Critical Comparisons: The Role of Comparative Law in Investment Treaty Arbitration

Vadi, Valentina Sara, Denver Journal of International Law and Policy

A rose is a rose is an onion Ernest Hemingway, For Whom the Bell Tolls (1940)

Both comparativists and internationalists have mostly neglected the interaction between international law and comparative law. While "[i]nternationalists seem comfortable with power and uncomfortable with culture ... comparativists are eager for cultural understanding and wary of involvement with governance. " (1) However, this attitude is gradually changing, as comparativists and internationalists have increasingly acknowledged that they "share more than they realize." (2) This article aims to scrutinize the interplay between international investment law and comparative law. This interaction has four different but related dimensions: comparative investment law, comparative arbitration law, legal doctrine, and treaty interpretation. While authors have extensively studied comparative investment law and comparative arbitration law, which study the different national legislations regulating foreign investment and the arbitral process, investment law scholarship and arbitral tribunals' use of comparative law has received scarce, if any, attention.

While the use of comparative legal reasoning in investment law jurisprudence and legal scholarship seems to offer concrete solutions to emerging conceptual dilemmas and reputed scholars have forcefully argued in favor of it, one may question whether a more critical approach to the use of comparative law should be adopted. It is often assumed that comparative law is a neutral process, but this is not always the case. Problems of perspective are a central element in the comparative law discourse. This study focuses on the interplay between international investment law and comparative law and proposes the adoption of a critical method. Not only would such awareness limit eventual abuses of the comparative method, but it would also favour the coherence of the international legal system as a whole.

I. INTRODUCTION

Not many fields of law use comparative law as extensively as international arbitration. International arbitration is a method for settling transnational disputes, involving parties and adjudicators of different nationalities, and requiring the application of different sets of procedural and substantive norms. For its intrinsic characteristics, international arbitration constitutes the Walhalla for comparative law experts, and indeed, an eminent arbitrator, Professor Pierre Lalive, has recently recognized that "the main duty of the international arbitrator is to be open to other cultures" and that "[i]n order for international arbitrators to avoid culture clashes, universities should start training law students much more in international and comparative law." (3) In a previous study he affirmed that "an international arbitration should be decided by a truly 'international' arbitrator, i.e. someone who is more than a national lawyer, someone who is internationally-minded, trained in comparative law and inclined to adopt a comparative and truly 'international outlook.'" (4)

While many comparative lawyers have therefore analyzed international arbitration through comparative law lenses, (5) investment treaty arbitration has received scarce if any attention. This neglect may be due to several interlinked reasons. First, investment-treaty arbitration is often associated with international arbitration. Second, the boom of investment disputes has only a very recent pedigree. Consequently, only recently have authors analyzed the phenomenon of investment treaty arbitration. Third, given the relative scarcity of legal doctrine, it is logical that comparative law scholars have not had the necessary inputs to start scrutinizing this particular area of public international law.

However, some have highlighted the distinction between investment treaty arbitration and international commercial arbitration. (6) While international arbitration generally involves private parties and concerns disputes of a commercial nature, investment treaty arbitration involves states and private actors. (7) This "diagonal" dispute settlement mechanism is a major novelty in international law since international disputes have traditionally involved states only. (8) In this sense, investment arbitration represents a successful means to ensure access to justice at the international level. Because of the peculiar character of investment treaty arbitration and the recent proliferation of investment disputes, the role of comparative law in investment treaty arbitration requires an autonomous analysis. (9) This scrutiny is not only theoretically interesting but also concretely useful in light of the increasing criticisms on investment treaty arbitration. Investment treaty disputes mainly involve public law adjudication and may have a deep impact on public welfare. Some authors have pointed out the inadequacies of arbitration, which is historically rooted in private law, to deal with disputes involving public law. (10) This essay aims at exploring the role that comparative law may play in investment treaty arbitration and questions whether the use of comparative law may help solve some aspects of the "legitimacy crisis" of investment treaty arbitration. (11)

The argument shall proceed as follows: First, the characteristics of investment-treaty arbitration shall be highlighted. Second, this contribution will scrutinize some essential features of the comparative method. Only by knowing the merits and limits of the comparative method can interpreters and adjudicators make an appropriate use of it. Third, this study focuses on the interplay between international investment law and comparative law. While several studies have focused on what may be called comparative investment law, (12) much less attention has been paid to the use of comparative law within investment treaty arbitration. This phenomenon deserves close scrutiny because investment treaty tribunals use the comparative method in their reasoning. Arbitral tribunals refer to the jurisprudence of other international courts and tribunals, the precedents of other investment tribunals, (13) or even to national precedents. The paper will assess the functioning of such a "judicial borrowing" and conclude with some reflections on the important role that comparative law may play in "legitimizing" investment treaty arbitration. By furthering the judicial dialogue among international courts and tribunals, legal transplants may constitute a key element to insert human rights considerations into investment treaty arbitration, and have the potential for ultimately promoting the humanization of international law.

II. INVESTMENT TREATY ARBITRATION

While international investment law is one of the most ancient areas of public international law, investment treaty arbitration is a recent phenomenon. (14) When the International Centre for the Settlement of Investment Disputes (ICSID) was first established in 1966 (15) it was hardly foreseen that it would in due course become one of the most active international tribunals, before which there are now more than 130 cases pending. (16) None could predict that investment treaty arbitration would move "from a matter of peripheral academic interest to a matter of vital international concern." (17) Most contemporary investment treaties include investor-state arbitration for the settlement of disputes which may arise between the foreign investor and the host state. (18) Under this mechanism, foreign investors may bring claims against the host state before international arbitral tribunals. (19) This development has transformed the landscape of modern investment protection, (20) as customary international law did not confer such a right to individuals. (21) Similarly, Friendship, Commerce and Navigation (FCN) treaties and investment treaties that pre-dated the establishment of the ICSID only provided for State-to-State disputes. (22) In contrast with this traditional paradigm of states as the only subjects of international law and the only ones having the capacity to raise international claims against other states in legal proceedings, modern investment treaties do not require the intervention of the home state in the furtherance of the dispute. (23) Private companies no longer depend on the discretion of their home states in the context of diplomatic protection as to whether a claim should be raised against another state. (24)

Suggestively described as "arbitration without privity," (25) the internationalization of investment disputes guarantees a neutral forum and has thus been conceived as an important valve for adequately recognizing and protecting the assets of foreign investors from expropriation, host state nationalization or other forms of regulation. Through arbitration clauses the host state signatory to the treaty agrees in advance to arbitrate disputes, at the investor's initiative, over the treaty meaning and application. (26) Such clauses are to some degree necessary to render meaningful the more substantive investment treaty provisions. By themselves, treaty based provisions are meaningless if they are not accompanied by an effective dispute settlement mechanism. As the late Professor Thomas Walde once held, "it is the ability to access a tribunal outside the sway of the host state which is the principal advantage of a modern investment treaty.... The effectiveness of substantive rights is ... linked to the availability of an effective enforcement.... Right and procedural remedy, are, in practical and effective terms, one." (27)

Importantly, the paradigm shift is significant in a further respect. In investorstate arbitration there is a transfer of adjudicative authority from national courts to arbitral tribunals. In this sense, it has been argued that access to investor-state arbitration shares many characteristics of the direct right of action before human rights courts. (28) However, arbitral tribunals do not only constitute an additional forum with respect to State courts, but also an alternative to the same. (29) Thus, not only can foreign investors seek another decision after an eventual recourse to the national courts, but they are not required to exhaust local remedies prior to pursuing an international legal claim. This is in stark contrast to international human rights treaties which require that claimants exhaust local remedies in the first instance. (30) Even where contracts between an enterprise and a state expressly limit recourse to local dispute settlement options, claimants can directly surmount national jurisdictions and bring investment claims to arbitral tribunals in situations where the investor's home state and the host state have a BIT in place. (31) Under most investment treaties, states have waived their sovereign immunity and have agreed to give arbitrators comprehensive jurisdiction over what are essentially regulatory disputes. Indeed, investment treaty arbitration encompasses the full panoply of the state's regulatory relations with foreign investors. As a result, some have pointed out that investment treaty arbitration would replace judicial organs with private adjudicators in matters of public law. (32)

Since investment arbitration presents characteristics similar to those in a typical international commercial arbitration, these features may become problematic with regard to regulatory disputes. (33) For instance, the parties determine the composition of the arbitral tribunal. (34) Although the right to choose an arbitrator may be considered the very essence of arbitration, (35) this may be problematic from a public policy perspective. As an author highlights, while "arbitrators ... are expected to be both independent of the party appointing them and impartial ... it is usually conceded that without violating in any way this theoretical obligation of independence, the arbitrator may quite acceptably share the nationality, or political or economic philosophy, or 'legal culture' of the party who has nominated him--and may therefore be supposed from the very beginning to be 'sympathetic' to that party's contentions or 'favorably disposed' to its positions." (36) In a sense, independence and neutrality very much depend on the personality of the arbitrator. (37)

Confidentiality is another feature of the arbitral process. Hearings are held in camera and final awards may not be published, depending on the parties' will. Even the names of the parties and much less the details of the dispute may not be disclosed. (38) While confidentiality well suits commercial disputes, the same may be problematic in investor-state arbitration. The lack of transparency may hamper efforts to track investment treaty disputes, to monitor their frequency, their settlement and to assess the policy implications that flow thereby. (39) In recent years, some efforts to make investment arbitration more transparent have been undertaken in different fora. In response to calls from civil society groups, the three parties to the North American Free Trade Agreement (NAFTA)--Canada, the US, and Mexico--have pledged to disclose all NAFTA arbitrations and open future arbitration hearings to the public. (40) Similarly, the ICSID Rules provide for the public disclosure of the dispute proceedings under their auspices. (41) Increasingly, investment arbitration tribunals have allowed public interest groups to present amicus curiae briefs or have access to the arbitral process. These important moves, however, involve the conduct of the proceedings of a limited number of investment disputes. Indeed, the vast majority of existing treaties do not mandate such transparency, which means that most of the proceedings are resolved behind closed doors.

Finally, and perhaps more importantly, awards rendered against host states are, in theory, readily enforceable against host state property worldwide, due to the widespread adoption of the New York and Washington (ICSID) Conventions. (42) The decisions have only limited avenues for revision and cannot be amended by the domestic legal system or a supreme court. (43) Arbitration under the ICSID rules is wholly exempted from the supervision of local courts, with awards subject only to an internal annulment process. (44)

Some important issues arise in this context. On the one hand, it seems that the current framework lacks adequate procedural protection for the public interest. According to some authors, investment treaty law and arbitration would be facing a "legitimacy crisis," (45) as "private tribunals consider legal issues that impact the international economy, public policy and international relations, but they do so in a vacuum." (46) On the other hand, there is uncertainty over the relevance or irrelevance of norms external to investment law within investment treaty arbitration. Furthermore, notwithstanding the substantive similarity of investment treaty provisions, arbitral tribunals have come to inconsistent decisions on the meaning of international law norms. Inconsistent arbitral awards create legal uncertainty and undermine the coherence of the international legal system.

While developing countries have deemed investment treaty arbitration politically biased against them, (47) emerging economies and industrialized countries alike have expressed some concerns about this mechanism. For instance, Australia has not been at ease with the idea of investment-related arbitrations, and the investment chapter of the Australia-US Free Trade Agreement leaves out provisions on investor-state dispute resolution. (48) In the European Union (EU), the compatibility of the current investment law and EU law is highly debated. The criticisms concern alleged discriminatory treatment of investors and a perceived lack of control by the European Court of Justice (ECJ) due to arbitration. (49) Turning our attention to developing countries, Bolivia and Ecuador sent a formal notice to ICSID declaring their withdrawal from the ICSID Convention and their intention to pursue revisions to their BITs in order to direct investors' claims solely to domestic fora. (50) These moves may be due to contingent political reasons. (51) Furthermore, the fear of expensive investment disputes may be an additional reason for withdrawal. However, these moves may also indicate a deeper dissatisfaction with how the system works.

Before addressing these criticisms, two preliminary observations may be made. First, it seems that the emerging criticisms on the functioning of investment treaty arbitration in relation to public goods are evidence of the vitality of the system. The recent boom of investment treaty arbitrations, as well as the willingness of states to participate in the system, explain such vitality. For instance, the EU Member states are willing to maintain the network of BITs that exists between them despite the above-mentioned concerns of the European Commission. (52) Indeed, EU states believe that their investors are better protected under the BITs than under EU law alone. (53) Second, the emerging critiques should constitute the steppingstones for the progressive development of the system. (54) These criticisms need to be taken into account to allow the investment treaty system to evolve in a harmonious way. (55) Comparative law is an element that can make it easier for the public good to be taken into account in investment treaty arbitration.

III. COMPARATIVE LAW AND METHOD

Before exploring the role the comparative method plays in the context of investment treaty law and arbitration, it is worth scrutinizing the main characteristics of comparative law. In a preliminary way, two questions need to be addressed. The first question relates to the essence of comparative law: is comparative law a legal discipline or should it be considered a mere legal method? The second question, which is strictly related to the first, is about the objectives of comparative law. Due to space limits, this section does not purport to exhaustively describe what the comparative method does and what those employing it should do to use it properly. The very existence of comparative law as a legal discipline has been contested because of lack of agreement among scholars on the appropriate use of analogy in legal context. The main assumption of this paper is that the controversial nature of comparative law does not repress its legal nature; by way of contrast, the awareness of its limits and merits may only benefit legal analysis. In this sense, while it is not possible to offer a prescriptive analysis of comparative law--because the same comparative law scholars have different views on the method of comparative law--this section aims to offer some insights on the essence of comparative law, its modus operandi, and its purposes.

Comparative law has been defined …

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Publication information: Article title: Critical Comparisons: The Role of Comparative Law in Investment Treaty Arbitration. Contributors: Vadi, Valentina Sara - Author. Journal title: Denver Journal of International Law and Policy. Volume: 39. Issue: 1 Publication date: Winter 2010. Page number: 67+. © 2009 University of Denver. COPYRIGHT 2010 Gale Group.

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