Investment arbitration: a strange beast
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CDR | 24 February 2017

Investment arbitration: a strange beast

par DIMITAR GANEV

The fourth panel of the day considered the ongoing criticism against investor-state arbitration and how it might be addressed, as well as the problems relating to challenging arbitrators.

The session saw Paul Key QC, barrister at Essex Court Chambers, chair a panel consisting of Orsolya Toth, lawyer and academic at Keble College, Oxford, Markus Burgstaller, partner at Hogan Lovells, and Iain Maxwell, of counsel at that same firm.

Key began by describing investment arbitration as “something of a strange beast”, because “it mixes concepts which are familiar to commercial arbitration practitioners, concepts which are familiar to public international law practitioners and concepts which are alien to both of those groups”.

He added that there is a conflict between traditional arbitration notions of privacy and the state component of investment disputes, with people wanting to know how the process affects them as tax payers and citizens.

Toth directed the audience’s attention to the procedure of challenging an arbitrator: “Under the ICSID [International Centre for Settlement of Investment Disputes] Convention, the standard for disqualifying an arbitrator is ‘manifest lack’ of independence and impartiality.”

She said that there is an increasing number of challenges not only against one arbitrator, but also against the majority of the tribunal or the full tribunal: “The significance of this is that if one arbitrator is challenged, the co-arbitrators will decide the challenge. However, if the challenge is against the majority or the full tribunal, under the rules of ICSID, the Chairman of the Administrative Council, who is the president of the World Bank, will decide the challenge.”

Toth mentioned the increasing number of multiple challenges against the same arbitrator due to the increase in the number of cases in general, which presents more opportunity for challenging over repeat appointments.

She pointed out that there is no appeal mechanism under ICSID: “If there is no appeal and the parties know they will not get a second bite at the cherry, they will be much more anxious about the independence and impartiality of the arbitrators. They might be using arbitrator challenges to protect their substantive rights.”

Another reason for the growing number of arbitrator challenges is that arbitrators are more and more active: they sit in several tribunals, on boards of companies and also act as counsel. In addition, such challenges delay the proceedings, giving more time for issue conflicts, which can potentially further undermine the legitimacy of the treaty regime, but, according to Toth, of greatest concern is the use of arbitrator challenges for tactical and strategic reasons.

She presented some practical issues in this respect, such as timing: a challenge brought in haste will be decided in haste. “Consider asking the arbitrator for an informal assurance of independence and impartiality instead of going through with the full challenge,” she said, adding that one should also think about not only the financial, but also the human cost – arbitrators may face challenges as an attack on their integrity and if they survive the challenge, this might affect the way they relate to a case later on.

Burgstaller took the floor by asserting that there is an “increasing tendency either to sit as arbitrator or to act as counsel; also, a number of lawyers left law firms with a view to set up their own independent practice as arbitrator”. He noted that the recently signed European Union-Canada Comprehensive Economic and Trade Agreement (CETA) provides an investment court with a list of arbitrators or judges, thus taking away the fundamental right to pick your arbitrator.

“With respect to other international dispute settlement mechanisms, for example before the International Court of Justice, you cannot appear as a judge ad hoc in the court if you argued a case within the last three years before the court,” Burgstaller added. “I think the criticism of ‘double hat’ – arbitrator and counsel – is legitimate and needs to be addressed.”

In agreement, Maxwell said that CETA’s investment court offers 12 or 15 judges, so not only the parties will not have a choice, but there will be a very limited pool. A middle ground would be to keep the investment arbitration process but deal away with party appointment: “I think if necessary to keep the system as a whole, [the ability to appoint your own arbitrators] might be worth sacrificing,” which would certainly reduce the number of challenges by eliminating any suspicions that an arbitrator might be biased because it is appointed by the opposing party.

Responding to Maxwell’s comments, Toth said that the debates surrounding investment arbitration bring to the fore delineation issues about what arbitration actually is, and expressed the opinion that “if we no longer have parties appointing arbitrators, my view is that it’s no longer arbitration”.

Burgstaller considered the topic of provisional measures, saying: “The requirements for provisional measures to be granted are similar to what we see in other legal systems: if there is a right of a party that needs to be preserved, if the measure is necessary, if the measure is urgent and the measure needs to be proportional.” Parties should take into account that tribunals do not hesitate to order provisional measures if the requirements are fulfilled.

Maxwell referred back to the criticism against investment arbitration and said that one of the main concerns “is the lack of transparency, and the criticism is that decisions concerning the public, possibly regulations concerning health and environmental issues, are made in private behind closed doors”.

He commented that although investment arbitration initially copied commercial arbitration’s general approach to private hearings, it is now more public than ever, with some hearings being streamed on the internet.

However, canvassing some of publicity’s disadvantages, he added that it may affect the way witnesses give evidence, which would influence how the tribunal acts, and knowing that the hearing is streamed may put more pressure on both sides. “While increased transparency might be good for the legitimacy of the process, there is a tension between that and achieving the best possible result.”

source: CDR