For or Against International Arbitration: A Perspective of International Law of Dispute Settlement

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Lady Bracknell is not often relied on as an authority on matters relating to international dispute settlement. Perhaps unjustifiably so; some of the recent debates do bring to mind her remark about end-of-season conversations, ‘when everyone has practically said whatever they had to say, which, in most cases, was probably not much’ (I). ESIL Reflections of Mathias Kumm and Stephan Schill, I hasten to add, do not fall into that category. Even if the readers are not persuaded by their arguments, the precise reason for disagreement is useful for reflecting upon and clarifying one’s own position. I am grateful for the opportunity to offer a few observations of my own, presented from the perspective of international law of dispute settlement.

Kumm and the argument against arbitration

Kumm, it is fair to say, is not a fan of investor-State arbitration. He makes the argument against its inclusion in mega-regional agreements in a forceful, clear, and eloquent manner, which is in many ways appealing. Of course, the cost of making a clear argument about a complicated issue of international law is that pedantic blackletter positivists will (attempt to) side-track the discussion by raising spurious ‘well, yes, but’ objections. Let me illustrate that point with three questions and a coda.

            Empire and remedies

First, Kumm suggests that modern investment protection law continues the approaches of empire, colonialism, and consular jurisdiction. Well, yes. But it does so in a structurally very different way. Empires protected investments by acquiring territorial title (whether in terms of annexation or colonisation) and directly applying their own (home State) law, usually excluding the application of international and host State law. Consular jurisdiction protected investments through international law, excluding the application of domestic law of the host State. In a crucially different manner, modern investment law enmeshes international law and domestic law of the host State. There may be structural echoes of empire in the US internationalisation of its constitutional law (Annex B), or in writings that rely on domestic public law standards of developed home States, whether to defend, nudge, or criticise investment protection law. And a whiff of extraterritoriality is perceptible when international law is pushed to apply to issues properly governed by host State law. But that is plainly not what positive international law on the issue is about.

Secondly, ‘there is … no other situation in international law where a private party can sue a state without showing that the state’s domestic courts are not independent or reliable’. Well, yes, as a general proposition (Arts 14-5). But not a peremptory one: e.g., the Iran-US Claims Tribunal did not require exhaustion of either Iranian or American courts (Art VII(2)); claims about prompt release can be brought directly to the ITLOS (Art 292(2)); and claims about exploration agreements to its Seabed Disputes Chamber (Art 187(c)). And, of course, no exhaustion applies to claims under an arbitral agreement, which can come close enough to international law through application of general principles (or may be directly governed by international law, as per Karavias Chapter 4). Indeed, such contracts may restrict benevolent regulatory instincts at least as comprehensively as ‘proper’ international law.

            Movers and shakers

Thirdly, ‘[d]oes anybody doubt that the pattern of outcomes would differ considerably’ between claims on individual rights decided by national security practitioners and academics, or practitioners and academics with inclinations towards droit l’hommisme? Well, no. Who could doubt that, say, a PCIJ of Anzilotti would differ considerably from a PCIJ of Schücking, or a PCIJ of such academics from that of former legal advisors like Hurst and Fromageux? But the point, surely, is that the PCIJ in the 1930s had all of them (Chapter 7), and the real question is which group(s) dominate(s) the judicial process, numerically as well as intellectually. I hope that I am not misrepresenting Kumm’s argument if I say that, in his view, investment treaty arbitrators are ‘investment experts drawn from large law firms, generally specialized in providing services for MNC´s complemented by academic experts closely aligned with them’, at least partially composed of ‘senior partners of major law firms without additional judicial experience or serious academic reputations’. Is it fair to describe arbitrators as business lawyers without judicial or academic background, and what are the implications?

I cannot compete with the macro-picture painted so elegantly by Puig, and therefore propose to look at an arbitrary and unrepresentative sample of the 5 most recently constituted ICSID Tribunals (by 1 June), checking them against Kumm’s benchmarks. Who are these 15 arbitrators? (A side note: arbitrators may fall under more than one category, boundaries of categories may be blurred, and some arbitrators may be perceived as properly belonging to a single category; in an unapologetically impressionistic manner, I will assign them to the first category to which they seem to me to have a plausible claim.) 5 arbitrators have judicial experience in international or domestic tribunals (Paulsson, Guillaume, El-Kosheri, Edward, and Pryles). ‘Serious academic reputations’ is a slippery criterion, but, if permanent professorial positions suffice, 4 arbitrators would have (had) that (Mayer, Stern, Kaufmann-Kohler, and McRae). What about former public officials and international civil servants? Kumm does not mention them, but the logic of his argument would seem to apply, an additional 4 would qualify then (Joubin-Bret, Legum, Gómez-Pinzón, and Crook). That leaves us with just 2 (non-judicial/professorial/official) practitioners (Gharavi and Malintoppi), leaving aside their academic reputation derived from publications, and possible relevance of international law-related representation of, or nomination by States. If the 10 most recent Tribunals were considered, the list would be increased by 3 judges (van Houtte, Torres Bernández, and Hoffmann), 5 professors (Park, Gaillard, Schill, McLachlan, and Caron), 1 international civil servant (Rigo Sureda), and 3 practitioners (Carlevaris, Thomas, and Townsend). It seems that neither CV-related restrictions of the kind suggested by Kumm nor disapproval of overabundance of head coverings could significantly affect the composition of these Tribunals; drafting lists or building institutions would have been needed for that. (I do not have space here to muse about professional backgrounds and patterns of outcomes but without number-crunching correlation is not obvious: think of authors of narrow and broad definitions of indirect expropriation, or the different ways that gentlemen handle umbrellas, SGS I, II, and III).

Coda: argument against what exactly

Let us call ‘[a] tool for digging, paring, or cutting ground, turf, etc., now usually consisting of a flattish rectangular iron blade socketed on a wooden handle which has a grip or cross-piece at the upper end, the whole being adapted for grasping with both hands while the blade is pressed into the ground with the foot’ what it is: a spade. Kumm’s argument is troubling not because he has spotted a peculiar outlier, but because he is describing the commonplace. International investment arbitration is part and parcel of the contemporary international law of dispute settlement. Cases are often decided by the same judges and arbitrators: if my numbers are right (which they are probably not), that includes 6 current and 13 former ICJ judges, 9 former WTO AB members, a significant number of arbitrators of inter-State cases, and a fair sprinkling of former Strasbourg, Luxembourg, and domestic judges. Counsels are often the same members of barreau invisible, and use the same vocabulary and precedents. Indeed, rules on challenges and amicus curiae may be more enlightened in investment arbitration than elsewhere.

Something being commonplace does not necessarily make it proper: things may be common and (rightly) seem particular (I: II). But it would be useful to be clear about Kumm’s target. Is it just investor-State arbitration, with some distinguishing element that makes otherwise unremarkable practice inappropriate? Or does his challenge necessarily extend to the structure and dynamic of (the system of) international dispute settlement tout court? Perhaps paradoxically, the latter point may have more staying power. Kumm’s criticism of investor-State arbitration will provide an erudite authority to those who already agree with his conclusions, but may be too sweeping to persuade international lawyers who are still making up their minds. The broader argument, however, could contribute to a more interesting debate: is judicialisation of international law unstoppable and a jolly good thing too? Or have we already passed its high-water mark because ‘of an increasing perception that courts and tribunals are not at all well-equipped for dealing with certain kinds of international disputes’?

Schill and the argument for arbitration

Schill argues that international arbitration should be appreciated as part of international adjudication. That is so obviously right that there is a sense of a straw person in his crosshairs. The point that international arbitration is an integral part of international dispute settlement has been made by leading scholars over the last decades (Collier and Lowe, Sands and Mackenzie, Shany, Brown, and Caron come to my mind first); what international lawyer would ever suggest that international arbitration is something alien to, or irrelevant for adjudication? An excessive focus on differences may distract from the systemically more important cross-cutting similarities. It is not a huge exaggeration to say that cases in international arbitration and adjudication are argued and decided by the same people, address the same substantive issues, and struggle with the same procedural challenges. Is adjudication different because it is permanent? Well, yes. But the Iran-US Claims Tribunal, the United Nations Compensation Commission, and the Eritrea-Ethiopia Claims Commission have not been fleeting either. Is arbitration different because of parties’ control over who the adjudicators are? Well, yes. But their influence on the formation of Chambers is not insignificant either. And so on, with every seeming peculiarity replicated elsewhere.

I am not suggesting that structural differences are irrelevant and everything is the same – far from it. But the argument for adding arbitration to adjudication is as much of a red herring as pushing them apart. The better way to approach such challenges is to inquire into the international judicial function that can be fulfilled within the procedural, substantive, and institutional confines of the particular regime. Hernández has brilliantly showed how it should be done in his recent work on the ICJ. International law of dispute settlement should be able to frame such discussions for other purposes as well.

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    Stephan Schill says

    June 9, 2015

    Martins,

    thanks a lot for engaging with my recent ESIL Reflection. Yet, my point in it was not that international arbitration should be appreciated as part of international adjudication. This would indeed be a strawman, as you rightly point out. International arbitration is part of international dispute settlement.

    My point is different, however. I took issue with the fact that many projects that are currently working on a "general theory of international adjudication" largely disregard the role and contribution of international arbitration to such a general theory. Instead, they model a theory of international dispute settlement on permanent courts only. This is problematic, as I try to argue in the ESIL Reflection.

    What we need is a mainstreaming of international arbitration not only in the practice of international dispute settlement, but also in its theory. And that, I feel, is still missing.

    Best wishes, Stephan

    Niccolò Ridi says

    June 9, 2015

    An excellent post, Dr Paparinskis. And, of course, to add fuel to the debate, one might (teasingly) invoke Lady Bracknell again: "Never speak disrespectfully of ISDS, Algernon. Only people who can’t get into it do that".

    Martins Paparinskis says

    June 10, 2015

    Stephan,

    Two points. First, is international arbitration overlooked by scholarship? My point was that it is not – names mentioned in my post were just the first that came to my mind of people writing on systemic issues of international dispute settlement, many of which, I imagine, would count as ‘theory’. There is scope for reasonable disagreement about how widespread overlooking needs to be for it to be problematic – all that I am saying is that we are not in that situation because many of the leading scholars of international dispute settlement are directly engaging with arbitration. Secondly, should we mainstream international arbitration into theory of international dispute settlement? I am not saying that we should not -- my point is rather that in international law arbitration is so deeply enmeshed with adjudication that there may be better ways to pose the question than in terms of addition/exclusion. A cross-cutting perspective is preferable, such as international judicial function.

    Niccolo,

    One might read Emmanuel Gaillard’s Freshfields Lecture as a recent scholarly engagement with just that question, http://dx.doi.org/10.1093/arbint/aiv021.

    Harry O'neal says

    June 17, 2015

    Thank you Dr. Paparinskis. This is a very interesting contribution to a very relevant debate. Though I do share the ‘positivist’ perspective and the “yes but” approach of argumentation, I would respectfully suggest that there are some arguments raised by Kumm to which the “yes but approach” seems to be an unnecessary concession and, that the most important “yes but”-argument/question needs to be asked: “yes, but what is the alternative?”
    First, it seems that Kumm assumes that the entire institution of ISDS, in and of itself, is tempered with bias, which is the tribunals’ bias and “favoritism of investors”. Kumm, unlike many other critiques of ISDS is at least “bothered with facts” and concedes that one cannot argue that Investors will always (or even mostly) win in ISDS (and a review of the recent UNCTAD Report will do here). His argument, it seems, is far more difficult, as his assumption is that most, if not all, claims brought by investors are frivolous, baseless, and would have been rejected entirely, had the matter been dealt with by a different adjudication system (domestic courts or “Investment Court”). Otherwise, it is very difficult to understand the contention that: ‘Furthermore the fact that only 40 to 50% of the cases brought by investors against states lead to (at least partial) victories for the private investor is hardly evidence against bias. Is there any other procedure where private actors have anything close to a 40-50% success rate going up against public authorities before an impartial and independent tribunal in first instance?’
    This argument is either suggestive of the fact that investors’ claims are unfounded as a matter of principle, or ISDS is the only institution where such “nonsense” could be heard or, worse, suggestive that in lieu of the “investors’ favoritism” a “state favoritism” should apply, where under the latter 0% of the cases will be won by investors (which is perhaps the “proper percentage” of victories Kumm wished to see). Either way, it seems that the underpinning logic of such an argument cannot be agreed with. It is in this framework (or rather subsequently) that Kumm raises the argument addressed as “The Movers and Shakers”.
    Second, and as to the empire argument made by Kumm, I completely agree with the response. I would only suggest that it is not a “yes but” response but a “not at all” one: ‘Kumm suggests that modern investment protection law continues the approaches of empire, colonialism, and consular jurisdiction.’ Well, no, it does so in an inherently different way’.
    One may not disregard the fact that as part of the “investment bargain”, whereby host states are willing to agree to the direct recourse to int’ tribunals granted to investors, they condition this with the absolute restriction of the home state’s ability to intervene in such disputes/relations (in a manner even more restrictive than art.27(1),ICSID Convention). In such cases, where the home state is arguably precluded altogether from even sending emails to the host state, and there are some hundreds of these provisions in BITs, Regional Agreements, and Model BITs (of developed and developing countries) - it is very difficult to draw an analogy to ‘the tradition of colonialism: “Extraterritoriality” or “consular jurisdiction”’, as such an option is ipso facto negated as part of the same bargain. More generally, the actual cases where the Home State intervened in investment disputes (by any of the 3 ways suggested by A. Roberts) are marginal in the recent decade. Where this is the process, it is seems inherently (and not only structurally) inaccurate to use terms of “colonialism”. This seems to be an important remark, as arguably, what Kumm is (most) troubled with is the fact that it is an individual who is suing a state. However, were the home state to intervene and exercise diplomatic protection, for instance, thus making the “ball game equal”, Kumm would (probably) rely on the “colonialism argument” to object. Seemingly, one cannot have it both ways.
    More so, and regardless of that, the actual law applied, by ISDS tribunals is often that of the home state (in Umbrella Clauses or consent via legislation), it is never, however, the law of the home state. And indeed it is sometimes the law of the host state that will serve as basis to reject the claim. This aspect is completely ignored by Kumm who argues that: ‘Investors and the professional class of those that serve them increasingly create for themselves a special law that insulates them from the ordinary conditions of democratic politics’. This is perhaps another reason to disagree with the argument inherently.
    Third, it seems that Kumm is trying to bring the rationale of direct recourse to ISDS to some absurd: ‘The basic idea was that you could not trust “barbarian” states and you could not plausibly tolerate that your nationals would be subject to their jurisdiction’ – this argument too cannot be conceded to, more so – there is little absurd to it.
    First, perhaps the original underlining logic of BITs was (slightly) chauvinistic in essence, yet it seems that the system did positively affect the domestic judicial/legislative process of some host states, according to their own testimony (Mexico after joining NAFTA and Sudan after amending its internal legislation to allow for investment arbitration, for instance). Second, unfortunately reality has it that there were several instances where direct recourse of a foreign investor to ISDS, as opposed to domestic courts, was beneficial for the host state, as the courts were in fact taking bribe and were in fact biased (Kenya for example). Third, Kumm is very careful to phrase his argument in terms of “bias”: ‘Not surprisingly, those who lobby for the ISDS provisions in CETA and TTIP are unable to come up with any plausible examples of judicial bias that might indicate that there is in fact a problem that an ISDS mechanism needs to remedy.’ However, it is not the “bias” of developed domestic courts that one may be required to point to in order to justify ISDS, but it is the element of choice and consent which, in large, relies on the element of efficiency. One must be careful and minded of the fact that the calls of an EU Investment Court are put forward alongside substantial criticism of the EU Instruments and their practical results. Albeit Brussels- I Regulations (which meanwhile became “Brussels- I Recast”, and the second Recast is already contemplated) stipulates in its recitals that all courts of the Member States are equal, they are not in fact. The infamous nickname “the Italian Torpedo” granted to the practice of some EU courts, and the reasons that have led to the creation of this phenomenon are highly indicative of the fact that not all domestic courts of developed states (even in the EU) are equal (at least efficiency-wise). Moreover, EU’s efforts to deal with the challenges created by this lack of efficiency in the mentioned Recast are further supportive of that.
    So no, ISDS proponents do not need to indicate that there is bias that ISDS cures, but that there is substantial need for efficiency and availability of tribunals, that ISDS cures, and that not all domestic courts (let alone permanent international tribunals) provide. This somewhat relates to the "judicial function" argument.
    Finally, it is rather reasonable to assume that the application of the international law of foreign investment by domestic courts may be unsatisfactory in process and result (and not necessarily in courts of developing states). This is based first, on the already existing practice of domestic courts struggling with recognition and enforcement of ICSID awards, and second, an interesting lesson may be learned from the way domestic courts and “unspecialized tribunals” have applied IHL (and criticized thereof). So yes, the outcome will change with a different group of adjudicators dealing with an investment dispute, but not because of “bias”, and not necessarily for the batter.

    Finally, the most interesting “yes but”, is the “yes but what is the alternative”. This is of course not to say that ISDS does not require any improvements (it does), nonetheless, it is perhaps no coincidence that barely a handful of the criticisms of ISDS actually offer a better particle and feasible solution, and as for those who do – they offer no practical suggestion to the implementation of such. Sometimes there is more to what is not said than to what is, and this is perhaps the strongest "yes but argument".

    I must say that the debates between you and Prof. Schill make Ejil:talk a far more interesting site to visit.
    Thank you for a very interesting analysis.

    With best wishes,