By Nikolai Sosa Rebelo; Omar Ahmed Morsy – LL.M
Candidates at U.C. Berkeley.
·
Introduction
International arbitration is a different creature from
the domestic arbitration in many senses as we will demonstrate in this text.
The traditional view is that, ultimately, the international arbitration will
always be attached to a domestic legal system that will provide guidance through
the lex arbitri. This legal system
would regulate the dispute and courts will come in aid of arbitration whenever
it is necessary. The domestic rules of the state with more contacts with the
international relation would provide the applicable law or the tools to solve
the question of applicable law.
However, the traditional approach is challenged by prominent
scholars in the field of arbitration and international law. The questions posed
by those authors are more complex than before. The globalization created a new
reality. Assets move around the globe quickly, parties from all places make
contracts between them and international investors develop project on another
sovereign nation soil under the regime of an “international investment law”.
International arbitration became the preferred method of dispute resolution in
all this sorts of relations that got more complex than any domestic legal
system imagined.
In this modern reality, questions about the role of
arbitrators and arbitration in developing a legal system shows the complexity
of the problem. This very important topic goes beyond academic or philosophic
curiosity, because it is part of intense debates when countries are designing
international rules applicable to their relationship and the method of dispute
settlement increasingly is turning into the most controversial subject.
·Important
aspects of investment arbitrations that differ from the other types of
arbitrations:
Firstly, it is important to differentiate two
important types of international arbitrations, because it will influence how
the procedure is conducted and even how the decisions must be made.
International investment arbitration is a different creature that is governed
by some distinct types of procedural rules and deals with another range of
interests. International investment arbitration has different basis and
procedural framework. While the commercial arbitration has its foundations on
the arbitration agreement that may or may not refer to an institution, which
will also provide procedural rules, the investment arbitration can have three
sources that stablish the basis and the procedural framework:
o
Investment
contract (agreement between a host state and an investor) – the approach is
pretty similar to the idea of a contract between commercial parties. It is important
to mention that principles of international investment law protect the investor
(for instance, the pacta sunt servanda as
a protection against expropriation).
o
Statutory
law of the host state – the domestic policy of the host state may provide rules
protecting investment and stablishing investment arbitration as the mechanism
for dispute resolution.
o
Investment
treaty between host state and the state from where the investor is. This became
the most important source of law for investment arbitration. There is a flood
of bilateral treaties and other many multilateral treaties stablishing
arbitration to settle investment cases.
A second important aspect to mention is that many
investment arbitrations follow ICSID rules and the ICSID convention. Those
norms have many particularities that most of commercial arbitration
practitioners (and even arbitrators) may not be aware.
Arbitration proceedings under ICSID are free from
national law interference and from interference by domestic courts. This means
that domestic courts shall not issue provision orders in ICSID case, they shall
not annul an award from an ICSID tribunal (there is a special proceedings
inside the institution for that purpose) and domestic law will not provide
answers about applicable law, because the ICSID convention governs the rules
determining it. In addition, there are no Partial awards under ICSID rules,
which means that only the final decision can be challenged in an annulment
procedure. Furthermore, ICSID provide services to the tribunal that go beyond
of what other institutions do, and some commentators, in fact, criticizes when
the secretariat interferes more than the necessary.
Transparency is one more element of investment
arbitration that distinguishes it from commercial cases. Even though NY
Convention neither domestic laws of arbitration of different countries
prescribe confidentiality as part of the nature of arbitration, the parties
themselves made it a fundamental feature of this type of procedure. However,
investment cases involve interests that go beyond the interests of the parties
in the dispute. They deal with interests of a population of a host state and
transparency is elementary to investment arbitration proceedings. Having said
that, a characteristic of investment arbitration is that it always has a state
as a party. It is noteworthy that the participation of a state is not as a
contracting party, but as a sovereign nation that has made a sovereign act that
is challenged for allegedly violation of an investment protection. Investment
arbitration does not exist to solve mundane contractual disputes, but to provide
solution to investment claims under the international legal regime. Moreover,
the interests discussed in those cases allow third parties submissions, something
that would be very strange in a commercial case.
· The international legal regime. Who is in charge of
developing the international public policy?
Since the 19th century, states used the law
in pursuit of their policies. They intervened in the law making process in
order to further their political ideologies. It is the state’s aim to act as
the true defender of public interests as it perceives it from time to time.
The main concern with globalization is public policy
or order. The public policy of each individual state remains different to the
other and that serves as an impediment to the application of a transnational
order that would facilitate the flow of international commerce. Nevertheless,
the autonomous development of transnational minimum standards shows that
globalization is not merely an international market ploy and that it has
existed for quite some time now.
There has been an increase in new transnationalized
standards in private relationships worldwide that affect the international
marketplace in terms of mandatory law. For that reason, it is important from
the point of view of the globalized order, that transnational minimum standards
develop as public order requirements in those orders themselves, enforced for
example by international arbitrators.
Transnationalization poses the question of who in the
transnational legal order are the proper spokespersons for the public interest.
It may still need strong support from treaty law, assuming states will be able
to agree on something, but treaty law will no longer be the only source in the
international order. The relevant question then becomes: how do international
minimum standards come about? And, ultimately, are they strong enough to
balance the system, and who enforces them? Another issue worth mentioning is
whether international arbitrators can raise public policy issues themselves.
International arbitration has a prominent role to
play, including the function of being a prime spokesperson for the new order
(transnationalization). The transnational legal order would then become the
order from which international arbitrators derive their power, as opposed to
deriving their authority from the arbitration clause, which could hardly
explain the arbitrator’s authority to bind third parties in proprietary matters
or in matters of public policy. The clause, then, become a mere ‘activator’ of
the arbitration.
In investment claims, the fact that one of the sides
is a sovereign nation that must protect its public policy and the interests of
its population became an increasing concern of jurists and tribunals. The sense
of public interest makes arbitrators arrogate a new responsibility in this new
concept of international law. Tribunals started to reduce amount of damages and
they are starting to consider more the possibility of non-pecuniary remedies
(injunctions) or restitution. In addition, there is the idea of iuria novit curia, which means that
arbitrators presumably know international law and must apply it ex officio. Moreover, the transparency
of investment arbitrations allowed the emergence of the concept of soft
precedent in investment cases and it made arbitration as the driving force of
international investment law.
Conclusion
It is the fear of legal experimentation that prevents
a transnational order from arising. Leaning on the comfort of the established
framework and the belief in self-sufficiency are the two factors that are
enabling the states to remain the spokespersons of public policy and order.
This is where the role of international arbitration
comes in. Since, international arbitrators are unlikely to have any background
in one particular domestic system as lex
fori, they have to apply a transnational one. The parties to a dispute will
then have to demonstrate and prove the practices, customs, and general
principles on which they rely in their private international dealings. This
might lead to legal transnationalization through the international arbitrator’s
exercise of law and public policy discovering.
The big debate is if the nations wants to leave
international public policy in the hands of arbitrators, because some may argue
that they are outside the democratic process. Therefore, this train of thought
says that politicians (meaning the states) should have that role. However, the
counter argument would be that arbitration based on customary law in a system
of law derived from the facts (as in the traditional approach of English common
law) is more democratic than the political democracy itself. This is a questions
must be addressed in order to create a transnational legal environment that is
compatible with the new globalized reality.
[i] This text is an adaptation of the presentation made in
the International Arbitration Colloquium at University of California Berkeley
on February 10 of 2016, coordinated by Professor Jan Dalhuisen. The main ideas
here presented are from the articles of H van Houtte and M Brunetti, Investment
Arbitration – Ten Areas of caution for Commercial Arbitrators, 29 Arb.
Int’l 553 (2013). JH Dalhuisen,
Globalisation and the
Transnationalisation of Commercial and Financial Law, 67 Rutgers ULR 19
(2015), and A Kulick, Sneaking through the Backdoor- Reflections on Public
Interest in International Investment Arbitrations, 29 Arb. Int’l 435 (2013)
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