International Investment Arbitration

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Introduction

In 2014, the International Bar Association (IBA) Subcommittee on Investment Treaty

Arbitration carried out a survey whose findings were summarized in a report published in 2016.

In the survey, they administered a questionnaire containing 51 questions that covered different

topics surrounding international arbitration. 109 respondents participated in the study and a

majority of them were of the opinion that the appellate system would help address the

inconsistencies witnessed in arbitral decisions. Notably, a legal system is regarded as consistent

when it gives rise to uniform solutions and is characterized by predictability which consequently

brings about legitimacy and credibility of judgments. However, when this is not the case,

disputes arise due to the contradictions encapsulated in the cases and this ultimately increases the

cost of the process. Investment arbitration has been prone to inconsistencies to the extent that it

has been the subject of research where authors have sought the root cause. Accordingly, the

findings have attributed this phenomenon to the features of investment law1. In this regard, this

paper will discuss these shortcomings and how the appellate system, when included as a reform

strategy, would address the problem of inconsistency in investment arbitration.

Inconsistency

In his paper, Prof. Levy Kaufmann-Kohler discussed whether consistency, as regards

investment arbitration, is a myth. He gave two examples that gave an answer in the affirmative.

1
IBA Arbitration Subcommittee on Investment Treaty Arbitration. Consistency, Efficiency and

Transparency in Investment Treaty Arbitration. PDF. IBA, 2018.

https://www.ibanet.org/Document/Default.aspx?DocumentUid=a8d68c6c-120b-4a6a-

afd0-4397bc22b569.
 Surname 3

The first entailed the fact that there is a clear separation between contract and treaty claims. The

second, on the other hand, relates to the practice whereby arbitral tribunals ensure that they

respect the treaty language and facts, thereby promoting equitable and fair treatment for both

parties. They do this by emphasizing the need for a stable business and legal framework in

addition to the rational and genuine expectations of the investors2.

Nonetheless, there are characteristics of investment arbitration which prove that

consistency is a myth. Firstly, the contentious umbrella clause which, through two separate SGS

Cases involving Pakistan and the Philippines, elevated contract claims to treaty claims. Notably,

other cases were of a contrary opinion. The second feature that has brought inconsistency

surrounds the issue of necessity whereby some decisions are against the state of necessity while

others are in its favor. This, therefore, shows that the various cases have given rise to

inconsistent results on this issue.

As stated earlier, some features of international law have promoted the various

inconsistencies. These include the fact that legal issues that surround investment arbitration

encapsulate concepts that are meant for a wide range of situations. This, therefore, makes them

open to diverse interpretations and criticisms. Secondly, the dispute resolution process is

decentralized in that there are different arbitral institutions each of which operates under its

specific rules. Lastly, the international investment law is relatively new given that the decisions

2
Kaufmann-Kohler, Gabrielle. "Is consistency a Myth?" Precedent in International

Arbitration 137 (2008).

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to significant cases only begun in the early 1990s. This, therefore, implies that the many aspects

of this type of law are still being developed 3.

Solutions to Inconsistency

Scholars have advanced various solutions to the problem. One of these, the appellate

system, is concerned with completely transforming the existing international arbitration working

mechanism and characteristics. The appellate system was first fronted in a proposal by the

United States in its 2002 legislation the Trade Promotion Authority Act. In its submission, the

appellate body would provide uniformity “to the interpretations of investment provisions in trade

agreements.”4

The pursuit for coherence was not only limited to the USA government but also scholars

and specialists in the field. It had been observed that the International Center for the Settlement

of Investment Dispute’s (ICSID’s) annulment mechanism had not successfully achieved this.

This was due to the limited nature of its review process in addition to its ad hoc nature.

Moreover, observers note that a dispute settlement system that is in contravention of fairness is

not sustainable. In this case, fairness is encapsulated by the predictability that is begotten from

consistency. Noting the shortcomings, the ICSID proposed an appellate system in 2004.

However, its implementation was impeded by the fact that, at that time, commentators were of

the opinion that it was a premature solution given that the ICSID had not addressed the policy

issues it had identified earlier.

3
Kaufmann-Kohler, Gabrielle. "Is consistency a Myth?" Precedent in International

Arbitration 137 (2008).

4
Bipartisan Trade Promotion Authority Act of 2002, 19 USC ss 3801–3813 (West Supp 2003).
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Nevertheless, the call for such a system has gained traction. This is in spite of the fact

that it faces challenges that regard the form in which it should take. The proposals include a

global institution or a regional multilateral solution. The general consensus, however, is that the

ICSID should come up with an appeals facility which would help foster coherence. Its

importance cannot be understated particularly because of the increasing number of bilateral

treaties that are often negotiated at any given time. It is worth noting that such treaties are written

using different terms which had to be included because of the everchanging standards.

Furthermore, the coherence aspect of international law will always be analyzed alongside other

important interests such as human rights, environmental, and developmental aspects. As such,

when the focus is only based on one of these issues, the balance of maintaining both a country’s

and an investors’ interests is greatly affected since it will be carried out in line with the

circumstances and contents of the treaty. This, therefore, breeds inconsistency.5

As stated earlier, the current system is heavily decentralized, a characteristic which

breeds chaos. The opposing opinions of different shareholders necessitate lawmaking and an

investigation into the decisions made in previous cases that were issues based on merit. It is

noteworthy that an appeals facility can bring about both of these results. Although lawmaking is

reserved for the legislature, courts refine these laws by interpreting them, thereby promoting

coherence. In an appellate system of common law, reviews of the decisions will be carried out to

5
IBA Arbitration Subcommittee on Investment Treaty Arbitration. Consistency, Efficiency and

Transparency in Investment Treaty Arbitration. PDF. IBA, 2018.

https://www.ibanet.org/Document/Default.aspx?DocumentUid=a8d68c6c-120b-4a6a-

afd0-4397bc22b569.
 Surname 6

enhance the uniformity of decisions. The facilities will also adopt existing laws that meet new

situations and evolving circumstances. This calls for the need for such courts to ensure continuity

and change since by adopting laws based on new challenges, they would be bending or

overruling earlier decisions. The appellate system in international arbitration would have to abide

by these features of the normal appeal courts.

However, a relatively young appeals facility would face challenges because it would be

forced to abide by the decisions delivered in earlier cases regardless of the costs to the different

parties involved. The solution to this problem will, however, rely on the developmental aspect of

law whose practice often comes at the expense of consistency. This development aspect relates

to the adaption of existing laws to fit a particular situation.6 Priya Sampath notes that such the

appellate facilities should be transnational in nature given that a judicial review carried out by

one country would not be as impartial as desired. It would also address the problems such as

corruption, congestions, and procedural shortcomings of national courts7. Such a unified system

of arbitral appeal will offer uniformity, universality, and predictability, thereby addressing the

problem of inconsistency.

Notably, the appellate system will be used following an initial ruling in international

arbitration. Presently, the party that loses seeks an appeal of the award in the national courts of

the country in which the arbitration took place or with the institution that gave the decision.

However, in many nations, the existing statutes are extremely limiting when it comes to the

6
Cate, Irene M. Ten. "International arbitration and the ends of appellate review." NYUJ Int'l L. &

Pol. 44 (2011): 1109.

7
Sampath, Priya. "The need for a transnational appellate arbitral review body." (2007).
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judicial review of arbitral awards. Additionally, the arbitration institutions also provide

“extremely limited grounds of review for awards rendered by them.”8 In this regard, a

transnational appeals facility will address these problems.

Conclusion

An appeals facility for international arbitration would be ideal since it would help address

the problem of inconsistency which exists. Consistency is required because it ensures fairness

given that the decisions that follow a ruling are predictable in nature and this leads to satisfaction

for both of the parties involved, that is a state and an investor. However, when this is lacking,

injustice for the party that has lost the case is the norm. Given the limiting nature of available

arbitration appeals avenues, a transnational facility is required. It should function like a normal

appeals court, guided by the need to constantly adapt new laws to suit a given situation in

addition to analyzing previous decisions to ensure uniformity with regards to new cases. Such a

system would address problems that exist in the current dispensation, namely the chaos and

decentralization.

8
Sampath, Priya. "The need for a transnational appellate arbitral review body." (2007).
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Bibliography

Bipartisan Trade Promotion Authority Act of 2002, 19 USC ss 3801–3813 (West Supp 2003).

Cate, Irene M. Ten. "International arbitration and the ends of appellate review." NYUJ Int'l L. &

Pol. 44 (2011): 1109.

IBA Arbitration Subcommittee on Investment Treaty Arbitration. Consistency, Efficiency, and

Transparency in Investment Treaty Arbitration. PDF. IBA, 2018.

https://www.ibanet.org/Document/Default.aspx?DocumentUid=a8d68c6c-120b-4a6a-

afd0-4397bc22b569.

Kaufmann-Kohler, Gabrielle. "Is consistency a Myth?" Precedent in International

Arbitration 137 (2008).

Sampath, Priya. "The need for a transnational appellate arbitral review body." (2007).