Investor-State Arbitration: Strategic and Tactical Perspectives on Legitimacy

David D. Caron, Boalt Hall School of Law, UC Berkeley

Abstract

This article examines a Symposium’s focus on investor state arbitration from two different points of perspective: as a system from afar and as an individual arbitration up close.

They are linked in that it is the actions of counsel and arbitrators in the individual and separate arbitrations when viewed in the aggregate which set the stage for discussions of whether the system meets its objectives and whether the system possesses the necessary legitimacy. And conversely, it is systemic perceptions of illegitimacy that lead to reform and changes in the terrain in which the individual arbitrations take place. As a practical matter, legitimacy critiques should be of concern because they possibly undermine the ability of the system to meet its objectives. As will be seen, in my view, the critiques suggest avenues for improvement in the system but do not fundamentally suggest that the system is illegitimate.

The essay concludes with reflection on the future evolution of ICSID and of the investment protection regime more generally. Where is the investment protection regime going? The question posed includes not only the specifics of how the investment arbitration system should evolve, but also the means by which it will evolve. Reform of the system will be difficult. Many BITs have already been concluded and investments have been made in reliance on the present form of those BITs. Yet, legal innovation is not to be underestimated and there are areas where evolution is entirely possible. One example of a potential area of innovation is that agreements as to the content of the requirement of fair and equitable could be concluded, or a body such as the International Law Commission could attempt to restate the content of the fair and equitable treatment requirement. Moreover, it must be borne in mind that it still is early in the history of investment protection treaties. There has not yet been sufficient time for a round of state renegotiation actions to respond to the arbitral decisions of the last two decades. The future of investment arbitration is still unclear. But to say it is unclear does not mean we have no sense of the directions and choices ahead. First, a global multilateral treaty will have some role to play, although such a treaty would embody a general consensus as the basic protections of investment protection thus supplementing, not replacing, the BITs. Such a multilateral system would supply a basic set of protections and avoid many of the gaps in coverage of the present bilateral array, would by its very nature moot much of the nationality requirements present in the bilateral system and provide an opportunity for the coordination of overlapping coverage in the bilateral system.

This essay is based on my closing remarks at a Conference held at Suffolk Law School entitled “Investor-State Arbitration: Perspectives on Legitimacy and Practice” on October 31, 2008.