HILJ Symposium

More information is available about the panelists at: http://www.harvardilj.org/symposium/about/panelists/

“The Design of the Investment Arbitration System: Consistency and Precedent” addressed current design flaws in the investment arbitration system. Panelists focused on the consistency of judgments and enforcement, and potential fixes to the system.

The first speaker, Prof. Pieter Bekker, explored the roles of various participants in the arbitration tribunal and how to ensure that the regime continues to meet its constituents’ expectations. Citing an essay by the panel’s moderator, Prof. Jeswald Salacuse, that was published in a recent book, Prof. Bekker noted that challenges to the regime may foil states’ expectations and therefore undermine the regime. But “it is the regime’s users that constitute the greatest threat,” Prof. Bekker said, and he went on to map the responsibilities of various users.

Parties must appoint knowledgeable and impartial arbitrators, and, when arbitral institutions make appointments, they should choose arbitrators who do not have a reputation for preferring common or civil law. Arbitrators themselves should pay more attention to the formal sources of international law, including Article 38 of the Statute of the International Court of Justice and Article 31 of the Vienna Convention on the Law of Treaties. These are both pillars of the public international legal structure, but rarely cited in arbitral opinions. Counsel, finally, should be mindful of transnational ethical obligations imposed by their bar. In summary, Prof. Bekker suggested that there was “room for improvement” in the way that constituents approach the “intricacies and sensitivities inherent in the hybrid and developing regime of investment treaty arbitration.”

The next speaker, Caroline Richard, noted that, while the vast majority of investment awards are fully paid and settled, investor-state arbitration presents unique enforcement risks. States have immunities not available to individuals or companies, which can make the enforcement of awards against State assets more difficult, particularly when (i) the State in question has few commercial assets outside its borders (by design or by circumstance), and (ii) the prospect of enforcing the award before the State’s own courts is unappealing or unrealistic.

She further noted that in those exceptional cases where States have failed to comply with ICSID awards – notably, the case of Argentina – investors have resorted to using the political leverage of their home states, such as lobbying for trade sanctions, to pressure States into complying with awards. But this development puts politics back into a regime that had been designed to de-politicize investor-state disputes, raising the possibility of political fallout and leaving investors at the mercy of their home states.

Another panelist, Jeremy Sharpe, discussed trends in recent BITs.  Many modern BITs clarify that investor protection cannot come at the expense of other important values, such as protecting public health and the environment.  These BITs often define the substantive protections much more precisely, and some tie certain important protections, such as fair and equitable treatment, to customary international law.  Many new BITs also define more precisely how claims may be brought and presented, offering detailed provisions on consent to arbitration, consolidation of claims, the conduct of proceedings, and so forth.  The arbitration process, for its part, has tended toward more transparency, with more participation by non-disputing treaty parties and acceptance of amicus briefs, for example.

Harvard Law School’s own Professor Mark Wu—filling in on short notice for a couple of speakers who were absent because of the day’s snowstorm—expressed skepticism that the design flaws in the international arbitral system will be resolved. He identified two broad categories of inconsistency problems affecting the investment arbitration process. First, the arbitration process does not include a process to ensure consistent rulings on specific points of law. Second, arbitration does not seem to treat all legal actors equally, at least to constituents of the system—states, in particular, perceive their treatment as disparate. Noting that solutions to both problems have been proposed and debated for decades, but that the realpolitik of powerful states with vested interests preclude any significant design fix, Professor Wu predicted that these inconsistencies are here to stay, and are unlikely to lead to the replacement of the current investment arbitration system.

Finally, Professor Salacuse, the panel’s moderator, asked the panelists whether investment arbitration processes should make greater use of alternative dispute resolution (ADR), given its success and prominence in the United States. Ms. Richard noted that while investors often prefer alternative dispute resolution methods such as mediation, states do not. They find that settlement is politically costly and they prefer to obtain the political cover that comes from being bound by arbitrators’ decisions.