The Diversity Deficit in Investment Arbitration

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) from 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 morning’s post summarizes the concept paper for Academic Forum Working Group 5 (members are Andrea Kay Bjorklund, Susan Franck, Chiara Giorgetti, Won Kidane, Arnaud de Nanteuil, Emilia Onyema).

The lack of diversity among adjudicators is particularly notable in international investment law, where a recent study finds that only two of the 25 most influential arbitrators are women, 22 are from either North America or Europe (of the other three one is from New Zealand, one was from Chile but made his home in London, and the third is from Costa Rica). In one study focusing on both commercial and international arbitrators, Professor Franck and her co-authors mapped diversity according to six factors: gender, nationality, age, linguistic capacity, legal training, and professional experiences. They concluded that the ‘median international arbitrator was a fifty-three year-old man who was a national of a developed state and had served as arbitrator in ten arbitration cases.’

Reasons to Prioritize Diversity

 This diversity deficit is troubling.  Ensuring that decision-making bodies are inclusive and that decision-makers represent diverse constituencies serves multiple purposes.  Social science literature shows that diverse decisionmakers are more likely to avoid cognitive biases and group-think in decision making. One or more decision-makers might have the cultural knowledge to understand the dispute in context.  The decision-making process is likely to be, and to be perceived, as fairer if the decision makers are more diverse.  This latter factor in particular is likely to enhance the sociological legitimacy of an adjudicatory regime, and even its normative legitimacy. 

Variations in Diversity

Diversity can be conceptualized around multiple factors. Above we mentioned gender and regional representation, yet these are only two features, and the latter in particular needs to be disaggregated as it (1) is often a proxy for multiple considerations such as presumed political ideological alignment, educational and other formative experience, and experience with and expectations of governmental authority and (2) is too broad, as it presumes that people within a region share the same experience whereas the regions into which people are often placed are quite diverse.  Nationality, ethnicity, race, educational attainment and experience, legal training (common and/or civil law expertise, Islamic law expertise, etc.), age, work experience (government, private sector, or both of these), social and economic class, development status of the arbitrator’s home state, repeat appointments by either investors or host states, religion, and language proficiency are other factors that can contribute to inclusivity in decision-making. 

The Current Diversity Deficit

A recent study by PluriCourts researchers (including a sample period up to 2017) covering arbitrators in ICSID as well as non-ICSID cases found that 11% of arbitrators were female. Yet two women – Kaufmann-Kohler and Stern – account for 57% of all appointments given to female arbitrators.

In addition, investment arbitration is dominated by arbitrators from Western states.  Through 1 August, 2018, only 35% of 695 individual arbitrators who have sat in at least one investment case were from non-Western states (as non-Western is defined by the United Nations). Non-Western arbitrators are predominantly appointed by respondent states or by institutions. Even these numbers might be a bit misleading, however, in that most international arbitrators have elite educational backgrounds.  Waibel and Wu looked at presiding arbitrators and found that 90% of them have received their higher education in OECD countries.  In other words, even arbitrators from the Global South have likely spent a significant amount of time in the Global North.

Reasons for the Lack of Diversity

Another key feature related to diversity is the prior-experience norm:  the practice of disputing parties to re-appoint arbitrators raises a barrier to entry.  More than 700 arbitrators have been appointed in investment arbitrations, yet the same arbitrators tend to be re-appointed multiple times, while many are never re-appointed.   The PluriCourts Investment Treaty Arbitration Database (PITAD) shows that of the 716 arbitrators who have sat in at least one investment arbitration case, 377 arbitrators have received only one appointment. The 50 arbitrators who have received the most appointments in investment arbitration cases account for 1710 appointments, which is nearly 50% of all the appointments on offer to date (data on appointments up through 1 January 2019).

The appointment process tends to perpetuate a lack of diversity, as each party tends to appoint an arbitrator perceived as influential and experienced.  Moreover, because these appointments happen on a case-by-case basis, no one is working systemically to broaden the pool.  Institutions have some opportunity to influence the composition of various arbitral tribunals, but their reach is limited.  For example, ICSID makes only about 40% of arbitral appointments in ICSID-administered cases p. (of 1453 total appointments, ICSID appointed 589)

A failure in the ‘pipeline’ is sometimes mooted as a reason for the lack of diversity in arbitrators.  If one looks at the pipeline in terms of gender, this argument does not pass muster.  There is no shortage of women working in the field of investment arbitration. According to a study mapping all known actors involved in investment arbitration in different roles, while the percentage of women receiving appointments in investment cases is relatively low (10%), the overall number of women working in investment arbitration (as either arbitrators, experts, counsel or tribunal secretaries) is significantly greater (approximately 30%). 

Ways to Improve Diversity in Decision-makers

Improving diversity and inclusiveness in the international adjudicative setting requires sustained commitment by states.  This is true for all of the major reform options, including amendments to existing ISDS practice, the possibility of adding an appellate body, the possibility of creating a multilateral investment court (MIC), or jettisoning investment arbitration altogether. The latter – no ISDS – would have as one possibility decision-making by national courts, which would place responsibility for diversity squarely in the hands of that state and outside the realm of influence of international investment law. 

As reform scenarios are considered, one should keep in mind that the greater the number of possible adjudicators the easier it is, at least in theory, to create an inclusive and diverse set of decision-makers.  The smaller the number of individuals the greater the challenge.  Creating a standing panel of arbitrators offers an opportunity to craft a diverse cohort, but successful doing so will take time and attention.  It will also take agreement on what kinds of diversity to emphasize. 

If states are appointing decision makers to an investment court, what criteria should they consider in making those appointments?  To the extent that diversity helps to foster representativeness, how can a multilateral court with dozens of members ensure sufficient diversity among its members?

Improving Diversity in ISDS+ Scenarios

From both the statistics and the structural issues relating to a system based on party-appointed adjudicators, it is relatively obvious that parties themselves are unlikely to increase either gender or nationality-based diversity on their own.  Small amendments to the current system could nonetheless help to enhance diversity.  Any progress is, however, likely to be only incrementally achieved given the large number of existing treaties and the well-entrenched habits of investors and of states in selecting arbitrators.

Eliminating or amending the party appointment process could help. Treaties could require that appointments be made by institutions, rather than by the parties themselves. Parties could be given some input in the process, with perhaps a limited ability to reject proposed arbitrators.

A second option could be to require that all appointments be made from a roster made up of diverse individuals.  This alternative might work either with party appointment or with institutional appointment.  This would improve the possibility of having tribunals that include a variety of perspectives and experiences.  That roster would also have to be complemented by an appointment practice that ensures a range of experience in any given case. 

Improving Diversity in Permanent Tribunals

A multilateral investment court that includes an appellate body, or an appellate body on its own, could be created to be diverse and inclusive.  This result might not be that easy to achieve, however, given the limited number of people likely to sit on it. 

For example, if one had a first-instance tribunal of 15, and an appellate body of six (as envisaged in the CETA), there would be 21 people to be named to the bench.  Assuring that those 21 people are balanced around considerations of gender, nationality, experience, race, legal training, experience would be facilitated by the centralized creation of a slate of candidates taking into account the factors that states wish to emphasize.  Given the likely desire to appoint judges of renown, it is entirely possible that the MIC could simply replicate imbalance we see in ISDS now. And if states or groups of states have independent authority to select judges, and they do not coordinate those selections, each judge could have similar characteristics.  Achieving diversity in a MIC scenario thus depends on the choices that states make. States would have the power to select an inclusive and diverse set of decisionmakers, but they would have to use that power.