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The Public Law Paradigm in International Investment Law

Published on December 3, 2013        Author: 

In my last post, I discussed the virtues of investor-State arbitration and suggested that this dispute settlement system could react to current criticism by reconceptualizing the system from within. To succeed, a reconceptualized system would have to provide an accountability mechanism to implement the rule of law that produces results similar to those of other accountability mechanisms for the control of government authority, whether at the national or the international level. Thinking of investor-State arbitration as a mechanism that is similar to judicial review, and adopting the methods and results of such mechanisms, in my view, is the key to reforming international investment law. This means appreciating international investment law as a public law discipline and an instrument of global governance.

Prevailing Mindsets in Investment Treaty Arbitration

Yet, in practice the view prevails that investor-State arbitration is primarily a mechanism to settle individual legal disputes. In fact, lawyers with either a commercial arbitration or a public international law background –the two approaches that most actively shape international investment law and arbitration at present – stress such a limited function of arbitration, while having divergent views on what the rule of law may mean in this context. Those coming from commercial arbitration tend to stress the private nature of dispute settlement; for them the rule of law means faithfulness to party consent, party autonomy, and sanctity of contracts. Public international lawyers, by contrast, tend to emphasize the embeddedness of investment treaty arbitration in a public world order that imposes constraints on State conduct under international law. Their idea of the rule of law is connected more strongly to the idea of limiting the exercise of public authority by procedural and substantive conditions, but their thinking often remains grounded in an inter-State context.

Responding to the Public Law Challenge

Yet, neither a pure international law understanding nor a pure commercial law understanding of investor-State arbitration appears sufficient in itself to comprehend the specific characteristics of international investment law and the challenges the system faces. These challenges, I submit, stem from a disconnect between a broadly held view of the role of investor-State arbitration, on the one hand, and the details of its actual functioning, on the other. It is widely expected that investor-State arbitration should fulfill a role similar to that of judicial review under domestic administrative and constitutional law, subjecting host State public authority to an understanding of the rule of law that focuses chiefly on restrictions in the relations between public and private actors. However, arbitral review of public authority as actually implemented does not conform to public law standards. Specifically, the requirement that the reviewing powers themselves meet public law standards of the rule of law and democracy is absent. Neither commercial arbitration nor public international law approaches can grasp these challenges adequately because they do not sufficiently capture the public law nature of international investment law.

Differences Between Investment Treaty Arbitration and Public International Law

On the one hand, international investment law differs from traditional public international law in relation to its function. Although customary international law contained rules concerning the protection of foreign investment as part of the international minimum standard, it remained a law governing the relations between States. Modern investment law, by contrast, is characterized by the investor’s right to initiate arbitration directly against host States based on the States’ prospective and generalized consent to arbitrate any matter under the governing treaty. This transforms international investment law from a subordinately applicable body of inter-State law into a legal framework governing investor-State relations directly.

Differences Between Investment Treaty Arbitration and Commercial Arbitration

On the other hand, even though it relies on procedural rules that are essentially the same as those made for arbitrations between private parties, investor-State arbitration differs from typical commercial arbitration. Investor-State arbitrations regularly involve public law disputes about the scope and limits of host State regulatory powers, including, for example, disputes concerning limits of emergency powers, regulatory oversight over public utility companies, control of harmful substances, the protection of cultural property, or the implementation of non-discrimination policies. In addition, jurisdiction in many investor-State arbitrations is not based on contract, but on a unilateral, generalized and prospective offer to arbitrate, which any covered investor can invoke. This makes investment treaty arbitration into an adjudicatory process for resolving investor-State disputes that involves predetermined rules of procedure and substance, much like when a State submits to the jurisdiction of an international human rights court or to administrative or constitutional judicial review at the domestic level.

The Importance of Law-Making by Arbitral Tribunals

Differences with commercial arbitration are also striking as regards the impact of investor-State arbitration on non-parties. While the function of commercial arbitration is limited to settling individual disputes, investor-State arbitration functions as a governance mechanism that influences the behavior of investors and States more generally. This is because tribunals effectively interpret and concretize treaty-based overarching standards of investment protection with prospective effects on non-parties. Investor-State tribunals thereby become significant law-makers, principally by creating arbitral precedent. Because investment awards, unlike their commercial arbitration counterparts, regularly become public, they develop into focal points that are invoked by counsel and used in the reasoning of arbitrators. This discursive process generates normative expectations about how investment disputes should be resolved in the future based on how they have been resolved in the past. Significantly, the process of generating normative expectations takes place largely independently of whether earlier awards concerned the same or a different investment treaty. Furthermore, tribunals have a deeply rooted perception of the need for consistency, and perceive their own mission as involving the development of a coherent system of international investment protection and a jurisprudence constante. The Tribunal in Saipem v. Bangladesh even expressed the belief “that, subject to compelling contrary grounds, tribunals have a duty to adopt solutions established in a series of consistent cases” (para. 67).

International Investment Law as International Public Law

Because of the differences between international investment law and traditional public international law, on the one hand, and commercial arbitration, on the other, analogies with both systems, while certainly not excluded, have to be treated with caution. Instead, in view of the prospective consent to submit to arbitration by host States for the benefit of private actors and the subject matter at play, i.e., determining the conformity of government conduct with objective and predetermined international standards of treatment, investor-State arbitration is better analogized with judicial review of governmental conduct under administrative (or constitutional) law at the domestic level or international judicial review, such as international human rights adjudication, WTO dispute settlement, or recourse to supranational courts in regional integration projects, to which investor-State arbitration is functionally equivalent. International investment law is therefore a form of international public law.

Investment Treaty Arbitration as Public Law Adjudication

Yet, the way investor-State arbitration is practiced does not always align with the public law values of equality, predictability, transparency, and democratic control of decision-making. That is where the legitimacy concerns with investor-State arbitration ultimately stem from. Still, as a response to these concerns, I propose to re-conceptualize investment law within the structures of the existing system of investor-State arbitration, that is, to view international investment law as a public law discipline, and consequently to bring public law thinking into investor-State arbitration in order for the system to function more like the type of public law adjudication familiar from domestic and other international contexts. Certainly, one could argue that public law adjudication requires a certain adjudicatory structure, such as the presence of an appeals mechanism and permanent courts with tenured judges; yet, this disregards that arbitration is not an infrequent mode of settling disputes between public law bodies and private actors also at the purely domestic level, and is obviously accepted under the constitutional provisions of the legal systems involved. In Lithgow, the European Court of Human Rights (ECtHR) even considered that Member States can fulfil their obligation to grant access to justice under Article 6(1) of the European Convention by consenting to arbitration (para. 201).

Towards a Comparative Public Law Approach

Thus, instead of changing and restricting the institution of investor-State arbitration in order to align it more with public law values, that same goal can be achieved by bringing public law thinking into the existing structures of investor-State arbitration. This requires working on counsel and arbitrators to perceive of themselves as being engaged in a process of public law adjudication that requires them to act in accordance with the expectations connected to such a role, most importantly to live up to the values of public law that fuel the criticism of investment law as privatizing global governance. As I will argue in my next post, such a re-conceptualization requires a broad comparative law approach to the legal issues at stake in investment treaty arbitration.

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One Response

  1. Dear Stephan,

    My view is that investment treaties most fundamentally contain a bargain between States – between governments as representatives of their populations. States entering into investment treaties have determined that their economies, and their ‘publics’ overall, stand to gain from this. If you like, this is an inter-public bargain, to adopt Benedict Kingsbury’s term.

    Therefore I agree that investment treaty arbitration is highly adjudicatory, but not that it is above all a process for resolving investor-State disputes. It is a process that, as it resolves these disputes, gives flesh to the inter-State bargain. It is a process that identifies the balance of interests between States represented in the applicable treaty. I’d submit that while investment treaty arbitration may in certain respects bear analogy with public law, and there may be much to be gained from viewing it in this way, it is vital not to lose sight of its public international law character.

    Viewing investment treaty arbitration as public law suggests a kind of international constitutional integration that cannot be imposed in a top-down process. The question of the actual status of investors and the nature and character of their rights is complex, and I think it is premature to suggest that they have treaty-derived rights akin to those of private citizens in the context of review. The ramifications are also potentially considerable and this is an important subject on which to “look before we leap”.

    My underlying concern is that a purist public law approach could constitute a break in the legal order, if you like a revolution imposed by intellectual persuasion, that could “pull the constitutional rug” from under the feet of investment treaty law. This would be unfortunate when the stated aim is to improve rule of law and accountability.

    The public law approach is an important one, because it claims the domain of investment treaty arbitration as “public”. However my suggestion would be to proceed on the basis that it may be constructive to understand investment treaty arbitration as potentially analogous with public law review rather than actually constituting such review.

    I will be publishing a series of articles connecting with this subject in the next months, and hope to post them on the SSRN for comment beforehand. In the interim, I have made an initial contribution in Foster, Caroline E. “Adjudication, Arbitration and the Turn to Public Law ‘Standards of Review’: Putting the Precautionary Principle in the Crucible” [2012] (3) Journal of International Dispute Settlement, 525 available at I also draw attention to the piece by Valentina Vadi and Lukasz Gruszczynski on “Standards of Review in International Investment Law and Arbitration: Multilevel Governance and the Commonweal” [2013] 16(3) Journal of International Economic Law 613, available at This piece makes the point that the concept of standard of review is essentially a rhetorical and political one. The concept may be influential and may be useful, but lacks direct legal force and needs careful consideration.

    I think we are probably agreed that ‘worldviews’ of investment treaty arbitration may overlap – see Anthea Roberts. I think we might also be agreed that how they do and should be regarded as overlapping is important to investigate further?

    Kind regards,