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Crossroads or Changing of the Guards in Investor State Arbitration


Image credit: 'Kellogg College by John Cairns 15.5.14-129' by KelloggCollege (CC BY-SA 4.0) via Wikimedia Commons.

Diane Desierto, University of Notre Dame, USA, Ian Laird, Crowell & Moring LLP, USA, & Frédéric Sourgens, Washburn University School of Law, USA

18 October 2018

On July 5-6, 2018, Oxford University Press convened its now Third Investment Claims Summer Academy at Kellogg College, Oxford to discuss key issues facing investor-state arbitration in politically trying times for globalization and global legal processes in general.

The Academy opened with an appraisal of investment arbitration reform efforts. The first session, entitled “ISDS Reform – Exit, Remodel, or Much Ado About Nothing,” was led by Professor Loukas Mistelis. The session opened with an introduction of four options placed on a spectrum from (1) the complete abolition of investor-state arbitration, to (2) the replacement of investor-state arbitration with an investment law court, to (3) a significant procedural reform of existing investor-state arbitration mechanisms, to (4) limited reform of existing mechanisms. The session discussed in detail the ongoing efforts in the UNCITRAL Academic Forum on ISDS Reform and UNCITRAL Working Group III, including published papers and positions taken by States.

The discussion laid bare a few core themes that resurfaced during the remainder of the Summer Academy. The first of these themes is the increased politicization of the investment arbitration community itself. The discussion revealed that there existed several fault lines within the investment arbitration community. The first of these fault lines concerned the different views of the respective governmental actors involved in reform – most notably the European Union and lawyers and arbitrators seeking to align themselves with European Union efforts. On the other side of the political spectrum, actors aligned with the Asian perspective in particular held firm to the arbitration model. The group also discussed the Canadian perspective as a potential bridge between both camps, although it appeared at present more firmly aligned with the European Union perspective. As the discussion showcased, these divides were no longer political forces affecting the investment arbitration community from the outside. Rather, key actors within the investment arbitration community had begun to position themselves as champions for each of the respective positions. These actors include arbitrators, counsel, as well as institutions. Perhaps more worryingly, the discussion raised the possibility that these factions may have begun to steer academic discourse to support their respective agendas. This dimension complicates reform efforts, as these efforts have now become not a matter of finding meaningful ways to improve the practice of investment arbitration but rather has suffused internal reform efforts with a deeply political calculus. This theme – (geo)politics strikes back – continued to occupy the Academy.

A further theme that began to surface in these discussions is the new and frequently unpredictable direction of U.S. efforts. The session discussed the inconsistent – at times ambivalent, while in others rigid – U.S. positions on investment arbitration and noted that the United States’ instrumentalist approach to ISDS reforms left a significant leadership gap. This leadership gap created opportunities for other actors more firmly to assert themselves in reform efforts.

The key conclusion in this regard was the emergence of China. The participants exchanged their views on reports that China would emerge as the key swing vote in reform efforts. China thus would prove to have gained a significant influence on the future direction of investment arbitration and its future contours. This emergence of China as a core constitutive player for the future of investment law, too, remained a common theme of the Summer Academy.

The session concluded that the most likely path forward at this point appeared to be one of the middle paths between the extremes of moderate reforms of the status quo ante and the complete removal of investor-state arbitration from the global legal arena. The session suggested that it was too early to tell which of the more moderate proposals would ultimately win out. It did conclude however that for good or for ill investment arbitration practitioners and academics should seek to frame their work with this new reality in mind so as best to inform (or debunk) reform proposals with a chance of political adoption in the current climate.

The Academy next introduced two new books on investor-state arbitration. The session first discussed “Evidence in International Investment Arbitration” by Freddy Sourgens, Kabir Duggal, and Ian Laird to restate the rules of evidence as reflected in the practice of investment tribunals. The session was led by Professor Victoria Sahani. Professor Sahani discussed the book with the authors and noted the meticulous frame of the book. Professor Sahani noted that the book’s effort reminded her of Restatements of Law in the U.S. to clarify general principles of common law. The discussion was recorded and is available here.

The next session then introduced the second edition of “Arbitration Under International Investment Agreements”, edited and written by Katia Yannaca-Small. The session was led by Ian Laird. Ian Laird discussed the evolution of the book from the first to the second edition. The session noted that the book was an essential tool for practitioners to find a summary of relevant principles authored by leading figures in the field in one place. The discussion was recorded and is available here.

The Academy next turned to a discussion on a topic titled: “The Attack on the International Judge as Arbitrator.” The session was led by Professor Susan Franck. The session introduced the escalation of the attack on investor-state arbitration to a broader attack on the international judiciary. This escalation for the first time relied upon the willingness of international judges to serve as arbitrators in investor-state arbitration proceedings as means to attack both international judges and investor-state arbitration as potentially corrupt and noted that this development could have a negative impact on the willingness of able jurists to serve in investor-state arbitration.

The discussion focused on the development of ICJ procedure in particular. The discussion began with an introduction of Article 16 of the ICJ Statute and its interpretation in ICJ practice. This practice for a long time has permitted ICJ judges to sit as arbitrators without running afoul of the Article 16 prohibition on engaging in any other occupation of a professional nature. Specifically, it left it to the President of the Court to set limits for arbitral appointments. The key question for the President of the Court is whether the outside appointments would risk interfering with Court business.

A lively debate arose as to whether or not Article 16 should be read literally so as to prohibit an ICJ judge from sitting as arbitrators. Participants in the debate noted the danger of leaving self-policing to a member of the court. Thus, Court dynamics may well allow an underpolicing of Article 16 goals. On the other hand, participants in the debate pointed out that the Court does have a variable docket. Thus, members of the Court may well be have sufficient time to bring their respective expertise to bear on investor-state arbitration or other arbitration questions.
A key point of contention was whether this attack is just the first step of a broader assault. So far, the attack has been aimed at judges serving concurrently as arbitrators. The discussion next pointed out that the assault could be extended to former judges, as well. This extension would show that the attack had less to do with Article 16 and more with attacking the legitimacy of investor-state arbitration. The presence of current or former ICJ judges lends significant legitimacy to the cogency of its legal reasoning. The attack seeks to belittle this legitimacy by making it appear as “justice for sale.” This critique ultimately does not appear to serve the parties who may well wish to rely upon the expertise of international judges – states. It thus again highlights the crossing of politics and investment arbitration in a manner that is not on the whole beneficial to substantive reform of the process.

The Academy at this point turned to the discussion of populism. Kabir Duggal and Professor Freddy Sourgens led the session entitled “Between Populism and Transnational Regulation – New Frontiers for ISDS.” The session began with an appraisal of the political landscape. The discussion quickly focused on the unhelpfulness of the populism moniker. While many movements that have been labeled as populist have recently come to the fore around the world, the populist name does little to help identify a common core of principles or other logic for this development. Nor does it appear that these movements have a common cause around the world or common agenda in dealing with investment-related issues. An example the group discussed in this context was the Philippines.

Centrally, of course, the debate focused on the United States. The group looked to the erosion of traditional rule of law protections in the U.S. context and traced this erosion to an anti-global economic and foreign policy agenda. The group discussed whether one should prove the value of investor-state arbitration as a means of imposing rule of law constraints of last resort in this context. Part of the group cautioned that any such attempt would likely lead to a wholesale withdrawal from investment arbitration mechanisms. This would do significant damage to the overall processes – and thus would be counterproductive. This group cautioned to adopt a wait-and-see attitude.

Another part of the group suggested that a symbolic claim might energize public debate in the value of global access to justice and rule of law protections. These arguments suggested that appeasement of authoritarian forces was unlikely to succeed in containing them. Underlying these arguments was a sense that the current turn to authoritarianism and isolationism is likely to remain a feature of the geopolitical landscape for a significant period of time such that waiting it out is not a viable option.

The first day of the Academy closed with a discussion of Jeffery Commission’s and Rahim Moloo’s new book “Procedural Issues in International Investment Arbitration.” Professor Freddy Sourgens discussed the book and its genesis with Jeffery Commission. He particularly asked Jeffery Commission to provide a user’s guide for the annexed tables providing a quick reference to precedent as well as a form manual. The discussion noted how helpful this resource was in providing greater access in particular to developing states that face an investor state claim for the first time. The discussion was recorded and is available here.

The second day of the Academy opened with a discussion of non-arbitration ADR in investment disputes. Teddy Baldwin led the session entitled “The ADR Turn in Investment Disputes.” The session outlined the many ways in which ADR techniques might be usefully employed in the investment context. The discussion quickly noted the problem of using such techniques. The relevant communities of expertise have an historically uneasy relationship with each other. This creates problems in providing parties with the right kind of expertise in resolving disputes outside of arbitration as few professionals have both investment law and ADR expertise.

The discussion also turned to the underlying commercial problem of using ADR techniques. As one senior delegate pointed out, the parties to complex transactions frequently have significant expertise in negotiating or resolving commercial and even political issues outside of arbitration. These techniques are simply not available when market conditions would completely destroy the value for all equity holders in a project. It is these market conditions that frequently lie beneath investor-state disputes. It is thus not possible to find a commercially viable solution no matter the expertise brought to bear to find one.

The discussion also addressed that ADR techniques are unlikely to be successful in the context of highly political decisions by a government – or decisions that have a potential to create political embarrassment. In those instances, ADR techniques are unlikely to yield a settlement between the parties as any such settlement would suggest some the presence of some internationally wrongful conduct. This is not a cost that a government is likely to be willing to bear under such circumstances.

This left the discussion with the potential for ADR in smaller disputes that may well be premised on a misunderstanding or regulatory conflict. These disputes may benefit from ADR resolution in light of their scale and the cost of arbitration proceedings. A key point thus was that investment ADR is not one size fits all but should look at different opportunities in different contexts.

The Academy concluded with a session on China. Professor Diane Desierto led the panel entitled “One Belt, One Road to Many Disputes?” The session introduced China’s Belt and Road Initiative. It further outlined the significant impact it had on dispute resolution mechanisms embedded in the initiative. The session suggested that one potential future development was the creation of a China-based court system that would handle the resolution of all Belt Road Initiative disputes.

The session discussed the likely problems to arise from the Belt Road Initiative and the challenges they would pose for any dispute resolution design. The Belt Road Initiative, the discussion suggested, is reasonably likely to limit the amount of transfer of technology or other developmental benefits for the recipient nations of Belt Road capitalization. Further, the potential for host state claims against Belt Road Initiative sponsors was reasonably great given the scope of the initiative. In both instances, the Belt Road Initiative poses a significant challenge for recipients that needs to be addressed in the ultimate design of dispute resolution mechanisms.

A discussant pointed out that currently, Chinese officials were seeking out information and training with regard to international best practices in order to embed these practices in their dispute resolution mechanisms. The discussion highlighted the significant changes that may well be lying ahead for dispute resolution in the future of the Belt Road Initiative, and the future of investment arbitration more generally, given the significant influence of China on the future of the practice in general.

The delegate at the 2018 Summer Academy were (in alphabetical order):
Teddy Baldwin, David Collins, Jeffrey Commission, Diane Desierto, Kabir Duggal, Filippo Fontenelli, Susan Franck, Ian Laird, John Laird, Cameron Miles, Loukas Mistelis, Kaj Hobér, Mark Kantor, Antonio Parra, José Antonio Rivas, Victoria Sahani, Frédéric Sourgens, Todd Weiler, Markus Wagner, Sebastian Wuschka, and Katia Yannaca-Small.


Prof. Dr. Diane Desierto is tenured Associate Professor of Human Rights Law and Global Affairs at the University of Notre Dame; External Faculty Fellow at the WSD Handa Center for Human Rights and International Justice at Stanford Global Studies; Professor of International Law and Human Rights at the Philippine Supreme Court's Philippine Judicial Academy; External Executive Director (Associate Dean rank) at the University of the Philippines Law Graduate School at Bonifacio Global City, Philippines; International Arbitration Partner at Desierto & Desierto Law (Manila/ASEAN); Legal Expert for the ASEAN Secretariat (trade, investment, environment, maritime security); International Arbitrator, British Virgin Islands International Arbitration Centre (BVIAC), and faculty at the Hague Academy of International Law.

She is a Scientific Advisory Board Member of the European Journal of International Law and EJIL:Talk! Editor; Research Committee Head for International Economic Law & Development at the Asian Society of International Law; Member of the Advisory Board of Oxford Investment Claims and Co-Chair of the Oxford Investment Claims Summer Academy.

Ian Laird is co-chair of the International Dispute Resolution Group at Crowell & Morning LLP and an adjunct professor at Columbia University School of Law and Georgetown University Law Center. Ian is also the co-founder and Chairman of the Board of Oxford University Press's online Investment Claims platform. He serves as co-director of the International Investment Law Center (International Law Institute), and he is co-editor of the book series 'Investment Treaty Arbitration and International Law'.

Frédéric Sourgens is the Director of the Oil and Gas Law Center and Professor of Law at Washburn University School of Law. He serves as Editor-in-Chief for Oxford University Press's online Investment Claims platform and co-chairs the Oxford Investment Claims Summer Academy convened by Oxford University Press.