international arbitration, with 97% of survey respondents aware of TPF and 42% of respondents having encountered TPF in practice.2 From the perspective of proponents of TPF, including many practitioners, TPF is a valuable tool that can increase access to justice and is not analytically different from other forms of corporate financing and balance sheet management.3 A majority of those in the Queen Mary survey reported a “positive” perception of TPF, and those who have used TPF in practice have an even more favourable perception.4 By contrast, others have argued that TPF is a “misappropriation of access to justice 1

International Council for Commercial Arbitration (April 2018), p. 50. White & Case and Queen Mary University of London (2018), p. 24. 3 See Massini (2015), p. 325 (arguing that “[o]ne of the most important benefits of third party funding in international arbitration is that it allows for increased access to justice”); International Council for Commercial Arbitration (April 2018), p. 6 (observing that “in investment arbitration third-party funding has enabled parties to bring meritorious claims that were otherwise financially untenable, and funding has also become available to state parties in investment arbitration”). 4 White & Case and Queen Mary University of London (2018), pp. 24–25. 2

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

135

rhetoric by global speculative finance”5 and have characterised it as a form of exploitation of the perceived asymmetry in investor-state dispute resolution to extract money from developing countries by bringing speculative claims.6 What these theoretical arguments on both sides lack, however, is evidence of how TPF operates in practice. Because the universe of publicly reported funded claims is relatively small, and the number of those claims that have concluded is even smaller, it would be ill-advised—or at least premature—to draw any robust conclusions from such a small dataset. Nevertheless, we endeavour below to make a modest contribution to that challenge by offering some preliminary observations. We analyse TPF from three angles. First, TPF plays a gatekeeping role to the extent that funders conduct due diligence of the merits of claims and the business model encourages funding only meritorious claims. Outcomes of funded cases tend to support this view, based on our empirical analysis of 20 publicly reported, concluded, and funded, investor-state cases. Second, TPF plays a quasi-lawmaking function to the extent that it has prompted investment tribunals to develop guidance on novel issues such as security for costs, the scope of costs awards, and transparency. Third, TPF also fosters rulemaking, namely, efforts by states and arbitral institutions to develop frameworks to regulate TPF. These efforts show that the investment arbitration community has tended to embrace TPF through regulation, rather than attempting to prohibit the practice outright.7

2 Gatekeeping: Does Funding Facilitate Meritless Claims? The fear that TPF will encourage “speculative, marginal and/or frivolous claims”8 presumes that a putative claimant has the financial resources to pursue its claim, but does not believe that it would be a good use of its own money to do so. That assumption may, however, be less appropriate in investment arbitration, where claimants often allege that a state has taken their investment or destroyed its value, than in run-of-the-mill commercial disputes. In fact, in both theory and practice, funders may serve a gatekeeping function in the field of investment arbitration by filtering out, rather than facilitating, frivolous claims.9 First, the theoretical model of TPF does not necessarily encourage meritless claims any more than other, more traditional funding options. In fact, it may

5

Santosuosso and Scarlett (2019), p. I-8. See Garcia (2018), pp. 2928–2931. 7 See Moseley (2019), p. 1182 (“Rather than debate whether third-party funding is permissible, scholars and practitioners have turned their attention toward how third-party funding can be regulated to ensure efficiency, fairness, and procedural integrity.”). 8 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (24 January 2019a), para. 34. 9 See Moseley (2019), p. 1191 (citing von Goeler (2016), pp. 92–93). 6

136

I. C. Popova and K. R. Seifert

incentivise meritorious claims. Since TPF is typically non-recourse—meaning that the funder is only entitled to profits from successful claims, and the funding is not secured against the claimants’ assets—the business model of funders relies on the success of the cases they fund. A funder’s recovery is typically calculated as a preferred return of a multiple of the invested amount and/or a percentage of any proceeds recovered. For example, it was recently reported that a funder in an International Centre for Settlement of Investment Disputes (ICSID) case agreed to provide the claimant up to £2.2 million in exchange for repayment of three times the amount of funding if the claimant prevailed.10 Although greater risk generally entails greater upside reward, like a typical non-equity investor, funders are also concerned with protecting their downside risk.11 They are thus incentivised to choose claims that they believe, based on due diligence, have a solid possibility of success. This is the case even in portfolio arrangements and other forms of financing for multiple cases, which are increasingly popular.12 By contrast, banks may issue loans to a company to institute proceedings regardless of the merits of the claims. In some cases, the loan may be secured by other corporate assets, require repayment regardless of outcome, and may have seniority if the company becomes insolvent. In addition, at least one investment arbitration tribunal has found that TPF should not undergo any greater scrutiny than funding provided by insurers with respect to cost recovery.13 All else being equal, therefore, the involvement of a funder may indicate that the case has more compelling merits than other, more traditional sources of funding, because a sophisticated party with experience in investment claims (and often a broader statistical perspective than the party or its counsel) thinks it is likely to succeed. Second, as a practical matter, claims and awards almost invariably undergo rigorous due diligence before they receive funding. As any client or practitioner who has participated in such a process will appreciate, it can be labour-intensive and time-consuming. Funders claim that they apply stringent criteria, such as whether “the legal theory is tested and has good support” in case law, the “damages theory 10

Bohmer (13 December 2019). See De Brabandere and Lepeltak (2012), p. 384 (the involvement of a funder may “decrease the likelihood of having (patently) frivolous claims submitted to international investment tribunals” and “[b]ecause of the link between the profit of the funder and the positive outcome of the arbitral proceeding, it seems rather unlikely that third party funders would be willing to engage their resources in manifestly unmeritorious claims”). 12 See Burford Capital (2018), Annual Report 2018, https://www.burfordcapital.com/media/1526/ bur-31172-annual-report-2018-web.pdf, p. 25 (noting that as of 31 December 2018, 62% of Burford’s balance sheet investments across arbitration and litigation claims were portfolio arrangements); von Goeler (2016), pp. 93–94 (acknowledging that because some funders may finance claims with “comparatively low probability of success” in the portfolio context, it does “not necessarily mean that frivolous cases will end up being funded” even if they may be considered “comparatively weak”). 13 See Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18, ARB/07/ 15, Award, 3 March 2010, paras 679 et seq. 11

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

137

can be reasonably extrapolated from past performance” and “the economics of the investment do not depend on the case settling early.”14 Other funders explain that in selecting claims, they “will fund only meritorious claims, pursued by motivated claimants against solvent defendants, where the costs are proportionate to the likely recovery, and where the governing law and jurisdiction afford relative certainty.”15 A funder’s analysis therefore involves a review of both the legal and financial elements of the claim and is undertaken with the goal of obtaining “a picture of the case that is as complete, accurate, and objective as possible.”16 This process could help not only to weed out cases that the funder thinks are comparatively weak on their merits, but also to identify areas where the claim could be made stronger, and thus not only validate but also improve its chances of success. Third, to the extent that the outcomes of funded cases reveal any trends, they are consistent with the notion that funded cases tend to have merit. In 2015, an economist published a study based on seven years of data from Australia’s largest litigation funder, including data on which litigation cases were funded, which were rejected, and the outcomes of these funded cases.17 This study found that “[f]unded cases are cited over twice as frequently, cite substantially more cases than unfunded cases, and are less likely to be reversed upon appeal.”18 While our dataset is far smaller, we were inspired by this study to test whether available case outcomes support the suggestion that TPF encourages frivolous claims. We analysed a sample of 20 publicly reported and concluded investor-state cases in which the claimant received TPF. An empirical assessment of these cases reveals that the statistics do not support the idea that funded claimants are more likely to bring frivolous claims, and instead provides some indication that funded claims are at least as successful on their merits as claims in a broader sample of investment arbitration cases. The results are based on a list of publicly reported investor-state cases involving TPF published on the Hauser Global Law School Program of New York University’s GlobaLex research platform.19 While the list does not purport to be exhaustive, the list largely correlates with our own observations of publicly disclosed TPF cases.20

Slater E (18 September 2017), Demystifying the litigation finance diligence process, Burford Capital, https://www.burfordcapital.com/insights/insights-container/demystifying-the-litigationfinance-diligence-process/. 15 Norton Rose Fulbright (September 2016), Third party funding in arbitration – the funders’ perspective, https://www.nortonrosefulbright.com/en-us/knowledge/publications/8b8db7d0/thirdparty-funding-in-arbitration%2D%2Dthe-funders-perspective. 16 von Goeler (2016), pp. 14–15. 17 Chen (2015), p. 25. 18 Chen (2015), p. 25. 19 Chen S, Hough K (May 2019), Researching third-party funding in investor-state dispute settlement, GlobaLex, https://www.nyulawglobal.org/globalex/Third-Party_Funding_Investor-State_ Dispute_Settlement.html. 20 The list does not include three claims funded by third parties as large-scale “class” claims. Abaclat and others v. Argentina, ICSID Case No. ARB/07/5; Ambiente Ufficio SpA and others 14

138

I. C. Popova and K. R. Seifert

To generate the dataset for this chapter, this list was updated and filtered for cases that have concluded with an award by the date of writing.21 Individual cases that were later joined at the hearing stage were disaggregated in the dataset to capture the success of individual claims rather than the number of successful awards.22 To test the theory that TPF facilitates claimants pursuing meritless claims, we removed those cases where only the respondent was funded.23 The final dataset of 20 concluded cases is included as Annex A in this chapter. To compare the results to regular investment claims, we used the ICSID caseload statistics of disputes decided by arbitral tribunals as of 30 June 2019. There are obvious limitations to a sampling of this size. It is a small number overall, it does not include pending cases, and it includes only those cases where the funding was publicly known. The dataset does not include claims where the proceedings were discontinued or where the parties reached a settlement prior to the

v. Argentina, ICSID Case No. ARB/08/9; Giovanni Alemanni and others v. Argentina, ICSID Case No. ARB/07/8; see also International Council for Commercial Arbitration (April 2018), pp. 217–218. In Ambiente and Alemanni, a class of Italian bondholders was funded by a Luxembourg entity called NASAM. Ambiente Ufficio SpA and others v. Argentina, ICSID Case No. ARB 08/9; Giovanni Alemanni and others v. Argentina, ICSID Case No. ARB/07/8. See International Council for Commercial Arbitration (April 2018), p. 218. The third, Abaclat, involved an entity created and funded by Italian banks that controlled the entire ICSID arbitration on behalf of a class of claimants. Abaclat and others v. Argentina, ICSID Case No. ARB/07/5; International Council for Commercial Arbitration (April 2018), p. 217. We also added Michael Ballantine and Lisa Ballantine v. Dominican Republic, PCA Case No. 2016-17, which concluded in a final award declining jurisdiction in September 2019. 21 At the time of writing, the following cases were categorised as pending a final decision and are therefore not included in our dataset: Muhammet Çap Sehil Inşaat Endustri ve Ticaret Ltd. v. Turkmenistan, ICSID Case No. ARB/12/6; Infinito Gold Ltd. v. Costa Rica, ICSID Case No. ARB/14/5; Gabriel Resources Ltd. and Gabriel Resources (Jersey) v. Romania, ICSID Case No. ARB/15/31; Eco Oro Minerals Corp. v. Colombia, ICSID Case No. ARB/16/41; Eskosol S.P.A. in Liquidazione v. Italy, ICSID Case No. ARB/15/50; Luis García Armas v. Venezuela, ICSID Case No. ARB(AF)/16/1; Manuel García Armas et al. v. Venezuela, PCA Case No. 2016-08. The case outcomes in the dataset were updated as of 5 December 2019 by referring to the following sources: Italaw, https://www.italaw.com/; Investment Arbitration Reporter, https://www.iareporter. com/; U.N. Conference on Trade and Development, Investment Policy Hub, https:// investmentpolicy.unctad.org/. 22 Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18, ARB/07/15 and Churchill Mining PLC and Planet Mining Pty Ltd. v. Indonesia, ICSID Case Nos. ARB/12/14, ARB/12/40 were each split into two separate claims. 23 The following cases included a funded respondent: ATA Construction, Industrial and Trading Company v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2; Philip Morris Brand SÀRL, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/ 7; RSM Production Corporation v. Grenada (I), ICSID Case No. ARB/05/14.

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

139

Table 1 Comparison of funded dispute outcomes with outcomes of disputes decided by ICSID tribunals Dispute outcome Award upholding claims in part or in full Award dismissing all claims Award declining jurisdiction Award deciding that the claims are manifestly without legal merit a

Third-Party funded cases 60% 15% 25% 0%

ICSID statistics (1966–2019)a 47% 27% 25% 1%

ICSID, ICSID Caseload—Statistics, Issue 2019-2 (2019), p. 14.

issuance of an award.24 As a result, the percentages simply may not be statistically significant. Moreover, we have not assessed to what extent claimants, even if successful, prevailed on the amount of damages they had initially sought. We know, for example, that some funded claims only received a small percentage of the reported amounts claimed and thus may have been only a Pyrrhic victory.25 In addition, the dataset of reported funded cases includes ICSID cases, but we are comparing them against cases conducted under the ICSID Convention and Additional Facility Rules and over a different time period.26 Keeping these limitations in mind, our review indicates that funded claims to date have been successful on the merits at a greater rate than the average of all ICSID and ICSID Additional Facility cases and performed equally well on jurisdiction. We compare these outcomes in Table 1. As this comparison shows: Funded cases were dismissed at the jurisdictional stage in a quarter of cases: 5/20 funded cases, or 25%. This percentage is the same as the ICSID average. Funded claimants prevailed on at least some, if not all, of their claims in the majority of cases: 12/20 funded cases, or 60%. In comparison, only 47% of all ICSID cases led to an award upholding the claims in part or in full. Tribunals issued an award dismissing all claims in only 3/20 funded cases, or 15%. In ICSID cases, this figure is 27%. These comparisons, albeit inherently imprecise, provide some support for the argument that funded claims are not necessarily less meritorious—at least when they are compared to all disputes that result in an award by the tribunal. In fact, none of

24

For example, one funded case, S&T Oil Equipment and Machinery Ltd. v. Romania, ICSID Case No. ARB/07/13, was discontinued pursuant to Regulation 14(3) of the ICSID Administrative and Financial Regulations due to the failure of the claimant to pay required advances. 25 For example, the tribunal in Stans Energy Corp. and Kutisay Mining LLC v. Kyrgyzstan (II), PCA Case No 2015-32, awarded the claimant $24 million (inclusive of interest and costs) after initially requesting $118 million (exclusive of interest). See Charlotin (22 August 2019). In Oxus Gold PLC v. Uzbekistan, UNCITRAL, the claimant received just over $10 million after submitting a claim ranging from $500 million to $1 billion, depending on the quantification method used. Peterson (3 January 2016). 26 See ICSID, ICSID Caseload—Statistics, Issue 2019-2 (2019), p. 14.

140

I. C. Popova and K. R. Seifert

the three funded cases that resulted in an award dismissing all claims were dismissed on the merits. In RSM v. Saint Lucia, the tribunal dismissed the claimant’s claims with prejudice after the claimant failed to post security for costs.27 In Planet Mining and Churchill Mining, the tribunal found the claims inadmissible after it determined that the mining licences at issue had been procured through fraudulent means.28 In addition, once an award has been rendered, the statistics do not suggest that those awards are more likely to be annulled. Of the five concluded ICSID annulment proceedings where a respondent challenged an award issued in favour of a funded claimant, none of the awards were overturned: two annulment applications were dismissed and three annulment proceedings were discontinued after the parties agreed to settle.29 Admittedly, set-aside results for funded cases in national courts are more mixed: one national court set aside an award; one court denied the set-aside application in its entirety; one court overturned the quantum portion of the award; and one court upheld the tribunal’s decision on jurisdiction.30

27

IAReporter Staff (27 July 2016). The respondent had initially submitted a request for suspension or discontinuation of proceedings, and the tribunal found that it had the authority under Article 44 of the ICSID Convention to determine the appropriate sanction for the claimant’s failure to post the ordered security. The tribunal vacated the proceedings and permitted the respondent to apply for a final award for dismissal after a period of 6 months if the claimant failed to post security during this time. See RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Suspension or Discontinuation of Proceedings, 8 April 2015, paras 52–66. An ad hoc committee partially annulled the award, observing that “there is no reason why a claimant that has had proceedings dismissed for failing to provide security for costs should not, after paying the costs associated with those proceedings and properly providing security for costs in new proceedings, have its claims on the merits considered by another tribunal.” RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10 (Annulment Proceeding), Decision on Annulment, 29 April 2019, para. 199. 28 Churchill Mining PLC and Planet Mining Pty Ltd v. Indonesia, ICSID Case Nos. ARB/12/14 and 12/40, Award, 6 December 2016, para. 528. We have classified this case as “award dismissing all claims” because the tribunal had earlier determined that it had jurisdiction over the claims, but ruled in this subsequent preliminary phase that the claims were inadmissible. 29 See Adem Dogan v. Turkmenistan, ICSID Case No. ARB/09/9, Decision on Annulment, 15 January 2016, para. 282 (annulment request filed by respondent denied); Teinver SA, Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v. Argentina, ICSID Case No ARB/09/1, Decision on Argentina’s Application for Annulment, 29 May 2019, para. 258 (annulment filed by respondent denied); Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18 and ARB/07/15, Decision of the Ad Hoc Committee to Suspend the Annulment Proceeding, 21 March 2011 (suspension of annulment proceedings following settlement reached by the parties); Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15 (after respondent moved to annul the award, the claimant entered into a settlement agreement, Peterson (7 May 2010)). 30 See Quasar de Valores SICAV S.A. et al. v. Russia, SCC Arbitration No. 24/2007 (award set aside by national courts); Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/ 11/2 (set-aside application filed by respondent in national courts denied); Rusoro Mining Limited v. Venezuela, ICSID Case No. ARB(AF)/12/5 (quantum part of award overturned by national court); Stans Energy Corp. and Kutisay Mining LLC v. Kyrgyzstan (II), PCA Case No 2015-32 (jurisdictional award upheld by national court).

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

141

Even bearing in mind the limitations of this dataset, the trends (such as they are) suggest that TPF does not necessarily lead to claims that are less meritorious than the average ICSID claim.

3 Lawmaking: Development of Novel Issues Funded cases have also contributed to the development of novel issues of investment arbitration, where, although there is no stare decisis, case law developments have a quasi-lawmaking effect. Most prominent among these issues are security for costs and transparency.

3.1

Security for Costs and Costs Awards

Some parties have argued that their funded opponent must be impecunious but for the funding, and therefore that security for costs should be ordered to ensure that a funded party can pay an adverse costs award.31 The paradigm of the impecunious opponent, however, is shifting. Increasingly, many parties use TPF as a risk management tool to keep litigation costs off the balance sheet.32 Even if claimants lack sufficient funds, the state may be to blame for putting them in such a position.33 In addition, the analysis is not conceptually different for states: states who may also have cash flow constraints, few assets available for execution, or other factors affecting the prompt availability of any adverse costs order. Tribunals considering this issue have generally determined that security for costs is proper only if there is other evidence suggesting that the funded party is unable or unwilling to pay an adverse costs award. Tribunals have emphasised that TPF in and of itself does not constitute “exceptional circumstances,” affirming that the threshold for security for costs is high. The tribunal in Guaracachi v. Bolivia, for example,

31

See in this volume, chapter by José Ángel Rueda-García, Third-party funding and access to justice in investment arbitration: security for costs as a provisional measure or a standalone procedural category in the newest developments in international investment law. 32 See U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (24 January 2019a), para. 31; see also De Brabandere and Lepeltak (2012), p. 379. 33 See von Goeler (2016), p. 102.

142

I. C. Popova and K. R. Seifert

held that security for costs constitutes a “very rare and exceptional measure”34 and that the existence of TPF alone is insufficient to require security for costs.35 The tribunal in EuroGas v. Slovakia agreed, observing that “financial difficulties and third party-funding [sic]—which has become a common practice—do not necessarily constitute per se exceptional circumstances.”36 In South American Silver v. Bolivia, a tribunal constituted under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules also endorsed an “extreme and exceptional circumstances” test and noted that recourse to TPF does not equate to impecuniosity.37 It also recognised the slippery slope of making this assumption: “If the existence of these third-parties alone, without considering other factors, becomes determinative on granting or rejecting a request for security for costs, respondents could request and obtain the security on a systematic basis, increasing the risk of blocking potentially legitimate claims.”38 The tribunal reiterated the view that TPF is a factor to consider in a request, but is not sufficient to warrant the exceptional award of security for costs.39 In a related point, the Kardassopoulos tribunal considered whether TPF should be a relevant factor in awarding costs associated with the proceeding, pursuant to Article 61(2) of ICSID.40 There, the respondent argued that it should not be required to reimburse claimant’s legal fees and costs because, among other reasons, “the Claimants’ costs have been borne in part by a third party investor [and] it is questionable whether such costs are properly recoverable.”41 The tribunal rejected this argument, explaining that it “knows of no principle why any such third party

34

Guaracachi America Inc. and Rurelec PLC v. Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 14, 11 March 2013, para. 6. 35 Guaracachi America Inc. and Rurelec PLC v. Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 14, 11 March 2013, para. 7 (“[T]he Respondent has not shown a sufficient causal link such that the Tribunal can infer from the mere existence of third party funding that the Claimants will not be able to pay an eventual award of costs rendered against them, regardless of whether the funder is liable for costs or not.”). 36 EuroGas Inc. and Belomont Resources Inc. v. Slovakia, ICSID Case No. ARB/14/14, Procedural Order No. 3, 25 June 2015, paras 122–123 (“[N]o such exceptional circumstances have been evidenced in the instant case. The Claimants have not defaulted on their payment obligations in the present proceedings or in other arbitration proceedings.”). 37 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10, paras 68, 76 (“The existence of the third-party funder alone does not evidence the impossibility of payment or insolvency. It is possible to obtain financing for other reasons. The fact of having financing alone does not imply risk of non-payment.”). 38 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10, para. 77. 39 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10, para. 78. 40 See Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18, ARB/07/ 15, Award, 3 March 2010, paras 679 et seq. 41 Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18, ARB/07/15, Award, 3 March 2010, para. 686.

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

143

financing arrangement should be taken into consideration in determining the amount of recovery by the Claimants of their costs.”42 As of the date of writing, only two tribunals have found “exceptional circumstances” justifying an order for security for costs in funded cases.43 In RSM v. Saint Lucia, the tribunal concluded that security for costs was appropriate based on the claimant’s conduct as a whole—including its prior noncompliance with arbitral costs awards—which led the tribunal to conclude that there was a “material risk” that the claimant would not reimburse the respondent for costs it had incurred.44 The tribunal considered that TPF “further supports the Tribunal’s concern” that the claimant would not likely comply with an adverse award.45 In Manuel García Armas et al. v. Venezuela, the funding agreement provided that the funder was not required to cover any adverse costs awarded, and the claimant failed to prove that, without funding, it was sufficiently solvent to pay a costs award.46 Balancing the parties’ interests, the tribunal determined that the potential harm to Venezuela of not recovering costs outweighed any potential access to justice effect on the claimant.47 In other cases, the ability of a claimant to access financial resources, including with the help of a third-party funder, militated against ordering security for costs. In Eskosol S.P.A. in Liquidazione v. Italy, for example, the tribunal accepted that the claimant’s insolvency meant that it would not be able to meet an adverse costs award from its own funds, but found that the claimant’s “after-the-event” insurance policy was sufficient to cover the amount of costs requested by the respondent and therefore declined to order security for costs.48 It has also been reported that the tribunal in Jochem Bernard Buse v. Panama endorsed the “exceptional circumstances” test for security for costs and held that the facts that the funding agreement provided “for at least some non-trivial cost coverage,” and that the claimant had timely made all

42

Ioannis Kardassopoulos and Ron Fuchs v. Georgia, ICSID Case Nos. ARB/05/18, ARB/07/15, Award, 3 March 2010, para. 691. 43 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, 13 August 2014, para. 48. 44 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, 13 August 2014, para. 81. 45 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, 13 August 2014, para. 83. 46 See Manuel García Armas et al. v. Venezuela, UNCITRAL, PCA Case No. 2016-08, Procedural Order No. 9, 20 June 2018, para. 250; see also Bohmer (11 July 2018). 47 Manuel García Armas et al. v. Venezuela, UNCITRAL, PCA Case No. 2016-08, Procedural Order No. 9, 20 June 2018, para. 231. 48 Eskosol S.p.A. in Liquidazione v. Italy, ICSID Case No. ARB/15/50, Procedural Order No. 3, 12 April 2017, paras 37, 39. Notably, the tribunal in the García Armas proceedings rejected the claimants’ offer to comply with the security for costs order by amending their financing agreement with the funder to include reimbursement of up to $1.5 million in adverse costs. The tribunal affirmed that the security must be in the form of a bank guarantee or surety insurance. Bohmer and Peterson (24 October 2018).

144

I. C. Popova and K. R. Seifert

required advances on costs, “substantially undercut” the rationale for ordering security for costs.49

3.2

Disclosure

TPF has also prompted tribunals to consider the scope of transparency, in response to concerns that the failure to disclose the existence or identity of a funder could lead to an unknown conflict of interest, which could jeopardise the integrity of the proceedings.50 A 2015 survey by Queen Mary University of London found that 76% of those surveyed agreed that the existence of a funder should be disclosed, and 63% agreed that the identity of the funder should also be disclosed.51 In several cases, tribunals have granted the parties’ requests for disclosure of the existence of TPF. In Muhammet Çap Sehil Inşaat Endustri v. Turkmenistan, the tribunal ordered the disclosure of the existence and identity of the funder, as well as the terms of funding, based on “the importance of ensuring the integrity of the proceedings and to determine whether any of the arbitrators are affected by the existence of a third-party funder” and the possibility that the respondent may make an application for security for costs.52 The Corona Materials tribunal granted the respondent’s request for the existence and identity of the funder, as well as the date of the funding agreement.53 In the pending case Interocean v. Nigeria, the tribunal ordered the respondent to reveal the identity of any third-party funder and the terms of any agreement, expressing a particular concern that an individual or entity may serve as “a conduit for funding from another source or other sources, either directly or indirectly”; in so ordering, the tribunal rejected the respondent’s argument that sovereign states are exempt from disclosing third-party funding arrangements.54

49

Bohmer (13 December 2019) (noting that the tribunal rejected Panama’s request for security for costs because the relief sought was “disproportionate”). 50 See International Council for Commercial Arbitration (April 2018), pp. 82–83. A tribunal recently considered whether an arbitrator’s position on the investment committee of a third-party funder could give rise to issue conflicts. Although reporting suggests that the funder had no role in funding the arbitration, the co-arbitrators ruling on the arbitrator challenge held that disqualification may have been necessary had there been a “specific connection” between the arbitrator’s role as an advisor to the funder and his role as an arbitrator. Canepa Green Energy Opportunities I, S.a.r.l. and Canepa Green Energy Opportunities II, S.a.r.l. v. Spain, ICSID Case No. ARB/19/4, Decision on the Proposal to Disqualify Mr Peter Rees QC, 19 November 2019, para. 76. 51 International Council for Commercial Arbitration (April 2018), p. 83. 52 Muhammet Çap Sehil Inşaat Endustri v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3, 12 June 2015, paras 9–10. 53 Corona Materials v. Dominican Republic, ICSID Case No. ARB(AF)/14/3, Award on Respondent’s Expedited Preliminary Objections, 31 May 2016, para. 22. 54 Interocean Oil Development Company and Interocean Oil Exploration Company v. Nigeria, ICSID Case No. ARB/13/20, Procedural Order No. 5, 15 October 2016, paras 87–89.

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

145

The South American Silver tribunal recognised that disclosure of the identity of the funder has value for “purposes of transparency,” while, as noted above, denying the respondent’s request for security for costs.55 The Ballantine tribunal ordered the claimants to disclose the name of the funder and the date of the funding agreement, first to the tribunal and administering institution and then to the respondent, so as to “discard any conflicts of interest.”56 The EuroGas tribunal also determined, during the hearing on provisional measures, that the identity of the claimant’s funder should be disclosed.57 The practice of tribunals with regards to disclosure of the funding agreement is more mixed. In addition to the Muhammet Çap and Interocean tribunals noted above,58 the García Armas tribunal required expansive disclosure including the terms of the funding agreement in its assessment of the security for costs request.59 Other tribunals, however, have found that the funding agreement terms would have no effect on issues the tribunals needed to decide and have rejected requests to disclose the agreement itself.60 For example, the RSM v. Saint Lucia tribunal indicated that the source of funding was immaterial for its determination of the appropriateness of sanctions for the claimant’s failure to pay security for costs and therefore felt no need to “interrogate” the parties for more information.61

4 Rulemaking: The Structural Response to Third-Party Funding As tribunals face the implications of TPF more frequently, various reform efforts have emerged in parallel. In their substance, these efforts have focused on the issues that have arisen in practice—security for costs and disclosure—to establish guidance

55

South American Silver Ltd. v. Bolivia, UNCITRAL, PCA Case No. 2013-15, Procedural Order No. 10, 11 January 2016, para. 79. 56 Michael Ballantine and Lisa Ballantine v. Dominican Republic, PCA Case No. 2016-17, Award, 3 September 2019, paras 49–50. 57 EuroGas Inc. and Belmont Resources Inc. v. Slovakia, ICSID Case No. ARB/14/14, Transcript of the First Session and Hearing on Provisional Measures, 17 March 2015, p. 145. 58 Muhammet Çap Sehil Inşaat Endustrive v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3, 12 June 2015, para. 8. 59 See Manuel García Armas et al. v. Venezuela, UNCITRAL, PCA Case No. 2016-08, Procedural Order No. 9, 20 June 2018, para. 2. 60 See South American Silver Ltd. v. Bolivia, UNCITRAL, PCA Case No. 2013-15, Procedural Order No. 10, 11 January 2016, paras 79–81. 61 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Suspension or Discontinuation of Proceedings, 8 April 2015, para. 67.

146

I. C. Popova and K. R. Seifert

for tribunals that are increasingly confronted with a new breed of third-party actors.62 The ICSID Arbitration Rules amendments and the UNCITRAL Working Group Investor State Dispute Settlement (ISDS) Reform process represent two of the most significant current initiatives. Some arbitral institutions with specialised rules for investment arbitration have also integrated TPF into their regulations, and states have also attempted to regulate TPF through bilateral treaties. Although much of this new wave of rulemaking is developing, it suggests coalescence around regulating, rather than prohibiting, TPF.63

4.1 4.1.1

Rules Amendments International Centre for Settlement of Investment Disputes (ICSID)

The fourth revision of the ICSID Rules and Regulations, which is expected to conclude in 2020,64 expressly addresses TPF.65 ICSID has proposed bolstering the mechanism for screening frivolous claims, as well as rules to regulate the disclosure of TPF and the standards for granting security for costs, including on account of TPF.66 ICSID’s first working paper noted that the existence of TPF does not “in itself, mean a claim is frivolous” and affirmed that existing ICSID rules were sufficient to

62 See Sahani (2016), p. 400 (explaining that “[m]ost funders think of themselves as investors, and an investor in litigation or arbitration is a new species of participant–one uncontemplated in the existing rules of procedure”). 63 See Rivas J (23 July 2019), Third-party funding’s evolving role in investment arbitration, Law360, https://www.law360.com/articles/1180852/third-party-funding-s-evolving-role-in-invest ment-arbitration (“there is a growing trend based on case law, proposed arbitration rules and recent treaties that have permitted the development of third-party funding to facilitate access to justice for disputing parties in international arbitration. The investment treaty regime is evolving with the addition of a few limited rules on disclosure (such as the obligation to disclose that there is thirdparty funding and the funder’s identity) and by expressly recognizing that third-party funding is an international lawful reality.”); but see Santosuosso and Scarlett (2019), pp. I–14. (“Making matters worse, there is a complete lack of regulation”). 64 ICSID Secretariat (3 August 2018b). 65 See ICSID Secretariat (2 August 2018a), para. 237; ICSID Secretariat (August 2019b), para. 51 (“States generally recognize that TPF is a widely available mechanism that provides important systemic benefits, for example, by enhancing access to arbitration for small and medium enterprises”). 66 See generally ICSID Secretariat (August 2019b). The working paper also proposed TPF rules for Conciliation under the ICSID Convention Proceedings and ICSID (Additional Facility) Conciliation Rules.

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

147

screen out frivolous claims.67 The second working paper rejected a proposal to require claimants to disclose the existence and identity of a funder in their request for arbitration, noting that “[s]uch disclosure is not relevant to the Centre’s review function [...] which requires the Centre to register a Request unless it is manifestly outside its jurisdiction.”68 Some new rules specifically dealing with TPF were also proposed. Proposed Rule 14 addresses disclosure of TPF through the unique mechanism of a “Notice of ThirdParty Funding.” The current version of the Proposed Rule requires parties to file a notice disclosing the existence and identity of a funder with the Secretary-General of ICSID, either when registering the request for arbitration, or immediately after concluding a funding agreement. The Secretary-General then transmits the notice to the parties and proposed arbitrators.69 The working papers confirm that this Rule is intended to address concerns about arbitrator conflicts of interest.70 The second new rule, Proposed Rule 52, addresses TPF considerations in requests for security for costs. The Proposed Rule formalises the relevant factors a tribunal may consider when deciding whether to order security for costs,71 but does not consider TPF a relevant or dispositive factor in its own right. Instead, the Rule provides that the “Tribunal may consider third-party funding as evidence relating to a circumstance in paragraph (3), but the existence of third-party funding by itself is not sufficient to justify an order for security for costs.”72

4.1.2

United Nations Commission on International Trade Law (UNCITRAL)

UNCITRAL’s Working Group III (Investor-State Dispute Settlement Reform) (Working Group III) has considered TPF as one of its proposed reforms to the

67

ICSID Secretariat (2 August 2018a), para. 242 (“[T]he ICSID Rules create many effective mechanisms to address concern that a claim may be frivolous, including screening for manifest lack of jurisdiction before registration of a request, a motion to dismiss for manifest lack of legal merit, bifurcated preliminary motions, and costs awards.”). 68 ICSID Secretariat (March 2019a), para. 56. This Working Paper reaffirmed the existing ICSID processes for preventing frivolous claims including motions to dismiss for manifest lack of legal merit. ICSID Secretariat (March 2019a), para. 142(a). 69 See ICSID Secretariat (August 2019b), Proposed Rule 14, p. 37; see also ibid., Additional Facility Arbitration Rules Proposed Rule 23, pp. 127–128. 70 See ICSID Secretariat (2 August 2018a), para. 255; ICSID Secretariat (March 2019a), para. 128. 71 Proposed Rule 52(3): In determining whether to order a party to provide security for costs, the Tribunal shall consider all relevant circumstances, including: (a) that party’s ability to comply with an adverse decision on costs; (b) that party’s willingness to comply with an adverse decision on costs; (c) the effect that providing security for costs may have on that party’s ability to pursue its claim or counterclaim; and (d) the conduct of the parties. ICSID Secretariat (August 2019b), p. 58. 72 ICSID Secretariat (August 2019b), p. 58; see also ibid., pp. 148–149.

148

I. C. Popova and K. R. Seifert

ISDS process and attempted to balance the “perceived need for funding” and the “protection of the integrity of the arbitral process.”73 In August 2019, the Secretariat of Working Group III laid out different TPF reform options for states. The options ranged from banning TPF, to allowing TPF only for impecunious claimants with claims that have “sufficient prospects of success,” 74 and implementing TPF reforms through institutional rules and treaty model clauses.75 The note suggested that this regulation may be complemented by a legal aid mechanism and a code of ethics for funders that would provide a “minimum standard of professional qualification, transparency and confidentiality.”76 In October 2019, Working Group III concluded that it was “generally felt that flexibility should be provided as third-party funding could permit access to justice to those with insufficient resources.”77 The Working Group proposed that the Secretariat develop draft provisions on TPF issues such as disclosure, cost allocation, and security for costs that could be used for inter alia multilateral and bilateral treaties, the UNCITRAL Rules, and other institutional arbitral rules. The Secretariat was also asked to address the gap in the availability of empirical evidence on TPF by collecting TPF data.78

4.1.3

China International Economic and Trade Arbitration Commission (CIETAC) and Singapore International Arbitration Centre (SIAC)

Two regional arbitral institutions that adopted specific rules in 2017 for investorstate disputes have also accepted and regulated TPF through provisions addressing disclosure and the role of a funder in costs awards.79 The Singapore International Arbitration Centre (SIAC) Investment Rules provide that a tribunal may order the disclosure of the existence of a TPF agreement or the

73

U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (24 January 2019a), paras 16, 35. 74 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (2 August 2019b), paras 15–16, 21–25. 75 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (2 August 2019b), para. 42. 76 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (2 August 2019b), paras 39–41. 77 U.N. Commission on International Trade Law (23 October 2019c), para. 81. 78 U.N. Commission on International Trade Law (23 October 2019c), paras 97–98. 79 While beyond the scope of this chapter, other regional arbitral institutions have adopted rules and guidelines related to TPF that are not specific to investment arbitrations, including the Center for Arbitration and Mediation of the Chamber of Commerce of Brazil-Canada (CAM-CCBC), the Dubai International Financial Centre (DIFC), the Singapore Institute of Arbitrators (SIArb), and the Hong Kong International Arbitration Centre (HKIAC).

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

149

identity of the funder and “where appropriate, details of the third-party funder’s interest in the outcome of the proceedings, and/or whether or not the third-party funder has committed to undertake adverse costs liability.”80 In contrast, the China International Economic and Trade Arbitration Commission (CIETAC) International Investment Arbitration Rules mandate the disclosure of the existence of a TPF agreement to the opposing party, the tribunal, and the institution administering the case upon the agreement’s conclusion.81 As in the SIAC rules, the tribunal may order the disclosure of “relevant information” in the funding agreement. CIETAC goes a step further, however, permitting the tribunal to consider the funded party’s compliance with its disclosure requirements when determining costs awards.82

4.2

Investment Treaties

Rather than wait for the development of regulation by ISDS institutions, some states have drafted provisions regulating TPF in recently concluded investment treaties, as well as national laws.83 For example, several European Union (EU) investment treaties have mandated disclosure of the existence and identity of funders. The Comprehensive and Economic Trade Agreement between the European Union and Canada (CETA) provides that the existence and name of a funder must be disclosed to the tribunal and the counterparty at the time of submission of a claim or “without delay” if the agreement is concluded after the submission of the dispute.84 Although not yet in force, the EU-Vietnam Investment Protection Agreement likewise mandates disclosure and also allows the tribunal to “take into account whether there is third-party funding” when deciding security for costs, and requires that the tribunal consider whether the

80

Article 24 (l) of the SIAC Investment Rules. Article 27(1)-(2) of the CIETAC International Investment Arbitration Rules. 82 Article 27(3) of the CIETAC International Investment Arbitration Rules. 83 These laws include Hong Kong’s Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance of 2017 and Singapore’s Civil Law (Third-Party Funding) Regulations 2017. 84 Article 8.26 of the Comprehensive and Economic Trade Agreement (provisionally in force 21 September 2017); see also Article 3.8 of the EU-Singapore Investment Protection Agreement (signed 19 October 2018) (providing that “[a]ny disputing party benefiting from third party funding shall notify the other disputing party and the Tribunal of the name and address of the third party funder” when the claim is submitted or “without delay” once the funding is “agreed, donated or granted”); Annex I Article G-23 bis of the Canada-Chile Free Trade Agreement (in force 5 February 2019) (requiring disclosure of the name and address of a third-party funder when the claim is submitted or without delay if the funding agreement, donation, or grant is made after the submission of the claim). 81

150

I. C. Popova and K. R. Seifert

disclosure obligations were followed in deciding on costs awards.85 The Indonesia-Australia Comprehensive Economic Partnership Agreement, signed in 2019, also contains disclosure obligations for TPF and permits the tribunal to sanction a party by suspending or terminating proceedings if an investor fails to make the required disclosure.86 These agreements represent further examples of the international investment system’s flexibility and capacity to regulate rather than exclude third-party funders. However, at least one treaty, the Argentina-United Arab Emirates Agreement for the Reciprocal Promotion and Protection of Investments, prohibits TPF altogether.87

5 Conclusion The increasing incidence of TPF in investment arbitration and the guidance that has developed from funded cases have challenged the perception that TPF enables impecunious claimants to bring frivolous claims. The empirical evidence—albeit limited—does not support the view that TPF leads to an influx of frivolous claims. In dealing with funded claims, tribunals and stakeholders have placed great importance on disclosure, which reflects the value of transparency in international arbitration, and seem to have reached a consensus that the existence and identity of a funder should, at a minimum, be disclosed. Similarly, TPF has generally been held insufficient justification on its own to grant security for costs, and may, in some circumstances, be a reason to deny it. In sum, the international arbitration community is developing a consensus toward embracing TPF while taking steps to ensure that funded claims are presented in a manner that preserves the values of fairness, efficiency, and transparency that are critical to the investment arbitration framework as a whole.88

85

Article 3.37 of the EU-Vietnam Investment Protection Agreement (signed 30 June 2019). Article 14.32 of the Indonesia-Australia Comprehensive Economic Partnership Agreement (signed 4 March 2019). 87 Article 24 of the Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the United Arab Emirates (signed 16 April 2018) (“Third party funding is not permitted”). 88 See Moseley (2019), p. 1182. 86

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

151

Annex A Third-Party Funding Cases

1

2

3

4

5

6

7

Case RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10 Churchill Mining PLC v. Indonesia, ICSID Case No. ARB/12/14 *Note: decision combined with Planet Mining, below Planet Mining Pty Ltd v. Indonesia, ICSID Case No. ARB/12/40 *Note: decision combined with Churchill Mining, above Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 *Note: decision combined with Ron Fuchs, below Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15 *Note: decision combined with Ioannis Kardassopoulos, above Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17

Funded party Claimant and, allegedly, Respondent

Oxus Gold PLC v. Uzbekistan, UNCITRAL

Claimant

Case outcome Award dismissing all claims

Follow-on proceedings Partial annulment in favour of claimant

Claimant

Award dismissing all claims

Annulment filed by claimant Annulment request denied

Claimant

Award dismissing all claims

Annulment filed by claimant Annulment request denied

Claimant

Award upholding claims in part or in full

Annulment filed by respondent Annulment proceedings discontinued following settlement reached by parties

Claimant

Award upholding claims in part or in full

Annulment filed by respondent Annulment proceedings discontinued following settlement reached by parties

Claimant

Award upholding claims in part or in full Award upholding claims in part or in full

No annulment filed

Set aside application filed by claimant in national court rejected

(continued)

152

I. C. Popova and K. R. Seifert

Case Teinver SA, Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v. Argentina, ICSID Case No. ARB/09/1 Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/ 11/2 Rusoro Mining Limited v. Venezuela, ICSID Case No. ARB(AF)/12/5

Funded party Claimant

11

Adem Dogan v. Turkmenistan, ICSID Case No. ARB/09/9

Claimant

12

South American Silver v. Bolivia, PCA Case No. 2013-15

Claimant

13

Quasar de Valores SICAV S.A. et al. v. Russia, SCC Arbitration No. 24/2007

Claimant

14

Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15 Stans Energy Corp. and Kutisay Mining LLC v. Kyrgyzstan (II), PCA Case No. 2015-32 Alapli Elektrik v. Turkey, ICSID Case No. ARB/08/13 EuroGas Inc. and Belmont Resources Inc. v. Slovakia, ICSID Case No. ARB/14/14

Claimant

8

9

10

15

16

17

Claimant

Claimant

Claimant

Claimant

Claimant

Case outcome Award upholding claims in part or in full

Award upholding claims in part or in full Award upholding claims in part or in full Award upholding claims in part or in full Award upholding claims in part or in full Award upholding claims in part or in full Award upholding claims in part or in full Award upholding claims in part or in full Award declining jurisdiction Award declining jurisdiction

Follow-on proceedings Annulment filed by respondent Annulment request denied

Set aside application filed by respondent in national court denied

Partial set aside of award in national court

Annulment filed by respondent Annulment request denied

No annulment filed

Award set aside by national court

Annulment filed by respondent Annulment proceedings discontinued following settlement reached by parties Award on jurisdiction upheld by national court

Annulment filed by claimant Annulment request denied Annulment filed by claimant Annulment proceedings discontinued by tribunal due to claimant’s non-payment of advances (continued)

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

18

19

20

Case Corona Materials, LLC v. Dominican Republic, ICSID Case No. ARB(AF)/ 14/3 Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Kenya, ICSID Case No. ARB/15/29 Michael Ballantine and Lisa Ballantine v. Dominican Republic, PCA Case No. 2016-17

Funded party Claimant

Case outcome Award declining jurisdiction

153

Follow-on proceedings No annulment filed

Claimant

Award declining jurisdiction

Annulment filed by claimant pending

Claimant

Award declining jurisdiction

Petition to vacate filed by claimants pending

References Bohmer L (11 July 2018) Arbitrators rule that investors backed by a prominent litigation funder must post $1.5 million security in order to prosecute investment treaty arbitration, IAReporter, https://www.iareporter.com/articles/arbitrators-rule-that-investors-backed-by-a-prominent-liti gation-funder-must-post-1-5-million-security-in-order-to-prosecute-investment-treatyarbitration/ Bohmer L (13 December 2019) In a new security for costs ruling, arbitrators reject state’s request and stress that claimant’s third party funding agreement provides for “At Least Some Non-Trivial Cost Coverage,” IAReporter, https://www.iareporter.com/articles/in-a-new-secu rity-for-costs-ruling-arbitrators-reject-states-request-and-stress-that-claimants-third-partyfunding-agreement-provides-for-at-least-some-non-trivial-cost-coverage/ Bohmer L, Peterson L (24 October 2018) In new ruling, BIT tribunal does not consider amendment of third party funding contract to be sufficient guarantee that a state could collect on possible future costs order, IAReporter, https://www.iareporter.com/articles/in-new-ruling-bit-tribunaldoes-not-consider-amendment-of-third-party-funding-contract-to-be-sufficient-guarantee-thata-state-could-collect-on-possible-future-costs-order/ Charlotin D (22 August 2019) Canadian investor Stans Energy wins $24 million in (second) arbitration with Kyrgyzstan, IAReporter, https://www.iareporter.com/articles/canadian-inves tor-stans-energy-wins-24-million-in-second-arbitration-with-kyrgyzstan/ Chen D (2015) Can markets stimulate rights? On the alienability of legal claims. RAND J Econ 46 (1):25 De Brabandere E, Lepeltak J (2012) Third-Party funding in international investment arbitration. ICSID Rev 27(2):379, 384

154

I. C. Popova and K. R. Seifert

Garcia F (2018) Third-party funding as exploitation of the investment treaty system. Boston College Law Rev 59(8):2928–2931 IAReporter Staff (27 July 2016) Investor’s failure to post security bond leads to “With Prejudice” termination of arbitration with St. Lucia, IAReporter, https://www.iareporter.com/articles/inves tors-failure-to-post-security-bond-leads-to-with-prejudice-termination-of-arbitration-with-stlucia/ ICSID Secretariat (2 August 2018a) Proposals for amendment of the ICSID rules – working paper, https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments_Vol_3_WPupdated-9.17.18.pdf ICSID Secretariat (3 August 2018b) Backgrounder on proposals for amendment of the ICSID rules, https://icsid-archive.worldbank.org/en/Documents/Amendment_Backgrounder.pdf ICSID Secretariat (March 2019a) Proposals for amendment of the ICSID rules – working paper, https://icsid.worldbank.org/sites/default/files/amendments/Vol_1.pdf ICSID Secretariat (August 2019b) Proposals for amendment of the ICSID rules – working paper, https://icsid.worldbank.org/sites/default/files/amendments/WP_3_VOLUME_1_ENGLISH.pdf International Council for Commercial Arbitration (April 2018) Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, ICCA Reports No. 4 Massini K (2015) Risk versus reward: The increasing use of third funders in international arbitration and the awarding security for costs. Yearb Arbitr Mediation 7(25):325 Moseley S (2019) Disclosing third-party funding in international investment arbitration. Tex Law Rev 97(6):1182, 1191 Peterson L (7 May 2010) Investor and lawyers fall out over contingency-fee arrangement in aftermath of ICSID arbitration, IAReporter, https://www.iareporter.com/articles/investor-andlawyers-fall-out-over-contingency-fee-arrangement-in-aftermath-of-icsid-arbitration/ Peterson L (3 January 2016) Oxus Gold comes up short in bet-the-company arbitration against Uzbekistan, IAReporter, https://www.iareporter.com/articles/oxus-gold-comes-up-short-in-betthe-company-arbitration-against-uzbekistan/ Sahani V (2016) Judging third-party funding. UCLA Law Rev 63:400 Santosuosso T, Scarlett R (2019) Third-party funding in investment arbitration: misappropriation of access to justice rhetoric by global speculative finance. Boston College Law Rev E Supp 60(5): I.-8, I-14 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (24 January 2019a) Possible reform of investor-state dispute settlement (ISDS): third-party funding, U.N. Doc. A/CN.9/WG.III/WP.157 U.N. Commission on International Trade Law Working Group III (Investor State Dispute Settlement Reform) (2 August 2019b) Possible reform of investor-state dispute settlement (ISDS): third-party funding – possible solutions, U.N. Doc. A/CN.9/WG.III/WP.172 U.N. Commission on International Trade Law (23 October 2019c) Report of working group III (investor-state dispute settlement reform) on the work of its thirty-eighth session (Vienna, 14-18 October 2019), U.N. Doc. A/CN.9/1004 (advanced copy) von Goeler J (2016) Third-party funding in international arbitration and its impact on procedure, pp. 14–15, 92–94, 102 White & Case and Queen Mary University of London (2018) 2018 International arbitration survey: the evolution of international arbitration, http://www.arbitration.qmul.ac.uk/research/2018/

Gatekeeping, Lawmaking, and Rulemaking: Lessons from Third-Party Funding in. . .

155

Ina C. Popova is a Partner at Debevoise & Plimpton LLP in the firm’s International Dispute Resolution Group who focuses on international arbitration and litigation and public international law. She sits as an arbitrator and serves as counsel in a broad range of international matters and has particular experience in the energy, mining, and technology, media, and telecommunications sectors. She also advises investment firms and asset managers in evaluating investments in international claims or arbitration awards. In addition to graduate degrees from Harvard Law School (LL.M) and from the University of Cambridge, Ms. Popova received her B.A. (Hons.) (Cantab.) with First Class Honours in Law (Double Maîtrise) from the University of Cambridge, Trinity College, and her Maîtrise en droit comparé, mention droits anglais et français with high honours from the Université de Paris II Panthéon-Assas. She is admitted to practise in Paris and New York. Katherine R. Seifert is an associate at Debevoise & Plimpton LLP. She received her B.A. from Bryn Mawr College and her J.D. from the Georgetown University Law Center. She is admitted to practise in New York.

Towards a Republicanisation of International Investment Law?: Conceptualising the Legitimatory Value of Public Participation in the Negotiation and Enforcement of International Investment Agreements Karsten Nowrot and Emily Sipiorski

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Public Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Some Thoughts on the Increasingly Perceived Need for a Broader Involvement of the General Public: Identifying the Legitimatory Value of Public Participation . . . . . . . 4 Conceptualising the Legitimatory Value of Public Participation in Investment Agreements: Republican Legitimacy in Disguise (?) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Outlook: Warming up to the Idea of a Republicanisation of International Investment Law: A Primer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158 160 163 165 169 171

Abstract The chapter takes a closer analytical look at one of the central manifestations of the currently changing character of international investment law as a politicised area of law, namely the increasing, and increasingly more formalised, opportunities for an active involvement of interested citizens and other private actors in the preparation, negotiation and subsequent enforcement of international investment agreements. We identify and illustrate practical examples of public participation in the investment treaty-making processes as well as the implementation mechanisms of investment agreements once entering into force. The chapter furthermore illustrates that the options for public participation as increasingly provided for in connection with these treaties are often, and in principle rightly, perceived as valuable means to foster the legitimacy of the regulatory features stipulated therein. Turning to the conceptualisation of this legitimatory value of public participation, it is argued that a closer look at its quasi-constitutional foundations reveals that this approach is most appropriately qualified as an alternative to, or surrogate for, K. Nowrot · E. Sipiorski (*) University of Hamburg, Hamburg, Germany e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_10

157

158

K. Nowrot and E. Sipiorski

democratic legitimacy that finds its overarching normative basis in the legal principle of republicanism and can thus be considered as a possible sign for a republicanisation of international investment law. Against this background, and adopting a more overarching perspective, we also present some thoughts on the usefulness and validity of a broader claim towards a republicanisation of international investment law as a normative ordering and guiding idea for conceptualising current trends in international investment law-making as well as for the future progressive evolution of this area of international economic law.

1 Introduction International investment law has been widely criticised for its exclusionary character. Its origins in diplomacy, drawing from the Friendship, Commerce, and Navigation Treaties, excluded the necessity (but not the possibility) of introducing a more participatory approach to the negotiation of treaties. Until the mid-1990s1 and in many cases beyond, agreements were concluded behind the “closed doors” of intergovernmental negotiations,2 and thus prevented the participation of the broader public and the complexity of values and opinions necessarily emerging from such involvement. Until recently, that is, when public interest turned more critically to the mechanisms of public life affected by the treaties. The ability of a state to take decisions in the interests of public health, and increasingly, in the interest of broader environmental goals, have reformed the core diplomatic approach of the treaties, from being a hand-shake photo opportunity during meetings of state leaders, to an agreement increasingly in the public eye. Beyond the conclusions of the treaties as a diplomatic mechanism, their use and application has also been limited to an exclusive group of experts. Namely, the normative contractual design of foreign economic relations has, when viewed from the domestic perspective of most countries, for a long time primarily been the concern of a comparatively small circle of experts. This includes an exclusive number of expert law firms that possess the relevant knowledge of both procedure

1

See in particular, Organisation for Economic Co-operation and Development, Multilateral Agreement on Investment, Draft Consolidated Text, DAFFE/MAI(98)7/REV1, 22 April 1998 (following the publicity of the draft in 1997, civil society reacted strongly against the agreement, subsequently resulting in its demise); see also Cohn (2002), pp. 260 et seq.; Muchlinski (2000), pp. 1039–1040 (noting that the leak of a negotiating document “coupled with the relative lack of publicity concerning the negotiations in the media, gave rise to a feeling that the public and interested NGOs were being excluded from the process, notwithstanding the fact that the process had been publicly announced in 1995. The initial lack of attention to public opinion, and to the views of civil society, created an air of hostility to the project that made it hard to justify on a political level”). 2 Marceddu (2018), pp. 681–682.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

159

and the application of substantive protections as well as an exclusive list of appointed arbitrators. Foreign investment policy today, however, in many cases has gained a heightened degree of public attention in many countries. Controversial deliberations among and within political parties has thus obviously turned into a politicised area of law in the true sense of the meaning. Described by one scholar as moving from “quiet and obscure corners of trade diplomacy [to] [. . .] a matter of ‘high politics’”,3 public knowledge of formerly dark corners have been illuminated by internet leaks and expanded by growing political tendencies turning inward on an international scale. While transforming international investment law into a more politicised field of law poses considerable challenges, structurally and with respect to implementation, it achieves an advantageous shift in the direction of an emerging constitutionalised international investment law. It reaches towards a broader objective of international economic law more generally to support a continued conversion of the normative framework into a more human-oriented legal order.4 Against this background, the following paper intends to take a closer analytical look at the increasing, and increasingly more formalised, opportunities for an active involvement of interested citizens and other private actors in the preparation, negotiation and subsequent enforcement of international investment agreements. In light of these findings, the opportunities for sustained public participation do not present themselves as an indication for a “democratisation” of these legal regimes, but are more appropriately perceived as a possible sign for a republicanisation of international investment law.5 Aside from the increasing emphasis on public participation, albeit closely related to it, other potential indications for a republicanisation of this legal regime include the growing importance attached to transparency as well as the recognised need to pursue the common good in a more comprehensive manner. This provides for an appropriate and thus acceptable balance between the legally-protected economic interests of foreign investors and the domestic steering capacity or policy space of host states to allow the later to pursue the promotion and protection of other public interest concerns to the benefit of their populations and global public goods. Resting squarely on issues of legitimacy in the system of investor-state dispute settlement, the analysis approaches “input-oriented” as well as “output-oriented” elements—namely, whether a sufficient number of legitimising factors exist that substitute or mutually reinforce each other. From an “output-oriented” perspective, this includes the effective realisation of the common good, generally regarded as one of the most important legitimising factors for the respective regulatory structures. Against this background, the options for public participation as increasingly

3

Trebilcock (2015), p. 9. On the perception of an increasingly individualised and human-oriented public international law see, e.g., Peters (2016) and Teitel (2011). 5 On the definition of republicanization see infra under Sect. 4. 4

160

K. Nowrot and E. Sipiorski

provided for in connection with international investment agreements are not infrequently, and in principle rightly, perceived as valuable—and in fact necessary— means to foster the legitimacy of the regulatory features stipulated therein. The first part of this chapter identifies and illustrates practical examples of public participation in the investment treaty-making processes as well as the implementation mechanisms of the investment agreements once entering into force. The second section builds upon these findings by attempting to identify the reasons for this increasingly state-implemented realisation of public participation. The third part of this chapter attempts to conceptualise this legitimatory value of public participation in connection with investment agreements. The fourth and final part of the chapter intends to present some thoughts on the usefulness and validity of broader claim towards a republicanisation of international investment law as a normative ordering and guiding idea for conceptualising current trends in international investment law-making as well as for the future progressive evolution of this area of international economic law.

2 Public Participation International investment protection, typically categorised as exclusionary, meaning elitist and separate from the involvement of the public, has shown increasing involvement of private actors as well as public interest in the past years. While the historical origins of diplomacy are often absent of meaningful displays of public participation, and this was certainly also true at the origins of international investment protection, the purpose of the international legal instruments for the pointed protection of investors abroad naturally enabled an increasingly relevant participation of the public—at least the interested public of investors.6 While it is difficult to identify the moments of, for example, lobbying efforts that may have encouraged the completion of investment protection instruments, there are recorded instances of attempts to include public participation in the creation of the legal instruments. The following section follows the relevant inclusion of the public participation in the system of international investment protection, and details its relevance in the current agreements today as well as its potential in the agreements of the future as indicated in on-going discussions on reform. Involving the public during negotiations of treaties and agreements can be logistically complicated to implement in a productive and realistic manner. Yet, such interaction with the instruments at the early stages of their realisation has already been attempted. Most notably, in the negotiation of the Multilateral

6 This thus implies that the public participation had a potentially imbalanced character towards the side of home state, namely the investor’s rights, mirroring a common criticism of the system of investment protection from another angle. See for example, Cai (2018), pp. 218–219; Sornarajah (2015), pp. 62 et seq.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

161

Agreement on Investment (MAI), under the OECD, the draft of the agreement was made publicly available.7 This level of public participation, however, proved ill-fated for the realisation of the agreement and ultimately resulted in the decision to halt further negotiations on the instrument. This type of public participation at the early stages of an investment instrument is likely incongruently a privilege of wealthy democracy: time and knowledge are necessary to allow interested parties to attempt to prevent the implementation of a particular treaty. While the MAI had the benefit of being a multilateral instrument, and thus involved more diverse voices in the discussion on the protections available, typical investment treaties would be potentially more limited in the public response at the stage of negotiation should the opportunity be made available. Following the implementation of an investment protection instrument, protest has been a mechanism for engaging when the law itself leaves limited space for participation of other actors.8 Several investment disputes saw their origins in public protest against the investment itself, thus eventually implicating the treaty following a state’s action.9 While the public was excluded from negotiating the standards of protection, they continued to play a certain, albeit limited, role in the implementation and realisation of investments in the host state. Beginning in the early 2000s, the recognition of the legitimacy of the system of international investment protection as closely aligned with a degree of public knowledge10 resulted in efforts to involve or make information available to the public. This has equally been recognised as of high importance in the more recent reform efforts to the investor-state dispute settlement model.11 This element of transparency, albeit not directly providing for public participation, facilitates the possibility of greater involvement at later stages by increasing the general knowledge of the system. Transformations in the system of investor-state dispute settlement have now enabled recognition of the need for public discussion by participating governments, translated into more meaningful participation instruments. Among them are the public consultation processes initiated in connection with the drafting of new 7

Organisation for Economic Co-operation and Development, Multilateral Agreement on Investment, Draft Consolidated Text, DAFFE/MAI(98)7/REV1, 22 April 1998, available at: http://www. oecd.org/daf/mai/pdf/ng/ng987r1e.pdf; see also Wallace-Bruce (2001), pp. 54 et seq. 8 Henderson and Jeydel (2007). 9 See for example, Aguas del Tunari SA v Republic of Bolivia, ICSID Case No. ARB/02/3 (dispute arising out of privatisation of the water sector and violent public protest following an increase in water prices); Suez, Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/03/19; see also Bray (2014), p. 477. 10 International Investment Law: A Changing Landscape (Organisation for Economic Cooperation and Development, 2005), available at https://www.oecd-ilibrary.org/finance-and-investment/inter national-investment-law-a-changing-landscape_9789264011656-en. 11 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014); United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2015); A/CN.9/ 935—Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-fifth session, para. 17, available at https://undocs.org/en/A/CN.9/935.

162

K. Nowrot and E. Sipiorski

model Bilateral Investment Treaties (BITs), such as in the case of the United States, India, Norway and the Netherlands as well as the foreign investment promotion and protection agreements in Canada. Free trade agreements are including innovative methods to recognise public interest. In particular, there has been a broadening of the material scope of competences of domestic advisory groups and joint civil society fora, thus covering the implementation of the entire Free Trade Agreements (FTAs), including the respective chapters on investment.12 Also noteworthy in this context is the European citizens’ initiative in accordance with Article 11(4) of the Treaty on European Union (TEU) and Article 24 of the Treaty of the Functioning of the European Union (TFEU), an instrument allowing for the possibility of political standard-setting by European Union (EU) citizens, that may have implications for EU decisions on investment agreements.13 The past years have also seen the turn in investment treaties to becoming more outwardly balanced with respect to interests and protections, thus enabling and opening space for public participation in various stages of the process. These changes with respect to public participation draw on international investment protection in the sphere of public law.14 This participation is more obviously included within provisions allowing for amicus curiae submissions,15 increasingly included in the language of treaties. While this practice has only recently been explicitly included, such submissions have been accepted by investment tribunals now for

12

See thereto Non-Paper of the Commission Services, Feedback and Way Forward on Improving the Implementation and Enforcement of Trade and Sustainable Development Chapters in EU Free Trade Agreements, 26 February 2018, p. 6, available at: http://trade.ec.europa.eu/doclib/docs/2018/ february/tradoc_156618.pdf. 13 This initiative is relevant in the context of the EU common commercial policy in general and of investment agreements in particular as it has more recently been subject to an important clarification by the General Court in the case of Efler et al. v. European Commission dealing with the legality of a Commission’s initial refusal to register the proposed European citizens’ initiative “Stop TTIP”. See General Court, Case T-754/14, Michael Efler et al. v. European Commission, Judgement of 10 May 2017, available at: http://curia.europa.eu/juris/document/document.jsf?text¼&docid¼190563& pageIndex¼0&doclang¼en&mode¼lst&dir¼&occ¼first&part¼1&cid¼7362295; see thereto also Wendel (2017), pp. 68 et seq. 14 Sornarajah (2017), Schneiderman (2008) and Collins (2010). 15 Comprehensive and Economic Trade Agreement (provisional entry into force 21 September 2017) Article 8.36(1), available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/? uri¼CELEX:22017A0114(01)&from¼EN; UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014) Article 4, available at https://uncitral.un.org/sites/uncitral.un.org/ files/media-documents/uncitral/en/rules-on-transparency-e.pdf; EU-Singapore Investment Protection Agreement (21 November 2019) Article 3 of Annex 8 (“Rules on Public Access to Documents, Hearings and the Possibility of Third Persons to Make Submissions”), available at: http://trade.ec. europa.eu/doclib/press/index.cfm?id¼961; see also ICSID Rules of Procedure for Arbitration Proceedings (April 2006) Rule 37(2), available at: https://icsid.worldbank.org/en/Documents/ icsiddocs/ICSID%20Convention%20English.pdf: “After consulting both parties, the Tribunal may allow a person or entity that is not a party to the dispute [. . .] to file a written submission with the Tribunal regarding a matter within the scope of the dispute [. . .]”.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

163

several decades.16 These submissions, however, are limited by the language of the treaty and the general lack of legal rights for such interested third parties.17 While tribunals often permit the inclusion of these amicus curiae submissions into the proceedings and provide opportunities for the parties to respond, the weight given to such submissions is limited by subject matter as well as the possibility of additional costs towards the parties. The capability for meaningful public participation through this avenue is limited. These transformations in the processes of public participation indicate a shift in the direction of broader notions of the public integrated into the application of investment protection. Enabling public participation at the negotiating stage as well as involvement when matters of public concern are at stage clothe the system in a more balanced approach.

3 Some Thoughts on the Increasingly Perceived Need for a Broader Involvement of the General Public: Identifying the Legitimatory Value of Public Participation In light of this ever-growing—and in fact increasingly also state-implemented realisation of—public participation in the negotiation as well as enforcement of international investment agreements, the question obviously arises as to the underlying reasons for these developments. The motives and possible explanations for this comparatively new trend are most certainly manifold. However, prominently among them is the by now increasingly dominant perception among more and more governments, parliaments, courts, politically interested citizens, civil society organisations and scholars, to mention but a few relevant actors, that the—from the perspective of domestic policy space—ostensibly rather “intrusive” features of investment agreements, including the traditional system of international

16

See for example, Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005; Methanex Corporation v. United States of America (UNCITRAL), Decision of the Tribunal on Petitions from Third Persons to Intervene as “amici curiae”, 15 January 2001, paras 26, 29, 49 (relying on the discretion of the tribunal and recognising the requirements for “procedural equality and fairness towards the Disputing Parties”, further indicating that third parties possess no legal rights under the relevant legal instruments, and resting its discourse on the public interest arising from the subject matter). 17 Salazar (2013), p. 199 (proposing an “expansive view of amici curiae for public interest groups in light of the potential of the latter to counter the influence corporate interest groups and to contribute to both minimise NAFTA Chapter 11 inconsistencies and strike a more realistic balance between the public interest and foreign investors’ interest”).

164

K. Nowrot and E. Sipiorski

investor-state dispute settlement, give rise to legitimacy challenges.18 This finding corresponds to the perception that—as more recently highlighted by Stephan W. Schill—“[r]ather than speaking the language of nationalism”, the currently visible concerns about investment agreements come more recently frequently “in the vocabulary of constitutional values – namely democracy, the rule of law, and the protection of human or fundamental rights”.19 Taking into account the complexity of these issues, it hardly needs to be emphasised that it will not be possible to elaborate on all of the manifold implications of the perceived “legitimacy deficits” of the contractual design of international investment law in something even close to a comprehensive way. Rather, and in order to make a long and complex story short, let it initially suffice here to recall that it is apparently increasingly felt that these legitimacy challenges might no longer be, in their entirety, adequately addressed by “merely” taking recourse to traditional concepts of democratic legitimacy developed under the conditions of the nationstate.20 There are obviously a number of different conclusions and consequences potentially to be drawn from this finding, among them the approach of decreasing the demand for democratic legitimacy by reducing the regulatory content as well as “intrusiveness” and thus effects of—or even all together exiting the whole system of—investment agreements.21 However, in case one accepts, together with what probably amounts by now to a majority of legal scholars as the most appropriate consequence of the existence of more advanced and comprehensive transnational governance regimes in general, a resulting need for a conceptual modification of our understanding of legitimacy, it seems possible—by taking recourse to the distinction between “input-oriented” and “output-oriented” models of legitimacy as developed by Fritz W. Scharpf22 and in order to reduce the existing (factual and scholarly) complexities by way of systemisation—to broadly distinguish between three main lines of argumentation in the literature. Some scholars have developed—on the basis of exclusively “input-oriented” legitimising strategies—transnational concepts of democracy such as for example the model of a “cosmopolitan democracy” by David Held,23 even though the implementation of such an “enormously ambitious agenda for reconfigurating the

18 On this issue see, e.g., Ohler (2017), pp. 227 et seq.; Sornarajah (2015), pp. 16 et seq.; von Bogdandy and Venzke (2014), pp. 156 et seq.; Schill (2018), pp. 33 et seq.; Cotula (2017), pp. 351 et seq.; Kulick (2015), pp. 441 et seq., each with further references. 19 Schill (2017), p. 1. 20 See generally with regard to modern governance structures of international regimes on this issue for example Peters (2001), pp. 645 et seq.; Tietje (2003), pp. 1094 et seq.; Ladeur (2004), p. 113; Kingsbury et al. (2005), pp. 48 et seq.; Delbrück (2003), pp. 36 et seq. 21 Generally on the approach of decreasing the demand for democratic legitimacy as a possible strategy in international governance see, e.g., Krajewski (2019), para. 24. 22 Scharpf (1972), pp. 21 et seq. 23 See for example Held (1995), pp. 221 et seq.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

165

constitution of global governance and world order”24 in practice appears for the time being rather unrealistic.25 On the other end of the spectrum are those academics that argue for entirely “output-oriented” models of transnational legitimacy.26 Nevertheless, the majority of those legal scholars who are currently sympathetic towards a conceptual change of the understanding of legitimacy, favour more complex approaches comprising of “input-oriented” as well as “output-oriented” elements. According to these pluralistic models, it is necessary to determine with regard to every individual regulatory regime whether a sufficient number of legitimising factors exist that substitute or mutually reinforce each other. Although there is no numerus clausus with regard to the potential aspects to be taken into account, it is nevertheless possible to identify a number of factors to which particular importance is frequently attributed to in the legal literature. Among them is from an “output-oriented” perspective the effective realisation of the common good, generally regarded as one of the most important legitimising factors for the respective regulatory structures. In order to facilitate this optimal orientation towards the realisation of the common good, a prominent position is—in the realm of “inputoriented” factors—occupied, inter alia, by the requirements of transparency in the decision- and rule-making processes as well as in particular also of opportunities for a more direct and more sustained participation by interested and affected societal actors.27 Against this background, the options for public participation as increasingly provided for in connection with international investment agreements are thus not infrequently, and in principle rightly, perceived as valuable—and in fact also necessary—means to foster the legitimacy of the regulatory features stipulated therein.28

4 Conceptualising the Legitimatory Value of Public Participation in Investment Agreements: Republican Legitimacy in Disguise (?) Against the background of the findings made in the previous section, the question arises as to the possibility to conceptualise this legitimatory value of public participation in investment agreements by taking recourse to overarching normative ordering principles; guiding concepts like democracy, the rule of law, republicanism

24

McGrew (2003), p. 503. On this perception see, e.g., Zürn and Leibfried (2005), p. 22; Delbrück (2003), p. 40; Bodansky (1999), p. 600; Elsig (2007), p. 91. 26 See, e.g., Peters (2001), pp. 580 et seq.; Tietje (2003), p. 1095. 27 Generally thereto for example Schliesky (2004), pp. 588 et seq.; Delbrück (2003), pp. 40 et seq.; Krisch (2006), pp. 247 et seq., each with further references. 28 See thereto for example Wendel (2017), pp. 61 et seq.; Sattorova (2018), pp. 182 et seq. 25

166

K. Nowrot and E. Sipiorski

and federalism that have traditionally shaped our understanding of legitimacy and have until now primarily found their manifestation in the domestic context of constitutional law. Although the respective approaches of enabling and facilitating public participation in investment practice as mentioned above are not infrequently considered as being aimed at an enhanced democratic legitimation of these treaty regimes,29 it has already rightly been emphasised that a closer look at their quasiconstitutional foundations reveals that not all of the factors considered to be of relevance in these more complex and pluralistic legitimation approaches are in fact manifestations of democratic legitimacy in the narrower sense of the concept.30 This applies in particular, to mention initially but one example, to the (output-)orientation towards an effective realisation of the common good; considered to be one of the central elements in pluralistic legitimation models, but nevertheless not among the factors that are easily attributable to the ordering idea of democratic legitimacy.31 Rather, some of these elements, among them the orientation towards the common good, but also in particular the idea of a sustained public participation by interested societal actors in the governance processes of a political community, are more appropriately qualified as alternatives to, or surrogates for, democratic legitimacy that arguably find their overarching normative basis in the legal principle of republicanism; a constitutional ordering concept whose relevance in the context of the transnational realm beyond the state has only more recently received increasing attention in the (legal) literature.32 Admittedly, taking into account the variety of different meanings that have been associated with the principle, republicanism seems to be a multi-faceted concept the content of which is not universally agreed upon. In the words of John Adams, “[t] here is not a more unintelligible word in the English language than republicanism”.33 Despite the apparent difficulty in determining the character and conceptual content of the republican principle, a characteristic that it shares with other constitutional principles like democracy and the rule of law, we would submit, however, that it is possible to objectively identify within this complex phenomenon a number of major

29

See for example Cotula (2017), pp. 351 et seq. See generally thereto, e.g., Delbrück (2003), pp. 43 et seq. (“Surrogates for Democration”); Klabbers et al. (2009), pp. 338 et seq.; as well as specifically with regard to the participation of non-state actors recently Krajewski (2019), para. 19. See in this connection also the respective critical remarks by the Federal Constitutional Court of Germany in its judgment of 30 June 2009 on the constitutionality of the Lisbon Reform Treaty, BVerfGE 123, 267 (379–380); an English translation of the judgment is available at: https://www.bundesverfassungsgericht.de/SharedDocs/ Entscheidungen/EN/2009/06/es20090630_2bve000208en.html. 31 See thereto Nowrot (2014), pp. 382 et seq., with numerous further references; as well as more recently also for example Krajewski (2019), para. 3 (“Democratic legitimacy is an element of in-put legitimacy”). 32 On the actual, or at least potential, relevance of the republican principle for the international system and its legal order see, from the perspective of legal scholars, already for example Besson (2009), pp. 205 et seq.; Delbrück (1994), pp. 45 et seq.; Sellers (2006), pp. 1 et seq. 33 See thereto Nowrot (2014), pp. 17 et seq., with respective references. 30

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

167

themes that are historically well-founded and can thus rightly be attributed to this normative ordering idea.34 In order to identify the conceptual content of the republican principle,35 it seems appropriate to recall that the issue of how to constitute, organise and channel the necessary unilateral public power exercised within a community with the aim of preserving the freedom of its members, the citizen, and thus the question of how to create a stable and acceptable “form of political ordering for a society within which there are different interests and constituencies”36 lies at the heart of republicanism. Thereby, the linguistic origin of the term “republic”, the Latin phrase res publica, can serve as a starting point for a descriptive evaluation of the approach adopted by republicans, namely, to cope with the phenomenon of public power. A key theme, if not even the key theme, of republicanism is constituted by its focus on the need of realising the public good, the common weal. The exercise of public power is only considered legitimate if all decision-making and implementation processes are oriented towards the common interest of the citizen rather than the realisation of narrow sectional interests of specific groups or persons, the res privata. If—as being emphasised by Philip Pettit, albeit based on a state-oriented perspective—“the state does not satisfy this tracking requirement, then it must count itself as a dominus of the people whom it taxes and coerces” and will consequently “interfere in their lives [. . .] on an arbitrary basis”.37 While the common interest could theoretically also be realised by a kind of “benign despot”, republicans have always stressed the need for a number of safeguards that ensure the optimal orientation towards the public good in practice. Thus, this major scheme of the republican principle also serves as the basis of certain legal sub-features, which can be deduced from the optimal orientation towards the common good.38 Prominently among them is, first, the normative expectation— manifested for example in a strong emphasis on the prevention and combatting of corruption—that the holders of public offices, the civil servants, have a strong sense of responsibility for the common good and are accountable to the public. The second sub-principle is still most vividly expressed by Marcus Tullius Cicero in his work “De re publica”: “Est igitur [. . .] res publica res populi”; the perception that the community and thus the public good is the common concern of the citizen. In order to prevent domination by others and for the purpose of assuming their responsibility for the public good, republicanism has a strong participatory dimension, as it encourages citizens to actively participate in public affairs. Thus, the idea of involvement based on the notion of concern, by politically interested and

34

On the underlying legal methodology and approach to concretise the regulatory content of the republican principle see Nowrot (2014), pp. 179 et seq. 35 On the following conceptual content of the republican principle see already Nowrot (2014), pp. 343 et seq., with numerous further references. 36 Craig (1997), p. 116. 37 Pettit (1997), p. 290. 38 For a more comprehensive analysis of these sub-principles see Nowrot (2014), pp. 403 et seq.

168

K. Nowrot and E. Sipiorski

informed citizens, which directly flows from the understanding of res publica as res populi, requires the existence of a common public sphere in the sense of a “marketplace of ideas”. The creation and preservation thereof is a central concern of republicanism, which aims at providing a forum for the free and open, discursive formation and expression of the public good.39 Third, and closely related to the last mentioned dimension, in order for the citizens to develop the necessary understanding of the res publica being their own responsibility and to encourage them to take part in public affairs, it is of utmost importance that the respective decision-making processes on the governmental level are not secretive but subject to public control. Thus, although publicity and in particular the more recent issue of transparency are often exclusively associated with the principle of the rule of law, they also form a central component of republicanism because “transparency is a necessary precondition for the type of involvement of the citizenry in the business of government desired by a republican model”.40 Fourth and finally, a major sub-principle of republicanism, which can equally be traced back to eminent thinkers like Cicero and Montesquieu, is its virtueorientation. In fact, the promotion of virtues forms the indispensable basis for the realisation of the common good as well as the protection of liberty and thus for the political community as a whole. Without virtues such as responsibility, solidarity, trust and tolerance, the danger arises that the members of a “community” will orientate their activities exclusively on the realisation of their respective and necessarily sectoral res privata which would not only result in the common public interest being neglected but ultimately in the destruction of the community and the loss of freedom caused by the rise of domination. In light of these possible and undesirable consequences, the republican principle thus strongly emphasises the importance attached to the facilitation of practices of virtue, not only on the side of the holders of public offices, but also by individual citizens and other non-state actors like private business enterprises. In sum, republicanism is a normative principle whose conceptual content is determined by the focus on the realisation of the public good, by the perception that this public good is the common concern of the citizen and by the conviction that the promotion of virtues and of the responsibility of civil servants form an indispensable basis for the creation and sustainment of a political community. In light of these findings, the increasing opportunities for sustained public participation in the negotiation and enforcement of investment agreements do not primarily present themselves as an indication for a “democratisation” of this legal regime41 but are more appropriately perceived as a possible sign for a republicanisation of international investment law.

39 See, e.g., Delbrück (1994), p. 62; Michelman (1988), pp. 1499 et seq.; Sunstein (1990), p. 181 (“Republicans also put a high premium on active citizen participation in public affairs”). 40 Craig (1997), p. 120. 41 See for example Cotula (2015), pp. 1 et seq.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

169

5 Outlook: Warming up to the Idea of a Republicanisation of International Investment Law: A Primer Against the background of the findings made in the previous sections, this final part of the chapter, adopting a more overarching perspective, intends to present some thoughts, no more than that, on the usefulness and validity of a potential broader claim towards a republicanisation of international investment law as a normative ordering and guiding idea for conceptualising current trends in international investment law-making as well as for the future progressive evolution of this area of international economic law. It is well-known that international investment law has more recently—again— entered a phase of reformation and reconceptualisation. Whereas the previous period first and foremost resulted in foreign investors having—particularly on the basis of access to effective international legal remedies—experienced a notable strengthening of their international legal protection and status, thereby also “marking another step in their transition from objects to subjects of international law”,42 the currently visible transitional phase from the “second generation” of investment agreements to the rise of a new “third generation” of investment policies, that increasingly also finds its manifestation in treaty practice, is, quite to the contrary, also characterised, and indeed largely dominated, by intensified efforts in all parts of the world to progressively develop the international legal basis of investment protection with a view to fostering its contribution to the realisation of sustainable development objectives and, albeit closely related, by various efforts of states to regain some of their “policy space” vis-à-vis foreign investors. In light of certain negatively perceived effects of the previously established framework of international investment protection, it is by now ever more recognised among governments of industrialised and developing countries, practitioners and scholars alike, that at the level of designing investment agreements as well as in the realm of investor-state dispute settlement, the central challenge lawmakers and arbitrators are as of today faced with is to provide for an appropriate and thus acceptable balance between the legally protected economic interests of foreign investors and the domestic and international steering capacity of host states to allow the later to pursue the promotion and protection of other (non-economic) public interest concerns to the benefit of their populations and global public goods. Already the thus increasingly recognised need to pursue the realisation of the common good in the realm of international investment law in a more comprehensive and holistic manner by striving for a more acceptable, better respective balance, which characterises the various relevant current efforts as a whole, could be considered as an indication that the law-making and law-enforcement processes in this transnational legal field are ever-more guided by the idea of ensuring an optimal orientation towards broader public interest concerns; and thus as striving for the 42

Plama Consortium Ltd. v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction of 8 February 2005, para. 141.

170

K. Nowrot and E. Sipiorski

implementation, in investment law practice, of what can rightly be regarded as a genuine and central republican ordering concept. Nevertheless, what seems to be at least equally noteworthy is the observation that, in the course of these numerous different and diverse endeavours, first and foremost also the four primary sub-principles, identified above as supplementing and facilitating from a republican perspective the optimal orientation towards the common good,43 play an increasingly important role in the design and application of today’s investment (treaty) law. This applies for example to the well-known and ever-more influential perception of the value of transparency within the field, highlighted in particular in recent free trade agreements, but also in other international treaties and soft law instruments.44 Furthermore, the importance attached, in the realms of investment treaty-making as well as arbitral practice, to the prevention and combatting of corruption in the context of investment activities,45 might very well be interpreted, from a republican perspective, as a sign that international investment law is ever-more committed to securing the integrity and responsibility of holders of public offices. In addition, also—and, some would probably say, even—the republican principle’s strong emphasis on the significance attached to the facilitation of practices of virtue, an ordering idea that at first sight probably seems to many to be rather outdated, appears to be now increasingly recognised as an significant policy and legal issue in international investment law. This is in particular evidenced by the current discourses on, and practical approaches to, the issue of investors’ obligations; in the realm of international soft law documents, but increasingly also in the field of investment treaty law-making.46 And last, but surely not least, the importance of the republican principle and its sub-concepts in the present processes and interactions characterising this area of international economic law also finds its undeniable manifestation—as illustrated in this chapter47—in the ever-growing—and in fact increasingly also stateimplemented realisation of—public participation in the negotiation as well as enforcement of investment agreements. In light of these findings, we would indeed dare to submit that all of these elements and developments, especially when taken together, might very well, albeit with all due caution, be rightly regarded as indications for a current trend leading towards a republicanisation of international investment law.

43

See supra under Sect. 4. See for example United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration, opened for signature 17 March 2015, available at: https://www.uncitral.org/pdf/ english/texts/arbitration/transparency-convention/Transparency-Convention-e.pdf. 45 See thereto, e.g., Sipiorski (2019), pp. 92 et seq., with further references. 46 Generally thereto see for example Nowrot (2015), pp. 1154 et seq.; Barnes (2019), pp. 328 et seq. 47 See supra Sect. 2. 44

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

171

References Barnes MM (2019) The ‘social license to operate’: an emerging concept in the practice of international investment tribunals. J Int Dispute Settlement 10:328–360 Besson S (2009) Ubi ius, ibi civitas: a republican account of the international community. In: Besson S, Martí J (eds) Legal republicanism – national and international perspectives. Oxford University Press, Oxford, pp 205–237 Bodansky D (1999) The legitimacy of international governance: a coming challenge for international environmental law? Am J Int Law 93:596–624 Bray H (2014) ICSID and the right to water: an ingredient in the stone soup. ICSID Rev 29 (2):474–483 Cai C (2018) Balanced investment treaties and the Brics. AJIL Unbound 112:217–222 Cohn T (2002) Governing global trade: international institutions in conflict and convergence. Routledge, Abingdon Collins D (2010) Environmental impact statements and public participation in international investment law. Manchester J Int Econ Law 7(2):4–23 Cotula L (2015) Democratising international investment law – recent trends and lessons from experience. International Institute for Environment and Development, London Cotula L (2017) Democracy and international investment law. Leiden J Int Law 30:351–382 Craig PP (1997) Democracy and rule-making within the EC: an empirical and normative assessment. Eur Law J 3:105–130 Delbrück J (1994) Global migration-immigration-multiethnicity: challenges to the concept of the nation-state. Indiana J Global Legal Stud 2:45–64 Delbrück J (2003) Exercising public authority beyond the state: transnational democracy and/or alternative legitimation strategies? Indiana J Global Legal Stud 10:29–43 Elsig M (2007) The World Trade Organization’s legitimacy crisis: what does the beast look like? J World Trade 41:75–98 Held D (1995) Democracy and the global order – from the modern state to cosmopolitan governance. Polity Press, Cambridge Henderson S, Jeydel AS (2007) Participation and protest: women and politics in a global world. Oxford University Press, Oxford Kingsbury B, Krisch N, Stewart RB (2005) The emergence of global administrative law. Law Contemp Problems 68:15–61 Klabbers J, Peters A, Ulfstein G (2009) The constitutionalization of international law. Oxford University Press, Oxford Krajewski M (2019) International organizations or institutions, democratic legitimacy (March 2019). In: Wolfrum R (ed) Max Planck encyclopedia of public international law, online edition. Oxford University Press, Oxford Krisch N (2006) The pluralism of global administrative law. Eur J Int Law 17:247–278 Kulick A (2015) Investment arbitration, investment treaty interpretation, and democracy. Camb J Int Comp Law 4:441–460 Ladeur KH (2004) Globalization and the conversion of democracy to polycentric networks: can democracy survive the end of the nation state? In: Ladeur K-H (ed) Public governance in the age of globalization. Ashgate, Aldershot, pp 89–118 Marceddu ML (2018) Implementing transparency and public participation in FTA negotiations: are the times a-changing’? J Int Econ Law 21:681–702 McGrew A (2003) Models of transnational democracy. In: Held D, McGrew A (eds) The global transformations reader, 2nd edn. Polity Press, Cambridge, pp 500–513 Michelman FI (1988) Law’s republic. Yale Law J 97:1493–1537 Muchlinski P (2000) The rise and fall of the multilateral agreement on investment: where now? Int Lawyer 34:1033–1053 Nowrot K (2014) Das Republikprinzip in der Rechtsordnungengemeinschaft. Mohr Siebeck, Tübingen

172

K. Nowrot and E. Sipiorski

Nowrot K (2015) Obligations of investors. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Beck/Hart/Nomos, Baden-Baden, pp 1154–1185 Ohler C (2017) Democratic legitimacy and the rule of law in investor-state dispute settlement under CETA. Eur Yearb Int Econ Law 8:227–245 Peters A (2001) Elemente einer Theorie der Verfassung Europas. Duncker & Humblot, Berlin Peters A (2016) Beyond human rights – the status of the individual in international law. Cambridge University Press, Cambridge Pettit P (1997) Republicanism – a theory of freedom and government. Clarendon Press, Oxford Salazar AR (2013) Defragmenting international investment law to protect citizen-consumers: the role of amici curiae and public interest groups. Law & Bus Rev Am 19(2):183–199 Sattorova M (2018) The impact of investment treaty law on host states: enabling good governance? Hart Publishing, Oxford Scharpf FW (1972) Demokratietheorie zwischen Utopie und Anpassung, 2nd edn. UniversitaetsVerlag, Konstanz Schill SW (2017) Editorial: the constitutional frontiers of international economic law. J World Invest Trade 18:1–8 Schill SW (2018) Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht? Heidelberg J Int Law 78:33–92 Schliesky U (2004) Souveränität und Legitimität von Herrschaftsgewalt. Mohr Siebeck, Tübingen Schneiderman D (2008) Constitutionalizing economic globalization. Cambridge University Press, Cambridge Sellers M (2006) Republican principles in international law – the fundamental requirements of a just world order. Palgrave MacMillan, Houndmills Sipiorski E (2019) Good faith in international investment arbitration. Oxford University Press, Oxford Sornarajah M (2015) Resistance and change in the international law on foreign investment. Cambridge University Press, Cambridge Sornarajah M (2017) The international law on foreign investment, 4th edn. Cambridge University Press, Cambridge Sunstein CR (1990) Republicanism and the preference problem. Chicago-Kent Law Rev 66:181–203 Teitel R (2011) Humanity’s law. Oxford University Press, Oxford Tietje C (2003) Die Staatsrechtslehre und die Veränderung ihres Gegenstandes: Konsequenzen von Europäisierung und Internationalisierung. Deutsches Verwaltungsblatt 118:1081–1096 Trebilcock MJ (2015) Advanced introduction to international trade law. Edward Elgar, Cheltenham von Bogdandy A, Venzke I (2014) In whose name? A public law theory of international adjudication. Oxford University Press, Oxford Wallace-Bruce NL (2001) The multilateral agreement on investment: an indecent proposal and not learning the lessons of history. J World Invest Trade 2:53–85 Wendel M (2017) International trade agreements and democratic participation. Eur Yearb Int Econ Law 8:61–81 Zürn M, Leibfried S (2005) Reconfiguring the national constellation. In: Leibfried S, Zürn M (eds) Transformations of the state? Cambridge University Press, Cambridge, pp 1–36

Professor Dr. iur. Karsten Nowrot LL.M. (Indiana) is Professor of Public Law, European Law and International Economic Law, Director of the Research Institute for Economic Law and Labour Law as well as the current Head of the Department of Law at the School of Socio-Economics of the Faculty of Business, Economics and Social Sciences at Hamburg University, Germany. He also serves as Deputy Director of the Master Programme “European and European Legal Studies” at the Institute for European Integration of the Europa-Kolleg in Hamburg.

Towards a Republicanisation of International Investment Law?: Conceptualising. . .

173

Dr. Emily Sipiorski is an associated researcher at the University of NOVA, Lisbon, Centre of Research and Development for Law and Society (CEDIS) and is a post-doctoral researcher in the Department of Law at the School of Socio-Economics at the University of Hamburg, Germany. She worked at Martin Luther University, Halle-Wittenberg, Germany as a lecturer and senior researcher, where she completed her PhD, and at Luther Rechtsanwaltsgesellschaft on the complex disputes team.

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The Application of the Monetary Gold Principle Alvaro Galindo and Ahmed Elsisi

Contents 1 Non-Disputing Parties’ Rights in Investor-State Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . 2 The Right to Intervene v. the Right of Amici . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Practice in Public International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Practice in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Monetary Gold Principle (“MGP”) as a Possible Solution? . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Judicial Origin of the MGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Application of the MGP in ISDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Final Note on Recent Development on NDPs’ Participation in ISDS . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

176 178 179 182 183 183 186 189 190

Abstract Commercial arbitration is, by design, a private forum for the settlement of legal disputes between private parties. Confidentiality has been one of its overarching features and fundamental principles. Yet, the rise of the state as a commercial actor in the last century has led to an evolution in the arbitration process to accommodate and resolve disputes at the intersection between private and public law. Today, while investor-state dispute settlement (“ISDS”) is recognized as a system distinct from commercial arbitration, confidentiality still plays a role in the ISDS process. As a result, non-disputing parties (“NDPs”) affected by the outcome of ISDS are generally restricted from participating meaningfully in the process.

All views expressed herein are solely those of the authors, and nothing in this chapter should be read or interpreted as representing the positions of Georgetown University Law Center or Dechert LLP.

A. Galindo (*) Georgetown University Law Center, Washington, DC, USA e-mail: [email protected] A. Elsisi Dechert LLP, Washington, DC, USA e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_11

175

176

A. Galindo and A. Elsisi

This note examines the position of NDPs in ISDS. It surveys the rules of procedures and the jurisprudence of some of the major international courts and tribunals to shed light on the main differences between intervention as original disputing party and participation as amicus curiae, and the treatment they both receive under public international law and in ISDS. The note further explores the viability of applying the Monetary Gold Principle (“MGP”) in the ISDS context to enable NDPs to participate and represent their interests in the process. Finally, the note concludes with a brief reflection on the place of NDPs in the ongoing ISDS reform efforts.

1 Non-Disputing Parties’ Rights in Investor-State Dispute Resolution Confidentiality is one of the fundamental principles under which arbitration between private parties is conducted. Yet, because of the way arbitration has evolved from a system that was originally conceived to resolve purely private commercial disputes into a system that settles investment disputes involving sovereign states, confidentiality and privacy continued to play an important role in the investor-state dispute settlement (“ISDS”) system.1 An important part of the criticism directed to ISDS focuses on the premise that the system lacks legitimacy and transparency. In the essence of this is a grievance that non-disputing parties (“NDPs”) affected by the results of ISDS are not represented or included in the policy and decision-making process of the system. As a result, ISDS has been perceived as an exclusive and imbalanced regime. The controversy is rooted in the very nature of ISDS as a distinct and different system from commercial arbitration. In most of ISDS cases involving a sovereign party, the dispute would most likely be related to the exercise of regulatory powers by the government. Here, the substantive standards of protection and obligations are normally found in the investment treaty at issue and the relevant municipal law. In resolving such disputes, tribunals would have to indulge into a public law inquiry, the result of which would be an arbitral award that affects the public in general, and in some occasions, a specific group of the general public or a particular community. NDPs’ rights have been affected by the ISDS process in a variety of contexts, including communities with interests in lands or contracts;2 indigenous communities contesting the investment operation through domestic litigation;3 creditors to

1

See Van Harten (2007), Franck (2005), Douglas (2003), Smeureanu (2011). Mr. Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa El Corporation v. Romania, ICSID Case No. ARB/10/13, Award, 2 March 2015. 3 Copper Mesa Mining Corporation v. Republic of Ecuador, PCA No. 2012-2, Award, 15 March 2016; Joint Motion for Stay of the Pending Completion of Settlement Agreement, 25 July 2018. 2

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

177

claimants in ISDS cases;4 individuals with competing claims to property in interest;5 and adverse parties in domestic litigation.6 The rights and interests of NDPs could be triggered in various ways, including when the same dispute is being heard in two different fora, one of which is ISDS;7 when interim or injunctive relief is being sought against either NDPs or investors’ interests;8 or when investors challenge a domestic process the outcome of which was in favor of NDPs.9 The consequences of ISDS’s exclusionary nature are not limited to the outcome of the process. By design, ISDS excludes NDPs from the negotiation process up to the conclusion of the treaty containing the ISDS provision. Moreover, even if allowed any sort of access, the information’s asymmetry and lack of transparency preclude NDPs from asserting their rights effectively during the dispute. For instance, the exorbitant costs of participating in ISDS usually represent a disincentive for NDPs to participate or having a meaningful role. Language could be another barrier due to the inability of some local communities to afford translation costs or the fees of an Anglo-phone speaking counsel. In addition, many of the ISDS proceedings are confidential by virtue of their governing arbitration rules or by agreement of the parties. Even when the proceedings are public, and under certain circumstances, the awards can be redacted from essential information. Furthermore, a significant number of ISDS claims are reportedly settled between the parties to the dispute before an award is rendered, in some instances, without regard to the harm that could be caused to NDPs. Settlements can result in certain

4 Dan Cake S.A. v. Hungary, ICSID Case No. ARB/12/9, Decision on Jurisdiction and Liability, 24 August 2015. 5 Border Timbers Limited, Border Timbers International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No. ARB/10/25, Decision on the Applicant’s Application for Provisional Measures, 17 March 2016. 6 Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2, Final Award, 16 March 2017; Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012. 7 TransCanada Corporation and TransCanada PipeLines Limited v. The United States of America, ICSID Case No. ARB/16/21, Order of the Secretary-General Taking Note of the Discontinuance of the Proceeding, 24 March 2017; Copper Mesa Mining Corporation v. Republic of Ecuador, PCA No. 2012-2, Award, 15 March 2016; Joint Motion for Stay of the Pending Completion of Settlement Agreement, 25 July 2018. 8 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012; Border Timbers Limited, Border Timbers International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No. ARB/10/ 25, Decision on the Applicant’s Application for Provisional Measures, 17 March 2016. 9 Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2, Final Award, 16 March 2017; Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012. See generally Columbia Center on Sustainable Investment, Annual Meeting of ACPIL - Written Views regarding UNCITRAL Working Group III, 23 May 2019.

178

A. Galindo and A. Elsisi

positive outcomes, such as saving parties the time and expense of arbitration. However, settlement of disputes involving governments requires that careful attention be given to certain principles of good governance, accountability, transparency, respect for the rule of law and for citizens’ rights and interests. Currently, there are no mechanism in ISDS through which NDPs could seek protection for their rights and interests. NDPs have no standing to intervene as original parties in ISDS and are not allowed to bring counter-claims against the investor or the state. The only means for NDPs to voice their complaints or provide an input is through the submission of amicus briefs.10 Amicus participation is most likely to be an inadequate tool to cover NDPs rights. It is granted at the discretion of the tribunal and the standards applied to amicus participation are unclear and almost impossible to satisfy. For example, standards are generally interpreted to require amici to add new information or viewpoint that could benefit the proceeding, yet at the same time, tribunals or the disputing parties deny them access to case files. Other vague standards have been applied by tribunals, such as that the amicus submission should not be unduly burdensome for the original parties or for the proceedings in general.11 Thus, in order to appreciate the complexity of NDPs’ position, it is essential to draw the differences between the procedure to intervene as a disputing party and the participation as amicus.

2 The Right to Intervene v. the Right of Amici In international law, intervention is a procedure by which an NDP, which has an interest in a given dispute and may be affected by the tribunal’s decision in that dispute, becomes a disputing party. As a consequence, the intervening party becomes vested with all the rights and burdened by all the obligations that the other disputing parties have including bringing its own separate—but relevant— claims and defenses, gaining access to the dispute’s documents and pleadings, oral hearings, the right to present witnesses and experts, the right to cross examine the opposing party or its witness or expert. That also entails that the tribunal’s decision

10 Blackaby and Richard (2009), Cotula and Perrone (2019), Cross and Schliemann-Radbruch (2013), Fach Gómez (2012), Van Harten (2007). 11 See Methanex v. United States, UNCITRAL, Decision of the Tribunal on Petitions from Third Persons to Intervene as “amici curiae”, 15 January 2001, para. 36. The tribunal decided that “[a]s envisaged by the Tribunal, the Petitioners would make their submissions in writing, in a form and subject to limitations decided by the Tribunal. The Petitioners could not adduce the evidence of any factual or expert witness [. . .]”. See also United Parcel Service of Am., Inc. (UPS) v. Canada (NAFTA/UNCITRAL), Decision of Tribunal on Petitioner for Intervention and Participation as Amici Curiae, 17 October 2001, para. 69. The tribunal stated that: “The power of the Tribunal to permit amicus submissions is not to be used in a way which is unduly burdensome for the parties or which unnecessarily complicates the Tribunal process”.

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

179

would be enforced against the intervening party in the event of losing, and that the intervening party could seek enforcement of that decision in the event of prevailing. On the other hand, amicus submissions are presented by a third party that offers information or insights having bearing on the issues arising in a given dispute.12 Thus, amicus intervention differs from the intervention of an NDP in that the former does not become an actual party to the dispute, and therefore does not have the rights and obligations of the disputing parties. Nonetheless, amicus may be granted a leave to access case documents, to take part in hearings, make oral submissions, respond to questions, and review memorials.

2.1

The Practice in Public International Law

Third-party intervention is an uncommon practice among international courts and tribunals. In some international fora, intervention is allowed subject to certain conditions under the rules of procedures governing the dispute. These rules must always explicitly permit such intervention. For instance, Article 62 of the Statute of the International Court of Justice (“ICJ”) provides that.13 Should a State consider that it has an interest of a legal nature which may be affected by the decision in the case, it may submit a request to the Court to be permitted to intervene. It shall be for the Court to decide upon this request.

Another example is Rule 44.3(a) of the Rules of Court of the European Court of Human Rights (“ECtHR Rules”), entitled “Third-Party Intervention”, which provides:14 Once notice of an application has been given to the respondent Contracting Party under Rules 51 § 1 or 54 § 2 (b), the President of the Chamber may, in the interests of the proper administration of justice, as provided in Article 36 § 2 of the Convention, invite, or grant leave to, any Contracting Party which is not a party to the proceedings, or any person concerned who is not the applicant, to submit written comments or, in exceptional cases, to take part in a hearing. [Emphasis added]

Moreover, Article 31 of the Statute of the International Tribunal for the Law of the Sea (“ITLOS”) states that: [s]hould a State Party consider that it has an interest of a legal nature which may be affected by the decision in any dispute, it may submit a request to the Tribunal to be permitted to

12

Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. The Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to A Petition for Transparency and Participation as Amicus Curiae, 19 May 2005, para. 13. 13 Statute of the International Court of Justice, June 26, 1945, 59 Stat. 1055, 33 U.N.T.S. 933, art. 62 14 Rule 44.3(a) of the ECtHR Rules, as amended by the Court on 7 July 2003, 13 November 2006 and 19 September 2016.

180

A. Galindo and A. Elsisi

intervene.” Also, Article 40 of the Statute of the Court of Justice of the European Union provides that “[m]ember States and institutions of the Union may intervene in cases before the Court of Justice [. . .].

Amicus participation is, however, more common. Most international courts and tribunals have allowed the participation of amicus in hearings when their rules or statutes permit such participation. To grant leave for amicus to participate, courts and tribunals rely either on the broad interpretation of their statutes and rules or on the disputing parties’ consent. The ICJ Statute and ICJ Rules of the Court (“ICJ Rules”) make no express provision as to amicus curiae participation in contentious cases. The only relevant provision in the ICJ Statute is Article 34.2, which provides that the ICJ “may request of public international organizations information relevant to cases before it, and shall receive such information presented by such organizations on their own initiative”.15 The practice of the ICJ in contentious cases is restrictive with regard to amicus participation. In the Asylum Case (Colombia v. Peru), the ICJ declined a request for leave from the International League for the Rights of Man, a non-governmental organization, to participate pursuant to Article 34.16 In 1988, in the Aerial Incident of 3 July 1988 Case (Islamic Republic of Iran v. the United States), the ICJ invited the International Civil Aviation Organization (“ICAO”) to supply certain information regarding ICAO’s council proceedings, but no participation was granted.17 Amicus participation is also limited within the ICJ’s advisory jurisdiction. In the International Status of South-West Africa Advisory Opinion, the ICJ accepted a request from the International League of the Rights of Man, to furnish information, but no submission was made in that case.18 Apart from this case, the ICJ rejected several requests by non-governmental organizations (“NGOs”) to make submissions. In Legality of the Use by a State of Nuclear Weapons in Armed Conflict, an amicus brief was filed before the ICJ by a non-governmental organization. The ICJ placed that brief in the ICJ’s library, and did not admit it as part of the record.19 The European Convention for the Protection of Human Rights and Fundamental Freedoms (“ECHR”) does not explicitly provide for amicus curiae participation. However, Article 36.2 of the ECHR, as modified by Protocol 11 in 1998, allows the

15

Statute of the International Court of Justice, June 26, 1945, 59 Stat. 1055, 33 U.N.T.S. 933, art. 34.2. 16 Request for Interpretation of the Judgment of 20 November 1950 in the Asylum Case (Colombia/ Peru), I.C.J. Reports 1950, p. 266. 17 Observation of the International Civil Aviation, 4 December 1992, available at: https://www.icjcij.org/files/case-related/79/9699.pdf. 18 International Status of South-West Africa Advisory Opinion of July 11th 1950, I.C.J. Reports 1950, p. 6. 19 See Sands et al. (1999).

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

181

President of the Court to invite a Contracting Party or a person who is not party to the proceedings to submit written comments in the hearings.20 Almost all the international criminal courts and tribunals have specific provisions in their statutes or rules of procedure regulating amicus participation. The Rules of Procedure and Evidence of the International Criminal Court (“ICC Rules”) explicitly addresses amicus curiae and related submissions. Upon the submission of such observations, it is further provided that the ICC Prosecutor and the defense shall have the opportunity to respond. The same applies in appeals cases.21 Similarly, Rule 74 of the Rules of Procedure and Evidence of the International Criminal Tribunal for the Former Yugoslavia (“ICTY”) allows the chambers to invite, or grant leave to a state, organization or person to appear before it and make submissions.22 In 2015, the ICTY released Information Concerning the Submission of Amicus Curiae, in which Paragraph 9 provided the specific guidelines for accepting amicus briefs:23 Regardless of whether an amicus curiae submission is submitted unsolicited or in response to a general or specific invitation by a Chamber, the following provisions shall apply: (a) In general, amicus curiae submissions shall be limited to questions of law, and shall not include factual evidence relating to elements of a crime charged; (b) The Chamber shall give each party the opportunity to comment on the amicus curiae submissions, and shall retain the power to reject the offered submissions; (c) Amici curiae will not be subject to cross-examination, nor will they be allowed to call witnesses; and (d) Amici curiae may be invited to participate in oral argument at the Chamber's sole discretion.

The ICTY received the first amicus request for leave to appear, in 1995, in the Tadić Case. The Trial Chamber, in light of the Prosecutor’s position against the request, determined that granting the request would not assist the proceedings.24 The ICTY invited amicus submissions in Prosecutor v. Blaskić.25 In the same case, the

20

The European Convention for the Protection of Human Rights and Fundamental Freedoms as modified by Protocol 11 in 1998, provides that: “The President of the Court may, in the interest of the proper administration of justice, invite any High Contracting Party which is not a party to the proceedings or any person concerned who is not the applicant to submit written comments or take part in hearings”. 21 Rule 149 of the ICC Rules. 22 Rule 74 of the ICTY Rules provides that: “A Chamber may, if it considers desirable for the proper determination of the case, invite, or grant leave to a State, organization or person to appear before it and make submissions on any issue specified by the Chamber”. 23 ICTY Information Concerning the Submission of Amicus Curiae. Available at: http://www.icty. org/x/file/Legal%20Library/Miscellaneous/it122_amicuscuriae_briefs_en.pdf. 24 Prosecutor v. Dusko Tadix a/k/a”DULE”, Trial Chamber Order Denying Leave to Appear as Amicus Curiae, 20 November 1996. 25 The Prosecutor v. Tihomir Blaskic, Trial Chamber Order Submitting the Matter to Trial Chamber II and Inviting Amicus Curiae, 14 March 1997.

182

A. Galindo and A. Elsisi

ICTY granted leave for more than six amici to appear before it.26 In Prosecutor v. Slobodan Milošević, the ICTY Trial Chamber ordered the appointment of three amici curiae to assist in the proper determination of the case given that the accused did not have legal representation.27 Rule 74 Rules of Procedure and Evidence of the International Criminal Tribunal for Rwanda (“ICTR Rules”) is identical to Rule 74 of the ICTY Rules.28 In the context of the World Trade Organization (the “WTO”), amicus briefs submitted by member states have generally been admitted by the Appellate Body (the “AB”).29 However, when it comes to non-WTO member states, the AB ruled that they do not have legal right nor does the AB has a duty to admit their unsolicited briefs.30

2.2

The Practice in Investment Arbitration

There is no standard procedure allowing intervention of NDPs in ISDS. Tribunals usually refer to the consent of the parties when determining whether to allow amicus to observe or participate in hearings. There are two NAFTA cases, under the UNCITRAL Rules, where amici were allowed to observe the hearings. The two cases are Methanex v United States and UPS v Canada. In both cases, the disputing parties agreed that the hearings be conducted publicly. As a result, amicus petitioners were given seats in the hearings rooms in both cases. However, the tribunals did not allow them to participate during the hearings in any manner.31 Other tribunals refused to grant leave to amici to participate in hearings either because the parties did not agree or for concerns that amicus participation might disrupt the proceedings. For example, in Chevron v. Ecuador II, the tribunal decided not to grant leave to NDPs to participate in the hearings after both disputing parties refused to consent to that leave.32 In Norvik Banka v. Latvia, the tribunal allowed the European Commission to file a written NDP submission, but declined its request for

26

The Prosecutor v. Tihomir Blaskic, Trial Chamber Orders Granting Leave to Appear as Amicus Curiae, 11 April 1997. 27 ICTY Press Release: Milosevic Case: The Registrar Appoints a Team of Experienced International Lawyers as Amicus Curiae to Assist the Trial Chamber. 28 Rule 74 of the ICTR Rules. 29 See Articles 10.2 and 17.4 of the Dispute Settlement Understanding of the WTO. 30 See US – Lead and Bismuth II, Appellate Body Report, May 10, 2000, para. 41. 31 See Methanex v. United States, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, para. 28; See also United Parcel Service of Am., Inc. (UPS) v. Canada (NAFTA/ UNCITRAL), Award on the Merits, 24 May 2005, para. 4. 32 Chevron Corporation (U.S.A.) and Texaco Petroleum Corporation (U.S.A.) v. Republic of Ecuador [II], PCA Case No. 2009-23, Procedural Order No. 8, 18 April 2011 para. 17.

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

183

oral submissions over concerns that it would disrupt the proceedings.33 In Infinito Gold v. Costa Rica, the tribunal rejected the participation of a third party amicus because the claimant expressly objected to the amicus participation in the oral hearings.34 In Border Timbers v. Zimbabwe, the tribunal noted that the claimants’ objection constitutes an absolute bar to granting the amicus leave for oral submissions.35 Finally, in Suez v. Argentina, the tribunal noted that although it has certain powers with respect to the arbitral procedures, it has no authority to allow amicus to attend hearings absent the affirmative agreement of the parties.36

3 The Monetary Gold Principle (“MGP”) as a Possible Solution? 3.1

The Judicial Origin of the MGP

Essentially, MGP is derived from the principle of consent or consensual jurisdiction, according to which an international court or tribunal cannot exercise jurisdiction over a party without its consent. The principle of consent is codified in Article 62 of the ICJ Statute.37 In its essence, MGP is an application of the principle of consent in a particular context. The principle entails that, when the ICJ adjudicates a dispute between two or more consenting states, it must decline to exercise the jurisdiction conferred upon it by the adjudicating states where the legal interests of a state not party to the proceedings would be affected by its decision, and this non-party’s legal interest would form the very subject-matter of the decision. The name of the principle originated from the ICJ case Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America).38 The facts leading to the dispute started in

33

AS Norvik Banka and others v. Republic of Latvia, ICSID Case No. ARB/17/47, Procedural Order No. 3, 30 October 2018, para. 59. 34 Infinito Gold Ltd. v. Republic of Costa Rica, ICSID Case No. ARB/14/5, Procedural Order No. 2, 1 June 2016, paras 47–48. 35 Timbers Limited, Border Timbers International (Private) Limited and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No. ARB/10/25, Procedural Order No. 2, 26 June 2012, para. 63. 36 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition for Transparency and Participation as Amicus Curiae, 19 May 2005, para. 6. 37 Article 62 of the ICJ Statute provides: “(1) Should a state consider that it has an interest of a legal nature which may be affected by the decision in the case, it may submit a request to the Court to be permitted to intervene. (2) It shall be for the Court to decide upon this request”. 38 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954.

184

A. Galindo and A. Elsisi

1925, when the National Bank of Albania (“NBA”) was created by virtue of a banking convention concluded between the monarchical Albanian government and Italian financiers, whereby NBA was given the exclusive right to issue bank notes in Albania backed by gold reserves seated in Rome. During the 1940s, the Italian government became a majority owner of the share capital of NBA.39 During World War II, Germany seized NBA’s gold from Rome and transferred it to Germany. After the end of the war, the victorious allied powers negotiated and concluded the Final Act of the Paris Conference on Reparation, 21 December 1945 (the “Paris Agreement”), which identified the appropriate procedures to determine the amount of reparations against Germany and their distribution, including the restitution of monetary gold.40 Albania and Italy were parties to the Paris Agreement. Part III of the Paris Agreement provided for the distribution of the monetary gold found in Germany after the war through a method called “the gold pool principle”, according to which the looted gold would be returned to each state that lost gold to Germany in the proportion of its losses against the total losses of the rest of the states.41 In addition, Part III designated France, the UK, and the US to be in charge of the gold restitution operation as executors. However, a disagreement arose as to whether the gold looted at Rome was originally Italy or Albania’s property. Both the UK and Italy claimed that they were owed a compensatory share of the gold that would otherwise belong to Albania. Controversially, Albania’s proportional share of the gold found in Germany was not enough to satisfy both claims. As a result, the three governments agreed in the so called “Washington Agreement”, without consulting with neither Italy nor Albania, to submit the question to an arbitrator.42 In addition, the three governments attached to the Washington Agreement a statement recording their agreement that if the arbitrator finds that the proper gold belongs to Albania, then the UK should have the gold in partial satisfaction of the Judgment in the Corfu Channel case, delivered by the ICJ on December 15th, 1949, unless:

39

Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, pp. 10–12. 40 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954. 41 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954. 42 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954; Agreement between the Governments of the French Republic, the United Kingdom of Great Britain and Northern Ireland and the United States of America for the Submission to an Arbitrator of Certain Claims with Respect to Gold Looted by the Germans from Rome in 1943.

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

185

[W]ithin 90 days from the date of the communication of the arbitrator’s opinion to Italy and Albania, either (a) Albania makes an application to the International Court of Justice for the determination of the question whether it is proper that the gold, to which Albania has established a claim under Part III, should be delivered to the United Kingdom in partial satisfaction of the Corfu Channel judgment; or (b) Italy makes an application to the International Court of Justice for the determination of the question whether, by reason of any right which she claims to possess as a result of the Albanian law of 13th January 1945, or under the provisions of the Italian Peace Treaty, the gold should be delivered to Italy rather than to Albania and agrees to accept the jurisdiction of the Court to determine the question whether the claim of the United Kingdom or of Italy to receive the gold should have priority, if this issue should arise.43

On 20 February 1953, the arbitrator communicated his decision to the three governments, in which he opined that the gold in question belonged to Albania. While Albania and Italy were served and had notice of the arbitrator’s decision, only Italy instituted a proceeding before the ICJ in accordance with paragraph (b) of the above statement naming France, the UK and the US as respondents. Italy requested the following substantive relief: i. That France, the UK and the US deliver to Italy any share of the monetary gold that might be due to Albania under Part III of the Paris Agreement in partial satisfaction for the damage caused to Italy by Albania; and ii. That Italy’s right to receive the said share of monetary gold must have priority over the claim of the UK to receive the gold in partial satisfaction of the Judgment in the Corfu Channel case.44 Thereafter, Italy made a submission challenging, as a preliminary issue, the ICJ jurisdiction to adjudicate the case without the consent of Albania.45 It is in this conjuncture that the ICJ formulated the MGP. In its Order of 15 June 1945, the ICJ found that it cannot practically decide whether Italy is entitled to receive the gold, unless it determines whether Albania had committed an international wrong against Italy that entails the payment of compensation by Albania to Italy. The ICJ characterized the latter question as a dispute between Italy and Albania, which cannot be resolved without Albania’s consent.46 43

Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, p. 6. 44 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, p. 7. 45 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, p. 7. 46 Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, p. 7.

186

A. Galindo and A. Elsisi

The ICJ reasoned that to adjudicate upon the international responsibility of Albania without its consent would run counter to a well-established principle of international law embodied in the ICJ’s Statute, namely, that the ICJ can only exercise jurisdiction over a state with its consent. The rationale of MGP was eventually crystalized when the ICJ established that “Albania’s legal interests would not only be affected by a decision, but would form the very subject-matter of the decision”.47 After the Monetary Gold Case, the ICJ has consistently reaffirmed the application of MGP in its subsequent jurisprudence.48 For instance, in the East Timor Case (Portugal v. Australia), the ICJ relied on the MGP in declining jurisdiction over a claim by Portugal against Australia alleging that an international treaty between Australia and Indonesia violated Portugal’s rights as the administrator of East Timor. While both Australia and Portugal made declarations accepting the ICJ’s compulsory jurisdiction, Indonesia had not given its consent to the ICJ and had declined to intervene in that proceeding. The ICJ concluded that determining whether the treaty in question violates Portugal’s rights would require, as a prerequisite, the ICJ to necessarily rule upon the lawfulness of Indonesia’s conduct, which in turn would place Indonesia’s legal interest at the core of the subject-matter of the dispute.49

3.2

The Application of the MGP in ISDS

In the context of ISDS, there has been a few attempts to invoke the MGP in order to either allow NDPs to participate in ISDS proceedings, or to prevent tribunals from deciding issues affecting NDPs during the course of ISDS proceedings.50 Among these innovative attempts, the tribunal’s analysis in Chevron v. Ecuador is of particular interest.

47

Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom of Great Britain and Northern Ireland and United States of America) (Preliminary Question), Judgment, 15 June 1954, I.C.J. Reports 1954, p. 17. 48 See Continental Shelf (Libyan Arab Jarnahiriya/Malta), Application for Permission to Intervene, Judgment, I. C. J. Reports 1984, p. 25, para. 40; Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I. C. J. Reports 1984, p. 431, para. 88; Frontier Dispute (Burkina Faso/Republic of Mali), Judgment, I. C. J. Reports 1986, p. 579, para. 49; Land, Island and Maritime Frontier Dispute (El Salvador/ Honduras), Application to Intervene, Judgment, I. C. J. Reports 1990, pp. 114–116, paras. 54–56, and p. 112, para. 73; and Certain Phosphate Lands in Nauru (Nauru v. Australia), Preliminary Objections, Judgment, I. C. J. Reports 1992, pp. 259–262, paras. 50–55. 49 Case Concerning East Timor (Portugal v. Australia), Judgment of 30 June 1995, I. C. J. Reports 1995, para. 33. 50 Bridgestone Licensing Services, INC., Bridgestone Americas, INC. v. Republic of Panama, ICSID Case No. ARB/16/34, Panama’s Expedited Objections Pursuant to Article 10.20.5 of the Panama-U.S. Trade Promotion Agreement, 30 May 2017; Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium, ICSID Case No. ARB/12/29, Award, 30 April 2015, paras 127–129.

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

187

In 2003, prior to the commencement of the well-known Chevron v. Ecuador arbitration, residents of the Amazon region in Ecuador (“Lago Agrio Plaintiffs”) brought a domestic law suit in Ecuador seeking compensation and damages for environmental harms and personal injuries caused by Texaco’s, which subsequently merged with Chevron, oil operations in the Ecuadorian Amazon. During the pendency of the domestic proceedings, Chevron filed its arbitration against Ecuador, claiming that Ecuador violated the US-Ecuador bilateral investment treaty (“BIT”) by having its domestic judiciary unfairly handling the ongoing Lago Agrio litigation. Chevron requested, inter alia, that the tribunal order Ecuador to prevent enforcement of any judgment issued by its courts in favor of the Lago Agrio Plaintiffs against Chevron. In defense, Ecuador submitted that the tribunal lacks jurisdiction because it would be required to determine the rights of non-disputing third parties to the arbitration proceeding, namely the Lago Agrio Plaintiffs.51 In support of its argument, Ecuador invoked the MGP and contended that the rights of the Lago Agrio Plaintiffs are squarely placed at issue in the Chevron’s claims before the tribunal.52 While the tribunal refused to decide on the general applicability of the MGP in ISDS, it assumed arguendo that it is applicable and responded briefly to Ecuador’s arguments. According to the tribunal, the MGP comprises of three main concepts: (i) the concept of consent, under which no tribunal may exercise jurisdiction over a person without the consent of that person; (ii) the concept of indispensable or necessary third-party, under which no tribunal may hear a question or decide upon a relief involving the rights of a third-party in the absence of such party, and (iii) the concept of due process, under which no tribunal may rule upon a question relating to the rights of a third-party without giving that third-party a full opportunity to present its case. After laying out what it believes as the components of the MGP, the tribunal determined that under the concept of consent, it does not have jurisdiction over the Lago Agrio Plaintiffs and that the consent to arbitrate contained in the BIT applies only as between Chevron and Ecuador. Under the concept of indispensable party, the tribunal found that the Lago Agrio Plaintiffs do not qualify as necessary parties to the question whether Ecuador is liable under the BIT. With respect to the due process principle, the tribunal found that the Lago Agrio Plaintiffs have no due process rights in the proceedings because their alleged rights is a matter of Ecuadorian law, not international law.53

51

Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012, Part III – paras 3.34–3.39. 52 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012, Part III, Paras 3.83–3.86. 53 Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012, Part IV Paras 4.59–4.71.

188

A. Galindo and A. Elsisi

Before concluding this short analysis, it is important to provide three comments, or rather thoughts, regarding the use of the MGP in ISDS. First, as illustrated in Section III, the MGP has emerged principally in the context of state-to-state dispute settlement where the principles of consensual jurisdiction and equal sovereignty of states are applied. It is also within the same context, under Article 62 of the ICJ Statute, that intervention of interested states is allowed. Conversely, in the ISDS context, disputes arise between sovereigns and private persons—two unequals that occupy two different fields of law—where intervention as a mechanism is excluded, or more accurately, is not envisaged by the drafters of the relevant treaties. Second, it is well established in international relations that under the principle of popular sovereignty, the state and its government operate by the consent of the people.54 It follows that when a sovereign state acts in the international plane, there is a presumption that the sovereign party would represent the interests of its people and political units.55 Of course, this is not always the case. However, one could imagine a panoply of legal problems that could arise if NDPs were to be allowed to join ISDS proceedings, including whether NDP’s intervention would be exploited by respondent states to evade international liability or to unduly complicate ISDS proceedings, and whether public international law could be applied as between NDPs and foreign investors; two private parties. Third, there is no evidence in the practice of international courts and tribunals of an “indispensable party” rule of the kind the tribunal in Chevron v. Ecuador advanced in its analysis. In fact, the ICJ confirmed this position in Nicaragua v. United States of America, where the US unsuccessfully tried to argue that the ICJ should direct a third state be made a party to proceedings.56 Thus, it is important that the current discussions on ISDS reform take note of the fact that such rule cannot be inferred from international procedural law, at least as it currently stands, and that efforts should be directed towards including clear language and standards to guide tribunals in identifying indispensable parties in ISDS proceedings.

54

Tolley (1989), pp. 561–585. This also consistent with the Draft Articles on Responsibility of States for Internationally Wrongful Acts with Commentaries, International Law Commission, United Nations (2001). 56 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I. C. J. Reports 1984, p. 431, para. 88. 55

Non-Disputing Parties’ Rights in Investor-State Dispute Settlement: The. . .

189

4 Final Note on Recent Development on NDPs’ Participation in ISDS The participation of NDPs in ISDS raises a number of issues of vital concern to indigenous communities and individuals living in areas potentially affected by the activities and operations led by foreign investors in different parts of the world. Yet, in the midst of the international debate on the future of ISDS, the topic has not received the attention it deserves. At ICSID, meaningful participation of NDPs is very limited. The already existing provisions on transparency and on amicus curiae are insufficient to allow affected NDPs to a meaningful participation in the proceedings. The complexity of investment disputes nowadays requires more sophisticated tools for all affected parties to assert their rights. In the discussion process for the amendment to the ICSID Arbitration Rules, it seems that considerations of confidentiality militate in favor of the accepted status quo.57 In the proposed amendments to the ICSID Rules, NDPs are still required to apply for the tribunals’ permission to file written submissions in proceedings. The Proposed Rule 67 on Submission of Non-disputing Parties maintains the two-step process in the current rules whereby NDPs has to obtain permission from the tribunal to file its submission. Once such submission is allowed, the tribunal has the right to restrict, at its own discretion, NDPs from accessing relevant documents filed in the proceeding, and is bound to so restrict if either party objects to such access.58 Concurrent with the ICSID Rules amendments, the UNCITRAL Working Group III is also deliberating on possible reforms to the ISDS system. The discussions are dominated mainly by topics such as third-party funding, appellate review, and the establishment of a multilateral investment court. The rights of NDPs have not been given the level of attention that one could have expected. A number of states have made submissions proposing that guidelines should be put in place to ensure that tribunals duly consider NDPs’ submissions when rendering their decisions.59 Perhaps, more states and academic institutions should voice their concerns and duly represent their indigenous communities’ interests, so that the topic receives more scrutiny, and, eventually, reform.

57

See Summary Comments to the Proposals for Amendment of the ICSID Arbitration Rules, Submitted by International Institute for Sustainable Development, 15 March 2019. Available at: https://www.iisd.org/library/summary-comments-proposals-amendment-icsid-arbitration-rules. 58 ICSID Secretariat, Proposals for Amendment of the ICSID Rules, Working Paper 4, Volume 1, English, February 2020, Rule 67, p. 67. 59 Submission of the Governments of Ecuador to UNCITRAL Working Group III, Thirty-Eight Session, Vienna, 14–18 October 2019, paras 23–26; and Submission of the Governments of Chile, Israel, Japan, Mexico and Peru to UNCITRAL Working Group III, Thirty-Eight Session, Vienna, 14–18 October 2019, p. 7.

190

A. Galindo and A. Elsisi

References Blackaby N, Richard C (2009) Amicus Curiae: a Panacea for legitimacy in investment arbitration? In: Waibel M et al (ed) The Backlash against investment arbitration: perceptions and reality. Wolters Kluwer Law & Business, New York Cotula L, Perrone NM (2019) Reforming investor-state dispute settlement: what about third-party rights? (online pdf): iied Cross C, Schliemann-Radbruch C (2013) When investment arbitration curbs domestic regulatory space: consistent solutions through Amicus Curiae submissions by regional organisations. Law Dev Rev 6(2):67–110 Douglas Z (2003) The hybrid foundations of investment treaty arbitration. Br Yearb Int Law 74:151 Fach Gómez K (2012) Rethinking the role of Amicus Curiae in investment arbitration. Fordham Int Law J 35:510 Franck SD (2005) The legitimacy crisis in investment treaty arbitration: privatizing public international law through inconsistent decisions. Fordham Law Rev 73:1521 Sands P, Mackenzie R, Shany Y (eds) (1999) Manual on international courts and tribunals. Butterworths, London Smeureanu IM (2011) Confidentiality in international commercial arbitration, vol. 22. Kluwer Law International BV Tolley H (1989) Popular sovereignty and international law: ICJ strategies for human rights standard setting. Human Rights Q 11(4):561–585 Van Harten G (2007) The public-private distinction in the international arbitration of individual claims against the state. Int Comp Law Q 56(2):377

Alvaro Galindo is an International Legal Consultant advising on complex international arbitration matters, particularly those involving Latin American jurisdictions. Mr. Galindo’s practice focuses on the representation of sovereign states and state owned entities. Currently, he is a Law Professor at Georgetown University Law Center, with a course on Advanced Topics in International Investment Arbitration and Law Professor of Practical Aspects of Arbitration (Spanish course) at American University Washington College of Law. Mr. Galindo is a Member of the Court of the ICC International Court of Arbitration and arbitrator in various international, regional and domestic arbitration centers. Ahmed Elsisi is an associate at Dechert LLP, Washington D.C. office, where he focuses his practice on international arbitration and public international law. Before joining Dechert, Mr. Elsisi was legal counsel at the Permanent Court of Arbitration (the “PCA”), where he was responsible for handling PCA administered proceedings, including investor-State and State-to-State arbitrations. Prior to the PCA, he had significant experience in public international law and in legal matters relating to the Middle East, where he acted as legal adviser to the Egyptian Minister of Investment and worked at the Egyptian judiciary, the United Nations Office of Legal Affairs, the Appellate Body Secretariat of the World Trade Organization and the World Bank in Washington D.C.

Media Wars: Transparency and Aggravation in International Investment Arbitration Alina Papanastasiou

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Attack: Media Coverage as an Arrow in Claimants’ and Respondents’ Quiver . . . . . . 3 The Defense: Dealing with the Other Party’s “Media Strategy” . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Requests for Provisional Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Non-Aggravation Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Challenge: Drawing a Line Between Transparency and Procedural Integrity . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

192 193 196 197 202 203 205 205

Abstract Against the backdrop of an ongoing arbitration “war”, disputing parties often end up waging parallel media wars to further promote their interests and to mount pressure on their opponent. Media coverage of pending disputes can admittedly promote transparency and public participation in a field centered around state decisions that are often taken for the sake of the public interest—or allegedly so. On the flipside, however, media involvement can also prove to be an extra arrow in the quiver of either party, which by openly sharing or anonymously leaking information to the public domain aims at advancing its position in the dispute. This double-edged role of the press has engaged the attention of tribunals having to decide on requests for provisional measures or non-aggravation orders brought by respondents and claimants alike. This chapter focuses on the role of the media as an actor and tool in investment arbitration and discusses the different facets, modalities and possible limitations to their involvement.

A. Papanastasiou (*) Athens Bar Association, Athens, Greece © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_12

191

192

A. Papanastasiou

1 Introduction The worldwide spread of media coverage, greatly facilitated in the internet era, has led to a number of debates about the media’s role in democracies and politics in general, in lawmaking, legal disputes, and more or less, in every single aspect of everyday life. In particular, news media reporting on legal cases that have been brought before domestic or international fora can promote access to information and public participation, and at the same time, has the potential to act as a powerful tool to shape opinions and affect decision-making.1 Investment arbitration disputes could not be an exception. All the more so, investment arbitration disputes often arise out of public-private contracts, whereby public bodies assign to private entities the implementation of governmental policies in social welfare, education, health and other sensitive public sectors. Such disputes are highly politicised and can have significant implications for the public interest.2 They thus attract increased public attention—and justifiably so.3 Under the influence of its “commercial-arbitration” legacy however, investment arbitration started out as highly confidential and lacking transparency.4 Unsurprisingly, this raised concerns about depriving the public of knowledge and information about government and public affairs. In fact, the increase in the numbers of cases brought before international investment tribunals was met with increased media criticism against obscure/secret/illegitimate tribunals that challenged social and environmental regulations, questioned national justice systems and revoked national laws to protect the interests of foreign corporations behind closed doors.5 The above represented a major challenge that the investment arbitration system had been facing since its first steps and which eventually led to a worldwide trend towards greater transparency. Increasing the transparency of the process has recently become the subject-matter of multilateral instruments, such as 2014 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, widely

1 Robbennolt and Studebaker (2003), Resta (2008). For a more recent example of concerns regarding reporting of (criminal) cases in social media, see Fouzder (2017), and Bowcott (2017). 2 International investment arbitration has been described as “hybrid or sui generis” for combining public and private international law notions of dispute resolution. See Douglas (2003), pp. 152–153; Ishikawa (2010), pp. 373, 397; Scherer, Gehring and Euler (2015), pp. 1–2. 3 See indicatively, Philip Morris Asia Limited v. Commonwealth of Australia, PCA Case No. 201212, Procedural Order No. 5, 30 November 2012, para. 51, https://www.italaw.com/sites/default/ files/case-documents/italaw1216.pdf; Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentina, ICSID Case No. ARB/03/19, Order in Response to a Petition for Transparency and Participation as Amicus Curiae of 19 May 2005, para. 22, https://www.italaw. com/sites/default/files/case-documents/ita0815.pdf. 4 Kinnear (2005), p. 1. 5 See e.g. DePalma (2001), Peterson (2010), Hamby (2016). See also Brower and Blanchard (2014), pp. 722–725.

Media Wars: Transparency and Aggravation in International Investment Arbitration

193

known as the “Mauritius Convention”,6 and provisions addressing transparency have been included in newly concluded Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs).7 Such legal steps have been complemented—and occasionally encouraged—by media involvement with investment disputes. The media has played a key role in promoting public participation in the field, by reporting on cases and advocating for full transparency.8 Yet, the flip side becomes apparent when the press gets actively involved with pending cases. Parties often share details of ongoing disputes with the media, openly (via press conferences) or by leaking them anonymously. The latter is often a way for claimants or respondents to sidestep their confidentiality obligations. It appears that increased media reporting on investment arbitration disputes hovers between the need for transparency and the potential aggravation of the existing dispute. It poses a pragmatic challenge, which while seemingly peripheral to the actual dispute, it can have profound consequences to dispute settlement. Section 2 of this chapter addresses how media coverage can in practice be used— or abused—by the parties in the course of investment disputes. Section 3 discusses the different legal tools available to the parties to deal with such abuses. Section 4 attempts to challenge the normative dilemma between the purportedly “conflicting interests” of transparency and procedural integrity in cases where media coverage becomes an issue.

2 The Attack: Media Coverage as an Arrow in Claimants’ and Respondents’ Quiver As the nature of media has transformed in recent years against the backdrop of an ever-developing technological landscape, so has their role in ongoing disputes—of every kind—and their potential impact thereto. High-profile cases challenging governmental public policy measures usually attract the attention of mass media, apart from that of specialist international law/arbitration news outlets. Coverage of

6 For the application of the Mauritius Convention in the context of a case, see BSG Resources Limited (in administration), BSG Resources v. Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 2, 17 September 2015, paras 9–10, https://www.italaw.com/sites/default/files/case-docu ments/italaw4400.pdf. See also Scherer, Gehring and Euler (2015). 7 See Report of the UN Commission in International Trade Law, Official Records of the General Assembly, Seventy-second Session, Supplement No 17 (A/72/17), para. 317, http://www.uncitral. org/pdf/english/commissionsessions/unc-50/A-72-17-E.pdf. See also Maupin (2013), p. 170 (“Thanks to the transparency reforms enacted in the NAFTA and ICSID contexts, information about the majority of investor–State arbitral awards is now publicly available.”); Brower and Blanchard (2014), p. 717 (“A growing number of investor-State arbitrations involve open hearings, sometimes live-streamed on the internet.”); Peterson (2012). 8 Kinnear and Diop (2006), p. 41. See also Fach Gómez (2012), p. 547.

194

A. Papanastasiou

such cases can range from a short and descriptive account of the underlying factual and legal background for information purposes, to presenting the dispute from a particular angle and attempting to persuade the reader/audience to see it in a certain way—i.e. advocacy media.9 Certain media outlets can be used to urge the public to sign petitions, or otherwise protest against a foreign investor claim or against a State measure.10 There is no doubt that media is not only an active stakeholder but a likely change agent in societies. Media coverage can shape views, challenge opinions, create a “public hype” about a case, and increase public pressure, among others. Media coverage can complement a party’s litigation strategy; and this is not illegitimate as such.11 Generally, the parties have the right to engage in general discussion of the case in public;12 they might even have to do so.13 Yet, given the considerable impact of media coverage, public commentary on an ongoing case can be used by the parties to further antagonise and unduly pressure each other.14 Parties to ongoing arbitration disputes have been considered responsible for the publication of selected information to the press and for leaking confidential arbitration documents to the press. There are even cases where a party has accused the other of hiring public relation experts to disseminate negative information about them.15

9

Kinnear and Diop (2006), p. 42. See e.g. Tanzania: Dirty aid, dirty water – Hands off Tanzania – Stop UK company, Biwater’s attempt to sue, Pambazuka News. 7 December 2005, https://www.pambazuka.org/land-environ ment/tanzania-dirty-aid-dirty-water-hands-tanzania-stop-uk-company-biwaters-attempt-sue (“Now Biwater wants compensation for the money it would have got if the contract had lasted ten years – this will amount to millions, and will take years to resolve. Click on the web link provided to protest against Biwater’s actions”); Shazar (2019). 11 Kinnear and Diop (2006), p. 45. 12 See e.g. Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 49, https://www.italaw.com/sites/default/files/case-documents/ ita0089.pdf; United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent’s Application for Provisional Measures, 12 May 2016, para. 112, https://www.italaw.com/sites/ default/files/case-documents/italaw7302.pdf; Abaclat and others v. Argentina, ICSID Case No. ARB/07/5, Procedural Order No. 3, 27 January 2010, paras 84–85, https://www.italaw.com/ sites/default/files/case-documents/ita0002.pdf. 13 States for example may have the duty to provide the public with information about public and governmental affairs. 14 Note that both similar and different issues might arise when it is not the parties but the arbitrators that indulge in public commentary on the case in the media. See e.g. Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Challenge to Arbitrator, PCA Case No. IR-2009/1, 8 December 2009, https://www.italaw.com/sites/default/files/case-documents/ ita0625.pdf. Such issues fall outside the purview of this chapter. For a more detailed discussion of the Perenco challenge procedure against an arbitrator for “going public”, see Fach Gómez (2019), pp. 152–153, 172–173. 15 See e.g. Gramercy v. Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 5, 29 August 2018, para. 18, https://www.italaw.com/sites/default/files/case-documents/italaw9921.pdf. 10

Media Wars: Transparency and Aggravation in International Investment Arbitration

195

At this juncture, we should highlight that commonly it is not just one of the parties that resorts to such practices. As tribunals dealing with such practices have often observed, while one party might have started manipulating media coverage to serve its own interests, this quickly develops into a precarious “tit-for-tat” of media communication, negative comments, public accusations and “accidental” disclosures.16 It is not hard to realise the damage that such a media war, taking place outside and parallel to the arbitral proceedings, can incur “not merely to [. . .] the “dispute proceedings” but to the parties’ interests and rights in the “underlying substantive dispute.”17 To further illustrate the actual importance—as opposed here to the legal qualification—of the above, the following example illustrates the damage caused when one party leaks negative information about the other to the press. In Saluka v. Czech Republic, the claimant, a banking institution, accused the Czech Republic for divulging information to the press about the institution’s bad financial state in early 2000s. The dissemination of that information created a negative public image, sparked panic and ended up contributing to the eventual imposition of forced administration to the bank by the government. The Saluka tribunal found sufficient indications that the government had indeed “deliberately engineered the circulation of negative information” about the claimant to precipitate the bank’s failure and considered it an unreasonable conduct contrary to the fair and equitable treatment standard.18 The tribunal’s findings showcase that a party can be held accountable for the incitement of media involvement and dissemination of information, which, albeit true, inflicts damage on the other party. While the above example of communication with the media preceded the start of the arbitral proceedings, it portrays the potential damage that can be inflicted on a party through the selective dissemination of information to the press by its “opponent”. Instigation of selective media coverage during the arbitral proceedings can prove equally damaging for a party and for the entire dispute settlement process. In the words of the tribunal in Biwater Gauff v. Tanzania, a highly politicised case that revolved around water privatisation and attracted increased media attention:19 It is self-evident that the prosecution of a dispute in the media or in other public fora, or the uneven reporting and disclosure of documents or other parts of the record in parallel with a

16

United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent’s Application for Provisional Measures, 12 May 2016, para. 95, https://www.italaw.com/sites/default/files/casedocuments/italaw7302.pdf. See also BSGR Resources v. Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3, 25 November 2015, para. 37, https://www.italaw.com/sites/default/files/ case-documents/italaw7380.pdf. 17 United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent’s Application for Provisional Measures, 12 May 2016, para. 95, https://www.italaw.com/sites/default/files/casedocuments/italaw7302.pdf. 18 Saluka v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para. 481, https:// www.italaw.com/sites/default/files/case-documents/ita0740.pdf. 19 Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 67, https:// www.italaw.com/sites/default/files/case-documents/ita0095.pdf.

196

A. Papanastasiou

pending arbitration, may aggravate or exacerbate the dispute and may impact upon the integrity of the procedure.20

To put it simply, while increased media participation can certainly be beneficial to the whole process, it can also place the parties into an additional, precarious “public battlefield”; in a position where they not merely have to present their arguments before the arbitrators, but they also have to defend themselves in the media arena; in a situation where their substantive conflict is sharpened by a “media trial”, instead of being amplified by the efforts of the tribunal. Media reporters have often advocated for the full transparency of investor-State arbitral proceedings, discarding as legalistic excuses the imperilment of the integrity or orderly working of the arbitral proceedings or the exacerbation the dispute.21 And sometimes they might be just that—excuses to shield arbitration proceedings from the public eye. It is in the interest of the public, and of the investment arbitration mechanism even, to ensure that accurate and objective information about the dispute is shared. Yet, as the tribunal in Biwater Gauff noted, this is not always easy to attain; and it is particularly difficult to control while the arbitration is still ongoing.22

3 The Defense: Dealing with the Other Party’s “Media Strategy” This section seeks to expand on the issue raised above: what happens when a party’s media strategy gets “out of control”? From a legal perspective, limitations to media communication while the dispute is pending could be sourced from the applicable treaty or contract, and/or the applicable arbitration rules. It is highly unlikely however that any of those sources would address such issues. Confidentiality provisions, or transparency-related ones, if any,23 could provide some guidance. This guidance may vary depending on the applicable BIT and arbitration rules. There is a different level of transparency and document availability depending on whether the case constitutes an UNCITRAL, ICSID or NAFTA Chapter 11 arbitration. As a matter of principle and without going into many details, UNCITRAL Arbitration Rules are quite restrictive in their confidentiality provisions;24 ICSID Arbitration Rules appear restrictive especially when it comes to the Centre’s

20

Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 136, https://www.italaw.com/sites/default/files/case-documents/ita0089.pdf. 21 DePalma (2001) and Peterson (2010). 22 Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 137, https://www.italaw.com/sites/default/files/case-documents/ita0089.pdf. 23 For example, an incorporation by reference of the UNCITRAL Rules on Transparency. 24 As per Article 32(5) of the UNCITRAL Arbitration Rules, “[t]he award may be made public only with the consent of both parties”. Article 25(4) of the UNCITRAL Arbitration Rules also provides that “[h]earings shall be held in camera unless the parties agree otherwise”.

Media Wars: Transparency and Aggravation in International Investment Arbitration

197

confidentiality obligations, but provide leeway to the parties to reveal (some) information about their case; and NAFTA Chapter 11 includes transparency provisions and does not impose any confidentiality duty to the parties, regardless of whether the UNCITRAL or ICSID Rules are applicable.25 In NAFTA arbitrations it is quite common to find the submissions of the parties and other documents available in the public domain. Although such modalities can be used as a first step for addressing and potentially limiting public participation through media coverage in investment arbitrations, it is unlikely that they are sufficient to adequately address the issues described above. This is reflected a series of ICSID cases addressing the principle of confidentiality versus principle of disclosure dilemma. Those tribunals concur that there is no presumption of confidentiality in investment arbitration; yet, they simultaneously maintain that parties should ensure that their communications about the case does not exacerbate their dispute and does not threaten the integrity of the proceedings.26 It is this arbitral jurisprudence that has so far tried to delineate the proper way to deal with media involvement and communication by the parties. Relevant caselaw comes almost exclusively from decisions on requests for provisional measures or for procedural safeguards, such as non-aggravation orders.

3.1

Requests for Provisional Measures

Requests for provisional measures are made before the final disposition of a case to protect one or both parties from incurring damage during the arbitral proceedings.27 There is no universally accepted description of all types of provisional measures. Provisional measures can cover a wide scope of conduct and tribunals usually have

25

For a more detailed account of the differences between these commonly used arbitration procedures in terms of transparency and confidentiality, see Knahr and Reinisch (2007), pp. 98–103. Similar provisions in that regard are included in the “new NAFTA”, the Agreement between the United States of America, the United Mexican States, and Canada (USMCA). 26 See e.g. World Duty Free v. Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006, para. 16, 46 ILM 339 (2007); Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, paras 121–125, https://www.italaw.com/sites/default/files/case-docu ments/ita0089.pdf; Abaclat v. Argentina, ICSID Case No. ARB/07/5, Procedural Order No. 3, 27 January 2010, para. 79, https://www.italaw.com/sites/default/files/case-documents/ ita0002.pdf; Churchill v. Indonesia, ICSID Case No. ARB/12/14, Procedural Order No. 3, 4 March 2013, para. 46, https://www.italaw.com/sites/default/files/case-documents/italaw1312.pdf; Loewen v. United States, Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction, 5 January 2001, para. 26, https://www.italaw.com/sites/default/files/case-documents/ita0469.pdf. See also Kinnear and Diop (2006), pp. 46–47. 27 Sinclair and Repousis (2017), p. 431.

198

A. Papanastasiou

broad discretion to determine what kind of measures they will recommend.28 A quite comprehensive account of the most common types of provisional measures ordered by tribunals can be found in Article 17 of the UNCITRAL Model Law: [A]ny temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to: (a) Maintain or restore the status quo pending determination of the dispute; (b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; (c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) Preserve evidence that may be relevant and material to the resolution of the dispute.29

Of course, the above list is by no means exhaustive. Different arbitration rules also include their own provisions on the requirements for granting provisional measures requests. A detailed account of those provisions falls beyond the scope of our analysis. As per a rule of thumb, the preconditions for granting provisional measures are the existence of prima facie jurisdiction, prima facie claim on the merits / existence of a right susceptible to protection, necessity and urgency.30 The following sections will only address two of those requirements, namely the existence of a right to be preserved and the necessity test; for, they are the most likely to pose a problem when assessing provisional measures requests related to media coverage and communication.

3.1.1

Rights Susceptible to Protection

The rights susceptible to protection from increased media involvement in a pending dispute could be roughly classified into the right to preserve the integrity of the proceedings and the right to the non-aggravation of the dispute. The first tribunal to touch upon media involvement in the dispute as a potential basis for granting provisional measures was the ICSID tribunal in Amco v Indonesia.

28

See e.g. Article 47 of the ICSID Convention and ICSID Arbitration Rule 39. See also Quiborax v. Bolivia, ICSID Case No ARB/06/2, Decision on Provisional Measures, 26 February 202, para 105. 29 UNCITRAL Model Law on International Commercial Arbitration (with amendments as adopted in 2006), https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf. 30 The proportionality of the measures requested to the alleged harm to be suffered by the requesting party has also been considered by tribunals, either as a standalone requirement or as part of necessity. See United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent’s Application for Provisional Measures, 12 May 2016, paras 66–71, https://www.italaw.com/sites/ default/files/case-documents/italaw7302.pdf; Quiborax v. Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures, 26 February 2010, para. 158, https://www.italaw.com/sites/ default/files/case-documents/ita0698.pdf; Burlington v. Ecuador, ICSID Case No. ARB/08/5, Procedural Order No. 1, 29 June 2009, para. 82, https://www.italaw.com/sites/default/files/case-docu ments/ita0104.pdf.

Media Wars: Transparency and Aggravation in International Investment Arbitration

199

In 1983, Indonesia complained of various newspaper articles, for which the Claimant was allegedly responsible, and which could have a negative impact on its economy. The tribunal suggested that while a large-scale media campaign might have an influence on the State’s economy (which was not the case there), it could hardly affect the “rights in dispute”.31 Commenting on the case, Paul Friedland has stated that: [t]he AMCO decision stands for the quite reasonable proposition that, in order to justify provisional measures on the ground of aggravation of the underlying dispute, the conduct at issue must be much more than merely annoying.32

This sounds reasonable indeed. Yet, the requested link with specific rights in dispute can render the probabilities of success of provisional measures requests in cases of media involvement/campaigns extremely slim. In fact, according to a recent empirical study based on 114 decisions, while requests to refrain from the aggravation of the dispute are the most commonly requested type of provisional measures, they are only granted in 22% of the cases.33 Tribunals have generally expressed caution when ordering this type of provisional measures.34 Some tribunals have held that provisional measures cannot be granted on the basis of the non-aggravation principle alone. They are just “ancillary measures which cannot be recommended in the absence of measures of a purely protective or preservative kind”.35 The foregoing approach echoes the International Court of Justice (ICJ)’s jurisprudence concerning this type of provisional measures. The ICJ has consistently held that it has the power to indicate measures aimed at ensuring the non-aggravation of the dispute under Article 41 of the ICJ Statute, only in addition to specific measures for the purpose of preserving specific rights in dispute.36 31

Amco Asia Corporation v. Indonesia, ICSID Case No. ARB/81/1, Decision on Request for Provisional Measures, 9 December 1983, para. 3, 1 ICSID Reports 410. See also Churchill Mining v. Indonesia, ICSID Case No. ARB/12/14 and 12/40, Procedural Order No. 3, 4 March 2013, para. 49, https://www.italaw.com/sites/default/files/case-documents/italaw1312.pdf. 32 Friedland (1986), p. 336. 33 Goldberg et al. (2019), p. 11. 34 See e.g. Churchill Mining v. Indonesia, ICSID Case No. ARB/12/14 and 12/40, Procedural Order No. 3, 4 March 2013, paras 46–50, https://www.italaw.com/sites/default/files/case-documents/ italaw1312.pdf. 35 CEMEX v. Venezuela, ICSID Case No. ARB/08/15, Decision on the Claimant’s Request for Provisional Measures, 3 March 2010, paras. 61–65, https://www.italaw.com/sites/default/files/casedocuments/ita0141.pdf; PNG v. Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Claimant Request for Provisional Measures, 21 January 2015, para. 153, https://www.italaw.com/ sites/default/files/case-documents/italaw4108.pdf. See also Goldberg et al. (2019), p. 11. 36 Pulp Mills on the River Uruguay (Argentina v. Uruguay), Order of 23 January 2007, ICJ Reports 2007(I) p. 16, paras 49–51; Request for Interpretation of the Judgment of 15 June 1962 in the Case concerning the Temple of Preah Vihear (Cambodia v. Thailand) (Cambodia v. Thailand), Order of 18 July 2011, ICJ Reports 2011(II), pp. 551–552, para. 59; Application of the Convention on the Prevention and Punishment of the Crime of Genocide (The Gambia v. Myanmar), Order of 23 January 2020, para. 83, https://www.icj-cij.org/files/case-related/178/178-20200123-ORD-01-

200

A. Papanastasiou

Nonetheless, current investment arbitration practice seems to be leaning towards a more encompassing approach as to what rights can be susceptible to protection by provisional measures, on a standalone basis. Tribunals have repeatedly held that “the rights to be preserved by provisional measures are not limited to those which form the subject matter of the dispute” but may also be procedural rights.37 Such procedural rights, which should at any rate bear a link with the subject matter of the dispute,38 are usually classified under the right to preserve the integrity of the arbitral proceedings and the non-aggravation of the dispute. The latter has been widely acknowledged and applied by investment tribunals. It prevents parties from taking any step that might jeopardise the integrity of the proceedings or exacerbate the controversy. This may indeed entail the parties’ duty to forgo public/media communications that could aggravate the dispute. The Tribunal in Biwater Gauff v. Tanzania thoroughly addressed the above procedural concerns. The publication of several arbitration-related documents during the proceedings in 2006 led to a request for provisional measures by the Claimant. Dealing with the latter, the Tribunal held that both concerns [i.e. the non-aggravation of the dispute and the integrity of the proceedings] have a number of aspects, which can be articulated in various ways, such as the need to: – preserve the Tribunal’s mission and mandate to determine finally the issues between the parties; – preserve the proper functioning of the dispute settlement procedure; – preserve and promote a relationship of trust and confidence between the parties; – ensure the orderly unfolding of the arbitration process; – ensure a level playing field;

00-EN.pdf; Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Qatar v. United Arab Emirates), Order of 23 July 2018, ICJ Reports 2018(II), p. 434, para. 79 and Order of 2 May 2019, para. 28. 37 See e.g. Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, paras 135–136, https://www.italaw.com/sites/default/files/case-docu ments/ita0089.pdf; Burlington v. Ecuador, ICSID Case No. ARB/08/5, Procedural Order No. 1, 29 June 2009, para. 60, https://www.italaw.com/sites/default/files/case-documents/ita0104. pdf; Plama v. Bulgaria, ICSID Case No. ARB/03/24, Order, 6 September 2005, para. 40, https:// www.italaw.com/sites/default/files/case-documents/ita0670.pdf; Quiborax v. Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures, 26 February 2010, paras 118–119, 124, https:// www.italaw.com/sites/default/files/case-documents/ita0698.pdf; Menzies v. Senegal, ICSID Case No. ARB/15/21, Procedural Order No. 2, 2 December 2015, para. 128, https://www.italaw.com/ sites/default/files/case-documents/ITA%20LAW%207004.pdf; Transglobal Green Energy v. Panama, ICSID Case No. ARB/13/28, Decision on Provisional Measures relating to Security for Costs, 21 January 2016, para. 28, https://www.italaw.com/sites/default/files/case-documents/ italaw7332.pdf. 38 Plama v. Bulgaria, ICSID Case No. ARB/03/24, Order, 6 September 2005, para. 39, https://www. italaw.com/sites/default/files/case-documents/ita0670.pdf (“If the words used in Amco Asia, “rights in dispute”, may be too narrow, at least a limitation such as “rights relating to the dispute” is reasonable and necessary.”). See also Teinver v. Argentina, ICSID Case No. ARB/09/1, Decision on Provisional Measures, 8 April 2016, para. 177, https://www.italaw.com/sites/default/files/casedocuments/italaw7209.pdf (“those rights must relate to the applicant’s ability to have its claims and requests for relief in the arbitration fairly considered and decided”).

Media Wars: Transparency and Aggravation in International Investment Arbitration

201

– minimise the scope for any external pressure on any party, witness, expert or other participant in the process; – avoid ‘trial by media’.39

Most, if not all, the above aspects could be used to frame the potential effects of uncontrollable media involvement in a pending dispute, induced by either party.

3.1.2

Necessity of the Measures

It is widely accepted by tribunals that necessity requires the existence of serious and irreparable harm to the rights invoked.40 An “irreparable harm” test, strictly applied, means that the provisional measures should not be granted where they can be reduced to an award on damages.41 This ICJ-originated standard sets a high threshold that appears hard to satisfy, especially with regard to the media-related issues under discussion. By way of example, in Valle Verde v. Bolivia the tribunal declined in 2016 to grant the claimant’s provisional measures request and order the respondent not to publish certain statements online, finding that the claimant had not demonstrated that the measures were necessary to protect against irreparable harm.42 In a similar vein, the tribunal declined to order measures restricting the respondent’s alleged “media campaign” against the claimant’s family, holding that the irreparable harm test has not been met.43 In contrast however, certain tribunals and scholars have supported that this irreparable prejudice test is not fit for granting provisional measures under the 39

Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 135, https://www.italaw.com/sites/default/files/case-documents/ita0089.pdf. See also Lao Holdings v. Lao People’s Democratic Republic I, ICSID Case No. ARB(AF)/12/6, Ruling on Motion to Amend the Provisional Measure Order, 30 May 2014, para. 13, https://www.italaw.com/ sites/default/files/case-documents/italaw3208.pdf. 40 CEMEX v. Venezuela, ICSID Case No. ARB/08/15, Decision on the Claimant's Request for Provisional Measures, 3 March 2010, para. 56, https://www.italaw.com/sites/default/files/casedocuments/ita0141.pdf; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Procedural Order No. 3, 18 January 2005, para. 8, https://www.italaw.com/sites/default/files/case-documents/ ita0865.pdf; Occidental v. Ecuador, ICSID Case No. ARB/06/11, Decision on Provisional Measures, 17 August 2007, para. 59, https://www.italaw.com/sites/default/files/case-documents/ ita0576.pdf; Phoenix Action v. Czech Republic, ICSID Case No. ARB/06/5, Decision on Provisional Measures, 6 April 2007, para. 33, https://www.italaw.com/sites/default/files/case-docu ments/ita0667.pdf. 41 Sinclair and Repousis (2017), p. 438; Perenco v. Ecuador, ICSID Case No. ARB/08/6, Decision on Provisional Measures, 8 May 2009, para 43, https://www.italaw.com/sites/default/files/casedocuments/ita0623.pdf. 42 Valle Verde v. Venezuela, ICSID Case No. ARB/12/18, Decision on Provisional Measures, 25 January 2016, para. 92, https://www.italaw.com/sites/default/files/case-documents/italaw7089. pdf. 43 Dawood Rawat v. Mauritius, PCA Case 2016-20, Order on Interim Measures, 11 January 2017, para. 129, https://www.italaw.com/sites/default/files/case-documents/italaw8082_0.pdf.

202

A. Papanastasiou

ICSID Convention; rather, tribunals should adopt a lower threshold test of “significant harm or threat”.44 Against this background, the approach of the tribunal in the recent United Utilities v. Estonia case seems interesting. Following the Biwater tribunal’s lead in that regard,45 the United Utilities tribunal avoided any reference to an “irreparable/ substantial” harm standard when determining the existence of necessity. It focused instead on whether the nature and likelihood of the harm should be demonstrated with certainty. It answered in the negative.46 The United Utilities tribunal held in 2016 that it suffices that the harm is likely and characteristically noted that: the sort of tit-for-tat publicity described here – beginning or continuing (it matters not how this is described) [. . .] need not be branded a “war” or a “campaign” in order for the Tribunal to find, as it does, that such conduct would inevitably harm the parties’ respective rights in the dispute.47 (emphasis added).

3.2

Non-Aggravation Orders

Requests for provisional measures, while more common, do not seem to be the only way to deal with allegedly obstructive media involvement in a certain case. In the currently ongoing case of Gramercy v. Peru, the respondent made a request for “procedural safeguards”, including a request for a non-aggravation order. It alleged that the claimant employed a series of measures to further exacerbate the controversy, including hiring professionals to disseminate negative information to the press.48 The claimant attempted to persuade the tribunal that Peru’s request was essentially a request for provisional measures, in an attempt to raise the relevant threshold (e.g. by applying the irreparable harm test). Yet, the tribunal held that it had the power to grant the respondent’s request by virtue of its “ordinary powers to organize 44

See Sharooshi (2013); City Oriente v. Ecuador, ICSID Case No. ARB/06/21, Decision on Revocation of Provisional Measures and Other Procedural Matters, 13 May 2008, paras 70–72, https://www.italaw.com/sites/default/files/case-documents/italaw7990_0.pdf; Burlington v. Ecuador, ICSID Case No. ARB/08/5, Procedural Order No. 1, 29 June 2009, para. 81, https:// www.italaw.com/sites/default/files/case-documents/ita0104.pdf. 45 Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 146, cited in United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent Application for Provisional Measures, 12 May 2016, para. 102, https://www.italaw. com/sites/default/files/case-documents/italaw7302.pdf. 46 United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent Application for Provisional Measures, 12 May 2016, para. 101. 47 United Utilities v. Estonia, ICSID Case No. ARB/14/24, Decision on Respondent Application for Provisional Measures, 12 May 2016, para. 100. 48 Gramercy v. Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 5, 29 August 2018, para. 18, https://www.italaw.com/sites/default/files/case-documents/italaw9921.pdf.

Media Wars: Transparency and Aggravation in International Investment Arbitration

203

the procedure under Art. 17.1 UNCITRAL Rules,” in such manner as it considers appropriate.49 The tribunal underscored that the duty of non-aggravation is a principle that governs investment arbitration.50 Without applying any of the above-mentioned requirements for granting provisional measures, the tribunal ordered that both parties “abstain from any action that may result in an aggravation of the dispute.”51 Such orders may therefore emerge as a less rigorous way of dealing with potentially harmful media involvement or manipulation in a certain dispute.

4 The Challenge: Drawing a Line Between Transparency and Procedural Integrity It is almost trite to note that this is a highly pragmatic issue that depends on the peculiarities of each case. As we have already seen however, there are certain key normative concepts around which relevant opinions and arbitral decisions cluster. The concepts—or interests—of transparency, procedural integrity and confidentiality are in the centre of tribunals’ and scholars’ discussions on drawing a line between “legitimate” and “inappropriate” use of media in investment arbitration.52 The tribunal in Biwater Gauff v. Tanzania has been seen as reaching a useful compromise between those concepts.53 The tribunal started by saying that: the determination of this application for provisional measures entails a careful balancing between two competing interests: (i) the need for transparency in treaty proceedings such as these, and (ii) the need to protect the procedural integrity of the arbitration.54

The tribunal underscored the “obvious tension” between those competing interests, while the arbitral proceedings remain pending, and attempted to strike a pragmatic balance between them, by differentiating between different categories of arbitral documents and making separate decisions on whether the disclosure of each

49

Gramercy v. Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 5, 29 August 2018, para. 57. See also Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 135, https://www.italaw.com/sites/default/files/case-documents/ ita0089.pdf. 50 Gramercy v. Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 5, 29 August 2018, para. 60. 51 Gramercy v. Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 5, 29 August 2018, para. 62. 52 Kinnear and Diop (2006), p. 49. 53 Knahr and Reinisch (2007), p. 113. 54 Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 112, https://www.italaw.com/sites/default/files/case-documents/ita0089.pdf.

204

A. Papanastasiou

of those categories could endanger the procedural integrity of the arbitration or aggravate the dispute.55 Scholarly commentary on the case has sometimes combined the above-mentioned set of competing interests with another set of conflicting notions; transparency versus confidentiality.56 In the context of this parallel or combined juxtaposition, it seems as if on the one side we have the closely linked notions of procedural integrity and confidentiality of the arbitral proceedings, which are practically under attack by the demand for further transparency—including in relation to increased media coverage. The contrast between transparency and confidentiality interests is quite unequivocal. Yet the above-mentioned “conflict” between transparency and procedural integrity is not as categorical, in the author’s opinion. In fact, while the interests in transparency and in procedural integrity may sometimes appear as competing, they can also be seen as overlapping. This, in turn, affects the premise on the basis of which we attempt to achieve a “compromise” between them. To put it simply, seeing them as competing, opposing interests can lead to a pursuit of a balance, a compromise between procedural transparency on the one hand, and procedural integrity on the other. This compromise is achieved by trying to “limit” the protection of the first for the sake of the second interest and vice versa, until we achieve an acceptable level of protection for both at the same time. In this regard, some commentators have suggested a “reduction of pre-award transparency” and the publication of awards, submissions and hearing transcripts after the conclusion of the proceedings, as the most appropriate way to strike a balance between procedural integrity/confidentiality and procedural transparency.57 Yet, we may arrive at a different conclusion if the starting point is different; namely, if we refuse to accept the presumption that procedural integrity and procedural transparency are two competing interests. What goes against procedural integrity is not procedural transparency and access to documents and hearings by the media and the public, but the manipulation of the media by the parties, the leakage of selective information, the fostering of media campaigns against each other etc. Ironically, the foregoing are facilitated when the record is not public. In absence of procedural transparency, each party can much more easily present the case as it sees fit and accordingly influence public opinion through media involvement. In light of this, an alternative conclusion could be drawn: that procedural integrity can in fact be attained through—and not jeopardized by—procedural transparency. This is also echoed in a large share of recently signed international investment agreements (IIAs). A considerable—and increasing—number of newly signed BITs and investment chapters of FTAs include provisions requiring proceedings to be

55

Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, paras 148–163. 56 Knahr and Reinisch (2007), p. 98. See also Magraw and Amerasinghe (2009), pp. 345–356. 57 Born and Shenkman (2009), pp. 39–42. See also Diel-Gligor (2017), pp. 362–363.

Media Wars: Transparency and Aggravation in International Investment Arbitration

205

conducted transparently, with public access to hearings and documents (subject to certain confidentiality limitations, of course).58 This approach would not dovetail with the view that procedural transparency and procedural integrity of the investment arbitration proceedings are normatively competing interests. It appears to the author that having a mechanism in place that allows and requires procedural transparency (permitting and promoting media participation in the process) may end up being more beneficial for and considerate of the procedural integrity of the arbitral proceedings, when the alternative is to just implement ex post facto non-aggravation orders to stop a party from unilaterally sharing more documents or disseminating more information than it already has. Even when the parties are determined to engage in a “media war”, procedural transparency can provide the tools to amplify some of its effects to the proceedings.

5 Conclusion Since the first time an arbitral tribunal touched upon the role of media involvement in the course of a case in the 1980s, the way tribunals deal with issues arising from media coverage of investment disputes has developed, both qualitatively and quantitatively. This progress echoes the developments in today’s overall media landscape and the spread of media coverage through electronic means and social media. Against this background, parties to arbitration often develop elaborate media and public relations strategies as part of their overall case strategy. This in turn spawns more cases where media involvement in the proceedings gets “out of control” and develops into a “media war” between the parties. Tribunals however have the legal tools to effectively amplify this area of conflict, by identifying correlations, rather than conflicts, between two purportedly competing interests: the need for procedural transparency and the need to protect the procedural integrity of the arbitration.

References Born G, Shenkman E (2009) Confidentiality and transparency in commercial and investor-state international arbitration. In: Rogers C, Alford AP (eds) The future of investment arbitration. Oxford University Press, pp 5–42

58

See e.g. Article 8.36 of CETA; Article 14.D.8 of the USMCA; Article 3.16 and Annex 8 of the EU-Singapore Investment Protection Agreement; Article 30 of the 2019 Australia-Hong Kong BIT, Article 22 of the 2018 Belarus-India BIT; Article 30 of the 2018 Canada-Moldova BIT; Article 17 (20) of the 2018 Japan-UAE BIT; Article 8.32 of the Argentina-Chile FTA; Article 10(5) of the 2016 Morocco-Nigeria BIT, available at https://investmentpolicy.unctad.org/international-invest ment-agreements.

206

A. Papanastasiou

Bowcott O (2017) Attorney general begins inquiry about social media impact on UK trials. The Guardian, 15 September 2017. https://www.theguardian.com/politics/2017/sep/15/attorney-gen eral-begins-inquiry-impact-social-media-trials Brower C, Blanchard S (2014) What’s in a Meme? The truth about investor-state arbitration: why it need not, and must not, be repossessed by states. Columbia J Transnl Law 52:689–777 DePalma A (2001) Nafta’s Powerful Little Secret; Obscure Tribunals Settle Disputes, but Go Too Far, Critics Say. The New York Times, 11 March 2001. https://www.nytimes.com/2001/03/11/ business/nafta-s-powerful-little-secret-obscure-tribunals-settle-disputes-but-go-too-far.html Diel-Gligor K (2017) Towards Consistency in International Investment Jurisprudence: A Preliminary Ruling System for ICSID Arbitration. Nijhoff International Investment Law Series 7 Douglas Z (2003) The hybrid foundations of investment treaty arbitration. Br Yearb Int Law 74:151–289 Fach Gómez K (2012) Rethinking the role of Amicus Curiae in international investment arbitration: how to draw the line favorably for the public interest. Fordham Int Law J 35(2):510–564 Fach Gómez K (2019) Key duties of international investment arbitrators – a transnational study of legal and ethical Dilemmas. Springer Fouzder M (2017) AG seeks evidence on ‘trial by social media’. The Law Society Gazette, 15 September 2017. https://www.lawgazette.co.uk/law/ag-seeks-evidence-on-trial-by-socialmedia/5062822.article Friedland P (1986) Provisional measures and ICSID arbitration. Arbitr Int 2:335–357 Goldberg D, Kryvoi Y, Philippov I (2019) Empirical study: provisional measures in investor-state arbitration. British Institute of International and Comparative Law. https://www.biicl.org/docu ments/78_2019_empirical_study_provisional_measures_in_investorstate_arbitration.pdf Hamby C (2016) The court that rules the world: inside the global “club” that helps executives escape their crimes. BuzzFeed.News. https://www.buzzfeednews.com/article/chrishamby/ super-court Ishikawa T (2010) Third party participation in investment treaty arbitration. Int Comp Law Q 59:373–412 Kinnear M (2005) Transparency and Third Party Participation in Investor-State Dispute Settlement, Symposium Co-organised by ICSID, OECD and UNCTAD making the most of International Investment Agreements: A Common Agenda. https://www.oecd.org/investment/ internationalinvestmentagreements/36979626.pdf Kinnear M, Diop A (2006) Use of media by counsel in investor-state arbitration. ICCA Congress Series 13:40–51 Knahr C, Reinisch A (2007) Transparency versus confidentiality in international investment arbitration – the biwater gauff compromise. Law Pract Int Courts Tribunals 6(1):97–118 Magraw DB, Amerasinghe NM (2009) Transparency and public participation in investor-state arbitration. ILSA J Int Comp Law 15(2):337–360 Maupin J (2013) Transparency in international investment law: the good, the bad and the Murky. In: Bianchi A, Peters A (eds) Transparency in international law. Cambridge University Press, pp 142–171 Peterson LE (2010) Guy walks into a court-house. Sky doesn’t fall. Kluwer Arbitration Blog, 28 March 2010. http://arbitrationblog.kluwerarbitration.com/2010/03/28/guy-walks-into-acourt-house-sky-does-not-fall/ Peterson LE (2012) The expanding audience for open arbitration hearings. Kluwer Arbitration Blog, 6 February 2012. http://arbitrationblog.kluwerarbitration.com/2012/02/06/the-expandingaudience-for-open-arbitration-hearings/ Resta G (2008) Trying cases in the media: a comparative overview. Law Contemp Probl 71 (4):31–66 Robbennolt J, Studebaker C (2003) News media reporting on civil litigation and its influence on civil justice decision making. Psychol Civil Litigat 27(1):5–27

Media Wars: Transparency and Aggravation in International Investment Arbitration

207

Scherer M, Gehring M, Euler D (2015) Introduction. In: Euler D, Gehring M, Scherer M (eds) Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration, pp 1–6 Sharooshi D (2013) Provisional measures and investment treaty arbitration. Arbitr Int 29 (3):361–379 Shazar J (2019) Gramercy fund management chief always wanted to see what his head would look like on a vulture’s body. DealBreaker, 14 January 2019. https://dealbreaker.com/2015/10/ gramercy-fund-management-chief-always-wanted-to-see-what-his-head-would-look-like-on-avultures-body Sinclair A, Repousis O (2017) An overview of provisional measures in ICSID proceedings. ICSID Rev 32(2):431–446 Tanzania: Dirty aid, dirty water – Hands off Tanzania – Stop UK company, Biwater’s attempt to sue. Pambazuka News. 7 December 2005. https://www.pambazuka.org/land-environment/tan zania-dirty-aid-dirty-water-hands-tanzania-stop-uk-company-biwaters-attempt-sue

Alina Papanastasiou holds an LLM in international law with distinction from the University of Cambridge and an LLB with distinction from the University of Athens. She also holds a Minor in Finance from the American College of Greece. She has attended courses at Harvard University, London School of Economics and Political Science and the International Academy for Arbitration Law in Paris, where she was awarded the Laureate of the Academy Prize. Alina is currently working as a trainee at an international law firm, focusing on public international law and international arbitration. She has previously worked at the Greek Ministry of Foreign Affairs and at a top-tier Greek law firm, specialising in banking and finance.

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities, and the Research Front Niccolò Ridi and Thomas Schultz

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Case for Mapping International Investment Arbitration Scholarship . . . . . . . . . . . . . . . . . 2.1 Haven’t We Been Here Before? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Actors, Paradigms, Identities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Why Bother? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Scientometrics: Scholarly Citations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Citation Mining: Arbitral Citations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Caveat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Investigation 1: Scholars Citing Scholars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Investigation 2: Arbitrators Citing Scholars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Findings and Final Reflections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

210 211 211 212 219 220 220 222 223 223 223 227 236 237

Abstract Scholarship on international investment arbitration is plentiful. Despite it being a relatively young field, it would be difficult to name one in which more books and articles have been published in recent years. The field is a dynamic one, attracting a diverse range of authors; the stakes are high, the knowledge is limited: scholarly work is necessary and to be welcome. The amount of available literature, however, also provides us for an opportunity to study its relationship with the field it purports to describe: in a nutshell, we do not study investment arbitration scholarship

N. Ridi (*) University of Liverpool, Liverpool, UK The Dickson Poon School of Law, King’s College London, London, UK e-mail: [email protected] T. Schultz The Dickson Poon School of Law, King’s College London, London, UK University of Geneva, Geneva, Switzerland e-mail: [email protected] © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_13

209

210

N. Ridi and T. Schultz

because we are naively surprised that it exists, or that there is so much of it. We know that there must be good reasons for it to do so, and to do so to this extent. It is precisely for these very good reasons that we can resolutely argue that investment arbitration scholarship is worth studying, and that studying investment arbitration scholarship can bring us a step closer to a better understanding of investment arbitration. Accordingly, this chapter seeks to provide a large-scale analysis of investment arbitration scholarship. By combining theoretical insights and big data empirical analysis, we seek to map the field, its actors, and, its dynamics, with a view to revealing latent patterns through citations, topics, and publication dynamics, but also through tribunals’ use of literature.

1 Introduction Let’s cut to the chase. There is a lot of scholarship on international investment arbitration. Despite it being a relatively recent field (but then, for how long? And what was a ‘field’ again? We will come back to it), it would be difficult to name one in which more books and articles have been published in recent years. True, some may say at this point, the books are many—but so are the cases, the people involved in it, the unresolved problems. The field is a dynamic one, attracting a diverse range of authors; the stakes are high, the knowledge is limited: scholarly work is necessary and to be welcome. And they would be right. It would be hypocritical to contend otherwise in a piece that is, after all, about investment arbitration—be it by way of its scholarship. In a nutshell, we do not study investment arbitration scholarship because we are naively surprised that it exists, or that there is so much of it. We know that there must be good reasons for it to do so, and to do so to this extent. It is precisely for these very good reasons that we can resolutely argue that investment arbitration scholarship is worth studying, and that studying investment arbitration scholarship can bring us a step closer to a better understanding of investment arbitration. This chapter seeks to provide a large-scale analysis of investment arbitration scholarship. By combining theoretical insights and big data empirical analysis, we seek to map the field, its actors, and, its dynamics, with a view to revealing latent patterns through citations, topics, and publication dynamics, but also through tribunals’ own use of literature. It moves in six sections: Sect. 2 refines the case for mapping Investment Arbitration Scholarship; Sect. 3 sets out our methodology; Sect. 4 deals with citation patterns. Specifically, we look at the citation patterns between scholarly authorities (Sect. 4.1) and the citation of scholars by investment tribunals (Sect. 4.2); Sect. 5 discusses the findings in context.

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

211

2 The Case for Mapping International Investment Arbitration Scholarship 2.1

Haven’t We Been Here Before?

Why examine scholarship? While the question, taken generally, has given rise to an entire scientific field, it is almost never addressed by scholars writing on legal scholarship. The reason, we suspect, is quite simple: we are used to legal scholarship being central to our professional or academic lives. The assumption is that posing the question would be the equivalent of asking a person why they are breathing air. We care about legal scholarship—or, at the very least, we know that we have to deal with it in some manner, as either authors, audience, or, as it normally happens, both. Authorship and audience make legal scholarship interesting: as celebrated Harvard legal scholar Mark Tushnet observed, it is difficult to think of a field with less ‘intellectual marginality’.1 Regardless of the amount of scholarship we consume within academia, it is difficult to imagine a comparable demand for it outside of it,2 even where questions addressed by academics are to be resolved in a court, or by policy makers. To be sure, much of this has to do with the growing specialization of legal expertise, but also with the nature of the profession of the academic, who is now more worried about certain metrics than others: as one commentator has observed in relation to the American academic market, it would not be an overstatement to claim that one’s professional trajectory is defined in no small part by one’s ability to impress second-year law students focused—but the reflection might not be too different when other types of editors are considered—on maximising the competitiveness of the periodical they edit by attracting citations and debate around its contents.3 Thus, it would be easy to denounce this form of scholarly output as selfserving and meaningless, with literature forming the basis of academic dialogue, but not of much else. One metric that has been commonly invoked to demonstrate that this is, in fact, the case is the fact that, even where scholarship is traditionally cited by courts, citation is on a downward trend.4

1

With reference to American scholarship see Tushnet (1980), p. 1205 (‘I cannot imagine, for example, an intellectual history of contemporary America in which legal thought would play an important part. . . [t. . .]he intellectual marginality of legal scholarship is all the more striking in light of 7 the immense role that law plays in American society’). 2 This is not to say that the demand for legal scholarship is low: as in a number of academic fields, it is not, and the business is profitable specifically because ‘demand has the elasticity of cast iron’. See EJIL: Talk! – What a Journal Makes: As we say goodbye to the European Law Journal. https:// www.ejiltalk.org/what-a-journal-makes-as-we-say-goodbye-to-the-european-law-journal/. Accessed 6 February 2020. 3 Harrison and Mashburn (2015), pp. 46–47. 4 There is substantial literature on this topic, especially in American law. See, inter alia, Kopf (1997), Schwartz and Petherbridge (2010, 2011) and Harner and Cantone (2011).

212

N. Ridi and T. Schultz

Undeniably, depending on the relevant legal tradition, scholarly pieces may or may not be cited by judges and other important actors for largely unrelated reasons, ranging from drafting conventions to other motives. But the question that this lack of reliance on scholarship beyond legal academia raises remains the same. In fact, the question becomes even more pressing: if scholarship is invisible outside of scholarly circles, how do we measure its real-world impact? Note that this impact need not be conceived too simplistically: we know all too well that there is no single hard boundary between the communities of scholars and practitioners in more or less any areas of law. As with most other complicated problems, there is more: when discussing the invisibility of scholarship beyond academia, most critics seem to assume that the impact of scholarship within academia must be absolutely clear and in need of no further explanations. Naturally, this is not the case. It is certainly possible to be aware of some important scholarly output and single out the paradigm-changing ones just by keeping up to date with journal symposia, learned conferences, and the blogosphere. Yet, one cannot escape the impression that approaches of this kind might rely on the force of anecdotes to an excessive degree. Hence the need to draw a more accurate picture.

2.2

Actors, Paradigms, Identities

Naturally, this is not the first time that the role of scholarship in law has come under scrutiny, although the issue has not attracted a great deal of attention in the context of investment arbitration.5 It is thus possible to draw some useful parallels. There is some consensus on the idea that there is an inherent hybrid quality to international investment law and arbitration as a field. Thus, many have compared it to other established areas of specialisation with a view to identifying the best comparator and borrow the soundest analogies. We do not seek here to make a meaningful contribution to the debate, which, in any event, has been tackled far more thoroughly elsewhere.6 Rather, we concur with the idea that investment arbitration is a hybrid field, a conceptual borderland, and we find it plausible to assume that its scholarship might reflect the intellectual legacies of that of other fields. We consider here the examples of public international law and arbitration scholarship, which, we posit, might be those with which the producers and consumers of Investment Arbitration Scholarship are most familiar.

5 6

For an exception see Schill (2011). See inter alia Schill (2010), Roberts (2013), Brabandere (2014), Vadi (2016) and Alvarez (2016).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

2.2.1

213

Public International Law Scholarship

One key characteristic of international investment arbitration is that it has historically revolved around international law and international lawyers—as in lawyers that are experienced in public international law— to a far larger extent than other forms of arbitrations. Investment tribunals apply what is essentially public international law—treaty, custom, general principles.7 One may note, in addition, that the communities of public international law and investment arbitration overlap to a significant degree. Finally, and of more immediate relevance for our present purposes, international law periodicals are replete with discussions of investment arbitration issues, just as decisions of investment tribunals cite a sizable number of public international law literature—and, of course, cases.8 International lawyers have a soft spot for legal scholarship. This is not—or, at least, not only—vain self-referentiality, but rather the result of what amounts to a formal recognition of the role of scientific writing in the legal system. According to Article 38(1)(d) of the Statute of the International Court of Justice (ICJ), the “teachings of the most highly qualified publicists of the various nations” amount to “subsidiary means for the determination of rules of law”, just like judicial decisions.9 As the ICJ Statute is generally seen as the most authoritative statement of the sources of international law, writers can relish in the formal sanction of their role as capable of influencing or determining—if only in the context of law-ascertaining—what international law is.10 From a historical perspective, one may also observe that the role of scholars was ostensibly even greater before the “event” of Article 38.11 The provision built on previous arbitral practice,12 which nevertheless is, to put it bluntly, not nearly enough to assess the significance of scholarly impact on the development of international law in an era of limited judicialization.13 As Oppenheim could write in 1908, “The writers on international law, and in especial the authors of treatises, have in a sense to take the place of the judges. . . It is for this reason that text-books of international law have so much more importance for the application of the law than text-books of other branches of the law”.14

7

Brabandere (2014). Fauchald (2008), Pellet (2013), Schill and Tvede (2015), Charlotin (2017) and Ridi (2018). 9 ICJ Statute, Article 38(1)(d). 10 For one such view expressed in a book which is very much on law-ascertainment, see d’Aspremont (2013), p. 209. 11 For the notion of Article 38 as an important ‘event’ see Skouteris (2010). 12 League of Nations. Advisory Committee of Jurists (1920); For an understanding of Article 38 as consolidating previous arbitral practice see Fitzmaurice M, History of Article 38 of the Statute of the International Court of Justice, ID 2774354, 3 May 2016. 13 For some early reflections on judicialisation see Moore (1929). 14 Oppenheim (1908), p. 315. 8

214

N. Ridi and T. Schultz

While, even then, approaches to scholarly writing were not all that uncritical,15 we generally assume that our era is a different one: for starters, there are courts, judges, arbitrators—in other words, law-applying authorities which occupy much of the space once reserved to the legal adviser and the diplomat, albeit in an uneven fashion.16 From a result-oriented perspective, their output might be more important of that of scholars, all the more so when their degree of systemic embeddedness in a given regime is higher.17 As Schwarzenberger observed, “[t]here is a world of difference between practicing shooting with dummy ammunition on a wooden target and firing in earnest with live ammunition on a living target”.18 Indeed, if one looks at the citations patterns of international courts and tribunals, it will be immediately apparent that “teachings” are not cited nearly as much as judicial decisions,19 and that their relatively scarce relevance decreases as soon as patterns of referring to previous decisions emerge.20 In other words, international courts prefer some “subsidiary means” over other ones, though the justifications may be quite variegated.21 Domestic courts may have different approaches, but they, too, vary in their drafting conventions.22 Yet, this is not to say that doctrine is meaningless: first, not all international adjudicators are so careful not to cite publicists; second, even where doctrine is not directly referred to by the majority, it may have prompted reflection on how to resolve a specific legal question or another: evidence of this trend is easy to observe in the individual opinions of many adjudicators, including the ICJ;23 for this reason, and finally, it is quite possible that widespread academic support or criticism of a specific proposition will affect the way it is relied on, even if its discussion does not make the cut in the final decision.24 15

Consider, for example, this passage from Pasquale Fiore’s treatise, which predates Oppenheim’s by about 40 years (our translation): ‘We observe, however, that the authority of publicists must be employed with a grain of salt, without ascribing to their opinion such weight capable of displacing the principles of reason’. See Fiore (1865), p. 42. 16 See also Kingsbury (2012). 17 Alter KJ, The Multiple Roles of International Courts and Tribunals: Enforcement, Dispute Settlement, Constitutional and Administrative Review, ID 2114310, 19 July 2012. 18 Schwarzenberger (1947), pp. 553–554. 19 See generally Peil (2012). 20 Helmersen (2016), p. 323; Oppenheim (1992), p. 42; Peil (2012), p. 144. 21 Jennings (1996), p. 9 (maintaining that ‘[t]he main reason for this convention is, one suspects, not so much based upon any principle concerning a source of law but, rather, to avoid invidious distinctions between publicists cited and publicists not cited’). 22 Consider for example the reliance on scholars in early American cases: The Paquete Habana 175 US 677, 700 (1900). Consider also EWHC (Admin), The Freedom And Justice Party & Ors, R (On the Application Of) v Secretary of State for Foreign and Commonwealth Affairs & Anor [2016] EWHC 2010 (Admin), Judgment of 5 August 2016. 23 Helmersen (2019). 24 For a case in which it did, see Waguih Elie George Siag & Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, paras 498–499 (‘The Loewen decision has been the subject of intense scrutiny and criticism by international law scholars and investment arbitration practitioners. . . Commentators have also stigmatised the Tribunal’s application of a rule

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

215

More fundamentally, the international legal scholar does not live for citation only. Within the international legal system, she acts the important ordering figure of the “grammarian”. This intuition, first proposed by Pierre-Marie Dupuy, and further elaborated by Martti Koskenniemi,25 has been more recently considered by Gleider Hernández.26 The main thrust of the idea is that international lawyers exercise an important role in defining the structure and systematization of the grammar shared by a community—of language, metaphorically; of practice, in actuality. It may be true, as Hernández contends, that scholars may bring their contribution in the task of distinction between law and non-law—almost as if they were the punctilious “purifiers” of Borges Library of Babel, parsing the meaningful content from the inevitable gibberish.27 More fundamentally, however, their role is role is normative because “a grammarian shapes the formulation of arguments by other actors, the categories of acts, utterances and practices that will be deemed relevant and indeed contributes to the elaboration of the language”.28 Coming full circle, international legal scholars are also deeply embedded in the community of international lawyers. They—often—wear multiple hats and perform different functions. Borrowing, again, the words of Gleider Hernández, “the category of international legal scholar is far from hermetic”.29

2.2.2

Arbitration Literature

Arbitration literature may serve as another paradigm. No formal recognition as “subsidiary means” is offered in this area, unless a specific domestic law—or international law, if relevant—provides otherwise. Rather, the importance of scholarship in the field of arbitration (and, by “arbitration”, we mainly refer to the general category of international commercial arbitration) has perhaps less to do with the paradigm of sources and more with that of intelligent design—as a construct, of course, not as an argument. It would be pointless for the reader and taxing for the authors to engage in a fulllength discussion of the usual arguments on the “creation” of arbitration law as a field, as a specialization, as a legal system as whole. Nor do we wish to engage in a discussion about the borders between international arbitration scholarship and

developed in one particular contex. . . Finally, academics and practitioners have questioned the relevance of the Loewen Tribunal’s conclusions’.). 25 Koskenniemi (2006), pp. 563 ff. 26 Hernández (2017). 27 Borges (2000). 28 Hernández (2017), p. 162; The author persuasively refers to Bourdieu (1986), p. 824 (arguing that academics ‘carry out the function of assimilation necessary to ensure the coherence and the permanence of a systematic set of principles and rules’). 29 Hernández (2017), p. 166.

216

N. Ridi and T. Schultz

scholarship on international arbitration,30 however interesting that might be. We will restrict ourselves to relaying the vulgata: over the last four decades or so, international arbitration has grown increasingly international, and its scholarship had largely celebrated its progressive detachment from the bounds of national law.31 To be sure, one of the very few empirical analyses conducted on the point paints a mixed picture: as Helmersen explains, in the 203 ICC awards published in the Yearbook of Commercial Arbitration between 1976 and 2014, there have been 719 references to scholarship, averaging 3.5 per award—though, in practice, 51% of the awards contain no references.32 Moreover, the approach appears to be relatively conservative, with little reliance being placed on what Helmersen terms “delocalisation scholarship”.33 Beyond the necessary caveats about the fact that many awards remain unpublished, and with their potential use of scholarship well shrouded in mystery, citations in arbitral decisions might not necessarily be the best metric to determine influence. Rather, what we wish to highlight is that it any account of the creation of international arbitration as a field seemingly relies on a narrative that sees scholarly endeavours as laying the groundwork for it. The foundational myth of the scholarutopian engaged in a struggle for the liberation of arbitration from the bounds of state law is a familiar trope,34 a constant feature in the treatises of the most learned and accomplished authors. For all of the rediscovery of individual influence in the field of public international law, it is arguable that, their respective fields being the frame of reference, the influence of Bruno Oppetit35 or René David is quantitatively and qualitatively greater than that of Lassa Oppenheim or Gerald Fitzmaurice. More than that, scholarly pursuit remains encouraged and dignified in modern treatises. Thus, for example, Paulsson devotes an entire section in his The Idea of Arbitration to the prediction of “a resurgent influence of legal scholarship”,36 and in the context of a process of increased legitimacy for arbitration itself no less.37 When authors of this calibre, influential and accomplished as both scholars and practitioners, put forward similar views, it is difficult to remain indifferent. Yet, we might wonder about the types of incentives behind their writing, but also about their audience: if it is true that “[t]he existing world of international commercial arbitration already belongs to a small, mostly closed, cohort of scholars and practitioners. . .

30

The obvious example is Dezalay and Garth (1998); But one wonders whether the same could be said about other, more ‘juridical’ works. Consider, for example, Gaillard (2010). 31 The usual examples will suffice Paulsson (1981, 1983), Smit (1988) and Caron (1990). 32 Helmersen (2017). 33 Ibid. 34 We point to the excellent discussion in Michaels (2013); For examples of the oneiric language discussed by Michaels see Kaufmann-Kohler (2007) and Lew (2006). 35 See in particular Oppetit (1993, 1998). 36 Paulsson (2013), p. 256. 37 Ibid., p. 256.

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

217

hard to enter, its ideology [. . .] immune to critique”,38 what is the purpose of an effort to persuade? We might also wonder about their thematic influence: do younger or less accomplished authors write about the same things? And who reads and cite them?

2.2.3

Investment Arbitration Scholarship: Authors, Audience, End-Users

The two models discussed above are of some relevance for our current analysis. It is sometimes said that investment arbitration sits at the intersection of these two fields. Investment law, as a whole, is one of the key examples of the “[e]xpanding domain of international law”.39 Different authors, as discussed, propose that the field should find its ideal comparator in either the commercial paradigm, or public law and human rights.40 Different backgrounds may make for different approaches to important issues, some of systemic relevance,41 and different sensitivities arising from prior experiences have been taken into account by relevant stakeholders as relevant features of the system.42 Yet, it is arguable that the peculiar relationship entertained by investment arbitration and its literature might be best explained by reference to the field’s social makeup. Figure 1 provides an even clearer illustration of the current situation by using social network analysis43 to draw a full network of arbitral appointments in investment tribunals in all of the known investment treaty disputes as to October 2019.44 The portion of the graph included here, which shows the core of the arbitration network, provides a representative picture of the social aspect of what has been called the “marriage of public international law and international commercial arbitration”.45 The network algorithm employed here shifts central players (larger) towards the centre; colours represent computationally-identified clusters,46

38

Michaels (2013), p. 62. Alex Mills, The Privatisation of Private (and) International Law, Inaugural Lecture, University College London, 6 February 2020, Current Legal Problems Lecture Series (still unpublished). 40 For some discussion of the point see Schill (2010), Roberts (2013) and Vadi (2016). 41 The usual example is the conflicting approaches to the role of the state Wälde (2010). 42 David Gaukrodger, Appointing Authorities and the Selection of Arbitrators in Investor-State Dispute Settlement: An Overview, OECD Consultation Paper, March 2018. 43 Similar approaches have been applied to the sociology of investment arbitration by Puig (2014) and Langford et al. (2017). 44 Analysis by Niccolò Ridi, based on data by Daniel Behn, Malcolm Langford, Ole Kristian Fauchald, Runar Lie, Maxim Usynin, Taylor St John, Laura Letourneau-Tremblay, Tarald Berge and Tori Loven Kirkebø, PITAD Investment Law and Arbitration Database: Version 1.0, Pluricourts Centre of Excellence, University of Oslo (31 January 2019). The network analysis has been carried out with the Gephi software. See Bastian et al. (2009). 45 Bjorklund (2008), p. 1272. 46 Newman (2006). 39

218

N. Ridi and T. Schultz

Fig. 1 A social network representation of arbitrators based on co-appointments [Source: Niccolò Ridi on PITAD data (see footnote 44)]

drawing attention to actors who are more connected among each other than to the rest of the network; finally, the “edges”—the ties connecting the different “nodes” of the networks—are “weighed”, and thus represented as proportionally thicker depending on how often two arbitrators have been appointed together. Complex network measurements, which have been successfully employed elsewhere,47 are not necessary for our present purposes. The graph below highlights at least two prominent features of the arbitration community:48 the comparatively small number of influent, repeat players, and the strong connections linking some of them. Hence our question: how cannot this peculiar social structure influence investment arbitration as a scholarly field?

47

See, in particular, Puig (2014). Although the network deals with arbitrators only, it is submitted that the reflection can be adapted to counsel as well for simple reasons of frequent identity. See Langford et al. (2017). 48

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

2.3

219

Why Bother?

As we observed in the introduction, a significant amount of scholarship is produced in the field of investment arbitration. In a recent chapter, about arbitration literature in general, we observed that it . . . entertains a particular relationship with its own literature—the written knowledge in the field and about the field. This relationship is marked by one big mix, be it in the form of competition or cooperation, of practitioners who use it, legal entrepreneurs who make and change it, and scholars who analyse it, with more or less permanent alternations and confusions of these roles. . . in arbitration, this relationship (call it, quite normatively, expertise-enhancing cross-fertilisation or rather mind-narrowing dogmatic collusion, as you will) has a strength that would probably appear curious, and worth investigating, in many other fields in which public interests are at stake.49

We stick to our guns: all law is a social construct. And so is arbitration and every other legal institution. They are social constructs in two ways: one the one hand, we construct law and legal institutions in the sense that we shape them, straightforwardly determine what they should be and therefore what they are, what they become. Law is a noetic entity—something we human beings create, something we construct socially. On the other hand, law and legal institutions are also social constructs in the sense that our understanding of them is constructed socially. This is the case of our knowledge production about arbitration for instance—what we understand arbitration to be, to do, what effects it has, our representation and understanding it all. This is something we do, and we do this through all our filters, through all the things we want to see and the things we don’t want to see, through all of our own values and interests. To be sure, Gaston Bachelard had made the point long ago, showing that even the natural sciences, our understanding of physics and biology and neurophysiology is a social construct, as scientists filter data according to their own convictions, professional needs, and wider views of the world.50 Even more persuasively, Bruno Latour and Steve Woolgar accounted for the role of practices and any day activities in the construction of reality’s building blocks—the scientific facts.51 Thus, if we want to understand the world, we should also understand who produces knowledge about the world: who are the scientists, what is their ethos, what do they believe in, what are their professional constraints, where do their own personal interests lie? This, in a nutshell, is what we try to do for arbitration. We are asking a simple question: how does knowledge about investment arbitration and investment get produced? By whom? With what effects on whom? What are the epistemic communities (or sub-communities if you believe that everyone who produces knowledge about these matters forms one “common” community)? What do people contribute, in what way, to the production of knowledge in this field, and 49

Schultz and Ridi (2020) (footnotes omitted). See generally Bachelard (1938). 51 Latour and Woolgar (1979). 50

220

N. Ridi and T. Schultz

what are their likely aesthetic prefigurations (by aesthetic we mean not quite metaphysics, but what is “behind the text”, the likely objectives, beliefs, values, interests, wider rational and emotional framework of those people)? What does this tell us about what we think we know about investment arbitration and investment law and what should become of investment arbitration and investment law? Somewhat more precisely, if we focus on scholars—those who produce scholarship—on how they produce knowledge: who are they? What is their likely ethos? How do they band together, cluster together in smaller communities? Who is inspired by whose ideas and by whose social reconstructions and images of what is happening and should be happening? Do these understandings of the world actually influence the decision-makings of arbitral tribunals?

3 Methodology 3.1

Scientometrics: Scholarly Citations

There are several ways to look at the evolution of scholarship, and indeed many have been applied to the study of legal scholarship. Because of the unique nature of the field of international investment arbitration, we have opted to resort to an approach that has been rarely employed in the study of legal scholarship: scientometrics. Scientometrics has been defined as the “quantitative study of science, communication in science, and science policy”.52 The paternity of the term and the development of scientometrics as a scholarship field is generally credited to Derek de Solla Price. Methodologically, it is a development of bibliometrics, or the “the quantitative methods of the research on the development of science as an informational process”. However, it is specifically concerned with “the exploration and evaluation of scientific research”.53 Among the many uses and goals of scientometrics, we are particularly concerned with its potential for finding and understanding the “research front” in a particular theme or discipline, that is to say “an emergent and transient grouping of concepts and underlying research issues”.54 In the scientometrics market the citation is the main currency.55 It serves as a flexible unit of measurements, one that makes good sense in the real world. One of the most striking examples is the fact that high citation counts have been, for a long time, positively associated with the subsequent impact, being correlated, for

52

Leydesdorff and Milojević (2015), p. 2. Mingers and Leydesdorff (2015), p. 1. 54 Chen (2006). 55 Mingers and Leydesdorff (2015), p. 1. 53

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

221

example, with the awarding of Nobel prizes56—a trend that more recent research has confirmed as accurate, if increasingly difficult to predict.57 After parsing citations from scholarly works, it is possible to employ a variety of techniques to make sense of the data. First of all, it is possible to simply count the number of citations that are received (or made) by any scholarly work. High citation counts being accurate predictors of impact, this is important in its own right. However, it is possible to go beyond this approach and apply essential notions of network analysis to a scientific field, shifting the core research question to authorship, or, most importantly, to who cites whom or what.58 This can be done through co-authorship analysis, where individual nodes in the network (authors) are given greater connectedness on the basis of the number of works that they have authored together. Or it is possible to consider basic citation analysis, which shifts nodes closer together depending on the number of times two authors tend to cite each other. Still, it is possible to go further, making relatedness a function of how many times two works are cited together (co-citation analysis) or even of the number of times they cite the same works together. Although the possibilities are truly endless, the nature of a field structures affects the data collection process. The nature of the process is particularly well-suited to the discovery of “invisible colleges”,59 and we thus seek to confirm our hypotheses, anticipating encounters with islets, archipelagos, and whole continents. In order to do so, we gather citation data on international law scholarship. This brings us to a common problem in scientometrics: citation analyses of this kind are only as good as what is fed to the machine. Generally speaking, Clarivate’s Web of Science (WoS)60 and Scopus61 are the preferred sources for extracting citation data, which is thus rendered relatively uniform and may be downloaded in computerreadable format. However, the data so obtained is by no means perfect. Not only are these services not freely accessible, but they can also be fairly underinclusive (though rarely culpably), especially when scholarly works such as books and book chapters are concerned. This may be problematic in the context of investment arbitration scholarship, where different sources, some far less formal than others, all have their place.62 The obvious alternative, Google Scholar, mitigates these problem, being freely accessible, speedy, and more thorough for the counting of sources such as books and SSRN.63 It does, however, suffer from the opposite

56

Feist (1997), p. 326. Gingras and Wallace (2010). 58 For an overview, see Osareh (1996a, b) and White and McCain (1998). 59 Crane (1969), Schachter (1977) and Gmür (2003). 60 . 61 https://www.scopus.com/. 62 Just like arbitral awards are sometimes sent out to colleagues or mailing lists prior to their formal publishing, the world of academia knows. 63 Harzing and Van der Wal (2008) and Amara and Landry (2012). 57

222

N. Ridi and T. Schultz

problem, being prone to over-inclusiveness, duplicate entries, and—most problematically—poor data quality on output. We chose quality over quantity, and thus obtained citation data from Scopus. The results were then processed with the VOSViewer software by Nees Jan van Eck and Ludo Waltman.64 It should be pointed out that this dataset suffers from an almost inevitable limitation, which has to do with language diversity: in the simplest of terms, it is almost impossible to gather data relating to sources published in languages other than English. This has to do with the way scholarship is published and indexed online, and with the circumstance that the largest and most used indexing services are inevitably biased towards the largest market—the English language one. If the assumption that scholarship published in different languages must be irrelevant seems too much of a stretch,65 there seem to be enough anecdotal evidence to suggests that the status of English as the lingua franca of scientific communication may make the limitation more tolerable.66

3.2

Citation Mining: Arbitral Citations

As explained above, citation to scholarly authorities is not at all too rare in investment decisions. Thus, we have sought to provide some measurement of the impact of scholarship on investment arbitration. For our present purposes, we eschew contextual analysis and simply rely on citation count, with some variations which will be explained where relevant. In our analysis we focus on the full text of all publicly available investment decisions. After converting the PDF documents in a machinereadable format, we search for results matching a most types of bibliographic referencing formats by using regular expressions.67 We compare our results with those provided by the commercial database Investor-State Law Guide Publication Citator and reach comparable accuracy.68 In our investigation we are concerned—the point is worth stressing once more— with the identification of a “research front”. This approach, we argue, is designed to be consistent with the general consensus portraying international investment law as a fast-evolving field. In light of these assumptions, we have limited our investigation

64

Van Eck and Waltman (2014). The software (free, but not Open Source) can be downloaded from . 65 Schultz (2014), pp. 153 ff. 66 See in general Tardy (2004). 67 For an early introduction to the concept of regular expressions (and their elegance) see Thompson (1968). 68 https://www.investorstatelawguide.com, accessed 8 February 2020.

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

223

on arbitral citations to articles appearing in periodicals.69 This is not so much imposed by the laboriousness of the citation collection process, but rather by a number of core assumptions. First, because of their reliable publication cycle, peer review, and editorial control, we posit that articles may be seen as providing the most reasonable way for a practitioner to stay abreast of recent development. Second, monographs and edited volumes are generally understood to have a different—and longer—citation lifetime, thus rendering comparisons exceedingly problematic.

3.3

Caveat

Although these problems mean that the selection and the analysis of the material will inevitably have some minor shortcomings. We therefore caution against coming to quick conclusions. Our analysis, too, will be somewhat impressionistic at this stage. Yet, we submit that the data we present maintains its overall illustrative value, and we offer it in the hope that our findings will contribute to clarify the complex evolution of international investment arbitration as a scholarly endeavour.

4 Data 4.1

Investigation 1: Scholars Citing Scholars

Our analysis starts from scholarly citations as a proxy for the identification of those “grouping[s] of concepts and underlying research issues” making up the research front, as well as the most influential scholars in it.

4.1.1

The General Picture: A Concept Map

As a first step in our analysis, we used VOSviewer to create a map based on text data—specifically, data extracted from the abstract and title fields.70 The resulting network, in which two word nodes are closer together based on how often they occur

69

We have made any effort to eliminate odd chapters that were parsed by overinclusive regular expressions. We decided to include, for the time being, works contained in the collected courses of the Hague Academy of International Law because of their specific type of publication cycle, and as a control variable. 70 VOSviewer applies some pre-processing, including part-of-speech tagging and removal of copyright statements, in order to identify keywords. See van Eck and Waltman (2011). Naturally, the algorithm cannot do much against instances of poetic license in titles.

224

N. Ridi and T. Schultz

Fig. 2 Concept map based on abstract and title data, overlaid with publication years (Source: The authors’ analysis of Scopus citation data)

together, while their size reflects the sheer number of mentions, is then overlaid with a colour scheme reflecting publication years.71 Figure 2 shows a specific snapshot of one such map, capturing the a time window ranging from 2013 to 2017. It provides a clear picture of how the focus on international investment law scholarship quickly shifted from the analysis of arbitral decisions and procedure to the discussion of more complex and variegated issues, such as the interaction between international investment law and European law, as well as questions concerning the reform of the investment law system, as well as the potential role of convergence with trade law—and the analogies resulting thereof— in the context of the rise of mega-regional agreements.72

4.1.2

The General Picture, Continued: Co-citation Networks and Authors

In keeping with the orthodoxy in scientometrics, we employ co-citation networks to identify the structure of the field. Rather than focusing on articles and themes, we 71 72

Van Eck and Waltman (2013), p. 8. As an example, see Voon (2018).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

225

choose to focus instead on author. Accordingly, our analysis retains some impressionistic character in that we focus on what an author is mostly known for, rather than on their entire scholarly production. The co-citation networks allow us to test this type of heuristic. As a reminder, the size of the nodes is a function of the number of citations, whereas the connectedness of two authors follows from the number of times they have been cited together. As Fig. 3 shows a number of large and well-populated clusters may be identified in the wider international investment law and arbitration scholarship network. The cluster on the bottom right corner, in red, appears to group a number of scholars whom we can define as being universally recognised authorities: the group is remarkable in that it includes authors of key texts—such as commentaries,73 Hague Academy courses, and textbooks74—but also because it largely comprises individuals who have also acted as practitioners, and have who have been celebrated as key figures of both commercial arbitration (consider, for example, the inclusion of Nigel Blackaby and Emmanuel Gaillard) or public international law (such as James Crawford). On the contrary, the cluster to the right, in blue, provides evidence of a different trend within the research front: this group includes the likes of Susan Franck, Gus Van Harten, and David Schneidermann, as well as Michael Waibel and Sergio Puig. In other words, the cluster includes authors who have been writing not so much of international investment law and arbitration, but rather on it, tacking systemic perspectives on its significance as an institution (often through the use of analogies),75 its legitimacy and challenges,76 and its general significance—sometimes through empirical analysis.77 A remarkable feature of the network is the centrality retained by certain individuals, whose production may be said to have straddled the line between the systemic dimension and the more doctrinal, black letter analysis of specific legal questions, and who therefore tend to be well-connected to several “camps”—or, to put the matter in different, and not incompatible terms, to be extremely “citable”. Key authors here are Stephan Schill, Jan Paulsson, Jurgen Kurtz, and Anne Van Aaken, who all have tackled systemic questions, challenging existing paradigms through bold comparisons,78 but also largely retained a role as writers of more tothe-point commentaries.

73

Schreuer and Disputes (2001) and Schreuer (2009). Blackaby et al. (2015). 75 Van Harten and Loughlin (2006), Van Harten (2007), Schneiderman (2008) and Roberts (2013). 76 Franck (2004) and Waibel et al. (2010). 77 Puig (2014). 78 No list could be exhaustive, but the following may be seen as key publications Paulsson (1995, 2013), Schill (2009, 2010), van Aaken (2009) and Kurtz (2009, 2016). 74

226

N. Ridi and T. Schultz

Fig. 3 The main co-citation network (full network and enhanced close-up) (Source: The authors’ scientometric analysis of Scopus citation data)

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

4.1.3

227

Ranking Authors: Citation and Pagerank Scores

Co-citation networks of this kind can also be employed to draw inferences as to the most influential authors in it. We do so by adopting two types of measurements: citation weight as a raw measure, and PageRank. The first measurement is a pure function of the number of citations of a given author within the network, and is therefore highly correlated with a basic type of network centrality known as degree centrality, the second type of scores are computed using a more complex algorithm, PageRank, which has been developed for the purposes of ranking web pages and is still one of the foundations of the Google search engine.79 It provides for a better ranking of nodes by accounting for a more developed notion of importance: with inevitable oversimplification, PageRank scores depend not just on the number of links from a node to the other, but also on the quality of these links. The latter is in turn determined largely on the basis of the quality of the linking nodes—in other words, a node is more important if important nodes link to it, and so on, with PageRank scores being calculated recursively. The PageRank algorithm also accounts for an element of randomness and the possibility that a “random surfer” reading the works included in the citation network will, at some point, stop following a chain of links.80 Interestingly, the PageRank algorithm has found some use in the analysis of co-citation networks too, providing for a better measure of a “lifetime contribution” to the field.81 Its application to our dataset yields interesting results in that the picture painted by PageRank scores is more variegated than that obtained through mere citation counts. Figures 4 and 5 show the same co-citation network in a dual circle layout in order to highlight the contribution of the 25 highest-ranked authors. As the two figures show, there are significant overlaps between the two measurements, in line with the findings made by Ding and others on this methodology.82 However, the first figure clearly shows the relatively repetitive citation trends of certain authorities, while the second provides more variation, reflecting the different trends discussed above. In other words, a ranking of this kind reflects the importance of different authors for different sub-areas of the field.

4.2

Investigation 2: Arbitrators Citing Scholars

As anticipated in the introductory sections, scholarship may well be cited by arbitrators when “writing judicially”. The citation of legal scholarship by adjudicatory bodies is, of course, a well-investigated subject both in the context of domestic

79

Page L et al., The PageRank citation ranking: Bringing order to the web, 1999. For a critique of certain applications of PageRank see Ghoshal and Barabási (2011). 81 Ding et al. (2009). 82 Ibid. 80

228

N. Ridi and T. Schultz

Fig. 4 Co-citation network with a citation-weighted ranking (Source: The authors’ scientometric analysis of Scopus citation data)

jurisdictions and international courts.83 In the context of international investment arbitration, however, while a role for scholarship is acknowledged by the several citations that appear in tribunals’ decisions, no serious attempt has been made to engage in a more analytical observation of what and who, precisely, is cited. There are good reasons to ask this question: first, understanding what arbitrators find important might give us some insight into which issues are still open, or wholly settled, in their line of work; by the same token, their citation patterns can also elucidate how their arguments from authority—and, thus their citations to both precedent and scholarship—take advantage of specific works, and on which topics.

83

Fauchald (2008), Peil (2012), and Helmersen (2016, 2018).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

229

Fig. 5 Citation network with PageRank ranking of nodes (only highest scores displayed filtered) (Source: The authors’ scientometric analysis of Scopus citation data)

4.2.1

General Findings

We start with two general observations concerning the extent to which international investment tribunals tend to cite scholarship. Our data broadly confirms the trend already identified in Fauchald’s 2008 empirical survey, confirming that scholarship is cited frequently. The graph in Fig. 6 plots the number of unique citations (that is to say, excluding repeated citations within a same document) to scholarship contained in periodicals in international investment decisions in the period 2000–2019. It is possible to observe that the number of citations has dipped, but only to a small extent. When the number of citations is considered in context, however, it is possible to observe that the number of citations to literature pales in comparison to that of citations to arbitral

230

N. Ridi and T. Schultz

Fig. 6 Average number of unique citations to journal articles in international investment arbitration decisions (2000–2019) (Source: The authors’ text-as-data analysis)

Decisions vs Citations to Precedent 1500 1000 500 0

Sum of Decisions

Sum of Cites

Fig. 7 Number yearly decisions and cumulative number of unique citations to arbitral precedent (Source: Niccolò Ridi)

precedent (Fig. 7),84 which keeps outpacing the number of decisions issued each year. An increase in references to precedents, rather than literature, has been documented elsewhere—for example, in the practice of the WTO Appellate Body.85

84

The data on the use of precedent builds on prior work carried out with similar methodologies. See Ridi (2019a, b, c). 85 Helmersen (2016).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

231

Fig. 8 Average age of citations over time (with moving average, period of 4) (Source: The authors’ scientometric analysis of Scopus citation data)

4.2.2

The Shelf Life of Scholarship: How Sensitive Is the International Bench to an Evolving Research Front?

Another important question to be asked is the following: having considered the extent to which scholarship is cited in general, can we establish just how much recent scholarship is referenced? A measurement of this type might allow us to gain additional insights into the mindset of arbitrators, quantifying their need for up-todate literature assuming depreciation of the source material,86 and, taking a look at the other side of the coin, gauging their general responsiveness to an evolving research front. Interestingly, when a comparison is made with citations to precedent, the picture painted by the data is quite different from the scenario discussed in the previous section. Indeed, as Fig. 8 shows the average age of articles cited by arbitrators is just over 15 years. While this value might appear high at first sight, especially for a relatively young field such as international investment law, it is in fact far from an excessive number, especially when considering that rather old articles continue to be cited, thereby distorting the average.87 Indeed, the most striking feature of the practice is the fact that, after an initial increase, the average age of cited articles is not growing significantly—and, in fact, a reverse trend might be observed.

86

On the question of depreciation see, with reference to precedent, Landes and Posner (1976), p. 276. 87 See for example Mann (1982).

232

N. Ridi and T. Schultz

35 30 25 20 15 10 5 0

ECHR Avg Age

Inv Avg Age

WTO Avg Age

ICJ Avg Age

IACHR Avg Age

2 per. Mov. Avg. (ICJ Avg Age)

Fig. 9 Average precedent age (Source: Ridi 2019b, c)

This particular aspect of the citing practice does not mirror the trends concerning the use of precedent across not just investment tribunals, but international courts and tribunals writ large. As Fig. 9 shows the average age of precedents is consistently increasing across international adjudicators.88 The resulting picture is relatively clear: arbitrators have been rather responsive to an evolving research front, often choosing to cite relatively recent scholarship. Undoubtedly, the case of international investment law is a rather extraordinary one, as the numbers of decisions and scholarly outputs have grown side by side. Yet, arbitrators do not seem so tied by either reverence to the past or availability heuristics89 in the citation of literature as they are when selecting citable precedents.

4.2.3

The Most Cited Authors

Finally, it is fitting at this point to identify the authors who have received the highest number of citations in investment arbitration decisions, with a view to determine, in particular, what type of scholarship arbitrators seek to rely on, and whether or not success in terms of arbitral and scholarly citations have any degree of correlation. The tables provide a breakdown of the number of citations (to unique outputs and cumulative) made in investment decisions. Table 1 comprises all published decisions available as of October 2019, while Table 2 only focuses on the period 2013–2019.

88 89

Ridi (2019b), p. 210. Schwarz et al. (1991).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

233

Table 1 Most cited authors in arbitral jurisprudence—all time Author Christoph Schreuer Aron Broches Emmanuel Gaillard Georges Delaume Frederick Alexander Mann Rudolf Dolzer Pierre Lalive John Gotanda Gabrielle Kaufmann-Kohler Jan Paulsson Zachary Douglas Chittharanjan Amerasinghe Rosalyn Higgins Louis Sohn and Baxter Antonio Parra Stephen Vasciannie Michael Reisman & Robert Sloane Giorgio Sacerdoti DH Bowett James Crawford George Christie Filip De Ly and Audley Sheppard Andrew Newcombe Irmgard Marboe Gerald Fitzmaurice

COUNTUNIQUE of source 54 42 22 20 20 16 16 16 16 15 14 12 11 11 11 10 10 8 8 7 7 7 7 6 6

COUNTA of source 58 48 22 25 20 16 16 16 17 16 14 17 11 11 11 10 10 8 8 7 7 11 7 6 6

The results are, once again, quite striking. Authorities such as Christoph Schreuer, Emmanuel Gaillard, and Rudolf Dolzer feature prominently in both lists, as do authors with an institutional connection such as Aaron Broches. Yet, important changes can be observed, for example in the rising importance of voices from a new generation, such as Zachary Douglas (far more prominent in the second list than in the first), Michael Waibel, and Stephan Schill. At the same time, one can easily observe the decline in citation of older sources, often produced by experts in public international law: two notable examples may be seen in the works of Dame Rosalyn Higgins and C.F. Amerashinghe. Of course, it goes without saying that views on the taking of property in international law have evolved,90 as has the debate on the jurisdiction of ICSID tribunals.91 What matters, however, is that new authors are entering the field, as is natural in any evolving research front.

90 91

Rosalyn (1982). Amerasinghe (1973, 1975, 1976, 1979).

234

N. Ridi and T. Schultz

Table 2 Most cited authors in arbitral jurisprudence—2012–2019 Author Christoph Schreuer Aron Broches Zachary Douglas John Gotanda Rudolf Dolzer Filip De Ly and Audley Sheppard James Crawford Francisco Orrego Vicuña Emmanuel Gaillard Stephen M. Schwebel Natasha Affolder Michael Waibel Mark B. Feldman Irmgard Marboe Gerald Fitzmaurice Georges R. Delaume Campbell McLachlan William S. Dodge Ursula Kriebaum Thomas Wälde Thomas Kendra Stephan Schill R. Håkan Berglin Michael Reisman and Robert Sloane Louis B. Sohn and R.R. Baxter

4.2.4

COUNTUNIQUE of source 17 15 7 7 6 5 4 4 4 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2

COUNTA of source 18 16 7 7 6 8 4 4 4 3 3 3 3 3 3 4 3 2 2 2 2 2 2 2 2

The Most Cited Works

As a final point, it might be worth considering, however briefly, which works specifically are cited by investment tribunals. Table 3 provides one such list, including—once again—unique and cumulative citations. For reasons of space, and due to the impressionistic nature of our analysis, we restrict ourselves to a single reflection: it is virtually impossible to spot in this list any work with a systemic or critical ambition—at least in the sense that we discussed in the context of scholarly “clusters”. Rather, most of the scholarship listed here appears, with some possible exceptions,92 to target specific, real world problems, and to be citable with a view to solving them. Further research will be needed to determine whether this is necessarily the case.

92 For example, one may wonder if this is the case with regard to Paulsson (1995) and KaufmannKohler (2007).

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

235

Table 3 Scholarly works with the most arbitral citations Target Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’ Recueil des cours 331 (1972). Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) Journal of World Investment and Trade 357. International Centre for Settlement of Investment Disputes (ICSID), ‘Background Paper on Annulment for the Administrative Council of ICSID’ (2012) ICSID Review 443. Mann, ‘British Treaties for the Promotion and Protection of Foreign Investment’ (1982) British Yearbook of International Law 241. Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) Arbitration International 357. Lalive, ‘The First ‘World Bank’ Arbitration (Holiday Inns v. Morocco) - Some Legal Problems’ (1980) British Yearbook of International Law 123. ‘Draft Convention on the Responsibility of States for Damage done in their Territory to the Person or Property of Foreigners’ (1929) American Journal of International Law 131. Sohn and Baxter, ‘Responsibility of States for Injuries to the Economic Interest of Aliens’ (1961) American Journal of International Law 545. Schreuer, ‘Commentary on the ICSID Convention’ (1996) ICSID Review 318. Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’ (1999) British Yearbook of International Law 99. Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’ (1982) Recueil des Cours 259. Reisman and Robert D. Sloane, ‘Indirect Expropriation and its Valuation in the BIT Convention’ (2004) British Yearbook of International Law 115. Dolzer, ‘Fair and Equitable Treatment: A Key Standard in Investment Treaties’ (2005) The International Lawyer 87. Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails’ (2011) Journal of International Dispute Settlement 97. Paulsson, ‘Arbitration without Privity’ (1995) ICSID Review 232.

COUNTUNIQUE of source 27

COUNTUNIQUE of date decision 19

25

11

21

6

16

11

14

6

12

10

12

10

11

8

11

9

10

4

10

9

10

7

9

5

8

6

8

6 (continued)

236

N. Ridi and T. Schultz

Table 3 (continued) Target Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1997) Recueil des Cours 251. Bowett, ‘Estoppel before International Tribunals and Its Relation to Acquiescence’ (1957) British Yearbook of International Law 176. Delaume, ‘Le centre international pour le règlement des différends relatifs aux investissements’ (1982) Journal du Droit International 775. Christie, ‘What Constitutes a Taking Under International Law?’ (1962)British Yearbook of International Law 308. Broches, ‘The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction’ (1966) Columbia Journal of Transnational Law 261. Newcombe, ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) ICSID Review 1. Gotanda, ‘Awarding Interest in International Arbitration’ (1996) American Journal of International Law 40. Marboe, ‘Compensation and Damages in International Law – The Limits of “Fair Market Value”’ (2006) Journal of World Investment and Trade 723. Broches, ‘Observations on the Finality of ICSID Awards’ (1991) ICSID Review 231. Fortier and Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) ICSID Review 293.

COUNTUNIQUE of source 8

COUNTUNIQUE of date decision 5

8

7

7

6

7

3

7

5

7

4

6

5

6

4

6

5

5

5

5 Findings and Final Reflections Our research paints a complicated picture. On the one hand, our data provides a clear representation and mapping of the research front in international investment law and arbitration literature. As our scientometric analysis shows, we can identify distinct clusters of authors and the trends and methodologies they follow, and point to the most influential and “central” players in the field. On the other hand, the comparison between scholarly citations and arbitral ones shows that a rift exists between what scholars on one side, and practitioners on the other, find useful—or are, at any rate, comfortable citing. As discussed above, the observation that the lectern and the

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

237

bench may well find support and solace in different literature is nothing new.93 It is the extent to which it is true that is striking. This point leads us to our final conclusion: while presenting this paper at a splendidly organized and extremely well-attended conference, we concluded— mostly, but not quite entirely, joking—by observing the following: • Do you want to be cited? Write doctrinal scholarship. • Do you want to be an authority? Write doctrinal scholarship. • Do you want to please everyone? Write empirical and theoretical scholarship. Through the analysis of our data, we are now a little wiser, but these three axioms seem to hold. True, they are likely going to be of little help to a scholar wishing to direct her efforts towards a marketable result. It is our hope, however, that our analysis will nevertheless retain its value, and help in the navigation of a quickly evolving field and its research front. And hopefully, just hopefully, prompt some reflection on what it means for scholarship to be useful.

References Alvarez JE (2016) ‘Beware: Boundary Crossings’ – a critical appraisal of public law approaches to international investment law. J World Invest Trade 17:171–228 Amara N, Landry R (2012) Counting citations in the field of business and management: why use Google Scholar rather than the Web of Science. Scientometrics 93:553–581 Amerasinghe CF (1973) Submissions to the jurisdiction of the International Centre for Settlement of Investment Disputes. J Marit Law Commerce 5:211 Amerasinghe CF (1975) Jurisdiction ratione personae under the convention on the settlement of investment disputes between states and nationals of other states. Br Yearb Int Law 47:227–267 Amerasinghe CF (1976) The International Centre for Settlement of Investment Disputes and Development through the multinational corporation. Vand J Transnatl Law 9:793 Amerasinghe CF (1979) The jurisdiction of the International Centre for the Settlement of Investment Disputes. Indian J Int Law 19:166 Bachelard G (1938) La Formation de l’esprit scientifique. Contribution à une psychanalyse de la connaissance objective. Paris Bastian M, Heymann S, Jacomy M et al (2009) Gephi: an open source software for exploring and manipulating networks. ICWSM 8:361–362 Bjorklund AK (2008) The emerging civilization of investment arbitration symposium: building the civilization of arbitration. Penn St Law Rev 113:1269–1300 Blackaby N, Partasides C, Hunter M, Redfern A (2015) Redfern and Hunter on international arbitration. Oxford University Press Borges JL (2000) The Library of Babel. David R. Godine Bourdieu P (1986) Force of law: toward a sociology of the juridical field. Hastings Law J 38:805 Brabandere ED (2014) Investment treaty arbitration as public international law. Cambridge University Press Caron DD (1990) The nature of the Iran-United States claims tribunal and the evolving structure of International Dispute Resolution. Am J Int Law 84:104–156

93

See Merritt and Putnam (1995).

238

N. Ridi and T. Schultz

Charlotin D (2017) The place of investment awards and WTO decisions in international law: a citation analysis. J Int Econ Law 20:279–299 Chen C (2006) CiteSpace II: detecting and visualizing emerging trends and transient patterns in scientific literature. J Am Soc Inf Sci Technol 57:359–377 Crane D (1969) Social structure in a group of scientists: a test of the ‘Invisible College’ hypothesis. Am Soc Rev 34:335–352 d’Aspremont J (2013) Formalism and the sources of international law: a theory of the ascertainment of legal rules. OUP, Oxford Dezalay Y, Garth BG (1998) Dealing in virtue: International Commercial Arbitration and the construction of a transnational legal order. University of Chicago Press Ding Y, Yan E, Frazho A, Caverlee J (2009) PageRank for ranking authors in co-citation networks. J Am Soc Inf Sci Technol 60:2229–2243 Fauchald OK (2008) The legal reasoning of ICSID Tribunals – an empirical analysis. Eur J Int Law 19:301–364 Feist GJ (1997) Quantity, quality, and depth of research as influences on scientific eminence: is quantity most important? Creativity Res J 10:325–335 Fiore P (1865) Nuovo dritto internazionale pubblico : secondo i bisogni della civiltà moderna. Casa Editrice e Tipografia degli Autori-Editori, Milano Franck SD (2004) Legitimacy crisis in investment treaty arbitration: privatizing public international law through inconsistent decisions. Fordham Law Rev 73:1521 Gaillard E (2010) Legal theory of international arbitration. Martinus Nijhoff, Leiden Ghoshal G, Barabási A-L (2011) Ranking stability and super-stable nodes in complex networks. Nat Commun 2:394 Gingras Y, Wallace ML (2010) Why it has become more difficult to predict Nobel Prize winners: a bibliometric analysis of nominees and winners of the chemistry and physics prizes (1901–2007). Scientometrics 82:401–412 Gmür M (2003) Co-citation analysis and the search for invisible colleges: a methodological evaluation. Scientometrics 57:27–57 Harner MM, Cantone JA (2011) Is legal scholarship out of touch - an empirical analysis of the use of scholarship in business law cases. Univ Miami Bus Law Rev:1–50 Harrison JL, Mashburn AR (2015) Citations, justifications, and the troubled state of legal scholarship: an empirical study. Tex A&M Law Rev 3:45 Harzing A-WK, Van der Wal R (2008) Google Scholar as a new source for citation analysis. Ethics Sci Environ Polit 8:61–73 Helmersen ST (2016) The use of scholarship by the WTO Appellate Body. Goettingen J Int Law 7:309 Helmersen ST (2017) ‘Delocalisation’ scholarship in ICC Arbitral Awards. Scandinavian Stud Law 62:261–280 Helmersen ST (2018) The application of teachings by the International Court of Justice. University of Oslo Helmersen ST (2019) Finding ‘the Most Highly Qualified Publicists’: lessons from the International Court of Justice. Eur J Int Law 30:509–535 Hernández G (2017) The responsibility of the international legal academic: situating the Grammarian within the ‘Invisible College’. In: d’Aspremont J, Gazzini T, Nollkaemper A, Werner W (eds) International law as a profession. Cambridge University Press, Cambridge, pp 160–188 Jennings RY (1996) The judiciary, international and national, and the development of international law. Int Comp Law Q 45:1–12 Kaufmann-Kohler G (2007) Arbitral precedent dream, necessity or excuse? Arbitr Int 23:357 Kingsbury B (2012) International courts: uneven judicialisation in global order. In: Crawford J, Koskenniemi M, Ranganathan S (eds) The Cambridge companion to international law. Cambridge University Press Kopf R (1997) Do judges read the Review? A citation-counting study of the Nebraska Law Review and the Nebraska Supreme Court, 1972–1996. Nebraska Law Rev 76

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

239

Koskenniemi M (2006) From apology to Utopia: the structure of international legal argument. Cambridge University Press Kurtz J (2009) The use and abuse of WTO law in Investor-State Arbitration: competition and its discontents: a rejoinder to Robert Howse and Efraim Chalamish. Eur J Int Law 20:1095–1098 Kurtz J (2016) The WTO and international investment law: converging systems. Cambridge University Press Landes WM, Posner RA (1976) Legal precedent: a theoretical and empirical analysis. J Law Econ 19:249 Langford M, Behn D, Lie RH (2017) The revolving door in international investment arbitration. J Int Econ Law 20:301–332 Latour B, Woolgar S (1979) Laboratory life: the social construction of scientific facts. SAGE League of Nations. Advisory Committee of Jurists (1920) Procès-verbaux of the proceedings of the Committee, June 16th–July 24th, 1920, with Annexes. The Hague, Van Langenhuysen Lew JDM (2006) Achieving the dream: autonomous arbitration. Arbitr Int 22:179–204 Leydesdorff L, Milojević S (2015) Scientometrics Mann FA (1982) British treaties for the promotion and protection of investments. Br Yearb Int Law 52:241–254 Merritt DJ, Putnam M (1995) Judges and scholars: do courts and scholarly journals cite the same law review articles. Chic Kent Law Rev 71:871 Michaels R (2013) Dreaming law without a state: scholarship on autonomous international arbitration as utopian literature. London Rev Int Law 1:35–62 Mingers J, Leydesdorff L (2015) A review of theory and practice in scientometrics. Eur J Oper Res 246:1–19 Moore JB (1929) General introduction. In: Moore JB (ed) International adjudications: ancient and modern history and documents (Modern ser) 1, pp vii–xiv Newman ME (2006) Modularity and community structure in networks. Proc Natl Acad Sci 103:8577–8582 Oppenheim L (1908) The science of international law: its task and method. Am J Int Law 313–356 Oppenheim L (1992) Oppenheim’s international law: peace. Longman Oppetit B (1993) Le droit international privé, droit savant. Recueil des cours Oppetit B (1998) Théorie de l’arbitrage, 1re éd. Presses universitaires de France, Paris Osareh F (1996a) Bibliometrics, citation analysis and co-citation analysis: a review of literature I. Libri 46:149–158 Osareh F (1996b) Bibliometrics, citation analysis and co-citation analysis: a review of literature II. Libri 46:217–225 Paulsson J (1981) Arbitration unbound: award detached from the law of its country of origin. Int Comp Law Q 30:358–387 Paulsson J (1983) Delocalisation of international commercial arbitration: when and why it matters. Int Comp Law Q 32:53–61 Paulsson J (1995) Arbitration without privity. ICSID Rev 10:232–257 Paulsson J (2013) The idea of arbitration. Oxford University Press Oxford Peil M (2012) Scholarly writings as a source of law: a survey of the use of doctrine by the International Court of Justice. Camb J Int Comp Law 1:136–161 Pellet A (2013) The case law of the ICJ in investment arbitration. ICSID Rev 28:223–240 Puig S (2014) Social capital in the arbitration market. Eur J Int Law 25:387–424 Ridi N (2018) Approaches to external precedent: invocation of international decisions in investment arbitration and WTO dispute settlement. In: Adjudicating international trade and investment disputes: between isolation and interaction. Cambridge University Press Ridi N (2019a) ‘Mirages of an Intellectual Dreamland’? Ratio, obiter and the textualization of international precedent. J Int Disp Settlement 10:361–395 Ridi N (2019b) The shape and structure of the ‘Usable Past’: an empirical analysis of the use of precedent in international adjudication. J Int Disp Settlement 10:200–247

240

N. Ridi and T. Schultz

Ridi N (2019c) Doing things with international precedents: the use and authority of previous decisions in international adjudication. King’s College London Roberts A (2013) Clash of paradigms: actors and analogies shaping the investment treaty system. Am J Int Law 107:45–94 Rosalyn H (1982) The taking of property by the state: recent developments in international law. Recueil Des Cours 176:259 at 338–339 Schachter O (1977) Invisible college of international lawyers. Northwest Univ Law Rev 72:217 Schill SW (2009) The multilateralization of international investment law. Cambridge University Press Schill SW (ed) (2010) International investment law and comparative public law. Oxford University Press Schill SW (2011) W(h)ither fragmentation? On the literature and sociology of international investment law. Eur J Int Law 22:875–908 Schill SW, Tvede KR (2015) Mainstreaming investment treaty jurisprudence. Law Pract Int Courts Tribunals 14:94–129 Schneiderman D (2008) Constitutionalizing economic globalization: investment rules and democracy’s promise. Cambridge University Press Schreuer CH (2009) The ICSID Convention: a commentary. Cambridge University Press Schreuer CH, Disputes IC for S of I (2001) The ICSID Convention: a commentary. Cambridge University Press Schultz T (2014) Transnational legality: stateless law and international arbitration. Oxford University Press Schultz T, Ridi N (2020) Arbitration literature. In: Ortino F, Schultz T (eds) The Oxford handbook of international arbitration. Oxford University Press, Oxford, NY, pp 1–32 Schwartz DL, Petherbridge L (2010) The use of legal scholarship by the Federal Courts of Appeals: an empirical study. Cornell Law Rev:1345–1374 Schwartz DL, Petherbridge L (2011) Legal scholarship and the United States Court of Appeals for the Federal Circuit: an empirical study of a national circuit. Berkeley Technol Law J 1561–1602 Schwarz N, Bless H, Strack F et al (1991) Ease of retrieval as information: another look at the availability heuristic. J Pers Soc Psychol 61:195–202 Schwarzenberger G (1947) The inductive approach to international law. Harv Law Rev 60:539–570 Skouteris T (2010) The force of a doctrine Art. 38 of the PCIJ Statute and the sources of international law. In: Johns F, Joyce R, Pahuja S (eds) Events: the force of international law. Routledge-Cavendish, Abingdon, p 69 Smit H (1988) A-national arbitration. Tul Law Rev 63:629–646 Tardy C (2004) The role of English in scientific communication: lingua franca or Tyrannosaurus rex? J English Acad Purp 3:247–269 Thompson K (1968) Programming techniques: regular expression search algorithm. Commun ACM 11:419–422 Tushnet M (1980) Legal scholarship: its causes and cure symposium on legal scholarship: its nature and purposes. Yale Law J 1205–1223 Vadi V (2016) Analogies in international investment law and arbitration. Cambridge University Press van Aaken A (2009) International investment law between commitment and flexibility: a contract theory analysis. J Int Econ Law 12:507–538 van Eck NJ, Waltman L (2011) Text mining and visualization using VOSviewer. arXiv:11092058 [cs] Van Eck NJ, Waltman L (2013) VOSviewer manual, vol 1. Univeristeit Leiden, Leiden, pp 1–53 van Eck NJ, Waltman L (2014) Visualizing bibliometric networks. In: Measuring scholarly impact. Springer, Cham, pp 285–320 Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press Van Harten G, Loughlin M (2006) Investment treaty arbitration as a species of global administrative law. Eur J Int Law 17:121–150

Empirically Mapping Investment Arbitration Scholarship: Networks, Authorities,. . .

241

Voon T (2018) Consolidating international investment law: the mega-regionals as a pathway towards multilateral rules. World Trade Rev 17:33–63 Waibel M, Kaushal A, Chung K-H, Balchin C (2010) The backlash against investment arbitration: perceptions and reality. Kluwer Law International Wälde TW (2010) Procedural challenges in investment arbitration under the shadow of the dual role of the state: asymmetries and tribunals’ duty to ensure, pro-actively, the equality of arms. Arbitr Int 26:3–42 White HD, McCain KW (1998) Visualizing a discipline: an author co-citation analysis of information science, 1972–1995. J Am Soc Inf Sci 49:327–355

Niccolò Ridi is Lecturer in Law at the University of Liverpool, Visiting Lecturer in International Investment Law at King’s College London, and Assistant Editor of the Journal of International Dispute Settlement. He holds degrees from the University of Florence, the University of Cambridge, and King’s College London. His work focuses on international dispute settlement and legal reasoning in international law and related areas, as well on the application of empirical methodologies to the study of these issue. Thomas Schultz is Professor of Law at King’s College London, Professor of International Arbitration at the University of Geneva, Visiting Professor of International Law at the Graduate Institute of International and Development Studies in Geneva, Co-Director of the Geneva Center for International Dispute Settlement, and Editor-in-Chief of the Journal of International Dispute Settlement. He has made contributions to the diversification of approaches and a greater opening of the field of dispute settlement to other disciplines. He has received the Jubilee Prize of the Swiss Academy of Humanities and Social Sciences.

Private Counsel and the Proposed Reforms of Investor-State Dispute Settlement (ISDS) Rimdolmsom J. Kabre and Andreas R. Ziegler

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Private Counsel and the ACIL: Complementary or Competition? . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Complementarity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 ACIL and Counsel’s Mission of State Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Counsel Under the Comprehensive Economic and Trade Agreement . . . . . . . . . . . . . . . . . . . . . 3.1 CETA and the Regulation of the Double-Hat Syndrome . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 A Binding Code of Conduct for Arbitrators (and Counsel)? . . . . . . . . . . . . . . . . . . . . . . . . 4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

244 245 247 250 255 256 257 259 260

Abstract This chapter examines the impact that ISDS reforms will have on counsel’s activities. More specifically, it discusses two specific amendments namely the establishment of an Advisory Centre on Investment Law (ACIL) and the elaboration of a code of conduct -using the example of the CETA. On one hand, this chapter tries to demonstrate that counsel may benefit from the establishment of the ACIL notably because it will help them to refocus on assisting litigant states and not representing them. Admittedly, this Advisory Centre may provide legal services to litigant parties in the same fashion counsel do. But, and given the number and the length of investment disputes, such a centre cannot be entrusted with the exclusive management of all those disputes. Rather, we advocate in favour of complementary between them as it has occurred for the World Trade Organization (WTO) with the Advisory Centre of WTO Law (ACWL) and the roster of counsel. On the other hand, most recent investment agreements have tackled the issue of ethics with the inclusion of provisions regulating the double-hatting and the adoption of a code of ethics for arbitrators. Even if these amendments are primarily directed towards arbitrators, they may be indirectly applicable to counsel in some cases as it R. J. Kabre · A. R. Ziegler (*) Center of Comparative, International and European Law, University of Lausanne, Lausanne, Switzerland e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2021, corrected publication 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_14

243

244

R. J. Kabre and A. R. Ziegler

will be discussed. We will conclude with some recommendations regarding the negotiations currently going on at UNCITRAL.

1 Introduction Investor-State Dispute Settlement (ISDS) is currently going through a wide process of reforms that is taking place both at multilateral and at bilateral level. On the multilateral side, the United Nations Commission on International Trade and Law (UNCITRAL) has entrusted its Working Group III with a mandate to work on the possible reform of ISDS. More specifically, the mandate given to this group in 2017 is threefold: first, to identify and consider concerns regarding ISDS; second, to consider whether reform is desirable in light of any identified concerns; and third, if reform is desirable, to develop any relevant solutions to be recommended to the Commission.1 In this sense also, the International Center for the Settlement of Investment Disputes (ICSID) launched the current amendment process in October 2016 with an invitation to states and the public to suggest topics that merit consideration and amendments. After extensive rounds of consultations with Member states and the public, the ICSID Secretariat published its third working paper on proposals for rule amendments on 16 August 2019.2 At the bilateral level, some of the recent Bilateral Investment Treaties (BITs) concluded by states like Brazil, India or the European Union contain innovative aspects and provisions that can be viewed as reforms to the current system of ISDS. In this way, Brazil’s recent BITs, labelled Cooperation and Investment Facilitation Agreements (CIFAs), do not contain ISDS but, rather establish a system combining dispute prevention mechanisms with the creation of institutions to ensure continued communication and foster cooperation, and state-to-state arbitration.3 On the other side of the spectrum, the Comprehensive Economic and Trade Agreement (CETA) concluded between the European Union and Canada establishes a Multilateral Investment Court. These reforms are the response to criticism and concerns voiced against ISDS for several years. The dissatisfaction with the current ISDS regime falls within two broad categories: on one hand, the processes and outcomes of ISDS are criticized because of the cost and the length of the proceedings. Also, the lack of consistency, 1 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-fourth session (Vienna, 27 November–1 December 2017), https://undocs.org/en/ A/CN.9/930/Rev.1 (last accessed 13 January 2020), p. 3. 2 ICSID, Proposals for Amendment of the ICSID Rules—Working Paper # 3, August 2019, https:// icsid.worldbank.org/en/Documents/WP_3_VOLUME_1_ENGLISH.pdf (last accessed 13 January 2020), p. 1. The paper builds on the proposals that were originally published in August 2018 (Working Paper # 1) and March 2019 (Working Paper # 2). 3 Vidigal and Stevens (2018), pp. 475–512.

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

245

coherence, predictability and correctness of arbitral decisions has been underlined. On the other hand, arbitrators and decision-makers are accused of lacking independence and impartiality. Our chapter proposes to analyse some of these reforms from the perspective of the role of the counsel. Prima facie, the roles of counsel4 appear to have been forgotten in these reforms even though they are playing an irreplaceable role in ISDS. However, we think that these reforms will necessarily have an impact on counsel’s activities in the context of ISDS and this chapter aims at assessing such an impact. The question is not whether, but rather to what extent, counsel will be affected by the possible reforms of ISDS. It may seem premature to analyse these amendments as some of them are still being discussed. However, we think it is worth reflecting upon these reforms since some of them have already been put forward and discussed by academics. These innovations are contained in recent investment agreements or have been included in the agenda of intergovernmental organisations such as ICSID or UNCITRAL. Rather than a comprehensive study of all these reforms, the scope of our chapter will be limited to two reforms:5 First, the impact of the establishment of an Advisory Centre on Investment Law (ACIL) on counsel’s activities will be examined (2). This option has been proposed as a reform to the issue of costs and duration of ISDS. Second, the recent provisions of the CETA concerning the ethics of decisions-makers (the code of conduct) will be studied mainly to see how they can be applied to counsel. This seems particularly relevant in relation to the independence and impartiality of arbitrators and decision makers in International investment law, and more specifically ISDS (3).

2 Private Counsel and the ACIL: Complementary or Competition? It is often criticized that ISDS is very expensive (even if some national litigation can also be rather expensive).6 The cost involved in ISDS includes tribunal costs and parties’ costs.7 The big portion of these costs (80–90% and, perhaps, more) is

4 We use the term (private) counsel here for individuals and companies that provide (legal) advice and represent parties to disputes; normally these will be law firms and their staff. They can also be (former) academics or civil servants who are normally paid for their services and act in their private capacity. 5 The reforms we propose to examine are included in the “five initial reform topics identified in the New York session in April 2019” see UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1–5 April 2019), https://undocs.org/en/A/CN.9/970 (last accessed 13 January 2020), p. 15, para. 84. 6 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-fourth session (Vienna, 27 November–1 December 2017), https://undocs.org/en/ A/CN.9/930/Rev.1, (last accessed 13 January 2020), p. 7. 7 One author speaks about “parties own legal costs and tribunal and institutional administrative expenses for conducting the arbitration”, Franck (2019), p. 135.

246

R. J. Kabre and A. R. Ziegler

normally comprised of parties’ legal costs, that is, lawyers and experts’ fees as well as costs incurred for the witnesses. On average, claimant’s legal costs are around six millions USD and the respondent’s legal costs are around five millions USD.8 To reduce these costs, many options are envisaged from the promotion of dispute settlement mechanisms other than arbitration to the replacement of ad hoc arbitrators by full-time judges, third party funding or the establishment of an advisory centre. It is striking to note that while they cover a big portion of ISDS’ costs, very few options actually deal with counsel fees. Among the options proposed and discussed, the establishment of an ACIL may have an impact on counsel’s activities. The goal of such an advisory centre is to “support developing countries and SMEs [small and medium enterprises] in ISDS” by providing them with “legal services and capacitybuilding programmes on ISDS”. This idea is not new and has been already discussed extensively in the literature.9 This option is on the UNCITRAL provisional agenda.10 Recently, the European Union (EU) has envisioned associating an advisory centre to its Multilateral Investment Court (MIC).11 Also, the Columbia Center for Sustainable Investment (CCSI), on behalf of the Ministry of Foreign Affairs of the Netherlands, is preparing a scoping study on securing adequate legal defence in proceedings under international investment agreements and is examining the opportunities and challenges presented by a number of proposed institutional solutions, including but not limited to the establishment of an Advisory Centre on International Investment Law (ACIL). The first and unique advisory centre in international law was established in the context of the WTO in 2001: the Advisory Centre on WTO Law (ACWL). Since this centre has been successful, the idea of transposing its concept into the context of ISDS has been envisaged and tested. American and Asian countries also tried to establish such a centre but all their efforts were not crowned with success.12 Some authors analysed the barriers to be overcome for using this example (ACWL) in ISDS13 or the missions this centre must be entrusted with.14 Less discussed, however, is the potential impact of such a centre on the activities of counsel since both of them will provide legal services to litigant state parties. Some authors suggest that lobbying by private law firms might have discouraged initiatives for the establishment of an ACIL at regional level (Latin America and ASEAN regions). This 8

Langford et al. (2019), p. 7. See, for example, Gottwald (2007), pp. 237–275; Sauvant and Ortino (2013), pp. 119–122; JoubinBret (2015), pp. 1–13; Alisher (2016), pp. 1–3; Schwieder (2018a), pp. 628–666; Schwieder (2018b), pp. 1–3; Sharpe (2019), pp. 1–4; Sauvant (2019), pp. 1–17. 10 See UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), Possible Reform of Investor-State Dispute Settlement (ISDS) Advisory Centre, Note by the Secretariat, https://undocs.org/en/A/CN.9/WG.III/WP.166 (last accessed 14 January 2020), pp. 5–6. 11 Brown (2017), pp. 689–690. 12 Joubin-Bret (2015), pp. 4–7. 13 Alisher (2016), pp. 1–3. 14 ACWL, Report on Operations 2018, https://www.acwl.ch/download/dd/reports_ops/Final_ Report_on_Operations_2018-for-website.pdf (last accessed 14 January 2020), pp. 14, 47. 9

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

247

lobbying may be perceived as a sign of a possible antagonism.15 Another possible sign of antagonism is to found in the submissions to the Working Group where some states think that this centre should act “as counsel when there is a dispute.”16 These signs raise the question of the kind of relationship that might exist between an advisory centre and counsel: complementary or competition? We think that it is necessarily complementarity that should exist between them (Sect. 2.1) and that the ACIL will help counsel to refocus on their mission of assisting states (Sect. 2.2).

2.1

Complementarity

The reasons for this complementarity (and the rejection of competition) are to be found at three levels: Firstly, the ACWL has worked in collaboration with counsel and law firms (Sect. 2.1.1). Secondly, the workload in the field of ISDS is too heavy to be handled only by an ACIL (Sect. 2.1.2). Thirdly, the ACIL will have a limited impact on counsel fees (Sect. 2.1.3).

2.1.1

The Example of the ACWL

To date, the only advisory centre at the international level is the ACWL. Even if this example cannot be fully transposed to investment arbitration given the differences that may exist between the WTO dispute settlement system and ISDS, there are some lessons to be drawn from the example of the ACWL. During its first 10 years of existence, the ACWL has been involved in almost 20% of cases settled at the WTO, that is, in more than 35 cases.17 “If the ACWL itself were a WTO member country, it would be the third most frequent litigant during the period trailing only the US and EU and ahead of China.”18 This means that in the 80% other cases, litigant states have relied mainly on governmental legal expertise or legal advisers from the WTO Secretariat19 but also on law firms specialized in international trade law.20 The fact

15

Alisher (2016), p. 2; Joubin-Bret (2015), p. 9. UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), Possible Reforms of Investor-State dispute settlement, Submission from the Government of Thailand, 8 March 2019, https://undocs.org/en/A/CN.9/WG.III/WP.162 (last accessed 14 January 2020), p. 5. 17 Joubin-Bret (2015), p. 9; Schwieder (2018a), p. 634. 18 Brown and Reynolds (2015), pp. 160. 19 Article 27 al. 2 of Dispute Settlement Understanding (DSU) on rules and procedures governing the settlement of disputes (Annex 2 of the WTO Agreement). 20 It should be recalled that the admission of private lawyers on governmental delegations before WTO DSB in now an established principle, see WTO, Panel Report, European Communities— Regime for the Importation, Sale and Distribution of Bananas, 22 May 1997, WT/DS27/R/GTM; WTO, Appellate Body Report, European Communities—Bananas, 09 September 1997, WT/DS27/ AB/R; WTO, Panel Report, Indonesia—Certain Measures Affecting the Automobile Industry, 16

248

R. J. Kabre and A. R. Ziegler

that only developing and least developed countries (a total of 79 countries) are entitled to have recourse to such the ACWL may also explain this small portion. When the ACWL, i.e. because of a conflict of interest, cannot provide services to a litigant state, it has established, since 2015, a roster of external counsel. This roster, essentially composed of law firms, can intervene in the context of a specific dispute but also for provide general legal advice.21

2.1.2

The Workload in ISDS Is Too Heavy to be Exclusively Handled by an ACIL

If the ACWL has been involved in almost 20% of WTO cases, is it possible for an ACIL to have a bigger portion of cases in the field of ISDS? We would say no given the fact that investment cases are longer, more costly and more important in number in comparison to WTO cases. To date, are known more than 1000 ISDS cases and this number keeps growing at a rapid pace. In addition, the average length of investment treaty arbitration is between 3 and 5 years22 while, according to the WTO DSU time frames, dispute settlement at the WTO is supposed to take 308.5 days until the circulation of the Panel Report and a maximum of 458.5 days until the Appellate Body Report.23 ISDS is also costly: where a typical WTO case costs, on average, about US$ 600,000 to 700,000 an investment arbitration costs more than US$4 million.24 This is equivalent to the ACWL annual budget, which is rising to CHF4.665 million for 2019.25 In our opinion, it will be difficult for a small, permanent institution to be involved in long and costly ISDS cases. Such a centre cannot be entrusted with the management of all ISDS cases. This is particularly true if such an ACIL is supposed

02 July 1998, WT/DS54/R WT/DS55/R WT/DS59/R WT/DS64/R; WTO, Panel Report, Korea— Taxes on Alcoholic Beverages, 17 September 1998, WT/DS75/R WT/DS84/R. This principle is less established in the context of consultations that precede the establishment of a panel, see Statements by the United States at the Meeting of the WTO Dispute Settlement Body Geneva, November 21, 2018, pp. 40–42, to be found at: https://geneva.usmission.gov/wp-content/uploads/ sites/290/Nov21.DSB_.Stmt_.as-deliv.fin_.public.pdf (last accessed 14 January 2020). 21 https://www.acwl.ch/download/dd/reports_ops/Final_Report_on_Operations_2018-for-website. pdf (last accessed 14 January 2020). 22 Many recent studies have investigated the issue of ISDS length: Franck establishes the average length at 3.5 years, see Franck (2019), pp. 122. 124, 126; other authors found that the average length of investment arbitration is 3.73, see Langford et al. (2019), p. 16. 23 In practice, cases vary a lot in length from less than 1 year (see US-Wool Shirts and Blouses) to more than 6 years Australia- Tobacco Plain Packaging (Indonesia). But it is safe to say that ISDS cases are, on average, longer than WTO cases. 24 Franck (2019), pp. 113–140; Langford et al. (2019), pp. 7–8. 25 ACWL, Budget for 2019, Proposal of the Management Board, ACWL/MB/W/2018/6, 05 October 2018, https://www.acwl.ch/download/general_assembly_mmeting_documents/11.12.2018/ ACWL-MB-W-2018-6-Budget-for-2019.pdf (last accessed 14 January 2020).

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

249

to provide services not only to developing countries but also to SMEs as contemplated (at least at this stage still) in the UNCITRAL provisional agenda.

2.1.3

ACIL and Counsel Fees

As already Napoleon Bonaparte said, money is the sinews of war. If the apparent opposition of counsel to the establishment of an ACIL is due to the fear of experiencing a significant lowering of their fees, we think this is not very likely. Will the establishment of an ACIL have any impact on counsel fees? Because of the lack of transparency in the costs assumed by litigant states before the WTO, it is difficult to deepen the analysis as to whether the ACWL has had an impact on legal fees at the WTO. However, it is unlikely that the existence of this centre will ‘directly’ reduce the fees of counsel. As a reminder, these fees are freely fixed. States may have recourse to a restricted or general tender for the recruitment of external counsel.26 Besides, they may hire counsel on a claim-by-claim basis27 or have a continuing retainer with one firm.28 Nevertheless, the ACIL may ‘indirectly’ have an impact on counsel fees by reducing the “time, counsel spend by working on a case. There is a link between cost and duration and if the time spent on a case is reduced, this might probably impact fees counsel charge to litigant states. A recent study shows that longer times to resolve disputes were associated with higher legal costs, and cases resolved more quickly had lower legal costs for state.”29 ACIL may help in that sense since one of its goals is to build the expertise of states’ agents in international investment law and in handling ISDS procedures.

“Documents published on the website of Costa Rica's ministry of finance shed light on how the state chooses external counsel. For each tender, the ministry of foreign trade drew up a list of seven or eight vetted international firms, tallying their successes and failures in other treaty cases on behalf of states and investors. It also supplied an estimate of the value of the contract. Recommended firms were invited to make bids – but the list differed for each case. . . Only four firms put in bids. Allen and Overy’s was the highest, at just under US$2.37 million, followed by Baker Botts at US$1.75 million. Two firms came in below the ministry’s target – White & Case bidding US$1.57 million and Sidley making the winning bid of just under US$1.15 million”, see Parry (2013). 27 “Arrangements for the defence of Ukraine in investment arbitration are determined by the Ministry of Justice of Ukraine on a claim-by-claim basis. Services of internal and/or external counsel may be used for these purposes. The Law of Ukraine “On Public Procurements” No. 922-VIII dated 25 December 2015, which entered into force on 1 April 2016, regulates the public procurement of legal services connected with the representation of Ukraine in international juridical bodies. In particular, the Law stipulates that such services may be procured in accordance with special negotiation procedure (i.e., after negotiations with one or several participants) under the decision of the Cabinet of Ministers of Ukraine or the National Security and Defence Council of Ukraine – or through the two-stage competitive dialogue procedure. General procurement process may also apply” see Droug and Gontar (2018), p. 12. 28 Société Générale de surveillance SA v. Pakistan, ICSID Case No. ARB/01/13, Decision on disqualification of Arbitrator, 19 December 2002, ICSID Reports, Volume 8, p. 398. 29 Franck (2019), p. 136. 26

250

R. J. Kabre and A. R. Ziegler

Reaching this goal may also help in reducing the amount of counsel’s work and, consequently, their fees: a standing agent can help control costs through better allocation of government personnel and resources. Counsel fees generally constitute the bulk of arbitration costs. State lawyers invariably cost less than experienced outside counsel. Much arbitration work can be performed even within those governments that lack significant experience in international investment arbitration. Government lawyers, for instance, may retrieve and review documents; identify and interview potential witnesses; prepare timelines and memoranda on key issues; and research local law. Performing such time-consuming work internally can substantially reduce the State’s litigation costs.30

2.2

ACIL and Counsel’s Mission of State Assistance

This section will start with some remarks on legal representation and assistance in the context of international litigation (Sect. 2.2.1). Then the problems raised by the use of counsel (and other private lawyers) as representatives of litigant states will be examined (Sect. 2.2.2) as well as the benefits counsel may gain from the establishment of an ACIL (Sect. 2.2.3).

2.2.1

Representation and Assistance Before International Courts and Tribunals

In international litigation, there are two major aspects in the representation of litigant states: the representation (properly speaking) and the assistance as e.g. emphasized in the Article 42 of the International Court of Justice (ICJ) Statute.31 In the context of investment arbitration, Rule 18 al. 1 of ICSID Arbitration Rules provides: “(1) Each party may be represented or assisted by agents, counsel or advocates whose names and authority shall be notified by that party to the Secretary-General, who shall promptly inform the Tribunal and the other party.”32 The representative (also called agent) is vested with “full power to bind the government and to take all the decisions necessary in the course of the proceedings” while the assistant does not possess such an authority.33 Actually, the agent’s functions have diplomatic and political implications that go beyond the legal aspects

30

Sharpe (2018), p. 693. Statute of the International Court of Justice, adopted the 26 June 1945, entered into force 24 October 1945; see also Article 53 ITLOS Rules of the Tribunal, as adopted on 28 October 1997 and amended on 15 March 2001, 21 September 2001, 17 March 2009 and 25 September 2018. 32 Rule 18 of ICSID Arbitration Rules; see also Article 5 of UNCITRAL Arbitration Rules adopted in 2013. 33 Rosenne (2006), p. 1133. 31

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

251

in the settlement of a dispute.34 That is why some states have a special department devoted to the defence of their interests in international adjudication. Empirically, states’ agents have generally been designated among civil servants and political figureheads.35 However, many countries do not possess the required expertise at the national level and tend to outsource their representation before international courts to international law firms.36 This is also due to the fact that texts governing proceedings before international courts and tribunals are normally silent on the identity of persons, litigant states may appoint as agents or counsel. The appointment of lawyers, operating in private practice as agents, has been criticized before international courts and tribunals and some of this criticism will be examined in the following section.37

2.2.2

Problems Arising Regarding the Appointment of (External) Counsel

First, the appointment of a counsel as a state agent raises issues of representativeness. By representativeness, we mean the fact to be perceived as a legitimate representative of a litigant states. E.g. in the Norstar case before the International Tribunal for the Law of the Sea (ITLOS), a lawyer, operating in private practice, represented Panama as agent. However, this choice was questioned by Italy on the grounds that such agent “was not vested with powers to negotiate with Italy over the facts of the present case.”38 Italy pretended that this lawyer missed representative powers and authority to act on behalf of Panama while, and according to the latter country, “the Rules of the Tribunal do not prohibit a party being represented by a “private lawyer.” Finally, and according to the Tribunal, “the fact that Mr. Carreyó is a lawyer in private practice, acting as a legal representative of the owner of the M/V “Norstar”, does not imply that Panama is prevented from entrusting him with the 34

Matheson (2002), pp. 467–479; see also Rosenne (1993), pp. 41–68. In comparison, non-state litigants are represented by counsel and advocates, see Article 19 CJEU Statute. 36 “States have traditionally adopted three different approaches to the defence of their interests in ISDS cases. Some States organize their defence through a dedicated in-house team. Other States use a combination of an in-house team working in various degrees of cooperation with outside counsel. The vast majority of States outsource their defence to outside counsel”, UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), Possible Reform of Investor-State Dispute Settlement (ISDS) Advisory Centre, Note by the Secretariat, https://undocs.org/en/A/CN.9/WG.III/ WP.168 (last accessed 16 January 2020), p. 3. 37 See Cot (2002), p. 835; Ziegler and Kabre (2019), pp. 544–565; see also M/V “Louisa” (Saint Vincent and the Grenadines v. Kingdom of Spain), Judgment, Separate Opinion of Judge Cot, ITLOS Reports 2013, p. 114, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_18_ merits/published/C18_Cot_280513.pdf (last accessed 16 January 2020). 38 See M/V “Norstar” (Panama v. Italy), Preliminary Objections, Judgment, ITLOS Reports 2016, p. 19, para. 66. https://www.itlos.org/fileadmin/itlos/documents/cases/case_no.25/Preliminary_ Objections/Judgment/C25_Judgment_04.11.16_orig.pdf (last accessed 16 January 2020). 35

252

R. J. Kabre and A. R. Ziegler

powers to represent Panama.”39 However, the Tribunal added that “for communications sent by a lawyer in private practice on behalf of a State to be opposable to another State, the latter needs to be duly informed of the authority conferred on the lawyer to represent the former State. Therefore, the mere reference in a letter by a private person to the authorization given to that person by the State may not be sufficient.”40 Such an appointment has been described as “unusual” by some members of the Tribunal notably Judge Cot41 and Judge Anderson.42 The latter explained that a private lawyer is not “well placed” to provide information to the Tribunal.43 Maybe, it is worth recalling also the statement of Judge Oda in which he criticised the representative of one litigant state for not being a person holding high office in the represented Government, but rather being a “private lawyer.”44 The second problem is related to the reliability of private counsel. As the link between the tribunal and the represented state, the agent is expected to have high reliability and this requires not only legal expertise but also good knowledge of local realities. When the representative is a private lawyer (most of the time from another country), this reliability may be questionable. In the Grand Prince case (Belize v. France) before ITLOS, the agent appointed by Belize either was unable to provide the tribunal with information45 or provided “incomplete and contradictory information.”46 In another case, it seems that the information provided by the counsel,

M/V “Norstar” (Panama v. Italy), Preliminary Objections, Judgment, ITLOS Reports 2016, p. 25, para. 95, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no.25/Preliminary_Objec tions/Judgment/C25_Judgment_04.11.16_orig.pdf (last accessed 16 January 2020). 40 M/V “Norstar” (Panama v. Italy), Preliminary Objections, Judgment, ITLOS Reports 2016, p. 25, para. 94, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no.25/Preliminary_Objec tions/Judgment/C25_Judgment_04.11.16_orig.pdf (last accessed 16 January 2020). 41 See M/V ‘Norstar’ (Panama v. Italy), Preliminary Objections, Judgement, Declaration of Judge Cot, ITLOS Reports 2016, p. 2, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no.25/ Preliminary_Objections/Judgment/C25_J_041116_decl_Cot_TR.pdf (last accessed 16 January 2020). 42 ‘Grand Prince’ Case (Belize v. France), Prompt Release, Judgment, Separate Opinion of Judge Anderson, 20 April 2001, p. 54, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_8/ published/C8-J-20_apr_01-SO_A.pdf (last accessed 16 January 2020). 43 ‘Grand Prince’ Case (Belize v. France), Prompt Release, Judgment, Separate Opinion of Judge Anderson, 20 April 2001, p. 54, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_8/ published/C8-J-20_apr_01-SO_A.pdf (last accessed 16 January 2020). 44 Armed activities on the territory of the Congo (Democratic Republic of the Congo v. Uganda), Provisional Measures, Order of 1 July 2000, I.C.J. Reports 2000, Declaration of Judge Oda, at 132. 45 ‘Grand Prince’ Case (Belize v. France), Prompt Release, Judgment, Separate Opinion of Judge Anderson, 20 April 2001, p. 54, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_8/ published/C8-J-20_apr_01-SO_A.pdf (last accessed 16 January 2020). 46 ‘Grand Prince’ Case (Belize v. France), Prompt Release, Judgment, Declaration of Judge ad hoc Cot, p. 53, para. 14, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_8/published/ C8-J-20_apr_01-D_C.pdf (last accessed 16 January 2020). 39

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

253

appearing as state agent, were not in line with “the view of the law as it emerges from the decision of the Regional Court of Bissau.”47 The third problem is related to the lack of accountability mechanisms for counsel before international courts and tribunals. This was underlined again by the Judge Cot is his opinion in the Louisa case before ITLOS.48 In this case, the private lawyer appointed as agent by Saint Vincent and the Grenadines used “guerrilla tactics” (notably with the belated production of an important piece of evidence and lies) and tried to mislead the tribunal. However, his behaviours remained unpunished. The Tribunal expressed only regrets.49 For Judge Cot, litigant states, “acting in sovereign fashion, organize their representation and the defence of their interests. They do so at their own risk.”50 We think that the risk is also for the international tribunals and for the international community as a whole, given the consequences a decision tainted with an error may have in the development of international law. The attribution of agents’ conducts to the represented state is a major principle of international law.51 However, and contrary to government agents, private lawyers are not de facto subordinate to the sovereign authority of litigant states and this lack of accountability mechanisms may lead to an “ethical no man’s land” and also be seen as a charge of illegitimacy often voiced against counsel. The various types of criticism described have been made in the context of interstate dispute resolution (especially before ITLOS). What about in the ISDS context? Before arbitral investment tribunals, even if some counsel have appeared as states’ representatives, some authors consider that counsel cannot play the role of agent. For one author “the absence of a government agent may fatally undermines the state’s case.”52 However, we think that the lack of experience of government agents may also undermine a state’s case. In the CDC Group case (ICSID), for example, the Republic of Seychelles’ officials (appearing as agents) have demonstrated their

“Juno Trader” (Saint Vincent and the Grenadines v. Guinea-Bissau), Prompt Release, Judgment, Joint Separate Opinion of Judges Mensah and Wolfrum, ITLOS Reports 2004, p. 59, para. 6, https:// www.itlos.org/fileadmin/itlos/documents/cases/case_no_13/13_judgment_181204_sep_op_ Wolfrum_Mensah_en.pdf (last accessed 16 January 2020). 48 M/V “Louisa” (Saint Vincent and the Grenadines v. Kingdom of Spain), Judgment, Separate Opinion of Judge Cot, ITLOS Reports 2013, p. 114, https://www.itlos.org/fileadmin/itlos/ documents/cases/case_no_18_merits/published/C18_Cot_280513.pdf (last accessed 16 January 2020). 49 M/V “Louisa” (Saint Vincent and the Grenadines v. Kingdom of Spain), Judgment, ITLOS Reports 2013, p. 24, para. 47, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_18_ merits/published/C18_Judgment_280513.pdf (last accessed 16 January 2020). 50 ‘Grand Prince’ Case (Belize v. France), Prompt Release, Judgment, Declaration of Judge ad hoc Cot, p. 53, para. 15, https://www.itlos.org/fileadmin/itlos/documents/cases/case_no_8/published/ C8-J-20_apr_01-D_C.pdf (last accessed 16 January 2020). 51 See, for example the Articles 4 to 6 of the International Law Commission, Responsibility for States for Internationally Wrongful Acts, 2001, https://legal.un.org/ilc/texts/instruments/english/ commentaries/9_6_2001.pdf (last accessed 14 January 2020). 52 Sharpe (2018), p. 680. 47

254

R. J. Kabre and A. R. Ziegler

incompetence to defend their state’s interests, notably with a counter-memorial incorrectly drafted and poor management of witnesses.53 Before arbitral investment tribunals, the major reproach to counsel, assuming the functions of state representative, is to be found at the level of the pleadings by a State. Because of the dual role of states in ISDS,54 many investment tribunals tend to not consider pleadings and statements made by counsel as truly reflecting the position of the represented states. For example, in Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v Argentine Republic, the tribunal found that the argumentation made by the counsel of the Kingdom of Spain in the Maffezini case “does not allow a broader understanding concerning an interpretation shared by the Spanish Government in general pertaining to the application of certain provisions of the BIT.”55 Some authors also think that arguments made by counsel do not necessarily reflect the official position of the state concerned “where a law firm hired to fend off a claim represents the state, it is even less obvious that a particular argument corresponds to the state’s genuine position.”56 Another reproach is the lack of ethical rules for counsel in investment arbitration but things are changing (as we will see further below).

2.2.3

Some Benefits Counsel May Gain from the Establishment of an ACIL

Against this background of reproaches and criticisms, the establishment of an ACIL may help in a better distribution of roles between government agents and external counsel. We think that the proper management of a case requires coordination between local authorities and external counsel and that the full outsourcing of state representation is normally not a viable option. In addition, and when counsels assume their traditional role of state’s assistance, their action is most of the time

53

See CDC Group PLC v. Seychelles, ICSID Case No. ARB/02/14, Award, 17 December 2003, p. 8, http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C219/DC696_En.pdf (last accessed 14 January 2020). 54 Magraw (2015), pp. 142–171; Roberts (2010), p. 179. 55 Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. Argentine, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, p. 14, para. 51, https:// www.italaw.com/sites/default/files/case-documents/italaw1324.pdf (last accessed 14 January 2020). See also Sempra Energy International v. Argentine, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction, 11 May 2005, p. 41, para. 146, http://icsidfiles.worldbank.org/icsid/ ICSIDBLOBS/OnlineAwards/C8/DC509_En.pdf (last accessed 14 January 2020); Enron Corporation and Ponderosa Assets, L.P. v. Argentine, ICSID Case No. ARB/01/3, Decision on Jurisdiction (Ancillary Claim), 02 August 2004, p. 12, para. 39, http://icsidfiles.worldbank.org/icsid/ ICSIDBLOBS/OnlineAwards/C3/DC502_En.pdf (last accessed 14 January 2020). 56 Schreuer (2016), p. 737.

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

255

praised as evidenced in the Yukos case where counsels of both parties were commended for “their high professionalism.”57 In addition, the ACIL will help in building governmental expertise in managing ISDS cases and, consequently, allowing the appointment of governmental agents. Such an appointment may help external counsel to know where to go when they need specific information or whom to contact. This may result in a gain of time and a better coordination between all the actors involved in the representation of the litigant states.

3 Counsel Under the Comprehensive Economic and Trade Agreement Independence and impartiality are the heart of any judiciary system and they are mentioned in almost all the texts creating international courts and tribunals.58 In the context of ISDS, the independence and impartiality of arbitrators have been a major concern. Some of them have been accused of lacking independence and impartiality notably when assuming others’ roles or being engaged in inappropriate contacts with litigant parties. Being aware of this, many states and regional organizations have included in their recent agreements, rules of ethics and codes of conduct for arbitrators. This is particularly true for the EU and this idea has been included in the UNCITRAL reform proposals.59 These recent solutions regarding arbitrators may be applicable also to counsel in, at least, two situations: (1) When the arbitrator, in one case, is also counsel in another case: the double-hat syndrome. (2) When a counsel and an arbitrator come from the same law firm or have other personal or professional links.60 The example of the CETA, concluded between the EU and the Canada and entered into force provisionally on 21 September 2017, will help us identifying rules and their possible application to counsel.

57

PCA case No. AA 227, Yukos Universal Limited (Isle of Man) vs. The Russian Federation, Final award, 18 July 2014, p. 577, para. 1880, https://www.italaw.com/sites/default/files/casedocuments/italaw3279.pdf (last accessed 14 January 2020). 58 See, for example, Articles 2 and 20 ICJ Statute, Article 6 Convention for the Protection of Human Rights and Fundamental Freedoms of the 04 November 1950, Article 40 Rome Statute of the International Criminal Court. 59 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1–5 April 2019), https://undocs.org/en/A/CN.9/970 (last accessed 14 January 2020), p. 15, para. 84; see also Giorgetti and Wahab (2018), pp. 1–13. 60 Pérez (2018), pp. 105–128.

256

3.1

R. J. Kabre and A. R. Ziegler

CETA and the Regulation of the Double-Hat Syndrome

According to article 8.30 CETA entitled “Ethics”: [t]he Members of the Tribunal shall be independent. They shall not be affiliated with any government. They shall not take instructions from any organisation, or government with regard to matters related to the dispute. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest. They shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental rules adopted pursuant to Article 8.44.2. In addition, upon appointment, they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement (emphasis added).

This provision deals with one of the ISDS’ major problems: the double hat phenomenon or dilemma.61 Some authors have empirically measured this phenomenon and found that “a total of 47% of cases (509 in total) involve at least one arbitrator simultaneously acting as legal counsel.”62 Even if a lot has been said on the double-hatting, it is still unclear whether there is a problem of principle for someone to assume two roles (mainly the roles of arbitrator and counsel but also arbitrator and expert or secretary of the tribunal). Nevertheless, at least for an external observer, this confusion of role may seem inappropriate. According to UNCITRAL Working Group III, “the practice posed a number of issues including potential and actual conflict of interest. It was stated that even the appearance of impropriety (for example, suspicion that arbitrators would decide in a manner so as to benefit a party it represented in another dispute) had a negative impact on the perception of legitimacy of ISDS.”63 The relationship between arbitrator and counsel represents the majority of conflicts of interest challenges in ISDS.64 The same person can assume the two functions, either simultaneously (the double-hat phenomenon) or successively; counsel and arbitrators can have professional or personal relationships, notably when they come from the same firm. The solutions found in Article 8:30 CETA have three important consequences: First, this CETA provision expressly prohibits double-hatting by establishing a clear barrier between arbitrators and counsel. This is in line with the ICJ Statute that also establishes incompatibilities between the bench and the bar.65 Even more, the ICJ decided last year that its judges would not participate in ISDS proceedings as

61

See Fach Gómez (2019), pp. 102–115. Langford et al. (2017), p. 6. 63 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-fifth session (New York, 23–27 April 2018), https://undocs.org/en/A/CN.9/935 (last accessed 14 January 2020), p. 12, para. 78. Bernasconi-Osterwalder, Johnson and Marshall (2010), p. 17. 64 Kinnear and Nitschke (2015), p. 53. 65 Article 17 ICJ Statute; see also Article ITLOS Statute. 62

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

257

arbitrators.66 The fact that CETA establishes a permanent court may explain why it has adopted the practice followed by other permanent courts such as the ICJ or ITLOS. However, the possibility to transpose such a rule to ad hoc investment tribunals (in the case of ICSID or UNCITRAL for example) may be questionable or at least difficult. Secondly, the CETA provides a legally binding character to an important (but otherwise soft law) text, the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, as adopted on 23 October 2014 and updated on 10 August 2015. This text was already applicable in ISDS arbitration proceedings but only with prior agreement of litigant parties. Now, such prior agreement is no longer required under CETA. Also, some tribunals have had recourse to it for assessing challenges to arbitrators’ independence and impartiality (where the text was not legally applicable as such). These Guidelines contain two parts: Part I deals with “General Standards Regarding Impartiality, Independence and Disclosure” while Part II focuses on the “Practical Application of the General Standards”. Some general standards are of particular importance for counsel notably General Standards 6 and 7. The former relates to the relationship between arbitrator and their law firms, litigant parties and other parties and the latter is about the duties of the parties and the arbitrator. Of one the most innovative aspects of these Guidelines is the different lists (red, orange, green) it provides to deal with the different conflicts of interests that may appear in the course of the dispute settlement (traffic-light approach). Thirdly, this provision opens the door to the application of other rules “adopted pursuant to Article 8.44.2”. The state: “Paragraph 1 [of Article 8.44] shall not exclude the possibility of dispute settlement under Chapter Twenty-Nine (Dispute Settlement) in respect of a measure of general application even if that measure is alleged to have breached this Agreement as regards a specific investment in respect of which a claim has been submitted pursuant to Article 8.23 and is without prejudice to Article 8.38”. Does this mean that some other texts such as the IBA Rules on the Taking of Evidence in International Arbitration may receive a binding character in the future?

3.2

A Binding Code of Conduct for Arbitrators (and Counsel)?

The CETA contains also its proper code of conduct for arbitrators and mediators (Annex 29B). However, the relevance of this code of conduct is limited by its lack of

66

Speech by H.E. Mr. Abdulqawi A. Yusuf, President of the International Court of Justice, on the occasion of the seventy-third session of the United Nations General Assembly, 25 October 2018, https://www.icj-cij.org/files/press-releases/0/000-20181025-PRE-02-00-EN.pdf (last accessed 14 January 2020), pp. 11–12.

258

R. J. Kabre and A. R. Ziegler

binding character. In fact, the code does not indicate what happens when an arbitrator does not comply with the provisions of the code. In case of arbitrator misconduct, the only option is to demand the replacement of the arbitrator according to Articles 22 and 23 of Rules of Procedure for Arbitration (Annex 29A). Others recent agreements have also included a code of ethics for arbitrators such as the Singapore International Arbitration Centre (SIAC) Code of Ethics for an Arbitrator67 or the Code of Conduct for Investor-State Dispute Settlement under Chapter 9 Section B of the Comprehensive and Progressive Agreement for TransPacific Partnership.68 Such a code was also discussed at the 38th meeting of the UNCITRAL Working Group III, on 14-18 October 2019 at Vienna.69 Recently, Chiara Giorgetti has been appointed as ICSID scholar in residence and her mandate includes, inter alia, the drafting of a Code of Conduct for Arbitrator.70 For a long time, investment arbitration has been described as an ethical no man’s land mainly because of the absence of clear ethical rules for the actors involved in investment arbitration (arbitrators and counsel and others decisions-makers). The adoption of these Codes of Conduct is a step in direction of greater accountability of actors involved in ISDS. Many initiatives have proposed code of conduct for members of international courts and tribunals and also for counsel appearing before them.71 The idea of such a code is also in the table with regard to the negotiations at UNCITRAL with a possibility to extend it to counsel, according to the provisional agenda. We think that this organisation should adopt a bolder approach notably by including, in the discussions, the identity of the disciplinary body in charge of sanctioning counsel misconduct. In our opinion, arbitral tribunals already possess the ‘inherent’ powers to be entrusted with such a mission. What remains to be done is the formal consecration of such a power. In fact, international adjudicative bodies are reluctant to control and sanction counsel notably when the latter appears for a litigant state mainly for political (and not legal) reasons. One observer notes that:

67

http://www.siac.org.sg/our-rules/code-of-ethics-for-an-arbitrator (last accessed 14 January 2020). Annex to CPTPP/COM/2019/D004, https://www.international.gc.ca/trade-commerce/trade-agree ments-accords-commerciaux/agr-acc/cptpp-ptpgp/isds_code_conduct-rdei_code_conduite.aspx? lang¼eng (last accessed 14 January 2020). 69 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-eighth session (Vienna, 14–18 October 2019), https://undocs.org/en/A/CN.9/1004 (last accessed 14 January 2020), pp. 11–15. 70 ICSID News Release, Professor Chiara Giorgetti Joins ICSID as Scholar in Residence, 09 September 2019,https://icsid.worldbank.org/en/Pages/News.aspx?CID¼340 (last accessed 14 January 2020). 71 See, inter alia, The Hague Principles on Ethical Standards for Counsel Appearing Before International Courts and Tribunals, adopted the 27 September 2010 by the Study Group of the ILA on the Practice and Procedure of International Courts and Tribunals, https://www.ucl.ac.uk/ international-courts/sites/international-courts/files/hague_sept2010.pdf (last accessed 14 January 2020) or the IBA Guidelines on Party Representation in International Arbitration, adopted the 25 May 2013, https://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials. aspx (last accessed 14 January 2020). 68

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

259

a public rebuke of counsel also says something distasteful about the State that hired (or employed) the lawyers and thus presumably instructed them on the case and provided the evidence to submit. Preferring to avoid the political costs, the Court may, if pressed to engage in public censure, become imbalanced in its discipline. It may, for instance, find itself more willing to censure private lawyers for misconduct than to censure government attorneys.72

This formal consecration already exists at the level of the EU where the Rules of Procedure allow the Court of Justice to exclude the representatives of litigant parties (including states representatives) in case of misconduct. In this regard, Article 46 states: 1. If the Court considers that the conduct of an agent, adviser or lawyer before the Court is incompatible with the dignity of the Court or with the requirements of the proper administration of justice, or that such agent, adviser or lawyer is using his rights for purposes other than those for which they were granted, it shall inform the person concerned. If the Court informs the competent authorities to whom the person concerned is answerable, a copy of the letter sent to those authorities shall be forwarded to the person concerned. 2. On the same grounds, the Court may at any time, having heard the person concerned and the Advocate General, decide to exclude an agent, adviser or lawyer from the proceedings by reasoned order. That order shall have immediate effect.73

UNCITRAL could also draw on experience from the International Criminal Court (ICC) where there are clear rules for the conduct of counsel notably with the code of professional conduct for counsel.

4 Conclusion The different reforms of the ISDS will necessarily impact the role of counsel and this Chapter aimed at assessing this impact. Rather than a comprehensive analysis of ISDS reforms, our Chapter discussed two important amendments namely the establishment of an ACIL and the provisions of the CETA providing a code of conduct for arbitrators. In our opinion, counsel may benefit from the setting up of an ACIL notably because the latter will help counsel to refocus on assisting litigant states and not representing them. Admittedly, this advisory centre may provide legal services to litigant parties in the same fashion counsels do. But, especially given the number and the length of investment disputes, such a centre cannot be entrusted with the exclusive management of all those disputes. Rather, we advocate in favour of complementary between them as it has occurred at the level of WTO with the ACWL and the roster of counsels.

72

Skinner (2016), p. 297. Rules of Procedure of the Court of Justice of 25 September 2012 (OJ L 265, 29.9.2012), as amended on 18 June 2013 (OJ L 173, 26.6.2013, p. 65), on 19 July 2016 (OJ L 217, 12.8.2016, p. 69) and on 9 April 2019 (OJ L 111, 25.4.2019, p. 73). 73

260

R. J. Kabre and A. R. Ziegler

From the other hand, the CETA tackled the problem of double-hatting and also adopted a code of conduct for arbitrators. Given the relationship between arbitrators and counsel, these provisions may be analysed as an indirect regulation of the role of the counsel. We think that international organisations should adopt a bolder approach with a direct regulation of counsel. In that way, the UNCITRAL Working Group may include, in its next rounds of discussions, the topic related to the identity of the disciplinary body in charge of sanctioning counsel misconduct.

References Alisher U (2016) The case for an advisory center on international investment law. Columbia FDI perspectives, No. 175 https://academiccommons.columbia.edu/doi/10.7916/D8445MNH Bernasconi-Osterwalder N, Johnson L, Marshall F (2010) Arbitrator independence and impartiality: examining the dual role of arbitrator and counsel. International Institute for Sustainable Development, Winnipeg. https://www.iisd.org/pdf/2011/dci_2010_arbitrator_independence.pdf Brown CM (2017) A multilateral mechanism for the settlement of investment disputes, some preliminary sketches. ICSID Rev 32(3):673–690 Brown C, Reynolds K (2015) Trade flows and trade disputes. Rev Int Organ 10(2):145–177 Cot JP (2002) Appearing “for” or “on behalf of” a state: the role of private counsel before international tribunals. In: Nando et al (eds) Liber Amicorum Judge Shigeru Oda, vol II. Kluwer Law International, The Hague, pp 835–847 Droug O, Gontar O (2018) Ukraine. GAR Investment Treaty Arbitration, https:// globalarbitrationreview.com/jurisdiction/1006275/ukraine Fach Gómez K (2019) Key duties of international investment arbitrators. A transnational study of legal and ethical dilemmas. Springer, Cham Franck S (2019) Arbitration costs, myths and realities in international treaty arbitration. Oxford University Press, Oxford Giorgetti C, Wahab M (2018) A code of conduct for arbitrators and judges, Academic Forum on ISDS Concept Paper 2019/12, 13 October 2019, https://www.jus.uio.no/pluricourts/english/ projects/leginvest/academic-forum/papers/papers/giorgetti-wahab-code-of-conduct-af-isdspaper-8-final%2D%2D14-oct-2019-1.pdf Gottwald E (2007) Levelling the playing field: is it time for a legal assistance center for developing nations in investment treaty arbitration? Am Univ Int Law Rev 22:237–275 Joubin-Bret A (2015) Establishing an international advisory centre on investment disputes?. E15Initiative. International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, Geneva, http://e15initiative.org/publications/establishing-an-interna tional-advisory-centre-on-investment-disputes Kinnear M, Nitschke F (2015) Disqualification of arbitrators under the ICSID convention and rules. In: Giorgetti C (ed) Challenges and recusals of judges and arbitrators in international courts and tribunals. Brill/Nijhoff, Leiden, pp 34–79 Langford M, Behn D, Lie H (2017) The ethics and empirics of double hatting. ESIL Reflections 6 (7):1–12 Langford M, Behn D, Létourneau-Tremblay L (2019) Empirical perspectives on investment arbitration: what do we know? Does it matter?. ISDS Academic Forum Working Group 7 Paper, 15 March 2019, https://www.cids.ch/images/Documents/Academic-Forum/7_Empiri cal_perspectives_-_WG7.pdf Magraw K (2015) Investor-State disputes and the rise of recourse to state party pleadings as subsequent agreements or subsequent practice under the Vienna Convention on the Law of Treaties. ICSID Rev 30(1):142–171

Private Counsel and the Proposed Reforms of Investor-State Dispute. . .

261

Matheson MJ (2002) Practical aspects of the agent’s role in cases before the international court. Law Pract Int Courts Tribunals 1:467–479 Parry S (2013) Baker Botts and Sidley pick up Costa Rica cases, Global Arbitration Review, 26 July 2013, https://globalarbitrationreview.com/article/1032528/baker-botts-and-sidley-pick-upcosta-rica-cases Pérez AF (2018) Conflicts of interests of arbitrators in international law firms. Arbitr Int 34 (1):105–128 Roberts A (2010) Power and persuasion in investment treaty interpretation: the dual role of states. Am J Int Law 104(2):179–225 Rosenne S (1993) The agent in litigation in the International Court of Justice. In: Kaplan W, McRae D (eds) Law, policy and international justice: essays in honour of Maxwell Cohen. McGillQueen’s University Press, Montreal, pp 41–68 Rosenne S (2006) The law and the practice of the International Court 1920–2005, vol 3, 4th edn. Martinus Nijhoff Publishers, Leiden Sauvant KP (2019) An advisory centre on international investment law: key features. Academic Forum on ISDS Concept Paper 2019/14, 10 September 2019, https://www.jus.uio.no/ pluricourts/english/projects/leginvest/academic-forum/papers/papers/sauvant-advisory-centerisds-af-14-2019.pdf Sauvant KP, Ortino F (2013) Improving the international investment law and policy regime: options for the future. Ministry for Foreign Affairs of Finland, Helsinki, http://ccsi.columbia.edu/files/ 2014/03/Improving-The-International-Investment-Law-and-Policy-Regime-Options-for-theFuture-Sept-2013.pdf Schreuer C (2016) The development of international law by ICSID tribunals. ICSID Rev 31 (3):728–739 Schwieder RW (2018a) Legal aid and investment treaty disputes: lessons learned from the Advisory Centre on WTO law and investment experiences. J World Invest Trade 19(4):628–666 Schwieder RW (2018b) Lessons for a future advisory center on international investment law. Columbia FDI Perspectives, No. 241, http://ccsi.columbia.edu/files/2018/12/No-241Schwieder-FINAL.pdf Sharpe J (2018) The agent’s indispensable role in international investment arbitration. ICSID Rev 33(3):675–701 Sharpe J (2019) An international investment advisory center: beyond the WTO model. Published on July 26, 2019, Available on https://www.ejiltalk.org/an-international-investment-advisorycenter-beyond-the-wto-model/ Skinner CP (2016) Ethical dilemmas in inter-State disputes. Alabama Law Rev 68(1):281–301 Vidigal G, Stevens B (2018) Brazil’s new model of dispute settlement for investment: return to the past or alternative for the future? J World Invest Trade 19(3):475–512 Ziegler A, Kabre J (2019) The legitimacy of private lawyers representing states before international tribunals. In: Baetens F (ed) Legitimacy of unseen actors in international adjudication. Cambridge University Press, Cambridge, pp 544–565

Rimdolmsom J. Kabre studied law at University of Ouaga II (Burkina Faso) where he obtained LLB and LLM. He further obtained a Master of Law magna cum laude from the University of Lausanne (Switzerland) and recently defended his Ph.D. summa cum laude at the same University. Since February 2020, he has joined the Centre for Human Rights of the University of Pretoria (South Africa) for conducting postdoctoral research in area of international development law and investment law. Andreas R. Ziegler is Professor of International Law at the University of Lausanne. Previously he was a civil servant working for several Swiss Ministries and international organizations. He regularly advises governments, international organizations, NGOs and private clients, and has represented them before various domestic and international courts and arbitral tribunals. He is on the permanent roster of panellists of the WTO and ICSID.

Correction to: Private Actors in International Investment Law Katia Fach Gómez

Correction to: K. Fach Gómez (ed.), Private Actors in International Investment Law, https://doi.org/10.1007/978-3-030-48393-7 This book was inadvertently published with one chapter missing. It has now been included at the end of the book. A paragraph related to the added new chapter has been added to Chapter 1, page 2.

The updated online version of this book can be found at https://doi.org/10.1007/978-3-030-48393-7 © Springer Nature Switzerland AG 2021 K. Fach Gómez (ed.), Private Actors in International Investment Law, European Yearbook of International Economic Law, https://doi.org/10.1007/978-3-030-48393-7_15

C1