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Responding to Incorrect ISDS Decision-Making: Policy Options

Published on April 5, 2019        Author: 
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Editors’ Note:  This is the latest post in our ongoing series of posts (see introduction here, first post on costs here, second post on duration of proceedings here, third post on the diversity deficit in investment arbitration here, fourth post on the impartiality and independence of arbitrators here, fifth post on an empirical assessment of ISDS here) authored by individual members of the Academic Forum of the UNCITRAL Working Group III (UN WG III) on Investor-State Dispute Settlement Reform, in parallel with the ongoing UN WG III sessions taking place this week in New York.  The series features summaries of more detailed concept papers prepared by various working groups of the Academic Forum.  This post summarizes a more detailed concept paper prepared by members of Academic Forum Working Group 4 (members Daniel Behn, Chi Manjiao, Eric De Brabandere, Anna De Luca, Jaemin Lee, Martins Paparinskis, Catharine Titi).

In UNCITRAL Working Group IIIdiscussions, concerns have been raised about the consistency, as well as the correctness, of investor-State dispute settlement (ISDS) decisions. Consistency and correctness are distinct concepts: inconsistent ISDS decisions can be correct, and consistent ISDS decisions can be incorrect. Developing potential policy responses to incorrect ISDS decision-making first requires an understanding of how achieving correctness requires more than achieving consistency.

Working Group Four of the Academic Forum on ISDS has prepared a report analyzing the “correctness” of ISDS decision-making. That analysis balances two competing considerations. First, the legal reasoning and outcomes of many ISDS decisions have faced significant criticism from a range of actors – including States, organizations, and scholars– which has raised questions of correctness and, more generally, the substantive legitimacy of the ISDS regime. Second, criticism of particular ISDS decisions, even when widespread and intense, does not necessarily establish the incorrectness of those decisions, due to a number of factors, including how investment treaty obligations are drafted (often in open-textured terms) and interpreted (where, under principles of treaty interpretation reflected in the Vienna Convention on the Law of Treaties, factors beyond the ordinary meaning of treaty text must be considered). Particularly with respect to disapproval of ISDS decisions by States, such disapproval might, in some instances, reflect State views that the decisions were incorrectly decided, but in other instances might only reflect a perceived need by States to provide clearer policy guidance to ISDS tribunals.

Identifying ‘Correct Law’ in ISDS

Given the two competing considerations outlined above, the report develops policy options aimed not only at the avoidance of incorrect ISDS decision-making but also, more expansively, the achievement of correct ISDS decision-making, which is composed of two core elements: the correct identification and precise application of applicable law.

Identifying the correct law in ISDS cases can be challenging, particularly given that applicable law under international investment agreements normally includes international law rules that are incorporated into each treaty from external sources. For example, the issue of whether a particular investment treaty provision displaces otherwise applicable rules of customary international law has arisen in many ISDS cases. Clearer policy guidance from States, together with support from a range of actors on the use of traditional techniques of legal reasoning for addressing questions of public international law – such as adherence to principles of treaty interpretation under the Vienna Convention and the need to consider customary international law elements of State practice and opinio juris– can support the identification of the correct law in ISDS cases.

Applicable law in ISDS cases also can be misapplied in different ways, including by interpretations that (i) are excessively broad or narrow, (ii) lack support in treaty text, (iii) are unworkable as a practical matter, or (iv) reflect insufficient diligence and attention to detail. Particularly in the context of investment treaties, of central importance for the precise application of law is adherence to Vienna Convention treaty interpretation principles. Diligent application of Vienna Convention principles can protect against excessively broad or narrow, unworkable, or unsupported interpretations of investment treaty provisions. Diligent application of the customary international law elements of State practice and opinio juris can play a similar role.In addition, States, through policy guidance, can support the precise application of law by clarifying, among other issues, the scope and content of substantive obligations.

In the report, policy options aimed at supporting correct ISDS decision-making are analyzed under four alternative reform scenarios: (i) investment arbitration (IA) “improved,” (ii) IA plus some form of appellate mechanism (IA + appeal), (iii) a multilateral investment court (MIC), and (iv) no ISDS. The report’s conclusions with respect to each reform scenario are summarized below.

IA Improved

Correct ISDS decision-making can be supported by a range of actors, without the introduction of significantly greater levels of institutionalization:

  • State practice (including the development of treaty text, interpretive documents during treaty negotiations, non-disputing Party submissions, and joint interpretations)
  • Practice of arbitral institutions (including the possibility of greater involvement in the process of drafting of decisions)
  • Practice of arbitrators (in particular with respect to demonstrated competence in public international law)
  • Non-disputing party practice (participation as amici curiaein particular disputes)
  • Practice of international organizations (in particular by providing a forum for discussion of, and substantive guidance on, the correct identification and precise application of law)

IA + Appeal

Institutionalization, including the development of one or more appellate mechanisms, likely would lead to at least some advances in finality, predictability, and coherence in ISDS decision-making. But the extent to which the development of one or more appellate mechanisms also would lead to advances in correctness is less clear. With respect to the appellate mechanism/correctness relationship, one key factor would be the extent to which appellate-level decision-makers have public international law expertise. Correctness also could be supported by incorporating some or all of the mechanisms outlined in the IA improved section above, which could be considered alongside greater levels of institutionalization.  

MIC

Introducing greater levels of institutionalization through the development of some form of MIC (which could, but need not, retain some elements of the existing ad hocregime) likely would lead to at least some advances in finality, predictability, and coherence in ISDS decision-making. But the extent to which the development of an MIC also would lead to advances in correctness is less clear. With respect to the MIC/correctness relationship, one key factor would be the extent to which MIC decision-makers have public international law expertise. Correctness also could be supported by incorporating some or all of the mechanisms outlined in the IA improved section above, which could be considered alongside greater levels of institutionalization.

No ISDS

Eliminating ISDS would ‘resolve’ incorrectness concerns only in the sense that investment treaty obligations would no longer be applied by ISDS tribunals. Shifting application of investment treaty obligations from ISDS tribunals to domestic courts and/or inter-State tribunals would not, on its own, address concerns arising from incorrect decision-making in the field of international investment law.

Conclusion

As outlined above, a range of policy options are available to support the correct identification and precise application of applicable law by ISDS tribunals. Such support for correct ISDS decision-making could be provided with, or without, the introduction of greater levels of institutionalization, whether in the form of one or more appellate mechanisms or an MIC. Regardless of the particular level of institutionalization, one factor of central importance for correct ISDS decision-making would be decision-maker expertise in public international law.

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