Enforcement of Investment Arbitration Awards in the Context of Protectionism and Backlash

By: Christy Chidiac

Geopolitical context and international arbitration are intertwined. Contemporary political events illustrate an undeniable retreat of the most developed nations towards protectionism. In reaction to Brexit, many commentators concluded that enforceability of international commercial arbitration awards is safe thanks to the applicability of the New York Convention. Conversely, even if the enforcement of ICSID investment arbitration awards is automatic due to Article 54 of the ICSID Convention, its execution may depend on States willingness to render it efficient through the diverse applicable national laws on immunity from execution. After all, this decision falls within States sovereignty, and at the heart of States decisions, lies public opinion. Public disapproval towards globalization goes hand in hand with the growing mistrust for foreign investment and investment arbitration, as showed by the European protests to the recourse of Investor State mechanism as part of the TTIP or CETA. In this context, arbitration mechanisms are related to globalization and corporation’s governance, hence the fundamental risk is that limitations on arbitration may become popular. As Professor David Caron Caron asserts, State acts to reform the investment treaty regime are a response to, or even a form of, backlash against that regime. Procedural reforms of investment arbitration in the past fifteen years focused on an increase of transparency, including possibilities for public hearings, and publication of arbitral documents. Additional substantive reforms also took place, with more detailed treaties provisions. Moreover, commercial arbitration is not immune from the risk of growing mistrust, as it may adjudicate for illegal activities for instance, under protection of confidentiality. These observations raise questions about the possibility of rendering international arbitration more democratic. Moreover, may public opinion and political context not only affect the transparency but also the efficiency of international arbitration mechanisms? If so, how should the effects of contextual fluctuations on arbitration efficiency be countered? The recent evolution of French legislation illustrates these issues.

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The Reactive Role Played by International Arbitration in the Wake of Third-Party Funding: A Result of Choice or Lack of Oversight?

Photo Credit: Flickr

By Jackie Momah

 The use of alternative methods of funding for arbitral proceedings is not a new development. Organizations have previously used institutional loans, contingency fees and other methods of funding. However, the form of third party financing referred to in this context differs. This form deals with a scenario in which an arbitral proceeding has already been contemplated and a party (usually the claimant) then secures funding from a third party. In return the third party receives a share of the award given at the end of the proceedings if successful. The use of third-party funding (TPF), of this kind, to finance arbitral matters is a new development in the world of international arbitration. Although recent, this development has made a substantial and arguably permanent impact on international arbitration. In a private dispute settlement mechanism like arbitration, in which arbitrators are party appointed, some ethical and procedural red flags are raised with the involvement of TPF. This results from the need to prevent conflict of interest. As such, it comes as a surprise that this area of international arbitration is not adequately regulated. This therefore begs the question, as to whether this is a deliberate omission or merely a lack of oversight.

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TTIP and ISDS, Are We Asking the Right Questions?

TTIP and ISDS, Are We Asking the Right Questions?

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By: Gabriel Simões

The System and Its Critiques

The Transatlantic Trade Investment Partnership (TTIP) is an international treaty that is being negotiated between the United States and the European Union (E.U.) to facilitate the trade of goods, services and investment. TTIP involves two of the biggest economic forces in the world, but the Treaty has been in the spotlight of international law primarily because of the Investment-State Dispute Settlement (ISDS) system.

ISDS refers to a mechanism through which an investor can initiate a claim against a given State for breach of a substantive legal protection. These protections include, but are not limited to, prohibitions on expropriation without compensation, and fair and equitable treatment. Backed by a multitude of Bilateral (BITs) or Multilateral Investment Treaties, arbitration has been the typical means of solving these kinds of disputes.

However, during recent years, the use of arbitration for solving these disputes has been severely criticized. News organizations, civil society groups, and academics have directed a wide range of indictments against investor-state arbitration. These critiques include lack of transparency, disproportionate power to investors, expansion of frivolous claims, freezing of State regulatory power, lack of arbitrator impartiality and independence and inconsistency of arbitral awards.

The E.U. Alternative

Due to these concerns, the European Commission made a proposal to change the ISDS mechanism to an Investment Court (IC). The proposed IC would be a permanent body comprised of a two instance tribunal. The first instance would be composed of five judges from the U.S., five judges from the E.U. and five judges from various other countries. The second instance, an appeals court, would be composed of two judges from the U.S., two from the E.U. and two from third-party countries. The judges would be elected amongst jurists of recognized competence, and would have to be proficient in international law.

Similar courts have already been established, such as a court between the E.U. and Canada, in the E.U. Canada Comprehensive Economic and Trade Agreement (CETA), as well as between the E.U. and Vietnam, in their Free Trade Agreement (FTA).

E.U. agreements in the CETA and FTA, as well as its proposal in the TTIP negotiation, show its commitment to enacting this new type of ISDS in its future trade agreements. Given the global significance of the E.U. market, this push for adopting an IC system begs the question whether this new form of ISDS would become the rule.

The preliminary factor in making this determination is examining whether the model is actually adopted in the TTIP. Although the E.U. itself is making a strong push for an IC system, other major economic forces have so far refused to do so.

The recent Transpacific Trade Partnership (TTP) concluded by the U.S. and several other states indicates that the American position would be contrary to that proposed by the European Commission. The TTP maintained a revamped version of investor-state arbitration as the elected mechanism for dispute settlement. It addressed some of the critiques to investor-state arbitration, for example, by providing for enhanced transparency, creating stricter ethical rules on arbitrators and numerous exceptions preserving State regulatory powers.

Another aspect to this negotiation is the historical reluctance of the U.S. to be bound by the judgements of international courts. Although the E.U. has a unique system that it could put in place to enforce the IC decisions on member States (despite some critiques as to its incompatibility with the E.U. rules), the U.S. has, in the past, accepted an agreement to form an international judicial body only to repudiate its jurisdiction later on.

The Problems With the Alternative

But the crucial matter is whether the IC system solves the problems attributed to investor-state arbitration. Although a court system can ameliorate the problem of lack of transparency, current arbitration institutions have already come a long way to address this issue. The International Center for Settlement of Investment Disputes (ICSID) keeps an extensive online database of its cases. The TTP model also demonstrates that transparency rules can be used in conjunction with arbitration mechanisms.

The matters regarding disproportionate power to investors, expansion of frivolous claims and freezing of State regulatory power, are all related to the substantial protections provided for the investors. These protections are not inherent to one dispute resolution mechanism, but can be addressed by including provisions allowing for prima facie dismissal of claims, counterclaims by the State and reservations for claims arising from State power to regulate.

The only critiques that are inherent to the current model of investor-state dispute resolution are the lack of arbitrator impartiality or independence and the inconsistency of arbitral awards. However, the fact that each treaty in the new IC model creates its own courts indicates that overall consistency of decisions would be a dubious achievement at best. And, impartiality and independence of the judges will depend entirely on the means of appointment as well as remuneration. Allowing states to nominate all judges is a way to guarantee a pro state tribunal. Having remuneration based on a case-by-case basis would enact incentives for judges to be friendlier to plaintiffs, as receiving more cases would generate higher compensation.

Nonetheless, these arguments do not begin to address the inherent problems of this IC system.

The Question

It seems, therefore, that IC and investor-state arbitration mechanisms, and especially their shortcomings, are not completely distinct. Corroborating this assumption is the fact that, ultimately, the critiques seem to remain the same for both instruments, and the ISDS system in general.

Having these facts in mind, it seems that whether a court system or an arbitration system is preferable is a subsidiary question. Maybe a better question would be if ISDS, in general, is the best way to solve international trade disputes between investors and states.

Gabriel Simões is an LL.M Candidate at Berkeley Law. He is a Student Contributor for Travaux.