Would a Multilateral Investment Court be Biased? Shifting to a treaty party framework of analysis

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I have recently been pondering a common complaint voiced against the EU and Canada’s proposal for a multilateral investment court, which is that it would be biased against investors because all of the judges would be selected by states (see, for example, the ABA’s Report here and Judge Schwebel’s speech here). In my view, this criticism is misguided because it confuses the role of states as disputing parties and as treaty parties. States have dual roles in the investment treaty system: they are treaty parties with a legitimate interest in the interpretation and application of their treaties and they are disputing parties with a desire to avoid liability in particular cases. When it comes to questions of institutional design, I think that we need to adopt a treaty party framework of analysis, not a disputing party one.

In a particular dispute, an investor can appoint one arbitrator and a state can appoint another. Once a case is filed, it is hardly surprising that both disputing parties would seek to appoint arbitrators who are broadly sympathetic to their positions. This tends to generate polarization within the field with arbitrators often being thought of (whether accurately or not) as having either a “pro-investor” or a “pro-state” bias. This division helps to explain why, when judged from the perspective of the dispute resolution framework, investors and members of the arbitral community have raised concerns that having tribunals selected by states only would lead to biased results. This is so even though neither the claimant investor nor the respondent state would appoint the particular tribunal members tasked with hearing the case.

When it comes to institutional design, however, we need to shift our focus from the disputing party framework to the treaty party framework. Although states have certain interests as disputing parties in particular cases, things look different when they are treaty parties in the negotiating room. The treaty parties are the ones that strike the original deal that affords certain protections to investors and provides certain safeguards to states. In doing so, they balance their interests as capital exporters and capital importers because either they have both interests individually and thus need to internalize them (which is true of the EU and Canada) or they have both interests collectively and thus need to negotiate a compromise between them (which is true of treaties between a clear capital importer and exporter, subject to the operation of power asymmetries).

When it comes to designing the right system for dispute resolution, what the treaty parties want is adjudicators who are going to be faithful to the bargain that they have struck. This isn’t a question of being biased in favor of investors or states – indeed, the notion of being biased in favor of the treaty parties makes little sense. Instead, it is a question of adhering to the bargain that the treaty parties collectively agreed upon which includes striking a balance between investor protections and state prerogatives. If states were only ever motivated to avoid liability, they wouldn’t have agreed to investment treaties that afford investors protections in the first place. Being pro the treaty parties isn’t about being pro-investor or pro-state – it is about being pro honoring the deal that was made.

I suspect that this is part of what the EU and Canada are trying to achieve with the investment court. By having judges appointed by the treaty parties rather than the disputing parties, and by requiring that these adjudicators are first and foremost experts in public international law, the EU and Canada are trying to redesign the system to ensure that the judges understand that their role is to faithfully interpret and apply the deal that was struck by the treaty parties, whether or not that means finding for a claimant investor or a respondent state in a particular case. The same is true of other judicial bodies, like the European Court of Human Rights and the Iran-US Claims Tribunal, where judges are appointed by the treaty parties but find in favor of both individual claimants and respondent states in particular cases, without allegations of systemic pro-state bias.

Adopting this sort of institutional framework also encourages states to appoint balanced adjudicators, rather than ones that lean too heavily in favor of investors or states. Joint capital importers and exporters, like the EU and Canada, will need to select adjudicators that they would be happy to live with on either side of the equation, i.e., that they would be content to have hear a case brought by either their investors suing foreign states or foreign investors suing them as host states. States that are primarily capital importers will face a different balancing act: they will want adjudicators who are able to hold them accountable to their obligations (thereby facilitating their ability to make credible commitments) without holding them accountable to standards that are above and beyond that to which they agreed.

Moving from a model where the disputing parties select the arbitrators ex post to one where the treaty parties select the adjudicators ex ante helps to encourage states to make these selections with their treaty party hats, rather than respondent hats, more firmly on. It also encourages states to take a longer term perspective. A state may have an interest in one case now because it is brought by its investors and another case later because it is brought against the state itself and it will need to internalize those interests. A state’s balance between being a capital importer and a capital exporter may also shift over time, as has clearly occurred with the United States and China, though going in opposite directions. All of these factors should nudge states towards (1) adopting treaties that strike a balance between the interests of capital importers and exporters and (2) selecting balanced adjudicators who will honor the deal struck.

Shifting our frame of reference from a dispute resolution framework to a treaty party framework isn’t easy, particularly when we are talking about dispute resolution mechanisms as this issue naturally makes one think about disputes. Much of our understanding of the field comes from the existence and resolution of specific investor-state disputes, which makes it natural to default to the dispute resolution framework. This is all the more so when one is talking to investment treaty practitioners who live and breathe these disputes and who often have far more interaction with states operating primarily in their respondent-mode rather than their treaty party-mode. When it comes to institutional design, however, this disputing party framework is unhelpful because it misses the more nuanced and balanced interests exhibited by the treaty parties, particularly when they are firmly wearing their treaty party hats.

The investment treaty system has entered a precarious period. If the system is going to endure, there needs to be reasonable concurrence between those who create the law (the treaty parties) and those who interpret and apply the law (investment tribunals). If there is systematic divergence between the two, the treaty parties will lose faith in the system and will defect in increasing numbers. The proposal by the EU and Canada is intended to prevent or forestall that occurrence. By requiring that the adjudicators be specialists in public international law who are appointed by the treaty parties rather than the disputing parties, states are seeking to narrow the distance between what they intend and what tribunals rule. Indeed, as one treaty negotiator explained to me: “I can’t forever keep dropping another footnote to deal with the latest case that decides something that the treaty parties never intended.”

Lots of questions about the EU and Canada’s proposal remain open, including whether other states will get on board with it and whether these sorts of reforms will be enough to overcome populist pushback against trade and investment treaties. There might be more cost effective or lighter touch alternatives that achieve a similar effect, which might be more attractive to non-European states or states that do not expect themselves or their investors to be heavy users of the system. And creating a court may also lead to other problems. For instance, it is often harder for states to reach interpretive agreements in a multilateral forum than a bilateral one, so an investment court might result in a greater shifting of interpretive power from the treaty parties to the adjudicators. All of these considerations are important and the implications of a multilateral court and other reform proposals need to be carefully thought through.

In assessing questions of institutional design, however, it is important to begin defaulting to a treaty party framework rather than a disputing party one. Taking this step helps to eschew simple claims about pro-state bias while focusing our attention on how to design a system that: (1) encourages states to internalize their interests as capital importers and exporters, which should push them toward making balanced, rather than biased, tribunal appointments; and (2) encourages adjudicators to faithfully apply the treaty parties’ deal, whether that means finding for claimant investors or respondent states in a given case. Ultimately, such an approach is also in the interests of investors because unless states remain confident (or regain confidence) in the system, they are likely to abandon investment treaties or withdraw their consent for investor-state dispute resolution. Although investors are likely to be tempted to pursue what suits them best in a particular dispute, in the end, investors – like states – would do well to play the long game.

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    Comments

    Martins Paparinskis says

    April 29, 2017

    Dear Anthea,

    Of course, there is nothing wrong with Parties selecting judges – the whole body of international dispute settlement law operates on this basis. But it does not seem to me entirely ludicrous to suggest that special considerations should be involved in the selection of adjudicators when only one of the likely genus of disputing parties also selects the judges. This concern, for example, has nudged both European Courts in recent years to introduce various technocratic and consultative elements into the process of selection of judges to minimise the role that the choice of the State itself plays. Of course, particular choices are reflective of particular institutions, sometimes work better than others – Bobek’s Selecting Europe’s Judges is a good example of a critical discussion, https://global.oup.com/academic/product/selecting-europes-judges-9780198727781?cc=lv&lang=en& – and may not be easily transposable elsewhere. But the normative intuition underpinning the development -– that the discretion of actors occupying the dual role you describe should be institutionally tempered and diluted in the process of selection of adjudicators -- strikes me as rather sound. I may be wrong on the finer detail, but my impression is that there is not much of the best European practices of this kind in the proposal of the Multilateral Investment Court made by the European Union.

    Anthea Roberts says

    May 1, 2017

    Dear Martins, thanks for your response. That book looks really interesting – I will make sure to get a copy of it. I appreciate the point you are making and I would have no problem with states adopting internal processes to take on board feedback from relevant stakeholders about who they might wish to select. However, I think that many actors in civil society would be concerned about assuming that only investors would get to play this role. Investors certainly have an interest in how investment treaties are interpreted and applied, but so do the communities in which they invest. It reminds me a little of the question of which states count as specially affected states (for instance, though in a very different setting, are states with a particular type of weapon the ones that are specially affected or are states that might have that type of weapon used against them also specially affected?). If we created a process where investors were able to feed into the selection process but others were not able to do so, we would be likely to further entrench dissatisfaction with the current regime. So I would be open to a process for feedback, but my guess is that this is best done on a national level and in a way that is open to multiple stakeholders. I am also not aware of that sort of process being adopted for other international courts that have a public law dimension, like the ECHR and the WTO, though I would be interested to hear more from others about this. Best, Anthea

    Martins Paparinskis says

    May 1, 2017

    I probably did not put my point terribly well but what I had in mind related to the structure of international dispute settlement at the international level, rather than Parties' internal choice, and I am not arguing for canvassing the views of investors. Of course, there is no reason of technical principle that would preclude States from choosing adjudicators in an entirely discretionary manner even if they occupy the dual role you describe. But the examples in practice where they have done so are somewhat on the archaic side, and reflective of situations where Parties have only a bare minimum of shared interests – say, post-World War One Mixed Arbitral Tribunals, Iran-US Claims Tribunal – while your point, I think, is that investment law is now characterised by the opposite phenomenon. I am sure that many people on this blog know much more about the selection of Judges of the European Court of Human Rights than I do, but to me it provides an example of the many various layers of review that may stand between the State’s choice and the adjudicator’s final appointment, http://website-pace.net/web/as-cdh. Of course, that is just one regional regime, non-representative in many ways, but illustrates the point that (1) it may be sensible to dilute the discretion of Parties who have the dual role, as well as (2) shows various techniques that can be employed for that, which can be appropriately shaped to reflect the political and technical constitution of any particular regime. In short, the dual role does not mean that parties that are not Parties should have a formal vote, but the enlightened solution may be to provide some filters before the choice of Parties takes effect.

    Joshua Paine says

    May 2, 2017

    Dear Anthea and Martins
    To my mind your exchange highlights the need for the EU proposal to in time offer some more detail on a selection process for permanent judges and to learn from the practices that have been developed in other international tribunals on this in the last decade or so. My sense is the ICC and ECtHR have developed the most advanced practices in terms of criteria and a more objective vetting process; the issue hasn't been resolved at the WTO after last year's incident and subsequent debate; and the ICJ is the least developed in just relying on a GA/SC vote.

    Anthea Roberts says

    May 3, 2017

    Dear Joshua,

    I fully agree with you on this point. It would actually be great to take this into a multilateral forum where multiple parties could start brainstorming on the best modalities for these sorts of questions about institutional design.

    A lot of people are already doing good work on related issues. In addition to the EU and Canada, Gabrielle Kaufmann-Kohler and Michele Potesta obviously completed a very important report (http://www.uncitral.org/pdf/english/CIDS_Research_Paper_Mauritius.pdf) that addressed some of these issues for UNCITRAL. Jeremy Sharpe, who has significant experience working for the US State Department and in private practice, made some interesting proposals at the recent ASIL Annual Meeting about lessons that one could draw from the Iran-US Claims Tribunal in formulating a multilateral investment court. Rob Howse has a new concept paper (http://www.iilj.org/publications/international-investment-law-arbitration-conceptual-framework/) out that deals with some of these reform proposals, while Sergio Puig has posted an interesting piece about using blind appointments (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2829098) in international arbitration.

    I am fortunate to be hosting Australia’s first ever Fox International Fellow (http://foxfellowship.yale.edu/) from Yale University, Eugenio Gomez-Chico (http://regnet.anu.edu.au/our-people/visitors/eugenio-gomez-chico) who will be looking into the appointment mechanisms used in other international courts and tribunals to see what modalities might be cross applicable to this context. If other people are working on related projects, please – reach out to us. These are difficult issues and I don’t think anyone has a monopoly on the right approach, so it is helpful to have numerous minds turning to these issues at this stage.

    Best,
    Anthea

    Blerina Xheraj says

    May 11, 2017

    Dear Anthea,

    I read with great interest your analysis and the comments of the other scholars.

    However, since the early days of the proposal I have been thinking about one aspect which needs to be clarified i.e., the number of judges in the future international investment court. I think that this aspect is strictly linked to the treaty-party framework that you suggest.

    In my view, a ‘perfect’ treaty-party theory (scenario 1) would require all treaty-parties to appoint a judge in the future multilateral investment court (MIC). This is the case with the ECtHR, which is composed of 47 judges; one for each party to the Council of Europe.

    An ‘imperfect’ treaty-party theory (scenario 2) would apply to an international investment court where the number of appointed judges does not reflect the number of the treaty parties.
    The question is thus whether is it really desirable to adopt a treaty-party theory to this issue and, in case, which type of treaty-party theory? I would really appreciate to hear your views on this.

    Best,
    Blerina

    Anthea Roberts says

    May 12, 2017

    Dear Blerina

    Thanks for your comment and question. Yes, working out how many judges to appoint for both an investment court and an appellate mechanism will be tricky. It will be even harder if you have some states signing up to the court and appellate mechanism and others just to the latter.

    There are many options, including the ones you identified. For instance, one way of doing it could be to let each treaty party select a judge for the investment court (your scenario 1) and then have them select a subset of judges for an appellate mechanism (your scenario 2).

    I am not sure that I agree with you that scenario 2 is problematic. There are a lot of tribunals where the treaty parties select a smaller number of judges - indeed, the ECtHR is something of an exception. Also, if you allow the treaty parties to select a subset rather than picking one each, it can be easier to do things like ensure gender diversity.

    I think it is ultimately best to work out what works for the design of the institution and the number of cases, rather than assuming that we have to have a one-state-one-appointment approach. As long as the treaty parties select the adjudicators, I think that that fits with the treaty party framework and is quite distinct from the disputing party one.

    Of course, reasonable minds can differ and all of this remains to be worked out.

    Best, Anthea