BCDR CEO Speaks on Investment Arbitration Reform in Vienna

The panel at the debate. From left to right: Dr. Moritz Keller, Prof. Nassib G. Ziadé, Prof. Dr. August Reinisch and Prof. Dr. Marc Bungenberg

Prof. Ziadé speaking at the debate

An audience member putting a question to the panel

The chief executive officer of the Bahrain Chamber for Dispute Resolution, Professor Nassib G. Ziadé, today took part in the Vienna Investment Arbitration Debate organized by Professor Dr. August Reinisch of the University of Vienna and Dr. Moritz Keller of Clifford Chance, Frankfurt. The debate consisted of two panel discussions, one entitled “UNCITRAL Working Group III: The Never-Ending Discussion About Precedent,” and the second, “Investment Arbitration and the EU: The Future After Opinion 1/17 and Achmea.”

Click here to see the full program of the debate.

Professor Ziadé participated in the debate on the first panel, alongside Professor Dr. Marc Bungenberg of the University of Saarbrücken. The moderator was Professor Reinisch. The panel considered whether there was a need for more consistency in investor-state dispute settlement (ISDS) decisions, and whether any reforms in this direction might prevent the emergence of new investment protection standards or lead to the disappearance of the fair and equitable treatment (FET) standard as we currently know it.

With regard to the alleged lack of consistency in ISDS case law, Professor Ziadé observed that although there was no stare decisis or precedent in ISDS, tribunals nonetheless remarked that they “must pay due consideration to earlier decisions” of other investment tribunals (Saipem v. Bangladesh); that they “ought to follow solutions established in a series of consistent cases” (Bayindir v. Pakistan); that they had “a duty to seek to contribute to the harmonious development of investment law” (Oostergetel v. Slovakia); and that previous decisions “may provide guidance” (Burlington v. Ecuador).

Professor Ziadé pointed out that modern investment treaty arbitration was still in its infancy, with a body of law that was as yet relatively undeveloped. Its formation dates back to the 1990s, notably with the AAP v. Sri Lanka case, but it was not until the 2000s that ISDS jurisprudence began really to expand. It is therefore understandable that at such an early stage of its development there should be divergent interpretations of important substantive standards, such as the most favored nation (MFN) clause and the umbrella clause, given that the landmark cases on these important questions are relatively recent.

Professor Ziadé cautioned that the debate over the alleged lack of consistency in ISDS case law should be kept in proportion, as the inconsistencies are greatly outnumbered by the consistent trends in the field. These include such matters as the need for permanent and irreversible deprivation in order to establish expropriation (whether direct or indirect); investment tribunals’ lack of authority to review national court decisions when faced with claims of denial of justice; and the requirement of due diligence under the full protection and security obligation, implying reasonable measures of protection, rather than strict liability.

On dissenting opinions, Professor Ziadé remarked that, although criticized, they can play an important role in the development of ISDS law, including in relation to the annulment of ICSID awards. A dissent today may become a majority or even a unanimous finding tomorrow.

Professor Ziadé then stressed how uncertain it was that an appellate structure or permanent investment court could foster greater consistency in ISDS jurisprudence. First, he noted that none of the reform proposals put forward by the European Union, the biggest advocate of such a system, envisages a hierarchy between appellate and first instance decisions or for any kind of strict legal precedent. Second, greater consistency through an appellate mechanism will be of no benefit if the decisions are inaccurate or erroneous. Third, some instances of inconsistency in ISDS decisions may be attributed to the ideological viewpoints of the arbitrators sitting on those cases, which tend to reflect the divisions that exist within the broader international community between capital-importing and capital-exporting states. A permanent court would not reduce inconsistencies resulting from diverging viewpoints, but rather give rise to dissenting opinions that would undermine predictability and hinder the establishment of clear precedents. To illustrate his point, Professor Ziadé gave the example of the judgment of the International Court of Justice of 5 February 1970 in the Barcelona Traction case, to which eight separate opinions and one dissenting opinion were appended.

Professor Ziadé also highlighted some of the practical limitations on a permanent court’s ability to foster greater consistency. One of these was the inevitability of divergent interpretations of substantive standards in a system that is based on more than 3,000 bilateral investment treaties.

Another disadvantage was that the addition of a further procedural layer to proceedings would encourage parties to bring appeals, thereby increasing the duration and cost of ISDS cases to the detriment of small and medium-sized enterprises and states with limited resources.

Instead, Professor Ziadé proposed some alternative solutions to improve consistency. While recognizing the achievements of the ISDS system in relation to transparency, he recalled that many awards still remained unpublished, which inhibited the development of a more consistent decision-making. He, therefore, urged stakeholders to increase their efforts so that virtually all ISDS decisions are published. Professor Ziadé also suggested the creation of joint committees, alongside arbitration tribunals, to issue interpretations of the treaty provisions that would be binding on investment tribunals established under the treaty in question. Joint interpretative bodies already exist under the North American Free Trade Agreement (NAFTA) and are provided for under the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and the United States-Mexico-Canada Agreement (USMCA). He also strongly encouraged ICSID to develop a pool of arbitrators dedicated exclusively to handling annulment proceedings. This would contribute to promoting consistency in the application of the ICSID Convention and Rules by annulment committees. Given the limited grounds for annulment provided in the ICSID Convention, he urged states to insert additional grounds for annulment in their investment treaties that refer to ICSID arbitration.

Professor Ziadé concluded his contribution by pointing out that, according to UNCTAD, more than 2,500 of the international investment treaties in force today are “first-generation treaties” negotiated in the 1990s and 2000s when ISDS jurisprudence was still in its early days. Those treaties contained broadly worded substantive provisions. By contrast, modern treaties offer greater clarity regarding substantive protections, focusing particularly on a state’s right to regulate. Professor Ziadé therefore recommended that, whenever an investment treaty reaches a stage at which it can be unilaterally terminated by a contracting party, that states take the opportunity to reform the substantive protections contained in the treaty by way of revision, amendment, or by replacing the old treaty with a newer and modern one.

The Vienna Investment Arbitration Debate ended with a keynote address by the renowned arbitrator and former president of the Iran-United States Claims Tribunal, Professor Dr. Hans van Houtte.