The problems pertaining to investment arbitration system came to the limelight when many states including India started withdrawing from the investor state dispute resolution (“ISDS”) system that have put a big question mark on the efficacy of the present system. The proposal for a world investment court was made to address the contemporary problems plaguing the current ISDS system. The supporters of such a world court argue that a public forum is the best alternative to resolving investment disputes which are essentially international public law disputes.[ii] However, the critiques have maintained that such a world court would trample the autonomy of the states.
In recent years, the European Union has come up with a proposal of setting up a two-tier world investment court.[iii]However, such a model is only a theoretical concept and it has left the exact mechanism of dispute resolution at the mercy of multilateral negotiations.
In order to address this issue, this paper proposes the creation of a Permanent Court of Investment Arbitration (“PCIA”). The nomenclature of this body indicates that it is a hybrid body encompassing the features of contemporary investment arbitration regime and the world investment court.
From ICSID to PCIA
ICSID Convention has arguably been the most successful conventions in the world of investment of arbitration. Apart from facing similar problems that are plaguing the notion of investment arbitration generally, ICSID has also come under attack for apparently being biased in favour of investors (who usually represent developed countries). Consequently, there have been endeavours[iv] to reform the ICSID regime which implies that the current ICSID regime is not suitable for investment arbitration. However, this author believes that the ICSID regime can be tweaked to create the PCIA.
Before discussing the benefits and probable criticism of the PCIA, it is necessary to understand the core framework of the proposed PCIA.
The first objection usually put forth in the establishment of the PCIA or any supranational body is that even if there was a perfect PCIA structure, it would be almost impossible to convince states to amend thousands of existing BITs and negotiate for a multilateral convention establishing the PCIA.[v] In this respect, it is argued here that the ICSID convention[vi] can serve as the basis for establishing the PCIA. It is proposed that the PCIA would be a permanent body with tenured judges very similar to the International Court of Justice (“ICJ”).
Currently, there are 155 contracting states to the ICSID convention. Moreover, as per Art. 66 of the ICSID convention, the necessary amendments to the convention can be carried out with the approval of a two-thirds majority. Therefore, at the very first instance, it can be seen that establishment of the PCIA through an ICSID amendment would be comparatively easier than convincing all 155 states to enter into a new multilateral convention.
Secondly, the ICSID already has a well established infrastructure in place and hence, the costs of setting up the PCIA would be reduced.
Thirdly, investment arbitration is a complicated subject requiring subject expertise and seasoned professionals. Therefore, it would be advisable that the roster of tenured judges must be comprised of such experts. In this respect, ICSID has a well known panel consisting of reputed arbitrators. Therefore, this panel can serve as a guide or the basis for establishing the new roster.
Fourthly, a roster of tenured judges free from appointment bias would definitely lead to production of more coherent and consistent line of investment arbitration jurisprudence. However, a caveat that needs to be mentioned here that no supranational body strictly follows the rule of precedent.[vii] Lastly, ICSID has well defined rules pertaining to procedure, confidentiality and enforcement of arbitral awards. Many of these rules can be incorporated into the charter of the PCIA.
The Arbitrator Appointment Problem
The first objection that can be raised against PCIA is that it takes away the autonomy of the parties to appoint an arbitral tribunal. It should be noted here that the investment arbitration community is a tight knit community where a few individuals are handling majority of the business.[viii] This frequently gives rise to the issue of arbitrator bias where these individuals are known for their inclination and favourtisim towards the investors or the state, as the case may be. PCIA can help solve this problem through the appointment of tenured judges with relatively stable tenure as compared to ad hoc arbitrations. In this respect, two further issues arise regarding arbitrator appointment.
First and foremost, there arises the issue of who should make the appointment of tenured judges. In the current ICSID regime, there has been some criticism with regards to the fact that ICSID is a body affiliated to the World Bank and hence, it is biased in the favour of the investors.[ix] On the other hand, if a system akin to ICJ is followed, i.e., appointments are made by states[x] then the roster would be predisposed to protecting the state interests. The utopian solution to this problem would be to establish a roster partly elected by states and partly elected by investors. However, the obvious fallacy here is that one cannot identify all present and future investors as potentially every human being or company can be an investor. One solution to this problem could be that the investor state and the host state appoint their nominee arbitrators who in turn would agree upon the third arbitrator. However, the problem with this alternative is that it would nullify the very purpose for which the ISDS system was evolved i.e. eliminating the need for raising an investor dispute to state authorities. Moreover, any ad hoc appointment system would not address the inconsistency of arbitral awards. Therefore, this author is inclined towards the states electing the panel of judges.
It is noteworthy to mention here that it is a known fact that most investors belong to developed nations and the respondent states in most investment arbitrations are developing countries.[xi] Therefore, a manner of appointment that adequately distributes the appointment power between the developed nations and developing nations can lead to an unbiased roster of judges for the PCIA. Such a model would obviously require a separate course of enquiry as the contemporary ICJ appointment practices[xii] cannot be mutatis mutandis applied to PCIA. However, certain features like independence from government should be taken into account. Moreover, the prevalent matrix of roster composition in ICJ may be incorporated in PCIA but it must be ensured that there is equal representation of developed country and developing country on the bench adjudicating the dispute unless the same is waived off by the parties.
The second issue, popularly known as double hatting, pertains to the fact that reputable investment arbitrators are also counsel in many investment arbitrations. Such a practice raises many concerns of independence and impartiality. In this respect, the ICSID and UNCITRAL have published the second draft of a code of conduct[xiii] for investment an arbitrator which also focuses on the problem of double hatting. Double hatting assumes importance in context of PCIA because if such arbitrators are offered tenured positions then there would be an embargo on them being able to practice as counsel while they are judges. The question then arises as to why such arbitrators would accept the PCIA model or more specifically the position of a tenured judge, when they are content in the current regime which is favourable to them. The answer to this question lies in a social fact rather than a technicality. Lawyers accept appointment as ICJ judges due to a variety of reasons, for instance, for the prestige that comes with such a post, career objectives etc, irrespective of the fact that ICJ also prohibits double hatting. Therefore, if the investment arbitral community desires for a change, it is imperative that such a desire moves at least some of the arbitrators to abandon their economic benefits and contribute towards this system of change. It is admitted here that in the times to come, such a hope may prove to be wishful thinking, nevertheless, in such a scenario, the states would be compelled to select less experienced but more neutral professionals which would invariably lead to a tradeoff between expertise and neutrality.
Adios Procedural Autonomy?
Apart from the arbitrator appointment problem, supporters of arbitration also argue that a public court system would take away the procedural flexibility that arbitration has to offer with regards to procedure, confidentiality etc. This criticism is quickly dismissed by the supporters of world court citing public law reasoning or transparency concerns. This author believes that arguments made by both sides are valid and to address the same, the author has proposed to retain the procedural flexibility of the ICSID convention in the PCIA charter. In other words, all ancillary issues associated with party autonomy can be left at the discretion of the parties and in some cases, to the discretion of the bench.
To illustrate, in case of confidentiality, the general rule may be to keep the proceedings confidential and publish the resultant award unless both the parties agree to the contrary (which is unlikely) or one party may present an application which can be adjudicated by the bench on the facts and circumstances of each case. Similarly, regarding appellate procedures, the PCIA charter may provide for limited grounds of appeal which may be limited or expanded through appellate arbitration clauses.
At the cost of stating the obvious, it should be noted that the above scenarios are merely illustrative and the exact modalities can only be worked out through a series of multilateral negotiations. Moreover, leaving a broad room for party autonomy would also go a long way in alluring nations to fulfill the requisite two-thirds majority.
Investment arbitration, the ICSID convention or a world investment court, neither is a perfect system to resolve investor-state disputes. It has been argued that the PCIA model suggested in this paper is the most expedient and suitable model for ISDS as it has retained the existing party autonomy except in one respect viz. the autonomy to appoint the arbitrator/judge. This is because in this author’s opinion, no other alternative exists which can allow for party autonomy and also address issues like consistency of awards, independence of arbitrators etc. Though the shortfalls and the exact nature of PCIA charter has been left to be determined by negotiations and implementation, this paper aims to highlight that a permanent and independent supranational body comprised of tenured judges which respects party autonomy can go a long way in transforming the current international investment regime.
[i] Meenal Garg is a post graduate candidate at NLSIU, Bangalore. He can be contacted at firstname.lastname@example.org. The author would like to thank Garv Malhotra and the blog’s editorial team for their comments and suggestions.
[ii] Gus Van Harten, ‘A Case for an International Investment Court’ (IISD, 7 August 2008) <https://www.iisd.org/itn/2008/08/07/commentary-a-case-for-an-international-investment-court/> accessed 22 April 2021.
[iii] ‘Investment in TTIP and Beyond- The Path for Reform’ (European Union, 2015) < http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF> accessed 29 April 2021.
[iv] Yarik Kryvoi, ‘ICSID Arbitration Reform: Mapping Concerns of Users and How to Address Them’ (Kluwer Arbitration, 11 November 2018) <http://arbitrationblog.kluwerarbitration.com/2018/11/11/icsid-arbitration-reform-mapping-concerns-of-users-and-how-to-address-them/> accessed 11 August 2021.
[v] Joost Pauwelyn, ‘At the Edge of Chaos? Foreign Investment Law as a Complex Adaptive System, How it Emerged and How it can be Reformed’ (2014) 29 ICSID Review 372, 417.
[vi] Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force 14 October 1966) 575 UNTS 159 (ICSID Convention).
[vii] ibid art 59.
[viii] Pia Eberhardt and Cecilia Olivet, Profiting from Injustice (2012) 38-43.
[ix] W Mark C Weidemaier ‘Disputing Boilerplate’ (2009) 82 Temple Law Review 1, 18-19.
[x] Statute of the International Court of Justice (entered into force 24 October 1945) 59 Stat 1055 (ICJ Statute) art 4
[xi] ‘ICSID Caseload-Statistics: Issue 2021-1’ (ICSID, 2021) < https://icsid.worldbank.org/sites/default/files/publications/The%20ICSID%20Caseload%20Statistics%20%282021-1%20Edition%29%20ENG.pdf> accessed 29 April 2021.
[xii] Rohan Abraham, ‘How are Judges elected to the International Court of Justice?’ (The Hindu, 21 November 2017) <https://www.thehindu.com/news/international/how-are-judges-elected-to-the-international-court-of-justice/article20619816.ece> accessed 11 August 2021.
[xiii] ‘Draft Code of Conduct for Adjudicators in International Investment Disputes: Version Two’ (ICSID, 19 April 2021) <https://icsid.worldbank.org/sites/default/files/draft_code_of_conduct_v2_en_final.pdf> accessed 11 August 2021.