The fourth Global ICC Young Arbitrator’s Forum conference took place in New York City on June, 27-29 2013. The conference gathered about two hundred practicing arbitration lawyers, young and old, from the four corners of the globe. The conference was co-hosted by the Center for Transnational Litigation and Commercial Law at New York University, School of Law.
Salim Moollan, vice-president of the ICC International Court of Arbitration, opened the first day with a keynote speech addressing how to foster legitimacy in international arbitration. Following Moollan’s opening remarks, the conference continued with a debate on the challenges to the current investment arbitration system: « Defying Investment Arbitration: Moral Hazards, Perceived Injustices and the Coming of a New Age.” which this blog attempts to briefly summarize.
Clash of Paradigms
Before defying a system, one must be able to define it; which is no simple task. James Morrison (Allen Linklaters, Sydney) and Maxi Scherer (Wilmer Cutler Pickering Hale and Dorr LLP and Queen Mary University of London), who moderated the debate, highlighted this difficulty by drawing a comparison to the platypus, an animal living in Australia. They argued that investment arbitration was as hard to define as this rare creature: Is it a bird? A mammal? A reptile? Or is it some strange hybrid of the three?
The platypus analogy was borrowed from Anthea Roberts’ 2013 article “Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System” (American Journal of International Law) in which she wrote that investment arbitration is a hybrid of many fields of law: while arbitration is clearly a creature of public international law, it also contains private international law dispute resolution mechanisms. As if this was not enough, investment arbitration also contains facets of public regulatory capacity, sovereign interests, and trade and human rights law. Roberts suggests that since the field of international investment law is a relatively new one, it is under-theorized. As a result, “when seeking to fill gaps, resolve ambiguities or understand the system’s nature” observers usually employ comparisons in order to clarify concepts or draw upon case-law from other sub-fields of international law. Given investment arbitration’s platypus-like diversity, one’s understanding of investment arbitration can vary wildly depending on one’s background. Lawyers trained in public international law, administrative law, human rights law, trade law or from a commercial litigation will each employ a different paradigm when dealing in investment arbitration, thereby influencing which actors they believe should prevail and which direction the system should take.
The panelists were drawn from a variety of different backgrounds in order to provide a full spectrum of opinions concerning investment arbitration: John Crook, arbitrator and professorial lecturer at the George Washington University Law School who provided an academic perspective; Suzana Blades, Senior Counsel at ConocoPhillips, Houston who provided her view on arbitration from the investor side; Sophie Nappert, arbitrator and member of Three Verulam Buildings, London; and Anna Joubin-Bret, now in private practice but former Senior Legal Advisor on Investment, Technology and Enterprise Development of the U.N. Conference on Trade and Development (UNCTAD) each provided perspective from inside the arbitration practice mindset. Leidylin Contreras, lawyer at the Office of the legal Advisor to the President, Presidency of the Dominican Republic, gave attendees the precious perspective from the host State, which is seldom heard in these debates.
These distinguished personalities all strove to provide conference attendees with some perspective concerning the recent backlash against investment arbitration. The latters all had in mind the stir caused by the report, “Profiting from Injustice”, published in 2012 by the Corporate Europe Observatory and the Transnational Institute, which accused law firms, arbitrators and financiers of fueling an investment arbitration boom out of mere pecuniary interests and of perpetuating a deeply unfair system from which the host States and their citizens are the obvious losers.
Slightly more constructive but no less caustic was the criticism of investment arbitration made by Sundaresh Menon, Chief Justice of Singapore, at the occasion of the 2012 ICCA Congress opening session. The growing complexity and “judicialisation” of investment arbitration procedure is necessarily followed by the explosion of delays and costs; the exclusivity of the arbitral “club” consisting of a small pool of specialized arbitrators from Europe and the United States, experts in commercial law but who are out of touch with the public interests of the countries affected by their actions and who are not held accountable to the people they affect; the moral hazards necessarily entailed by such an endogamous profession, characterized by multiple hats-wearing and the tension between the role of judge and businessman is fact; the arbitral discretion in the interpretation of open-textured treaty commitments without any oversight often leads to conflicting results and a lack of coherence and predictability, all of these elements lead to a disconnect between arbitration and its users, both States and investors.
Efficiency and Consistency
As an in-house lawyer for an investing company, Suzana Blades reminded the conference attendees that arbitration should be primarily about solving disputes and that arbitrators are drifting away from this imperative. “We want a decision, not a thesis.” she said, regretting the sometimes academic posture of certain arbitrators. “At the end of the day, the goal is to solve a dispute, not to develop international law.” She also argued that arbitrators are sometimes too deferential to the parties, allowing them to create extension, bifurcations or even trifurcations (!) in the proceedings for fear of seeing their award annulled for lack of due process, the consequence being significant delays in the delivery of a biding and enforceable award. For Blades, a decision given by an arbitral panel after six or seven years of litigation is not timely. In order to reconcile investment arbitration with its users, Blades urged that investment arbitration procedure should allow arbitrators to have a bolder attitude in the process and render awards more quickly and efficiently. She also encouraged companies to develop in-house arbitration teams, able to grasp the stakes of investor-State litigation and to consider Alternative Dispute Resolution (ADR) as a serious alternative to arbitration.
Sophie Nappert, however, pointed out that we had to stop thinking about investment arbitration as a quick dispute resolution system. According to her, in disputes with so many domestic public interests at stake and so many outside actors involved, it was impossible for arbitral tribunal to deliver a short and technical award. Arbitrators thus felt compelled to elaborate lengthily on the legal grounds of the decision, in a way that will make the decision justified and satisfy the stakeholders and public opinion.
Leidylin Contreras mentioned the impression of abuse of the bilateral investment treaty system by investors, the disproportionate damages decided against developing countries that see their public policies and regulatory capacity challenged. She also emphasized the problem of inconsistent arbitration decisions stemming from diverging interpretations by arbitral panels working with the same treaty provisions and the lack of predictability the panel process entails.
Regulation and Accountability
According to Sophie Nappert, arbitration is now “out of the closet”; it is making front-page news and is now under the scrutiny of the international community. But there are many weeds in the investment arbitration garden…NGOs, academics, citizens are asking for increased accountability and transparency; namely, for the publication of awards, for the identity of the arbitrators, and information concerning the appointing process. What has been done to acknowledge these demands? Not much according to Sophie Nappert, who regretted that arbitral institutions have not taken the criticism seriously enough to take a collective stance on the matter. Nappert urged arbitral institutions to take a firmer role in the quality control of the arbitral product.
According to Anna Joubin-Bret, a possible solution lies in the development of Alternative Dispute Resolution (ADR). According to her, statistics show that 39% of ICSID cases are settled before the parties go to arbitration, demonstrating that ADR procedures are not so uncommon. “We often forget that arbitration is a sub-section of ADR.”
Contreras nuanced this point by explaining the difficulty for government officials to settle disputes using ADR because of the inevitable suspicion of corruption that will weigh on them in addition with the popular opprobrium that would necessarily stain the officials who accept to compromise rather than litigate. Very few politicians are eager to bear such a political cost.
The panelists all agreed that a good step forward would be to create a specific set of rules for investor-State mediation to be included in the relevant investment protection instrument. While there are specific rules on conciliation in the ICSID Convention, more cane be done.
The Seeds of Change
It finally appears that when it comes to discussing investment arbitration reforms, investors and States often share a common interest in having an efficient dispute resolution system. In the end, the ultimate goal for both is to put an end to a dispute and have the investor stay in the country and pursue his investment. Even though we often read that those interests as clashing, investors and States are both users of the investment arbitration system and have everything to win from seeing it improved.
The choice of launching a conference attended by young lawyers with this controversial and touchy subject matter is probably not a random choice by the ICC organizational committee. It underscores that a reform is of crucial importance to the perpetuation of investment arbitration and that there are no better people to achieve this than the upcoming generation of arbitrators.
Yael Halbron is a graduate from Sciences Po and an LL.M Candidate at Duke University School of Law.
This blog is based on the personal notes of the author; it does not reflect the opinion of the co-organizers, moderators or panelists of the ICC Global YAF event.