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Preface
Publication Jean Engelmayer Kalicki; Mohamed Abdel Raouf
Evolution and Adaptation: ICCA Congress Series no. 20 comprises the proceedings of the XXIV ICCA Congress, held in
The Future of International Sydney, Australia, on 15-18 April 2018. We thank the ICCA Sydney Host Committee for their
Arbitration hard work and gracious hospitality, which created such a well-organized and welcoming
setting for the substantive work of the Congress participants.
The theme of the Congress, “Evolution and Adaptation: The Future of International
Bibliographic reference Arbitration”, was chosen with great care. We wished to highlight arbitration as a “living
Jean Engelmayer Kalicki and organism” which has adapted in the past to various substantive and practical challenges,
Mohamed Abdel Raouf, and that today – under attack from various quarters – might need to demonstrate its
'Preface', in Jean Engelmayer adaptability again. Under this theme, the Programme Committee developed a range of
Kalicki and Mohamed Abdel plenary and parallel sessions to address the evolving needs of users, the impact of the
Raouf (eds), Evolution and rapidly changing face of technology, the expectations of the public, and the convergence
Adaptation: The Future of and divergence of different aspects of legal traditions and cultures.
International Arbitration, As Jean Kalicki explained in her opening remarks on the first day of the Congress, a 1996
ICCA Congress Series, Volume book entitled Dealing in Virtue: International Commercial Arbitration and the Construction of
20 (© Kluwer Law a Transnational Legal Order (1) had described a great transition in the field of arbitration.
International; International The authors' thesis was that what had begun as an informal, settlement-oriented system,
Council for Commercial once dominated by European academics whom they called the “grand old men”, had
Arbitration/Kluwer Law shifted to a more formalized and litigious practice, dominated by US or multinational law
International 2019) pp. v - firms and what the authors called the “arbitration technocrats”. The authors wondered
viii about the future, particularly whether it might see the growth of regional arbitration
centers. But there were other changes on the horizon that the authors did not foresee in
1996. The index to the book contained only a single reference to bilateral investment
treaties – and also only a single reference to the topic of women in arbitration. Each of
those solitary listings led to a single footnote reference, not even a discussion in the body
of the book itself.
Yet if someone today were to write a new book about the few decades of arbitration since
Dealing in Virtue was published, it would tell a very different story – including about change
in the subject matter of disputes and diversity in the composition of counsel teams and
arbitrators. One need only look at today's headlines, not only in the specialized arbitration
press but also in the mainstream media, to see how investor-State dispute settlement has
come to dominate a good portion of the public debate about arbitration. And one need
only look at the delegates to the XXIV ICCA Congress, who hailed from some sixty-two
different countries, to understand the globalization of arbitration practice. Thanks both to
generational change, and to the concerted efforts of arbitral institutions and community
leaders, the field also has made major strides in gender diversification.
But the story of evolution will not end today either, because arbitration is an adaptive and
not a static mechanism. If another book on our community is published a few decades from
P v now, the tale it will tell will be different again from whatever story we might tell today.
P vi What that future story will look like will depend in large part on how the members of our
community, and the next generation of thought leaders, manage to address some of the
major challenges and opportunities that are coming to the fore today.
So what is it about our field that makes it so open to evolution and adaptation? What are
the main pressure points today, and the unmet needs of stakeholders? What are the
opportunities for expansion to new sectors and new audiences? What are the drivers for
change, what are the obstacles, and what are the risks? And equally important, what are
the core principles that should never be lost? These were the topics of the XXIV ICCA
Congress, and of the sixteen separate panels that were developed by our dedicated
Programme Committee.
There was a method to our organization of the individual panels, which is reflected also in
the Chapters of this Congress Book. First, after the opening keynote address on 16 April
2018 organized by the Host Committee, we set the stage for the Congress theme with an
initial plenary session examining the underlying notion of lawmaking in arbitration. How
much authority do various actors – tribunals, arbitral institutions, professional
organizations, national legislators, courts, and international organizations like ICCA – have
to create or to change the rules by which disputes are resolved? Where does that authority
come from, and what is the source of its legitimacy? These plenary questions led naturally
into a lunchtime program at which four leading arbitrators shared their personal
reflections on evolution and adaptation, discussing the past, present and future of their
own careers, and of arbitration itself.
The next day and a half featured six time slots offering concurrent programming, allowing
delegates to sample from among a twelve-course “arbitration smorgasbord”. On the first

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 afternoon, we started with two parallel panels on reform ideas for investment treaties and
for commercial arbitration respectively, and moved to parallel programs on rethinking
party autonomy in choosing decision-makers and on the important issue of “equality of
arms”, which requires special attention in light of the increasing expense of arbitration
proceedings. The following morning, 17 April 2018, in one room we offered consecutive
panels discussing two different aspects of the increasingly public nature of arbitrations:
the role of public entities even in commercial disputes, and the questions of
confidentiality, transparency and public participation. Meanwhile, in the other room we
focused on practical suggestions for building better proceedings, first with a panel on
rethinking conventional wisdom in organizing proceedings, and second with one asking
what lessons might be learned from others, particularly commercial courts and specialized
arbitration regimes. That afternoon, in one room we focused on the changing impact of
technology, first with some show-and-tell on new tools that might facilitate arbitration,
and then with the question of technological disruption, including the increasingly vital
issue of cybersecurity. In the other room, we offered an ICCA “rapid response” panel
tackling some of the hottest topics of the last few months, informed by recent headlines
and by suggestions from delegates themselves. That panel was followed by the first ever
ICCA “New Voices” panel, with substantive presentations from four next-generation scholars
and practitioners chosen through a public competition based on short abstracts. Their
topics included arbitration of disputes in conflict and post-conflict zones, inter-
generational blame and praise in investment arbitration, the emergence of sovereign
wealth funds as arbitration participants, and fresh approaches to briefing damages in
investment cases.
P vi
P vii
Finally, we closed the Congress on 18 April 2018 with a two-part plenary on “new frontiers in
arbitration”. Our panelists offered an ICCA “mission to the future”, asking – for both new
types of claims and new types of stakeholders – whether arbitration might venture before
long into strange and exciting worlds, where no arbitrator has gone before.
As Co-Chairs of the Programme Committee, we recognize that none of this dynamic
programme would have been possible without the concerted and sustained efforts of many
people. The ideas began at the XXIII ICCA Congress in Mauritius, where we sat down with
ICCA President Donald Donovan and Vice President Meg Kinnear to begin discussing
possible themes for the XXIV Congress in Sydney. Thereafter, we were the beneficiaries of a
very active and thoughtful Programme Committee consisting of Chiann Bao, Ndanga
Kamau, Makhdoom Ali Khan, Brandon Malone, Wendy Miles, Ina Popova, Stephan Schill,
James Spigelman, Monty Taylor, Byung-Choi (B.C.) Yoon, and Eduardo Zuleta. Some of these
Programme Committee members later served as moderators or session chairs for the
panels they helped develop, (2) but we wish to thank particularly our additional
moderators and session chairs (Lisa Bingham, Stavros Brekoulakis, Paul Cohen, Stephen
Drymer, Susan Franck, Gabrielle Kaufmann-Kohler, Mark Kantor, Meg Kinnear, Carolyn
Lamm, and Dietmar Prager), as well as the rapporteurs who greatly supported their efforts
(Marina Kofman, Mallory Silberman, and Laura Sinisterra). We also extend a special word
of thanks to the members of the ICCA Bureau (Lise Bosman, Lisa Bingham, Lucy Burns, and
Lauren Voges), without whom this Congress simply could not have been possible.
In addition, we wish to acknowledge the contributions of the Young ICCA co-chairs who
served on the review committee to select the “New Voices” panelists (Gardar Gunnarsson,
Sylvia Tonova, Nhu-Hoang Tran Trang and Tolu Obamuroh). In general, one of the
innovations of the XXIV ICCA Congress was that selection of panelists drew significantly on
two public calls for expressions of interest, one specifically for the New Voices panel but
the other for the Congress sessions as a whole. We received hundreds of well-developed
ideas from around the globe, and we could have filled many Congresses over with the
talent and enthusiasm we received. We worked hard to make sure the final composition
featured a good balance of experience and new faces, and that it also reflected ICCA's
broad constituency. We are proud to report that our final list of speakers included
nationals of thirty-five different countries, which says a lot about the globalization of
arbitration and of ICCA itself. We were also particularly pleased that 45 percent of our
speakers were women, which was a record for ICCA and perhaps for a major arbitration
conference more generally. We did not try to calculate the average age of our speakers –
which would have required asking some delicate questions! – but we believe the Congress
featured more younger faces than in the past. This was important to us, as any program
about evolution and adaptation must feature the voices of tomorrow, and not just the ones
of yesterday and today.
Lastly, one of the things that make ICCA Congresses different from all others is the
P vii emphasis on scholarship. With the exception of a few panels, ICCA speakers are expected
P viii to prepare publication-ready papers before the Congress in order to make a serious
contribution to the field. Our panelists took that responsibility very seriously, as you will
see from the final papers published in this Congress Book. We also had the invaluable
support of the Editorial Staff of ICCA Publications, in particular the tireless efforts of Ms.
Alice Siegel (Assistant Managing Editor), in preparing this volume for publication. We are
grateful to the Permanent Court of Arbitration and its Secretary-General, H.E. Hugo Hans
Siblesz, for hosting the ICCA Staff at the headquarters of its International Bureau at the
Peace Palace. The continued support of the entire administrative and technical staff of the

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 PCA is much appreciated as well.
Looking ahead, we are excited for the next ICCA Congress, which will take place in
Edinburgh, Scotland, from 10-13 May 2020, and feature the theme, “Arbitration's Age of
Enlightenment?”. Information on the XXV ICCA Congress will be posted on the ICCA website,
<www.arbitration-icca.org>, as well as at <http://icca2020.scot>.
Jean Kalicki and Mohamed Abdel Raouf
October 2019
P viii

References
1) Yves DEZALAY and Bryant G. GARTH, Dealing in Virtue: International Commercial
Arbitration and the Construction of a Transnational Legal Order (University of Chicago
Press 1996).
2) The moderators, session chairs, panelists and rapporteurs for each individual panel are
listed in the Table of Contents of this Congress Book.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Commercial and Investor-State Arbitration: The
Publication Importance of Recognizing Their Differences
Evolution and Adaptation: James Allsop
The Future of International (*)
Arbitration
Much has been written and said in recent years about perceived problems in international
arbitration. The very theme of this important Congress is the reassessment of, and
Topics introspection about, basal conceptions and structures of the process of arbitration.
Concerns about investor-state dispute settlement (ISDS) provisions in international
Investment Arbitration investment treaties have been an area of particular focus, and the debate about
investment arbitration has become prominent both within the arbitration community, and
in government, the academy and the press. These issues, by and large, are focused on
Bibliographic reference national sovereignty and public accountability issues, and are arising at a time of
James Allsop, 'Commercial increased fragmentation of, and scepticism toward, globalized trade. International
and Investor-State commercial arbitration has also been the subject of criticism and hard evaluation. Many of
Arbitration: The Importance the concerns in relation to international commercial arbitration are expressed in language
of Recognizing Their similar to concerns about ISDS arbitration, but that superficial similarity should not be
Differences', in Jean allowed to disguise the important differences between the two types of dispute resolution,
Engelmayer Kalicki and and the quite different issues involved.
Mohamed Abdel Raouf (eds), Let me begin by saying something of ISDS.
Evolution and Adaptation:
The Future of International I Concerns Regarding Investor-State Dispute Settlement
Arbitration, ICCA Congress
Series, Volume 20 (© Kluwer P 3 The perceived problems with investment arbitration have been summarized in numerous
Law International; P 4 works by judges, scholars and bodies such as the European Union. (1) These include: a
International Council for perception of illegitimacy of ISDS in its impacts on national sovereignty, due to the lack of
Commercial public accountability; the affectation of the capacity of states to legislate on issues of
Arbitration/Kluwer Law public policy; perceived bias or unsuitability of arbitrators of private commercial
International 2019) pp. 3 - 21 background adjudicating public disputes involving public policy; so-called “issue conflict”
as arbitrators accept repeated appointments, or continue to act as counsel, and deal with
the same issue more than once; issues of consistency and predictability and the lack of a
developed system of precedent; the process of the appointment of arbitrators; the limited
ability to review the substance of awards; and the costs of investment arbitration.
In an illustration of the tone of some of the coverage that ISDS has attracted in the press,
The Economist went so far in 2014 to describe ISDS as “a special right to apply to a
secretive tribunal of highly paid corporate lawyers for compensation whenever a
government passes law…”. It cited as concerns “the secretive nature of the arbitration
process [and the fact that] the lack of any requirement to consider precedent allows plenty
of scope for creative adjudications”. (2)
The Hon Robert French AC, when Chief Justice of the High Court of Australia, expressed
what, to my mind, is the fundamental issue of concern about investment arbitration: (3) the
implications of ISDS arbitration for “national sovereignty, democratic governance and the
rule of law within domestic legal systems”. (4) Such concerns led the Council of Chief
Justices of Australia (of which, I should say, I was and am a member) to write to the
Commonwealth Attorney-General requesting that Australia: (5)
“have regard to the possibility that, absent suitable qualifications, arbitral
processes might be invoked to call into question the decisions of domestic
courts either by submissions that such decisions are breaches of an investment
treaty or alternatively seeking findings based upon propositions inconsistent
with such decisions”.
As the former Chief Justice said: (6)
“The public interest dimensions of arbitral decisions arising out of [investment
treaties], particularly where they involve State regulatory action or a judicial
decision, means that the public policy debate will continue and continue to
focus upon questions of national sovereignty, the privileging of foreign investors
and the democratic legitimacy of the arbitral process.”
P4
P5
Such rule of law concerns have also been noted by Lord Neuberger, the former President of
the Supreme Court of the United Kingdom, as based on the fact that ISDS can have the
outcome of an arbitral tribunal being able to review public policy or domestic law that has
already been adjudicated upon by the court of a sovereign state. (7)

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 It should be noted at this point (as explicitly recognized in the letter from the Council of
Chief Justices) that many of the concerns can be addressed at the point of treaty
negotiation.
Well-known examples of ISDS claims have been used to justify these concerns. One
example is the arbitral claim that was brought by Chevron against Ecuador, and the
tribunal's interim award requiring Ecuador to suspend enforcement or recognition of a US$
9 billion judgment against Chevron. (8) Another is the International Centre for Settlement of
Investment Disputes (ICSID) claim by Eli Lilly against Canada that contended that a
decision by the Supreme Court of Canada interpreting the validity provisions of the
Canadian Patent Act violated provisions of the North American Free Trade Agreement
(NAFTA). (9) It should be noted, however, that case was decided in favour of Canada and an
award in its favour was issued on 17 March 2017. (10) A third was the claim brought by Philip
Morris Asia under Australia's investment treaty with Hong Kong in 2011 seeking
compensation of more than one billion dollars for expropriation of trade marks caused by
the enactment of the Australian Government's plain packaging tobacco legislation. (11)
Philip Morris, together with a number of other tobacco companies, lost a constitutional
challenge to the legislation in the High Court of Australia in 2012. (12) The legislation was
found not to be expropriatory. The arbitral claim constituted a challenge to an Australian
public policy that had been declared lawful and not confiscatory by the highest court in
Australia. The arbitration occurred under the United Nations Commission on International
Trade Law (UNCITRAL) Rules and under the auspices of the Permanent Court of Arbitration.
Then Chief Justice French's concerns about ISDS were expressed in the context of that
claim being on foot. That claim was ultimately rejected on jurisdictional grounds by the
arbitral tribunal in December 2015. (13) In a redacted version of the award published in
2016, the tribunal found that the claim constituted an abuse of rights, finding that Philip
Morris had engaged in corporate restructuring when it was foreseeable that the
P 5 government would introduce plain packaging legislation and that the “principal, if not
P 6 sole, purpose of the restructuring was to gain protection under the Treaty in respect of
the very measures that form[ed] the subject matter of the present arbitration”. (14)
The claim brought by Philip Morris was brought during the process of negotiation for the
proposed Transpacific Partnership (TPP), which was proposed to include ISDS. (15) The
argument over the TPP was part of a broader zeitgeist against globalization that in some
ways has grown even more aggressive in recent years. Following the Philip Morris case, the
Australian Government that was then in office withdrew its support for ISDS in trade
negotiations, (16) and the New Zealand government has now also adopted that position.
(17) In the negotiations for the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP), the successor to the TPP (after it was abandoned by the Trump
Administration) that was concluded on 8 March 2018, (18) New Zealand also attempted in
negotiations to exclude ISDS from the agreement though such a position was rejected by
the other parties. (19) It is not appropriate for me to make any comment on those policy
positions, but I suggest it shows the prominence of the debate and the level, perhaps, of
concern about ISDS.
The implications of ISDS for public policy and national sovereignty have driven arguments
about the need for transparency in investment arbitration, on the basis that the public
nature of these disputes means that there should be a capacity for, at least, public
awareness and potentially public involvement. (20) Four principles of transparency have
been proposed: publication of documents, public hearings, the capacity for other State
parties to an investment treaty such as an investor's home state to participate, and the
ability of non-State parties to participate as amici curiae. (21)
P6
P7
There have been several developments toward greater transparency in investment
arbitrations. They include the publication by UNCITRAL in 2014 of the UNCITRAL Rules on
Transparency in Treaty-based Investor-State Arbitration that apply to investment treaties
concluded after 1 April 2014 and where arbitrations are conducted under UNCITRAL rules.
UNCITRAL has subsequently developed its Rules on Transparency into the United Nations
Convention on Transparency in Treaty-based Investor-State Arbitration (the Mauritius
Convention) which was opened for signature on 17 March 2015 and entered into force on 18
October 2017. (22) The Mauritius Convention applies the UNCITRAL Rules on Transparency
to investment treaties concluded before 1 April 2014. (23) The preamble of the Convention
speaks of “recognizing the need for provisions on transparency in the settlement of treaty-
based investor-State disputes to take account of the public interest involved in such
arbitrations”. The UNCITRAL Rules provide for: publication to the public of information at
the commencement of arbitral proceedings as to the parties, the economic sector involved
and the treaty under which the claim is brought; (24) the publication of documents to the
public such as the notice of arbitration, the response, statement of claim, statement of
defence, written submissions, exhibit and witness lists; (25) submissions by third persons;
(26) submissions by non-disputing parties to the treaty; (27) public hearings for oral
argument (with provision for in camera arrangements for parts of hearings where
necessary); (28) a regime for exceptions to transparency in the context of confidential or
protected information or to protect the integrity of the arbitration. (29)
Nevertheless, despite these steps the debates about ISDS, and international arbitration,
have, if anything, accelerated, most recently by the contribution of the European Court of

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 Justice. (30)
P7
P8

II The Isds Landscape

As at 2017, there were estimated to be over 3,300 investment treaties in existence. (31) As
this audience will be well aware, since the first bilateral investment treaty in 1959, these
treaties have been developed in order to encourage foreign investment and to provide an
enforceable mechanism for protecting these foreign investments, in the form of investment
arbitration. (32) The rationale for its introduction involved a critical issue in world power
relationships. In his insightful opening address at the 2012 ICCA Congress in Miami, Judge
Schwebel described the context in which investment arbitration developed, in the wake of
the expropriation of Anglo-Iranian Oil by the Mossadegh government in 1951 in Persia and
debates about permanent sovereignty over natural resources in the United Nations in the
1960s and 1970s. Judge Schwebel pointed out that investment arbitration was designed to
prevent “gunboat diplomacy” and characterized the “entitlement to international
arbitration as one of the most progressive developments in the procedure of international
law of the last fifty years”. (33)
The development of ISDS included the conclusion of the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention)
in 1965, under which the majority of investment arbitrations are undertaken. The
conclusion of ICSID and the numerous bilateral treaties that utilize ICSID for dispute
resolution superseded the indirect remedy of diplomatic protection and completed the
progression from the gunboat diplomacy of the late nineteenth and early twentieth
century to the now well-established system of direct private rights of enforcement against
sovereign states by way of investment arbitration, a remarkable flowering of the protection
by the rule of law of commercial rights. In the criticisms of ISDS this history should be
recalled.
Statistics collected by the United Nations Conference on Trade and Development (UNCTAD)
reveal the growth in, and characteristics of, investor-state arbitrations. (34) They reveal
that there have been 817 known investor-state cases. During the period of January to July
2017, there were at least 35 new cases brought, against 32 different countries. A total of 69
new cases were brought in 2016. Eighty per cent of the investment arbitrations commenced
in 2017 were brought under bilateral investment treaties, while the remaining 20 percent
were under treaties with investment provisions such as the Energy Charter Treaty and
NAFTA.
P8
P9
Out of the 530 cases decided as at 31 July 2017, approximately one third were decided in
favour of states and a quarter in favour of investors. The others settled or were
discontinued. The most frequent domicile of claimants is the United States (152 cases) and
the most frequent respondent is Argentina, reflecting the economic turmoil in that nation
in the early 2000s (60 cases). Over the 30-year period from 1987 to 2017, 61 percent of all
known cases were conducted under ICSID, with 31% conducted under UNCITRAL arbitration
rules. Eighty per cent of awards over this period were unanimous, and approximately 500
different individuals have been involved as arbitrators in investment arbitrations, with
UNCTAD noting a “small number” of individuals being involved in more than 30 arbitrations
each. (35)
These statistics give one a picture of the overall investment arbitration landscape, and of
the prevalence and characteristics of investment arbitrations. Nevertheless, despite the
noble goals of ISDS, and perhaps because of the prevalence of investment arbitration,
concerns about ISDS and investment arbitration have continued to increase in
prominence.

III Distinguishing International Commercial Arbitration from

Investment Arbitration
While debates about the legitimacy of investment arbitration have been occurring, and to
a certain extent arising out of them, there has been a broader critique of international
arbitration as a dispute resolution system.
The difficulty with this broader criticism is that far too often the two different types of
international arbitration – commercial arbitration and investment arbitration – have been
elided in the discussion of problems with international arbitration generally. Some of the
concerns do overlap, but commercial arbitration and investment arbitration are
fundamentally different, as are the reasons for the most prominent criticisms of each.
Although they share procedures, especially since a number of investment arbitrations
occur under UNCITRAL rules and employ much of the same infrastructure, they address
different matters. Investment arbitration involves a dispute between an investor and a
sovereign state. It generally arises under the terms of an investment treaty and often may
involve a challenge or assessment of the consequences of government policy. The dispute
is one fundamentally involving a state in its sovereign capacity. In contrast, commercial
arbitration involves a dispute between parties acting in their private capacity and arises

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 out of a commercial transaction. (36) This is so even if one of the parties is governmental in
character.
P 9 Though ISDS awards may, at the enforcement stage, make use of the structures of
P 10 international commercial arbitrations, (37) the award arises through a process initiated
under the relevant investment treaty that has been created in public international law to
which the claimant is not a party. By contrast, in a commercial arbitration the arbitrator's
power to decide is a solely contractual one conferred by the decision of the parties to
submit the relevant dispute to arbitration. (38)
It is important, however, to remember, in the context of ISDS, that such disputes do not
solely involve matters of public international law and treaty interpretation, or the effect of
government policy on private business operations, but also require an understanding of
the proper behaviour of government decision-making processes and the attendant
principles of public law. ISDS is not solely a dispute about the interpretation of the bare
text of an international treaty without regard to considerations of proper governance and
the proper realm and extent of legitimate public policy. Thus an understanding of or
familiarity with principles that attend the validity and invalidity of government decisions
is essential for the proper conduct of ISDS dispute resolution.
While there may be debates to be had about the legitimacy of ISDS – and I express no view
other than identifying some aspects of them – we should not transmogrify concerns about
ISDS into concerns about international commercial arbitration. The sovereignty and rule of
law issues associated with ISDS, due to its inherent “public” nature, make it distinct from
international commercial arbitration. (39) These considerations do not impinge upon
commercial arbitration, and so criticisms concerning international commercial arbitration
need to be considered from its own perspective, and with an appreciation of the proper
nature of commercial arbitration as opposed to investment arbitration.
Lord Neuberger has identified nine reasons for why commercial parties have a preference
for arbitration over litigation: the greater number of disputes demanding international
arbitration; the high professional standards of arbitrators; the fact that arbitrators can be
selected for their particular expertise; distrust of national courts in the context of
international disputes; the enforceability of arbitral awards; greater speed; less expense;
confidentiality; and finality. (40) The reality of some of those advantages can be debated.
To them, however, can be added, a sense of control of the dispute, in particular with the
absence of one or two levels of appeal.
P 10
P 11

IV Challenges for International Commercial Arbitration

The questioning of international commercial arbitration can be seen in four broad
categories that overlap and relate to each other: first, confidentiality as a feature asserted
to undermine legitimacy; secondly, the asserted negative influence on the development of
the law by the lack of precedent; thirdly, concern over the characteristics and practice of
arbitrators; and fourthly, unacceptable cost and delay.
One immediately sees a superficial similarity with legitimacy concerns of ISDS: the need
for transparency and precedent, hence, the Mauritius Convention; and the complaint as to
private commercial arbitrators dealing with public policy issues. But the problems and
solutions for commercial arbitration reveal the very different nature of the subject and the
very different nature of the problem.
The public nature of ISDS has been put forward as a justification for the movement toward
transparency and disclosure in investment arbitration. There are also public policy
concerns attending confidentiality in commercial arbitration. The Australian High Court's
decision in Plowman suggests that information pertaining to a commercial arbitration that
was in the “public interest” ought to be disclosed. (41) Lord Neuberger has spoken of the
role international commercial arbitration plays in support of the rule of law internationally
and that, having regard to this, there is an argument that arbitration should not always be
confidential. (42) Some commentators have even gone so far as to suggest that the
UNCITRAL Rules on Transparency should be applied to international commercial
arbitration on an “opt out basis”, as this would “increase the legitimacy of the system”. (43)
One cannot avoid, however, the reality that confidentiality in many cases is a critical
demand of the parties and a feature of commercial arbitration that is a significant
attraction. Insistence upon “transparency” (whatever that may mean in any given
circumstance) in commercial arbitration in furtherance of some (not fully articulated)
public policy may only drive parties to settle their differences outside arbitration and
reduce the contribution of arbitration to the rule of law.
The assertion that the prevalence of international commercial arbitration has had a
negative impact upon the law has been espoused most prominently by Lord Thomas. (44)
He described arbitration as a “serious impediment to the development of the common
law”. (45) This view can perhaps be seen to be premised on the view that only courts make
law and that arbitrators do not make any contribution to its development.
Lord Thomas was instrumental in establishing the Standing International Forum of
Commercial Courts which met for the first time in London in May 2017. It is a gathering of

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 heads of jurisdiction and experienced commercial judges from commercial courts all over
P 11
the world. It aims to revitalize and strengthen the effective resolution of commercial
P 12 disputes in commercial courts. I should add that the Federal Court of Australia is one of the
courts in the Forum and I am on the Steering Committee. It aims to draw together the
experience of commercial courts all around the world to enhance on a global level the skill
of commercial courts. From its meetings there will develop an exchange of ideas about
techniques and procedures to improve curial resolutions of commercial disputes.
I will say a little more on the question of arbitrators making law in a moment. It suffices to
say at this point that the publication of redacted reasons of arbitral awards of importance
on legal questions would go a long way to solving Lord Thomas' expressed concern without
impinging necessarily upon the rights of privacy and confidentiality of the parties to their
dispute. It may also burnish the reputation of the arbitral process, of the arbitrator and of
the institution connected with the arbitration.
As has been pointed out by others, arbitrators can be seen to make law. (46) Publication of
arbitral awards occurs, for instance, under the auspices of some arbitral institutions, such
as the International Chamber of Commerce (ICC) and the London Court of International
Arbitration (LCIA). (47) Also, in the field of maritime arbitration, there would be little doubt
that arbitrators make a contribution to the development of maritime law. Reports of
arbitrations conducted under London Maritime Arbitrators Association (LMAA) rules are
reported in the Lloyd's Maritime Law Newsletter and used as precedents in arbitrations and
in court. Similarly, the Society of Maritime Arbitrators in New York publishes the full text of
its arbitral awards on LexisNexis. (48) The issue, thus, is one of practice and expectation.
ICCA's own publication of case law and its educational work are further examples of public
dissemination of arbitral law. (49)
This question, however, raises the topic of the nature of the law in arbitration. This is a
topic in itself: What is the place of law in arbitration? It is not a silly question. With the
removal of any review on a question of law in the UNCITRAL Model Law, the freedom of
arbitrators to adjudicate even upon nominated systems of law is real. The legitimacy of the
parties choosing non-national law, such as principles of international commercial law, (50)
makes the nature of law in commercial arbitration a subject that is not self-evident. The
ability of arbitrators of skill and experience to recognize and apply primary rules of law,
fundamental international principles as well as secondary specific rules laid down by
national statute and precedent means that if their decisions are public arbitrators can
contribute to the rule of law just as judges do and the academy does.
Law is not merely the declared rules of a sovereign state. Law involves primary rules,
principles and values that are timeless and not constrained by political or geographic
boundaries. Commercial law is founded upon honesty, good faith and fair dealing, the
P 12 requisite degree of relevant trust, a rejection of abuse of power and unconscionability, and
P 13 faithfulness to the bargain freely and properly entered. That law can be non-national
and non-binding was most eloquently expressed by Justice Jackson in Lauritzen v. Larsen,
reflecting upon the real existence of international maritime law, where he said: (51)
“… courts of this and other commercial nations have generally deferred to a
non-national or international maritime law of impressive maturity and
universality. It has the force of law not from extraterritorial reach of national
laws, nor from abdication of its sovereign powers by any nation, but from
acceptance by common consent of civilized communities of rules designed to
foster amicable and workable commercial relations.”
Turning to the arbitrators themselves, there have been a suite of concerns raised about
arbitrators. These include concerns about the repeated appointments by the same parties
of the same arbitrators, the prospect of so-called “issue conflict” presented by arbitrators
acting in subsequent arbitrations where the same issues arise and issues about the lack of
recourse to courts available after the rendering of an award. The concerns also include the
inability of popular arbitrators to be available on a timely basis to hear arbitrations with
sufficient promptness desired by commercial parties. This extends the timeline of
disposition, and, axiomatically therefore, the costs.
The same issues appear to arise in respect of investment arbitration, where they are
arguably more significant. In the Queen Mary University of London White & Case 2015
International Arbitration Survey respondents were asked whether, in the context of both
international commercial arbitration and investment arbitration, there should be greater
regulation of the appointment of arbitrators where an arbitrator had previously taken a
view on an issue in the arbitration, had been repeatedly nominated as an arbitrator in
multiple arbitrations by the parties, or had been repeatedly nominated in multiple
arbitrations by counsel. The percentage of respondents answering “yes” was higher for
investment arbitrations, though not substantially so in respect of the latter two issues. (52)
It is worth making at least three points about these concerns. First, they would be
diminished if there were regular publication of redacted reasons. Secondly, so-called issue
conflict may be a concern to parties, but it is not necessarily apprehended bias. A judge
and an arbitrator are not prevented from hearing a case because they have decided some
legal aspect on a prior occasion. The relevant apprehension is not that one might lose, but
that one will not have the dispute heard with an open mind. That said, if one does not know

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 that one has a mind to change one may not appreciate the task before that particular
arbitrator. Once again, publication of redacted reasons might alleviate this difficulty.
Thirdly, the arbitration community has taken steps to address issues such as this, through
measures including the International Bar Association's Guidelines on Conflicts of Interest in
International Arbitration (53) adopted in 2014. (I pause momentarily to make a plea about
the misuse of the phrase “conflicts of interest”. There is no such thing. One's interests never
P 13 conflict. Interest can conflict with duty. Duty can conflict with duty. Questions of
P 14 apprehended bias may arise. Documents such as the IBA's Guidelines on Conflicts
reflect, I think, the development of common principles attending apprehended bias rather
than the questions of duty and interest or duty and duty conflicting. There is a danger in
muddled language.)
There are significant challenges for international commercial arbitration in relation to
dealing with cost, expense and delay. I have referred to this on previous occasions as the
increasing “industrialization” of arbitral procedure and practice. (54) I adopted this term
in preference to that of what I saw as the somewhat offensive term of “judicialization” used
by some commentators. (55) The reason I did so, and why I took some offence, is because
there is nothing inherently more costly or inefficient about litigation in a commercial court
compared to arbitration. Good commercial courts can be swift and highly efficient. The
real problem is a cultural one that leads to the generation of unnecessary process-driven
costs. (56) The nature of the complaint is that arbitration has developed the same process-
driven costs that accompany poorly managed litigation. (57) This complaint is borne out by
the results of the 2015 International Arbitration survey which identified cost, “lack of
insight into arbitrators' efficiency” and lack of speed as three of the most significant
criticisms of international arbitration. (58)
The problem of industrialization needs to be resolved in both arbitration and litigation. It
is a cancer in the body of both. It may be an exaggeration to describe industrialization as
an existential threat to arbitration, but the fact is that if arbitration cannot exist as an
efficient and cost-effective means of dispute resolution then it will simply not find favour
with commercial parties.
The essential problem (in both litigation and arbitration) is that parties and their advisors
have often ceased to view litigation and arbitration as a species of problem solving. I will
return to this momentarily.
The issues facing international commercial arbitration are shared with investment
arbitration. To a large extent, what the debate about the legitimacy of ISDS has done is
reveal a shortcoming with the process of arbitration itself – investment and commercial –
that members of the arbitration community should address.
Public interest is a common feature of ISDS and international commercial arbitration. But
the public interest in international commercial arbitration is not sovereignty and public
policy. Rather, it is the deep importance of international commercial arbitration in
P 14 assisting to provide a global, cross-border dispute resolution system that operates in
P 15 conjunction with, supported and supervised by, the dispute resolution mechanisms
provided by commercial courts. (59) This public role for international commercial
arbitration is what Lord Neuberger was referring to when he spoke of the function of
arbitration in maintaining the rule of law over international commerce and, therefore, of
the need for skilled arbitrators and sophisticated arbitral processes. (60) The public
interest in maintaining skill and confidence in that system is what should drive any
reassessment in relation to international commercial arbitration, not the public interest
and sovereignty considerations that attend ISDS.

V Some Potential Solutions to the Criticisms of International

Commercial Arbitration
An appreciation of the differences between commercial arbitration and investment
arbitration to which I have referred can contribute to a discussion of solutions to criticisms
of commercial arbitration.
Confidentiality is undoubtedly an important reason why commercial parties opt for
arbitration in relation to many of their commercial disputes. Given that international
commercial arbitration does not attract the same sovereignty and public legitimacy issues
as investment arbitrations, I would suggest that there is no principled basis to require the
implementation of transparency standards such as are contained in the Mauritius
Convention into international commercial arbitration. (61) That instrument provides for the
public disclosure of documents pertaining to the arbitration, the openness of hearings to
the public and the ability of third parties to intervene. The public aspect of commercial
arbitration should be focused upon supporting its efficiency and the public's, including the
commercial community's, confidence in its fair and just operation. That fundamentally
important public policy consideration does not, it seems to me, demand transparency of
the kind reflected in the Mauritius Convention.
However, to the extent that the absence of reasons for award can be seen to potentially
undermine the confidence in individual arbitrators and prevent the development of
publicly available jurisprudence that degree of confidentiality may be seen to undermine
the legitimacy of the worldwide arbitral process. This is not to be met by measures akin to

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 the Mauritius Convention. Rather it should be met by a widespread acceptance of the
publishing of redacted reasons for award. The reality is that, given the qualifications and
experience of a number of international commercial arbitrators, the awards they would
publish would provide a significant contribution to international commercial law. They will
also provide enhanced confidence in those arbitrators and in the institutions that publish
the awards.
P 15 As Professor Jones has argued, the publication of redacted arbitral awards would provide
P 16 access to the “rich source of law to be found in the decisions of international
commercial arbitrators”. (62) Such is obvious from some of the great minds that regularly
act as arbitrators. The more widespread publication of awards, in some form, would better
enable the development of substantive commercial law for the benefit of international
commercial law. In addition, it may go some way to resolve issues about inconsistency
between different arbitral awards and the reasoning employed by some arbitrators, if
awards are available for analysis, debate and use. Such a practice is being adopted by a
number of arbitral institutions. These include the ICC's time delayed issuing of redacted
awards and the LCIA's publishing of summaries of challenges to arbitrators. (63) I have
already discussed the practice of the LMAA and Society of Maritime Arbitrators in
publishing details of awards in respect of maritime arbitrations conducted in London and
New York.
In the context of international commercial arbitration, I see all of these steps as means of
enhancing arbitration as a sought-after dispute resolution mechanism and as part of a
system of cross-border dispute resolution.
The question of whether commercial arbitration is stifling the development of commercial
law contains an at least implicit allegation that international commercial arbitration is
usurping the role of national courts. There are several observations I wish to make about
this. First, the publication of redacted awards may also assist with resolving this concern as
there would be a body of arbitral law that could be explored and, if necessary, critiqued
by the courts in appropriate cases. Secondly, it is important to remember that
international commercial arbitration remains subject to the supervision of the domestic
court of the seat. A nuanced and principled body of law has been developed by
commercial courts to supervise arbitrations, review arbitral awards and, ultimately,
enforce arbitral awards. In many jurisdictions, the framework for this supervision is
provided by the UNCITRAL Model Law on International Commercial Arbitration and its
international adoption means there has been a development of a harmonized approach to
the supervision of arbitrations. (64) This approach gives authority to the arbitrator, but
does not prevent review of certain matters such as jurisdiction by a national court, with
that court also able to supervise and provide support to the arbitral process. (65) The
continued involvement of the courts in supervising arbitrators reflects the public role of
international commercial arbitration as part of the cross-border civil justice system.
Thirdly, the relationship between national commercial courts and arbitration is not a
static one. It is dynamic. The attraction of either method of dispute resolution depends
upon many factors but chief among them are skill and capacity of commercial judges and
arbitrators; the speed with which a reliable decision can be reached by them; the
vulnerability to challenge whether by appellate review or by judicial supervision; and,
P 16 most importantly, enforcement. The astonishing success of the 1958 New York Convention is
P 17 too well-known to require any discussion here. Over the coming years, as the adherence
to the Hague Convention on Choice of Courts increases, national commercial courts will
begin to have the same regime of enforcement as does arbitration for its awards. Fourthly,
in recent years a number of jurisdictions have sought to develop bespoke international
commercial courts characterized by excellence and dispatch. These include the Singapore
International Commercial Court, the Dubai International Financial Centre Courts, Abu
Dhabi Global Market Courts and the Qatar International Court. (66) These seek to rival the
dominance in the English-speaking world of the London Commercial Court. These exist
together with the numerous international arbitration centres in London, Singapore, Hong
Kong, New York, Paris, Geneva, here in Sydney and also in Melbourne. These courts are not
replacements for international commercial arbitration. Rather, they represent the
development of a mature transnational commercial dispute resolution system.
Commercial courts and commercial arbitration complement each other, (67) though they
are competitive with each other. I have previously described the relationship as one of
“competitive collaboration”. (68) Competition between courts and arbitrators for disputes
is healthy, particularly in parts of the world which are supportive both of skilled arbitrators
and focused and innovative commercial courts. Such competition promotes efficiency and,
for arbitrators, it may present an impetus for resolving some of the matters discussed
today. (69)
In the context of investment arbitration, there is presently a push toward the
establishment of a multilateral investment court to replace ISDS-based arbitration. The
European Union has emerged as an advocate for this proposal and has made submissions
to UNCITRAL. This is based upon what it describes as “systemic” issues with ISDS, coupled
with a recognition of the “public” nature of investment arbitration and its impact upon “the
sovereign capacity of states to regulate”. (70) The EU proposal for a multilateral investment
court is predicated on a recognition of the fundamental public issues implicated in
investment arbitration and which I have indicated above. Its concerns about ISDS arise in
that context, as does its proposal for a multilateral investment court. Those arguments,

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 thus, have a different motivation than those complaints about international commercial
arbitration that are in favour of the development of international commercial courts.
P 17
P 18
The 2015 International Arbitration Survey asked respondents how a potential appeal
mechanism in both international commercial arbitration and investment arbitration
should be structured. Fifty-one percent of respondents responded in favour of an
international court in respect of investment arbitration. Only 20 percent did so in respect
of international commercial arbitration, just in front of a domestic court at 19 percent. The
most favoured option for international commercial arbitration was an appeal to another
arbitral tribunal or the arbitral institution (26 percent each). (71) Commercial parties often
will provide in an arbitration agreement for a right of appeal, if it is desired by the parties.
These responses do reveal an appreciation of the differences between investment and
commercial arbitration. For international commercial arbitration, there is no equivalent
market demand nor is there any compelling policy reason to add some appellate
structure. The parties after all have it within their power, the power of contract, to create
such an appeal structure. Given the nature of international commercial dispute resolution
and the present unstructured system that promotes competition between so-called
international commercial courts and domestic commercial courts there are not attendant
sovereignty and legitimate issues that might be said to require a supranational body.
The most significant issue for international commercial arbitration is, in my view, its
increasing cost. It can be described as the cancer of industrialization which also invades
the body of court litigation. This is not per se an issue of competence (although it may
reflect a lack thereof) or legitimacy but it is a topic of concern amongst commercial parties
and members of the arbitration community. (72) The problem is contributed to by parties,
counsel and arbitrators. Respondents to the 2015 International Arbitration Survey
indicated that counsel could do better to narrow issues, limit document production,
encourage settlement, not over-lawyer, consider joint expert reports and generally act
more efficiently. (73) The problem of “industrialization”, and the consequent incurring of
large, process-driven costs, is one shared with court litigation. Commercial arbitration,
along with commercial litigation, needs to be recognized as a process for efficient
resolution of a mutual problem; it should not be seen as a means of fee generation. To
adapt what was said by Harvey CJ in Eq of the Supreme Court of New South Wales in Read v.
Chown (74) back in 1929 in a judgment dealing with costs of an originating summons in
Equity: (75)
“The primary duty of solicitors is of course to their clients, and it is the duty of
solicitors to give their clients such advice as will reduce the costs [of the
litigation]. Human nature is human nature. Of course, solicitors have to live, and
it is not unnatural they should look to the chance of appearing in a [matter] of
this sort for the purpose of making legitimate fees from it, but I wish to point out
to solicitors that it is their duty … to attempt to reduce the costs.”
P 18
P 19
The concerns raised about “industrialization” are not so lacking in nuance as to be a mere
criticism of the cost of arbitration or of the legitimate charging of professional fees by
skilled lawyers, counsel and arbitrators for the work that needs to be done. Rather, it is a
complaint about the creation of process-driven costs, incurred merely because such costs
are seen to be usually required, or have become common practice. It is a complaint
against unoriginality, and a lack of lateral thinking in how to run a proceeding. It is also a
criticism of the habit of thought that proceedings exist to create such processes or costs for
their own sake, rather than for resolving the dispute between the parties. There is no
complaint against the legitimate earning of fees for work well done. These ideas are
captured, if I may say so, by Chief Judge Harvey's statement.
Thus, I would suggest that the greatest challenge for the continued popularity and indeed
legitimacy of international commercial arbitration is developing greater efficiencies and
adopting a more problem-solving focused approach to arbitral procedure. On a previous
occasion I suggested that greater use of early and proactive case management within
arbitration may be a means of resolving these problems around industrialization. (76)
Arbitration culture, indeed dispute resolution culture, needs to recognize that issues of
cost and a lack of efficiency must be addressed.
Competition between courts and arbitration is an important way for both dispute
resolution processes to improve their processes and reduce costs, as it provides an
incentive for both judges and arbitrators to experiment and innovate. (77)
Those involved in arbitration must examine for themselves how they are working. However,
just as court litigation can learn from arbitration, so arbitration may be able to learn from
court litigation. With increasing frequency, courts are rejecting standardized one-size-fits-
all cookie-cutter approaches to litigation. Commercial judges in Australia will generally not
tolerate the linear progression of interlocutory procedure like some critical path building
programme for the construction of a skyscraper. Discovery has either been curtailed or
replaced by more flexible solutions. Examples are the restriction of discovery in a limited
way after, not before, the exchange of evidence; the use of referees to replace the need for

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 competing expert evidence; the replacement of discovery in the traditional way by giving
a party a right to place a prospective expert within the business of the other party and
simply call for documents. This last example can be most effective in cases such as
business interruption claims on industrial special risk (ISR) policies where the potential for
discovery is overwhelmingly burdensome. The provision of an office, a computer and a
photocopying machine to an investigating accountant who calls for documents which are
provided in a recorded and indexed fashion does away with the need for armies of
blindfolded automatons preparing and then examining meaningless lists of millions of
documents. None of these solutions are a panacea to costs but each of them in its proper
context can be a nuanced and intelligent substitute for mindless and often useless pre-
trial procedure.
The problem is also related to arbitrators. They must be readily available to hear cases as
soon as possible. The longer a proceeding lasts, the more it costs. They must also exert
control over the expenditure of time and money on less than central issues.
P 19
P 20
What must be emphasized is the need to consider the individual characteristics of each
matter. This is not detracting from predictability of outcome. It is the recognition that
every piece of litigation is unique and the most effective and cost-effective resolution of
any particular problem will call upon the parties and their representatives for goodwill, a
shared understanding of the need to solve a problem, skill and diligence, and a
recognition of what Chief Judge Harvey said, that those who act for commercial parties
have a duty to those parties to solve their problems at the least possible cost. I do not
consider that these are dreamings of a simpler past. I have been involved in dispute
resolution for nearly forty years. I have seen dispute resolution ranging from the appalling
to the excellent. It is not a matter of it having been done better in the past. It was often
done far worse in the past. But the only dispute resolution that I have seen that exhibits
the public good of an efficient justice system had at its heart a shared understanding that
the process was attempting to resolve as quickly and as cost effectively as possible a
mutual problem for the clients concerned. Sometimes this came from the representatives
themselves. Sometimes it came from the uncompromising demands of the commercial
court in question. It is not a question of speed alone. It is not a question of a magic formula.
It is a question of culture and a recognition that for clients to be served honestly and
effectively the practitioner had to do his or her best to extricate the client from the
problem whether by settling or winning the dispute in the most efficient manner.
The development and widespread use of international commercial arbitration around the
globe has been one of the most significant features of international commercial law that
developed over the course of the twentieth century. It has produced a cross-border
dispute resolution system that is supported by and interacts with, but is independent
from, national courts and which operates in parallel with international commercial courts.
This has been a major step in the application of the rule of law to global commercial
transactions. It is important that, in this age of reactionary policy-making, we do not allow
concern about certain aspects of investor-state dispute settlement – itself a remarkable
triumph of law over war – to weaken the system of international commercial arbitration
that has been established, for reasons that are not relevant to commercial arbitrations.
Ensuring that international commercial arbitration remains efficient, effective and
innovative will go a long way toward ensuring that this does not occur. The kind of
thoughtful introspection reflected in the programme for this week that picks up many of
the threads of what I have been discussing will no doubt advance that position. There is no
perfect model of dispute resolution. As soon as you think you have found it and try to write
it down you begin to ossify it and create a framework for more procedural costs. Critical is
the recognition that costs and delay are often, indeed usually, a product of bad litigation
culture. There are countless tools and innovative approaches in the management of
commercial dispute resolution. A cultural approach that focuses upon mutual problem
solving, effectively, innovatively and cost effectively, will generally help to illuminate the
best way to run and manage a piece of litigation. That best way will rarely, if ever, be
manifested in the serried ranks of litigation troops ready to die of exhaustion at 3:00 a.m.
reviewing documents on discovery. If one is awake, 3:00 a.m. is the time to contemplate
the heart, not conduct litigation.
P 20
P 21
I hope that the discussions to follow as part of this Congress might go some way to
developing proposals for the resolution of some of the matters I have identified, and that
my remarks resonate to a degree with you in this room.
P 21

References
*) James L.B. Allsop AO: Chief Justice of the Federal Court of Australia.

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 1) See, e.g., Stephen M. SCHWEBEL, “Keynote Address: In Defence of Bilateral Investment
Treaties” in International Arbitration – Legitimacy: Myths, Realities and Challenges, ICCA
Congress Series no. 18 (Kluwer 2012) at p. 6; Jeswald W. SALACUSE, “The Emerging Global
Regime for Investment”, 51 Harvard International Law Journal (2010) p. 428 at pp. 469-
470; Robert FRENCH AC, “Investor-State Dispute Settlement – A Cut Above the Courts?”
(Paper presented to the Supreme and Federal Courts Judges' Conference, Darwin, 9 July
2014) at pp. 3-4, 7-9 (henceforth FRENCH 2014); Robert FRENCH AC, “ISDS – Litigating the
Judiciary”, 81 Arbitration (2015) p. 288 (henceforth FRENCH 2015); Sir Vivian RAMSEY,
“The Challenges to International Arbitration”, Asian Dispute Review (2017) p. 54;
UNCITRAL, “Possible Reform of Investor-State Dispute Settlement (ISDS) Submission
from the European Union” (12 December 2017) UN Doc A/CN.9/WG.III/WP.145 at 12.
2) The Economist, “The Arbitration Game: Investor-State Dispute Settlement” (11 October
2014) <http://www.economist.com/news/finance-and-economics/2163756-
governments-are-souring-treaties-protect...>.
3) See FRENCH, 2014, op. cit., fn. 1; FRENCH, 2015, op. cit., fn. 1.
4) FRENCH, 2014, op. cit., fn. 1 at pp. 3-4.
5) FRENCH, 2015, op. cit., fn. 1 at p. 3.
6) FRENCH, 2015, op. cit., fn. 1 at p. 9.
7) Lord NEUBERGER, “Keynote Speech” 81 Arbitration (2015) p. 427 at pp. 430-431.
8) See FRENCH, 2015, op. cit., fn. 1 at pp. 7-8; NEUBERGER, op. cit., fn. 7 at pp. 430-431.
9) International Centre for Settlement of Investment Disputes, Eli Lilly and Company v.
Canada (ICSID Case No. UNCTT/14/2)
<https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?Case No=UNCT/14/2>;
Global Affairs Canada, “Cases Filed Against the Government of Canada – Eli Lilly and
Company v. Government of Canada” <https://www.international.gc.ca/trade-
agreements-accords-commerciaux/topics-domaines/disp-diff/eli.a...>; Amokura
KAWHARU and Luke NOTTAGE, “Renouncing Investor-State Dispute Settlement in
Australia, then New Zealand: Déjà vu” (University of Sydney Law School, Legal Studies
Research Paper Series No 18/03, February 2018) at pp. 18, 31; NEUBERGER, op. cit., fn. 7
at pp. 430-431; FRENCH, 2015, op. cit., fn. 1 at p. 16.
10) Global Affairs Canada, op. cit., fn. 9.
11) Tobacco Plain Packaging Act 2011 (Cth).
12) JT International SA v. Commonwealth [2012] HCA 43; 250 CLR 1.
13) See the discussion by KAWHARU and NOTTAGE, op. cit., fn. 9 at pp. 25-26.
14) Philip Morris Asia Limited v. Commonwealth of Australia (PCA Case No 2012-12), Award on
Jurisdiction and Admissibility (17 December 2015)
<https://www.pcacases.com/web/send Attach/1711> at [585]-[590].
15) KAWHARU and NOTTAGE, op. cit., fn. 9 at p. 3. They also discuss ISDS claims that have
been brought by Australian corporations against other nations, including Indonesia
and Thailand: KAWHARU and NOTTAGE, op. cit., fn. 9 at pp. 34-38.
16) KAWHARU and NOTTAGE, op. cit., fn. 9 at p. 40.
17) KAWHARU and NOTTAGE, op. cit., fn. 9 at p. 40.
18) For the text of the CPTPP, see Australian Department of Foreign Affairs and Trade, “TPP-
11 Text and Associated Documents” (21 February 2018)
<http://dfat.gov.au/trade/agreements/not-yet-in-force/tpp/official-
documents/Pages/official-documents...>.
19) New Zealand Ministry of Foreign Affairs and Trade, “Comprehensive and Progressive
Agreement for Trans-Pacific Partnership: National Interest Analysis”
<https://www.mfat.govt.nz/assets/CPTPP/Comprehensive-and-Progressive-Agreement-
for-Trans-Pacific-Part...> at pp. 38-39. See also the detailed analysis by KAWHARU and
NOTTAGE, op. cit., fn. 9 at pp. 6-13.
20) See Taida Begic SARKINOVIC, “Investor-State Arbitration: Between Private and Public
Interests”, 12 Manchester Journal of International Economic Law (2016) p. 250 at pp.
253-254; James D. FRY and Odysseas G. REPOUSIS, “Towards a New World for Investor-
State Arbitration Through Transparency”, 48 NYU Journal of International Law and
Politics (2016) p. 795 at pp. 804-808. It should be noted that there are also
transparency debates in international commercial arbitration, though with different
motivations: see Catherine A. ROGERS, “Transparency in International Commercial
Arbitration”, 54 Kansas Law Review (2006) pp. 1301.
21) FRY and REPOUSSIS, op. cit., fn. 20 at pp. 808-811. See also a slightly different
formulation in Matthew CARMODY, “Overturning the Presumption of Confidentiality:
Should the UNCITRAL Rules on Transparency Be Applied to International Commercial
Arbitration?”, 19 International Trade and Business Law Review (2016) p. 96 at pp. 103-
104: “the publication of information about arbitral proceedings; access to various
documents from the arbitration; the involvement of third parties in the conduct of
proceedings; and access to hearings”.
22) See UNCITRAL, “Status – United Nations Convention on Transparency in Treaty-based
Investor-State Arbitration (New York, 2014)
<http://www.uncitral.org/uncitral/en/uncitral_%20texts/arbitration/2014Transparenc
y_Convention_status...>. While the treaty has entered into force, as at 6 April 2018 there
are only three State parties that have ratified it: Mauritius, Canada and Switzerland.
Twenty-two State parties have signed the Mauritius Convention, including Australia,
the United States, the United Kingdom, France, Germany, and Italy.
23) Mauritius Convention, Arts. 1(1), 2.
24) Mauritius Convention, Art. 2.

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 25) Mauritius Convention, Art. 3.
26) Mauritius Convention, Art. 4.
27) Mauritius Convention, Art. 5.
28) Mauritius Convention, Art. 6.
29) Mauritius Convention, Art. 7.
30) Slovak Republic v. Achmea BV (Court of Justice of the European Union, Case C-284/16, 6
March 2018).
31) Jeswald W. SALACUSE, “Of Handcuffs and Signals: Investment Treaties and Capital Flows
to Developing Countries”, 58 Harvard International Law Journal (2017) p. 127 at p. 127.
32) See Jeswald W. SALACUSE, “The Emerging Global Regime for Investment”, 51 Harvard
International Law Journal (2010) p. 428; SCHWEBEL, op. cit., fn. 1; SALACUSE, 2017, op.
cit., fn. 31 at pp. 130-131; Gordon SMITH, “An Introduction to Investor-State
Arbitrations”, 13 International Trade and Business Law Review (2010) p. 3 at p. 3.
33) SCHWEBEL, op. cit., fn. 1 at p. 5. See also, for a general discussion of the development of
investment treaties and ISDS: Gus VAN HARTEN, “Investment Treaty Arbitration and
Public Law” (Oxford University Press 2007) at pp. 12-44.
34) United Nations Conference on Trade and Development (UNCTAD), Special Update on
Investor-State Dispute Settlement: Facts and Figures (November 2017)
<https://unctad.org/en/PublicationsLibrary/diaepcb2017d7_en.pdf>.
35) UNCTAD, op. cit., fn. 34.
36) A distinction that is also adopted by commentators: see, e.g., CARMODY, op. cit., fn. 21
at p. 100. SARKONOVIC, op. cit., fn. 20 at p. 250, has identified that that the nature of
investment disputes “as between a private party … and a sovereign State raise a
number of issues not present in traditional commercial arbitration”.
37) See, e.g., International Arbitration Act 1974 (Cth) Pt IV, for enforcement of awards made
under ICSID, and Pt II for enforcement of awards made under UNCITRAL rules.
38) See generally Hancock Prospecting Pty Ltd v. Rinehart [2017] FCAFC 170 at [397]; TCL
Airconditioner (Zhongshan) Co Ltd v. Judges of the Federal Court of Australia [2013] HCA 5;
251 CLR 533. See also James ALLSOP and Clyde CROFT, “The Role of the Courts in
Australia's Arbitration Regime” (Paper delivered at the Commercial CPD Seminar
Series, Melbourne, 11 November 2015).
39) Though it has been suggested that, despite its “public” nature, the “still dominant
conceptualisation of investor-state dispute settlement [is] as a form of commercial
arbitration and private justice”: Stephan W. SCHILL, “Editorial: The Mauritius
Convention on Transparency”, 16 Journal of World Investment & Trade (2015) p. 201 at p.
203.
40) NEUBERGER, op. cit., fn. 7 at p. 429. Cf. recent data that indicates cost and delay as
some of the “worst characteristics of international arbitration”: Queen Mary University
of London, White & Case 2015 International Arbitration Survey: Improvements and
Innovations in International Arbitration
<http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_Arbit
ration_Survey.pdf> at 7.
41) Esso Australia Resources Ltd v. Plowman [1995] HCA 19; 183 CLR 10 at 31, 35, 48.
42) NEUBERGER, op. cit., fn. 7 at [26].
43) CARMODY, op. cit., fn. 21 at pp. 168-178. See also ROGERS, op. cit., fn. 20.
44) Lord THOMAS, “Developing Commercial Law Through the Courts: Rebalancing the
relationship between the courts arbitration” (Paper presented as the BAILII Lecture, 9
March 2016) at [6], [22]-[23].
45) Lord THOMAS, op. cit., fn. 44 at [6].
46) Doug JONES AO, “Arbitrators as Law-Makers”, 6 Indian Journal of Arbitration Law (2018)
p. 19.
47) JONES, op. cit., fn. 46 at pp. 24-27.
48) See information at Society of Maritime Arbitrators, “Find the SMA on Lexis-Nexis” (10
April 2018) <http://www.smany.org/lexis-nexis-find.html>.
49) See International Council for Commercial Arbitration, “Publications” (2018)
<https://www.arbitration-icca.org/publications.html>.
50) See, e.g., Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1992] 1 QB 656
and [1993] AC 334.
51) Lauritzen v. Larsen 345 US 571 (1953) at 581-582.
52) Queen Mary University of London, op. cit., fn. 40 at pp. 39-40.
53) International Bar Association, IBA Guidelines on Conflicts of Interest in International
Arbitration (23 October 2014).
54) See James ALLSOP, “National Courts and Arbitration: Collaboration or Competition?”, 81
Arbitration (2015) p. 434 at p. 437 (henceforth ALLSOP 2015); James ALLSOP,
“International Arbitration and Conformity with International Standards of Due Process
and the Rule of Law” (Paper presented at the ICCA Congress, Mauritius, 2016, published
in International Arbitration and the Rule of Law: Contribution and Conformity, ICCA
Congress Series no. 19 (Kluwer 2017) at p. 792 (henceforth ALLSOP 2016).
55) See, e.g., T.J. STIPANOVICH, “Arbitration: The ‘New Litigation’, University of Illinois Law
Review (2010) p. 1.
56) See ALLSOP, 2015, op. cit., fn. 54 at p. 437; ALLSOP, 2016, op. cit., fn. 54 at p. 792.
57) ALLSOP, 2016, op. cit., fn. 54 at p. 792, citing STIPANOVICH, op. cit., fn. 55.
58) Queen Mary University of London, op. cit., fn. 40 at p. 2. See also the discussion of this
issue in RAMSEY, op. cit., fn. 1 at pp. 1-2.

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 59) ALLSOP, 2016, op. cit., fn. 54 at pp. 765-766. A similar point is made by Susan L.
KARAMANIAM, “Courts and Arbitration: Reconciling the Public with the Private”, 9
Arbitration Law Review (2017) p. 1 at p. 8.
60) Lord NEUBERGER, op. cit., fn. 7 at [14]-[15].
61) Cf. CARMODY, op. cit., fn. 21.
62) JONES, op. cit., fn. 46 at p. 24.
63) JONES, op. cit., fn. 46 at p. 26; ROGERS, op. cit., fn. 20 at p. 1315.
64) For a discussion of Australia's approach to the supervision of international commercial
arbitration by the Courts see, e.g., ALLSOP and CROFT, op. cit., fn. 38; Patrick KEANE AC,
“Courts and International Arbitration: A reappraisal of roles” in John MCKENNA,
Queensland Legal Yearbook 2016 (Supreme Court of Queensland Library 2018) at p. 360.
65) For an example of this approach based on the UNCITRAL Model Law, albeit in a
domestic arbitration context, see Hancock Prospecting Pty Ltd v. Rinehart [2017] FCAFC
170.
66) See the discussion, in particular of the Singapore International Commercial Court, by
Marilyn WARREN AC and Clyde CROFT, “An International Commercial Court for Australia
– Looking Beyond the New York Convention” (Paper presented at the Commercial CPD
Seminar Series, 13 April 2016). I have expressed the view on an earlier occasion that,
but for the decision in Re Wakim [1999] HCA 27; 198 CLR 511, Australia would have an
International Commercial Court in operation today: James ALLSOP, “The Role and
Future of the Federal Court Within the Australian Judicial System” (Paper presented at
the ANU 40th Anniversary of the Federal Court of Australia Conference, 9 September
2017) at p. 9.
67) RAMSEY, op. cit., fn. 1 at 2-3; ALLSOP, 2015, op. cit., fn. 54 at pp. 434.
68) ALLSOP, 2015, op. cit., fn. 54 at p. 434.
69) Chief Justice Menon of Singapore has suggested that some of these issues may, indeed,
be a reason for parties to take their disputes to an international commercial court:
Sundaresh MENON, “International Commercial Courts: Towards a Transnational System
of Dispute Resolution” (Paper presented as the Opening Lecture for the Dubai
International Financial Centre Courts Lecture Series 2015, Dubai, 2015) at [14]-[15].
70) See UNCITRAL, op. cit., fn. 1.
71) Queen Mary University of London, op. cit., fn. 40 at p. 9.
72) Queen Mary University of London, op. cit., fn. 40 at p. 2.
73) Queen Mary University of London, op. cit., fn. 40 at p. 30.
74) (1929) 46 NSWWN 154
75) 46 NSWWN at 155-156.
76) ALLSOP, 2016, op. cit., fn. 54 at p. 752.
77) ALLSOP, 2015, op. cit., fn. 54 at p. 437.

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 KluwerArbitration

Document information
Legitimacy Pragmatism in International Arbitration: A
Publication Framework for Analysis
Evolution and Adaptation: Thomas Schultz
The Future of International (*)
Arbitration
I Introduction
Topics This paper concerns itself with a 30,000-foot view of the legitimacy of lawmaking in
international arbitration – where “lawmaking” is understood broadly as all the effects of a
Investment Arbitration given arbitration regime.
But why should we care about legitimacy? What is the point of thinking about it? To be
sure, legitimacy studies are fashionable on all matters international law. In some countries
Bibliographic reference it appears to be truly de rigueur to debate the legitimacy of this or that area of
Thomas Schultz, 'Legitimacy international legal studies. Yet beyond that, seriously, why do we care about legitimacy?
Pragmatism in International The question isn't cynical. My claim is quite to the contrary. I think the question cuts to the
Arbitration: A Framework for heart of the conceptual equipment we use to conduct these debates. Indeed, what does
Analysis', in Jean Engelmayer legitimacy mean anyway? It actually depends on why we care about legitimacy, on what we
Kalicki and Mohamed Abdel want to get done with legitimacy discussions. So why we care about legitimacy is the sort of
Raouf (eds), Evolution and question that we should not only not be ashamed of asking, but that we actually should
Adaptation: The Future of really ask.
International Arbitration,
ICCA Congress Series, Volume I argue that one useful purpose of legitimacy preoccupations is that they help us
20 (© Kluwer Law understand the stability of a regime; its likelihood of change; the direction, velocity,
International; International extent, drivers of that change; its implications too. The simple point at the core of this
Council for Commercial paper is that a regime which is not legitimate to the actors who can change it is unlikely
Arbitration/Kluwer Law not to change, to be stable. Change and stability, in turn, are of interest to all of us, in the
International 2019) pp. 25 - arbitration industry and beyond.
51 This particular purpose of legitimacy preoccupations calls for a certain understanding of
the concept of legitimacy. The first part of this paper discusses this understanding. It
P 25 considers it in the context of a broader reflection on how the purposes of concepts, their
P 26 “cash-value” as some people put it, should in many situations frame the concepts as we
use them, and not some quest for a universally valid, logically coherent, conceptually
clean definition, some sort of conceptual truth. Thinking about legitimacy is worthwhile if it
helps us understand or do something. And so the goal of understanding or doing should
determine how we define the concept. If the goal is to understand a regime's stability and
anticipate its changes – there are, of course, other goals – then an appropriate definition of
legitimacy is one that takes into account reasons that would push certain actors to provoke
change. It is, as we will see, a deliberately interest-based, output-oriented, and relative
notion of legitimacy – relative in the sense that it depends on the perspective of a given
actor, may vary from one actor to another, is only relative to the particular perspective of a
particular actor. With this notion of legitimacy, nothing is per se legitimate or not; there
are no universal standards of legitimacy.
The second part of the paper then addresses the question of the actors from whose
perspective legitimacy matters – the overall point, of course, remains to determine a given
regime's stability. I address that question from a general, theoretical perspective; not from
the perspective of a particular, concrete regime. The point is to offer a framework or model
to help us think about which actors can input what change, with what consequences, based
on the reasons for change identified by the legitimacy considerations conducted in the
earlier parts of the paper. That model, building on prior and ongoing work with colleagues,
(1) is inspired by the concept of “political system” suggested by political scientist David
Easton.
A simply take-away point of the model is that legitimacy issues in the sense used in this
paper will likely lead to reactions in the form of input into the regime by actors to whom
the regime is not legitimate (at least from a rational perspective, which admittedly has its
limitations, which I will address later). These reactions are likely to continue until some
equilibrium among the input-actors is reached, taking the regime through several
probable iterations. For instance, if we apply this to the case of investment arbitration,
taken as a regime, as a lawmaking system, we might expect it to go through several
iterations, several rounds of change, until an equilibrium is found among states, the
different powerful constituencies within states, investors, arbitrators, arbitration
institutions, and possibly NGOs and other civil society representatives.
Perhaps that conclusion will sound forgone. Then again, the discussion helps clarify a
useful area within the overall debate about the legitimacy crisis or legitimacy deficit of
investment arbitration and other forms of international arbitration.

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 Clarification, I think, is needed. The legitimacy debate is occasionally somewhat wooly. It
tends to echo the lament expressed from perspectives as different as James Crawford's
and Martti Koskenniemi's: in Crawford's words, “In recent discourse there has been very
P 26 little attempt to use [legitimacy] in a discriminating way”; and in Koskenniemi's:
P 27 “legitimacy” [is a] mediate word[], rhetorically successful only so long as [it] cannot be
pinned down either to formal rules or moral principles”. (2) “Legitimacy”, from their
perspective, would just muddle rather than clarify. This tends to have the regrettable
consequence, expressed by Crawford, that we lawyers can dispense with and actually
shouldn't engage with legitimacy preoccupations at all: “Of legitimacy it is for others to
judge.” (3)
“Go home”, in effect, would be Crawford and Koskenniemi's welcome to scholars and
practitioners gathering to discuss legitimacy problems in arbitration.
It surely is an interesting thought – this idea that if it is unclear what we are talking about
we should not be talking about it. That if there is no authoritative or generally accepted
definition of “legitimacy”, it is an unhelpful concept. But I don't think we should leave the
question behind, not on that ground. Then again, we cannot simply take any definition of
legitimacy and run with it. We should rather take Crawford and Koskenniemi's argument as
an invitation to think for a moment about what's involved here: What are concepts meant
to do? How do we define them? Can we define legitimacy in a constructive way, so that it
isn't marked as unhelpful and quickly put away? I think this apparent detour on the way to
debating legitimacy is not a detour at all, but is rather essential in giving meaning to the
discussion. So this is where the paper will start.
The paper overall moves in five parts. The first three deal with the concept of legitimacy:
the first discusses the purposes, or “jobs”, of concepts generally; the second reviews
possible jobs for the concept of legitimacy, what it might help us do; the third gives a
particular job to the concept of legitimacy and defines it according to that job. The fourth
part then suggests a political systems model to mark those actors whose legitimacy views
matter, based on their capacity to provide input in international arbitration lawmaking
regimes. The fifth part starts a discussion about how this paper's point might be used to
anticipate backlashes and overreactions to legitimacy issues.
A caveat must be entered before we begin, although it is probably self-evident by now:
much of this paper relies on theories which don't have their usual habitat in arbitration –
pragmatic philosophy, the legitimacy literature in international law, and political science
theories. The paper's approach, then, may be unusual for an arbitration publication. It may
appear to have been written in a slightly foreign language. In some form of dialect of the
arbitration discourse. But I think there are several important general points that come
from thinking about arbitration from that particular approach, in that particular dialect.
Then again, the hurried reader not too excited about polyglottism and in need of going
straight to the point may jump ahead to Part V, ideally after a brief look at the chart at the
end of Part IV. The other parts are for those who don't quite buy my point and want to know
here it comes from; for those who want to understand why legitimacy in this discussion has
nothing to do with morality or political ideals; and for those who would find either comfort
or halt in the idea that what most people think most of the time about the legitimacy of
arbitration is actually quite irrelevant.
P 27
P 28

II The Job of Concepts

To understand what meaning we should give to the concept of legitimacy, let us first take a
step back and consider the question generically: how do we generally give meaning to
concepts? What is the purpose of concepts anyway? What is their job in our cognitive
economy?
Most philosophers, in particular analytic philosophers, consider that a given concept has a
given meaning. One concept, one meaning. Our job then, as thinkers of all varieties, is to
figure out what that meaning is, what the proper meaning of the concept is, to find
certainty in the identification of its meaning. Once we who think analytically about the
concept have agreed on a meaning, that meaning becomes authoritative, and that's that;
everyone can move on to something else. The great advantages of such janitorial work for
concepts are cleanliness, possibly logical coherence between concepts, and clarity in
communication among thinkers – we know what we one another mean because we use the
same concept with the same meaning. Fair enough.
And yet…. If we think about it, as Wittgenstein did, the problem with this approach is that it
might separate analytic thinking from reality. Or, in the same direction but less far, it
doesn't get much done. If I tell you “stay roughly here”, accompanied by a vague pointing
gesture, you know what I mean, even though “roughly here” is, well, only roughly defined. (4)
There is not much point in defining it analytically, not much purpose in making it a
“rigorously scientific” concept. (5) And if nevertheless we were to define it analytically, the
definition likely wouldn't change anything for anybody, would not achieve anything. It
might even evolve, congress after conference after workshop on “roughly here-ness”, in a
direction that takes it ever further from the way it actually is used in practice by actual
people. “Legitimacy” might face the same fate.

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 As Wittgenstein put it, “My father was a businessman, and I am a businessman; I want my
philosophy to be business-like, to get something done.” (6) From that perspective, the
definition of a concept doesn't start from a pursuit of analytic cleanliness, but from a
pursuit of what a concept can get done. The purpose and utility of a concept, its “cash-
value”, are the starting point of its definition. (“Cash-value”: a term introduced by the
philosopher and psychologist William James in 1898 in his advocacy of pragmatic
doctrines, expressing the idea that philosophical conceptions really should try to make
practical differences to individuals. (7) Unexpectedly this still both annoys and unnerves
many philosophers.) The central argument for the validity of a concept's definition is not
where it sits in the field among other concepts or whether it agrees with an authoritative
understanding by a school of thought. It rather is its practical explanatory purchase, what
explanation it can concretely “buy”, what it helps us do. “Let them, the pundits, solemnly
pontificate; and we, let's get something done,” the pragmatic philosopher would say.
P 28
P 29
Concepts, indeed, are instruments. They serve a purpose. The purpose may vary. It may
vary from one concept to another, in the sense that different concepts may play different
roles in our cognitive economy.
Some concepts help us simplify, some help us distinguish. Some help us understand, some
help us argue. Some evoke, some lull. Some help us justify, some help us resist and object.
Some help us assess, some help us decide. (8) Some provide camouflage for things we
need to hide. Some stop the discussion, the inquiry, the argument, and thus place
constraints on objectivity – constraints which often are indispensable, as Richard Rorty
puts it, “because some particular social practice needs to block the road of inquiry, halt
the progress of interpretations, in order to get something done”. (9)
Or, to offer a different typology from a different perspective, we might say that the
purposes of concepts, their functions in our cognitive economy, their different possible
cash-values, can at least be the following: To help us understand something; then their job
is to explain; and explaining can be done in at least two ways: by simplifying knowledge
and by complexifying it (achieved by introducing further distinctions). To help us decide;
then their job is to act as proxys, to stop inquiries. To help us win arguments; then their job
is to stop discussions, to act as rhetorical devices. To help us communicate; then their job
is to generalize ideas so that it takes less nominal information to transmit them.
One way to put all this is that concepts have idiosyncratic functions – different functions
are proper to different concepts. Now, better concepts serve their purpose, their function
better. A concept is well defined if it serves its function well.
Consider a parallel to make the point clearer: the parallel is between concepts and genres
of legal thought. Here's how Pierre Schlag puts it for legal thought: “it seems evident that
what is required of the various genres of legal thought (knowledge, understanding,
interpretation, edification, etc.) differs somewhat across the genres.” (10) Different types of
legal scholarship have different purposes. What marks them as good scholarship varies
across types and thus across purposes. The same is true of concepts: what marks them as
good, well-defined concepts varies across functions.
This implies that to different functions correspond different defining principles. A concept
meant to evoke is not well defined according to the same principles as a concept meant to
distinguish is well defined: the former must, for example, connect to the contingent social
and cultural symbolism of its audience (notice the concepts used in political statements);
P 29 the latter must, for instance, be precise (notice the concepts used by engineers). A
P 30 concept whose primary role in our cognitive economy is to simplify knowledge should, for
example, be defined in a way that maximizes its capacity to explain as many things as
possible, as accurately as possible, and as eloquently as possible (think of the concept of
law, for instance). (11) A concept whose primary role is to help us decide should, by
contrast, rather be defined in a way that maximizes its straightforwardness, its
manageability, its “black-box-ness”, its accord with the core values we hold (think of the
concept of comity, for example). (12)
Then of course the purpose of concepts does not only vary from one concept to another as
they play different roles in our cognitive economy. A single given concept may also play
different roles in different cognitive economies: the same concept may have different
purposes depending on what it is used for.
Consider this simple example: When we say to ourselves “this is a just decision”, “justice” is
meant to help us decide, to help us stop thinking, to help us cope with the fact that, as
Jacques Derrida put it, the just decision “cannot furnish itself with infinite information and
the unlimited knowledge of conditions, rules or hypothetical imperatives that could justify
it”. (13) When we need to make a decision, we need to stop thinking at some stage, even if
more thinking could be done, and the purpose of “justice” is to allow us to do just that.
Then again, the same concept of justice, in a different context, can be used to do a very
different job: when we say to others “oh but this is unjust!”, the reference to “justice” is
meant to gear us into thinking, into arguing, into finding knowledge. (14)
In the hope of making the point clearer by taking it into territory more familiar to lawyers,
let us briefly consider how it applies to legal doctrines. Schlag again explains the point
intelligibly, even though it might make us double back before we actually quite accept it:

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 “the [legal] academic will present his or her work as faithfully devoted to the analysis of
some unitary object of inquiry – as if the invocation, for instance, of a legal doctrine meant
P 30 the same thing in a law review article, in a lawyer's conference call to the client, in a
P 31 judicial opinion, in a legislative committee hearing, in a press conference. In all
likelihood, the “same doctrine” will be invoked to mean different things in all those speech
acts even if the speakers (incorrectly?) presume that it means the same thing.” (15)
To make it yet brutally simpler, which should really not be taken as an accurate
representation of the argument because it is meant to illustrate the argument and not
enunciate it, take the concept or doctrine of good faith: it means different things in
different legal systems; within a given legal system it tends to mean different things for
different branches of the law; within a given branch of the law, it tends to mean different
things for different uses, in different situations.
Legitimacy is a concept that falls within this category of concepts with multiple purposes.
And quite squarely so. When Jutta Brunnée and Stephen Toope argue that “‘legitimacy’ can
have a specific, legal meaning” (which they pin on Lon Fuller's eight principles of inner
morality), (16) they go in the right direction, but not far enough. The plural would have
helped: legitimacy can and does have several specific meanings for lawyers. The different
meanings of legitimacy correspond to its different uses and purposes, across disciplines
but also within law, even within international law.
Let me restate the argument so far without the jargon, from a slightly different perspective
and a lighter approach. Some concepts are fixed; they have a uniform meaning within a
field, or even across fields. The point of departure for the use of such concepts should then
be that meaning, be it only for the sake of clarity of statements made using the concept –
that I don't mean something else than you when we use the same concept. But that doesn't
work with legitimacy. Legitimacy is a concept that has a great variety of meanings, even
within the comparatively narrow confines of the international law literature – at least one
study, by Chris Thomas, has mapped that array of meanings well enough. (17) Put
differently, legitimacy is characterized by clear and significant conceptual pluralism.
For its definition there is, then, no fixed starting point. Its starting point should rather be
floating, relative. It should be its purpose, its use: the purpose or use of the concept of
legitimacy. The questions we should start from should be: What is the purpose of the
concept of legitimacy? What are we trying to do with the concept? What is it meant to
capture? And then, how should we define legitimacy so that it serves that purpose as well
as possible?
The starting point should not be, against much of the current practice, the definition of
legitimacy offered by some well-known author because the author is well known. This
would be inappropriate, even wrong argumentatively (it would be an argument by
authority). To get an idea of how these discussions often go, consider this: Some people say
that legitimacy is “the right to rule” and refer to Allen Buchanan and Robert Keohane's
authoritative, “classic” statement of this definition. (18) No, no, no, other people respond,
P 31 this is quite wrong. The correct definition of legitimacy is necessarily one that marks a
P 32
distinction between political normativity and applied morality, as Matt Sleat (19) and
Bernard Williams (20) authoritatively pointed out. No, no, no, yet others respond: the
definition of legitimacy must entail some combination of sociological elements and moral
elements, they argue, and quickly enlist Jürgen Habermas's good name for help. (21)
What discussions like these don't seem to acknowledge is that these different authors
wanted to achieve different things with legitimacy, which call for different definitions. It is
like asking which of an airplane, a motorbike, and a snowboard is the better transportation
mode: you don't usually use them for quite the same purposes; their fitness for the purpose
in question is what makes them better. That nuance is of course easily lost if the only
reference point for a definition is its author and the author's authority in a field.
As the example also suggests, a search for the purpose of legitimacy would be misguided. It
would lead us into a totalizing account of the concept, which is neither helpful nor required
and would need to operate at such a level of generality that nothing useful remains. (22) In
the end, the simple point is that the concept of legitimacy has several purposes, some
firmly established, some we could find out and add.
Perhaps you find this trite. That would be good, in fact. But others won't like it. Indeed my
story so far has been, to borrow from Schlag once again, “dissonant with the pretence to
certainty of the juridical style that remains so dominant in academic legal writing”. (23) My
story would be more popular if it came with reassuring certainty. But I think Crawford and
Koskenniemi were right: many of the discussions of legitimacy don't seem to be going
anywhere much. Embracing the uncertainty of the meaning of legitimacy while trying to tie
it to a concrete job might be one way to go somewhere.
P 32
P 33

III The Jobs of the Concept of Legitimacy

What are the purpose and utility, as I said, of the concept of legitimacy in the context of
our discussion? What are we trying to achieve when we talk about the legitimacy of
lawmaking in international arbitration?

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 You may still not buy my story about the variegatedness of the concept of legitimacy,
despite my repetitions. You may still think that legitimacy means legitimacy and that my
job should have been to simply find out what that meaning is. That with a little effort surely
we can find an apodeictic definition of legitimacy (one that is undisputed, on which we can
safely build). Granted, my story isn't an easy sell. It brings Humpty Dumpty to mind (“‘When
I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it
to mean — neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make
words mean so many different things.’”) And that might not be entirely heartening.
So let me show you. By the end of the discussion, I will convince you that we can and must
choose between different meanings, and that this choice should depend on the job we
want to give to the concept of legitimacy. I hope you will agree with the choice I eventually
make.
Let us first look at what is around it, what it connects to. So: in the conceptual
neighbourhood of legitimacy there live authority, fairness, justice, allegiance,
conscientious adhesion, values, ethics, morality, but also crisis, opposition, resistance, and
change. Legitimacy connects to all these neighbouring concepts. All these neighbouring
concepts may help us see what legitimacy can be used for.
By way of illustration, for Max Weber the purpose of legitimacy is to explain authority, and
the purpose of both (legitimacy and authority) is to explain social regularities: why people
obey norms, perceived or real. Legitimacy and authority are here very close, to the point
that Fuad Zarbiyev states that “the phrase “legitimate authority” denotes a redundancy.”
(24) Legitimacy helps define authority; authority helps define legitimacy. While the two
concepts are discrete (in the sense that their meanings do not fully overlap, even if some
overlap is possible), they are connected, at least from this particular perspective: thinking
about authority may then help understand what the concept of legitimacy can be used for.
To take another example, legal validity arguably depends on one of three types of factors,
or a combination of these factors: formalism in the positivistic tradition, effectiveness in
the legal realist tradition, and indeed legitimacy in the natural law tradition. (25) Brutally
simplified, the idea of the natural law tradition (which in truth very much permeates the
way we practice law) is to bring to light the role of people's allegiance to rules, people,
institutions, psychologically inevitable preoccupations with ethics when we declare rules
and decisions valid or invalid, attempts to morally justify our actions when we draw the
boundaries of what is lawful and what isn't. From that perspective, legitimacy is the
P 33 conceptual device we use to anchor our law-related activities in our humanity. Deep
P 34 down, our conscious and unconscious considerations of humanity, of the human condition,
of the values we derive from it, they all contribute to making us take legal positions;
legitimacy is the concept we tend to use to make these decisions or camouflage the
reasoning leading there.
And a third example of how legitimacy connects to neighbouring concepts which in turn
give purpose to the concept of legitimacy: as Chris Thomas puts it, “The language of
legitimacy and the language of crisis have long been associated with each other, standing
as they both do at the borders of order and chaos.” He goes on to cite a string of
publications which speak of “legitimacy crisis”. (26) What does this tell us? First that
systems, regimes, structures in which law is made are “in crisis” because of legitimacy
problems; legitimacy is used to explain, possibly justify, why a regime changes or need to
change. Too often, sadly, and to echo Crawford's and Koskenniemi's laments reported at
the outset of this paper, the concept of legitimacy is often left under-defined, under-
theorized in these publications – many essentially say that “something is wrong” with the
regime, that it shows dysfunctions, which cause instability and urgent crisis-type change. If
the purpose of “legitimacy” is to make us understand something about the neighbouring
principle of “crisis”, how then should we best define legitimacy?
Beyond the somewhat fuzzy conceptual neighbourhood of legitimacy, can we draw a more
informed, a crisper typology of the uses and purposes of the concept of legitimacy? I
suggest the following, which is strictly not meant to be exhaustive; it isn't a totalizing
account, to use the words from above, of the uses and purposes of legitimacy.

1 Job One: Justification

The concept of legitimacy is often used for justificatory purposes. Notice that one of the
definitions of legitimacy offered by the Oxford English language dictionary is this: the
“ability to be defended with logic or justification” (emphasis added – somehow the authors
of the Dictionary didn't consider that logic is a form of justification).
In this category, perhaps the most common example of something justified on the ground
that it is “legitimate” is coercive power. A given regime coerces certain actors into doing
something, but that is okay, justified, the regime is worthy of compliance by its actors and
of non-interference by external forces, because it is a legitimate situation; the regime and
its sway are legitimate. The concept of “legitimacy” is used to justify that coercive power.
P 34
P 35
Of course, the same reasoning applies to exercises of power not based on coercion, on
force. Any regime, any power, anything that exercises normative effects can find
justification for its existence and impact in arguments that it is legitimate.

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 Legitimacy refers here to the “right to rule”, broadly taken. (27) It serves to justify the power
of one actor over another and the exercise of that power. As Chris Thomas puts it,
“Questions about legitimacy may be understood as questions about the justificatory
frameworks behind the expansion, contraction, formation, transformation, maintenance
and dissolution of legal orders.” (28)
For instance, we could justify the power of arbitrators over the parties – from the issuance
of procedural orders, to the creation of new rules for the case at hand and/or future cases –
on the ground that it is legitimate. (Notice that, from this perspective, the question
whether this power is legitimate would be the question whether arbitrators should indeed
have this power.) Used in that sense, legitimacy might call for a standard found in party
autonomy: the parties consented to arbitration, therefore it is legitimate that the
arbitrators … and so on.
A good definition of legitimacy, if it is used for that purpose, is one that resonates with the
moral orientation of the particular audience to which one tries to justify something, a
definition that is attuned to its rhetorical sensitivities. It could for instance be a definition
of legitimacy that uses standards which tend to evoke values of order, obedience, peace,
stability, anxiety of “the other”, anxiety of change, security, predictability, certainty.
The justificatory purposes of the concept of legitimacy also extend, beyond power and
normative effects, to someone's social position. As Zarbiyev puts it: “measured by
sociological criteria, legitimacy is a matter of ‘social credibility and acceptability’ of a
social position.” (29)
And legitimacy can of course also be used to justify an action. Thomas suggests the
example of “Goldstone report's memorable verdict that the NATO military intervention in
Kosovo was ‘illegal but legitimate’.” (30)

2 Job Two: Objection

The concept of legitimacy may also be used to contest, to resist. To oppose, to object. To
revolt. In many ways this is simply the flip side of justification: what is legitimate is
justified, what is not should be contested, resisted. Zarbiyev summarizes some of the
P 35 arguments on this use of legitimacy in the following way: “In another attempt to show that
P 36 authority and legitimacy cannot be equated with each other, it is sometimes suggested
that resistance to, and contestation of, authority cannot be properly accounted for without
keeping authority and legitimacy separate.” (31)
This use of legitimacy is central to the natural law tradition, when it makes the point that
one does not have a moral obligation to obey the law if the law is not legitimate. (32)
This use of legitimacy is also central to civil disobedience discourses, from Henry David
Thoreau (illegitimate state), to the student revolts of the 1960s and 70s (illegitimate
establishment), to the alter-globalization movements (illegitimate economic system), to
the rhetoric of resistance to investment arbitration as a component of the global economic
straightjacket (illegitimate geopolitical function). To take just one quick example,
Muthucumaraswamy Sornarajah refers to “legitimacy” on roughly 10 percent of all the
pages of his latest book – a significant building block of his overall argument. (33)
A good definition of legitimacy, if it is used for the purpose of resistance or opposition, is
certainly one that, once again, resonates with the moral orientation of the particular
audience one tries to stir into action, a definition that captures the general sense that
injustice must not be condoned. It would be a definition that uses standards which tend to
evoke values of freedom and independence and liberation, enough-is-enough-ness,
unfairness, injustice, self-interest, inequity aversion, a sense of the possibility of change,
joy in what is new, progress, hope. A good definition of legitimacy for the purposes of
resistance or opposition would tend not to admit of degrees (something is legitimate or,
indeed, illegitimate, not more or less legitimate) so that an attack on one piece of the
architecture of an institution, or regime, or rule makes the entire construction collapse. A
good definition for these purposes is probably also one that is quite blurry, which the
audience can infuse with its own individual preferences, while being categorical.
Sornarajah, for example, considers that investment arbitration is illegitimate because of
(a) the “democratic deficit that is involved in a law made by ad hoc tribunals” in the sense
that “[a]rbitrators have no mandate to make the profound changes they have on the basis
of hazy provisions in investment treaties” and (b) “There is also an absence of ethical
values in the type of decisions that have been made. The legitimacy of an international
norm must be based on fairness criteria.” (34) One might be tempted to ask in response
what exactly democracy would entail in such a situation and why, and whether hazy
abandonment of decision control by states necessarily is undemocratic. One might also be
tempted to point out that ethical values and fairness criteria do permeate investment
arbitration decisions and investment rules; they are simply not those values that
Sornarajah seems to have in mind.
But who would get excited by such tedious responses? They would require tiresome
discussions of the definition of legitimacy. And these don't quite trigger the same knockout
oomph as does a well-turned call for freedom and justice.
P 36
P 37

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 So it seems easier to point out a thing or two that investment arbitration obviously does
not do well and call it illegitimate, to resist it, than to carefully review all its effects and
call it on the whole legitimate, to positively justify its existence and overall functioning. To
risk a brutal parallel, Trumpism and Brexitism face a much lower definitional duty in their
arguments that the established order is illegitimate (contestation) than the opposite
arguments that it is legitimate (justification).
Again, different uses of the concept of legitimacy simply call for different definitions if the
point of the concept of legitimacy is to get something done. A definition of legitimacy that
gets the thing better done, whatever the thing is, is a better definition.

3 Job Three: Explanation

The concept of legitimacy is also often used neither to justify something nor to contest and
resist, which are both evaluative-normative claims (“it should stay as it is”, “it should
change”), but rather to explain something.
Perhaps the most obvious thing that legitimacy is used to explain is authority: someone or
something has authority, which means that it will tend to be obeyed even in the absence of
coercive power, self-interest, habit, and error, if it is considered legitimate. In that sense,
the concept of legitimacy is almost an empty container, a placeholder for whatever the
individuals who are obeying happen to value and respect. As Julia Black puts it: “the
relevant criteria … are not those which an external observer (including a commentating
academic) would see to be normatively valid or valuable; the relevant criteria are those
being used by those who are interacting with the actor in order for them to accept … its
authority.” (35)
A good definition of legitimacy, in this context, is one that clearly keeps out coercion, self-
interest, habit, and error (or any other reasons-for-action depending on the typology at
hand), in order to isolate legitimacy as an independent reason-for-action. (36) Legitimacy
and authority then largely overlap. (37) Simply put, the purpose of the concept of
legitimacy here is to explain why people obey certain rules or orders even if they are not
forced to, gain nothing from it, don't simply do it routinely, and are not mistaken about any
of this.
For instance, one might wonder why parties comply with law made in international
arbitration – from precedents to procedural orders – if they are not coerced to do so, if it is
not in their interest to do so, if they don't do it out of habit, and if they didn't
misunderstand something: the answer would be because they find the relevant norms or
orders legitimate, and thus grant them authority. This use of the concept of legitimacy
would for instance point the way to studies on why exactly and under which conditions the
parties do that.
P 37
P 38
A variant of this use of legitimacy is the simpler distinction between coercion and other
reasons-for-action: if I am not coerced to do something but nevertheless do it, I do it
because I think it is “legitimate”. The point of the concept of legitimacy here is to get a
general picture of how people, or any other subjects of any rule, regime, etc., likely
exercise their freedom, where “freedom” simply means non-coerced space, generically.
From that perspective one can indeed say, as Daniel Bodansky does, that “one of the
reasons why states might agree to subject themselves to the authority of an international
institution, and consider its authority legitimate, is that they think such institutions are in
their self-interest”. (38) What I think is in my interest I would tend to find legitimate.
Whether this is a better or worse definition than the preceding definition (which opposes
legitimacy not only to coercion but also to self-interest, habit, and error) depends entirely
on what the purpose of the concept of legitimacy is in the analysis at hand, what it seeks to
explain, to get done.

4 Other Jobs: Assessment, Acceptable Expression of Emotions, Thinking

Legitimacy can also do a number of other jobs, which I can but mention in passing.
Legitimacy can be used to assess. To assess the morally cherishable character of
something. For example to assess if the something satisfies Kantian criteria, or
Habermasian criteria, or rule of law criteria if rule of law is taken as a moral-political
ideal. Or if it promotes liberal values, communitarian aspirations, global justice ideals, a
neoliberal agenda, … – you get the point. In such cases, the purpose of the concept of
legitimacy is often to lull the critical sense of the audience, to prevent the discussion from
going into a certain direction – namely the direction of a proper comparison, in political
philosophy, of the respective moral-political advantages of liberalism vs
communitarianism vs neoliberalism, etc. (Think “lawmaking in international arbitration is
illegitimate because it promotes a neoliberal agenda”, which says nothing about the
undesirability in this particular case or even in general of the pursuit of such a neoliberal
agenda.)
It can be used to assess our own work also. As Chris Thomas puts it: “as international
lawyers, global actors and human beings, we have a responsibility to reflect on the
motivations for our actions and to take responsibility for our role in propagating particular
constellations of power and subjugation”. (39) Is what we do legitimate? Which should lead

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 us to ask: What are the effects of what we do (assuming it has any, of course)? Are we quite
content with the structures of power we propagate as we fulfil the functions assigned to us
by “the system”?
Then legitimacy can also be used as a socially accepted way of banging on the table: if I
think something really has to stop I can use “This is not legitimate!” to express that
emotion.
P 38
P 39
Legitimacy can further be used to free lawyers from the narrow confines of mechanical
black letter law thinking, by unlocking human questioning beyond legality and lawfulness:
it is legal but is it quite legitimate? It is illegal but is it nevertheless legitimate?
The list could go on. But I think the point has been reached where it is clear enough that
the concept of legitimacy can be given one of a number of different possible jobs.

IV One Understanding of Legitimacy and its Implications

So we are quite free in defining the concept of legitimacy; what matters is to decide what
we want to use it for, what we want to get done with the concept, and then define it
accordingly. (Clearly, I repeat but the point is important, this paper forgoes conceptual
truth, and on this particular question of legitimacy, it posits that actually there is no
conceptual truth.)
As I said at the outset of this paper, my purpose in using legitimacy is to help us
understand and assess the stability of structures of lawmaking (regimes, systems, orders,
spaces, etc.) in international arbitration, when and how these structures are likely to
change, where the impetus may come from, etc.
To be very clear, my purpose in using legitimacy is not to justify any regime; not to resist it;
not to oppose it; not to assess its moral laudability; not to say what political agenda it
does, should or shouldn't promote; not to make us ponder our responsibility in
propagating the power structure it implies; not to bang on any table. I'm not arguing that
these aren't important questions or valuable endeavours. I'm not claiming either that the
question I am asking is more important than any of these other questions. But again the
one thing we have to be wary about is the temptation to offer a totalizing account, an
account that would try to capture all of these aspects of legitimacy, all of the purposes of
the concept. To say the least, an article-length treatment of legitimacy cannot encompass
all these variants of legitimacy. And it must not try. It is, then, patently a choice to focus on
this use of legitimacy in this particular paper, a choice determined by altogether
contingent factors – which like all contingent factors come into being and pass out of
being.
Now, what does this imply for our understanding of legitimacy? The first point is hackneyed
and obvious, but important: a regime is easier to sustain, more stable, if it reflects the self-
interests of its addressees. For the chosen use of the concept of legitimacy, anchoring it in
self-interest is then apt. To be clear, I'm talking about self-interest not as a reason to
comply with a regime but as a reason to input or not input change.
This further means that the perspective is relative: for that particular use of legitimacy,
there is no universal standard, it all depends on the relative perspective of the actors
concerned. A given regime may be legitimate from the perspective of a given actor,
because it advances its self-interests, and illegitimate from the perspective of another
actor because it doesn't advance its interest as it thinks it should. To paraphrase Ian Hurd,
P 39 the idea is that actors make decisions on whether to input change or not based on “an
P 40 instrumental and calculated assessment of the net benefits of [change] versus
[stability], with an instrumental attitude toward social structures and other people”. (40)
Julia Black uses the idea of “legitimacy communities” to make a different point in a
different context (the exercise of interpretive control) but which echoes this reliance on
relativism. She first says this: “whilst regulatory actors can compete for legitimacy, whether
they are accepted, and by whom, depends on whether their legitimacy communities will
endow them with the legitimacy and authority they seek”. And then she draws this
consequence: regulatory actors “can adopt various strategies to ‘solidify’ their position by
gaining legitimacy from different legitimacy communities. Legitimacy in turn affects their
ability to exercise authority, and their ability to function.” (41) From these perspectives –
Hurd's, Black's, and the perspective advanced here – the legitimacy of a given normative
structure is always only relative to a given addressee, varies from one “ruled” to another.
To be clear, we as observers have plainly no judgment to pass on this. It is beside the point
whether we think that it is ethically or morally or historically or legally right or wrong that
the interests of this or that actor are furthered – the chosen use of the concept of
legitimacy excludes the relevance of such judgments. Put technically, the perspective is
axiologically agnostic.
If the perspective is relative and depends on the actors' perspective, which actors are
relevant? Recall: we are interested in stability, so the relevant actors are those who can
change the regime in question. Think of political realism à la Henry Kissinger: as he put it,
“An international order, the basic arrangements of which are accepted by all the major
Powers, may be called ‘legitimate’.” (42) The international order is stable if the major

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 players consider it legitimate – the major players, the others we don't care about. A given
instance of arbitral lawmaking is stable if the major actors consider it legitimate – “major”
in the sense of those that have the power to change it.
Eventually it might rejoice us lawyers: if asked whether a given arbitral regime is
legitimate, the answer would have to be “it depends”. It depends on the different actors'
perspective. Certain types of parties might find that a given regime is not legitimate,
others will; arbitrators in turn might find it legitimate; perhaps states won't find it
legitimate; and so on. Why are these different actors' perspectives relevant? Because they
can change the regime, because they can affect its stability: if the regime is not legitimate
to them, they might try to alter it, which is what we want to know.
Once more on this idea of relativism: among the many things that legitimacy is not used for
in this paper is the search for any form of “absolute” assessment of political morality,
where “absolute” means that the view is meant to exclude the validity of other views. Such
a view would be, for instance, that a given instance of international arbitration lawmaking
P 40 is legitimate, in the sense of morally justified, not from any actor's point of view, but from
P 41 the point of view of an observer, according to some metaphysically determined
standard. Party autonomy and consent, for instance, form one such metaphysical standard
of legitimacy: arbitration's lawmaking is legitimate because the parties have consented to
it; the effects of BITs as applied by arbitrators are legitimate because states have agreed
to them: these are notions of legitimacy that are based on an “absolute”, metaphysical
standard. Standards such as these belong into an entirely different discussion than the one
I'm offering here. Indeed party autonomy and consent, which figure prominently in many
debates on legitimacy in international arbitration, have per se no place in the current
discussion: party autonomy and consent are not determinants of stability. (I recognize that
indirectly they may have a role to play, for instance through sunset clauses, which have an
impact on regime stability, but this is a different matter.)
To situate it in the literature, the understanding of legitimacy used in this paper is, then,
different from the usual three understandings Thomas identifies in his extensive
compilation of the literature on legitimacy in international law. It is not legal legitimacy,
because it doesn't concern itself with whether lawmaking by international arbitration is
lawful, whether the parties to international arbitrations, or anyone else, have a legal
obligation to submit to the relevant international arbitration regime. It is not moral
legitimacy because it doesn't concern itself with universal, metaphysical assessments; it
doesn't concern itself with the question whether the parties to international arbitrations,
or anyone else, have a moral obligation to submit to the relevant international arbitration
regime. It is not social legitimacy, although it comes close to it, because it doesn't concern
itself with actors' beliefs that a regime is legally or morally legitimate; it doesn't quite try,
as social legitimacy tends to do, to “account for legitimacy's capacity to motivate
obedience even for those who are consistently disadvantaged by the system”. (43) To the
contrary, the point is rather to ask how the actors are likely to react when they understand
whether they are advantaged or disadvantaged by the system, assuming that they react
rationally. It thus concerns itself with the interests the different actors of the systems
actually have, regardless whether they currently happen to perceive and understand these
interests.
If the understanding of legitimacy used in this paper required a label specifying its basis,
to situate it more precisely in the literature, it would be called interest-based or outcome-
based or output legitimacy. (44) It might then be compared in the literature to Ernst Haas's
approach, when he writes that “[o]rganizational legitimacy exists when the membership
values the organization and generally implements collective decisions because they are
seen to implement the members' values”. (45) It might also be likened to output legitimacy
in Sharpf's classification of “the functions of input-oriented and output-oriented
P 41 legitimating arguments in liberal democracies”. (46) Output legitimacy, in Sharpf's
P 42 classification, refers to “government for the people” (47) – in the language of this paper,
we would say “lawmaking for the actors of the regime”. It understands legitimacy as the
capacity to “generally represent effective solutions to common problems of the governed”
(48) – in the language of this paper, we would say “advance the interests of the addressees
of the regime”, more precisely those addressees who are also actors of the regime, who can
effectively change it. A failure of output legitimacy is a failure to satisfy the self-interests
of the regime's actors; it will usually trigger attempts to alter the system's workings.

V Modelling Actor Input in International Arbitration Lawmaking

The chosen purpose of the use of legitimacy, as explained abundantly in the preceding
sections, is to help us elaborate a framework that will allow us to better assess the stability
and better predict the evolution of different instances of international arbitration
lawmaking, different arbitral regimes broadly speaking. Brutally simplified, if a given
arbitral regime is good to a given actor, it will be understood as legitimate from that
actor's perspective, and that actor is unlikely to input much change; conversely, if the
regime is not legitimate to an actor who can change it, it likely will try to alter it. If the
regime is not legitimate to an actor who cannot change it, probably nothing much will
happen.
Can we, then, model this simple idea, provide a model that can be applied to analyze
discrete actual instances of international arbitration lawmaking? I argue, based on prior

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 and ongoing work with Cédric Dupont and Jason Yackee, (49) that David Easton's model of a
political system is a good starting point. (50)
Easton developed a model of political systems based on Harold Laswell's straightforward
idea that politics is the question of “who gets what, when, how” (51) – in other words whose
self-interests are furthered, when, and how. In the model, actors influence a system
through so-called “inputs”.
Inputs are attempts to make the system do the bidding of the actors providing the input,
to make it maximize their self-interests. The system then aggregates these inputs and
transforms them into so-called “outputs”.
Outputs are effectively determinations of who gets what, when, and how; they are
determinations of whose self-interests are advanced when and how; they are authoritative
allocations of values, as Easton puts it; they are normative outcomes in the sense that they
say what things ought to be, in principle with some power to make things be that way.
Once the cards have thus been dealt, some actors will of course be unhappy because their
P 42 self-interests are not as maximized as they wanted or because their self-interests have
P 43 been harmed by the input of another actor. These disgruntled actors then adapt their
input or provide new input. This reaction Easton calls feedback loops from output to input.
The result is a constant competition among the actors to influence the system. Such a
political system is thus dynamic, constantly evolving through reactions to its own outputs.
To put this technically, political systems in Easton's sense are organic collective
mechanisms of steps in value-allocation decision-making, transforming certain types of
input into certain types of output, thereby furthering certain goals by effectively allocating
values. The output in turn feeds back to the actors providing the input, leading them to
adapt that input in order to continuously seek the maximization of their own interests.
To put this in the language used earlier in this paper, a political system is a regime which
produces normative outcomes (lawmaking, regulation, for instance). The regime's actors
are those who have the power to influence it, to shape it. Each actor influences, tries to
shape the regime in such a way that the regime is as legitimate as possible to the actor in
question, which means that it advances its self-interests as much as possible. If the regime
doesn't advance the interests of a given actor, or doesn't advance it enough, that actor
tries to change the regime, it adapts the way in which it influences it, how it tries to shape
it. Each influence successfully exercised on the regime alters the normative outcomes it
produces, modifies the interests it advances, therefore at least possibly harming one
actor's self-interests while better advancing another actor's self-interests. This reallocation
of interests will thus make the regime less legitimate for one actor, who is likely to push
back and try to vary the regime, back to its original position or onwards to a new position,
so that it again maximizes its self-interests. These iterations stop if an equilibrium is
reached in which each actor's self-interests are maximized to an extent that corresponds
to their power to influence the regime. The regime is then in a situation of stability lasting
until an actor discovers what self-interests it could make the regime maximize or until the
power play changes.
The model, of course, assumes purely rational utilitarian behaviour on the part of the
actors and tends to assume that we are in a situation of finite resources where one's gain is
another's loss. Clearly none of these assumptions is systematically true in the real world.
But I take it to be reasonably representative of the purpose of the entire analysis, which, as
explained above, is to assess the stability of a regime. A more complete, and ultimately
more accurate model would factor in the respective weights of altruistic and self-serving
pursuits, as well as other behavioural distortions of rationality, such as cognitive biases, in
each actor's attempts to shape the regime into what it would like it to be. Such a more
complete, behavioural model, however, would most likely become unwieldy to the point of
being unusable, as the proportion of altruistic/self-serving pursuits is highly variable from
one individual or institution to another, as are cognitive biases.
Easton himself applied his model to national, typically parliamentary politics, and to
international political systems such as NATO, the UN, and the Southeast Asia Treaty
Organization (SEATO). But his model can in fact be applied to everything that aggregates
input and allocates who gets what: from international organizations, to “the” international
system, to companies, law firms, university departments, families, all manner of regimes,
policy spaces, groups, institutions.
P 43
P 44
Importantly, what the model is applied to – the “system” – does not have to be an actual,
real, naturally demarcated, independently existing system per se, in the sense that the
human body is, for example. It doesn't have to be a truly discrete system because the
purpose of Easton's model, its heuristic value as it were, is not to make us see the
separateness of the “system”, that it has a specific, distinct identity. It lies instead in
encouraging us to focus on identifying the main actors who can modify the system by
shaping and influencing the rules it produces and thus the values it allocates. It also helps
us see the overall incentive structure in which they operate, which combines both rule
creation and experiencing the consequences of these rules.

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 Figure 1. David Easton's model of a political system - Dupont, Schultz & Yackee,
“Investment Arbitration and Political Systems Theory”, Oxford Handbook of International
Arbitration, forthcoming.
Easton's model can be represented as shown in Figure 1. (52)
With Dupont and Yackee we have applied the model to investment arbitration. (53) There it
means that states, investors, arbitrators, and arbitration institutions all constantly, to the
best of their bounded rationality, attempt to push the regime in a given direction so that it
best produces their own investment-law demands. The cumulative result of these
influences is the existing, evolving investment arbitration case law. We used the chart in
Figure 2 to represent this. (54)
P 44
P 45

Figure 2. Investment arbitration as a political system, showing only actors able to make
changes directly in the system – Dupont & Schultz, Towards a New Heuristic Model, JIDS
2016.
All the actors providing input on the charts are represented there because they have the
power to change the regime. As I said above, what makes them actors is precisely the fact
that they can modify the regime.
The “input” arrows on the charts represent attempts, real or likely, to make the regime
advance their self-interests, to make it legitimate from their perspective.
A quick and partial example, which we've used elsewhere: (55) a state may consider that
international investment law is legitimate if it reflects an understanding of the fair and
equitable treatment (FET) standard in line with the Neer decision, which assumably serves
the state's self-interest. The state provides an input into the system by arguing to an
arbitral tribunal that its decision should articulate that particular understanding, as an
authoritative statement and application of the law. The decision of the tribunal to
articulate a certain understanding of FET is the “output” of the system. The system itself
can be viewed as the place of interactions between the system's various actors; it consists
of the processes through which their various inputs are aggregated into the system's
outputs.
P 45 The states' input is their consent to investment arbitration, the ways in which they express
P 46 that consent, their treaty-making activity, their contractual practices with foreign
investors, and their domestic legislative actions (when a national “investment code”
contains an offer to arbitrate addressed to foreign investors). Another type of states' input
relates to their behaviour during and in relation to arbitration procedures. Yet another is
their role in choosing arbitrators for institutional lists.
The investors' input is the claims they file or threaten to file, the conditions under which
they do so, against which states, the procedural rules or institution they use, what they
seek to obtain in doing so, how they frame their claims, and so on. Another type of
investors' input relates, here too, to their behaviour during arbitration procedures.
The arbitrators' input is their choices, conscious or not, in framing and determining the
awards and orders they render.
The arbitration institutions' input is their drafting of their own procedural rules and their
residual capacity in appointing arbitrators.

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 The system's output is the arbitral awards, taken in the aggregate, including all their
variegated effects, from the determination of rights, to their precedential value, to their
actual financial implications for all actors involved, to their impact on the reputation of all
actors involved, and including all forms of legal, economic, social, and political
dimensions.
The awards, either individually or in the aggregate, feed back into the system as they have
effects on the actors, who react to it by, for example, changing the content or intensity of
their level of support, by changing their input.
Then of course there are also indirect actors: actors who cannot directly change the system,
cannot provide direct input into it, but who can influence the actors who can change it
directly. We have referred to them elsewhere as “the public”. (56) Luke Nottage calls them
“society at large”. (57) They include NGOs, academia, various institutionalized forms of
expression of civil society, various forms of expression of various industries (including of
course the arbitration industry and ICCA, one of its expressions), occasionally particularly
motivated individuals, the media.
Moreover, the different actors tend to try to influence one another, with the ultimate
purpose of shaping the investment regime.
With this additional layer of complexity, the model looks as shown in Figure 3.
P 46
P 47

Figure 3. Investment arbitration as a political system, showing both actors able to make
changes directly in the system and indirect actors - Dupont & Schultz, Towards a New
Heuristic Model, JIDS 2016.
Of course this still remains quite schematic. That is the point. It keeps the model simple.
Then again, when concretely applied, the model might call for some disaggregation. Most
obviously, and this tends to be a pervasive problem in international relations, attributing
an intention to a state is not much better than attributing an intention to “women” or to
“men”, collectively. States, obviously, are collectivities made up of constituent units with
different interests, and different pathways and powers to express that interest. For
instance, a state's foreign ministry or trade ministry may have very different ideas about
what investment arbitration should do than the ministry whose actions are being
challenged. Likewise, the output of the system may be disaggregated into customary
international law, arbitral case law, treaty interpretation. Moreover, one might debate
whether other key actors should enter the picture: amicus curiae, for instance, may be
considered to provide direct input into the system. (58) But again, one of the purposes of
the model is to simplify the complications of reality in order to see a more general picture.
P 47 The legitimacy question, in this situation, would be this: to what extent do states, investors,
P 48 arbitrators, arbitration institutions consider that investment arbitration, as a regime of
international arbitration lawmaking, is legitimate for them, to what extent does it advance
their self-interests? From that perspective – I repeat the point but it is important – the
question of the legitimacy of investment arbitration has nothing to do with the fact that
states consented to it, or did not consent to some of it; it has also nothing to do either with
the fact that the regime promotes a neoliberal agenda (if indeed it does). The fact that the
system of investment arbitration exhibits inconsistencies, to the extent it does, is not an
argument relevant to its legitimacy either – not per se, it would be relevant if it were
demonstrated that the sort of inconsistency we are talking about here harms the interests
of one of the regime's actors.
If we now asked whether the current investment arbitration regime is stable, on the
grounds that it is legitimate from the perspective of its actors, the answer would likely be
some shade of grey: it might be that it isn't legitimate to many states but it might well be
to many investors, to arbitrators, and to arbitration institutions. The resultant of these
different forces, of these different attempts to make the regime legitimate for its
respective actors, might well be small, not terribly far from nil, which would mean that the

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 regime is indeed stable, unlikely to move.
As I said above, this entire approach is grounded in realism, not in any form of normativism
such as morality or historical intent or even legal objectives. So the argument that
investment arbitration was never meant to promote the self-interests of arbitrators is
irrelevant, beside the point. It uses a different understanding of legitimacy which would
itself serve a different purpose. It doesn't answer the question posed, which concerns
stability. Whether investment arbitration should or should not promote the interests of
arbitrators to the expense of, say, states is simply not this perspective's concern. (59)
Applied to international arbitration lawmaking generically (not all arbitration lawmaking
as a whole, but generically to all individual instances of arbitration lawmaking), the model
would look as represented in Figure 4.
In this chart, states, parties, transnational soft-law producers, arbitrators, and arbitration
institutions are all input-actors, as I called them at the outset of this paper. Here I
alternatively label them “change-empowered actors”, in the sense that they are
empowered to procure change: they are the actors who can change the international
arbitral regime by providing direct input, by doing something that will have an immediate
effect in the regime. “Society at large”, to use Nottage's terminology, is an array of indirect
actors, who cannot directly change the international arbitral regime in question but can
exercise various forms of influence on the change-empowered actors.
One might note similarities between the change-empowered actors vs. indirect actors
dichotomy and Emmanuel Gaillard's “service providers” vs. “value providers” distinction.
P 48 While there are overlaps, the fault line falls at a quite different place. “Service providers”
P 49 are those actors who “do” arbitration, in the sense of practicing it, while “value
providers” are those actors who say how it should be done. (60) In these terms, change-
empowered actors are those who “make” arbitration – make it be, make it what it is – while
indirect actors are those who inform and influence the makers. All of the actors in my
suggested distinction try, do, or could influence the normative structure of international
arbitration – the “law” produced for and through international arbitration. The fault line
marks the difference in their power to do it.

Figure 4. International arbitration lawmaking modelled as a political system

VI Anticipating Backlashes and Overreactions to Legitimacy Issues

Let us go back to the initial question this paper asked: Why do we care about the
legitimacy of international arbitration lawmaking?
Surely we all have an interest in occupying ourselves with what we find morally right or
P 49 wrong, because we naturally do tend to want the world to be a morally better place. But let
P 50 us put these lofty aspirations aside. As I suggested above, such questioning would
require that we engage seriously with moral or political philosophy, which would be a very
different discussion than what I've offered in this paper. To be clear, I'm not arguing that
this is a more important discussion, or a less important one; my point is simply that
separate discussions should be kept separate. Discussions too should better not be
totalizing.
One pragmatic reason to care about the legitimacy of international arbitration lawmaking,
as I have suggested above, is that a given regime of arbitration lawmaking that is not
considered legitimate by an actor that has the capacity to change the regime is unlikely to
remain unchanged in the longer run. A typical, but of course not exclusive, reason for an
actor to think a regime illegitimate is its failure to serve the actors' self-interests. Hence
my hinging of legitimacy on self-interest.
Then again, if different actors, all of which can change the regime, have different views on
its legitimacy, and are thus all likely at some stage to try to pull it in a different direction,
its likelihood and direction of change will depend on the cumulative effects of these
different pulls. Hence the model of a political system I've suggested.
What, now, does that mean for us? If we care about arbitration, for whatever reason
(egotistic, altruistic, academic), we probably should care about its stability, about how it
might evolve. We should then, first, identify the relevant actors who can change
international arbitration (international arbitration in general or a specific regime of
international arbitration). Who can make it be something different, for better or worse.

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 Who can affect its stability. And understand how exactly they can change it. Second, we
should clarify what exactly the effects of arbitral regimes are on its different actors, which
would tend to call for empirical research, ideally conducted by individuals with as little
self-interest in the system as possible. Obviously, the findings of such research should then
be communicated to the relevant actors. This should be done even if the findings are
negative, even if they are disappointing about what international arbitration effectively
does for these actors: only this can avoid that these actors overreact to wrong
appreciations of these effects, that they overreact to wrongly perceived legitimacy issues.
Brutally simplified, to illustrate the idea with just one example: some states are currently
probably overreacting to what they (mis)understand to be the effects of investment
arbitration on them, thinking it is not a legitimate system for them. Others are probably
under-reacting. Yet others are probably reacting in a way that is beside the point, that
doesn't address the problem. None of this is good. I said “probably”: there is not yet quite
enough empirical research on the complex question of the socio-economic effects of
investment arbitration to really say that the reactions are adequate or not.
It is tempting to paraphrase Stavros Brekoulakis's words of caution. As he put it,
“Arbitration lawyers often seem to have been under the self-reassuring delusion that
arbitration's contribution to the public is somehow axiomatic, namely that arbitration is
there to serve the business community, and by extension it serves the interests of the
public too. However, the prevailing perception of arbitration by a critical mass of the
public is often quite different.” (61) Paraphrased in the language of this paper, it would be:
P 50 “Those who are centrally occupied with international arbitration often seem to have been
P 51 under the self-reassuring delusion that arbitration's contribution to those actors who
can change it is somehow axiomatic, namely that arbitration either serves the interests of
a given actor, or the actor is unable to do any harm, to change the regime. However, the
prevailing perception of arbitration by a critical mass of change-empowered actors is
often quite different, namely that arbitration is not legitimate from their perspective.”
Possibly many if not most of these perceptions are not grounded in fact. But do we really
know? It certainly seems unwise to respond, off the cuff, that there are no problems,
without evidence to back up such statements. It also seems unwise to respond to such
concerns by arguing that states, or other parties, consented to the regime so it is their
problem: that might be morally and legally true, but it is beside the point if the
preoccupation is stability. It relies on a different concept of legitimacy which belongs in a
different discussion.
P 51

References
*) Thomas Schultz: Professor of Law, King's College London; Professor of International
Arbitration, University of Geneva; Of Counsel, Penvern & Corniglion. Particular thanks
go to Fuad Zarbiyev for a treasure trove of references and ideas. Many thanks also to
Andrea Bianchi and Stephan Schill for comments on earlier drafts. This paper builds
on earlier and ongoing work with Cédric Dupont and Jason Yackee.
1) Cédric DUPONT, Thomas SCHULTZ and Jason YACKEE, “Investment Arbitration and
Political Systems Theory” in Thomas SCHULTZ and Federico ORTINO, eds., Oxford
Hanbook of International Arbitration (OUP forthcoming 2019); Cédric DUPONT and
Thomas SCHULTZ, “Towards a New Heuristic Model: Investment Arbitration as a
Political System”, 7 JIDS (2016) p. 3.
2) Martti KOSKENNIEMI, “Miserable Comforters: International Relations as New Natural
Law”, 15 EJIR (2009) p. 395, p. 409.
3) James CRAWFORD, “The Problems of Legitimacy-Speak”, 98 ASIL Proceedings (2004) p.
271, p. 273.
4) Ludwig WITTGENSTEIN, Philosophical Investigations (Macmillan 1953), §71,
5) Toril MOI, Revolution of the Ordinary (University of Chicago Press 2017) p. 76.
6) Reported by Maurice O'Connor DRURY, “Conversations with Wittgenstein” in Rush
RHEES, ed., Recollections of Wittgenstein (OUP 1984) p. 110.
7) William JAMES, “Philosophical Conceptions and Practical Results”, paper presented at
the 1898 Berkeley Philosophical Union, reported and discussed in George COTKIN,
“William James and the Cash-Value Metaphor”, Et Cetera (1985) p. 37.
8) This quasi-typology conspicuously eschews the question of the purpose of knowledge.
Let me explain: arguably, the purpose of every concept is to do something with
knowledge. Then the question might be posed of what the purpose of knowledge is: Is it
to understand? Is it to decide? One might recall Foucault's insistence on the view that
“knowledge is not made for understanding; it is made for cutting [in the sense of
deciding, from the original in French “trancher”]”: Michel FOUCAULT, “Nietzsche,
Genealogy, History” in Essential Works of Foucault, 1954-1984 (Aesthetics, Method, and
Epistemology) (The New Press 1998) p. 380. But can one really be so categorical? Is
there really no evolutionary or psychological drive to understand for the sake of
understanding?
9) Richard RORTY, Consequences of Pragmatism (University of Minnesota Press 1982) p. xli.

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 10) Pierre SCHLAG, “The Knowledge Bubble—Something Amiss in Expertopia” in Justin
DESAUTELS-STEIN and Christopher TOMLINS, eds., In Search of Contemporary Legal
Thought (CUP 2017) p. 428, at p, 445.
11) Karl POPPER, “A Note on Verisimilitude”, 27 British Journal of the Philosophy of Science
(1976) p. 147; François OST, “Science du droit” in André-Jean ARNAUD, ed., Dictionnaire
encyclopédique de sociologie et de théorie du droit (1993) p. 540; Jean LADRIERE, “Les
sciences humaines et le problème de la scientificité” in Patrick de NEUTER and Jean
FLORENCE, eds., Sciences et Psychanalyse (1985). For an application to the concept of
law, see Thomas SCHULTZ, “Non-Analytical Obstacles to Stateless Law”, 43 North
Carolina Journal of International Law (2018) p. 182.
12) Thomas SCHULTZ, Jason MITCHENSON and Niccolò RIDI, The Principle of Comity in Public
and Private International Law (CUP, forthcoming 2019); Thomas SCHULTZ and Niccolò
RIDI, “Comity and International Courts and Tribunals”, 50 Cornell International Law
Journal (2017) p. 577; Thomas SCHULTZ and Jason MITCHENSON, “Navigating Sovereignty
and Transnational Commercial Law: The Use of Comity by Australian Courts”, 12 Journal
of Private International Law (2016) p. 344.
13) Jacques DERRIDA, “Force de loi: le fondement mystique de l'autorité”, 11 Cardozo Law
Review (1989) p. 920, p. 967.
14) One could of course argue that concepts that are nominally the same are functionally
different – same name for a concept, different use – and should thus really be
considered different concepts, so that we remain with the idea that one concept has
one purpose. But this is just a semantic debate.
15) SCHLAG, “The Knowledge Bubble”, p. 433.
16) Jutta BRUNNÉE and Stephen J. TOOPE, Legitimacy and Legality in International Law (CUP
2010) p. 34.
17) Christopher A. THOMAS, “The Uses and Abuses of Legitimacy in International Law”, 34
Oxford Journal of Legal Studies (2014) p. 729.
18) Allen BUCHANAN and Robert O. KEOHANE, “The Legitimacy of Global Governance
Institutions”, 20 Ethics & International Affairs (2006) p. 405.
19) Matt SLEAT, “Legitimacy in Realist Thought: Between Moralism and Realpolitik”, 42
Political Theory (2014) p. 314.
20) Bernard WILLIAMS, In the Beginning Was the Deed: Realism and Moralism in Political
Argument (Princeton University Press 2005).
21) Jürgen HABERMAS, Legitimation Crisis (Polity Press 1988); Jürgen HABERMAS, Between
Facts and Norms: Contribution to a Discourse Theory of Law and Democracy (MIT Press
1996).
22) For an example of such a (nearly) totalizing account: Terry MACDONALD, “Political
Legitimacy in International Border Governance Institutions”, 14 European Journal of
Political Theory p. 409, at p. 418, who offers this definition: “The legitimacy of an
institutionalised subject S tracks reasons R for agents A to engage in conduct C in
relation to S.” The definition is based on this (remarkable) argument: “all analysis of
legitimacy is concerned with evaluating an institutionalised subject (such as a state,
law or international governance regime) to determine whether there are sufficient
reasons (understood as considerations that count in favour of an action, in the sense of
either motivating or justifying it) for particular agents within the institutional scheme
(such as citizens, legal subjects or states) to engage in particular forms of conduct
(such as political participation, legal compliance or cooperative engagement) towards
the subject of the legitimacy evaluation.” (Emphasis added.)
23) SCHLAG, “The Knowledge Bubble”, p. 449.
24) Fuad ZARBIYEV, “Saying Credibly What the Law Is: On Marks of Authority in
International Law”, 9 JIDS (2018) p. 291.
25) François OST and Michel van de KERCHOVE, De la pyramide au réseau? (Publ FUSL 2002)
pp. 361-363.
26) Christine GRAY, “A Crisis of Legitimacy for the UN Collective Security System”, 56 ICLQ
(2007) p. 157; Manfred ELSIG, “The World Trade Organization's Legitimacy Crisis: What
Does the Beast Look Like?”, 41 JWT (2007) p. 75; Jason WIENER, “The World Trade
Organization's Identity Crisis: Institutional Legitimacy and Growth Potential in the
Developing World”, 2 MJIEL (2005) p. 54; Susan D. FRANCK, “The Legitimacy Crisis in
Investment Treaty Arbitration: Privatizing Public International Law Through
Inconsistent Decisions”, 73 Fordham L Rev (2005) p. 1521; Ari AFILALO, “Towards a
Common Law of International Investment: How NAFTA Chapter 11 Panels Should Solve
Their Legitimacy Crisis”, 17 Geo Int'l Envtl L Rev (2004) p. 51; Robert KAGAN, “America's
Crisis of Legitimacy”, 83 Foreign Affairs (2004) p. 65; A. Claire CUTLER, “Critical
Reflections on the Westphalian Assumptions of International Law and Organization: A
Crisis of Legitimacy”, 27 Rev Int'l Stud (2001) p. 133.
27) BUCHANAN and KEOHANE, “The Legitimacy of Global Governance Institutions”.
28) THOMAS, “The Uses and Abuses of Legitimacy in International Law”, pp. 757-758.
29) ZARBIYEV, “Saying Credibly What the Law Is”, citing Julia BLACK, “'Says Who?” Liquid
Authority and Interpretive Control in Transnational Regulatory Regimes”, 9
International Theory (2017) p. 292. See also Michael BARNETT and Martha FINNEMORE,
Rules for the World. International Organizations in Global Politics (Cornell University
Press 2004) p. 20.
30) THOMAS, “The Uses and Abuses of Legitimacy in International Law”, p. 732.

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 31) ZARBIYEV, “Saying Credibly What the Law Is”, citing Michael ZÜRN, Martin BINDER and
Matthias ECKER-EHRHARDT, “International Authority and its Politicization”, 4
International Theory (2012) p. 83; Birgit PETERS and Johan Karlsson SCHAFFER, “The Turn
to Authority Beyond States”, 4 Transnational Legal Theory (2013) p. 334.
32) John FINNIS, Natural Law and Natural Rights (2nd edn, Oxford University Press 2011),
pp. 25-29.
33) Muthucumaraswamy SORNARAJAH, Resistance and Change in the International Law on
Foreign Investment (CUP 2015).
34) Ibid., p. 390.
35) Julia BLACK, “‘Says Who?’ Liquid Authority and Interpretive Control in Transnational
Regulatory Regimes”, 9 International Theory (2017) p. 293.
36) See, e.g., THOMAS, “Uses and Abuses of Legitimacy in International Law”, p. 753: “it is
important to clearly distinguish between legitimacy as a reason for action and
alternative reasons for compliance, including coercion, self-interest and habit.” The
addition of “error” is my own.
37) ZARBIYEV, “Saying Credibly What the Law Is”.
38) Daniel BODANSKY, “The Concept of Legitimacy in International Law” in Rüdiger
WOLFRUM and Volker RÖBEN, eds., Legitimacy in International Law (Springer 2008) p.
309, p. 312, citing Robert KEOHANE, “Discussion Following Presentations by Rüdiger
Wolfrum, Robert Keohane, Alain Pellet and Anthony D'Amato” in Rüdiger WOLFRUM and
Volker RÖBEN, eds., Legitimacy in International Law (Springer 2008) p. 93, p. 104.
39) THOMAS, “Uses and Abuses of Legitimacy in International Law”, p. 732.
40) Ian HURD, After Anarchy: Legitimacy and Power in the United Nations Security Council
(Princeton University Press 2007) p. 37. In Hurd's original version, the words “input” and
“stability” read “compliance” and “non-compliance”.
41) BLACK, “‘Says Who?’”, p. 306.
42) Henry KISSINGER, “Reflections on American Diplomacy”, 35 Foreign Affairs (1956) p. 37,
p. 43 (emphasis added). See further Vanessa LISHINGMAN, “Henry Kissinger's
Contribution to the Conception of International Relations Legitimacy, Consensus and
Order: the Foreign Policy of Moderation”, 1 Glendon Journal of International Studies
(2000).
43) THOMAS, “Uses and Abuses of Legitimacy in International Law”, p. 741.
44) FRANCK, The Power of Legitimacy Among Nations, pp. 17-18 (process-based, procedural-
substantive and outcome-based legitimacy).
45) Ernst HAAS, When Knowledge Is Power: Three Models of Change in International
Organizations (University of California Press 1990) p. 87.
46) Fritz SHARPF, “Problem-Solving Effectiveness and Democratic Accountability in the
EU”, MPIfG Working Paper 03/1, February 2003.
47) Ibid.
48) Ibid.
49) See below, from notes 52 onwards.
50) David EASTON, A Systems Analysis of Political Life (Wiley 1965); David EASTON, The
Political System: An Inquiry into the State of Political Science (Knopf 1953).
51) Harold D. LASSWELL, Politics: Who Gets What, When, How (P. Smith 1950 [1936]).
52) DUPONT, SCHULTZ and YACKEE, “Investment Arbitration and Political Systems Theory”.
53) Ibid., and DUPONT and SCHULTZ “Towards a New Heuristic Model”.
54) DUPONT and SCHULTZ “Towards a New Heuristic Model”.
55) DUPONT, SCHULTZ and YACKEE, “Investment Arbitration and Political Systems Theory”.
56) DUPONT, SCHULTZ and YACKEE, “Investment Arbitration and Political Systems Theory”.
57) Luke R. NOTTAGE, “International Arbitration and Society at Large” in Andrea
BJORKLUND, Franco FERRARI, and Stefan KROELL, eds., Cambridge Compendium of
International Commercial and Investment Arbitration (CUP forthcoming).
58) This is discussed at some length in DUPONT, SCHULTZ and YACKEE, “Investment
Arbitration and Political Systems Theory” and DUPONT and SCHULTZ “Towards a New
Heuristic Model”.
59) To be clear, I do not argue that arbitrators only seek to promote their self-interest in
their decision-making; as I've argued elsewhere, arbitrators are like any other
individual: they promote in part the interests of others and in part their own interests,
this is only human: Thomas SCHULTZ, “Arbitral Decision-Making: Legal Realism and Law
& Economics”, 6 JIDS (2015) p. 231.
60) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015, no. 1) p. 4, p. 5, p. 7: in Gaillard's words, service providers are the
“social groups who dedicate their activity exclusively, or almost exclusively, to
international arbitration” and value providers those who “provide guidance as to the
way international arbitration should develop and arbitral social actors should
behave”; he adds a third category of “essential actors”, who are “the actors without
which international arbitration would not exist [namely] the parties and the
arbitrators”.
61) Stavros BREKOULAKIS, “Introduction: The Evolution and Future of International
Arbitration” in Stavros BREKOULAKIS, Julian LEW and Loukas MISTELIS, eds., The
Evolution of International Arbitration (Kluwer 2016) p. 13.

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 KluwerArbitration

Document information
Lawmaking by Arbitrators
Publication Lucy Reed
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introduction
This panel is tasked with examining “lawmaking” in international arbitration and the
attendant “legitimacy” issues. The panellists have had the good fortune of guidance from
Topics our moderator that in:
Investment Arbitration “covering the different aspects and actors relevant for lawmaking in
international arbitration (we should use a loose notion of lawmaking here,
encompassing not only binding norms, but any material that influences the
Bibliographic reference normative expectations of parties or that is useful in making decisions relating
Lucy Reed, 'Lawmaking by to international arbitration) and its legitimacy (another vague notion, which we
Arbitrators', in Jean could circumscribe as encompassing some level of social acceptance short of
Engelmayer Kalicki and coercion because those who accept it have normative reasons for doing so)”.
Mohamed Abdel Raouf (eds), (Emphasis added.)
Evolution and Adaptation: This guidance is particularly welcome for the assigned topic of this paper – lawmaking by
The Future of International arbitrators – because arbitrators are neither legislators nor judges with police power
Arbitration, ICCA Congress behind them. Arbitrators make rulings binding only on the parties before them (subject to
Series, Volume 20 (© Kluwer national court enforcement), there being no system of binding precedent in international
Law International; arbitration. Perhaps the most direct influence international arbitrators have in making law
International Council for is through input in United Nations Commission on International Trade Law (UNCITRAL)
Commercial sessions on the Model Law and model conventions.
Arbitration/Kluwer Law
International 2019) pp. 52 - However, if one examines whether international arbitrators produce “any material … useful
85 P 52 in making decisions”, then it is readily apparent that arbitrators can and do make law – in
P 53 certain situations. (1) In the author's view, the main situations fall into three categories:
(1) arbitrators in international commercial arbitration are not meant to, and rarely do
make law; (2) arbitrators in standing and specialized ad hoc international tribunals are
meant to, and do make law; and (3) the latest guests at the table – arbitrators sitting on ad
hoc investor-state arbitration (ISA) tribunals – were not necessarily meant to, but now do
make law, sometimes in denial and sometimes necessarily inconsistently.
Lest these categories seem too stark, some introductory description is warranted. First,
commercial arbitration tribunals rarely make law for the obvious reason that the disputes
generally are transaction-specific and confidential. To the extent commercial arbitration
awards are published in redacted form by institutions or emerge through setting-aside and
enforcement litigation in national courts, the outside world benefits from the guidance
provided, but not in the sense of having precedents to cite.
Second, the rare standing arbitration tribunals – foremost, the Iran-United States Claims
Tribunal in its early chapters – deal with a universe of similar cases and publish their
awards. They are constituted as standing tribunals precisely so they can develop
consistent rulings on recurring procedural and substantive issues. The same is true of
tribunals set up under specialized sector regimes that publish decisions, the best known of
which are the Court of Arbitration for Sport and the World Intellectual Property
Organization.
Third, in related vein because their awards now are almost always public, investment
treaty tribunals default to the role of de facto lawmakers. This function is most acceptable
when the arbitrators provide thoughtful reasoning in applying international law (and any
other applicable law) to the facts before them and, when citing to prior awards, engage
transparently with the legal analysis in those awards. This function is suspect, and hence
least legitimate, when arbitrators set out to develop the law outside of the context and
purpose of the case before them.
It is this third category – lawmaking by ISA tribunals – that garners the most attention. The
attention comes in the form of recent books, articles and blogs on individual cases and
perceived trends, thoughtful legal theory (along the lines of the questions in Professor
Thomas Schulz' paper for this panel), and far less thoughtful attacks in academia and the
media. (2) On the ethics front, the attention falls not just on the phenomena of “double-
P 53 hatting” and issue conflict, but also on the very idea of private arbitrators judging and
P 54 influencing public policy. Even the criticism that is well-deserved tends to be at best
general and at worst sensational.
This third category of arbitrator lawmaking is therefore the richest for discussion at this
ICCA Congress. Hence, ISA will be the main focus of this paper, and in particular – because
there is so little new to offer on the topic – the contributions of new empirical research on

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 the realities and impact of arbitrator lawmaking.

II International Commercial Arbitration

The historic purpose of international commercial arbitration is to resolve cross-border
business disputes via independent ad hoc tribunals rather than national courts. The
process may be more or less expeditious and expensive than court litigation, depending
on the nature and magnitude of the dispute and the proclivities of the parties. But the
arbitration is always connected to a transactional relationship, which has generated a
dispute that must be resolved if the parties are to move forward together or separately.
The parties rely on a one-off tribunal to resolve the dispute, typically not wanting or
expecting – or paying for – the arbitrators to draft a reasoned award aimed at any person
or any issue outside their case. This ring-fence is protected by the rigorous practice (if not
requirement) of confidentiality for the proceedings, the deliberations and the award itself.
(3)
The fence necessarily comes down if and when a party goes to court to set aside or enforce
the award. Only at that point will outsiders have the benefit of reading the arbitrators'
dispositive (and other) reasoning and learning how the tribunal managed the case. This
operates, in effect, as a windfall for the broader commercial community, allowing lawyers
to learn how tribunals – and sometimes individual arbitrators – apply institutional
procedural rules, interpret common contractual provisions, structure compensation and
award interest. The value of such practical knowledge is what motivates many arbitral
institutions to publish redacted awards. The redacted compilations are helpful in
illuminating institution-specific procedural practice, but only rarely offer insight into legal
analysis useful beyond the case at hand because the analysis generally is transaction
focused and fact specific.
That being said, those rare insights can be useful indeed. There is a case to be made – and
being made – for greater access to international commercial arbitration awards, or at least
weighty ones. To the extent companies and individuals are increasingly choosing
arbitration over the courts, and arbitrators are writing incisive awards on recurring
commercial legal issues, the secrecy of those awards is a loss overall. Private justice takes
its toll on public national court justice. Professor Mark Feldman, noting the “compelling
and multifaceted nature of the public interest in the availability of awards – particularly
P 54 with respect to the development of international law”, argues for mandatory publication of
P 55 awards, or publication of the legal reasoning of awards or, at very least, publication of
redacted awards. (4) Sir Bernard Rix has written that commercial law goes “underground”
when parties submit “the basic feedstock of our commercial law” to arbitrators, and
suggests that publication of anonymized awards should be the default. (5) Ben Juratowitch
QC goes farther, advocating for the default that any commercial arbitration award be
made public in unredacted form unless the tribunal, after hearing the parties, decides
otherwise. (6) This reflects Juratowitch's views, based on experience, that “there are a
number of high quality arbitral awards dealing with matters of general interest that very
few people have the benefit of reading”, and:
“For better or worse, international commercial arbitration is now a major forum
for the resolution of disputes that impact on those other than the parties to
them. It is a forum in which claims of corruption of public officials and of
breaches of competition law are made and decided, in which States and State-
owned entities are routinely parties, and in which large swathes of commercial
law, including standard form commercial contracts, are applied and developed.
There are therefore compelling reasons for people to be increasingly concerned
about the fact that it is to a substantial degree happening in secret.” (7)
The author's view, also based on experience (including as a Vice President of the ICC Court
of Arbitration involved in award scrutiny), is that only a small percentage of international
commercial arbitration awards – as well reasoned as they may be – would move the law
forward if published, anonymized or not. Even for that small percentage, it is the rare
commercial client that would volunteer to share its good or bad fortune in arbitration with
its competitors and the world at large. And even if, as Juratowitch observes, “[s]ecrecy is a
habit, not a need”, commercial parties show little sign of wanting to cure themselves of this
habit.
What are the implications, from a lawmaking perspective, for the legitimacy of
international commercial arbitration awards? In the author's view, the key test of
legitimacy is the view – and the actions – of the owners, or key stakeholders, of arbitration.
As the late Lord Mustill wrote, “commercial arbitration exists for one purpose only: to serve
P 55 the commercial man”. (8) It could be that the commercial man – now better said,
P 56 commercial person – will one day want greater transparency of the awards resolving his
or her disputes, and thereby maximize lawmaking by ad hoc arbitrators, but that day
apparently has not yet come.
In sum, the private nature of most commercial arbitration awards does not undermine the
legitimacy of the system. Nonetheless, it is interesting to contemplate whether and how
arbitrators would write their awards differently, if they were selected and empowered – to
recall Sir Bernard's words – to “unbury” their legal reasoning and affirmatively make

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 international commercial law.

III Specialized Tribunals

There are standing or specialized international arbitral tribunals that fall between ad hoc
commercial arbitration tribunals and investment treaty tribunals in terms of arbitrator
lawmaking.

1 The Iran-United States Claims Tribunal

The prime example may be the Iran-United States Claims Tribunal, in its early stages. The
Tribunal was established under the Claims Settlement Declaration of the post-hostage
crisis Algiers Accords, with jurisdiction (on the commercial side) to resolve contract breach
and expropriation claims between nationals of the United States or Iran and the opposite
government. The Tribunal consisted of (and still consists of) nine judges: three from the
United States, three from Iran, and three from third states. Remarkably, the United States
and Iran agreed that all Tribunal awards would be published.
Working with this circumscribed jurisdiction and the certainty of publication, the original
Tribunal members – all full- time arbitrators – proceeded to develop a specialized
jurisprudence of general principles of international contract and expropriation law. (9) In
the course of finalizing almost 4,000 commercial cases by award, decision or order by
2003, the Tribunal issued over 350 reasoned awards in “large claims” with a value of US$
250,000 and above. (10) Interestingly, and of relevance here, the government Agents (of
P 56 which the author was one for the United States) played a significant role in facilitating the
P 57 consistency of Tribunal process. It was the Agents who could alert counsel for the
private claimants, most of whom had only one case before the Tribunal, to relevant prior
awards before general publication. The Agents also attended all commercial claim
hearings, and often noted and flagged inconsistencies in procedure.
The Iran- United States Claims Tribunal awards later became a primary substantive
resource for parties in North American Free Trade Agreement (NAFTA) and bilateral
investment treaty arbitration, especially on international legal principles for
expropriation, state contract breach and dual nationality. (11) While ISA has largely moved
on to its own universe of “precedents”, Tribunal awards remain a rich resource of guidance
on practice with the UNCITRAL Arbitration Rules. The UNCITRAL Rules were new when the
United States and Iran selected them (subject to necessary amendments) for the fledging
Tribunal in 1981, allowing the Tribunal – with publicity from commentators – in effect to
make UNCITRAL Rule procedural law. (12)
In sum, albeit at the risk of overstatement, the United States and Iran (through the Algiers
Accords) created and specifically tasked the Iran-United States Claims Tribunal with
making and following international contract and expropriation law. The Tribunal did so.
One may agree or disagree with the legal principles that emerged, but there is no question
as to the basic legitimacy of the lawmaking done by Tribunal arbitrators.

2 Specialized Sector Tribunals

There need not be a standing court like the Iran-United States Claims Tribunal to promote
consistency in substantive and procedural arbitral outcome. Specialized sector tribunals
can fulfil this function by mission and publication of awards.
The leading example is the Court of Arbitration for Sport (CAS). CAS conducts arbitrations
by ad hoc panels drawn from over 200 CAS arbitrators, who are appointed for four-year
terms. There is both an Ordinary Arbitration Division and an Appeals Arbitration Division.
The mission of CAS is to develop a coherent body of sports law, to be applied in fact-
specific individual cases and set out in published decisions. (13) The lawmaking role of CAS
arbitrators is open and unmistakable. The CAS website, for example, reports that the Code
of Sports-related Arbitration, which has governed the organization and procedures of the
institution since 1994, was revised in 2003 “in order to incorporate certain long-established
P 57 principles of CAS case law or practices consistently followed by the arbitrators and the Court
P 58 Office” (emphasis added). (14) The website includes a public database of CAS awards,
which “regroups all the non-confidential CAS jurisprudence from 1986, the year of the first
arbitration procedure” (emphasis added), (15) and summaries of recent decisions. (16)
CAS panels proceed accordingly. The panel in Andrea Anderson et al v. IOC stated plainly
that prior rulings by other panels:
“form a valuable body of case law and can contribute to strengthen legal
predictability in international sports law. Therefore, although not binding,
previous CAS decisions can, and should, be taken into attentive consideration
by subsequent CAS panels, in order to help developing legitimate expectations
among sports bodies and athletes. … Although a CAS panel in principle might
end up deciding differently from a previous panel, it must accord to previous
CAS awards a substantial precedential value and it is up to the party advocating
a jurisprudential change to submit persuasive argument and evidence to that
effect.” (17) (Emphasis added.)

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 With the same goal of developing case law to “contribute to strengthen legal
predictability” in another specialized sector, the World Intellectual Property Organization
(WIPO) administers panel arbitrations to resolve domain name disputes and publishes the
awards. The Internet Corporation for Assigned Names and Numbers (ICANN), which allows
parties to submit cybersquatting and other domain name disputes to courts or to
approved arbitration providers, mandates public decisions in its Uniform Domain-Name
Dispute-Resolution Policy:
“All decisions under this Policy will be published in full over the internet,
except when an Administrative Panel determines in an exceptional case to
redact portions of its decision.” (18)
Again, like the Iran-United States Claims Tribunal, the institutions behind the specialized
CAS and WIPO domain name tribunals specifically tasked them to make law in their
respective sectors. The tribunals do so. And again, one may accept or challenge the legal
principles that emerge, but there is no question as to the basic legitimacy of the arbitrator
lawmaking involved.

IV Investment Treaty Tribunals

We now come to the less straightforward genus of investor-state arbitration tribunals.
P 58 For better or worse, when states began entering into bilateral investment treaties (BITs) in
P 59 earnest in the 1990s, they chose to entrust resolution of disputes between qualifying
investors and host states to purely ad hoc arbitration tribunals. There are various theories
as to how this came about, more or less supported by the available travaux, one of the
best of which (in the author's view) was the desire of many states to sidestep requests by
their nationals for diplomatic protection in foreign investment disputes. Much of the
heated debate on the legitimacy of this ad hoc ISA regime seems to ignore that
participating states chose this path – for themselves and, under international law, for their
nationals – and it is only states that can step off the path.
The primary task of the arbitrators on an ad hoc tribunal resolving an investor-state
dispute, whether at the jurisdictional or merits phase, is to apply the relevant treaty (or
investment legislation) to the facts of the specific dispute before them. The menu of treaty
protections is limited, even in the broadest iterations: promotion of investment, fair and
equitable treatment ( FET), full protection and security (FPS), direct and indirect
expropriation. It is true that states have refined both jurisdictional requirements (i.e.,
disallowance of “post- box” foreign investors) and substantive protections (i.e., the
minimum standard for FET) over time, often in response to being named respondent in
multiple cases. But the reality remains that the core provisions in the hundreds and
hundreds of BITs now in effect are similar, and are subject to interpretation over and over
again. And while it was once correct to distinguish ICSID arbitrations from those proceeding
under the UNCITRAL Rules (or other rules) on the basis that the existence of ICSID
arbitrations and ICSID awards were public, while other cases could stay underground,
today virtually all cases become known and all awards become public via social media
and the legal trade press.
The equation now is: common investment treaty provision + public awards + ad hoc
tribunals = unavoidable lawmaking by arbitrators. In terms of sequence, a tribunal in BIT
case “A v. B” is tasked (by the relevant treaty states) with interpreting treaty provisions
that other tribunals have already interpreted and will interpret in future cases, and the
tribunals in those future cases in turn are tasked with interpreting language interpreted in
the “A v. B” Award. Putting aside for now the questions of whether and how much the “A v. B”
tribunal will be and should be influenced by history and posterity, it is naïve for the “A v. B”
arbitrators to think they somehow stand alone.
It could be that the “persistent objectors” – those arbitrators who insist their task is to
decide only the dispute before them, with no eye to past or future interpretations of
similar treaty language – were justified in taking this position in the early days of BIT
arbitration. It could be that, without a body of prior decisions to be cited by the parties for
tribunal review, the tribunals followed the practice of international commercial
arbitration in staying within the four corners of the dispute before them, as if a treaty FET
article were akin to a contract performance clause or a commercial civil code provision.
Many tribunals were emphatic about the limits on their role. In the words of the Methanex
v. United States tribunal in 2001, ISA tribunals “can set no legal precedent, in general or at
P 59 all”. (19) While these protests seem to have waned as the BIT “case law” has waxed, they are
P 60 still heard. A classic example can be found in the 2009 Award in Romak v. Uzbekistan:
“Ultimately, the Arbitral Tribunal has not been entrusted, by the Parties or
otherwise, with a mission to ensure the coherence or development of ‘arbitral
jurisprudence.’ The Arbitral Tribunal's mission is more mundane, but no less
important: to resolve the present dispute between the Parties in a reasoned
and persuasive manner, irrespective of the unintended consequences that this
Arbitral Tribunal's analysis might have on future disputes in general. It is for the
legal doctrine as reflected in articles and books, and not for arbitrators in their
awards, to set forth, promote or criticize general views regarding trends in, and
the desired evolution of, investment law.” (20)

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 At the other end of the spectrum lie tribunals that label lawmaking to be their positive
obligation. For example, according to the tribunal in the 2007 Decision on Jurisdiction in
Saipem v. Bangladesh: “subject to compelling contrary grounds”, it is the arbitrators' “duty
to adopt solutions established in a series of consistent cases” (21) and to “contribute to the
harmonious development of investment law”. (22)
There is a middle ground in cases such as Glamis Gold v. United States, where the NAFTA
tribunal explained in its 2009 Final Award that it had “addressed the particular case
before it” while being “aware of the larger context in which it operates” by exhibiting a
“modicum of awareness of each of these tribunals for each other and the system as a
whole”. (23)
Assuming a robust “modicum of awareness”, this middle ground seems a realistic and
responsible approach. As any individual tribunal is only one among many that are
interpreting the same or similar treaty language, the members should perform that task
modestly, cautiously and with eyes open, knowing that they may have something to learn
from those who have come before them and they may influence those who come after
them. As King and Moloo conclude, “whether they like it or not, arbitrators do in fact ‘make
law’ in the sense of rendering decisions that are likely to influence the behavior of both
future tribunals and economic actors”. (24)
This brings us to the questions of whether, in practice, ISA awards do influence the behavior
of future tribunals and, if so, how? Still holding the legitimacy-laden question of whether
such influence is desirable or not, what ISA lawmaking actually takes place?
P 60 There is compelling new empirical research on ISA lawmaking, led by social scientist and
P 61 law professor Alec Stone Sweet. (25) To minimize suspense, the research first confirms
that investment treaty arbitrators do indeed make law – markedly increasingly – and then
illuminates the lawmaking process, with legitimacy implications.

1 New Empirical Research on Arbitral Lawmaking

In their recent article entitled “Arbitral Lawmaking and State Power: An Empirical Analysis
of Investor-State Arbitration”, Stone Sweet and co-authors Michael Yunsuck Chung and
Adam Saltzman define “lawmaking” as occurring when an ISA award “supplements the
corpus of normative materials that counsel and tribunals will take into account in future
proceedings”. (26) Anyone who writes or reads investment treaty arbitration submissions
and awards knows instinctively, if only from the ever-longer citation chains in footnotes,
that we practice with a “de facto doctrine of precedent” (27) that “can only be denied by
those determined to close their eyes”. (28)
There has been solid research on citation data, as the best objective indicator of the
influence of prior awards on arbitral lawmakers. Most notable are the early studies by
Jeffrey Commission in 2007 and Ole Kristian Fauchald in 2008, both of whom published
data available through 2006. (29) The number of citations to previous awards can never be
the full picture, of course, because the scope and content of a tribunal discussion of an
earlier award carries more weight than a bare citation. As noted by King and Moloo,
arbitrators no doubt are also influenced by cases raised by the parties or known to them
independently, but not cited in their award. (30) Beyond citation data, commentary has
tended to focus on specific case studies and the evolution of specific standards in
investor-state treaty arbitration. (31)
We now have substantial new material. In addition to the referenced article, Stone Sweet
P 61 studied the phenomenon of arbitrator lawmaking with fellow social scientist Florian Grisel
P 62 in their recent book, The Evolution of International Arbitration: Judicialization,
Governance, Legitimacy. Stone Sweet and Grisel delve deeply into the textual discussion of
“de facto precedent” in ISA awards dating from 1977 through 2014, and use the Argentina
economic crisis ICSID cases to illustrate arbitrator lawmaking in action. (32)
a Research methodology
Stone Sweet and Grisel (and an army of Yale Law School students) employed a research
methodology aimed at rendering the resulting dataset “a robust, relatively direct,
indicator of the influence of precedent on decision-making”. (33) They assess the evolution
of precedent in ISA by compiling “comprehensive information on citation to prior awards
and judicial decisions in all final ISA awards on the merits”. (34) Rather than pure counting,
this compilation consists of “every instance in which a tribunal had cited to decisions on
which it positively relied, on which it expressly disagreed, and on which it engaged in order
to distinguish the present case from a prior case” (emphasis added). (35) Citations in the
summaries of counsel submissions in the awards were included in the dataset only if the
tribunal “later addressed the relevant arguments in its own assessment” (emphasis added).
(36) Where it was unclear whether a cited case informed the tribunal's interpretation of the
relevant law, it was excluded from the dataset. Where one case was cited multiple times
within the same award for the same proposition, it was counted only once. The authors did
include multiple citations to the same award where the tribunal relied upon that award for
multiple discrete propositions.
b Salient findings
Several of the primary findings discernible from Stone Sweet and Grisel's dataset are

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 illuminating in the context of ISA lawmaking. These are set out below, with representative
charts and tables.
First, while investment treaty tribunals regularly have cited prior awards, the average
number of citations per decision has more than doubled since 2000. (Figure 4.1 below)
P 62
P 63

Figure 4.1 Average Number of Citations Per Award and by Period

Source: Yale Law School Data Sets on Investor-State Arbitration, complied by Alec Stone
Sweet, Sheng Li, Meng-Jia Yang, Michael Chung, Moeun Cha, and Tara Zivkovich.
Second, citation by ISA tribunals of prior awards has grown exponentially as available
awards have accumulated. Per the authors, 97% of all citations added to the investor-state
arbitration system between 1977 and 2014 have been produced since 2000; 84% since 2005;
and 45% in the 2010 to 2014 period alone. (37) (Figure 4.2 below)

Figure 4.2 Cumulative Number of Awards and Case Cited, by Period

Source: Yale Law School Data Sets on Investor-State Arbitration, complied by Alec Stone
Sweet, Sheng Li, Meng-Jia Yang, Michael Chung, Moeun Cha, and Tara Zivkovich.
P 63
P 64
Third, the trend is for investment treaty tribunals to cite more awards from within the
investor-state arbitration system than from outside that system (i.e., International Court of
Justice decisions). (38) Since 2005, approximately 90% of all ISA awards have cited to prior
ISA awards, and in particular to ICSID cases. (39) Tribunals routinely cite across treaty
instruments; for example, ICSID tribunals cite to NAFTA tribunals operating under
UNCITRAL rules and vice versa. (40) (Figure 4.3 below)

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 Figure 4.3 Percentage of Awards Citing to Case Law, by Source and Period
Source: Yale Law School Data Sets on Investor-State Arbitration, complied by Alec Stone
Sweet, Sheng Li, Meng-Jia Yang, Michael Chung, Moeun Cha, and Tara Zivkovich.
Fourth, per the authors, “legal domains have been steadily brought into closer relationship
to one another as the case law has evolved, creating a system of interdependent norms”.
(41) Upon examining tribunal approaches to recurrent questions (for example, arbitrary or
discriminatory treatment, FPS, denial of justice, umbrella clause), Stone Sweet and Grisel
found that questions have “tended either (a) to converge around a leading case, or line of
consistent precedents, or (b) to diverge, generating two or more lines of case law”. (42)
P 64 They found important trends towards convergence or, in other areas, that a single award
P 65 served to generate a high degree of consistency where there had been none previously. The
latter phenomenon is illustrated, for example, in the convergence in approach toward
awarding compound interest rather than simple interest following the Santa Elena v. Costa
Rica award. (43) Similarly, tribunals now widely use the Salini approach in determining
what assets held by an investor are protected as an “investment”. (44) Per the authors, “the
drive toward jurisprudential coherence is facilitated by the fact that at least one member
of a relatively small group of elite arbitrators is usually present on any investor-state
tribunal, and repeat arbitrators that specialize in chairing tribunals dominate the
production of awards”. (45) (Table 4.1 below)
Table 4.1Citation to Case Law by Legal Domain
Domain Citations % of All Citations Awards Citing to % of Awards
Per Domain Case Law Per Citing to Case
Domain Law Per Domain
Source: Yale Law Schooi Data Sets on Investor-State Arbitration, compiled by Alec Stone
Sweet, Sheng Li, Meng-Jia Yang, Michael Chung, Moeun Cha, and Tara Zivkovich.
Fair and 640 28.5% 87 51.8%
Equitable
Treatment
Expropriation 453 20.1% 83 49.4%
Damages 273 12.1% 55 32.7%
Protection and 136 6.1% 27 16.1%
Security
Interest 91 4.1% 16 9.5%
Assessment
MFN or National 89 4.0% 21 12.5%
Treatment
Investment 86 3.8% 21 12.5%
Arbitrary or 62 2.8% 22 13.1%
Discriminatory
Treatment
Denial of Justice 60 2.7% 15 8.9%
Umbrella clause 59 2.6% 14 8.3%
Necessity 48 2.1% 11 6.6%
Cost/Fees 44 2.0% 10 6.0%
Other 135 9.2%
Total 2,249 100.1%

P 65

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 P 65
P 66
Fifth, investment treaty tribunals do not look only to other investment treaty tribunals for
“precedent” but rely heavily, if indirectly, on other sources of international law. (46) The
dataset illustrates that in 78 different awards (38% of the total), tribunals cited to
international courts 204 times. (47)
However, say Stone Sweet and Grisel, this count is an inadequate representation of the
impact of international case law, because “[s]ome of the most highly cited ISA awards have
been those that invoke the authority of international courts when making major doctrinal
moves”. (48) The primary example is the 2003 Award in Tecmed v. Mexico, (49) which relied
on the jurisprudence of the European Court of Human Rights (ECtHR) to incorporate the
doctrine of “legitimate expectations” into FET. (50) Interestingly, Tecmed was the most
highly cited ISA award in the database, having been cited 87 times overall and 48 times
regarding FET. Cases such as Saluka v. Czech Republic (the 2006 Partial Award being cited
57 times, 31 times in the FET domain), (51) which hold that the investor's “legitimate
expectations” are to be balanced against the state's “legitimate regulatory interests” cite
heavily to Tecmed and other ISA awards, but not back to the European Court of Human
Rights or other international courts. (52)
Representative examples of repeat citations given to international court decisions
include, not surprisingly: the Permanent Court of International Justice (PCIJ) Chorzow
Factory decision for the principle of full reparation of losses suffered by the aggrieved
through compensation; (53) the ICJ ELSI decision for the definition of arbitrariness as an
action that “shocks, or at least surprises, a sense of judicial propriety”; (54) Judge Higgins'
separate opinion in the ICJ Oil Platforms case for equation of the FET standard with “legal
terms of art well known in the field of overseas investment protection”; (55) the Korea-Beef
decision of the WTO Appellate Body regarding the definition of “necessity”; (56) the ECtHR
P 66 Mellacher v. Austria decision for the definition of expropriation; (57) and the PCIJ Oscar
P 67 Chinn decision for the proposition that potential profits are not protected rights under
international law. (58) (Figure 4.4 below)

Figure 4.4 Awards Citing to International Courts, Percentage by Jurisdiction

Source: Yale Law School Data Sets on Investor-State Arbitration, complied by Alec Stone
Sweet, Sheng Li, Meng-Jia Yang, Michael Chung, Moeun Cha, and Tara Zivkovich.
c The Argentina cases
Moving from data to actual ISA awards, Stone Sweet and Grisel and others use the suite of
BIT cases generated by the Argentine financial crisis to illustrate how tribunals in practice
rely on previous awards, even as they decry any doctrine of precedent in international law.
Two chapters of the Argentina story are useful for these purposes: first, Argentina's
persistence in raising jurisdictional defenses despite consistent losses; (59) and second,
Argentina's systematic pleading of the “necessity defense” against US investors, to mixed
results. (60)
i Jurisdictional objections
P 67 Argentina repeatedly objected to jurisdiction in cases brought by indirect and/or minority
P 68 shareholders as qualified investors. Argentina failed in each and every instance. The
way in which different tribunals handled the repeat scenario reveals a certain diffidence, if
not schizophrenia, in arbitrator lawmaking.
In Vivendi v. Argentina, the tribunal unapologetically rejected Argentina's jurisdictional
objection, adding an appendix to its jurisdiction decision listing eighteen previous
decisions rejecting the same argument. Making explicit that it accorded these decisions
authority, the tribunal said:
“Finally, numerous arbitral tribunals have rejected this very same jurisdictional
objection as shown by the 18 cases referred to in Appendix 1 to this Decision. In
each of those eighteen cases the tribunals upheld the right of shareholders to
pursue such claims. In 11 cases, the Argentine Republic was respondent and

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 asserted, and lost, this same objection. In the last one of these cases, the
Tribunal observed that the very objection which Argentina raises in this case
‘has been made numerous times, never, so far as the Tribunal has been aware,
with success’ [citing Gas Natural v. Argentina]”. (61)
In Enron v. Argentina, the tribunal rejected the jurisdictional objection, while cautiously
explaining that it was citing earlier decisions rejecting a similar objection because it
agreed with those decisions:
“The Tribunal is of course mindful that decisions of ICSID or other arbitral
tribunals are not a primary source of rules. The citations of and references to
those decisions respond to the fact that the Tribunal in examining the claim
and arguments of this case under international law, believes that in essence the
conclusions and reasons of those decisions are correct.” (62)
Later in the decision, the tribunal again emphasized the targeted scope of its mandate by
stating its agreement “with the view expressed by the Argentine Republic in the hearing on
jurisdiction held in respect of this dispute, to the effect that the decisions of ICSID
tribunals are not binding precedents and that every case must be examined in light of its
own circumstances”. (63)
In AES Corp v. Argentina, perhaps the high-water mark for explanation of the “de facto
P 68 precedent” approach, the tribunal described and attempted to align the competing
P 69 considerations. (64) The tribunal faced extreme positions: the claimant challenged
Argentina's jurisdictional objections as “moot if not even useless” given their similarity to
the objections always raised and always rejected in previous arbitrations, (65) and
Argentina replied that for the tribunal to follow the earlier decisions “without making
factual and legal distinctions” was tantamount to “an excess of power and may affect the
integrity of the international system for the protection of investments”. (66) The Tribunal
offered the following series of observations: (67)
(a) “There is so far no rule of precedent in general international law; nor is there any
within the specific ICSID system for the settlement of disputes between one State
party to the Convention and the National of another State Party”;
(b) “Each tribunal remains sovereign and may retain, as it is confirmed by ICSID practice,
a different solution for resolving the same problem”;
(c) “[E]ach decision or award delivered by an ICSID Tribunal is only binding on the
parties to the dispute settled by this decision or award”;
and, with a silent “but”;
(d) It is an “excessive assertion” to contend that “absolutely no consideration might be
given to other decisions on jurisdiction or awards delivered by other tribunals in
similar cases”;
(e) “[D]ecisions on jurisdiction dealing with the same or very similar issues may at least
indicate some lines of reasoning of real interest.”
It is fair to interpret this line of observations as the tribunal saying “we are not obliged to
consider or give any weight to prior decisions, but we can if we want to and if we agree with
them”. Thus, while defending its own independence and Argentina's right to repeat losing
objections, the AES tribunal proceeded systematically to describe and rely upon previous
decisions by other tribunals rejecting Argentina's jurisdictional objections. (68)
ii The necessity defense
Once through the jurisdiction phase, several US claimants faced Argentina's necessity
defense under Art. XI of the 1991 US-Argentina BIT. Irene M. Ten Cate provides a succinct
summary of the basic factual and legal scenario:
“The operative facts in the five cases are substantially similar. The claimants
invested in Argentine companies as part of Argentina's privatization program in
the early 1990s. In these investment transactions, Argentina made commitments
aimed at stabilizing the tariff structure in case of fluctuation of the peso. During
P 69 the unprecedented economic meltdown approximately ten years later, the
P 70 Argentine government effectively abrogated the stabilization measures. The
investors who filed claims with ICSID claimed that Argentina's actions violated
several obligations under the BIT, including the obligations to accord fair and
equitable treatment to investments and to honor commitments made to
investors. The disagreements among the adjudicators in these cases center on
Argentina's argument that it was not liable under the necessity defense under
customary international law and the BIT's emergency clauses, chiefly Article XI.
In CMS, Enron and Sempra, the tribunals held that Argentina did not meet the
standards for either defense. The LG&E and Continental tribunals, on the other
hand, held that Argentina had successfully established the emergency defense
under the BIT.” (69)
At the end of the day, there were six final ICSID awards and five associated annulment
decisions addressing the necessity defense, which Stone Sweet and Grisel describe as
offering insight into the evolution and enforcement of de facto precedent. The relevant

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 final awards are: CMS (May 2005), (70) LG&E (October 2006), (71) Enron (May 2007), (72)
Sempra (September 2007), (73) Continental Casualty (September 2008), (74) and El Paso
(October 2011). (75) Taken together, the awards and annulment decisions open a window
into arbitrators' conflicting views as to their status as lawmakers.
The CMS, Enron and Sempra tribunals – all presided by Professor Francisco Orrego Vicuña –
found that Argentina had violated its FET obligations, rejected Argentina's necessity
defense under Art. XI of the United States-Argentina BIT, and issued Awards in favor of the
claimants. Each tribunal took the same approach to Art. XI, with CMS coming first and
subsequent awards reproducing holdings verbatim from CMS and following awards.
Each tribunal looked to customary international law to find that Art. XI is not an
autonomous source of law but is rather subsumed by the doctrine of necessity under
customary international law as expressed through Art. 25 of the ILC's 2001 Articles on the
Responsibility of States for Internationally Wrongful Acts (ASR). In brief, under the rubric of
necessity articulated in ASR Art. 25, each of the CMS, Enron and Sempra tribunals rejected
Argentina's defense on three bases: (1) the economic crisis did not involve an “essential
interest of the State” because it did not undermine the “very existence of the State and its
P 70 independence”; (76) (2) the means chosen by Argentina to manage its economic crisis could
P 71 not qualify as the “only means” under Art. 25, because experts disagreed on available
measures; (77) and (3) Argentina's efforts exacerbated rather than mitigated the crisis. (78)
The LG&E tribunal, which issued its Award between the Awards of the CMS and Enron
tribunals, also found FET violations by Argentina, but accepted Argentina's necessity
defense under both Art. XI of the BIT and ASR Art. 25 as discrete bases.
At the annulment stage, the CMS Annulment Committee did not annul the Award, but
nonetheless soundly criticized the tribunal's legal analysis of the necessity defense. In the
Annulment Decision, the Committee recited its lack of authority under the ICSID
Convention to act in an appellate capacity and then proceeded to a detailed analysis of
the tribunal's “manifest” errors of treaty interpretation, in failing to examine necessity
under Art. XI of the BIT and ASR Art. 25 separately. (79) The Committee explained its view
that the codified customary international law in ASR Art. 25 arises to preclude the
wrongfulness of a breach only after breach has been admitted or found, while the plea of
necessity under Art. XI, in contrast, precludes the finding of breach. The Committee added:
“errors made by the Tribunal could have had a decisive impact on the operative
part of the Award…. In fact, it did not examine whether the conditions laid down
by Article XI were fulfilled and whether, as a consequence, the measures taken
by Argentina were capable of constituting, even prima facie, a breach of the BIT.
If the Committee was acting as a court of appeal, it would have to reconsider
the Award on this ground.” (80)
In the Sempra case, the Annulment Committee annulled the Award on terms seemingly
inspired by the CMS Annulment Decision. The Sempra Committee acknowledged the
relevance of customary international law in interpreting a BIT, but stated that “[i]t does not
follow, however, that customary international law (in casu, Article 25 of the ILC Articles)
establishes a ‘peremptory definition of necessity and the conditions for its operations”’.
(81) The Committee found that the tribunal's failure to apply Art. XI of the United States-
Argentina BIT separately, and its application of ASR Art. 25 as if the latter “trumped” Art. XI,
(82) constituted failure to apply the relevant law amounting to a “manifest excess of
powers” sufficient to justify annulment of the Award. (83)
The back-and-forth of arbitrator and Annulment Committee lawmaking continued in the
later Continental Casualty and El Paso cases.
P 71
P 72
In Continental Casualty, the tribunal cited the CMS Annulment Decision in its assessment of
Argentina's necessity defense under Art. XI of the BIT. (84) Applying a proportionality
approach, the tribunal found that the Argentine economic crisis fell within the criteria of
Art. IX both as to “maintenance of public order” and “essential security interests” and
hence accepted Argentina's necessity defense.
Continental Casualty was unsuccessful in annulment proceedings. The Continental Casualty
Annulment Committee cited and endorsed the reasoning of the CMS Annulment Committee
on the need to separate the legal analysis of necessity under Art. XI of the BIT and ASR Art.
25. (85)
In El Paso, the last case in the series, the tribunal relied heavily on the legal analysis in the
Continental Casualty Award and on the CMS Annulment Decision in focusing, first, on Art. XI
of the BIT as primary law and only then, if Art. XI did not apply, on ASR Art. 25 as secondary
law. (86) The tribunal, however, reached an outcome in its Award opposite to that in
Continental Casualty and LG&E. The tribunal rejected Argentina's necessity defense, on the
basis that Argentine Government measures had contributed to the economic crisis. (87)

2 Evolution of Investment Law Standards by “De Facto Precedent”

Viewed in the “evolution of ISA” perspective offered by Stone Sweet and Grisel, it is readily
evident that the necessity defense analyses of the early ICSID Argentina tribunals had an

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 impact on the later tribunals and, even more starkly, that the dicta in the CMS Annulment
Decision had an impact on the arbitration and annulment proceedings to follow. It is
equally evident that the later arbitrators were not merely stringing citations or relying
blindly on the earlier Awards and Annulment Decision, but engaging with the legal
reasoning of the arbitrators who had written before them.
McNair observed that “[i]t is only by taking a backward glance that we can realize the
importance of the accumulation of case law”. (88) Stone Sweet and Grisel's “de facto
precedent” research necessarily is backwards-facing: the research posits that ISA tribunals
are making law, whether they intend to or not, because later tribunals do not merely cite
prior awards, but engage with and rely on the reasoning in those awards, with which those
later arbitrators (one hopes) agree, as the basis for their own decisions in (one hopes)
similar cases.
This evolutionary approach raises the further question of exactly what law arbitrators are
making. Now that hundreds of investor-state awards are available, what law have
arbitrators bequeathed to us?
P 72 A brief answer must suffice for this paper: with the proliferation of awards, investment
P 73 treaty standards have increasingly taken on substance and shape. Whether one uses (or
abuses) the common law label of “precedent” or civil law label of jurisprudence constante,
ISA tribunal awards have steadily added paint to the canvas. Again instinctively, we
appreciate that this process had to be somewhat unruly with the originally bare FET and
FPS canvases provided by early BIT states, and more satisfactory as states have elaborated
the standards in later treaties.
We now have the benefit of substantial literature on the evolution of investment treaty
standards, both substantive and procedural. (89) As one example, Professor Kaufmann-
Kohler provides an overview of evolutionary trends in her 2007 study on arbitral precedent.
(90) Kaufmann-Kohler's general conclusion is that “there is a progressive emergence of
rules through lines of consistent cases on certain issues, though there are still
contradictory outcomes on others”. (91) The umbrella clause is at one end of the spectrum:
“the tribunals are divided when it comes to the umbrella clause, and no clear rule has
emerged”. (92) The most-favored-nation clause falls somewhere in the middle: “arbitral
practice appears to be evolving towards a consistent rule”. (93) At the other end of the
spectrum is FET: “sufficiently established” standards have emerged to “influence future
P 73 tribunals”. (94) In the words of Stone Sweet, Chung and Saltzmann, in relation to tribunal
P 74 development of FET language:
“They did not camouflage their lawmaking but, instead adopted the mantle of a
judge of general principles.” (95)
It is fair to say that some degree of inconsistency in treaty interpretation is inevitable in ad
hoc ISA. Indeed, some inconsistency can have positive benefits, given the risks of
arbitrators following the interpretation of, say, an FET clause in a prior award without
critically scrutinizing the original reasoning or, if they find the reasoning sound, without
critically applying that reasoning to the relevant facts in their case. Professor Mark
Feldman, in the context of ISA appellate mechanisms, reminds those calling for more
consistency in investment treaty interpretation of the dangers posed by consistent – but
wrong – earlier interpretations:
“For policymakers exploring appellate mechanism options, analysis should
include consideration of the risk of a standing, permanent appellate body
developing a consistent, but inaccurate, line of case law on certain issues”. (96)
(Emphasis added.)
The practical challenge for arbitrator lawmakers is to find the proper place and balance
for consistency. One task is to assess the proper precedential value of prior awards, for
which King and Moloo identify possible guidelines. (97) In addition to comparing the
relevant treaty texts in the later arbitrator's case and a prior award, King and Moloo
suggest that the later arbitrator consider: (1) the factual matrix at issue; (2) the quality of
the reasoning in the precedent; and (3) the reputation and experience of the arbitrators
rendering the prior award. Cognizant that the second and third factors raise issues of
elitism, they remind that Art. 38(1)(d) of the ICJ Statute identifies “teachings of the most
qualified publicists of the various nations” as a subsidiary source of international law.
In addition to such guidelines, it is – in the view of the author – increasingly clear that
investment treaty tribunals should advise the parties against citing each and every
possibly relevant prior award in their submissions and, to underscore that advice, refrain
from addressing in their own awards each and every prior award cited by the parties. It is
sufficient – and indeed it would seem to be more responsible lawmaking – for tribunals to
engage with the analysis in what they assess to be the best reasoned awards, as relevant to
the legal issues before them on the facts before them, and explain why they find that
P 74 reasoning relevant and compelling. Conversely, tribunals should feel no compunction to
P 75 distinguish each and every award cited tangentially by the parties. In the more elegant
words of Professor Michael Reisman, what is merited is “thoughtful consideration of
previous awards that are on-point”. (98)
In sum, the blessing and the curse of ad hoc investment treaty arbitration is that

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 arbitrators have the responsibility to make law by interpreting common treaty provisions
as best they can, with due – not slavish – regard to interpretations made in prior awards in
similar circumstances, but also anchored to the facts and circumstances of the unique case
before them.

V Legitimacy of Investment Treaty Arbitrator Lawmaking: State

Responses
With the reality of arbitrator lawmaking through investor-state arbitration awards firmly
established, the question of legitimacy of that reality arises.
King and Moloo, as active practitioners in the field of international arbitration, not
surprisingly defend the legitimacy of arbitrator lawmaking, in the investment treaty
tribunal context and more broadly. They base their position on four features unique to
international arbitration: (1) the selection of arbitrators by the parties, with the result that
“different views and approaches to the law are typically going to be represented on the
arbitral panel”; (2) the adversarial process, which “allows an arbitral tribunal the benefit of
testing the merits and demerits of the various positions being advanced by the parties”; (3)
the generally unanimous decisions by tribunals, “informed by the rigorous submissions of
the parties and the arbitrators' own prior experiences”; and (4) the availability and use of
post-award review of awards, providing “the opportunity for judicial ‘blessing’ (or ‘cursing’)
of awards”. (99) They concede that the process is not perfect, and flag the risks of
arbitrators using their platform to offer legal opinions not necessary to decide the issues
before them. But, overall, King and Moloo vote for the legitimacy of arbitrator lawmaking:
“Paradoxically, the practical consequence of this analysis [the authors' four
factors] is that arbitral awards can often be viewed as a legitimate articulation
of the law precisely because arbitrators understand their primary task as
resolving the dispute before them. Three individuals with potentially diverse
views come together to decide, typically unanimously, factual and legal
arguments tested in the fire of the adversarial process, in an award that may be
further tested in the national courts or some other review procedure. What
emerges, we suggest, is a decision that can, in many instances, legitimately be
considered as a valid articulation of the law. On the other hand, and for the
same reasons, basing a decision on considerations not before the tribunal, such
as how the law ought to evolve, would undermine the legitimacy of the resulting
award.” (100) (Emphasis in original.)
P 75
P 76
Noting again that King and Moloo are practitioners, there is good reason to seek additional
appraisers of the legitimacy of arbitrator lawmaking. Just as one looks to the ultimate
stakeholders in international commercial arbitration – the commercial players themselves
– to see if there is demand for greater publication of awards (and one sees little), one
should look to the ultimate stakeholders in investment treaty arbitration as a barometer of
legitimacy – the states themselves.
In the author's view, the most objective way to assess legitimacy in ISA is to examine how
states react to the arbitrator lawmaking process. From the viewpoint of delegation theory,
it is states – as the principals – that confer authority on ad hoc arbitrators – as their agents
– to resolve disputes by interpreting the states' treaties. (101) Through treaties, it is states –
and states alone – that have the power to, in the words of Stone Sweet and Grisel,
“consolidate the main lines of arbitral case law”, “codify certain arbitral approaches to
liability”, “presumptively reduce the parameters of choice available to future tribunals”
and even, should they so choose, “destroy influential lines of case law, or to block future
developments”. (102) Treaty content can show the “revealed preference of states”. (103) The
actions that states take in drafting, amending and terminating treaties – or not – is the
best evidence of their views on arbitrator lawmaking.
In examining such state action, we again have the benefit of new empirical research.

1 Introducing the Empirical Studies

There are two recent empirical studies of state treaty-making practice and the
implications for arbitral lawmaking. The first, again, comes from Stone Sweet and Grisel in
The Evolution of International Arbitration: Judicialization, Governance, Legitimacy, where
they analyze a dataset of 398 “New BITs” (signed from 2002 through 2015) and available in
English (Stone Sweet Study). (104) The second is the forthcoming study by Tomer Broude,
Yoram Z. Haftel and Alexander Thompson, who analyze “renegotiated BITs” – defined as “a
signed and ratified treaty that replaces an existing mutually ratified BIT or a signed (and
where relevant, ratified) amendment to an existing mutually ratified BIT”– entered into
between 1986 and 2010 (Broude et al Study) (105) . Broude and colleagues identified a total
of 196 renegotiated BITs, of which both texts were found for 170 BITs in various languages,
leading to a final dataset for the Broude et al Study of 160 treaty pairs in English, French,
Spanish, Arabic and Russian.
P 76 The two empirical studies are complementary. The Stone Sweet Study dataset includes all
P 77 New BITs signed from 2002 through 2015, while the Broude et al Study, by including only

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 pairs of renegotiated BITs, offers insight into how states may have changed their position
on arbitration in the wake of ISA awards. The Broude et al Study spans 24 years as
compared to 13 years for the Stone Sweet Study, thereby offering a longer historic view on
state practice. The Stone Sweet Study, however, contains the most recent data and is
therefore more useful in charting current state practice. Both studies analyze substantive
BIT provisions, with the Stone Sweet Study containing deeper analysis of distinct
investment law standards, specifically FET and indirect expropriation and FET.

2 The Big Picture: No Apparent Backlash Against Arbitrator Lawmaking

Although states possess the power through treaty-making to “reform, exit or even destroy
the system” of international investment law and arbitration, (106) neither the Stone Sweet
Study nor the Broude et al Study finds evidence of systemic backlash from states. To the
contrary, the Stone Sweet Study reports that:
“(a) states continue to negotiate and sign investment treaties; (b) the mix of
treaty protections on offer has remained remarkably stable; and (c) what states
have mostly done is to consolidate the system in line with how arbitrators have,
in fact, developed it in their awards on liability”. (107)
The Broude et al Study echoes these conclusions: “the revised BITs reflect much stronger
ISDS and, by implication, much lower flexibility for host governments”. (108) According to
the Broude et al Study: “[t]his simple observation contradicts the idea of a ‘backlash’
against and a ‘legitimacy crisis’ of the global investment regime”. (109)

3 Salient Findings of the Stone Sweet Study

The Stone Sweet Study analyzes the 398 New BIT dataset (2002 to 2015) against the
backdrop of possible state reactions to arbitrator lawmaking. These reactions include a
state's:
(a) exiting the system, by denouncing BITs and/or the ICSID Convention;
(b) limiting protections for indirect expropriation and/or FET;
(c) entering into new treaties with carve-outs;
(d) expressly constraining arbitral discretion or otherwise limiting the arbitral process,
including with interpretive guidelines; and
(e) replacing ad hoc tribunals with a court. (110)
P 77
P 78
Overall, Stone Sweet and Grisel conclude that “States have broadly acquiesced to arbitral
lawmaking when it comes to indirect expropriation and the FET” and have actually “done
more to consolidate major strands of arbitral case law than they have to block the
extension of that jurisprudence by future tribunals”. (111)
In terms of the specific state reactions studied:
a Exiting the system
Only a small number of states have taken the extreme step of exiting the system
altogether. These include Ecuador's termination of nine BITs in 2008; Venezuela's
termination of one BIT in 2009; Indonesia's termination of 14 BITs since 2014; Bolivia's
denunciation of the ICSID Convention in 2007, Ecuador's in 2009 and Venezuela's in 2012;
and South Africa's initiation of withdrawal from certain BITs. (112)
b Limiting protections
Only 46 of the New BITs include substantive criteria for determining indirect expropriation.
(113) Of interest here, all of the 46 BITs adopt the standard formula developed by
arbitrators through awards (i.e., indirect expropriation having an equivalent effect to
direct expropriation without formal transfer of title or outright seizure). (114)
Stone Sweet observes “states working to consolidate the FET as a framework for the
development of general principles, while doing virtually nothing to dismantle it”. (115) The
study documents the following state responses: (116)
(i) Only 7 of the 398 New BITs have no FET provision. Five of these (only 1 post-dating
2005) contain no provision at all relating to host state treatment of investors, and 2
require the international law “minimal standard of treatment”.
(ii) Of the BITs containing an FET provision, 40 contain interpretative guidelines. Of
those, 34 reference the guidelines used by the NAFTA Art. 2001 Free Trade Commission
stating: (1) “The concepts of ‘FET’ and ‘full protection and security’ do not require
treatment in addition to … that which is required by the CIL minimum standard of
treatment of aliens”; and (2) “A determination that there has been a breach of … a
separate international agreement, does not establish that there has been a breach of
[FET].”
(iii) No New BIT removed the arbitrator-developed test of “legitimate expectations” of
investors from FET considerations.
P 78
P 79

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 P 79
Certain of the 40 New BITs adding substantive criteria expressly codify elements of FET
arbitrator-developed case law, for example, inclusion of the need for explicit promises
made by host states to investors, the prohibition of denial of justice, obligations of due
process, and transparency.
c Carve-outs
The “clearest example of treaty-making seeking to hinder the development of an approach
to liability found in an arbitral award” is found in the carve-outs for public interest that
followed the 2000 Santa Elena v. Costa Rica case, where the tribunal found:
“The purpose of protecting the environment for which the Property was taken
does not alter the legal character of the taking for which adequate
compensation must be paid. The international source of the obligation to
protect the environment makes no difference. Expropriatory environmental
measures – no matter how laudable and beneficial to society as a whole – are,
in this respect, similar to any other expropriatory measures that a state may
take in order to implement its policies: where property is expropriated, even
for environmental purposes, whether domestic or international, the state's
obligation to pay compensation remains.” (117)
Forty-two of the New BITs provide that general measures taken for purposes of “health,
safety and environmental protection” do not in and of themselves, constitute
expropriation. (118) This provision conforms to the position taken in Saluka v. Czech
Republic, one of the most-cited awards, that “a State does not commit an expropriation
and is thus not liable to pay compensation to a dispossessed alien investor when it adopts
general regulations that are ‘commonly accepted as within the police power of the
States’”. (119) Stone Sweet notes that few “arbitrators would consider [this limitation on
indirect expropriation] a reining-in of their powers”. (120)
Carve-outs also include derogation clauses in the form of non -precluded measures
provisions. For example, Canada's New BITs carve out measures “necessary to protect
human, animal or plant life or health” and also “for the conservation of living or non - living
exhaustible natural resources”, on the condition that measures are not “applied in a
manner that constitutes arbitrary or unjustifiable discrimination between investments or
between investors' or constitute ‘a disguised restriction on international trade or
investment’”.
d Constraining tribunals – interpretive guidelines
The research reflects that state usage of interpretive guidelines is growing only slowly. This
P 79 is illustrated at the macro level in Figure 5.1 below, which graphs the 398 New BITs against
P 80 those BITs that contain substantive interpretative guidelines for either indirect
expropriation or FET. The second group started at nil in 2002 and grew to 46 and 40 for
substantive interpretive language for indirect expropriation and FET, respectively, in 2015.

Figure 5.1 Cumulative Number of New BITs and New BITs Containing Interptetive Guidelines
for Indirect Expropriation and the FET, 2002–2015
Source: ‘Data Set of New BITs Signed since 2002’, Yale Law School Data Sets on Investor-
State Arbitration, compiled by Michael Chung.
e Courts
As of the publication of the Stone Sweet Study in 2017, no investment treaty contained a
provision substituting a standing court for ad hoc arbitration. Developments in the
European Union, mentioned below, may soon change this status quo.

4 Salient Findings of the Broude et al Study

The Broude et al Study, as stated above, identifies 160 pairs of original and renegotiated
treaties entered into between 1986 and 2010. The Study notes that the “trend” of treaty
negotiation is considered “rather new” yet is “becoming more significant over time”, (121)
as illustrated by Figure 1 below:
P 80
P 81

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 Figure 1: The Annual Number of Renegotiated BITs, 1986-2010
The first renegotiation was in the mid-1980s, leading to amendment of the France-Egypt
BIT in 1986. Renegotiation became more frequent in the mid-1990s and, overall, 86 states
from all 5 continents have undertaken BIT renegotiation. Some states – for example,
Mexico and the Philippines – have renegotiated only one treaty. Other states have
renegotiated so often that only 15 states account for half of the 160 paired treaties in the
Broude et al Study. (122)
As reflected in Figure 2 below, the leaders in renegotiation are Romania with 38
renegotiations and the Czech Republic with 23 renegotiations (this despite the fact that the
dataset did not include BITs available only in Romanian). Next in line are Germany and
China, which each renegotiated at least 15 BITs. The lead renegotiators come from many
geographical regions, including Europe, the Middle East and East Asia. (123) Interestingly,
given reports of regional investment treaty discontent, Latin American and sub-Saharan
African states renegotiated no more than 3 BITs each.
P 81
P 82

Figure 2: Number of Renegotiated BITs for the Top Fifteen Renegotiating Countries
Overall, looking at the geographic spread and total numbers of renegotiations, the Broude
et al Study posits that “the preference for renegotiation over outright termination
positively indicates that the overall function of BITs, writ large, is not considered
illegitimate or entirely undesirable, in contrast with particular substantive and procedural
legal attributes of BITs (including ISDS), which may be understood as requiring change and
reform”. (124)
a BIT renegotiation in relation to “State Regulatory Space”
The Broude et al Study gauges the extent to which states are concerned with the impact of
ISA on their regulatory autonomy through the concept of “State Regulatory Space” (SRS).
They define the SRS concept as referring “to the extent of the ability of governments to
freely legislate and implement regulations in given public policy domains”, (125) with
“regulation” referring to “rules issued for the purpose of controlling the manner in which
private and public enterprises conduct their operations”. (126) SRS is presented as a
P 82 “continuum”: at one end, the state has great flexibility to pursue policies, insulated from
P 83 external pressure or attempts to influence; at the other end, the state is subject to high
constraint by foreign investors' abilities to challenge their policies under BITs. (127)
The Broude et al Study measures the extent to which BITs have implications for SRS by

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 building upon UNCTAD's BIT text coding scheme. (128) Without going into technical detail
here, the authors classify ISA provisions into nine SRS-related categories, including:
available alternatives to arbitration; limitations on BIT protections subject to ISA;
exclusion of policy areas from ISA; the extent of party input into treaty interpretation; and
transparency.
The authors observe that:
“most (but not all) states have not made a systematic effort over the years to
recalibrate their BITs for the purpose of preserving more SRS so far as [ISA] is
concerned. In fact, many updated BITs either leave [ISA] provisions unchanged or
render them more ‘investor-friendly’, in terms of litigation. Without investigating
the parallel changes in the substance of investment protection rules, this may
only reflect comparatively robust support for ISDS, not a lack of concern for
SRS.” (Emphasis added.) (129)
In sum, until the late 2000s, “most renegotiated ISA provisions reflect less, rather than
more, regulatory space”. (130)
b Global and regional trends
Looking at global trends, the Broude et al Study observes that revised BITs reflect “much
stronger [ISA] and, by implication, much lower flexibility for host governments”. (131) The
Study's observations regarding regional developments are particularly interesting, looking
through the lens of tribunal lawmaking legitimacy:
(i) The decline in SRS is significantly more pronounced in North-South BITs than in
South-South BITs.
(ii) It is Western European countries that “play a key role in the move towards greater
investor protection at the ostensible expense of SRS”. (132)
(iii) While former socialist countries, such as Russia, China and Romania, concluded many
BITs in the 1980s allowing ISA only with respect to compensation, the change in their
economic orientation in the 1990s coincides with their negotiation and renegotiation
of BITs with broader ISA provisions.
(iv) As for Central and Eastern European countries, their renegotiation of BITs in the 2000s
led to almost no change from a low SRS in the original treaties.
P 83
P 84
(v) In comparison, the Americas moved to a higher SRS: per the authors, “[i]t appears,
then, that the Americas are spearheading the turn to more nuanced and less
sweeping [ISA] provisions in investment and trade agreements”. (133)

5 A Turning Point?
One cannot help but wonder whether the relatively rosy observations of the Stone Sweet
and Broude et al Studies – that states are for the most part content with arbitrator
lawmaking through ISA – will stand up in the currently unsettled ISA environment. Two
recent developments bear particular note.
First, the European Court of Justice (ECJ) ruled on 6 March 2018 that the investor-state
arbitration clause in the Netherlands-Slovakia BIT is not compatible with EU law, in that it
“established a mechanism for settling disputes between an investor and a Member State
which could prevent those disputes from being resolved in a manner that ensures the full
effectiveness of EU law, even though they might concern the interpretation or application
of that law”. (134) The ECJ ruling has serious implications for over 150 intra-EU treaties,
scores of arbitrations pending under those treaties, and perhaps even the enforceability of
existing awards – and, in turn, for all the arbitrator lawmakers involved in those
arbitrations and awards. This likely brightens the prospects for the EU investment treaty
court regime, a complex topic in itself that is beyond the scope of this paper.
Second, the ECJ ruling was followed two days later, on 8 March 2018, by signature of the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATPP). The
CPATPP is, in essence, the Trans-Pacific Partnership Agreement (TPPA) without the United
States as a twelfth participant. (135) Overall, the content of the CPATPP does not stray far
from the TPPA, but a number of original TPPA provisions will be suspended from the date of
entry into force of the CPATPP (expected by late 2018 or 2019) unless and until reinstated
by agreement of all eleven CPATPP Member States.
As relevant here, the Member States have not turned their backs – at least 180 degrees –
on arbitrator lawmaking, which they could have done by excluding investor-state
arbitration provisions. Chapter 9, the Investment Chapter, retains the basic menu of
investor-state arbitration options for disputes arising under the Agreement, including the
choice of ICSID, ICSID Additional Facility, UNCITRAL or other party-agreed arbitration rules.
However, as set out in Annexes to Chapter 9, several Member States have entered into side
P 84 agreements limiting recourse to arbitration, for example, in respect of foreign investment
P 85 decisions by relevant agencies of Australia, Canada, Mexico and New Zealand. (136)
Further, the CPATPP provides for establishment of a Ministerial/senior official level
Commission similar to the NAFTA Art. 2001 Free Trade Commission, which will have

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 authority to issue interpretations of CPATPP. CPATPP Art. 9.25(3) – under the telling heading
of “Governing Law” – provides as follows:
“A decision of the Commission on the interpretation of a provision of this
Agreement … shall be binding on a tribunal and any decision or award issued by
a tribunal must be consistent with that decision.”
This obviously may set a brake on arbitrator lawmaking under the CPATPP.
The bigger question is whether the CPATPP opt-outs and Commission advisory role, in
conjunction with the ECJ ruling, mark a turning point in the role of arbitrators as investment
treaty lawmakers. This question is ripe for discussion at the ICCA Congress.

VI Conclusion
To construct a conclusion, it is worth repeating the categories and roles of arbitrator
lawmakers set out in the Introduction: (1) arbitrators in international commercial
arbitration are not meant to, and rarely do make law; (2) arbitrators in standing and
specialized ad hoc tribunals are meant to, and do make law; and (3) and arbitrators in ad
hoc investment treaty arbitration were not necessarily meant to, but now do make law,
sometimes in denial and sometimes necessarily inconsistently. The third category has
raised, and will continue to raise, the most challenging legitimacy questions because of the
inherently unstable intersection – one chosen by states, it must be remembered – between
private judges and public international law and policy. The newest empirical research,
canvassed above, confirms the embedded role of investment treaty tribunals as
lawmakers and the continuing blessing from most states – so far – of that role.
Perhaps one way to make sense of arbitrator lawmaking is to borrow the International Bar
Association “traffic light” approach. Arbitrators in standing courts and specialized sector
tribunals – and in investment treaty courts likely to come – have a green light to make law,
being expressly responsible for consistent and correct application of common standards.
Commercial arbitrators, in general, have a red light against making law, being appointed
to resolve a dispute anchored in a specific transaction in confidential proceedings.
Arbitrators on ad hoc investment treaty tribunals face an orange or (in United States
vocabulary) yellow light, signalling the need for caution. As they cannot realistically avoid
making law in the course of interpreting common treaty provisions, they should look
carefully in all directions, consider and reference the prior awards – and only those awards
– they find most well -reasoned and relevant to the unique case before them, avoid the
temptation of abusing their power for abstract lawmaking or with an eye otherwise to
posterity, and then proceed to issue the best reasoned award possible to resolve the
dispute entrusted to them.
P 85

References
*) Lucy Reed: Professor of Law and Director, Centre for International Law, National
University of Singapore; ICCA Governing Board Member. The author thanks Sophie
Ryan, a New Colombo Plan Scholarship exchange student at the NUS Law Faculty, for
her invaluable assistance with this paper.
1) See D. Brian KING and Rahim MOLOO, “International Arbitrators as Lawmakers”, 46
New York University Journal of International Law and Politics (2014, no. 3) p. 875 at pp.
878-879. The author recommends this often-cited article to readers seeking an
incisive overview of the topic. Messrs. King and Moloo were colleagues of the author
at Freshfields Bruckhaus Deringer.
2) To cite only some of the leading commentary: Andreas FOLLESDAL and Geir ULFSTEIN,
The Judicialization of International Law (Oxford University Press 2018); Dolores
BENTOLILA, Arbitrators as Lawmakers (Wolters Kluwer 2017); W. Michael REISMAN,
“‘Case Specific Mandates’ versus ‘Systemic Implications’: How Should Investment
Tribunals Decide?”, 29 Arbitration International (2013) p. 131; Irene M. TEN CATE, “The
Costs of Consistency: Precedent in Investment Treaty Arbitration”, 51 Columbia Journal
of Transnational Law (2013) p. 418; Stephan W. SCHILL, “International Arbitrators as
System Builders”, 106 Proceedings of the Annual Meeting (American Society of
International Law) (2012) p. 295; Stephan W. SCHILL, “System Building in Investment
Treaty Arbitration and Lawmaking”, 12 German Law Journal (2011) p. 1083; W. Mark C.
WEIDEMAIER, “Toward a Theory of Precedent in Investment Treaty Arbitration”, 51
William and Mary Law Review (2010) p. 1901; Jeffrey P. COMMISSION, “Precedent in
Investment Treaty Arbitration: A Citation Analysis of a Developing Jurisprudence”, 24
Journal of International Arbitration (2007) p. 129; Susan D. FRANCK, “The Legitimacy
Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through
Inconsistent Decisions”, 73 Fordham Law Review (2005) p. 1521.

17
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 3) In her seminal 2007 article, Professor Gabrielle Kaufmann-Kohler found that only 15
percent of the 190 ICC awards in her dataset cited to prior awards, and that was in the
context of common issues such as jurisdiction and non-signatories. Gabrielle
KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, 23 Arbitration
International (2007) p. 357.
4) M. FELDMAN, “International Arbitration and Transparency”, Working Draft 25
September 2006 available at <https://ssrn.com/aabstract-2843140> (last accessed on
26 March 2018) (cited with permission of the author).
5) Rt. Ho. Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”,
Jones Day Professorship in Commercial Law Lecture, Singapore Management
University, 12 March 2015, pp. 19-21.
6) Ben JURATOWITCH QC, “Departing from Confidentiality in International Dispute
Resolution”, BIICL Seminar on Difficult Issues in Commercial, Investor-State, and
State-State Dispute Resolution: Differences and Commonalities, 8 June 2017 at
<www.biicl.org/documents/1676_2017.pdf?showdocument=1> (last accessed 23 March
2018). Mr. Juratowitch was the author's colleague at Freshfields Bruckhaus Deringer.
7) B. JURATOWITCH, “Departing from Confidentiality in International Dispute Resolution”,
pp. 8-10.
8) Lord Michael MUSTILL QC, “The New Lex Mercatoria: The First Five Years”, 4
Arbitration International (1988) p. 86.
9) Among other works on the jurisprudence of the Iran-United States Claims Tribunal:
Lucy F. REED, “Mixed Private and Public International Solutions to International
Crises”, Chapter II, Recueil des cours, Vol. 306 (2003); David D. CARON and John R.
CROOK, eds., The Iran-United States Claims Tribunal and the Process of International
Claims Resolution (Transnational Publishers 2000); Charles N. BROWER and Jason D.
BRUESCHKE, The Iran-United States Claims Tribunal (Kluwer Law International 1998);
Richard B. LILLICH and Daniel B. MAGRAW, eds., The Iran-United States Claims Tribunal:
Its Contribution to the Law of State Responsibility (Brill 1998); George ALDRICH, The
Jurisprudence of the Iran-United States Claims Tribunal: An Analysis of the Decisions of
the Tribunal (Clarendon Press 1996); Allahyar MOURI, The International Law of
Expropriation as Reflected in the Work of the Iran-U.S. Claims Tribunal, (Martinus
Nijhoff 1994); John A. WESTBERG, International Transactions and Claims Involving
Government Parties: Case Law of the Iran-United States Claims Tribunal (International
Law Institute 1991); Charles N. BROWER, “The Iran-United States Claims Tribunal”,
Recueil des cours, Vol. 224 (1990).
10) D. CARON and J. CROOK, Iran-United States Claims Tribunal, fn. 9 above, p. 140.
11) See, e.g., Christopher S. GIBSON, “Iran-United States Claims Tribunal Precedent in
Investor-State Arbitration”, 23 Journal of International Arbitration (2009) p. 521.
12) Howard M. HOLTZMANN, “Drafting the Rules of the Tribunal” in D. CARON and J. CROOK,
fn. 9 above, p. 75; Stewart A. BAKER and Mark D. DAVIS, The UNCITRAL Arbitration Rules
in Practice: The Experience of the Iran-United States Claims Tribunal (Kluwer Law and
Taxation 1992); Jacomijn J. VAN HOF, Commentary on the UNCITRAL Arbitration Rules:
The Application by the Iran-U.S. Claims Tribunal (Kluwer Law and Taxation 1991).
13) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, pp. 878-879.
14) CAS website, <www.tas-cas.org/en/general/information/history-of-the-cas.html> (last
accessed 14 March 2018).
15) CAS website, <www.tas-cas.org/en/jurisprudence/archive.html> (last accessed 14
March 2018).
16) CAS website, <www.tas-cas.org/en/jurisprudence/recent-decisions.html> (last
accessed 14 March 2018).
17) Anderson v. Int'l Olympic Comm., CAS 2008/A/1545, paras. 53-55 (16 July 2010) (Coccia,
Fortier, Nater, arbitrators) (citing CAS 97/176, para. 40 (1998)).
18) ICANN website: <www.icann.org/resources/pages/policy-2012-02-25-en> (last
accessed 15 March 2018).
19) Methanex Corp. v. United States (UNCITRAL), Decision of the Tribunal on Petitions from
Third Persons to Intervene as “Amici Curiae” (15 January 2001) para. 51.
20) Romak S.A. v. Republic of Uzbekistan (UNCITRAL, PCA Case No. AA280), Award (26
November 2009) para. 171.
21) Saipem S.p.A. v. People's Republic of Bangladesh (ICSID Case No. ARB/05/7), Decision
on Jurisdiction and Recommendation of Provisional Measures (21 March 2007) para.
67.
22) Ibid.
23) Glamis Gold Ltd v. United States (UNCITRAL), Award (8 June 2009) paras. 4-5. For
approval of the Glamis Award, see I.M. TEN CATE, “The Costs of Consistency”, pp. 476-
477; for criticism of the Award, see W.M. REISMAN, “‘Case Specific Mandates’ versus
‘Systemic Implications’”, pp. 135-138.
24) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, p. 877.
25) Professor Alec Stone Sweet, formerly at Yale Law School, is the author's colleague on
the Law Faculty of the National University of Singapore.
26) Alec STONE SWEET, Michael Yunsuck CHUNG and Adam SALTZMAN, “Arbitral
Lawmaking and State Power: An Empirical Analysis of Investor-State Arbitration”,
Journal of International Dispute Settlement (2017) p. 1 at pp. 4-5; see also Alec STONE
SWEET and Florian GRISEL, The Evolution of International Arbitration: Judicialization,
Governance, Legitimacy (OUP 2017).

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 27) Domenico DI PIETRO, “The Use of Precedents in ICSID Arbitration: Regularity or
Certainty?”, 3 International Arbitration Law Review (2007) p. 96.
28) Jan PAULSSON, “International Arbitration and the Generation of Legal Norms: Treaty
Arbitration and International Law” in International Arbitration 2006: Back to Basics?,
(ICCA Congress Series no. 13 (2007) p. 886.
29) J.P. COMMISSION, “Precedent in Investment Treaty Arbitration”, p. 129, especially pp.
148-153; Ole Kristian FAUCHALD, “The Legal Reasoning of ICSID Tribunal – An Empirical
Analysis”, 19 European Journal of International Law (2008) p. 301. Professor Kaufmann-
Kohler also notes the increase in citation to prior awards. G. KAUFMANN-KOHLER,
“Arbitral Precedent: Dream, Necessity or Excuse?”, pp. 358-371.
30) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, p. 885; see also
M.C. WEIDEMAIER, “Toward a Theory of Precedent in Investment Treaty Arbitration”, p.
1901.
31) E.g. G. KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, pp.
368-373; Christoph SCHREUER and Matthew WEINIGER, “Conversations Across Cases –
Is there a Doctrine of Precedent in Investment Arbitration” in Peter MUCHLINSKI,
Federico ORTINO, Christoph SCHREUER, eds., The Oxford Handbook on International
Investment Law (Oxford University Press 2008).
32) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above;
A. STONE SWEET, M.Y. CHUNG and A. SALTZMAN, “Arbitral Lawmaking and State Power”,
pp. 1-31.
33) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 152.
34) Ibid., p. 151.
35) Ibid.
36) Ibid.
37) Ibid.
38) Ibid.
39) Ibid.
40) Ibid., pp. 152, 154.
41) Ibid, p. 154.
42) Ibid.
43) Ibid. 155; Santa Elena v. Costa Rica (ICSID Case No ARB/96/1), Award (17 February 2000),
paras. 97-105; Florian GRISEL, « L'octroi d'intérêts composés par les tribunaux arbitraux
d'investissement » 3 Journal du Droit International (2011) p. 545.
44) Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco (ICSID Case No
ARB/05/22), Decision on Jurisdiction (31 July 2001).
45) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 155.
46) Ibid., pp. 155-157.
47) Ibid., p. 155.
48) Ibid.
49) Técnicas Medioambientales Tecmed SA v. United Mexican States (ICSID Case No.
ARB(AF)/00/2), Award (29 May 2003).
50) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 155 fn. 156.
51) Saluka Investments BV v. Czech Republic (UNCITRAL), Partial Award (17 March 2006).
52) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 156.
53) See Enron Corporation, Ponderosa Assets, L.P. v. Argentina (ICSID Case No ARB/01/3),
Award (22 May 2007) para. 359; Metalclad Corporation v. Mexico (ICSID Case No
ARB(AF)/97/1), Award (30 August 2000) para. 122; National Grid PLC v. Argentina
(UNCITRAL), Award (3 November 2008) para.270.
54) See Técnicas Medioambientales Tecmed SA v. United Mexican States, fn. 49, para. 154;
Total SA v. Argentina (ICSID Case No ARB/04/1), Decision on Liability (27 December
2010) para. 110.
55) See Total SA v. Argentina, fn. 54 above, para. 108; Unglaube v. Costa Rica (ICSID Case
Nos, ARB/08/1 and ARB/09/20), Award (16 May 2012) para. 247.
56) Continental Casualty Company v. Argentina (ICSID Case No ARB/03/9), Award (5
September 2008) para. 193.
57) Ronald S Lauder v. Czech Republic (UNCITRAL), Award (3 September 2001) para. 202;
Técnicas Medioambientales Tecmed SA v. United Mexican States, fn. 49 above, para.
122.
58) Merrill & Ring Forestry LP v. Canada (UNCITRAL), Award (31 March 2010) para. 215; El
Paso Energy International Company v. Argentina (ICSID Case No ARB/03/15), Award (31
October 2011) para. 366.
59) C. SCHREUER and M. WEINIGER, “Conversations Across Precedents”, p. 1192.
60) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
pp. 155-157; I.M. TEN CATE, “The Costs of Consistency”, pp. 427-435; Gilbert GUILLAUME,
“The Use of Precedent by International Judges and Arbitrators”, 2 Journal of
International Dispute Settlement (2011) p. 5 at p. 17.
61) Compañía de Aguas del Aconquija, SA & Vivendi Universal (formerly Compagnie
Générale des Eaux) v. Argentine Republic (ICSID Case No. ARB/97/3), Decision on
Jurisdiction (14 November 2005) para. 94.

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 62) Enron Corporation, Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case No.
ARB/01/3), Decision on Jurisdiction (14 January 2004) para. 40.
63) Enron v. Argentina, Decision on Jurisdiction, fn. 62 above, para. 25.
64) AES Corporation v. The Argentine Republic (ICSID Case No. ARB/02/17), Decision on
Jurisdiction (26 April 2005). Commentators Abdulqawi Ahmed Yusuf and Guled Yusuf
consider the AES award to contain the most extensive consideration of the role of
precedent. Abdulqawi Ahmed YUSUF and Guled YUSUF, “Precedent & Jurisprudence
Constante: AES v. Argentina, ICSID Case No. ARB/02/17” in Meg KINNEAR, Geraldine R.
FISCHER, Jara Minguez ALMEIDA, Luisa Fernanda TORRES and Mairée Uran BIDEGAIN,
eds., Building International Investment Law: The First 50 Years of ICSID (Wolters Kluwer
2016) pp. 71, 73.
65) Enron v. Argentina, Decision on Jurisdiction, fn. 62 above, para. 25.
66) AES v. Argentina, Decision on Jurisdiction, fn. 64 above, para. 22.
67) Ibid., paras. 26-30.
68) Ibid., paras. 51-59, 70, 73, 86, 89, 95-97.
69) I.M. TEN CATE, “The Costs of Consistency”, pp. 428-429.
70) CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case No. ARB/01/8),
Decision of the Ad Hoc Committee on the Application for Annulment of the Argentine
Republic (25 September 2007). The author represented the claimant in the CMS case
while a partner with Freshfields Bruckhaus Deringer.
71) LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. The Argentine
Republic (ICSID Case No. ARB/02/1), Decision on Liability (3 October 2006).
72) Enron v. Argentina, Decision on Jurisdiction, fn. 62 above.
73) Sempra Energy International v. The Argentine Republic (ICSID Case No. ARB/02/16),
Award (28 September 2007).
74) Continental Casualty Company v. Argentina, Award, fn. 56 above.
75) El Paso Energy v. Argentina, Award, fn. 58 above.
76) CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case No. ARB/01/8,
Award (12 May 2005) paras. 354-356; Enron v. Argentina, Award, fn. 53 above, para. 306;
Sempra v. Argentina, Award, fn. 73 above, para. 348.
77) CMS v. Argentina, Award, fn. 76 above, para. 323; Enron v. Argentina, Award, fn. 53
above, para. 305; Sempra v. Argentina, Award, fn. 73 above, para. 347.
78) CMS v. Argentina, Award, fin. 76 above, paras. 328-329; Enron v. Argentina, Award, fn. 53
above, paras. 311-312; Sempra v. Argentina, Award, fn. 73 above, paras. 353-354.
79) CMS v. Argentina, Decision on Annulment, fn. 70 above, para. 130.
80) Ibid., para. 135.
81) Sempra Energy International v. The Argentine Republic (ICSID Case No. ARB/02/16),
Decision on the Argentine Republic's Application for Annulment of the Award (29 June
2010) para. 197.
82) Ibid., para. 208.
83) Ibid., paras. 213-214.
84) Continental Casualty v. Argentina, Award, fn. 56 above, para 187.
85) Continental Casualty Company v. The Argentine Republic (ICSID Case No ARB/03/9),
Decision on the Application for Partial Annulment of Continental Casualty Company
and the Application for Partial Annulment of the Argentine Republic (16 September
2011) para 127.
86) El Paso v. Argentina, Award, fn. 58 above, paras. 552-555, 649.
87) Ibid., para. 665.
88) Sir Arnold Duncan McNAIR, The Development of International Justice (New York
University Press 1954) p. 15, cited in J.P. COMMISSION, “Precedent in Investment Treaty
Arbitration”, p. 154.
89) See, e.g., A. STONE SWEET, M.Y. CHUNG and A. SALTZMAN, “Arbitral Lawmaking and
State Power”, pp. 1-31; Rudolph DOLZER, “Fair and Equitable Treatment: Today's
Contours”, 12 Santa Clara Journal of International Law (2013) p. 7; Roland KRÄGER, Fair
and Equitable Treatment in International Investment Law (Cambridge University Press
2011) pp. 308-316.
90) G. KAUFFMAN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, p. 357.
91) Ibid., p. 373.
92) Ibid., p. 369. The restrictive approach – that an umbrella clause cannot transform a
contract claim into a treaty claim – can be found in Salini v. Jordan (ICSID Case No.
ARB/02/13), Decision on Jurisdiction (9 November 2004) and Award (31 January 2006),
Joy Mining v. Egypt (ICSID Case No. ARB/03/11), Award on Jurisdiction (6 August 2004),
El Paso v. Argentina (ICSID Case No. ARB/03/15), Decision on Jurisdiction (27 April 2006)
and Award (31 October 2011), and Pan American v. Argentina (ICSID Case No.
ARB/03/13), Decision on Preliminary Objections (27 July 2006). The liberal approach –
that an umbrella clause can operate to transform municipal law obligations into
obligations directly recognizable in international law – can be found in Eureko v.
Poland (UNCITRAL), Partial Award (19 August 2005), Noble Ventures Inc. v. Romania
(ICSID Case No. ARB/01/11), Award (12 October 2005), and Siemens v. Argentina (ICSID
Case No. ARB/02/8), Award (17 January 2007).

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 93) G. KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, p. 371. The
two seemingly conflicting schools of thought – represented by Maffezini and Plama –
can be combined to produce the rule that “MFN clauses can be used to overcome
waiting periods and similar admissibility requirements, but not to replace, in whole
or in part, the dispute resolution mechanism provided in the treaty upon which
jurisdiction is based”. Emilio Augustín Maffezini v. Kingdom of Spain, ICSID Case
ARB/97/7, Decision on Jurisdiction, (25 January 2000); Plama Consortium Ltd v.
Republic of Bulgaria, ICSID Case ARB/03/24, Decision on Jurisdiction, (8 February
2005).
94) G. KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, p. 373.
Starting with the 1926 Neer case, to circa-2007 cases including Siemens v. Argentina
and PSEG v. Turkey (ICSID Case No. ARB/02/5), Decision on Jurisdiction (4 June 2004)
and Award (19 June 2007), tribunals focus on the wording and purpose of the relevant
treaty, as well as the facts, and emphasize the need for stability of legal and business
frameworks as ‘an emerging standard of fair and equitable treatment in international
law’. Tribunals have abandoned the requirement of bad faith and increasingly focus
on legitimate expectations of the investor. LG&E v. Argentina, Decision on Liability, fn.
71 above, para. 125; Azurix Corp. v. Argentine Republic (ICSID Case RB/01/12), Award (14
July 2006) para. 372.
95) A. STONE SWEET, M.Y. CHUNG and A. SALTZMAN, “Arbitral Lawmaking and State Power”,
p. 17.
96) Mark FELDMAN, “Investment Arbitration Appellate Mechanism Options: Consistency,
Accuracy, and Balance of Power”, 32 ICSID Review – Foreign Investment Law Journal
(2017) pp. 528, 530. Ten Cate takes a similar position. I.M. TEN CATE, “The Costs of
Consistency”, pp. 456-471. See also William W. PARK, “Arbitrators and Accuracy”, 1
Journal of International Dispute Resolution (2010) p. 25.
97) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, pp. 897-909.
98) W.M. REISMAN, “‘Case Specific Mandates’ versus ‘Systemic Implications’”, p. 132.
99) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, pp. 891-895.
100) D.B. KING and R. MOLOO, “International Arbitrators as Lawmakers”, p. 897 (footnote
omitted).
101) See A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26
above, pp. 22-33.
102) Ibid., p. 212.
103) Tomer BROUDE, Yoram Z. HAFTEL and Alexander THOMPSON, “Who Cares About
Regulatory Space in BITs? A Comparative International Law Approach” in Anthea
ROBERTS, Pierre-Hugues VERDIER, Mila VERSTEEG and Paul B. STEPHAN, eds.,
Comparative International Law (Oxford University Press 2018) p. 7.
104) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above.
The UNCTAD database provides a further 137 BITs that are not available in English and
hence not included in the Stone Sweet-Grisel study.
105) T. BROUDE, Y. HAFTEL and A. THOMPSON, fn. 103 above.
106) A. STONE SWEET, M.Y. CHUNG and A. SALTZMAN, “Arbitral Lawmaking and State Power”,
p. 24.
107) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 212.
108) T. BROUDE, Y. HAFTEL and A. THOMPSON, fn. 103 above, p. 11.
109) Ibid.
110) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 211.
111) Ibid., p. 217. The Study notes that only four awards in the data set involve treaties
signed after 1999, with the latest involving a 2003 BIT, and there can be no assessment
of the impact of new treaties on awards until there are new awards interpreting the
new generation of treaties. Ibid., p. 212.
112) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
pp. 212-213.
113) Ibid., p. 211.
114) Ibid., p. 213.
115) Ibid., p. 216.
116) Ibid., pp. 215-216.
117) Compañia del Desarrollo de Santa Elena SA v. Republic of Costa Rica (ICSID Case No
ARB/96/1), Award (17 February 2000), paras. 71-72.
118) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 214.
119) Saluka Investments BV v. Czech Republic (UNCITRAL), Partial Award (17 March 2006),
para. 262.
120) A. STONE SWEET and F. GRISEL, The Evolution of International Arbitration, fn. 26 above,
p. 214.
121) T. BROUDE, Y. HAFTEL and A. THOMPSON, fn. 103 above, p. 6.
122) Ibid., p. 6.
123) Ibid., pp. 6-7.
124) Ibid., p. 2.
125) Ibid., p. 8.
126) Giandomenico MAJONE, Regulating Europe (Psychology Press 1996) p. 9 cited in T.
BROUDE, Y. HAFTEL and A. THOMPSON, fn. 103 above, p. 8.

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 127) T. BROUDE, Y. HAFTEL and A. THOMPSON, fn. 103 above, p. 8.
128) Ibid., pp. 9-11.
129) Ibid., p. 3.
130) Ibid.
131) Ibid., p. 11.
132) Ibid., p. 12.
133) Ibid., p. 13.
134) Slovak Republic v. Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber,
March 2018, Request for a preliminary ruling under Art. 267 TFEU from the
Bundesgerichtshof (Federal Court of Justice, Germany), made by decision of 3 March
2016, received at the Court on 23 May 2016, at
<http://curia.europa.eu/juris/document.jst> (last accessed on 16 March 2018).
135) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATPP),
text at <www.mfat.govt.nz/en/trade/free-trade-agreements-concluded-but-not-in-
force/cptpp> (last accessed on 16 March 2018).
136) CPATPP, fn. 135 above, Annex 9-H.

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 KluwerArbitration

Document information
Arbitral Institutions and Professional Organizations as
Publication Lawmakers
Evolution and Adaptation: Alexis Mourre
The Future of International (*)
Arbitration
I Introductory Remarks
Bibliographic reference The topic I have to address is the rule-making role of arbitration institutions and
organizations.
Alexis Mourre, 'Arbitral
Institutions and Professional By arbitration institutions and professional organizations, I refer to entities whose scope is
Organizations as Lawmakers', either to promote the practice of arbitration or to administer arbitration proceedings.
in Jean Engelmayer Kalicki These entities might be private or have a public or semi-public status, as is often the case
and Mohamed Abdel Raouf of chambers of commerce. I will not include in my analysis, however, States, regulators,
(eds), Evolution and and other actors acting in the public's interest that may, in pursuing their general goals,
Adaptation: The Future of adopt rules applying to arbitration. This presentation will also not consider the role of
International Arbitration, professional Bars, which are vested with the goal of enforcing ethical rules applying to the
ICCA Congress Series, Volume law profession in a given jurisdiction. Finally, the role of the United Nations Commission on
20 (© Kluwer Law International Trade Law (UNCITRAL) is the topic of another presentation. Nor will I consider
International; International in the article the work of the Hague Conference on Private International Law, which is an
Council for Commercial intergovernmental organization established by treaty.
Arbitration/Kluwer Law In addressing this topic, I will focus on the making of rules of a procedural nature, whether
International 2019) pp. 86 - or not of a binding or quasi-binding nature. Many non-arbitral private bodies in fact play
111 an important role in making rules of a substantive nature in international relations. It
suffices to think of the UNIDROIT Principles, or of the role of the International Chamber of
Commerce (ICC) in promulgating rules such as the Incoterms. Many private bodies are also
active in creating model contracts, which in turn also contribute to what Klaus-Peter Berger
once called the “creeping codification of the lex mercatoria”. (1) Addressing the role of
these private bodies in creating such substantive rules would push this presentation way
beyond its boundaries.
At the core of this presentation is the relationship and interaction between the
autonomous nature of international arbitration, its increasingly competitive and complex
environment, and the growing codification of its procedures. At first blush, these two
P 86 realities could seem contradictory. Common wisdom would suggest that free markets go
P 87 hand-in-hand with lesser and lighter rules. Precisely because arbitration is an
autonomous system of justice that is based on party consent, should it not be loosely
regulated, or entirely unregulated? Historically, however, free markets have never emerged
as some autonomous domain of freedom, independent of, and opposed to, State
authorities. Quite to the contrary, free markets have generally arisen as a consequence of
government policy. Antitrust is a good example: the free hand of the market tends to
create monopolies, which in turn are an obstacle to open markets. It is therefore
necessary, for a free and open market to exist, that there is regulation against cartels and
anticompetitive behaviors. Likewise, autonomous arbitration is a product of government
policy, expressed first by the States' endorsement of the 1958 New York Convention, and
then by the convergence of virtuous legislations aimed at limiting judicial interference in
the arbitration and ensuring the enforcement of awards. This hands-off and pro-arbitration
policy, however, does not stand in a vacuum. It can only be maintained if arbitration is
perceived as a fair and legitimate means of resolving disputes, which in turn implies that
the system is capable of generating rules that ensure its transparency, predictability, and
that abuses are sanctioned.
An interesting comparison can in this regard be made with the financial and banking
sectors. When financial markets were liberalized and disintermediated in the 1980s and
1990s, the level of rules and norms applying to them did not diminish significantly. State
norms were simply replaced by sectorial and professional regulation. This has led an
academic to conclude in a somewhat paradoxical manner that “any market reform, any
government initiative intended to reduce red tape and promote market forces will have
the ultimate effect of increasing the total number of regulations, the total amount of
paperwork, and the total number of bureaucrats the government employs”. (2) While it is
fair to say that such a phenomenon has not been observed in arbitration, in particular as
far as bureaucracy is concerned, the general rule according to which liberalization goes
hand in hand with regulation is certainly topical. There is no doubt that maintaining the
autonomy of arbitration requires the development of a certain level of self-regulation.
States would otherwise no longer accept waiving their right to control the process at all
stages of the procedure.

1 Arbitral Soft Law and the Epistemic Arbitration Community

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 From that perspective, the development of procedural soft law can be seen as a
fundamental condition for establishing trust in arbitration. (3) International arbitration
cannot stand in a vacuum, and if it is to be autonomous from State legal orders, it needs to
have rules of its own. The multiplication of guidelines, rules and codes, which has been
described and harshly criticized by some authors as a pathology, (4) is therefore, to the
P 87 contrary, a measure of the maturity of an activity the role of which in the global economy is
P 88 of fundamental importance. Seen as a measure of the autonomy of arbitration and of its
ability to self-regulate, the development of a comprehensive and generally accepted body
of arbitral soft law is a healthy phenomenon, for it marks an evolution towards more
predictability and more consistency of arbitration as a – albeit imperfect – global system
of justice. It is also an element of objectification that is such as to increase the confidence
in, and the acceptability of, the arbitral process.
The development of soft normativity in arbitration is also the expression of the strength of
what Gabrielle Kaufmann-Kohler defined as the epistemic arbitration community, a
community of practitioners, academics and institutions sharing the same interests and
expertise. (5) The epistemic community has a number of peculiar characteristics that make
it unique. It is multifaceted. It is at the same time very homogeneous – for it shares the
same goals and is made of players all involved in the same area of practice – and
extremely diverse, due to the national and cultural diversity of its members. It is
fundamentally international in nature, and it evolves rapidly. Its dynamism is fostered by
the fact that the members of the community compete against each other. All this
contributes to the creativity of the group as far as rule-making is concerned. As Gabrielle
Kaufmann-Kohler puts it: “through a process of intellectual cross-fertilization, these actors
play a dominant role in shaping the transnational consensus on arbitration law and
practice”. (6)
This rule-making process greatly benefits from this cross-fertilization between the various
components of the arbitral community by combining the compilation of existing practices
and innovation by the elaboration of new rules. Its dynamism is also increased, for better
or worse, by the fact that participating in a rule-making exercise is seen by practitioners as
an important contribution to their own prestige and careers. Likewise, for an institution,
authoring rules that will in turn be adopted by the community at large reinforces its
prestige. The Arbitration Committee of the International Bar Association (IBA) is a perfect
example of an institution having gained a central role in the arbitration community by its
ability to create high-quality rules that have become widely used in practice. There is, in
other words, a marketing versant of the rule-making exercise that may contribute to an
undesired proliferation of rules.
The affirmation of soft law however supposes that there is convergence in the content of
the rules and guidelines emanating from the arbitration community. In other words, it
requires a sufficient level of consensus on a certain number of international standards of
practice. If, to the contrary, the arbitration community fragments regionally or adopts
inconsistent views on important procedural matters, there can be no emergence of a
global soft procedural law. This question will be further addressed in subsequent sections
of this presentation.

2 Arbitral Institutions
Arbitral institutions and professional organizations are the backbone of the epistemic
P 88 arbitration community. It is a diverse group of entities, composed on the one hand of
P 89 institutions whose main scope is to provide administrative services in support of
arbitration proceedings, and on the other of bodies having the primary role of promoting
the practice of arbitration and defending the interests of arbitration practitioners. Still,
this institutional community is much more diverse than what this summa divisio would
seem to suggest. In addition, arbitral institutions see themselves as important promoters
of the practice of arbitration and some arbitral bodies whose scope is to promote
arbitration in a given jurisdiction sometimes also maintain arbitration rules.
Arbitral institutions are those whose main scope is to administer arbitral proceedings.
They can be divided in several categories. Some institutions are local and focus on their
domestic markets, with at times very large domestic caseloads and more limited
international exposure. China alone has more than 200 arbitral commissions. Some of
these local institutions, however, have embarked on ambitious programs of
internationalization, as shown by the change of name, in January 2018, of the Kuala Lumpur
Regional Centre for Arbitration to become the Asia International Arbitration Centre. Others,
as the ICC, essentially deal with international cases and are global in nature. Some are full
service institutions, such as the ICC, Singapore International Arbitration Centre (SIAC), Hong
Kong International Arbitration Centre (HKIAC), International Centre for Dispute Resolution
(ICDR), London Court of International Arbitration (LCIA) or Arbitration Institute of the
Stockholm Chamber of Commerce (SCC), while others specialize in a particular field of
practice, such as the International Centre for Settlement of Investment Disputes (ICSID) for
investment arbitration, the World Intellectual Property Organization (WIPO) for intellectual
property (IP) disputes, the Court of Arbitration for Sport in Lausanne (CAS), the London
Maritime Arbitrators Association (LMAA), or certain institutions specialized in insurance,
such as the Insurance and Reinsurance Arbitration Society (ARIAS, London). Finally, some
arbitral institutions are active in particular industries, such as the Independent Film and

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 Television Alliance (IFTA), formerly known as American Film Market Association (AFMA), or
in commodity arbitrations, such as the Grain and Feed Trade Organization (GAFTA), the
Federation of Oils, Seeds and Fats Associations, or the Refined Sugar Association in
London.
All in all, it is a diverse and uneven net of players, which nevertheless plays a fundamental
role in establishing arbitration as a global system of justice. The 2015 Queen Mary Survey
noted in this regard that 79 percent of the respondents' arbitrations over the past five
years were institutional rather than ad hoc. There are therefore strong indicia showing that
international arbitration is nowadays predominantly administered, which gives to
institutions a particular responsibility in maintaining the legitimacy of the system. Jan
Paulsson, in his now famous article on moral hazard in international arbitration, (7) noted
in this regard that:
“Only a few arbitral institutions can make credible claims to legitimacy. Many
arbitration institutions are empty edifices waiting for someone to bother to
dismantle them. Others cannot get away from features of cronyism which were
their raison d'être in the first place. When such defects are uncovered, it also
P 89 becomes more difficult for well-established and punctilious institutions to seek
P 90 credence. So, how do we enhance and protect the legitimacy of decent
arbitral institutions?”
These are strong words which, however, undoubtedly describe a reality. In contrast to
arbitral practice, which has generated its own self-regulation, the creation and operation
of arbitral institutions remain largely unregulated. There are no rules applicable to the
creation of an institution, and very little regulation applying to their functioning and
governance, which arguably poses a systemic risk for arbitration. A good example of how
the defects of a flawed arbitral institution can affect the legitimacy of the arbitration
system as a whole was given in 2014 in Romania, when the president of the Arbitral
Chamber of the Romanian Chamber of Commerce was indicted for taking bribes in
exchange for appointments that would favor one of the parties. He was consequently
sentenced in 2015 to five years in prison, with several cases for related crimes – such as
embezzlement and signature forgery – still pending. (8) Another example is the
proliferation in Russia of the so-called “pocket arbitral institutions” and the reaction that
such situation prompted on the part of the Russian government.
The lack of a regulatory regime applicable to arbitral institutions also has the consequence
that there are very significant differences as to their structures and governance. The ICC
International Court of Arbitration, for example, has no legal personality; it is part of the
International Chamber of Commerce, which is itself a French association created under the
1901 law, a liberal statute allowing virtually anyone, with no control and very few
formalities, to create a non-profit organization. The LCIA is a private not-for-profit
company, limited by guarantee. The HKIAC has been established as an independent
company limited by guarantee and a non-profit organization under Hong Kong law, much
like SIAC, which was incorporated as a public company limited by guarantee. Some
institutions exist under the umbrella of chambers of commerce, such as the Milan or the
Vienna centers, and have as such para-public status, and others not, such as the ICDR.
Some institutions have international law status, such as the Permanent Court of Arbitration
(PCA) or ICSID. Some were created upon the initiative of States. The Asian-African Legal
Consultative Organization (AALCO), a body comprising forty-seven member States from Asia
and Africa, was for example instrumental in creating the former Kuala Lumpur Regional
Centre for Arbitration, as well as the Cairo Regional Centre for International Commercial
Arbitration and arbitration institutions in Nigeria, Kenya and Iran. (9) Others are purely
private organizations.
Because arbitral institutions evolve in an open and largely unregulated and competitive
marketplace, they may split, consolidate or merge to better serve the needs of their users,
P 90 a phenomenon that also affects their rule-making activity. For example, the creation in
P 91 2007 of the Swiss Chambers Association for Arbitration, as a joint initiative of the Basel,
Bern, Geneva, Neuchatel, Ticino, Vaud and Zurich chambers of commerce, which all
previously had their own arbitration institute, resulted in the creation of the Swiss Rules of
International Arbitration and of a common Arbitration Court dedicated to international
arbitration. In December of 2017, the three main arbitral institutions in Spain, the Corte
Española de Arbitraje, the Cámara Arbitral de Madrid and the Corte Civil y Mercantil de
Arbitraje (CIMA), entered into an agreement to merge, which will result in the creation of
one single international arbitration chamber. Another example of arbitral institutions
having joined forces is the merger at the end of 2017 of the Shenzhen Court of International
Arbitration with the Shenzhen Arbitration Commission. (10) In contrast, CIETAC has in 2012
split in three separate institutions, which now compete one against the other. (11) Likewise,
the Indonesia National Board of Arbitration (BANI) has in 2016 split into two competing
institutions, each of which claiming to be the legitimate successor of the pre-existing body.
(12)
States have realized that significant economic interests go with the presence on their soil
of major arbitral institutions, and with the development of internationally recognized seats
where parties can safely locate their arbitrations. For example, when the ICC considered in
2010-2011 the possibility of relocating from France to another country, the institution

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 representing the French arbitration community, Paris Place d'Arbitrage, authored a report
quantifying in € 200 million the yearly revenues generated by the presence in Paris of large
numbers of arbitration practitioners, experts, interpreters, court reporters, etc. (13) And
this study was in turn one of the factors leading to the decision by the French government
to grant certain incentives to the ICC in order for it to maintain its headquarters in France.
(14) Likewise, the creation in 1991 of the Singapore International Arbitration Centre was
part of an ambitious plan by the government to create an international arbitration hub on
its soil. (15) Another example is the plan recently adopted by NITI Aayog, the former
planning commission of the Government of India, to develop an institutional framework for
the development of administered arbitration, including the creation of a national arbitral
institution. (16) There is now global competition between arbitral marketplaces, one of the
effects of which is to encourage the creation of local arbitration institutions in order to
enhance the profile and attractiveness of each country. And to a certain extent, this
proliferation of arbitral centers also results in more rule-making, because the creation of
rules is a marker of prestige and a tool of communication.
P 91
P 92
3 Professional Organizations
The other institutional versant of the arbitral community is composed of professional
organizations and bodies whose role is not primarily to administer arbitrations, but
essentially to promote the practice of arbitration, develop best practices, provide training
services, or organize conferences and other events aimed at disseminating the culture of
arbitration at the local or global level. Some of these institutions, however, have a dual
role, by at the same time aiming at representing the arbitration community in a given
jurisdiction and maintaining arbitration rules. Such is the case of the Russian Arbitration
Association.
As for arbitral institutions, the landscape of these “non-institutional” bodies has
remarkably evolved with the process of globalization and diversification that has marked
the evolution of the international arbitration community in the past thirty years. The
number of local arbitration associations has flourished, as a tool for local arbitration
groups to structure their communities and to develop exchanges with more established
arbitral jurisdictions. The Associazione Italiana per l'Arbitrato, the Association Suisse
d'Arbitrage, the Comité Français de l'Arbitrage, the Club Español de Arbitraje, the Swedish
Arbitration Association are only examples of that phenomenon. Some of these bodies have
been created at the regional level, such as the Asociación Latinoamericana de Arbitraje,
the Asia Pacific Regional Arbitration Group (APRAG) or the Association pour la Promotion de
l'Arbitrage en Afrique. ICC National Committees also play an important role in the
promotion of arbitration in their jurisdictions. Some of these bodies were created as a
result of contacts established between practitioners of different jurisdictions, such as the
Comitê Brasileiro de Arbitragem (CBAr) in Brazil, after long-established contacts between
the Comité Français de l'arbitrage and the Brazilian arbitration community. (17) Again, a
distinction can be made between national arbitration associations and those having a
more international constituency, even though membership in most domestic associations
is not restricted to nationals of their home jurisdictions.
Amongst the main international associations are the IBA Arbitration Committee, arguably
the world's largest arbitration group with over 4,500 members, and ICCA. The two
institutions, which both focus on academic activities, training and rule-making, are
however different in nature. The IBA, which was established in 1947, has a membership of
both individual lawyers and bar associations, and it is managed by a Board essentially
composed of representatives of over 80,000 individual lawyers and 190 professional bar
associations spanning more than 170 countries. In contrast, ICCA was created in 1961 as a
private club upon the initiative of a limited group of academics, amongst whom, as we
know, were professors Jean Robert and Roberto Minoli.
In this context, it is also relevant to mention the work of the International Law Association
(ILA), a non-profit organization based in London that promotes the study, unification and
furtherance of international law. The ILA has an arbitration committee which every two
years produces a report that is relevant to the practice of arbitration, including
P 92 recommendations. These recommendations encompass recognized principles and best
P 93 practices, and are therefore a hybrid product sharing some of the characteristics of
normative rules and those of a practice note. Recent reports dealt with Lis Pendens and
Res Judicata in Arbitration, the Inherent and Implied Powers of Arbitrators, Public Policy as
a Ground for Non-recognition or the Means for Ascertaining the Content of the Applicable
Law in Arbitration. (18)
Some associations focus on the making of rules in specialist areas of practice, such as FIDIC
– the International Federation of Consulting Engineers – for construction, the National
Grain and Feed Association for commodities, the European Federation of Energy Traders
(EFET) for energy or the Association of International Petroleum Negotiators (AIPN) in the
petroleum industry. The rules promulgated by these bodies, such as the FIDIC rules, may
have a direct impact on the practice of arbitration, as they determine the applicable
arbitral rules in case of a dispute, as well as the conditions in which pre-arbitral steps
(such as Dispute Board determinations) may enter into play.

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 Other associations focus on particular aspects of the arbitral practice. Young practitioners
groups, such as the ICC Young Arbitrators Forum (YAF) or Young ICCA, aim at training
activities and at helping young arbitrators and counsel gain visibility on the arbitration
marketplace. Others, such as Arbitral Women, aim at promoting gender parity in
arbitration, in particular through instruments such as the Pledge, (19) which can be seen as
having para-normative value in that they seek to encourage institutions to adopt rules
consistent with the goal that they promote.

4 Institutional Exchanges and Peer Review

One of the most notable characteristics of this net of institutions and associations is the
constant exchange of views and experiences between them through formal and informal
networks. Their representatives meet at conferences, they often sit together in institutional
boards and councils, and they know each other well for having participated in the same
cases as counsel or arbitrators. Part of the role of a good arbitral institution officer is to get
constantly apprised of the thinking and initiatives of its competitors as indicia of the
evolution of practice and expectations of the users. Rules are sometimes promulgated by
several institutions joining forces, such as the recent ICCA-Queen Mary proposed Principles
and Best Practices on Third Party Funding (20) or the ICCA/International Institute for
Conflict Prevention and Resolution (CPR)/New York City Bar Association Draft Cybersecurity
Protocol for International Arbitration. (21)
Interestingly, these inter-institutional exchanges have themselves been institutionalized
with the creation in 1985 of the International Federation of Commercial Arbitration
P 93 Institutions (IFCAI), regrouping today fifty-two member organizations. The creation of IFCAI
P 94 is an indication of the awareness of the importance of inter-institutional dialogue. It is
evidence of the fact that most arbitral institutions see themselves as part of a structured
community sharing identical goals and values. Many institutions have also signed bilateral
cooperation agreements, whereby each offers access to services offered by its counterpart,
such as hearing facilities.
An important part of this fertile cross-institutional cooperation is, as we shall see, the
consultations that are organized on occasion of the adoption of new institutional rules,
guidelines or other sets of soft law rules, as well as the peer review of their
implementation.

5 A Decentralized and Horizontal Rule-Making Process

We therefore see the emergence of a flexible, dynamic and decentralized system of rule-
making, where there is no hierarchy between rule-makers that are in fact competing one
against the other, and where rules are constantly amended to incorporate innovations
introduced elsewhere.
An interesting and somewhat counterintuitive characteristic of this institutional sociology
is that the multiplication of potential rule-makers results neither in an inflation of rules
nor in divergence as to their content. Rather, there is growing convergence between the
rules promulgated by various players, conducive to greater harmonization of arbitral
practices that were previously determined to a larger extent by local judicial culture and
domestic procedural rules. Where the pyramidal process of lawmaking that characterizes
States conduces on the international scene to conflicts of norms because of the persistent
differences between national traditions, the production of norms in the context of a
horizontal network leads to fewer conflicts of norms and more harmonization. (22) The
norms adopted in this network are also simpler and easier to access than the procedural
rules that are adopted by States to apply to Court proceedings. The three more widely
used sets of non-binding arbitration procedural rules, which arguably are the IBA Rules on
Evidence, the Guidelines on Conflicts of Interest in International Arbitration (the
Guidelines on Conflicts of Interest) and Guidelines on Party Representation, for example
represent, if put together, fewer than seventy pages, while any national code of civil
proceedings runs hundreds if not thousands of pages. The comparison of course has only
limited value, for domestic codes would cover a much broader range of questions, but it is
nonetheless a good indication of the fact that, consistent with the inherent flexibility of
arbitral proceedings, the rules emanating from the arbitral community have remained
simple and easy to understand.
One of the reasons why this process of rule-making does not result in greater complexity
may also be the utilitarian nature of these rules and their low normativity. Those who
participate in the making of these rules are also those who will use and apply them and, in
contrast to governments or legislators, they are not directly bound to take into account
considerations of general interest. Unlike legislators, who have to respect the general
P 94 coherence and goals of the national system of law that they represent, arbitral bodies
P 95 engaged in rule-making only serve the special interest of the arbitral community. This
makes considerations of legitimacy of the rule-making process all the more significant to
their acceptability by States.
An interesting example of that interaction can be drawn from an episode that occurred in
France, where the preparation of witnesses is not allowed before courts. In an international
arbitration seated in France in which both counsel were registered French lawyers, one of
them sued the other before the Paris Bar precisely for having had contacts with a fact

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 witness before the arbitration hearing. The French arbitral community at that point made a
submission before the Bar, explaining that this was normal practice in international
arbitration. (23) Shortly thereafter, the IBA adopted its Guidelines on Party Representation,
dealing with that same matter. Based on that submission made by French arbitration
practitioners, the Paris Bar adopted a resolution applying specifically to arbitration and
derogating from the general rule applicable in courts. (24) In such a context, the existence
of a norm such as the IBA Guidelines on Conflicts of Interest is a significant element leading
to the acceptance by the State of a practice that would otherwise be at odds with
domestic law.
Having described who the institutional rule-makers are and how they interact, it is now
necessary to address the typology of norms that are produced by institutions (II), their
legitimacy (III) and normativity (IV).

II Typology of Norms
It is submitted that the norms made by arbitral institutions and bodies can be classified in
four broad categories: soft law (1), best practices (2), institutional rules and practice notes
(3), and governance rules (4).

1 Soft Law
The concept of soft law has been widely discussed (25) and it is not the topic of this paper
to address it in detail. A soft law rule is a norm which has no direct binding character but,
because of its wide acceptance, has acceded to soft normativity, which is to say that a
large number of practitioners feel compelled to apply it or to draw inspiration from it.
The wide acceptance of the norm can derive from a consensus on its content, from the
legitimacy and wide recognition of the rule-maker, or from a combination of both factors.
P 95 An indication that a given norm has acceded to soft normativity may be the fact that it is
P 96 referred to by domestic courts in their decisions dealing with the topic addressed by
the norm. Such was the case of a 2008 decision of the Swiss Federal Tribunal, referring to
the IBA Guidelines on Conflicts of Interest. (26) Similarly, the High Court of Justice of Madrid
in a decision in 2015 (27) and the Austrian Supreme Court in 2016 (28) stressed that IBA
guidelines may serve as a point of reference for whether an arbitrator has to disclose
certain circumstances. In this context it is also interesting to note that the Singapore High
Court has stated that the IBA Rules on the Taking of Evidence in International Commercial
Arbitration (the IBA Rules on Evidence) constituted guidance that could be adopted by the
arbitral tribunal under the SIAC Rules. (29)
In the view of the author, only two sets of arbitral norms can claim to have acceded to the
status of soft normativity: the IBA Rules on Evidence and the IBA Guidelines on Conflicts of
Interests. The different labeling of these two sets of norms is of little relevance: whether
they are called rules or guidelines does not change the fact that they are not directly
binding, nor does it affect their capacity to acquire soft normativity. The use of the term
“guidelines” rather than “rules” is probably more reflective of a caution of the drafters of
the conflicts guidelines, which at the time of their adoption in 2003 felt that there was less
consensus on their content than was the case in 1999 for the Rules on Evidence. The same
caution prevailed in 2013 at the time of the adoption of the Guidelines on Party
Representation in International Arbitration (the Guidelines on Party Representation). What
matters in order to assess whether a given set of norms has acquired soft normativity is not
the title that was given to it but its level of acceptance amongst users.
The wide acceptance that these two sets of rules have gained has been the subject matter
of a large number of studies. (30) A recent study made by a Sub-Committee of the IBA (31)
is in this regard particularly enlightening.
P 96
P 97
a IBA Rules on Evidence
As to the Rules on evidence, the Sub-Committee noted that:
“in approximately 80% of those arbitrations in which reference was made to the
Rules on Evidence, the arbitral tribunal consulted them on the basis that they
represented non-binding guidelines. In the remaining 20% of instances, the
Rules on Evidence were considered binding. Yet, even in those arbitrations in
which the tribunal consulted the Rules on Evidence as guidelines only, it
overwhelmingly followed them (in more than 90% of the cases). There appears
to be a general consensus that the use of the Rules on Evidence … will grow.”
(32)
This is a clear indication that, on the one hand, the Rules on Evidence have gained general
acceptance and, on the other hand, that most arbitrators feel compelled to apply them,
even if they do not consider them to be mandatory. The Sub-Committee also noted that
“North American, Asia-Pacific, and European Respondents and Reporters have noted
instances in which domestic courts have referred to the Rules on Evidence”, (33) which is
also a clear indication that the Rules have acceded to soft normativity.

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 This general acceptance can be explained by the fact that the Rules on Evidence have
achieved a balanced synthesis between the civil law and common law traditions. As to
written evidence, the Rules lean more to the civil law tradition by limiting the scope of
documents disclosure and requiring that requests to produce refer to identified
documents or to narrow and specific categories of documents. Concerning oral evidence,
however, the Rules are more inspired by the Anglo-Saxon tradition by allowing wide
categories of individuals to testify, permitting the preparation of witnesses and relying on
cross-examination conducted by counsel. (34) Even if imperfect, this synthesis has allowed
arbitration to move away from local procedural rules and permitted the emergence of a
transnational arbitral procedural law. As such, the Rules have been a powerful driver for
the unification of practice and the establishment of arbitration as an autonomous system
of justice.
It should be noted, however, that there seems to be, in certain jurisdictions, a trend to a
return to more local procedural traditions for the conduct of arbitral procedures. A group
of practitioners has recently launched an initiative called the Prague Inquisitorial Rules,
(35) openly as an attempt to find an alternative to the IBA Rules. The draft Prague Rules
question the usefulness of allowing document production requests in the form allowed by
the IBA Rules, and they express reservations as to the examination of witnesses and the
P 97 use of party-appointed experts. The initiators of these new rules propose to develop an
P 98 inquisitorial model essentially based on a more active role of the arbitral tribunal, on a
model that is more inspired by the procedures followed in court in civil law countries. In
particular, the tribunal would under these rules have the duty to establish the facts and
the law, the jura novit curia principle would be applicable as a matter of principle, and
there would be a priority given to documents over testimony. (36) The initiative has
already been endorsed by some institutions, such as the Russian Arbitration Association.
This initiative, would it gain traction in civil law jurisdictions, could be such as to fragment
the existing consensus around the IBA Rules, therefore putting into question the very idea
that an arbitral soft procedural law has emerged.
b IBA Guidelines on Conflicts of Interest
Concerning the Guidelines on Conflicts of Interest, the IBA Sub-Committee reported that:
“the Guidelines have gained broad acceptance and are used often by the
international arbitration community. Of the three IBA instruments surveyed, the
Conflicts of Interest Guidelines are the most commonly referenced. By way of
example, in the 3201 arbitrations known to respondents over the past five years
in which issues of conflicts of interest arose, the Guidelines were referenced in
57% of them.
…. [C]ounsel make use of the Guidelines when appointing arbitrators in 67% of
all reported cases. Arbitrators also appear to make frequent use of the
Guidelines across all regions.
The survey also confirms that the Guidelines often have been referenced by the
relevant Decision-maker (arbitral institutions, tribunals, or courts) in reaching a
pronouncement on the existence of a conflict of interest. At a global level, the
Guidelines were referenced in 67% of decisions resolving issues of conflicts of
interest. Perhaps more importantly, in 69% of the decisions that referenced the
Guidelines in solving a conflicts of interest issue, the Decision-maker chose to
follow the Guidelines.” (37)
Here again, this is a clear indication that the Guidelines have gained a certain soft
normativity. There is general consensus amongst counsel, arbitrators, institutions and
courts that these rules are appropriate and strike a proper balance, as far as disclosures
are concerned, between the need to preserve the integrity of the process and that of
avoiding the disclosure of entirely irrelevant circumstances.
P 98
P 99
It should be noted, however, that certain courts, in deciding whether a challenge should be
accepted, have departed from the Guidelines. Such is the case of the English High Court in
a case involving the IBA Guidelines Non-Waivable Red List. (38) In that case, an arbitrator
had not disclosed that his law firm had advised an affiliate of one of the parties and that
substantial income for the firm had derived from this representation. Such a fact is
included in the IBA Non-Waivable Red List, thus necessarily disqualifying the arbitrator.
The arbitrator however responded that this representation had not been revealed by his
internal conflict check, that he was working as a sole practitioner within the firm that had
represented the affiliate, and that he had not received any income from it. Had he known
the situation, he would have disclosed it, but the representation was not on his mind at all.
The court, as a preliminary matter, held that the IBA Guidelines are not binding, but can
still be of assistance for the decision. Nevertheless, given that the case was of an
international nature, it felt the need to examine the IBA Guidelines. The court took the
case as an opportunity to criticize the Guidelines by stressing that in the circumstances of
the case, a conflict did not “necessarily” exist. Rather, the court concluded that a fair-
minded and informed observer, having considered the facts, would not consider that there
was a real possibility that the arbitrator was biased or lacked independence or

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 impartiality. The court therefore departed from the IBA Guidelines and rejected the
challenge.
It is also noteworthy that most major arbitral institutions have been careful not to bind
themselves to the Guidelines. Some of them have even adopted guidance of their own. For
example, the ICC has on 12 February 2016 decided to adopt in its guidance note (39) a set
of rules of its own dealing with the disclosure obligations of ICC arbitrators. Although these
rules are largely inspired by, and consistent with, the IBA Guidelines on Conflicts of
Interest, they depart from them in certain instances.
The ICC decision to adopt guidance on conflicts disclosures was made out of various
considerations. First, although the Court regularly referred to the IBA Guidelines when
deciding challenges, it had never wanted to say so in a transparent manner, out of fear that
it would otherwise be bound by them; as a result, in absence of guidance, there was a lack
of transparency as to the rules that would be applied in its decision-making. Second, the
Court felt that although reflecting general accepted practice, there was the need to
encourage disclosures beyond what would in certain cases be mandated by the Orange
List, for example in case of multiple appointments by the same counsel or party more than
three years before a given appointment. (40)
This is a good example of the difference in nature between the role of a body such as the
IBA and that of an arbitral institution as far as the making of rules is concerned. While an
arbitral institution, as we shall see, is not primarily concerned with reflecting consensus
P 99 and is only driven by promoting its own policies, a body such as the IBA has to set the basis
P 100 for a consensus within the arbitral community, and therefore aims at elaborating rules
that will be acceptable across the board, in institutional as well as ad hoc arbitrations and
in all parts of the world.
c IBA Guidelines on Party Representation
Another set of rules that may claim to soft normativity is the IBA Guidelines on Party
Representation. The Guidelines on Party Representation are the most recent set of rules
adopted by the IBA, and also the more controversial. On their adoption in 2013, the
Guidelines were harshly criticized by a number of practitioners, in particular in
Switzerland, to the point that the Swiss Arbitration Association launched an initiative to
discourage their use. (41) It is still today difficult to understand the violence of this
reaction, which can in part be attributed to the fear that arbitrators would unduly interfere
with the attorney-client relationship, in part to the idea that the Guidelines would create
artificial grounds for unnecessary skirmishes, and in part to the perception that the
Guidelines are an import of Anglo-Saxon procedural devices into arbitration. The scope of
this paper is not to address such criticisms, which I have done in several other articles. (42)
It is noteworthy, however, that the Swiss Arbitration Association has subsequently changed
its position, by advocating in 2015 the creation of an international arbitration ethics
council, (43) which role would have been precisely to address issues of counsel conduct in
arbitration, thereby acknowledging the need for transnational rules to address these
issues. Faced with multiple oppositions to the idea, the Swiss Arbitration Association then
decided, in 2016, not to push this project further. (44)
The IBA Sub-Committee noted that “the Party Representation Guidelines are the least
frequently used of the three IBA Rules and Guidelines, with references to the party
Representation Guidelines being made in less than 20% of arbitrations involving issues of
counsel conduct”. The Sub-Committee also noted that the Guidelines “appear to be more
frequently used in common law jurisdictions than in civil law jurisdictions”. (45)
The Guidelines on Party Representation, however, seem to be progressively gaining
P 100 acceptance. (46) We should not forget, in this regard, that the IBA Guidelines on Conflicts
P 101 were also criticized upon their publication in 2003 (47) and are still criticized today,
(48) but have nevertheless ultimately gained universal success. It should also be noted
that the Guidelines are gaining some ground amongst institutions, with their adoption in
2016 by the Australian Centre for International Commercial Arbitration (ACICA), (49) and
their endorsement in 2016 by the ICC. (50) It can nevertheless be concluded that the
Guidelines on Party Representation have not yet acceded to the same level of soft
normativity as the two other sets of IBA rules and guidelines.
d The ICCA-Queen Mary Principles on Third-Party Funding
Another interesting example of a set of rules that may gain general acceptance is the
recent ICCA-Queen Mary Report on Third-Party Funding. (51) This report and the
recommendations it entails, adopted at the 2018 ICCA Congress, were drafted by a joint
task force established in 2013 by ICCA and Queen Mary University of London, composed of a
diverse group of leading experts from a wide range of professional backgrounds, including
arbitrators, in-house counsel, attorneys, representatives from arbitral institutions, states,
academics, and a range of third-party funders and brokers. The Principles address a wide
range of issues, some of which are still unsettled in arbitral practice, such as disclosures,
privilege, and security for costs, and they clearly have the potential to accede to some
level of soft normativity if they become endorsed by parties, funders and practitioners.
This, however, still remains to be seen, as at least one major funder has strongly rejected
them. (52)

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 P 101 There are of course many other sets of guidelines that could claim to a certain degree of
P 102 normativity, such as the Chartered Institute of Arbitrators' (CIArb) Guidelines on
Jurisdictional Challenges, (53) the Club Español de Arbitraje's code of good arbitration
practices, (54) or the JAMS' Arbitrators Ethics Guidelines. (55) But these texts are unlikely to
gain a level of acceptance such as to elevate them to the level of soft law. There may be
several reasons for that. The first is that some of these texts were authored by a local
association, and are therefore directed to a local community. Such is the case, for
example, of the rules and guidelines adopted by the Club Español de Arbitraje. (56) Even
though they may have gained acceptance locally, they are by definition not reflective of an
international consensus and their scope also overlaps in some respect with that of the IBA
Rules and Guidelines. (57) Some of these texts may also express a particular legal tradition
and would therefore not be perceived as an international standard. Such may be the case
of certain rules emanating from the Chartered Institute of Arbitrators. (58) Finally, some
rules may address questions in respect of which there is no consensus on the need for
regulation. (59)
It is of course notable that the only sets of norms that may claim to the status of soft
normativity were authored by the IBA and ICCA. This, as we shall see later in this
presentation, is in direct correlation with the unique characteristics of these organizations,
both because of their global nature, the legitimacy conferred upon them by their broad
membership and the transparency and inclusiveness of the process having led to the
adoption and revisions of norms such as the Rules on Evidence and Conflicts Guidelines.
This has allowed the bridging of the gap between different legal traditions and finding a
synthesis that has in turn gained general recognition. Of particular relevance, as far as the
IBA is concerned, is also the participation of professional Bars.
Conceivably, the IBA Rules and Guidelines, with rules such as the ICCA-Queen Mary Task
Force Principles on Third-Party Funding, could be seen as forming the core of a truly global
and transnational arbitral procedural law. This idea is, however, subject to potential
tensions. As we have seen, the IBA Rules on Evidence are challenged by civil law
practitioners believing that in certain cases arbitrations may be better conducted under
inquisitorial rules. As to the Guidelines on Conflicts, although they are widely referred to,
certain courts and even arbitral institutions have departed from them or have adopted
standards of their own. The ICCA-Queen Mary Task Force Principles have yet to gain
acceptance and are already challenged.
P 102
P 103
2 Best Practices
Certain institutions have adopted rules and practice notes whose aim is to express the
state of the art in certain areas of arbitral procedure. Best practices are desirable
techniques that are believed to be widely followed and to be beneficial to users. A topical
example is the UNCITRAL Notes on Organizing Arbitral Proceedings, which have been
revised in 2016. (60) The UNCITRAL Notes go to the efficient organization of arbitral
proceedings.
The CIArb has adopted guidelines on the interview of prospective arbitrators (61) or
guidelines on the conduct of proceedings dealing with particular aspects of the
arbitration, such as e-discovery, (62) documents-only decisions (63) or party non-
participation. (64)
Recommended best practices may relate to the drafting of an arbitration agreement, such
as the 2010 IBA Guidelines for Drafting Arbitration Clauses. (65) Certain of these guidelines
go to the needs of a given industry. For example, the Association of International
Petroleum Negotiators (AIPN) has established several model clauses that are adapted to
oil and gas disputes. (66) Similarly, the WIPO proposes arbitration agreements that are
specifically tailored to disputes concerning intellectual property. (67) Also the proposed
arbitration agreement of the Insurance and Reinsurance Arbitration Society provides for
specific requirements in its model arbitration agreement. (68)
P 103
P 104
Recommended best practices may also go to substantive matters, at times in a
prospective way. There have been several attempts, for example, to reach consensus on
how best to arbitrate matters of corruption, (69) antitrust, (70) or even questions of human
rights (71) and climate change. (72)
These best practices may not rise to soft normativity, because they address questions that
do not need to be legally settled, such as how to best draft an arbitral agreement or
organize the arbitration procedure; because they address a narrow area of practice from a
local or regional perspective; or because they impinge on substantive matters on which
there is no general consensus.

3 Institutional Rules and Practice Notes

Institutional rules are of an entirely different nature, because they are contractual
instruments that become binding by way of the parties' choice to elect a given arbitral
institution to administer the arbitration. The same applies to non-institutional arbitration
rules, such as the UNCITRAL Rules. These rules do not and cannot have the status of soft

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 law. They are rules that are followed because they are contractually binding upon the
parties, not out of a sense of moral obligation.
The practice notes issued by arbitral institutions have a status akin to that of the
institutional rules themselves, even though their adoption process may be more flexible.
Their legitimacy does not depend on any consensus in the arbitration community, as they
reflect the policies implemented by a given institution for the arbitrations submitted to its
rules, and are as such binding upon the parties and the arbitrators. Good examples of such
P 104 practice notes are the ICC Note to Parties and Arbitral Tribunals on the Conduct of the
P 105 Arbitration, the HKIAC Practice Notes (73) or the LCIA Guidance Notes. (74) Their scope is
twofold. On the one hand, they provide guidance to the parties as to how institutional rules
should be applied. On the other, they may supplement institutional rules in a way that is
reflective of the established practice of the institution. The ICC practice note, for example,
includes rules relating to questions that are not directly dealt with in the Rules
themselves, such as the time limit to submit draft awards to the Court and the
consequences of a delay in doing so, dispositive motions, or the use of sealed offers. In
principle, the adoption of practice notes is not subject to the same requirements as for the
arbitration rules themselves. For example, pursuant to Art. 7 of Appendix I of the Rules,
changes to the ICC Rules of Arbitration need to be adopted by the ICC Executive Board
after having been laid down before the ICC Commission on Arbitration and ADR. In contrast,
the ICC Practice Note can be amended by the Bureau of the Court in a speedier and more
flexible way, with no need of an approval by the ICC Board. As long as these supplemental
rules are not inconsistent with the Rules themselves, the Court's power to amend its
Practice Note is based on its general power to interpret and apply the Rules. In this regard,
Art. 1(1) of Appendix I to the Rules provides that the Court has “all the necessary powers”
for the purpose of ensuring the application of the Rules.

4 Governance Rules
Governance rules relate to the integrity of the internal processes of a given institution.
These rules are therefore endogenous. For bodies having promotional or educational
scopes, they essentially apply to the election of their leadership and the accountability of
their officers to the membership. Ensuring the integrity of these processes is critical to the
legitimacy of any institution and is a fundamental condition for the acceptance of the rules
and guidelines that it promulgates.
Governance rules are even more important for institutions having the role of administering
arbitrations, because of the need to prevent the conflicts of interest that may arise for
their officers.
Governance rules emanating from arbitral institutions can be divided in several
categories. The first sub-category is common to other arbitral bodies and concerns the
processes for the selection of the leadership of the organization. Arbitral institutions,
however, do not all have similar structures, and the constitution of their governing bodies
therefore differs greatly from one to the other. The ICC International Court of Arbitration,
for example, has no legal personality and therefore no Board of its own, as a consequence
of which decisions pertaining to the finances of the Court are made by the ICC Executive
Board, which has a sub-committee called Governing Body for Dispute Resolution Services,
which is involved in strategic thinking and planning. The LCIA is, in contrast, a private not-
for-profit company limited by guarantee, with a Board of its own. The HKIAC has been
established as an independent company limited by guarantee and a non-profit
organization under Hong Kong law, and is governed by a Council. SIAC was incorporated as
a public company limited by guarantee under Singapore law, and is governed by a Board
of Directors.
P 105
P 106
The second sub-category of governance rules applies specifically to those arbitral
institutions that have been created under the umbrella of a Chamber of Commerce, such
as the ICC International Court of Arbitration, the Milan or the Vienna centers. It is then
necessary to ensure that decisions relating to the administration of cases are made in
complete independence from the host chamber. Any perception that industry interests of
other influence groups may, through the host chamber or other body to which the
institution is related, exercise any influence on the administration of cases, must be
completely eliminated. In an article on the governance of arbitral institutions, (75) Urs
Weber-Stecher notes for example that the independence of the Court of Arbitration for
Sport from the International Olympic Committee was discussed before the Swiss Federal
Tribunal, which confirmed that CAS decisions could be given the same standing as court
decisions. (76) Appendix I of the ICC Rules of Arbitration provides, to that effect, that the
Court is “an autonomous body” carrying out its functions “in complete independence from
the ICC and its organs”. Appendix II to the Rules also provides that ICC Court members are
independent from the ICC National Committee having proposed them for appointment.
Finally, because ICC National Committees and Groups may, according to the ICC Rules,
have a role to play in proposing arbitrators to the Court for their appointment, the Court
has established a detailed note establishing strict procedures to preserve the integrity
and independence of the nomination process within each of them, as well as to prevent
the existence of conflicts of interest that may affect the independence and impartiality of
any individual taking part in the selection process. (77)

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 While most well-established arbitral institutions have put in place proper Chinese walls
between themselves and their host bodies, there have been instances of corrupt
procedures leading to undue influence by interest groups in the administrative work of the
institution. (78)
The third sub-category of governance rules relates to the selection of the members and
officers of the arbitration court and other bodies entrusted with the administration of
cases. Because there is very little regulation applying to the activity of arbitral institutions,
the situation in this regard is rather uneven. ICC Court members are appointed by the ICC
World Council, the highest body within the organization, upon the nomination of the
relevant National Committee, or of the President of the Court for alternate Court members,
the President also having the power to nominate, for their appointment by the World
Council, the Vice-Presidents of the Court as well as Court members in countries where there
is no National Committee. As to the President of the Court, he or she is elected by the ICC
World Council upon the recommendation of the Executive Board. However, in order to
ensure the integrity of the process and the acceptance of the choice within the arbitration
community, a transparent selection process is established before an independent
P 106 selection body composed of members of the ICC leadership and recognized arbitration
P 107 practitioners, which choice is then submitted to the Executive Board for its
recommendation. The same process applies to the top management of the Secretariat,
which employment, however, is not subject to approval by the Executive Board.
The fourth sub-category of rules relates to the internal disclosure of conflicts of interest by
individuals involved in the administration of cases and the exclusion of said individuals
from the decision-making process. Clause 5 of the Constitution of the LCIA Court, for
example, provides that “No member of the Court who has a connection with an arbitration
in relation to which the LCIA exercises any functions of any kind may participate in or
influence any decision of the Court relating to such arbitration”. Arts. 2-5 of Appendix II to
the ICC Rules contain similar provisions, adding that the individuals involved have a duty
to disclose any involvement in the cases administered by the Court. Most well-established
international arbitral institutions also contain rules dealing with internal conflicts of
interest.
Finally, institutions establish rules and procedures aimed at ensuring the confidentiality of
the work of the Court. To that effect, Art. 1 of Appendix I to the ICC Rules of Arbitration
establishes the confidential character of the work of the Court. The ICC also requires its
Court members, as well as any individual involved in the selection process of arbitrators at
the level of National Committees, to sign a Non-Disclosure Agreement. Internal
confidentiality rules can also be found in the 2012 Swiss Rules and in the Rules of the
Vienna International Arbitral Centre (VIAC).

III Legitimacy
Any rule needs to be perceived, to one degree or another, as legitimate by those to whom
it will apply. This requirement of legitimacy is of course even stronger for soft law rules,
which are not directly binding but will be applied out of a sense of moral obligation.
Because arbitral soft law is meant to apply to a global community of practitioners, it needs
in order to be endorsed to reflect the shared values of the community. The legitimacy
requirement can be analyzed from two perspectives: representativeness and reflexivity.

1 Representativeness
Representativeness means that the institution or body having authored a given set of rules
be perceived as legitimate for doing so. This condition of legitimacy is objective and
subjective.
Objectively, the institution needs to have a scope that is general enough to allow it to
legislate on questions of a general nature. For example, an institution whose scope would
be limited to promoting arbitration in family and divorce matters would not be accepted
as a legitimate source for promulgating procedural rules for international commercial
disputes generally. Membership in the institution also needs to reflect the diversity and
internationality of the arbitral community. Diversity implies that membership includes
sufficient representation from different regions of the world, and that such membership
P 107 includes representation from different legal cultures. It is of particular importance that it
P 108 includes a balance between members originating from common law and civil law
jurisdictions. For a given set of rules to gain acceptance, it is in fact necessary that it is not
perceived as an import from a legal culture against another. The success of the IBA Rules
on Evidence, for example, rests in large part on the fact that the IBA managed to strike the
proper balance between the civil and common law approaches on the taking of evidence,
which it was in a better position to do because its membership covers both civil and
common law jurisdictions. Generational and gender diversity are also important
conditions. An arbitral body excluding women or young practitioners from its membership
would certainly not be accepted as a legitimate rule-maker.
Subjectively, the institution needs to be perceived as a body whose authority is
acceptable to anyone in the arbitral community. According to Max Weber, political rule-
making rests on three different possible sources of authority: the legal authority that is
given by a system of rules that is applied administratively and judicially according to

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 known principles; tradition, which is the fact for an authority to have been long
established; and charisma, which is given by the unique personal qualities of a leader. (79)
As far as arbitral institutions and bodies are concerned, the first source of power only
applies to arbitral rules having a contractually binding nature and being enforced as such
by the relevant States' legal systems. The authority of other non-binding rules rests on the
two other factors.
Tradition is certainly an important tenet of the legitimacy of an arbitral rule-maker. It
includes factors such as experience (for one would assume that history goes with
experience and acquired knowledge) and reputation (as a condition for the ability of an
institution to maintain its operations for a long period of time). The IBA, founded in 1947,
and ICCA, founded in 1963, surely have historical credentials such as to give them
traditional authority. Amongst arbitral institutions, the ICC Court (established in 1923), the
LCIA (having its roots in 1883) and the SCC (established in 1917), amongst others, can also
claim traditional legitimacy.
Charisma would point to another direction. When applied to an arbitral institution or body,
the charismatic basis of authority implies both the recognized personal qualities of its
leadership and the existence of legitimate internal processes for the access to
membership, the selection of officers, and governance. These procedures need at the same
time to enable an institution to acquire as leaders the most prestigious arbitration
practitioners, to ensure the inclusiveness of its membership, and to establish a
transparent and predictable system of governance. Democratic governance, though, is not
a necessary condition for the legitimacy of an arbitral institution or body as rule-maker.
While some institutions, such as the Swiss Arbitration Association, rest on democratic
processes for the election of their officers and adoption of projects, with annual
assemblies where officers are elected by their members and important projects discussed,
that is not the case in others. Members of the IBA or of ICCA, for example, are not called to
elect the officers of these organizations, which are rather selected based on a top-down
process. Nonetheless, these organizations dispose of transparent selection processes, with
nominating committees choosing officers for limited and generally non-renewable
mandates.
P 108
P 109
2 Reflexivity
Reflexivity refers to the inclusiveness of the rule-making process itself. The necessity of a
transparent exercise of consultation of the arbitral community is of particular importance
because no arbitral institution can claim to represent the arbitral community in its
entirety, and because most of these institutions do not adopt democratic procedures for
the selection of their leadership. It is therefore all the more necessary that rules and
guidelines be adopted after a process allowing consultation of the broader arbitration
community. In absence of such procedures, the argument would be made that arbitral soft
law is hijacked by what Toby Landau once called the new clergy of arbitration (80) and
elaborated behind closed doors by people who have no legitimacy to elevate themselves
as legislators for the entire arbitration community.
This idea of a lack of legitimacy of soft law has been presented in a rather violent and
polemic form by Felix Dasser in an article against the Guidelines on Party Representation.
(81) The author, in describing the process of discussion and adoption of the IBA Guidelines
within the IBA, writes that “the opinion of the IBA Arbitration Committee members at large
was not really welcome”, and that “many, if not most, members of the Arbitration
Committee at large realized what was cooking only after the IBA Guidelines had been
published in their name”, and concludes that “the IBA Guidelines were drafted by a small
circle within the IBA with the membership at large having no real say in the drafting”. (82)
Mr. Dasser's description, however, stands in contrast with the consultation process that was
put in place by the IBA, including two public consultations opened to the general public as
well as individual consultation of all arbitral institutions, further to which the text was
unanimously approved by the 190 professional Bars spanning 160 different jurisdictions
composing the IBA Council.
Most prominent arbitral institutions and bodies engaging in a rule-making exercise will
essentially aim at a three-step deliberation process. First, a draft would be elaborated by
a task force or a working party as diverse and representative as possible, with observers
delegated by other institutions and stakeholders. Second, the draft will be submitted to
public consultation, with feedback from the public being digested by the drafting group.
Third, some institutions will engage in periodic review and update of their rules. The IBA
practice is for example to revise its Rules and Guidelines ten years after their adoption,
this revision process being subject to the same drafting exercise by a large and diverse
working group followed by a public consultation.
P 109
P 110

IV Normativity
The foregoing shows that the rules and norms emanating from arbitration institutions and
bodies fall in very distinct categories. The normativity of institutional rules and practice

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 notes derives from their contractual nature. By agreeing to submit to the arbitration rules
of a given institution, the parties accept to be bound by said rules, and by the decisions
made by the institution in the exercise of its administrative role, including the practice
notes adopted in that context.
The question of soft normativity therefore only arises for non-binding norms. Soft law
norms are those that cannot be enforced through public force. They can nevertheless be
perceived as norms that should be applied out of a sense of moral obligation. The question
therefore becomes how to identify the factors that generate that sense of moral obligation.
In a March 2008 decision, the Swiss Federal Tribunal referred to the IBA Guidelines on
Conflicts of Interest as “a valuable tool capable of contributing to the harmonization and
unification of the standards applied in the field of international arbitration”. (83) The Swiss
Federal Court therefore referred to the harmonization and unification roles of the
Guidelines. Gabrielle Kauffmann-Kohler has shown, in this regard, that this harmonization
and unification implies an exercise of both codification and innovation. (84)
In order to accede to the level of soft normativity, non-binding rules need to satisfy the
need for a positive solution to a controversial question. For example, to say that any
person may act as a witness (85) is a legal rule that may accede to soft normativity. To say
that parties should submit lists of exhibits with a hyperlink is a mere point of practice
which may find its way in a guidance note, but which does not elevate to the level of a rule
having soft normativity.
It is in any case necessary, for a norm to accede to the level of soft law, that there is
sufficient consensus amongst the arbitral community on its acceptability and
appropriateness. As we have seen, the existence of such a consensus depends on the
cohesion of the community and the fact that practitioners around the globe perceive
themselves as part of a global group sharing common values and the same vision of
arbitration as an autonomous global system of justice.
The other condition is that of the legitimacy of both the institution having adopted the
rules and of the process adopted for rule-making. Legitimacy implies that the institution is
sufficiently representative of the arbitration community. Its membership must be diverse,
the institution must not be perceived as expressing a particular legal culture, and its
experience and prestige must be recognized. Legitimacy also lies in the transparency and
inclusiveness of the decision-making process having led to the adoption of a particular set
of rules.
P 110
P 111
The process of codification of rules by institutions such as the IBA contributes to their
stabilization, their dissemination, and ultimately to their widespread acceptance, thereby
creating a body of transnational procedural soft law rules that is indispensable to
maintaining the autonomy of arbitration as a global system of justice detached from
States.
P 111

References
*) Alexis Mourre: Independent Arbitrator; President of the ICC International Court of
Arbitration.
1) Klaus Peter BERGER, The Creeping Codification of the Lex Mercatoria (Kluwer 1999).
2) David GRAEBER, The Utopia of Rules: On Technology, Stupidity, and the Secrets Joys of
Bureaucracy, (Melville House 2015) p. 9.
3) Alexis MOURRE, “Soft Law as a Condition for the Development of Trust in International
Arbitration”, 13 Revista Brasileira de Arbitragem, p. 82.
4) Pierre LALIVE, “De la Fureur réglementaire”, 12 ASA Bulletin (Kluwer Law International
1994, issue 2) pp. 213-219; Serge LAZAREFF, “Avant-propos: Le bloc-notes de Serge
Lazareff”, 124 Gazette du Palais: Cahiers de l'Arbitrage 3 (No. 338/339, 3 and 4 Dec.
2004).
5) Gabrielle KAUFFMAN-KOHLER, “Soft Law in International Arbitration: Codification and
Normativity”, Journal of International Dispute Settlement (2010) p. 1, at p. 13.
6) Ibid., p. 13.
7) Jan PAULSSON, “Moral Hazard in International Dispute Resolution”, 25 ICSID Review–
Foreign Investment Law Journal (1 October 2010, issue 2) p. 339.
8) <www1.agerpres.ro/english/2015/06/18/former-chamber-of-commerce-head-mihail-
vlasov-to-serve-five-year...> (Romanian national news agency), <www.romania
journal.ro/former-chamber-of-commerce-head-mihail-vlasov-sentenced-to-five-
years-in-pris...> (Romanian online-newspaper).
9) Regional Centre for International Commercial Arbitration – Lagos (RCICAL), Nigeria;
Tehran Regional Arbitration Centre (TRAC), Islamic Republic of Iran; Nairobi Centre for
International Arbitration (NCIA), Republic of Kenya; <www.aalco.int/scripts/view-
posting.asp?recordid=10> (homepage of AALCO).
10) <www.sccietac.org/web/news/detail/1722.html> (Merger Announcement).

13
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 11) Justin D'AGOSTINO, Jessica BOOTH and Tracy WU, “The Aftermath of the CIETAC Split”,
Kluwer Arbitration Blog, 2 May 2014.
12) Togi PANGARIBUAN, “Reconciling the Conciliators: The BANI Split in Indonesia”, Kluwer
Arbitration Blog, 2 February 2018.
13) DURAND-BARTHEZ, KLEIMAN, BOIVIN, “Enquête relative à la localisation de la CCI et au
rôle de Paris comme place d'arbitrage”, 24 November 2010.
14) Michel PRADA, “Rapport sur certains facteurs de renforcement de la compétivité
juridique de la place de Paris”, March 2011.
15) <https://globalarbitrationreview.com/insight/guide-to-regional-arbitration-volume-5-
2017/1070152/whit...>.
16) <https://thewire.in/law/india-global-arbitration-hub-modi-government> (Indian web
publication).
17) Bertrand MOREAU, “Editorial, La lettre de l'AFA”, March 2016, N 19.
18) Recommendations on Lis Pendens and Res Judicata and Arbitration, Resolution No.
1/2006; other mentionable reports include Recommendations on Inherent and Implied
Powers of International Arbitral Tribunals, Resolution No.4/2016, Recommendations on
the Application of Public Policy as a Ground for Refusing Recognition or Enforcement of
International Arbitral Awards, Resolution No. 2/2002; Recommendations on
Ascertaining the Contents of the Applicable Law in International Commercial
Arbitration, Resolution No. 6/2008.
19) <www.arbitrationpledge.com/>.
20) <https://www.arbitration-icca.org/projects/Third_Party_Funding.html>.
21) <https://www.arbitration-icca.org/projects/Cybersecurity-in-International-
Arbitration.html>.
22) On the emergence of a horizontal mode of production of norms in modern systems of
law, F. OST and M. VAN DE KERCHOVE, “De la pyramide au réseau, pour une théorie
dialectique du droit” (Saint-Louis, Brussells 2002).
23) Le Bulletin du barreau de Paris. No. 9, 4.3.2008, 45.
24) Ian MEREDITH, Hussain KHAN, “Witness Preparation in International Arbitration – A
Cross Cultural Minefield”, 26 Mealey's International Arbitration Report (September
2011, no. 9) p. 3.
25) Lawrence NEWMAN and Michael RADINE, eds., Soft Law in International Arbitration
(JurisNet, LLC 2014); Gabrielle KAUFMANN-KOHLER, “Soft Law in International
Arbitration: Codification and Normativity”, 1 Journal of International Dispute
Settlement (2010, no. 2), pp. 283-299; Alexis MOURRE, “Soft Law as a Condition for the
Development of Trust in International Arbitration” 13 Revista Brasileira de Arbitragem,
(2016, issue 51) pp. 82-98; for a critical view, Daniele FAVALLI, ed., The Sense and Non-
Sense of Guidelines, Rules, and Other Para-Regulatory Texts In International Arbitration,
ASA Special Series No. 37 (2015).
26) ASA Bull., pp. 565-579.
27) High Court of Justice of Madrid, Resolution No. 13/2015, 28.1.2015, ECLI:
ES:TSJM:2015:1286.
28) OGH, 19.04.2016, 18 ONc 3/15h, ECLI:AT:OGH0002:2016:018ONC00003.15H.0419.000.
29) Dongwoo Mann+Hummel Co Ltd v. Mann+Hummel GmbH [2008] 3 SLR(R) 871.
30) André ABBUD, Rafael ALVES, Victor RUIZ, “Taking Evidence in Latin America: Some
Observations on Local Practices and Use of the IBA Rules”, 23 ICC International Court of
Arbitration Bulletin (2012) pp 13-21; Margaret MOSES, “The Role of the IBA Guidelines
on Conflicts of Interest in Arbitrator Challenges”, Kluwer Arbitration Blog, 23 November
2017, Queen Mary Study 2012, p. 11; Queen Mary Study 2015, p. 33; Queen Mary Study
2018, p. 36; Survey by Berwin Leighton Paisner 2012, p. 12; Elina MEREMINSKAYA,
“Results of the Survey on the Use of Soft Law Instruments in International Arbitration”,
Kluwer Arbitration Blog, 6 June 2014; Judith GILL, “2010 Revisions to the IBA Rules on
Taking of Evidence”, Les Cahiers de l'Arbitrage (2011-1), Matthias SCHERER, “The IBA
Guidelines on Conflicts of Interest in International Arbitration: The First Five Years
2004-2009”, 4 Dispute Resolution International (May 2010) p. 5.
31) The IBA Arbitration Guidelines and Rules Subcommittee, Report on the Reception of
the IBA Arbitration Soft Law Products, September 2016.
32) Paras. 16-17.
33) Para. 63.
34) Yves DERAINS, “Le professionnalisme des arbitres” in Cahiers de Droit de l'Entreprise no.
4 (Lexis-Nexis, July-August 2012); Gisele STEPHENS-CHU and Julie SPINELLI, “The
Gathering and Taking of Evidence Under the IBA Guidelines on Party Representation in
International Arbitration: Civil and Common Law Perspectives”, 8 Dispute Resolution
International (2014) p. 37.
35) The Prague Inquisitorial Rules, Draft of 26 March 2018,
<http://praguerules.com/upload/medialibrary/697/697f654d36c0275b310cb3ccc1e0e9
f3.pdf>.

14
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 36) “However, from a civil law perspective, the IBA Rules are still closer to the common law
traditions…. In addition to that many arbitrators are reluctant to actively manage
arbitration proceedings, including earlier determination of issues in dispute and the
disposal of such issues, to avoid the risk of a challenge. These factors contribute
greatly to the costs of arbitration, while their efficiency is sometimes rather
questionable.… In light of all of this, the drafters of the Prague Rules believe that
developing the rules on taking evidence, which are based primarily on the inquisitorial
model of procedure and would enhance more active role of the tribunals, would
contribute to increasing efficiency in international arbitration. By adopting a more
inquisitorial approach, the new rules will help the parties and tribunals to reduce the
time and costs of arbitrations”, Introduction to the Prague Inquisitorial Rules, p. 2.
37) “Report on the Reception of the IBA Arbitration Soft Law Products” (2016) paras. 101-
103.
38) W Limited v. M SDN BHD, [2016] EWHC 422 (Comm), 2.3.2016.
39) Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC
Rules of Arbitration, version of 30 October 2017.
40) Alexis MOURRE, “Message from the President”, ICC Dispute Resolution Bulletin (2016,
issue 1) pp. 3, 4.
41) ASA Board Position on IBA Guidelines on Party Representation, 4 April 2014 (“the ASA
Board has serious reservations about the Guidelines. These reservations relate not just
to some of the provisions of the Guidelines but more generally arise from the approach
adopted for dealing with these differences.”).
42) Alexis MOURRE and Eduardo ZULETA JARAMILLO, “The IBA Guidelines on Party
Representation in International Arbitration” in Nassib G. ZIADÉ, et al., eds., Festschrift
Ahmed Sadek El-Kosheri (Kluwer 2015) pp. 109-120; Alexis MOURRE, “Soft Law as a
Condition for the Development of Trust in International Arbitration”, XIII Revista
Brasileira de Arbitragem (2016, issue 51) pp. 82-98; Alexis MOURRE, “Chapter 25: About
Procedural Soft Law, the IBA Guidelines on Party Representation and the Future of
Arbitration” in Patricia SHAUGHNESSY and Sherlin TUNG, eds., The Powers and Duties of
an Arbitrator: Liber Amicorum Pierre A. Karrer, (Kluwer 2017) pp. 239-250.
43) Anne-Carole CREMADES, “The Creation of a Global Arbitration Ethics Council: A Truly
Global Solution to a Global Problem”, Kluwer Arbitration Blog, 24 November 2015.
44) <www.arbitration-ch.org/en/asa/asa-news/details/993.asa-working-group-on-counsel-
ethics-releases-late...>.
45) Para. 203.
46) Queen Mary Study 2015, p. 35; Queen Mary Study 2018, p. 36.
47) Markham BALL, “Probably Deconstructed – How Helpful, Really, Are the New
International Bar Association Guidelines on Conflicts of Interest in International
Arbitration?”, 15 World Arbitration and Mediation Report (2004, no. 11) p. 333; Hilmar
RAESCHKE-KESSLER, “The Production of Documents in International Arbitration – A
Commentary on Article 3 of the New IBA Rules of Evidence”, 18 Arbitration
International (Kluwer Law International 2002, issue 4) p. 411; John TOWNSEND, “Clash
and Convergence on Ethical Issues in International Arbitration”, 36 U Miami Inter-
American Law Review (2004, issues 1-2) p. 1; Carlos Alberto CARMONA, “Considerations
on the IBA Guidelines on Party Representation in International Arbitration: A Brazilian
point of view”, Les Cahiers de l'Arbitrage (2014, no. 1) p. 29; the same is also the point of
view of Nathan O'MALLEY, “An Annotated Commentary on the 2010 Revised IBA Rules of
Evidence for International Arbitration”, 27 International Construction Law Review
(2010) p. 464.
48) Mark R. JOELSON, “A Critique of the 2014 International Bar Association Guidelines on
Conflicts of Interest in International Arbitration”, 26 American Review of International
Arbitration (2015, no. 3); Gary B. BORN, International Commercial Arbitration, 2nd ed.
(Kluwer 2014) p. 1853.
49) In the ACICA Arbitration Rules 2016, see also <https://acica.org.au/iba-guidelines/>
(may serve as an important resource for practitioners and arbitrators).
50) Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC
rules of arbitration (30 October 2017), para. 33 (“Parties and arbitral tribunals are
encouraged to draw inspiration from and, where appropriate, to adopt the IBA
Guidelines on Party Representation in International Arbitration”).
51) Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International
Arbitration, April 2018, can be accessed under <https://www.arbitration-
icca.org/publications/Third-Party-Funding-Report.html>.
52) <https://www.burfordcapital.com/blog/icca-queen-mary-task-force-report-flaws/>.
53) Jurisdictional Challenges, last revised on 29 November 2016,
<https://www.ciarb.org/docs/default-source/ciarbdocuments/guidance-and-
ethics/practice-guidelines-pro...>.
54) Código des Buenas Prácticas Arbitrales, December 2005,
<https://www.clubarbitraje.com/sites/default/files/090216_buenas_practicas_arbitra
les_castellano_1.pd...>.
55) Arbitrators Ethics Guidelines, <www.jamsadr.com/arbitrators-ethics/>.
56) Código de Buenas Prácticas Arbitrales, September 2013.
57) Gonzalo JIMÉNEZ-BLANCO and Lucas OSORIO ITURMENDI, “Los Llamados ‘Árbitros de
Parte’”, Revista del Club Español del Arbitraje (2013, issue 18) pp. 63-122.

15
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 58) Tim HARDY and Elina ZLATANSKA, “CIArb Arbitration Practice Guidelines: An Overview”,
83 The International Journal of Arbitration, Mediation and Dispute Management
(August 2017, issue 3) p. 310.
59) Hans VAN HOUTTE, “Arbitration Guidelines: Straitjacket or Compass?” in K. HOBÉR et
al., Between East and West: Essays in Honour of Ulf Franke (Juris 2010) p 528.
60) UNCITRAL Notes on Organizing Arbitral Proceedings, United Nations Commission on
International Trade Law 2016 (“UNCITRAL finalized a second edition of the Notes at its
forty-ninth session, in 2016”).
61) Chartered Institute of Arbitrators, Interviews for Prospective Arbitrators (30 August
2016), can be accessed at <https://www.ciarb.org/docs/default-
source/ciarbdocuments/guidance-and-ethics/practice-guidelines-pro...>.
62) Chartered Institute of Arbitrators, Protocol for E-Disclosure in International Arbitration
(no date indicated), can be accessed at <https://www.ciarb.org/docs/default-
source/ciarbdocuments/guidance-and-ethics/practice-guidelines-pro...>.
63) Chartered Institute of Arbitrators, Documents-Only Arbitration Procedures (30 August
2016), can be accessed at <https://www.ciarb.org/docs/default-
source/ciarbdocuments/guidance-and-ethics/practice-guidelines-pro...>.
64) Chartered Institute of Arbitrators, Party Non-Participation (22 November 2016), can be
accessed at <https://www.ciarb.org/docs/default-source/ciarbdocuments/guidance-
and-ethics/practice-guidelines-pro...>.
65) IBA Guidelines for Drafting International Arbitration Clauses, 7 July 2010,
<https://www.ibanet.org/Document/Default.aspx?DocumentUid=D94438EB-2ED5-
4CEA-9722-7A0C9281F2F2>.
66) AIPN, International Dispute Resolution Agreement, 2017.
67) WIPO, Future Disputes: WIPO Arbitration Clause, accessible under
<https://www.wipo.int/amc/en/clauses/arbitration/>.
68) ARIAS Arbitration Clause, accessible under <http://arias.org.uk/arbitration-rules-and-
clauses/>.
69) ICC Rules on Combating Corruption, 2011, <https://iccwbo.org/publication/icc-rules-
on-combating-corruption/>; see also in general OECD Good Practice Guidance on
Internal Controls, Ethics, and Compliance, 18 February 2010,
<www.oecd.org/investment/anti-bribery/anti-
briberyconvention/oecdantibriberyrecommendation2009.htm>; Council of Europe,
Committee of Ministers, Resolution (97) 24 on the twenty guiding principles for the fight
against corruption, 6 June 1997 <https://rm.coe.int/16806cc17c>.
70) European Commission, Guidelines on Vertical Restraints, 2010, SEC (2010) 411; ASEAN
Regional Guidelines on Competition Policy, August 2010.
71) There are currently guidelines in this regard underway, see Claes CRONSTEDT, Jan
EIJSBOUTS and Robert C. THOMPSON “Report on International Business and Human
Rights Arbitration”, 13 February 2017; see also “Questions and Answers”, 17 August 2017,
<https://www.ihrb.org/other/remedy/international-arbitration-answers-to-key-
questions>.
72) See for example the Report by the IBA, Achieving Justice and Human Rights in an Era of
Climate Disruption, July 2014,
<http://www.ibanet.org/PresidentialTaskForceCCJHR2014.aspx>; the PCA has also
established specialized rules in that regard, see Optional Rules for Arbitration of
Disputes Relating to Natural Resources and/or the Environment, <https://pca-
cpa.org/en/services/arbitration-services/environmental-dispute-resolution/>.
73) HKIAC has published various practice notes regarding specific situations, such as the
Practice Note on the Challenge of an Arbitrator, 31 October 2014, accessible under
<https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/4_Practice
%20Note_2014_0.pd...>; or the Practice Note on Arbitral Tribunal's Fees, Expenses,
Terms and Conditions, 1 November 2013, accessible under
<https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/5.g.ii_.%20
Practice%20Note%...>.
74) LCIA Notes for Parties, 18 August 2017, or the Notes for Arbitrators, 26 October 2017, all
accessible under <https://www.lcia.org/adr-services/guidance-notes.aspx>.
75) Urs WEBER-STECHER, “Principles of Good Governance and Organisation of Arbitral
Institutions” in Arbitral Institutions under Scrutiny, ASA Special Series No. 40 (2013) pp.
37-54.
76) BGE 129 III 445.
77) ICC, Note to national committees and groups of the ICC on the proposal of arbitrators,
10 May 2016.
78) WEBER-STECHER, fn. 75 above, p. 41, about the National Arbitration Forum (NAF).
79) “The Three Types of Legitimate Rule”, 4 The Berkeley Publications in Society and
Institutions (1958, no. 1) pp. 1-11.
80) Lecture by Toby LANDAU at the opening of the MIDS session in September 2014 (which
can be accessed at: <https://vimeo.com/107493952>).
81) Felix DASSER, “A Critical Analysis of the Guidelines on Party Representation” in The
Sense and Non-Sense of Guidelines, Rules and Other Para-Regulatory Texts in
International Arbitration, ASA Special Series No. 37 (2015) pp. 33-62.
82) Ibid., p. 35.
83) 26 ASA Bull, pp. 565-579.

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 84) G. KAUFMANN-KOHLER, “Soft Law in International Arbitration: Codification and
Normativity”, 1 Journal of International Dispute Settlement (2010, no. 2) pp. 283-299.
85) IBA Rules on the Taking of Evidence in International Arbitration, 29 May 2010, Art. 4
Sect 2.

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 18
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 KluwerArbitration

Document information
The Influence of Public Actors on Lawmaking in
Publication International Arbitration: Domestic Legislatures, Domestic
Evolution and Adaptation: Courts and International Organizations
The Future of International Sundaresh Menon
Arbitration
(*)

Bibliographic reference I Introduction

Sundaresh Menon, 'The At the twenty-first session of this Congress some six years ago, I shared my thoughts about
Influence of Public Actors on the coming of a new age of international arbitration and the concomitant challenges and
Lawmaking in International opportunities which this presents. Among other things, I spoke about how arbitration
Arbitration: Domestic seemed increasingly beset with problems of legitimacy from both within and without. From
Legislatures, Domestic within, the problems of the lack of consistent standards or efforts to tackle issues of moral
Courts and International hazard, ethics, and conflicts of interest were threatening the legitimacy of the industry. (1)
Organizations', in Jean From without, the use of arbitration as a means of resolving questions of a public law
Engelmayer Kalicki and character (particularly in the context of investor-state arbitrations) was increasingly being
Mohamed Abdel Raouf (eds), questioned, given that the arbitral process contains none of the traditional safeguards
Evolution and Adaptation: present in administrative law which have developed to handle sensitive questions relating
The Future of International to the relationship between a state and its subjects. (2) I was not alone in expressing these
Arbitration, ICCA Congress concerns, as can be seen from the fact that the entirety of the 2014 session of this Congress
Series, Volume 20 (© Kluwer was devoted to a discussion of these issues. (3)
Law International; P 112
International Council for P 113
Commercial The issue of legitimacy is central to arbitration because arbitration has become an integral
Arbitration/Kluwer Law pillar of the rule of law. For centuries, businesses and states have relied on arbitration to
International 2019) pp. 112 - resolve their disputes; (4) but in recent times, it has become the primary justice system for
149 the global economy. (5) Arbitration is no longer, if it ever was, just about the private
settlement of individual disputes. Rather, it has become, in the words of Prof. Schill, “a
system of transnational governance that has an impact on society at large” that
“contributes significantly to ordering social relations ex ante [not only] between the
disputing parties but also beyond”. (6) In the context of commercial arbitration, it strives
to guarantee predictability, certainty, fairness, and enforceability in the enforcement of
commercial transactions. In the context of inter-state arbitration, it provides a mechanism
for the peaceful resolution of disputes between states or between investors and states.
Because of its pervasive role in the regulation of rights and liabilities, it has become a
channel through which power is exercised over persons – at times even persons who might
not be parties to the arbitration agreement. (7) This necessarily gives rise to the question:
under what conditions is the exercise of this power, which is mediated through the laws of
international arbitration, rightful? And to what extent is it appropriate for certain actors to
have a role in shaping the rules by which such power is acquired and exercised? This, in
broad terms, is the problem of legitimacy in arbitration.
This paper will consider a particular aspect of this problem by considering some of the
myriad ways in which public actors create, or influence the development of, transnational
norms, rules and principles in international arbitration, and the legitimacy concerns that
underlie their participation in such lawmaking. It will be divided into four parts. First, it
will define the terms which are central to the discussion in this paper. Second, it will
describe the different roles played by public actors in the development of the law of
international arbitration. Third, it will consider the legitimacy concerns that arise out of
their participation. Finally, it will peek into the future of lawmaking by public actors in the
sphere of international arbitration.
P 113
P 114

II Defining the Key Concepts

Two key concepts lie at the heart of this paper. The first is the “law” of international
arbitration. The second is the concept of “legitimacy”.

1 The “Law” of International Arbitration

The first of these, the “law” of international arbitration, may usefully be discussed by
considering two pairs of distinctions. The first is that between the law governing the
arbitration (or lex arbitri) on the one hand, and its substantive law on the other; the second
is the distinction between “hard law” and “soft law”.
a Lex arbitri vs. substantive law
As the learned authors of Redfern and Hunter on International Arbitration (Redfern and

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 Hunter) explain, the difference between the lex arbitri and the law governing the
substance of a dispute was part of the Continental tradition, but it has come to be widely
accepted in international commercial arbitration. (8) Although the lex arbitri is sometimes
also referred to as the “procedural law” of an arbitration, this expression is perhaps
somewhat a misnomer, because it is not concerned only with the conduct of an arbitration
(such as the scheduling of hearings or the appointment and composition of a tribunal), but
also what happens afterwards, such as the recognition and enforcement or, in some
situations, the setting aside of an arbitral award. As Steyn J (as His Lordship then was)
explained in Paul Smith Ltd v. H & S International Holding Inc.: (9)
“What then, is the law governing the arbitration? It is … a body of rules which
sets a standard external to the arbitration agreement, and the wishes of the
parties, for the conduct of the arbitration. The law governing the arbitration
comprises the rules governing interim measures (eg Court orders for the
preservation or storage of goods), the rules empowering the exercise by the
Court of supportive measures to assist an arbitration which has run into
difficulties (eg filling a vacancy in the composition of the arbitral tribunal if
there is no other mechanism) and the rules providing for the exercise by the
Court of its supervisory jurisdiction over arbitrations (eg removing an arbitrator
for misconduct).”
In short, the lex arbitri is shorthand for the entire legal framework that governs
international arbitration. (10) It typically regulates at least three sets of matters: (a) the
P 114 internal conduct of the arbitration, such as the appointment of the tribunal and the
P 115 requirements for the rendering of an award; (b) the external relationship between the
arbitration and the domestic courts, including the extent to which the courts may assist
the conduct of the arbitration through, among other things, the grant of interim relief; and
(c) the relationship between the arbitration and the domestic legal order more generally
(e.g., the law governing the arbitrability of disputes). (11) This is what Prof. Jan Paulsson
refers to as “the law applicable to arbitration”, (12) and it has accounted for almost all of
the key legal developments to date. This paper will focus on the ways that public actors,
particularly international organizations, have influenced the shape of its development.
By contrast, the lex causae, or the law of the substance of the dispute governs the rights
and liabilities of the parties as it relates to the dispute at hand. This is what Prof. Paulsson
refers to as the “law applicable in arbitration”. (13) This is still very much a matter that is
regulated by domestic law and the choice of the parties. As things stand, there is yet no
free-standing substantive law of international arbitration, at least not in the sense
envisioned by Lord Wilberforce during the second reading of the United Kingdom's 1996
Arbitration Bill in the House of Lords, (14) where His Lordship spoke about the
development of a transnational lex mercatoria. Despite the strides that have been taken in
recent years, the goal of developing an autonomous law of international trade founded on
universally accepted standards of business conduct that applies without regard for
national borders remains a distant dream. Progress is perhaps more encouraging in the
field of investment arbitration, where certain core principles (such as “fair and equitable
treatment”) have been the subject of multiple decisions, and a body of international case
law has been developing. But inconsistencies still exist and this has meant that often,
there is no common understanding of the obligations which states – even those bound by
identically worded treaty obligations – might owe each other.
b Hard vs. soft law
The second pair of distinctions is that between “hard law” and “soft law”. Even though the
term “soft law” has been with us for some time, there is no clear academic consensus on
what it means. The orthodox definition is that hard law is “binding” whereas “soft law”
refers to obligations which are hortatory rather than binding. (15) Some have argued that
because of its non-binding character, soft law is not “law” in any meaningful sense of the
word. (16)
P 115
P 116
It is beyond the scope of this paper to consider this conceptual quagmire save to say that
for present purposes “soft law” will be treated as falling within the ambit of “law”. This is an
important point because the norms of the procedural law of arbitration run the gamut from
treaty obligations to model legislation, rules and codes of conduct, and finally, to purely
political commitments generated by a convergence in international behaviour. (17) Thus,
instead of relying on a single binary distinction between “binding” and “non-binding”
norms, laws can usefully be compared along three axes: normativity, (18) precision, and
enforceability. (19) What is critical is that parties consider that the norms in question have
normative force and apply equally to everyone without distinction – this is perhaps the
dividing line between law and the absence of legal obligation. (20)

2 “Legitimacy” in International Arbitration

The second concept that requires definition for the purposes of this paper is the meaning
of “legitimacy”. Legitimacy is a protean concept. To social scientists and political
philosophers, “legitimacy” is understood as a quality of persons and refers to the “right” of
a political actor to exercise political power. In his influential essay on the subject, Max

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Weber explained legitimacy in descriptive terms. Thus, a political regime is legitimate if
the participants believe or have faith in the right of that actor or system to exercise power.
(21) Others, such as the philosopher John Rawls, have preferred to understand legitimacy in
normative terms. To him, a political actor or system is legitimate if it is justified in
exercising power over its subjects. (22) To lawyers, however, legitimacy is not merely a
quality of persons, but also a quality of norms, and it refers to the (political) conditions
that need to be in place for enacted laws to bind those who are subject to them. (23)
This provides a useful conceptual platform, but it still does not explain what legitimacy is.
The difficulty arises, in part at least, because legitimacy, like concepts such as “good” or
P 116 “beauty”, is “simple” and irreducible. (24) In a helpful paper presented at the 2014 ICCA
P 117 Congress, Prof. Schill wrote that legitimacy “constitutes a multidimensional concept
that plays different roles in relation to different actors and social constituencies in a
transnational legal space”. (25) He presented four perspectives from which legitimacy
might be understood:
(a) First, there is party legitimacy, which views the issue of legitimacy from the
perspective of the disputing parties. Prof. Schill explained that in order for
arbitration to be accepted as legitimate by the parties, it has to be carried out by a
process which they have accepted, and “the resolution of the dispute has to be
performed by an independent tribunal that treats the parties equally and, despite
the significant power it has over the parties … justifies its decision on the basis of
pre-determined legal standards.” (26)
(b) Second, there is community legitimacy, which approaches the issue from the
viewpoint of the wider arbitration community. Here, the focus is not so much on the
individual outcomes of arbitrations, but on the extent to which the process coheres
with “the entrenched practices in international arbitration that are accepted by the
user community”, such as standards relating to arbitral procedure, arbitrator
independence, and party equality. (27)
(c) Third, there is national legitimacy, which takes the viewpoint of specific countries
and societies. In this context, legitimacy is largely a function of coherence with the
standards prescribed in the country's arbitration statutes and the practice of its
supervising courts. (28) This is where concerns of public policy come to the fore,
particularly as regards sensitive areas such as creditor protection in insolvency laws,
environmental protection regulations, and sensitive socio-political subjects such as
affirmative action programmes.
(d) Finally, there is global legitimacy, which focuses on the interests of the global society,
including the interests of persons who do not use arbitration. The focus in this context
is with the implications of arbitration as a “system of governance that affects not only
how private parties interact … but also how private rights and public interests more
generally are (re-)balanced in international arbitration.” (29) An example which Prof.
Schill gave was the growing influence of arbitral institutions in issuing guidelines on
such matters as party representation, the taking of evidence, and managing conflicts
of interest, where they have a powerful impact on shaping international due process
standards.
The indices of legitimacy which emerge from these various perspectives are (a) consent
P 117 (that is, the autonomous acceptance of a party to be bound by certain legal standards); (b)
P 118 coherence (with prevailing arbitral standards such as minimal curial intervention); (c)
the rule of law (which imports notions such as the principle of legality, procedural fairness,
a right to representation, and legal precision in the laws); (d) proportionality and
reasonableness (particularly when there are competing interests to be balanced, as there
often are, where sensitive public policy issues are concerned); and (e) democratic
participation (both nationally and supra-nationally). What unites all of these is the
ultimate goal to which they point – the establishment of a fair, stable, and predictable
framework that stakeholders can accept and have confidence in. (30) This entails achieving
the appropriate balance among the interests of the various stakeholders (such as those of
the arbitrating parties, states and the broader arbitration community) which are at play.

III Lawmaking by Public Actors

In that light, it is apt to turn to the lawmaking role of public actors, but as a starting point
it may be asked: Why do public actors even have a role in international arbitration? On one
view, the involvement of states in international arbitration is incongruous, even suspect,
because it affects the ability of litigants to avail themselves of a binding dispute
resolution mechanism that exists outside the framework of state-administered courts.
Proponents of this view might argue that arbitration exists as an autonomous and private
system of justice based on freedom of contract in which states do not – nor should – have
any role. This paper will examine two aspects of this issue. The first is the extent to which
public actors are presently involved in lawmaking in international arbitration. The second
is whether public actors should be so involved and the possible legitimacy challenges that
may arise from their involvement.

1 International Organizations
In the 1920s, there was a push at the inter-state level to establish a common framework for

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 international commercial arbitration. This led to the passage of the Geneva Protocol on
Arbitration Clauses in 1923 (the Geneva Protocol) (31) and the Geneva Convention on the
Execution of Foreign Arbitral Awards of 1927 (the Geneva Convention), (32) both of which
were concluded under the auspices of the League of Nations. The scope and reach of these
early treaties were limited. The contracting states were mostly European, (33) and the
treaties contained very little in the way of meaningful guidance. The Geneva Protocol, for
example, only had four articles that might properly be described as setting out
substantive obligations that bound its contracting states.
P 118
P 119
a The high-water mark: The New York Convention and the Model Law
In 1958, the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (the New York Convention) was adopted. (34) Two of the central tenets of the
Convention are, first, that member states should give full effect to agreements by parties
to arbitrate their disputes; and second, that foreign arbitral awards should generally be
capable of being enforced in the same way as domestic awards. (35) Today, these two
principles are considered so integral and fundamental to the law and practice of
international arbitration that it is difficult to imagine international commercial arbitration
without them. Structurally, the genius in the design of the New York Convention lay in the
way it obviated the need for a central reviewing and enforcing authority by enlisting
domestic courts to recognize and enforce arbitral awards on the basis of a uniform set of
rules. (36) Starting with 24 signatories, the New York Convention today has 159 state parties.
(37) The widespread adoption of the treaty and, more significantly, the broad consensus
over the general understanding and application of the norms contained therein is nothing
short of remarkable.
In 1966, the United Nations (UN) General Assembly established the UN Commission on
International Trade Law (UNCITRAL) “to promote the progressive harmonization and
unification of international trade law”. (38) UNCITRAL is composed of sixty member states
from various geographical regions and different economic and legal systems, elected by
the UN General Assembly for six-year terms. Much of its work is done in working groups,
which have a broad remit to consider issues relating to international trade such as
investor-state dispute settlement, electronic commerce, and cross-border insolvency law.
(39) UNCITRAL has achieved much, but the preparation and adoption of the 1985 Model Law
on International Commercial Arbitration (the Model Law) (40) probably stands as its
greatest achievement to date. (41)
The Model Law is consistent with the core tenets of the New York Convention in that it
proceeds from the premise of the presumptive validity of the arbitral award, but it goes
P 119 much further in prescribing a suite of rules that “[cover] all stages of the arbitral process
P 120 from the arbitration agreement to the recognition and enforcement of the arbitral
award”. (42) By way of Resolution 40/72, the General Assembly recommended that all
states give due consideration to the Model Law when drafting their domestic legislation
statutes, “in view of the desirability of uniformity of the law of arbitral procedures and the
specific needs of international commercial arbitration practice”. (43) Since then, seventy-
six states have adopted legislation based on the Model Law. While the Model Law is not
mandatory, in that states are free to depart from its provisions in the enactment of their
domestic statutes, its influence is such that, as Prof. Pieter Sanders put it, “no State,
modernizing its arbitration law will do so without taking it … into account”. (44) Even the
United Kingdom, which was initially sceptical of the Model Law, ended up adopting many
of its articles when it passed the 1996 Arbitration Act (the UK Arbitration Act), (45) including
the provisions allowing a tribunal to rule on its own jurisdiction and appoint experts, (46)
all of which represented changes to English law. (47)
The New York Convention and the Model Law represent the high-water mark of what
international organizations have achieved in the field of international arbitration.
Together, they have created a system in which national courts have been recruited into a
connected global network that reviews and enforces arbitral awards in a reasonably
effective manner, despite the absence of any supranational organizing authority. (48) Yet
there have also been other successes. Outside the UN, there are regional organizations
which have concluded regional instruments of their own. One example is the Organization
of American States, whose members concluded the Inter-American Convention on
International Commercial Arbitration (the Panama Convention) in 1975. (49) Another is the
UN Economic Commission for Europe, which promoted the conclusion of the European
Convention on International Commercial Arbitration of 1961 (the European Convention).
(50)
Mention should also be made of the work of other intergovernmental organizations like the
International Law Commission (ILC) as well as the International Institute for the Unification
of Private Law or “UNIDROIT”. In 1958, the year the New York Convention was passed, the ILC
P 120 adopted the Model Rules on Arbitral Procedure (51) and submitted them to the UN General
P 121 Assembly, which in turn brought them to the attention of member states for their
consideration and use. (52) While these Model Rules were intended to apply only to
arbitrations between states, the Commission noted that some of the articles were capable
of being used in the context of arbitrations between states and foreign private
corporations. (53) UNIDROIT has contributed significantly to the convergence of substantive

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 commercial laws through the development of uniform legal instruments such as the
Principles of International Commercial Contracts, (54) which has been recognized as
containing useful guidelines on the law of contracts. (55)
b General principles articulated in key international legal instruments
As noted at the start of this section, the signal achievement of international organizations
in this area has been the creation of broad consensus on a number of key principles that
undergird the modern international arbitration framework.
One is party autonomy, which today is recognized as the foundation of the international
arbitration regime. The widespread acceptance of this principle owes much to the work of
international organizations. As Alastair Henderson has observed, “[t]he Model Law-
influenced respect for party autonomy is reflected in most modern arbitration laws by the
absence of prescriptive detail regarding the internal procedures of the arbitration, and by
the considerable latitude afforded to parties to supplement, vary or exclude provisions of
the law of the seat either directly or by the adoption of institutional rules.” (56) Redfern
and Hunter describes party autonomy as “a principle that is endorsed not only in national
laws, but also by international arbitral institutions worldwide, as well as by international
instruments such as the New York Convention and the Model Law”. (57)
Another principle is that of minimal curial intervention. The Model Law takes the approach
that the courts should, as a general rule, refrain from being involved: Art. 5 provides that
“[i]n matters governed by this Law, no court shall intervene except where so provided in
this Law”. The influence of this is such that deference towards arbitration represents the
mainstream philosophy of courts all around the world today. (58)
Apart from these two well-established precepts, there is a host of other general principles
and norms that have developed and broadly achieved consensus as a result of
P 121 international legal instruments like the Model Law and the New York Convention. Examples
P 122 include:
(a) the twin doctrines of separability and Kompetenz-Kompetenz; (59)
(b) the rule that there is no specific requirement as to the form of an arbitration
agreement save only that it must be in writing; (60)
(c) the presumptive validity of arbitration agreements; (61)
(d) the obligation of the courts to refer parties to arbitration where an arbitration
agreement applies, barring certain narrow exceptions; (62)
(e) the sanctity of certain fundamental notions of procedural fairness, such as those
relating to the equal treatment of parties, (63) and due process; (64)
(f) specific and limited grounds for the setting aside of awards which parallel those for
refusing recognition and enforcement; (65)
(g) the principle that questions of public policy remain within the province of the
domestic courts; (66) and
(h) the uniform treatment of all arbitral awards irrespective of their country of origin.
(67)
These norms and principles, which have laid the foundation for the success of international
arbitration today, span all stages of the arbitral process and their widespread acceptance
is testament to the influence that international organizations have had in the development
of norms. In addition, other more specific norms have coalesced around these broad
principles – for example, the requirement in Sect. 70(2) of the United Kingdom's Arbitration
Act 1996 that all available arbitral processes of appeal and review must be exhausted
before any challenge against the arbitral award may be brought in court has been found to
be consistent with the principle of minimal curial intervention. (68)

2 Domestic Legislatures
Domestic public actors are no less important. As Julian Lew QC's analogy goes,
international arbitration can be seen as a giant squid which stretches its tentacles down
into national legal systems “to forage for legitimacy, support, recognition, and
P 122 effectiveness”. (69) The debate between adherents of territorialism and delocalization has
P 123 gone on for several decades, with no resolution in sight. It is beyond the scope of this
paper to traverse this ground (70) and all that will be said is that even the most ardent
supporters of delocalization will admit that the law of the seat performs several vital
functions. Among other things, it supplements the procedural rules chosen by the parties
where these are incomplete, it supports the arbitral process with the coercive powers of
the state, and it regulates the four corners of the arbitration by setting the parameters of
what is arbitrable and by specifying when an award may be set aside. To use the language
of Dicey, Morris and Collins, these may respectively be termed the “directory”, “mandatory”,
and “supportive” functions of the domestic legislature. (71)
a Directory: Setting the basic framework for arbitration and the general attitude towards
arbitration
In general, the arbitration statutes of different jurisdictions prescribe only the rudiments
of procedural regulation which will apply in the absence of more specific prescription by

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 the parties. These prescriptions, which are often contained in the international arbitration
statute of the jurisdiction in question, commonly deal with such matters as the
appointment and challenge of arbitrators, the authentication and delivery of an award, as
well as whether arbitrators can compel the attendance of witnesses and the production of
documents. (72)
Apart from the formal regulation of the relationship between the tribunals and courts that
is achieved through the provisions of written law, domestic legislatures can exert a
tremendous, albeit indirect, influence on the procedural law of arbitration by articulating
the general attitude of the jurisdiction towards arbitration as a method of dispute
resolution. In a section of his speech in the decision of the House of Lords in Lesotho
P 123 Highlands Development Authority v. Impregilo SpA and others (73) entitled “the Ethos of the
P 124 1996 Act”, Lord Steyn said: (74)
“XI. The Ethos of the 1996 Act
17. It is important to take into account the radical nature of the changes
brought about by the Arbitration Act 1996. Lord Mustill and Stewart Boyd
QC (Commercial Arbitration: 2001 Companion Volume to the Second Edition,
preface) stated:
‘The Act has however given English arbitration law an entirely
new face, a new policy, and new foundations. The English
judicial authorities … have been replaced by the statute as the
principal source of law. The influence of foreign and
international methods and concepts is apparent in the text and
structure of the Act, and has been openly acknowledged as
such. Finally, the Act embodies a new balancing of the
relationships between parties, advocates, arbitrators and
courts which is not only designed to achieve a policy
proclaimed within Parliament and outside, but may also have
changed their juristic nature.’
These general propositions are correct but do not fully explain the
important changes which are relevant to the present case.
18. Lord Wilberforce played a large role in securing the enactment of the
Arbitration Bill. During the second reading of the Bill in the House of Lords
he explained the essence of the new philosophy enshrined in it: Hansard
(HL Debates), 18 January 1996, col. 778. He said:
‘I would like to dwell for a moment on one point to which I
personally attach some importance. That is the relation
between arbitration and the courts. I have never taken the view
that arbitration is a kind of annex, appendix or poor relation to
court proceedings. I have always wished to see arbitration, as far
as possible, and subject to statutory guidelines no doubt,
regarded as a freestanding system, free to settle its own
procedure and free to develop its own substantive law - yes, its
substantive law. I have always hoped to see arbitration law
moving in that direction. That is not the position generally
which has been taken by English law, which adopts a broadly
supervisory attitude, giving substantial powers to the court of
correction and otherwise, and not really defining with any
exactitude the relative positions of the arbitrators and the
courts.
Other countries adopt a different attitude and so does the
UNCITRAL model law. The difference between our system and
that of others has been and is, I believe, quite a substantial
deterrent to people to sending arbitrations here. …
How then does this Bill stand in that respect? After reading the
debates and the various drafts that have been moving from one
point to another, I find that on the whole, although not going
quite as far as I should personally like, it has moved very
substantially in this direction. It has given to the court only
those essential powers which I believe the court should have;
that is, rendering assistance when the arbitrators cannot act in
the way of enforcement or procedural steps, or, alternatively, in
the direction of correcting very fundamental errors.’
(My emphasis)
P 124
P 125
Characteristically, Lord Wilberforce did not express his understanding of the
new Arbitration Bill in absolute terms. But the general tendency of his
observations, and what Parliament was being asked to sanction, is clear. It

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 reflects the ethos of the 1996 Act.”
In like manner, in the case of Tjong Very Sumito and others v. Antig Investments Pte Ltd, the
Singapore Court of Appeal – after citing a lengthy extract from the second reading of the
International Arbitration Bill in Parliament – said the following about the modern judicial
policy towards arbitration: (75)
“There was a time when arbitration was viewed disdainfully as an inferior
process of justice. Those days are now well behind us. An unequivocal judicial
policy of facilitating and promoting arbitration has firmly taken root in
Singapore. It is now openly acknowledged that arbitration, and other forms of
alternative dispute resolution such as mediation, help to effectively unclog the
arteries of judicial administration as well as offer parties realistic choices on
how they want to resolve their disputes at a pace they are comfortable with.
More fundamentally, the need to respect party autonomy (manifested by their
contractual bargain) in deciding both the method of dispute resolution (and the
procedural rules to be applied) as well as the substantive law to govern the
contract, has been accepted as the cornerstone underlying judicial non-
intervention in arbitration. In essence, a court ought to give effect to the
parties' contractual choice as to the manner of dispute resolution unless it
offends the law.”
What is clear from this is that the influence of the principal arbitration statute extends
beyond the alphabet of its particular prescriptions. Not just the text, but also the structure
and the legislative progress of the bill speak eloquently of the legislative attitude towards
arbitration, which in turn shapes judicial policy and leaves an indelible mark on the state's
arbitration jurisprudence. I will comment more about this in the next section on the role of
domestic courts.
b Mandatory: Equality, arbitrability, and the relationship between arbitration and the
courts
Despite the very free rein bestowed upon arbitration by the modern consensus on party
autonomy, this liberty is ultimately bounded by those provisions of the law of the seat
which are of mandatory application. As Redfern and Hunter put it, “[i]t may well be that the
lex arbitri will govern with a very free rein, but it will govern nonetheless.” (76) For instance,
Art. 18 of the Model Law, which provides that the parties must be treated equally, is
P 125 considered a mandatory norm from which no derogation is permitted. (77) This principle is
P 126 enshrined in the national arbitration statutes of many jurisdictions. (78) Another
example is arbitrability. In common law jurisdictions, it is usually the function of the courts
to determine what matters are arbitrable, and what are not. (79) However, there are
jurisdictions which have elected to regulate this in statute. For example, Art. 3 of the
Chinese arbitration law expressly carves out certain administrative and family law
disputes as those which may not be submitted to arbitration. (80)
Critically, domestic legislatures also regulate the relationship between the courts and
arbitration. They have an enormous hand in shaping the contours of the relationship
between arbitral tribunals and the courts by providing for such matters as: (a) the
jurisdiction of the courts in ruling over questions relating to the validity of arbitration
agreements or to issues of public interest, and (b) the ability of parties to enforce,
challenge, or even appeal decisions of arbitral tribunals. For instance, the United Kingdom
provides for a limited right of appeal in respect of questions of law. (81) By contrast,
federal circuit courts in the United States remain divided – in the absence of express
statutory guidance on this point – on whether “manifest disregard of the law” can be a
basis upon which an arbitral award is challenged. (82) Parties who have a preference
regarding whether to leave open the possibility of review for errors of law by the arbitral
tribunal will have to consider practical questions such as whether the seat of arbitration
allows for this, whether there is a need to contract out of a right to appeal, and whether to
provide for the possibility of setting up an arbitration appeal panel. (83) By varying the
degree of curial intervention permitted in their domestic statutes, domestic legislatures
can have immense influence over the conduct of arbitrations. (84)
Sometimes, legislatures intervene directly in more dramatic ways, by passing laws to
amplify, minimize, negate, or otherwise change the effects of judicial decisions and
interpretations. For example, a few years ago, the Indian Parliament amended the 1996
P 126 Arbitration and Conciliation Act (the Indian Arbitration Act) to introduce a new Sect. 34(2A)
P 127 to clarify that Indian courts do not have the jurisdiction to set aside awards rendered in
foreign-seated arbitrations. (85) This section is essentially a codification of the holding in
Bahrat Aluminium Co and others v. Kaiser Aluminium Technical Inc and others, (86) in which
the Indian Supreme Court overruled its earlier decision in Venture Global Engineering v.
Satyam Computer Services Ltd and another (Venture Global) (87) and held that Sect. 34 of
the Indian Arbitration Act did not permit the Indian courts to set aside foreign-seated
awards. (88) Another example is when the Singapore Parliament amended the
International Arbitration Act in 2009 to vest the courts with the power to grant interim
relief in aid of foreign arbitrations. (89) This overruled Swift-Fortune Ltd v. Magnifica Marine
SA, (90) in which the Singapore Court of Appeal had held that such a power could only be
exercised in aid of domestic arbitrations. (91)

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 c Supportive: Ancillary procedures and curial support
The arbitration statute of a jurisdiction will often provide for the ways in which the courts
may lend support to an arbitration. For instance, national courts may validate interim
measures granted by the arbitral tribunal, make orders to compel the attendance of
witnesses at the hearing of the arbitration, compel third parties (that is, parties who are
not bound by the arbitration agreement and therefore not subject to the jurisdiction of the
arbitral tribunal) to disclose documents, grant injunctions to preserve property pending
the conclusion of the arbitration, and order a stay of pending court proceedings in favour
of arbitration. (92) These are secondary aspects of the law of arbitration which might not be
governed by the Model Law but nonetheless have considerable practical implications on
the conduct of the proceedings.
Relevantly, domestic legislatures will often control matters such as funding and
representation which, while not part of the law of international arbitration per se,
nevertheless have an important impact on the way that arbitrations take place. A good
example is the law on third-party funding. Recently, both Hong Kong and Singapore
amended their laws to allow third-party funding in international arbitration. (93) Following
the introduction of third-party funding frameworks, the Singapore International Arbitration
P 127 Centre (SIAC) responded by putting additional rules in place to empower investment
P 128 arbitration tribunals to order the disclosure of the existence and details of any third-
party funding arrangements in place. (94) In this way, domestic legislatures have a direct
and tangible impact on the conduct of arbitrations through the laws they pass, and arbitral
institutions in turn may be called on to respond by changing their procedures to suit such
changes. The relationship of influence that states have with their respective arbitral
institutions flows both ways. For instance, the emergency arbitrator procedure
incorporated into the SIAC's rules (95) prompted the Singapore Parliament to legislate in
order to clarify the enforceability of interim measures ordered by emergency arbitrators.
(96)
The impact of a domestic legislature is undoubtedly greatest within its own jurisdiction,
but it also extends beyond its borders to influence the actions and decisions of other
stakeholders in the international community. The aforementioned example of third-party
funding will illustrate this point. The law against third-party funding in Singapore traces its
origins to the common law's longstanding suspicion of champertous interference with
lawsuits. In considering whether the law ought to be changed, the Singapore Government
surveyed the experience of other legal regimes in other major arbitration jurisdictions such
as France, Switzerland and the United Kingdom and concluded that third-party funding
could in some cases further rather than impede the cause of justice. (97) This is reminiscent
of the way that Singapore amended its Legal Profession Act to permit foreign-qualified
lawyers to appear in arbitration proceedings in Singapore, mirroring global trends. (98)

3 Domestic Courts
In the words of then Chief Justice Robert French AC of Australia, “[a]rbitration cannot be
quarantined from the judicial system”. (99) Under the structure created by the combined
effect of the New York Convention and the Model Law, domestic courts not only play an
important gatekeeping role when it comes to the recognition and enforcement of arbitral
awards, but also contribute significantly to the development of transnational norms and
principles in at least three ways.
a Interpreting international legal instruments
P 128 First, they play a vital role in the interpretation of international legal instruments.
P 129 Although the New York Convention and the Model Law have been instrumental in forging
consensus on many key principles in the law of arbitration, principles alone do not
determine the outcome of cases. Instead, the success of international arbitration has
always rested on the consistent implementation of these core principles by domestic
courts which have been called on to interpret and, in some cases, extend these principles.
Nowhere is this clearer than in the area of the recognition and enforcement of arbitral
awards.
Under the New York Convention, the recognition and enforcement of an arbitral award
“may” be refused on one of seven grounds, of which the first five relate broadly to
procedural irregularities in the commencement or carriage of the arbitration while the
remaining two relate to the issues of arbitrability and public policy. (100) As is the nature
of these matters, the wording of these provisions has been the subject of extensive
litigation in the past few decades. Over time, the international body of case law which
these disputes have generated has coalesced into a form of “international common law”
(101) that has provided an important gloss on some of these provisions. In this regard, a key
difference between courts and arbitral tribunals is that court decisions, unlike arbitral
decisions, are routinely published. This was alluded to by Lord Thomas in his 2016 BAILII
lecture where he spoke of the way that the confidential nature of arbitral awards “denudes
the ability of individuals, and lawyers apart from the few who are instructed in
arbitrations, to access the law, to understand how it has been interpreted and applied”.
(102) Judicial decisions, by contrast, serve as a publicly accessible resource on the
interpretation of such instruments and they foster debate about the interpretation of
these provisions and potential lacunae in the law.

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 Of course, the reality is that courts do not always speak with one voice when it comes to
the interpretation of international legal instruments. A commonly cited example is Art. V(1)
of the New York Convention, which sets out the grounds upon which “[r]ecognition and
enforcement of the award may be refused” (emphasis added). This has been read by some
courts to mean that the enforcement court has a residual discretionary power to grant
enforcement even when a ground for refusal of enforcement is present. (103) In contrast,
the interpretation placed by the French courts on Art. V(1) is that recognition and
enforcement must be refused if any of the grounds enumerated therein are satisfied. It has
been suggested that this difference in interpretation arises from inherent ambiguity in the
French text of Art. V(1), the literal wording of which may be read to mean that recognition
P 129 and enforcement will be refused, and only if the stated grounds are met. (104) Such
P 130 examples do not, however, detract from the point that domestic courts are a vital
source of law when it comes to the interpretation of the provisions in international legal
instruments.
b Filling in gaps in the lex arbitri
Second, domestic courts have contributed to the law of arbitration by developing
principles to address areas that are not exhaustively governed by international agreement
or by domestic arbitration statutes. It is of course impossible for any law to cover every
possible scenario. For various reasons – inadvertence, a lack of resources, or simply the
lack of collective will – the provisions in a governing treaty or statute might
underdetermine the outcome of a dispute, and it is in such cases that domestic courts may
step into the breach, as they often do in the domestic legal order, to supply the
legislature's omission.
A good example concerns the effect to be given in subsequent enforcement proceedings to
an order of a foreign court refusing to enforce the award under Art. V of the New York
Convention. In Diag Human SE v. The Czech Republic, (105) a dispute between Diag and the
Czech Republic was referred to arbitration. The Czech tribunal rendered an award in favour
of Diag, which then attempted to enforce the award in France, Luxembourg, the United
States, and Austria. The Supreme Court of Austria held that the award was not binding
within the meaning of Art. V(1)(e) of the New York Convention and therefore not
enforceable. Diag tried to enforce the award in England, and the question before the
English High Court was whether the earlier Austrian judgment gave rise to an issue estoppel
such that the award should likewise be held to be not binding in the English enforcement
proceedings. After a careful review of the case law on the subject, the court answered the
question in the affirmative. (106)
What is notable about Diag is that Bernard Eder J appears to have drawn a distinction
between one of the so-called “international” grounds set out in Art. V(1)(a)-(e) of the New
York Convention and the more “domestic” ones set out at Art. V(2)(a) and (b). He opined
that a decision on the former might give rise to an estoppel whereas one decided on a
“domestic” ground might not. The development and application of the doctrine of issue
estoppel in this area has arisen in part because courts have had to reach for tools within
their judicial arsenal in order to come up with a principled approach towards an issue to
which there was then no clear answer provided within the relevant legal instruments.
c Case management: Shaping the relationships with domestic curial proceedings, foreign
curial proceedings, and arbitral tribunals
The third area in which domestic courts play an important role in the development of the
P 130 law of arbitration is in the field of case management. Matters concerning the interface
P 131 between domestic and foreign litigation and arbitration will arise for determination by
the courts with increasing frequency. For instance, courts are regularly called on to grant a
stay of court proceedings in favour of arbitration; (107) Art. II(3) of the New York Convention
requires domestic courts to refer the parties to arbitration where an arbitration agreement
exists, but leaves the determination of issues such as the validity and scope of the
agreement within the courts' purview. Anti-suit injunctions are also sometimes granted by
courts – primarily those from the common law tradition from which this concept originated
(108) – to restrain the bringing of proceedings both domestically as well as overseas. (109)
One particularly fraught area concerns the subject of what is to be done when there are
curial proceedings involving some matters which are arbitrable and some of which are not;
and where only some, but not all, of the parties are bound by an agreement to submit
some of their disputes to arbitration. In a decision handed down by the Singapore Court of
Appeal in 2015, this was described as a “case management quandary”. (110) The question of
whether the courts should be permitted in such a case to grant a “case management stay” –
that is, a stay of those parts of a dispute not covered by an arbitration agreement in order
that those which are so covered may be arbitrated and decided first – is one which has
divided the common law world. (111) Whichever view one takes of that question, the
broader point is that the precise contours of the proper relationship between the courts
and arbitral tribunals is a deeply important domain of arbitration law, and it is one which
has largely been developed through judge-made law. (112)
To summarize, public actors play integral, and largely complementary, roles in the
development of arbitration law. At some risk of oversimplification, international
organizations provide an effective platform for attaining consensus and harmonization on

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 key issues of principle, while domestic legislatures and courts put the flesh on these bones
by making sense of and applying the law in international legal instruments. In so doing,
they further harmonize initiatives, highlight gaps in the law, and encourage reform and
innovation in the industry.
This also addresses the second of the two aspects of this issue that was raised at the start
of this section, namely whether public actors should have a lawmaking role in international
arbitration. (113) As I remarked at the 2012 session of this Congress, arbitration is in its
P 131 golden age. In a 2015 survey, arbitration was named by corporate counsel as the preferred
P 132 dispute resolution mechanism for cross-border disputes, with almost two-thirds lauding
the widespread enforceability of arbitral awards – the legacy of the New York Convention
and the Model Law – as its most desirable feature. (114) There is no question that the
present success of international arbitration would have been impossible to achieve in the
absence of the involvement of public actors, who have played (and continue to play) a
vital role in providing a stable and reliable framework for arbitration today.

IV Legitimacy Challenges
This next part of the paper concerns the legitimacy challenges presented by the influence
of public actors in lawmaking in international arbitration. As a starting point, it is
important to recall why legitimacy is important to international arbitration in the first
place. In broad terms, the answer which Prof. Thomas Schultz gives, with which I agree, is
that legitimacy brings about stability. (115) If the users of arbitration have no belief in the
legitimacy of its norms they will either agitate for change or abandon the system entirely,
threatening the future of the profession. This is why legitimacy is crucial for the long-term
viability of international arbitration.
In the remainder of this part, five legitimacy challenges will be examined, although it
should be clarified that this is not an exhaustive list. The first three relate to the concerns
that arbitration users might have over the authority of the lawmakers who have created the
norms or the lawmaking process through which these norms are created. These are matters
which touch on, to borrow an expression from the political science literature, issues of
input legitimacy. (116) The next two challenges concern dissatisfaction with the nature and
quality of the laws which are produced by public actors. (117) These relate to issues of
output legitimacy.

1 The Problem of Sovereignty

The first challenge is the problem of sovereignty, or the lack of it. Given that all states are
sovereign, no state can or should be subjected to laws which it did not freely consent to be
bound by. But having regard to the diversity in legal traditions and the differing interests
of states, it is unsurprising that true consensus is elusive. For instance, while the
P 132 Explanatory Note to the Model Law states that the work “reflects a worldwide consensus on
P 133 the principles and important issues of international arbitration practice”, (118)
commentators have long questioned the extent to which this claim of “a worldwide
consensus” is true. Marc Blessing and Katherine Lynch suggest that the provisions of the
Model Law “reflect the hegemonic view of Western developed states embracing liberal free
trade theory” and that developing states felt that they were not equal participants in the
drafting process and that their concerns were not adequately reflected in the finished
product. (119) For instance, Prof. M. Sornarajah notes that the Model Law provides for a
wide definition of “commercial” agreements and expressly lists “exploitation agreements
and concessions” as examples. However, the arbitrability of such disputes may come into
conflict with the doctrine of permanent sovereignty over natural resources, which is
enshrined in the constitutions of many developing countries. (120)
It has also been observed that the difficulties faced by developing countries in
participating in international arbitration stem from the “perception that they have neither
participated in the creation of international law to be applied by [arbitral tribunals], nor
recognized or endorsed them”. (121) One example is the norm that the consent of all
parties is not a prerequisite to arbitral proceedings progressing once the arbitral tribunal
is seised of the case, which traces its origins to the principles of the presumptive validity
of arbitration agreements and the recognition of arbitral awards in the Geneva Protocol.
This is now such an entrenched part of the international arbitration system that it is almost
incapable of being questioned. While one can understand the doctrinal soundness of this
position, this has contributed to the view of some African states that arbitration is an
involuntary process under which an award can be enforced against the respondents in a
foreign country whether they contest the proceedings or not. (122)
This is a problem which persists today. The longstanding practice in UNCITRAL has been to
reach decisions by consensus. In 2007, however, France sought clarifications as to what this
really meant, noting that “there cannot be consensus without the consent of all delegates”
and that there had never been a vote at UNCITRAL. (123) Australia similarly registered its
concern in 2008 that “on occasion in certain Working Groups, consensus has been deemed
P 133 to have been reached when the room was clearly divided on the decision in question”.
P 134 (124) UNCITRAL responded to these observations in its 2010 Report to the UN General
Assembly by clarifying that the practice was to reach consensus as far as possible, and to
engage the “exceptional procedure” of voting (in accordance with the General Assembly's

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 rules of procedure) in the absence of such consensus. (125) These formal clarifications,
however, do not actually resolve the nub of the concern, which is that decisions are being
taken in working groups and passed off as the product of a “consensus”, notwithstanding
dissenting voices in the room. (126) Anecdotally, others will have seen that impasses at
these discussions are sometimes resolved by a strategic adjournment “for consultation”,
which typically involves a handful of the most forceful (although it may be granted that
they might also be the best-informed) voices meeting in caucus to find common ground,
which is then presented as a solution to the group as a whole. A delegation from a country
that might have been struggling to follow the debate can at times feel quite lost, even as it
is presented as having contributed to the “consensus”. These illustrations raise the concern
of whether the idea of “democratic participation”, which was identified earlier at Part II(2)
as one of the indices to legitimacy, is satisfied.
The consequences of settling for an illusory consensus inevitably manifest themselves
further down the line. International arbitration as it exists today cannot function without
the cooperation of national courts, which are the gateways through which arbitral awards
enter the domestic legal order via the recognition and enforcement of arbitral awards.
(127) This is the system of “core uniformity coupled with devolved application”, (128) but it
works only if the consensus holds, and the individual national courts all subscribe to the
same core tenets. Without a true consensus, the centre cannot hold, and the consequence
may be a sudden and dramatic rip in the fabric of international arbitration, as happened
recently in Slovak Republic v. Achmea BV (Achmea).
In Achmea, the Grand Chamber of the European Court of Justice (ECJ) held that investor-
state arbitration clauses in intra-European Union (EU) bilateral investment treaties (BITs)
were incompatible with fundamental treaty provisions of EU law. (129) The effect of this
ruling is still being studied but it appears to be the case that investors will have to submit
any dispute previously protected by an intra-EU BIT to the jurisdiction of the host state,
and can no longer arbitrate their disputes. (130) Admittedly, the circumstances are
P 134 different, but this calls to mind the somewhat wider retreat from investor-state arbitration
P 135 that has been noted. (131) In recent years, Bolivia, Venezuela, and Ecuador have
withdrawn from the ICSID Convention, (132) and four other States – South Africa, Indonesia,
Italy, and Russia – have unilaterally withdrawn from certain investment treaties. (133) Even
Australia, which is an established part of the global north, turned its back on investor-state
arbitration a few years ago under the Gillard administration in the wake of the plain
packaging arbitration and has not fully reconciled itself to its use of these mechanisms
since. (134) While two recent studies cited in Prof. Lucy Reed's paper have shown that there
has not been that wholesale flight from treaty arbitration that some have feared, the
growing popularity (albeit gradual) of interpretive guidelines in BITs and the pronounced
shift towards the use of narrower treaty clauses in the Americas – reveal a degree of
dissatisfaction with the current regime and an appetite for further reform. (135)
If there is truth in the perception that states are becoming increasingly guarded about
investor-state arbitration, then there can be no real doubt that questions of politics are
driving such a trend. This was pointedly noted by Advocate General Wathelet in his opinion
in the Achmea case, where he observed that all of the states that had intervened in on
behalf of the petitioner (Slovakia) had been respondents in a number of arbitral
proceedings relating to intra-EU investments while all the states which intervened on
behalf of the respondent-investor were states of origin for investors and had rarely, if ever,
been respondents in such proceedings. Strikingly, he also noted that it was curious that the
European Commission had intervened on behalf of the investor, because for a long time,
the argument of all EU institutions had been that – far from being incompatible with EU
law – BITs of this nature were in fact necessary to prepare Central and Eastern European
states for accession to the union. (136) It may be observed at the same time that the
People's Republic of China (PRC) has moved in the opposite direction. It has, in relative
terms, morphed from being less of an investment host state towards being more of an
investor state, (137) and this shift has been accompanied by a more positive stance
towards investor-state dispute settlement mechanisms. (138)
P 135
P 136
However, politics aside, there is no question that sincere concerns over matters of
sovereignty and legitimacy underlie the growing disenchantment with investment
arbitration. South Africa, for instance, declared in 2010 that 2twenty-three of its investment
treaties “pose risks and limitations on the ability of the Government to pursue its
Constitutional-based transformation agenda” because they had repeatedly been used by
investors to challenge the Black Economic Empowerment programmes it had passed. (139)
Likewise, Ecuador has long couched its opposition to investment arbitration in the
language of sovereignty. In 2008, it amended its constitution to prohibit agreements under
which Ecuador “would have to cede sovereign jurisdiction to international arbitral
tribunals in contractual or commercial matters between the State and individuals or
corporations”. This provision was later relied on when Ecuador terminated its investment
treaties with eight other Central American countries. (140) Equally, there is no question in
Achmea that the ECJ was sincerely convinced (however rightly or wrongly) that the fact that
questions of EU law might be decided by arbitral tribunals that were not part of the EU's
judicial structure, violated the principle of the autonomy and supremacy of EU law. (141)
These cases present themselves as sobering reminders that if legitimacy concerns are left

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 unaddressed for too long, there will inevitably be a pushback. This can already be seen
from the current confusion and dissatisfaction in the aftermath of the Achmea decision, as
investors in the EU (especially those who have obtained but not enforced arbitral awards,
and those in the midst of ongoing arbitrations) struggle with the sudden loss of recourse to
the international arbitration system, which has long been recognized as “the most
essential element of the BITs” and “an indispensable guarantee that encourages and
promotes investments”. (142)

2 The Problem of the Lack of Accountability

The second legitimacy concern relates to the absence of true accountability and
participation. In a democratic state, accountability is a necessary precondition for the
legitimate exercise of power. However, while domestic public actors are accountable
within their respective constitutional and administrative law frameworks to their local
constituencies, there are no equivalent relationships of formal accountability in
P 136 international arbitration. Public actors need not answer to the international community at
P 137 large which may be affected by their actions. This includes the parties who may come
into their jurisdiction for arbitrations as well as the international community for whom
these domestic public actors may be creating laws, whether directly or indirectly.
At first blush, it may seem odd that this poses a legitimacy challenge at all. After all, the
position would appear to be that states are free to regulate all activities taking place
within their jurisdiction as they see fit, and all persons who find themselves within their
jurisdiction (including persons who elect to seat their arbitrations there) must take the law
as they find it. The problem with this argument, however, is that even if it were accepted
that the parties have freely chosen to abide by all the laws of the seat state (which is a
contestable proposition), (143) this only settles the matter through the lenses of the
disputing parties and the seat state (the “party” and “national” perspectives), and does not
consider the matter from the viewpoints of the wider arbitration community (the
“community” and global” perspectives”). (144) From the perspective of the wider
arbitration community, a law is only legitimate if it coheres with settled normative
expectations of the way that the system of international arbitration should function (this is
the so-called “coherence” standard of legitimacy: see Part II(2) above). The absence of an
effective check and balance has meant that domestic actors have sometimes acted in the
furtherance of their national interests in a manner that ignores basic notions of fairness
with seeming impunity. Two examples will serve to illustrate this point.
In the Yukos arbitration, the Russian seat court set aside an arbitral award that Yukos had
obtained against Rosneft, a Russian state-owned entity, in circumstances which were
widely criticized as being the product of a partial judicial process. (145) In Salini Costruttori
S.p.A. v. Ethiopia (Salini), the Ethiopian courts ordered the suspension of the arbitration
proceedings despite the International Court of Arbitration's rejection of a challenge
against the arbitral tribunal for bias. (146) The tribunal however decided not to give effect
to the Ethiopian courts' orders and continued with the arbitral proceedings, simply stating
that it did not consider itself bound by the injunctions issued by the Ethiopian courts and
“that, in the particular circumstances of the case, it [was] under a duty to proceed with the
arbitration”. (147)
P 137 Quite apart from issues of bias and partiality, there is also the problem that domestic
P 138 courts may be insufficiently sensitive to the needs of the wider international arbitration
community. The Dallah cases (148) are a case in point. The key question in those cases was
whether the Government of Pakistan was bound by an arbitration agreement contained in
a contract between the Awami Hajj Trust, a separate legal entity set up by the Government
of Pakistan, and Dallah Real Estate. A tribunal seated in Paris thought so, and an award was
handed down in Dallah's favour, which was sought to be enforced in both the United
Kingdom and in France. In November 2010, the UK Supreme Court held that there was
insufficient evidence of a “common intention” for Pakistan to be a party to the arbitration
agreement and refused to enforce the award. At the time the enforcement proceedings
were taking place in the United Kingdom, setting aside proceedings were taking place
simultaneously in France. The UK Supreme Court was invited to, but refused, to stay the
proceedings pending the decision of the French court. As it happened, the Cour d'appel de
Paris reached the opposite conclusion three months later, and found that the parties had
intended for Pakistan to be party to the arbitration agreement and refused to set aside the
award. As Prof. Gary Born argues, Dallah was a good example of a case where the UK
Supreme Court might have adjourned its decision on enforcement pending the French
court's decision on the setting aside application, given that the matter involved issues of
French law that were best adjudicated by the French courts. The outcome was
unsatisfactory, at least from the perspective of the parties, and it could have been
different if national courts were encouraged to be aware of the accountability concerns of
the users of arbitration and so to be more attuned to the interests and expectations of the
international community.

3 The Problem of Overreach

The third, and closely related, legitimacy challenge relates to overreach. In arbitration, as
in other fields of law, there are competing interests that must be resolved, and a balance
must be struck between the interests of arbitration users and those of the state. Where this

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 balance is struck in a manner which appears unreasonable or disproportionate, legitimacy
concerns may arise. This can happen, for example, when public actors include excessive
restrictions on the arbitrability of disputes, provide for an unprecedented expansion of the
grounds of curial intervention by allowing merits-based reviews of arbitral awards, or
impose additional grounds for a court to refuse the enforcement of arbitral awards (for
example by adopting an expansive reading of public policy).
This was the case in a trilogy of decisions of the Indian Supreme Court. In 2002, the court in
Bhatia International v. Bulk Trading SA and another (Bhatia) held that Part 1 of the Indian
Arbitration Act, which confers power on the court to grant interim measures, would also
apply to foreign-seated arbitrations unless specifically excluded by the parties. (149) This
decision, worrying in and of itself, became more of a concern because in 2003, the court
P 138 held – in the Oil & Natural Gas Corp v. Saw Pipes case (Saw Pipes) – that an award may be
P 139 set aside on grounds of public policy if it was patently illegal, which it would be if it was
wrong in law. (150) The logical corollary of this, as the court confirmed in its 2008 Venture
Global decision, was that foreign-seated awards could be set aside for being wrong in law.
(151) These cases have since been legislatively overruled, (152) but they illustrate the
dangers of overreach. The intention in these cases might have been benign, and even
laudable (for instance, the court in Bhatia was probably motivated by a desire not to leave
parties to international arbitrations outside India but who had assets in India without the
prospect of interim relief) but they plainly went too far. (153)
These decisions may be contrasted with what happened in Sanum Investments Ltd v. Laos
(Sanum). That case concerned a dispute between a Macanese investor and the Government
of Laos which was submitted to arbitration pursuant to a bilateral investment treaty (BIT).
(154) The wrinkle was that the BIT in question was concluded between the PRC and the Laos
People's Democratic Republic before sovereignty over Macau was transferred from Portugal
to China. The Singapore Court of Appeal eventually decided, contrary to the positions of
both the PRC and the Government of Laos (as revealed in two notes verbale which were sent
only after the dispute arose), that the BIT did extend to Macau. (155)
The reasoning of the court is involved, but the only point which bears on the present
discussion is the way in which the court strove to uphold the rule of law without
encroaching upon the sovereignty of the states involved. On the one hand, the court
showed itself alive to its obligations to the parties where it clarified (contrary to the
submissions of the investor in the court below that the issue was non-justiciable) that not
only was it competent to consider the issue, but obliged to do so, having been designated
as the court of the seat by the parties. (156) On the other hand, it took pains to clarify that
its decision was confined to the facts surrounding the specific BIT which was before the
court, and did not extend to other treaties concluded between the parties or with other
states. (157)
P 139 As organs of their respective states, domestic actors naturally view matters through a
P 140 national prism. However, the challenge – when their actions take on transnational
significance – is for a balance to be struck between national interests and the broader
interests of the disputing parties (including their expectations and choices made in the
exercise of their autonomy), the arbitration community, and the wider international
community. Jurisdictions whose domestic public actors fail to strike an appropriate
balance will naturally be avoided by arbitration users when selecting an arbitral seat. In
the 1988 decision of Turner (East Asia) Pte Ltd v. Builders Federal (Hong Kong) Ltd (Turner),
the Singapore High Court read its domestic Legal Profession Act to preclude foreign
lawyers from representing parties in Singapore-seated arbitrations. (158) It was roundly
criticized by the international community for espousing an unacceptably parochial
attitude towards protecting the local Bar while ignoring commercial realities and party
autonomy. (159) This affected Singapore's attractiveness as an arbitral seat, but it has
managed to redirect its course in the years hence, when it legislatively overruled Turner
and liberalized its rules on the appearance of foreign counsel in arbitrations. Likewise, the
Indian legislature's post-Venture Global reform efforts are similarly laudable. But these
cases and the criticisms that followed do illustrate the need for public actors to be
judicious in the exercise of their domestic lawmaking powers. Described in terms of the
indices of legitimacy set out in Part II(2) above, the issue here is one of the
“reasonableness” and “proportionality” of their lawmaking efforts.

4 The Problem of Fragmentation and Inconsistency

The fourth legitimacy challenge relates to the problem of fragmentation and inconsistency.
The foregoing discussion would have highlighted that there is, not infrequently, a lack of
consistency in the norms and principles determined by public actors. It is unsurprising
that without a supranational legislature, starkly differing rules and standards will develop
across different jurisdictions. The need for a common framework and a core set of shared
principles and canons provided the impetus for the creation of the Model Law, which deals
with many aspects of arbitration procedure. But there remain many unresolved areas of
controversy, including the significant matter of the precise role of the seat court and the
effect of its decisions. Further, the development and harmonization of norms through such
international agreements is slow, ad hoc, and episodic. It is a process that has been
punctuated by landmark events such as the introduction of the New York Convention,
followed by decades-long lulls of somnambulant silence.

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 The risks of inconsistency are greatest when domestic public actors “make law” in
international arbitration. Domestic public actors apply different rules in different
frameworks and different legal cultures and traditions, in the pursuit of different
objectives. With the potential for conflicting rules and norms to emerge from different
sources of law, concerns about clarity will undoubtedly be in the minds of arbitration
practitioners, users and other stakeholders alike. I return here to the well-known debate
P 140 over the effect of an order by the seat court setting aside an arbitral award in subsequent
P 141 enforcement proceedings. On the so-called “delocalized” view – which is taken by the
French courts and is best expressed in cases such as Société OTV v. Société Hilmarton (160)
(Hilmarton) and Société PT Putrabali Adyamulia v. Société Rena Holdings et Société
Moguntia Est Epices (161) (Putrabali) – an international arbitral award is not anchored in
any national legal order and may therefore remain in existence even after it has been set
aside by the seat court. (162) This may mean that the same issues and arguments may be
revisited in multiple jurisdictions, with possibly conflicting results.
The problem of fragmentation and inconsistency also presents itself in the area of
professional ethics, where standards and expectations of counsel and arbitrator conduct
diverge dramatically across different legal traditions. (163) Take the example of the
preparation of witnesses. Civil law jurisdictions generally have strict prohibitions against
this, and speaking to a witness before he takes the stand may be a ground for professional
censure. In the United States, a common law jurisdiction, a lawyer who fails to prepare a
witness might be thought to have breached his ethical duty to advance his client's best
case. (164) I will return to this area of professional ethics in the next section on the lack of
legal precision.
The challenge here is that the persons to whom arbitration laws apply must be able to
know how to conform to them – it is an essential tenet of the rule of law that norms must be
certain, predictable and therefore capable of providing effective guidance. (165) This
cannot be achieved if the laws are not only variegated in content, but also uncertain in
application.
P 141
P 142
5 The Problem of the Lack of Legal Precision
This brings me to the fifth and final challenge that I address in this paper, which is that of
the lack of legal precision. As a starting point, it is important to recall that the efficacy of
arbitration relies on voluntary compliance. Parties overwhelmingly comply with the
majority of directions made by arbitral tribunals – not because they are backed by the
threat of sanction – but because they are seen to be the authoritative pronouncements of a
dispute resolution mechanism with the authority and legitimacy to make them. (166) Thus,
congruence with fundamental precepts of the rule of law is essential to the viability of
arbitration as a method of dispute resolution. (167) However, it is not clear if the laws
made by international organizations are precise enough to offer practical guidance. (168)
This is a problem that affects the work of international organizations most acutely. In order
to broker a compromise between differing schools of thoughts and state interests,
principles laid down by international organizations often end up being framed in broad
and open-textured terms.
This problem is perhaps most acute in investment arbitration, where the use of vague
boilerplate clauses was much more common than it perhaps is today. In the SGS
arbitrations, ICSID tribunals convened under the Switzerland-Pakistan BIT and the
Switzerland-Philippines BIT reached different conclusions on whether an identical
umbrella clause (169) had the effect of elevating contractual claims to treaty claims. (170)
In the field of international commercial arbitration, the disagreement over whether and to
what extent a court may recognize and enforce a foreign award even though a Convention
ground has been established (or, conversely, the extent to which it may refuse recognition
and enforcement even though the validity of a foreign award has been upheld in an
overseas jurisdiction) is a good example of how excessive generality in the wording of
broad treaty provisions has produced difficulties in practice. (171) Viewing all of this, it
may be asked whether international organizations, constrained as they are by the
institutional limitations within which they operate, are able to make laws that possess the
necessary legal precision to legitimately be regarded as law. (172) It appears that the
P 142 arbitration community is alive to at least some of these concerns, for it has been observed
P 143 that more recent BITs have been drafted with greater specificity. (173) More will be said
on this later. (174)
The problem of lack of legal precision also brings with it the concomitant danger that the
end-users of international arbitration will operate under the misapprehension that they
are entering an ordered space when in fact the terrain is uneven and unregulated. An area
of particular concern in this regard is that of professional ethics. (175) International
organizations have not gone much further in this area than the current provisions in the
Model Law relating to a general requirement to treat parties equally, (176) and for an
arbitrator to disclose grounds which might “give rise to justifiable doubts as to his
impartiality or independence”, (177) and a broad reference to “public policy” which has
been clarified in several states' national arbitration statutes to encompass principles of
natural justice. (178) The generality and vagueness of the language in existing international
instruments provides scant guidance in terms of the standards of professional ethics

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 applicable to arbitrators and counsel in international arbitration and, perhaps more
dangerously, they obscure what Prof. Catherine Rogers has described as the “many
unresolved and largely unacknowledged ethical quandaries [which] lurk below the
surface”. (179) These include the abovementioned tensions across jurisdictions and legal
traditions on the rules relating to the propriety of witness preparation, as well as pre-
appointment interviews and other ex parte communication with party-appointed
arbitrator candidates – matters which are likely to arise for a closer look by parties and
counsel only when difficulties really present themselves. The existence of these potential
pitfalls beneath the veneer of regulation calls into question whether the rules and
principles currently in place are too vague to properly guide conduct, and as such cannot
be said to satisfy the requirements of the rule of law.
P 143
P 144

V The Future of Lawmaking by Public Bodies

In order to address some of the issues that have been outlined, Prof. Schill has rightly
noted that what is needed is the development of a “constitutional legal mindset in
thinking about the functioning and legitimacy of international arbitration”. (180) If
arbitration is to continue to be the “primary justice system for the global economy”, (181)
users must share the view – which arbitration has long held of itself – that it is a critical
enabler of the rule of law. In this regard, there is no need to fear or even resent the
influence of public actors. The challenge, instead, is to consider how best to promote the
legitimacy of their lawmaking efforts in the light of the foundational precepts of
international arbitration. This will take time, but to start with, these are some specific ways
in which each of the legitimacy challenges identified in this paper might be addressed.
The first problem of sovereignty is naturally a difficult one to grapple with, but one
meaningful way to improve the quality and diversity of participation in the creation of
arbitration norms is to invest in capacity building efforts, especially for developing
countries where sentiments of a lack of real consensus and participation are likely to be
most acutely felt. The aim of this is to enable a real conversation and exchange of ideas
which enriches the global dialogue. States which are smaller and less developed will
thereby be given a real opportunity to participate in the process of lawmaking. And, on the
other hand, States which have historically played a prominent role in the process will not
only gain the opportunity to reconsider and adjust their perspectives based on the input
from these newer voices, but also have the chance to win over states which fall outside the
mainstream in order to forge a true consensus. To be fair, the number of voices has
increased significantly in the last fifteen years, and this trend will hopefully continue
apace as commendable initiatives such as the ICCA Judiciary Committee's “New York
Convention Roadshow”, (182) and the Singapore International Arbitration Academy's
programme on investment arbitration continue to run. (183) Over time, this will improve
the diversity of the arbitration community and equip more states with the tools necessary
for them to participate meaningfully in the lawmaking process.
P 144 The second problem of accountability is particularly difficult in the arbitration context,
P 145 because there is no linear or hierarchical reporting relationship. This does not, however,
mean that the concept of accountability does not exist in the arbitration context. Instead
of a vertical relationship between supervisor and supervisee, accountability in the
arbitration context emerges out of a complex system of interlocking feedback loops as
illustrated in Prof. Schultz's model. (184) For example, arbitrators who misbehave are
accountable to arbitral institutions (among others) who might sanction them for
misconduct or refuse to admit them to their panels, while arbitral institutions are
accountable to arbitration users in the way that every commercial provider is accountable
to her customers, who can make their displeasure known by refusing to engage their
services. Public actors are, in turn, accountable to users of arbitration, who might refuse to
seat their arbitrations in the jurisdiction, and also to their fellow state actors in the global
community through a system of honest “peer review”.
The Yukos cases are a powerful example of this paradigm of peer review at work. The
Amsterdam Court of Appeal remarked that the Russian judgment in Rosneft's favour was
“the result of a judicial process that must be qualified as partial and dependent”. (185) In
like manner, the English Court of Appeal commented that the Russian setting-aside
decision “offended against basic principles of honesty [and] natural justice”. (186) In so
doing, they effectively held the Russian courts accountable on behalf of the international
community. To be fair, the Yukos decision is perhaps the exception that proves the rule,
and in the vast majority of cases the principle of judicial comity will prevent courts from
being openly critical about the decisions of other courts; but at least it does offer a failsafe
against particularly egregious breaches. In the absence of any vertical supranational
judicial structure, the only bodies which evaluate the decisions of domestic courts are
other domestic courts which should not, in the appropriate case, shy away from doing what
they think to be right. In this regard, one should also note the proposal for the
establishment of a permanent international investment court, potentially with its own
appellate structure. It is not yet clear if the international consensus necessary for such an
initiative can be found, but if such a court is set up, it will rapidly and dramatically
transform the landscape of investment arbitration by providing for a system of direct
accountability through vertical review and central oversight. (187)

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 The third problem of overreach generally results from the failure of public actors to
respect or abide by the appropriate balance between party autonomy and the domestic
interests of the state. In one sense, there is little to be done if public actors overreach –
P 145 states have the sovereign right to decide how they wish to govern their affairs, and can
P 146 even choose not to adopt or accede to treaties such as the New York Convention.
However, there are two potential countervailing forces which might address this. At the
“macro” level, overreach will naturally be corrected by the market when users choose not
to arbitrate in such jurisdiction. Through education, discourse and an appreciation of one's
enlightened self-interest, outlier states can be encouraged to fall in line, as has happened
in major jurisdictions such as China and India, (188) which today no longer view arbitration
with the same level of distrust and suspicion as they once did. (189) At the “micro” level,
arbitrators and counsel must have the courage of their convictions to adhere to
established legal principles in the face of plain instances of overreach by public actors in
particular cases. A good illustration of this would be the decision of the arbitral tribunal in
Salini to continue with the arbitral proceedings despite the injunctions issued by the
Ethiopian courts. But of course, this is something which applies only in extreme cases.
Ultimately, the goal is to build a constellation of effective and efficient arbitral seats
which are steeped in the core precepts of arbitration and can act as the leading lights of
the industry in a more or less consistent way. To extend an analogy I used in a 2015 speech,
(190) like the spokes of a wheel, seat courts need not be perfectly aligned, but they must
all take reference from the hub and none of them can protrude or extend much beyond
their remit if the wheel is to run true.
This leads to the fourth problem of fragmentation and inconsistency. Again, this problem
will be a challenging one to resolve, considering that the divisions on issues such as the
delocalization debate are very deep. But the tools we can use to address some of these
divisions are already on hand, in the form of international organizations, arbitral
institutions, and professional bodies that can provide platforms for serious discussions on
core issues of concern such as the effect of decisions of seat courts and the issue of ethics.
There are also other areas in which public actors – especially international organizations –
may be able to play a prominent role in the future. One such area is the development of a
substantive body of international commercial law. The favourable response to UNIDROIT's
Principles of International Commercial Contracts (191) suggests that there may be
reasonable prospects for the eventual establishment and widespread acceptance of a
substantive legal framework that regulates this area. Needless to say however, there will
be considerable hurdles, and a fuller discussion of this subject will doubtless have to be
the subject of a separate paper.
Finally, on the last problem of the lack of legal precision, I stress that in order for
something to have the quality of law, it must be capable of giving precise guidance to
those who have to abide by its strictures. Investment treaty law as created by states
P 146 appears to be headed in the right direction, considering the trend that has been observed
P 147 of states parties drafting investment treaties with greater specificity and interpretive
guidance on how certain key concepts such as “fair and equitable treatment” should be
interpreted. (192) In the field of international commercial arbitration, one area that is in
particularly urgent need for reform is professional ethics. The lack of clear standards on
arbitrator and counsel conduct threatens real and serious harms, and it is troubling that
greater progress has not been achieved to date. Much has been written about the need for
a clear code of ethics to be developed to provide guidance, at least, on what cannot be
done. (193) This is a difficult undertaking, because it concerns an area in which there exists
a multiplicity of views, all of which are deeply and sincerely held. Caution must therefore
be exercised. While consensus is valuable, it is not to be achieved at all costs. There is a
real danger that a search for common ground will result in the adoption of the lowest
common denominator whenever a serious divergence of views exists, but such an outcome
will hardly inspire confidence in the fairness of arbitration.
It cannot be emphasized enough that the scale of the challenges that lie ahead should not
be underestimated, and the points made in this section are offered as nothing more than
the first broad strokes on the canvas to begin the discussion. What is needed moving
forward is for there to be a concerted effort by the various stakeholders in the arbitration
community – practitioners, academics, judges, lawmakers – to colour within the lines by
developing a set of core principles – a charter, if you will – to articulate the proper
relationship between public actors and international arbitration. The development of a
coherent set of principles will be the labour of many hands, and I have no illusions that
this will be achieved soon, but I suggest that the following four criteria of legitimacy – “4
Ps” – may be used as a starting point for the development of these principles:
First, the laws established by public actors must be precise. A system cannot be stable if its
laws are excessively general and incapable of providing effective guidance.
Second, the reach of these laws must be proportionate to the legitimate interests of the
public actor creating them. The process of balancing competing interests is one which
domestic legislatures are already used to doing (the perennial debate between
development and conservation, for instance, is a good example), while domestic courts
should remain cognizant of the interests of the wider global community when adjudicating.
Thirdly, there must be adequate participation in the lawmaking process. This is particularly
important for international organizations, for there must be adequate representation and

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 participation in the lawmaking process in order for the product to be considered
legitimate. As suggested above, capacity building initiatives can play a critical role in this
area.
Last, it must uphold the value of personal autonomy. At its core, arbitration is founded on
personal freedom, which entails that persons should be free to contract to resolve their
P 147 disputes in a manner of their choosing. As a corollary of this, several cognate principles
P 148 may be derived, including: (i) freedom of contract and party consent – no person may
be compelled to arbitrate if he/she has not agreed to do so; (ii) party autonomy in the
selection of the manner and form of arbitration; and (iii) process autonomy – in the sense
that arbitrations should be minimally regulated.

VI Conclusion
The successes that have been achieved in the field of international arbitration to date
would be unimaginable if not for the involvement of public actors in arbitration
lawmaking. It was states who, through an enormous collective effort of will, designed the
basic programme of international arbitration that was embodied in the New York
Convention. It was again states who, through the auspices of UNCITRAL, wrote the basic
doctrinal syllabus of international arbitration when they agreed on the Model Law. And
today, it continues to be domestic legislatures and courts that toil away at the coal face by
passing laws to ensure conformity with basic precepts of international arbitration and do
the basic work of supporting, recognizing, and enforcing arbitral awards. As long as we live
in this world of nation-states, the answer to the question of whether public actors do and
should have a role to play in international arbitration is plain: yes, of course they must.
Without the cooperation and active participation of public actors, the lex arbitri would be
in a state of flux, and awards cannot effectively be enforced.
Having accepted this, the concern lies in identifying the potential challenges to the
legitimacy of such a lawmaking power. The problem of legitimacy is, at its core, the call to
justify the exercise of power. This call should be met, first and foremost, by a proper
appreciation for arbitration's role as a pillar of the international rule of law and as a
mechanism for global governance. Viewed in this light, the challenge is for public actors, as
they make law in international arbitration, to broaden their legislative horizons to
consider not only the interests of the particular constituencies which they serve, but the
global community of which they are part and whose interests they must protect. In this
globalized age, nobody can stand alone in a state of regulatory autarky. It was in
recognition of this that the Standing International Forum of Commercial Courts was set up
last May to enhance judicial dispute resolution through the sharing of best practices. (194)
Arbitration is well into its golden age and yet – Et in Arcadia Ego. (195) Already there are
some signs of disenchantment with its promises, and signals of a cautious retreat from its
use as a dispute resolution mechanism. Left unchecked, these problems could well prove
to be the thin end of the wedge that will grow in number and intensity, threatening the
P 148 future of the industry. Perhaps we are at arbitration's inflexion point. If care is not taken,
P 149 disquiet might give way to active retreat and then to flight; and Achmea might in time
come to be seen as arbitration's reverse Scott v. Avery moment. (196) It is therefore vital
that the challenge of legitimacy is taken seriously, and steps are taken to address these
problems in order that the future of arbitration might be secured for generations to come.
P 149

References
*) Sundaresh Menon: Chief Justice of the Supreme Court of Singapore; ICCA Governing
Board Member. I am grateful to my colleague, Assistant Registrar Scott Tan, and my
law clerk, Ashley Ong, who discussed the ideas which are contained here, and assisted
me greatly with the research for and preparation of this paper.
1) Sundaresh MENON, “International Arbitration: The Coming of a New Age for Asia (and
Elsewhere)”, Keynote Address for the ICCA Congress 2012, para. 43, available online at
<https://www.arbitration-
icca.org/media/0/13398435632250/ags_opening_speech_icca_congress_%202012.pdf>
.
2) Ibid., paras. 32-33.
3) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” in Legitimacy: Myths, Realities, Challenges, ICCA Congress Series no. 18
(Kluwer 2015) at p. 789 and the articles cited at fn. 1.
4) See David W. RIVKIN, “The Impact of International Arbitration on the Rule of Law”, 29
Arbitration International (2013, no. 3) p. 327.
5) S. MENON, “International Arbitration: The Coming of a New Age for Asia (and
Elsewhere)”, fn. 1 above, para. 31.
6) Ibid., pp. 793-795.

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 7) This takes place in a variety of different ways. For instance, arbitration has
contributed to the making of substantive transnational rules in areas which are
governed almost exclusively by arbitration, such as sport: see, for example, Lorenzo
CASINI, “The Making of a Lex Sportiva by the Court of Arbitration for Sport”, 12 German
Law Journal (2011) p. 1317 at pp. 1325-1334. However, its effects are perhaps most
acutely felt in arbitrations concerning states, where arbitral tribunals develop the law
through treaty interpretation. The outcome of their decisions can sometimes have
dramatic effects on the nationals in the affected states: see, generally, Sundaresh
MENON, “International Investment Arbitration in Asia: The Road Ahead”, Keynote
Address for the 4th Annual Singapore International Investment Arbitration Conference
(3 December 2013), available at <https://www.supremecourt.gov.sg/docs/default-
source/default-document-library/sjc/international-inves...> (last accessed 15 May
2018).
8) Nigel BLACKABY and Constantine PARTASIDES with Alan REDFERN and Martin HUNTER,
Redfern and Hunter on International Arbitration, 6th edn. (Oxford University Press 2015)
at para. 3.38.
9) [1991] 2 Lloyd's Rep 127 at 130.
10) Simon GREENBERG, Christopher KEE and J. Romesh WEERAMANTRY, International
Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press 2011)
at para. 2.14.
11) Alastair HENDERSON, “Lex Arbitri, Procedural Law and the Seat of Arbitration”, 26
Singapore Academy of Law Journal (2014) p. 886 at para. 5.
12) A. HENDERSON, “Lex Arbitri, Procedural Law and the Seat of Arbitration”, fn. 11 above,
para. 3, citing Jan PAULSSON, “Arbitration in Three Dimensions”, 60 International and
Comparative Law Quarterly (2011, no. 2) p. 291 at p. 306.
13) Ibid.
14) Second reading of the 1996 Arbitration Bill in the House of Lords, Hansard (HL
Debates), 18 January 1996 at col. 778. This was later quoted by Lord Steyn in Lesotho
Highlands Development Authority v. Impregilo SpA and others [2006] 1 AC 221 at 230-
231.
15) Gregory C. SHAFFER and Mark A. POLLACK, “Hard vs. Soft Law: Alternatives,
Complements, and Antagonists in International Governance”, 94 Minnesota Law
Review (2010) p. 706 at p. 712 and the authorities cited therein.
16) Jan KLABBERS, “The Redundancy of Soft Law”, 65 Nordic Journal of International Law
(1996) p. 167 at p. 170.
17) Andrew T. GUZMAN and Timothy L. MEYER, “International Soft Law”, 2 Journal of Legal
Analysis (2010) p. 171 at p. 173.
18) See, generally, Prosper WEIL, “Towards Relative Normativity in International Law”, 77
American Journal of International Law (1983) p. 413. Although this article was written
about norms in public international law, the analysis of “normativity” is a useful one
in this context.
19) Ibid.
20) See Gabrielle KAUFMANN-KOHLER, “Soft Law in International Arbitration: Codification
and Normativity”, Journal of International Dispute Settlement (2010) p. 283 at p. 284.
21) Donald H. J. HERMANN, “Max Weber and the Concept of Legitimacy in Contemporary
Jurisprudence”, 33 DePaul Law Review (1983, no. 1) Article 1 at p. 10, citing Max WEBER,
Economy and Society: An Outline of Interpretive Sociology (University of California
Press 1978) at pp. 31-32.
22) John RAWLS, Political Liberalism, 2nd edn. (Columbia University Press 2005) at p. 137.
23) Dan PRIEL, “The Place of Legitimacy in Legal Theory”, 57 McGill Law Journal (2011, no. 1)
p. 1 at p. 6.
24) This is a stream of thought that is popular in moral philosophy and is perhaps most
closely associated with the work of G. E. Moore: see G. E. MOORE, Principia Ethica
(Cambridge University Press 1903) at p. 8.
25) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, p. 803.
26) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, p. 811.
27) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, pp. 812-813.
28) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, pp. 813-814.
29) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, p. 815.
30) See Alexis MOURRE, “Arbitral Institutions and Professional Organizations as
Lawmakers”, this volume, pp. 86-111 at p. 87.
31) Geneva Protocol on Arbitration Clauses (24 September 1923) 27 League of Nations
Treaty Series 157 (1924).
32) Geneva Convention on the Execution of Foreign Arbitral Awards (26 September 1927)
92 League of Nations Treaty Series 301 (1928).
33) Samuel PISAR, “The United Nations Convention on Foreign Arbitral Awards”, 33
Southern California Law Review (1959-1960) p. 14 at p. 14.
34) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June
1958) 330 UNTS 3.

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 35) Ibid., Introduction, p. 1.
36) Sundaresh MENON, “An Overview of Arbitration” in Sundaresh MENON and Denis
BROCK, Arbitration in Singapore: A Practical Guide (Sweet & Maxwell 2014) at paras.
1.020-1.021 and 1.030.
37) UNCITRAL, “Status of the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York, 1958)”, available at
<www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html>
(last accessed 13 May 2018).
38) UN General Assembly Resolution 2205(XXI) of 17 December 1966.
39) UNCITRAL, “Origin, Mandate and Composition of UNCITRAL” (27 June 2016), available at
<https://www.uncitral.org/uncitral/en/about/origin.html> (last accessed 13 May
2018).
40) UNCITRAL, UNCITRAL Model Law on International Commercial Arbitration (1985).
41) That is not to say that UNCITRAL has rested on its laurels. In 1976, it published a set of
model rules for ad hoc arbitrations, which was intended for use in a broad range of
disputes such as arbitrations not involving any particular arbitral institution. These
Arbitration Rules were revised in 2010, and most recently in 2013 to introduce a new
paragraph incorporating the UNCITRAL Rules on Transparency in Treaty-based
Investor-State Arbitration.
42) UNCITRAL Secretariat, “UNCITRAL Model Law on International Commercial
Arbitration” (A/CN9/309) at para. 2.
43) UN General Assembly Resolution 40/72 of 11 December 1985.
44) Pieter SANDERS, “Unity and Diversity in the Adoption of the Model Law”, 11 Arbitration
International (1995, no. 1) p. 1.
45) Arbitration Act 1996 (c. 23) (United Kingdom).
46) Ibid., ss. 30 and 37.
47) Richard GARNETT, “International Arbitration Law: Progress Towards Harmonisation” 30
Melbourne Journal of International Law (2002, no. 2) p. 400 at 408.
48) S. MENON and D. BROCK, Arbitration in Singapore, fn. 36 above, para. 1.030.
49) Inter-American Convention on International Commercial Arbitration (30 January 1975)
Organization of American States Treaty Series No. 42.
50) European Convention on International Commercial Arbitration of 1961 (17 December
1962), 484 UNTS 364 at Arts. VI(2) and VIII-X. Both the Panama Convention and the
European Convention are similar, although the latter goes further in certain respects
such as covering matters in relation to the arbitrability of disputes, the giving of
reasons for awards, and the setting aside of awards.
51) UNCITRAL Model Rules on Arbitral Procedure (1958) (the Model Rules on Arbitral
Procedure).
52) UN General Assembly Resolution 1262(XXIII) of 14 November 1958; UN, “Summaries of
the Work of the International Law Commission”, 15 July 2015, available at
<http://legal.un.org/ilc/summaries/10_1.shtml> (last accessed 13 May 2018).
53) Yearbook of the International Law Commission (1958) vol. II, doc. A/3859 at fn. 16.
54) See the UNIDROIT Principles of International Commercial Contracts, UNIDROIT
Principles 2016, Art. 1.6(2).
55) Hans VAN HOUTTE, “The UNIDROIT Principles of International Contracts”, 11 Arbitration
International (1 December 1995, no. 4) p. 373 at p. 373.
56) A. HENDERSON, “Lex Arbitri, Procedural Law and the Seat of Arbitration”, fn. 11 above,
para. 27.
57) N. BLACKABY, C. PARTASIDES, A. REDFERN and M. HUNTER, fn. 8 above, para. 6.07.
58) S. MENON, “International Arbitration: The Coming of a New Age for Asia (and
Elsewhere)”, fn. 1 above, paras. 4-5.
59) Model Law, Art. 16; Model Rules on Arbitral Procedure, Art. 23(1).
60) Model Law, Art. 7 (Option 1); New York Convention, Art. II(2).
61) This has been in existence since the 1923 Geneva Protocol, where it was set out at Art.
I. Today, it can be found in, among other places, Art. II(1) of the New York Convention.
62) Model Law, Art. 8(1).
63) Model Law, Art.18; Model Rules on Arbitral Procedure, Art. 17(1).
64) New York Convention, Art. V(1)(b); European Convention, Art. IX(1)(b).
65) Model Law, Art. 34(2), cf. New York Convention, Art. V(1).
66) Model Law, Art. 34(2)(b); New York Convention, Art. V(2).
67) See Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on
International Commercial Arbitration as amended in 2006, para. 49.
68) See BLC and others v. BLB and another [2014] 4 SLR 79 at para. 113.
69) Julian D. M. LEW QC, “Does National Court Involvement Undermine the International
Arbitration Processes?”, 24 American University International Law Review (2009, no. 3),
p. 489 at pp. 493 and 535.
70) I have shared my thoughts on this subject in past speeches I have delivered: see
Sundaresh MENON, Keynote Address for the Chartered Institute of Arbitrators (CIArb)
International Arbitration Conference 2013, paras. 51-67; Sundaresh MENON, Keynote
Address for the Nani Palkhivala Arbitration Centre Annual International Conference
2018: “The Role of the National Courts of the Seat in International Arbitration” (17
February 2018).
71) This three-fold classification is taken from Lord COLLINS of Mapesbury et al., Dicey,
Morris & Collins on the Conflict of Laws, vol. 2, 15th edn. (Sweet & Maxwell 2012) at
paras. 16-031 and 16-034.

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 72) See, for example, UK Arbitration Act, Sects. 16 (appointment of arbitrators), 52 (form
of award), and 38(5) (power of the arbitral tribunal to direct examination of
witnesses); International Arbitration Act (Cap. 143A, 2002 Rev. Ed.) (Singapore)
(International Arbitration Act (Singapore)), Sects. 12 (powers of the arbitral tribunal
including the ordering of discovery) and 13 (court may issue subpoena to compel
attendance of a witness).
73) [2006] 1 AC 221.
74) Ibid. at 230-231, quoting the preface to Lord Mustill's and Stewart Boyd QC's
Commentary on the 1996 Act (Sir Michael J. MUSTILL and Stewart C. BOYD, Commercial
Arbitration: 2001 Companion Volume to the Second Edition (Butterworth, 2001), preface)
and Lord WILBERFORCE's comments during the Second Reading in the House of Lords
of the 1996 Arbitration Bill (Hansard (HL Debates), 18 January 1996, col. 778).
75) [2009] 4 SLR(R) 732 at para. 28.
76) N. BLACKABY, C. PARTASIDES, A. REDFERN and M. HUNTER, fn. 8 above, para. 3.50.
77) Model Law, Art. 18; see Michael PRYLES, “Limits to Party Autonomy in Arbitral
Procedure”, 24 Journal of International Arbitration (2007, no. 3) p. 327 at p. 329.
78) See Georgios PETROCHILOS, Procedural Law in International Arbitration (Oxford
University Press 2004) at para. 3.78.
79) See, for example, the Australian case of Larkden Pty Ltd v. Lloyd Energy Systems Pty
Ltd (2011) 279 ALR 772; the English case of Fulham Football Club (1987) Ltd v. Richards
and another [2012] Ch 333, 343; and the Singaporean case of Tomolugen Holdings Ltd
and another v. Silica Investors Ltd and other appeals [2016] 1 SLR 373.
80) Robert FRENCH AC, 2016 Goff Lecture: “Arbitration and Public Policy” (18 April 2016) at
pp. 17-18.
81) UK Arbitration Act, Sect. 69.
82) Jason P. STEED, “Appealing Arbitration Awards and the Circuit Split over ‘Manifest
Disregard of the Law’”, (10 May 2016), available at
<http://apps.americanbar.org/litigation/committees/appellate/articles/spring2016-
0516-appealing-arbit...> (last accessed 13 May 2018), citing Affymax, Inc. v. Ortho-
McNeil-Janssen Pharm., Inc., 660 F.3d 281 (7th Cir. 2011) at 284-285, Stolt-Nielsen SA v.
AnimalFeeds Int'l Corp., 548 F.3d 85 (2d Cir. 2008) at 95.
83) See Bruce G. PAULSEN and Jeffrey M. DINE, “Manifest disregard of the law after Hall
Street Associates: considerations in the enforcement of international arbitration
awards rendered in the United States”, 15 International Bar Association Arbitration
News (March 2010, no. 1) p. 206 at p. 208.
84) For a particular current debate on the proper ambit of s. 69 of the UK Arbitration Act,
see Lord THOMAS of Cwmgiedd, “Developing commercial law through the courts:
rebalancing the relationship between the courts and arbitration”, The BAILII Lecture
2016, 9 March 2016, paras. 32-34.
85) Arbitration and Conciliation (Amendment) Act 2015 (No. 3 of 2016) (India).
86) (2012) 9 SCC 552.
87) AIR 2010 SC 3371.
88) Another noteworthy amendment is the addition of an explanation to Sect. 34 to
clarify that “the test as to whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the merits of the dispute”. This
amendment appears to have been directed at reversing the holding in Oil & Natural
Gas Corp v. Saw Pipes Ltd (2003) 5 SCC 705 where the court had decided that awards
which were contrary to substantive provisions of Indian law or against the terms of the
contract could be set aside for being contrary to Indian public policy.
89) International Arbitration Act (Singapore), Sect. 12A.
90) [2007] 1 SLR(R) 629.
91) Steven CHONG SC, “The Past, Present and Future of International Arbitration in
Singapore” at the 5th Asia Pacific Alternative Dispute Resolution Conference (12
October 2016) at para. 15.
92) See, generally, N. BLACKABY, C. PARTASIDES, A. REDFERN and M. HUNTER, fn. 8 above,
paras. 7.13-7.62.
93) Arbitration and Mediation Legislation (Third Party Funding) Amendment Ordinance
2017 (Ord. No. 6 of 2017) (Hong Kong); Civil Law (Amendment) Act 2017 (No. 2 of 2017)
(Singapore).
94) Investment Arbitration Rules of the Singapore International Arbitration Centre, 1st
edn. (1 January 2017), Rule 24(l).
95) Arbitration Rules of the SIAC, 6th edn. (1 August 2016), Schedule 1.
96) International Arbitration (Amendment) Act 2012 (No. 12 of 2012) (Singapore); see Julian
WALLACE and Glen ROSEN, “Recent Amendments to the International Arbitration Act
and their Influence on the Insurance Industry”, available at
<http://www.siac.org.sg/2013-09-18-01-57-20/2013-09-22-00-27-02/articles/199-
recent-amendments-to-the...> (last accessed 13 May 2018).
97) Ministry of Law Singapore, “Press Release: Legislative Changes to Enhance Singapore
as an International Hub for Commercial Dispute Resolution” (7 November 2016).
98) Singapore Parliamentary Debates, Official Report (15 June 2004) vol. 78 at cols. 96-97;
Legal Profession (Amendment) Act 2004 (No. 23 of 2004).
99) R. FRENCH AC, “Arbitration and Public Policy”, fn. 80 above, p. 12.

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 100) The grounds for refusing to recognize or enforce an award under Art. V(1)(a)-(d) and (2)
(a) and (b) of the New York Convention mirror the grounds for setting aside an arbitral
award under Art. 34 of the Model Law.
101) See, generally, A. GUZMAN and T. MEYER, “International Soft Law”, fn. 17 above, pp.
201-221. Although the article focuses on public international law, and the examples
given related to the decisions of supranational tribunals like the International Court
of Justice, the same concept of “international common law” is a useful analytical tool
that can be employed here.
102) Lord THOMAS, The BAILII Lecture 2016, fn. 84 above, para. 23.
103) ICCA Yearbook Commercial Arbitration (henceforth Yearbook) XXVIII (2003) p. 186.
104) Jean-Louis DELVOLVÉ, Jean ROUCHE and Gerald H. POINTON, French Arbitration Law
and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd edn.
(Kluwer Law International 2009) at p. 214.
105) [2014] EWHC 1639 (Comm).
106) See Owens Bank v. Bracco [1992] 2 AC 443 at 470-F–472E and House of Spring Gardens
Ltd v. Waite [1991] QB 241. The Federal Court of Australia applied the concept of issue
estoppel in the context of enforcement proceedings in Coeclerici Asia (Pte) Ltd v.
Gujarat NRE Coke Limited [2013] FCA 882. When this matter was appealed to the Full
Court, it was held that it was unnecessary to decide this issue, but the first instance
decision was upheld: see Gujarat NRE Coke Limited v. Coeclerici Asia (Pte) Ltd [2013]
FCAFC 109.
107) See, for example, Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd and
others [1993] AC 334 at 367-368; Tomolugen, fn. 79 above.
108) Emmanuel GAILLARD, “Reflections on the Use of Anti-Suit Injunctions in International
Arbitration” in Loukas A. MISTELIS and Julian D. M. LEW, Pervasive Problems in
International Arbitration (Kluwer Law International 2006) p. 201 at p. 201.
109) See Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower
Plant LLP [2013] UKSC 35 at para. 60; Paramedics Electromedicina Comercial Ltda. V. GE
Medical Systems Information Technologies 369 F.3d 645 (2d Cir. 2004).
110) Tomolugen, fn. 79 above, para. 140.
111) Ibid., paras. 143-185.
112) In Tomolugen, the Singapore Court of Appeal expressed the view that it was the
domestic court which, “as the final arbiter”, should “take the lead in ensuring the
efficient and fair resolution of the dispute as a whole”: ibid., para. 186.
113) See p. 118 above.
114) White & Case and Queen Mary University of London School of International
Arbitration, “2015 International Arbitration Survey: Improvements and Innovations in
International Arbitration”, available at
<http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_Arbi
tration_Survey.pdf> (last accessed 13 May 2018).
115) Thomas SCHULTZ, “Legitimacy Pragmatism in International Arbitration: A Framework
for Analysis”, this volume, pp. 25-51.
116) See Fritz W. SCHARPF, Governing in Europe, Effective and Democratic? (Oxford
University Press 1999) at p. 6.
117) Donald H. J. HERMANN, “Max Weber and the Concept of Legitimacy in Contemporary
Jurisprudence”, 33 DePaul Law Review (1983, no. 1) Art. 1 at p. 10.
118) Explanatory Note to the Model Law, fn. 67 above, para. 2.
119) Katherine LYNCH, The Forces of Economic Globalization – Challenges to the Regime of
International Commercial Arbitration (Kluwer Law International 2003) at pp. 224-225,
citing Marc BLESSING, “Globalization (and Harmonization) of Arbitration”, 9 Journal of
International Arbitration (1992, no. 1) p. 79 at pp. 82-88.
120) M. SORNARAJAH, The UNCITRAL Model Law: A Third World Viewpoint, 6 Journal of
International Arbitration (1989, no. 4) p. 7 at p. 16.
121) Samuel K. B. ASANTE, “The Perspectives of African Countries on International
Commercial Arbitration”, 6 Leiden Journal of International Law (1993, no. 2) p. 331 at p.
334, quoting The Permanent Court of Arbitration – New Directions, Report by the
Working Group on Improving the Functioning of the Court (13 May 1991) at p. 9.
122) S. ASANTE, “The Perspectives of African Countries on International Commercial
Arbitration”, fn. 121 above, p. 345.
123) Claire R. KELLY, “The Politics of Legitimacy in the UNCITRAL Working Methods” in
Tomer BROUDE, Marc. L. BUSCH and Amelia PORGES, The Politics of International
Economic Law (Cambridge University Press 2011) at pp. 113-114; note that the
UNCITRAL Report to the UN General Assembly, A/65/17 (2010) at Annex III, para. 4,
states that there has been one vote at UNCITRAL, which was on a procedural matter.
124) UN Doc. No. A/CN.9/660 (28 May 2008).
125) C. KELLY, “The Politics of Legitimacy in the UNCITRAL Working Methods”, fn. 123 above,
p. 114.
126) UN, “Uniform Commercial Law in the Twenty-First Century”, Proceedings of the
Congress of UNCITRAL (18-22 May 1992) at p. 15.
127) See Albert Jan VAN DEN BERG, New York Arbitration Convention of 1958: Towards a
Uniform Judicial Interpretation (Kluwer Law International 1981) at p. 5.
128) See S. MENON and D. BROCK, Arbitration in Singapore, fn. 36 above, para. 1.021.
129) Slovak Republic v. Achmea BV, Case C-284/16 (6 March 2018).

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 130) Sebastian PERRY, “ECJ rules against intra-EU BITs” (6 March 2018) in Global Arbitration
Review, available at <https://globalarbitrationreview.com/article/1166355/ecj-rules-
against-intra-eu-bits> (last accessed 15 May 2018).
131) See Clint PEINHARDT and Rachel L. WELLHAUSEN, “Withdrawing from Investment
Treaties but Protecting Investment” (20 April 2016), available at
<http://www.rwellhausen.com/uploads/6/9/0/0/6900193/peinhardt_wellhausen_bit
withdrawal.pdf> (last accessed 15 May 2018) at pp. 4-5.
132) More formally, the Convention on the Settlement of Investment Disputes between
States and Nationals of Other States (14 October 1966) 575 UNTS 159.
133) C. PEINHARDT and R. WELLHAUSEN, “Withdrawing from Investment Treaties but
Protecting Investment”, fn. 131 above, pp. 4-5; See FU Chenyuan, “China's Prospective
Strategy in Employing Investor-State Dispute Resolution Mechanism for the Best
Interest of Its Outward Oil Investment”, Peking University Transnational Law Review
(2014) p. 266 at pp. 290-291.
134) Luke NOTTAGE, “Investor-State Arbitration Policy and Practice in Australia”, Investor-
State Arbitration Series, Paper No. 6 (June 2016) at pp. 1-2. The tribunal eventually
issued a unanimous decision agreeing with Australia that it had no jurisdiction to hear
the claim: see Australian Government Attorney-General's Department, “Tobacco plain
packaging – investor-state arbitration”, available at
<https://www.ag.gov.au/Internationalrelations/InternationalLaw/Pages/Tobaccoplai
npack aging.aspx> (last accessed 15 May 2018).
135) Lucy REED, “Lawmaking by Arbitrators”, this volume, pp. 52-85, at pp. 79-80 and 84
under (v).
136) Achmea, Opinion of Advocate General Wathelet (19 September 2017) at paras. 34-41.
137) For statistics on China's foreign direct investment flow, see The World Bank, “Foreign
direct investment, net outflows (BoP, current US$)”, available at
<http://data.worldbank.org/indicator/BM.KLT.DINV.CD.WD> (last accessed 15 May
2018).
138) See FU C., “China's Prospective Strategy in Employing Investor-State Dispute
Resolution Mechanism”, fn. 133 above, pp. 285-287 and Dilini PATHIRANA, “A look into
China's slowly increasing appearance in ISDS cases”, International Institute for
Sustainable Development: Investment Treaty News (26 September 2017), available at
<https://www.iisd.org/itn/2017/09/26/a-look-into-chinas-slowly-increasing-
appearance-in-isds-cases-di...> (last accessed 15 May 2018).
139) Republic of South Africa Department of Trade and Industry, “Newsroom: Minister
Davies Launched UNCTAD Investment Policy Framework”, available at
<https://dti.gov.za/delegationspeechdetail.jsp?id=2465> (last accessed 16 May 2018).
140) C. PEINHARDT and R. WELLHAUSEN, “Withdrawing from Investment Treaties but
Protecting Investment”, fn. 131 above, p. 573; see Constitution of the Republic of
Ecuador (20 October 2008), Art. 422.
141) Achmea, fn. 129 above, paras. 32-34.
142) Achmea, Opinion of Advocate General Wathelet (19 September 2017) at para. 77.
143) As argued in Georgios PETROCHILOS, Procedural Law in International Arbitration, fn. 78
above, when parties elect to submit their dispute to arbitration, what they have
“chosen” is to submit themselves to an adjudicative dispute resolution mechanism
attended by certain due process safeguards that secure for the arbitration the
character of a binding determination of rights and liabilities. However, this does not
mean that they “choose”, in any meaningful sense, the full panoply of laws that
constitute the lex arbitri of that jurisdiction (at para. 1.25).
144) See pp. 116-117 above.
145) However, there was perhaps a happy ending to this tale, for Yukos was nonetheless
able to enforce the vacated award in both the Netherlands and the United Kingdom:
see Yukos Capital SARL v. OAO Rosneft, Gerechtshof Amsterdam (2009) Yearbook XXXIV
p. 703 (Yukos (Netherlands)) and Yukos Capital S.a.r.L. v. OJSC Oil Company Rosneft
[2014] EWHC 2188 (Comm) (Yukos (UK)).
146) See Giulia CARBONE, “Interference of the Court of the Seat with International
Arbitration, The Symposium”, 2012 Journal of Dispute Resolution (2012, no. 1) p. 217 at
p. 227 and generally.
147) Salini Costruttori S.p.A. v. The Federal Democratic Republic of Ethiopia, Addis Ababa
Water and Sewerage Authority, Award regarding the Suspension of the Proceedings
and Jurisdiction dated 7 December 2001, 20(3) Mealey's IAR A1 (2005) at para. 124.
148) Dallah Real Estate and Tourism Holding Co v. Ministry of Religious Affairs of the
Government of Pakistan [2011] 1 AC 763; Gouvernement du Pakistan – Ministère des
Affaires Religieuses v. Société Dallah Real Estate and Tourism Holding Company C.A.
Paris, 17 February 2011 (Case No. 09/28533).
149) (2002) 4 SCC 105.
150) (2003) 5 SCC 705.
151) (2010) AIR 2010 SC 3371.
152) See pp. 126-127 above.
153) See, generally, Sameer SATTAR, “Enforcement of Arbitral Awards and Public Policy:
Same Concept, Different Approach?” (2011), available at
<www.employmentlawalliance.com/Templates/media/files/Misc%20Documents/Enf
orcement-of-Arbitral-Awards-...> (last accessed 15 May 2018).
154) Sanum Investments Ltd v. Government of the Lao People's Democratic Republic [2016] 5
SLR 536 (Sanum).

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 155) The decision of the court was criticized by the government of the PRC: see People's
Republic of China Ministry of Foreign Affairs, “Foreign Ministry Spokesperson Hua
Chunying's Regular Press Conference on October 21, 2016”, available at
<http://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/t1407743.shtml> (last
accessed 16 May 2018).
156) Sanum, para. 38.
157) Ibid., para. 45; see also Gary B. BORN, Jonathan W. LIM and Dharshini PRASAD, “Sanum
v. Laos (Part II): The Singapore Court of Appeal Affirms Tribunal's Jurisdiction under
the PRC-Laos BIT” (11 November 2016), available at
<http://arbitrationblog.kluwerarbitration.com/2016/11/11/sanum-v-laos-the-
singapore-court-of-appeal-a...> (last accessed 15 May 2018).
158) [1988] 1 SLR(R) 281.
159) S. CHONG, “The Past, Present and Future of International Arbitration in Singapore”, fn.
91 above, para. 6.
160) Société OTV v. Société Hilmarton, Cour de Cassation, First Civil Chamber, 92-15137, 23
March 1994, 1994 Rev. Arb. 327.
161) Société PT Putrabali Adyamulia v. Société Rena Holding et Société Moguntia Est Epices,
Cour de Cassation, 05-18053, 29 June 2007, 2007 Rev. Arb. 50.
162) Jean-Louis DELVOLVÉ, Jean ROUCHE and Gerald H. POINTON, French Arbitration Law
and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd edn.
(Kluwer Law International 2009) at p. 214; see, for example, TermoRio S.A. E.s.p. and
Leaseco Group, Llc v. Electranta S.P. et al, 487 F.3d 928 (D.C. Cir. 2007) at 930 and
Malicorp Ltd v. Government of the Arab Republic of Egypt and others [2015] EWHC 361
(Comm) at para. 14(2). See also Sundaresh MENON, Patron's Address, CIArb London
Centenary Conference (2 July 2015) at paras. 53-57).
163) See, eg, Niklas ELOFSSON, “Ex Parte Interviews of Party-Appointed Arbitrator
Candidates: A study based on the views of counsel and arbitrators in Sweden and the
United States”, 30 Journal of International Arbitration (2013, no. 4) p. 381.
164) Sundaresh MENON, “Adjudicator, Advocate, or Something In Between?: Coming to
terms with the role of the party-appointed arbitrator”, presented at the 2016 Herbert
Smith Freehills - Singapore Management University Asian Arbitration Lecture (24
November 2016) at para. 22 citing Catherine A. ROGERS, “Fit and Function in Legal
Ethics: Developing a Code of Conduct for International Arbitration”, 23 Michigan
Journal of International Law p. 341 at p. 344; Catherine A. ROGERS, “Ethics & Conflicts
in International Arbitration”, presented at the Singapore International Arbitration
Academy (3 December 2011) at p. 15, available at <https://cil.nus.edu.sg/wp-
content/uploads/2012/11/CATHERINE-ROGERS-SIAA-Counsel-Ethics-Session-Mon-3...>
(last accessed 15 May 2014).
165) Joseph RAZ, The Authority of Law: Essays on Law and Morality, 2nd edn. (Oxford
University Press 2009) at p. 221; Jeffrey JOWELL, “The Rule of Law and its Underlying
Values” in Jeffrey JOWELL, Dawn OLIVER and Colm O'CINNEIDE, The Changing
Constitution, 8th edn. (Oxford University Press 2015) at p. 19.
166) Stavros L. BREKOULAKIS, “International Arbitration Scholarship and the Concept of
Arbitration Law”, 36 Fordham International Law Journal (2013) p. 745 at p. 784.
167) Ibid., p. 785.
168) See George A. BERMANN, “Recognition and Enforcement of Foreign Arbitral Awards:
The Interpretation and Application of the New York Convention by National Courts” in
Ius Comparatum – Global Studies in Comparative Law 23 (Springer 2017) at para. 4.1.1.
169) The clause read “[each Sovereign] shall constantly guarantee the observance of the
commitments it has entered into with respect to the investments of the Investors
[from the other Sovereign]”: cited in SGS Société Générale de Surveillance SA v. Islamic
Republic of Pakistan, ICSID Case No. ARB/01/13 (Decision on Jurisdiction) (2004) at
para. 163.
170) Ibid., cf. SGS Société Générale de Surveillance SA v. Republic of the Philippines, ICSID
Case No. ARB/02/6 (Decision on Objections to Jurisdiction) (2003) para. 115.
171) For a general survey of the positions of various jurisdictions on this point, see G.
BERMANN, “Recognition and Enforcement of Foreign Arbitral Awards”, fn. 168 above,
para. 4.1.1 and fn. 97.
172) An essential desideratum of law is that it must be capable of providing effective
guidance: see pp. 32-33.
173) Kathryn GORDON and Joachim POHL, “Investment Treaties over Time – Treaty Practice
and Interpretation in a Changing World”, OECD Working Papers on International
Investment 2015/02, available at <http://www.oecd.org/investment/investment-
policy/WP-2015-02.pdf> (last accessed 15 May 2018) at p. 25.
174) See pp. 146-147 below.
175) See p. 141 above.
176) Model Law, Art. 18 provides: “The parties shall be treated with equality and each
party shall be given a full opportunity of presenting his case.”

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 177) Model Law, Art. 12(1) provides:
“When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose any circumstances likely to
give rise to justifiable doubts as to his impartiality or independence. An
arbitrator, from the time of his appointment and throughout the arbitral
proceedings, shall without delay disclose any such circumstances to the
parties unless they have already been informed of them by him.”
178) Australia's International Arbitration Act 1974, Sect. 8(7A) provides that “To avoid doubt
… enforcement of a foreign award would be contrary to public policy if … (b) a breach
of the rules of natural justice occurred in connection with the making of the award.”;
also see International Arbitration Act (Singapore), Sect. 24(b) and the UK Arbitration
Act, Sect. 68(2) for similar provisions.
179) Catherine A. ROGERS, Ethics in International Arbitration (Oxford University Press 2014),
Abstract.
180) S. SCHILL, “Developing a Framework for the Legitimacy of International Arbitration”,
fn. 3 above, p. 826.
181) Catherine A. ROGERS, “The Vocation of the International Arbitrator”, 20 American
University International Law Review (2005) p. 957.
182) The Roadshow is a series of judicial colloquia and workshops on the critical role of
national court judges in the application of the New York Convention, and in 2017
alone, ran successful judicial dialogue events in Ecuador, Brazil, and Egypt: see ICCA,
“New York Convention Roadshow”, available at <http://www.arbitration-
icca.org/NY_Convention_Roadshow.html> (last accessed 15 May 2018).
183) The Singapore International Arbitration Academy was launched in 2012 by the Centre
for International Law at the National University of Singapore, and it has organized
programmes on investment treaty arbitration targeted at government officials,
private practitioners and academics from the Asia-Pacific region: see Centre for
International Law, “Singapore International Arbitration Academy”, available at
<https://cil.nus.edu.sg/research/international-dispute-resolution/topics/singapore-
international-arbi...> (last accessed 15 May 2018).
184) T. SCHULTZ, “Legitimacy Pragmatism and Political Systems in International
Arbitration Lawmaking”, this volume, pp. 25-54.
185) Yukos (Netherlands), para. 3.10.
186) Yukos (UK), para. 20.
187) See European Commission, “Investment in TTIP and beyond – the path for reform:
Enhancing the right to regulate and moving from current ad hoc arbitration towards
an Investment Court” (5 May 2015), available at
<http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF> (last
accessed 15 May 2018); UK Law Societies' Joint Brussels Office, “The Multilateral
Investment Court: a plausible attempt at reform, or cosmetic changes only?” (21
September 2017), available at <http://www.lawsocieties.eu/news/the-multilateral-
investment-court-a-plausible-attempt-at-reform-or-c...> (last accessed 15 May 2018).
188) India's legislative changes following Venture Global are described at Part III(2)(b)
above, while the Supreme Court of China has in recent years published “judicial
instructions” that in effect conform a pro-arbitration stance towards the
enforceability of arbitral awards: see Keith BRANDT and Michael KAN, “China” in The
International Arbitration Review Edition 7, available at
<http://www.lawsocieties.eu/news/the-multilateral-investment-court-a-plausible-
attempt-at-reform-or-c...> (last accessed 15 May 2018).
189) This may have been due to these states' perceptions of arbitration as a concept
developed and dominated by Western states and thinkers.
190) S. MENON, CIArb Patron's Address, fn. 162 above, paras. 71, 72 and 76.
191) See para. 15 above.
192) K. GORDON and J. POHL, “Investment Treaties over Time”, fn. 173 above, p. 25.
193) See, generally, C. ROGERS, Ethics in International Arbitration, fn. 179 above; S. MENON,
“Adjudicator, Advocate, or Something In Between?”, fn. 164 above; Doak BISHOP and
Margrete STEVENS, “The Compelling Need for a Code of Ethics in International
Arbitration: Transparency, Integrity and Legitimacy” in Arbitration Advocacy in
Changing Times, ICCA Congress Series no. 15 (Kluwer 2011) pp. 391-407.
194) See Supreme Court of Singapore, Media release: “Standing International Forum of
Commercial Courts”, available at <https://www.supremecourt.gov.sg/docs/default-
source/default-docu ment-library/standing-international...> (last accessed 15 May
2018).
195) S. MENON, “International Arbitration: The Coming of a New Age for Asia (and
Elsewhere)”, fn. 1 above, paras. 1-2.
196) Alexander Scott v. George Avery (1856) 5 HL Cas 811, in which the UK House of Lords
first held that an arbitration agreement was not contrary to public policy, and
observed that such agreements could yield “great advantage” (at 853 per Lord
Campbell). This is widely seen as a landmark in the history of arbitration for it marked
a shift in judicial attitude, and paved the way for its widespread adoption and use.

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Document information
Personal Reflections from Leading Arbitrators: Transcript
Publication of Luncheon Panelists’ Remarks
Evolution and Adaptation: (*)
The Future of International
Arbitration
I Introduction – Remarks by Carolyn B. Lamm (1)
Today's program is an innovative program for ICCA, and I am delighted to be here to host
Topics with our fabulous arbitrators. For the past two decades, maybe more, we certainly have
witnessed a transformation in business, in law, in life and in dispute resolution as a result
Investment Arbitration of globalization and technology. This entire week we are examining the impact of that
evolution and the adaptation of our international arbitral systems. Despite the dramatic
changes we have witnessed, the one constant that all can agree on, really, is that parties
Bibliographic reference and counsel very much want impartial, independent, objective arbitrators. It is the
arbitrators who are truly the guardians of our system of international arbitration.
'Personal Reflections from
Leading Arbitrators: Despite much change, it is the arbitrators who still are required to assure that parties have
Transcript of Luncheon due process, to assure that their cases are understood and fairly decided, and to apply the
Panelists’ Remarks', in Jean rule of law carefully with judgment in a fair and balanced way. And that is of fundamental
Engelmayer Kalicki and importance no matter what the changes.
Mohamed Abdel Raouf (eds), Today, another thing that is certain is that we have four of our best arbitrators here to talk
Evolution and Adaptation: with us about their approaches and observations reflecting on how they became who they
The Future of International are as arbitrators, what their decision-making processes are, where they see arbitration
Arbitration, ICCA Congress now, and where it is going on the basis of their experiences. We really hope you enjoy each
Series, Volume 20 (© Kluwer of their presentations.
Law International;
International Council for The format is that each of them will discuss all of the questions for a ten-minute segment,
Commercial and at the end of their remarks we will consider your questions, if you have any. We will
Arbitration/Kluwer Law begin first with Julian Lew. Then we will proceed in alphabetical order to Loretta
International 2019) pp. 153 - Malintoppi, Brigitte Stern, and Claus von Wobeser. Each will do a very interesting
163 presentation, so enjoy it.
P 153
P 154
II Remarks By Julian Lew QC (2)
Good afternoon, ladies and gentlemen. This is a novel setting. The organizers have found
something new. Hopefully it will work. I'm going to deal briefly with three issues: (1) how I
became involved with international arbitration; (2) what I see as the main changes that
have taken place in recent years; and (3) where I think that things will go in the future.
I got involved in arbitration in a strange way. I was registering for a PhD at the Université
Catholique de Louvain in Belgium. My main interest was private international law. I went to
see the professor who was to supervise my research. He asked me what subject I was
interested in researching. I said I didn't know. After a moment of reflection, he suggested
“le choix de la loi applicable en matière d'arbitrage commercial international” – the choice of
applicable law in international commercial arbitration. I asked, “What is ‘arbitrage’?” He
told me to look it up. That was in 1970. The rest is history.
In 1974, I went to India to attend my first ICCA Conference in New Delhi. I don't know if many
people here were at that conference. I came into a session room, and I sat down next to
two individuals. Some of them you may remember – Howard Holtzmann, an American, and
Professor Sergei Lebedev from the Soviet Union. These two men were experts and had a
great influence in international arbitration; they were greatly influential in developing the
US-Soviet agreement to accept Stockholm as a neutral arbitration venue. At the podium in
that session was Professor Pieter Sanders, introducing the draft UNCITRAL Arbitration
Rules. Professor Sanders was one of the luminaries of international arbitration.
From there, I developed my interest and practice on the basis of my academic
background. I then started to practice in the area of international arbitration, going into
practice – first as counsel, and later as an arbitrator.
Arbitration was very different then. I think it was recognized as a dispute resolution system
to resolve difficult international commercial disputes. Today it is also used as a
commercial tactic in the context of negotiating or achieving a better settlement or result
than otherwise.
There was one fundamental at that stage in addition to party autonomy: the New York
Convention. At the time, there weren't that many countries that had ratified the
Convention; about forty-five. Now, there are over 150. At that stage, even my own country,
the United Kingdom, had not ratified the New York Convention; it did so in 1975. With the
changing political world then, there was a need for neutral arbitration rules. It was in that

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 background that the UNCITRAL Arbitration Rules were developed. Controversial at the
time, they were focused specifically on ad hoc arbitration. The UNCITRAL Rules, now in an
P 154 updated edition, have proved their merits and are now widely used. At that time, the mid-
P 155 1970s, there was only one major international arbitration institution – the ICC – which
only had one office, in Paris, although they did international work.
What has happened since then? Over the last forty-plus years, a plethora of arbitration
institutions have started offering arbitration services. There are now several thousand
international arbitrations every year, either administered by the various arbitration
institutions or ad hoc arbitrations. Also, and perhaps as a result of these developments,
many major law firms have developed specialized international arbitration departments.
In the past decade or so, we have seen more and more arbitrations being undertaken in
other regions around the world, and in particular in the Asian region.
New seats have also been accepted. I remember when arbitrations were in Switzerland
and in France in the 1970s. In London, we didn't have a great deal of international
arbitration (other than the specialist areas of shipping, insurance, and commodities). It
was only after the restructuring of the LCIA (London Court of International Arbitration) and
the 1996 Arbitration Act that arbitrations began to come to England as a favored
jurisdiction.
In the 1980s, after the success of the UNCITRAL Arbitration Rules, UNCITRAL developed its
Model Law on International Commercial Arbitration. This too has had a remarkable
acceptance around the world. Now adopted in over sixty jurisdictions, it has majorly
affected the regulation and practice of international arbitration. The adoption of the
Model Law in many Asian jurisdictions may well be one of the reasons why there has been
an increase in arbitration in the Asian region. It should be noted that the so-called major
arbitration jurisdictions, i.e., the United Kingdom, France, Sweden, Switzerland, and the
United States, have not adopted the Model Law.
Finally, I must, and you would expect me to, mention that in the early 1980s, we created
the School of International Arbitration at Queen Mary University of London. So we have
been going now for thirty-three years. At the time, many argued that arbitration was not a
subject for academic study. It was a matter of procedure to be governed by the law of the
venue of the arbitration; whose private international law rules should apply to any conflict
of law issues. Well, we proved that wrong. There are now arbitration institutions teaching
arbitration all over the world, including in Switzerland, in France, in Sweden, in the United
States, and in China. Arbitration is now seen as sufficient of a specialty to have dedicated
teaching at undergraduate and postgraduate levels.
I turn now to the last topic: the future for international arbitration. One of the issues is
technology. I'm not going to address that; others will do so. However, the progress of
transcripts, video links with parties, examination of witnesses and experts in different
places, has made enormous changes to the acceptability and efficiency of the arbitration
process. In principle, computerization has made research and the recording of information
easier and more efficient; on the other hand, parties' submissions have become ever more
complicated and lengthy.
I do think we run a risk of (and there was some discussion of this in the last panel before
lunch), of an increasing (backward-looking) interference in arbitration from outside bodies
– courts, institutions, governments, NGOs, and others, wanting to know what's going on in
the arbitration process, and to control the organization and structure of arbitration. This
P 155 would be a throwback to thirty-forty years ago. Judges and national jurisdictions
P 156 sometimes still consider they should manage what, if anything, the parties should refer
to arbitration, and to review the decisions arbitrators reach. I hope the arbitration
institutions in particular will work to resist these interferences.
Other issues being experienced in practice, are the increase in aggression in international
arbitration – in the way that cases are fought, the amount of paper that is presented, the
increasing length of time involved, the level of fees which are being incurred. Who can
control these – the parties. Will they do so?
Exactly where arbitration will go, time alone will tell. I believe that arbitration will
continue to prosper. The principal reason why it will prosper is because of party autonomy;
the parties who wish to refer their disputes to arbitration and to resolve matters privately
and without recourse to national courts. It is for the lawyers, the parties and arbitrators to
make the system work.
It is a question that remains on all these issues and reminds us that the only reason
arbitration exists, certainly commercial arbitration, is due to party autonomy.

III Remarks by Loretta Malintoppi (3)

When I started out in international arbitration in Europe in the late 1980s, the world of
international law and international arbitration was a very different place. I'm Italian. I'm
from Rome, and Rome was really not an option to practice arbitration. I remember when I
went to interview for the first time in a law firm in Rome, I had two questions from the
senior partner. The first was, “Are you engaged to be married?” and the second was, “This is
not a profession for women, is it?” Now, needless to say, I did not go to work with that law
firm and I did not go to work in Rome. As I said, Rome was not an option. The capitals of

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 Europe that really were leading in international arbitration and international law were
Paris, London, and Geneva. And so, I went to Paris.
But even at the time, there were no dedicated international arbitration teams, and even
fewer public international law teams. I saw that Jeremy Carver is here today. He was one of
the few people practicing State-to-State litigation and arbitration in those days, because
otherwise it was a handful of practitioners, mainly senior silks or professors of
international law – counsel who were frequently former legal advisors of the UK Foreign
Office.
There were no women at all, I don't think. Not even Brigitte Stern, at that time. It was a
really selective club, and things have changed since then. You know, investment
arbitration hardly existed at all. But I was lucky enough to start in the profession in the
heyday of international arbitration and when State-to-State disputes were on the rise, with
the law firm Frere Cholmeley (which later became Eversheds), which was the leading firm
in public international Law. The Permanent Court of Arbitration (PCA) was starting to really
appear on the scene with a number of big cases between States, and the International
Court of Justice's (ICJ's) docket was busier and busier.
But has arbitration today taken the path that I would have predicted? Well, there are a few
P 156 things that, of course, I could have seen even then. For instance, the potential for growth in
P 157 the international arbitration field after the adoption of the UNCITRAL Model Law in 1985
and the PCA Optional Rules for Arbitrating Disputes between Two States (1992) and
between Two Parties of Which Only One Is a State (1993). But I do not think anybody could
have seriously predicted the incredible growth of international arbitration and its impact
on the business community or the proliferation of international courts and tribunals that
fundamentally changed the landscape of international adjudication.
Some of what has happened perhaps was predictable, but certain developments, not quite
as much. A few come to mind. The first, particularly for me, having started out as a public
international law specialist, is the mingling of private lawyers — corporate, commercial
lawyers – and public international law lawyers in the field of investment arbitration. The
establishment of large, dedicated public international law and international arbitration
teams was perhaps not entirely predictable.
And then there is the fact that we have raised the bar of our work and our specialties
higher and higher. We are now international lawyers living all over the world, based
everywhere and nowhere, leading, as Toby Landau says, disjointed lives. We wear so many
different hats – scholar, practitioner, (private) adjudicator, and even lawmakers in
investment arbitration, as Lucy Reed mentioned earlier today. And there has also been a
growing harmonization of procedural practices through the construction of the soft, moral
edifices of codes of conduct, guidelines, and best practices that we have built for
ourselves.
I also can mention a collegial group of women and a growing number of women
practitioners and leading figures in the world of international law and arbitration. But I
think that gender diversity still needs some fixing. Similarly, there is much more that can
be done to increase racial, cultural and geographic diversity, all of which are extremely
important. We all have to work collectively towards doing a better job at that.
Another thing that strikes me is the sudden media attention and the creation of all these
specialized arbitration reviews and journals. Incidentally, recently, arbitration media has
ventured a far-fetched comparison between Hollywood and international arbitration in
connection with the #MeToo scandal. Now, aside from the fact that there is nothing further
removed from the glitz and glamour of Hollywood than the solitary job of an arbitrator, I
think that such a comparison is not only misguided – it is also potentially quite dangerous.
Equating arbitrators and arbitration practitioners to movie stars helps feed the image of a
wealthy and rarefied environment that is detached from the realities of international
business and provides further ammunition to the detractors of the system.
Another point that I cannot fail to mention is arbitrator challenges, which I think, at least
looking at the most recent SIAC [Singapore International Arbitration Centre] statistic,
seems to be at a phase of decline at the moment. But it has certainly led a number of us
practicing mainly as arbitrators to leave international law firms and set up our own
practices or join barristers' chambers, as I did.
I also have witnessed a growing horizontal dialogue between international courts and
tribunals, from which everybody is benefiting, and a change in the role of arbitral
institutions. Arbitral institutions today are also educational centers. They pay more
attention to the users. They are more transparent. They publish better statistics. But will
P 157 those institutions take a step forward and accept the proposal that was made by the SIAC
P 158 to consolidate related arbitral proceedings across different institutions and subject to
different arbitration rules? Now, I do not know the answer to that, but the ICC Court's
President, Alexis Mourre, does not appear to agree with the proposal. So, we do not know
yet how far this initiative will go. But to me, it is witness of the fact that institutions are
working together more and they are collaborating more, or trying to collaborate more, in a
world that is increasingly competitive.
What do I see for the future? I think that Artificial Intelligence and Big Data will play a role
in how we conduct arbitral proceedings. That said, I suspect we are not about to see

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 automated arbitrators or to witness hot-tubbing of robots. But programs can render
proceedings much more efficient and reduce arbitrators' and counsels' time, ultimately
diminishing costs. Maxwell Chambers in Singapore is gearing up to become the first smart,
fully automated hearing center in the world. They have an app that one can download to
reserve hearing facilities and program secretaries and so on. And they even have a little
robot that looks like R2-D2 and is aptly named Max who delivers food and files to the
hearing rooms.
Will arbitration be supplanted by permanent courts? That is clearly a danger when it
comes to investment arbitration, but perhaps not quite yet. A related question is whether
the appointment process will be gradually taken off the hands of the disputing parties.
Whether it is by institutions or a permanent sitting court, it looks like parties will have less
control over the constitution of tribunals.
Another interesting development is the creation of specialized courts in a number of
jurisdictions: Singapore, Paris, Amsterdam and Brussels. Foreign judges sit on the
Singapore International Commercial Court, and the same happens in Hong Kong. Now in
Paris, a national court will be hearing complex cross-border disputes in English, which is in
itself an amazing feat, and applying foreign laws. Imagine how modern the French have
become! But what will be the impact of that on international arbitration? Will national
jurisdictions become a threat, a competitor to international arbitration? We shall see.
I cannot help but to say something about the criticism of the investor-State system, and I
will not join that particular chorus. I think the reality is actually quite different. I will just
mention the fact that last month the US Trade Representative, Robert Lighthizer, gave
public testimony before the House Committee on Ways and Means of the United States. He
said, very openly, that the United States is thinking about opting out of investor-State
arbitration in NAFTA. But he also added that American investors making investments
abroad would still have the potential for their disputes with Canada or Mexico to be
adjudicated under Chapter 20 of NAFTA. Now, of course, Chapter 20 concerns State-to-State
disputes. Therefore, this could be an interesting step backwards to the past practice of
espousal of claims and diplomatic protection. It is like “Back to the Future”. But at the
same time, we are hearing that lawyers of the US President are starting a consultation
process against Panama under the US-Panama BIT in a dispute regarding his hotel in
Panama. So, we are getting mixed signals. We are not quite sure what the United States is
prepared to do for the time being.
A safe prediction for the future is that, with the growing number of multilateral
international conventions addressing matters relating to the environment, health, science,
and technology, the future will see a growth of new topics for international dispute
resolution.
P 158
P 159
I am thinking in particular of issues which may encompass trans-border phenomena, such
as climate change and other environmental issues, natural resource exploitation, the
Internet, privacy and data encryption, cybersecurity and crime, maritime border issues
(including deep sea-bed mining and extensions of the continental shelf beyond 200 nm),
access to fresh water and international watercourse law. It is to be expected that disputes
will arise from these issues in the future that will need to be settled by international courts
and tribunals.
I shall close on a positive note. I do not see the future of arbitration as being bleak – the
contrary actually. As long as there are conflicts, and God knows that there is no lack of
them in today's world, there will be a need for the peaceful resolution of those conflicts.
The methods and mechanics may change, but as Stephen Hawking once said: “Intelligence
is the ability to adjust to change.”

IV Remarks by Brigitte Stern (4)

As you might have seen on the program, we were asked to speak about the past, the
present, and the future of our careers, and of arbitration itself. This immediately caused
me to see the famous painting by Paul Gauguin, which appeared before my eyes: D'où
venons-nous ? Que sommes-nous ? Où allons-nous ? “Where do we come from? Who are we?
Where are we going?” These are the three questions that I will try to answer now, during this
lunch.
Where do I come from? Well, clearly from the university where I have been teaching in
France for many years, as well as at the Graduate Institute in Geneva, where I have been a
professor for more than ten years. In fact, my last teaching assignment was at MIDS, whose
director is Gabrielle Kaufmann-Kohler, and it's a great pleasure to see that she will soon be
leading ICCA. My second career, if I may say so, as an international arbitrator, only started
in the year 2000. So, less than twenty years ago; believe it or not, I'm a sort of young
arbitrator.
If you were to ask me if I have any regrets, I would say that what I regret is that my career
as an arbitrator did not start earlier, because I think it's fascinating. As a matter of fact,
France put me on the ICSID [International Centre for settlement of Investment Disputes] list
far back in 1990. Wow. But, for ten years, I did not receive any nominations. So, for those of
you who want to become international arbitrators, just be patient! In those medieval

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 times, there was not as much of a proactive approach as there is now – like how ICSID, for
example, tries to promote diversification, and bring new faces to the forefront. So, for ten
years, I was just an obscure French professor who happened to be on a confidential
international list of potential arbitrators.
Then, in 2000, there was a change of century, and two events happened. First, I was elected
by the General Assembly as a member of the United Nations Administrative Tribunal, to
resolve employment disputes for UN employees. This triggered my career as an arbitrator,
P 159 because I was transformed – like Cinderella – from a mere French professor into a person
P 160 with some international visibility. The second event happened the same year, probably
as a result; I don't know. One of my colleagues nominated me in an ICSID arbitration, and
then I had another nomination by an investor and the State accepted me as a sole
arbitrator. This was my second arbitration. I was very scared because I had no experience
at all, but both cases settled, so all was fine.
After that, the wheels started to turn easily by themselves, and I had nomination after
nomination. Now I'm sitting amongst you – well standing amongst you – with quite a few
cases waiting on my desk in Paris.
Who are we? Well, I think that the arbitration community present here is an extremely rich
and lively community. I always immensely enjoy working with my co-arbitrators, almost all
are really sharp lawyers. But what I really enjoy – admire – is those who are capable of
listening and truly understanding a point of view which is different from their own. When all
three members have this approach, it's very challenging to discuss the cases and to come
with the best result. Of course, there are some impossible arbitrators. I won't give any
names – you probably all have your list: people with whom it's barely possible to enter
into a dialogue. But this is a very, very small minority.
So, as I said, it's a rich community of arbitrators who come from different backgrounds.
They come from civil law. They come from common law. They come from commercial law.
They come from international law. Some are or were judges, professors, diplomats, or
counsel. I think it's a very interesting community.
As an academic, I have a tendency to try always to set the theoretical framework. I know
that some of my co-arbitrators want to go directly to the solution, but I think that I prefer
to set the scenery. I think that it gives more predictability to the rule of law. This might
explain why I have written, as you all (or at least some of you) probably know, some
dissents: because I'm very eager to have a common approach to the fundamental
principles. I know that there are two schools of thought on this. Some consider that they
will always go with the majority, as a democratic gesture; others are prepared to issue
dissenting opinions and sometimes do. I think that the first school of thought is
respectable, but I personally could not always accept the majority position without a
critical eye. So, when needed, I'm ready to dissent on a question of principle, but not on
minor points.
Besides the usual work on cases and hearings, we have sometimes very frustrating
experiences, and sometimes very exciting experiences. Among the frustrating experiences,
I can mention the cancellation of a hearing when I arrived in Singapore after twenty-five
hours of travelling, so that's a frustration, of course. Among the exciting experiences, one of
the most interesting I can mention was a site visit to the Amazonian rainforest where all of
the tribunal members had anti-mosquito outfits from head to feet, and where the lawyers
were pleading in jeans and boots in the forest. This really helped us to understand what
the surroundings were; it was very important, as the legal rules were dependent on whether
we were in an industrial surrounding, in a residential surrounding, in an agriculture
surrounding, or in a sensitive ecosystem.
Where are we going? That's the most difficult question. It has been some years now that
everybody has been speaking of a crisis in international investment arbitration. In 2008 –
that is, ten years ago – in a conference at Columbia University, I said that the so-called
crisis of the international investment law and policy system is only a “ crise de croissance”,
P 160 a teenager's crisis. In fact, today, I think that investment arbitration has not overcome what
P 161 I thought was only a teenager's crisis, and that the crisis runs much deeper. There are, of
course, some procedural problems which can very easily be solved. There are a few
aspects of investment arbitration that, as you probably all know, have become a little bit
out of control. I can mention document production, and I think that lawyers should control
themselves; when we have 300 pages of document production requests, I'm not sure if that
is efficient, and it takes up too much paper. This is starting to improve, but I would like for
my grandchildren to still have some forests left. Nowadays, many arbitrators, myself
included, will accept everything in USB drives. But of course, you know, we have the
passwords, and it's sometimes a little difficult to deal with. The next step, I think, would be
to rise to the level of cloud arbitration, and to get rid of the USB sticks.
But what is of greater concern are the attacks, coming from all parts, against investment
arbitration. Attacks come from NGOs [non-governmental organizations], from States (first
the developing States, and now the United States and the European Commission), from
academics and even from arbitrators, and probably I have forgotten some. I think that the
role of NGOs is crucial in the current attacks towards investor-State arbitration, because
they see this as a result of the globalization against which they are fighting.

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 I will give you a really interesting example of the systematic criticism of investor-State
arbitration by NGOs, which is totally disconnected from objective reality. I will read to you
some abstracts of an article published by an NGO after the release of an arbitral award by
a tribunal on which I was sitting. And I quote, “Regardless of the outcome, the arbitration
has had a chilling effect on the development and the human rights to water. What we have
now is a clear example of what is wrong with investor-State dispute settlement.” Now, if I
were to ask you who won, you would probably say that it was the investor. But that's wrong;
it was the State. I wonder what the NGO would have written if the decision would have
been different. What I would like to convey with this example is that, quite often, criticism
against investment arbitration is not rooted in reality, but in rhetoric and ideology.
In spite of this, States have more or less adopted the same discourse, without sufficiently
analyzing the objective situation.
Not to mention of course, the fierce fight against investor-State arbitration in intra-EU BITs,
launched by the European Commission some years ago, and which culminated with the
Achmea Judgment by the European Court on 6 March 2018. If you expect me to discuss the
case, you will be disappointed, as I have to deal with the decision in a few cases.
In spite of this, some are optimistic, like Meg Kinnear. I don't know if she is here. Where is
she? Well, hello if she is here. She said at the conference last month at the American
Society of International Law: “Much of the discussion I read is peppered with dramatic
language, such as backlash, crisis, or abandonment of the system, but I have trouble
reconciling this narrative with what I see on the ground every day.”
Some suggest solutions, among them the creation of a standing court for investment
arbitration. I am not sure that it will solve all the problems, but let's see.
Some see no solution as there is a really deep-rooted crisis, but still have hope. After a
crisis there is a major improvement of the law. Every cloud has a silver lining, so let's hope
for a brilliant future and drink to arbitration.
P 161
P 162
V Remarks by Claus Von Wobeser (5)
The first question that I will address is: what would you have done differently knowing what
you know now? In general, I am sure that all members of the arbitration community are in
favor of arbitration and I strongly believe that it is the most adequate mechanism of
dispute resolution for international business.
In the past thirty-five–forty years, the arbitration community has been busy improving the
system. Arbitration institutions have worked hard and have done a great job of adapting
and improving their arbitral rules. Arbitration practitioners have participated actively in
this process through discussions at conferences and congresses. UNCITRAL, for its part, has
developed a successful Model Law, with eighty States having adopted legislation based on
it. Further, the IBA [International Bar Association] instruments, such as the IBA Rules on the
Taking of Evidence in International Arbitration and the Guidelines on Conflicts, have been
very useful as soft law tools and are widely accepted today. Similarly, ICCA has done a
fantastic job of promoting the 1958 New York Convention in many countries and educating
judges all over the world in its application.
Having said that, what we have largely missed during the past forty years is dialogue with
the users of arbitration. We, as the arbitration community, have not made sufficient efforts
to talk to industry associations, chambers of commerce, and other users of arbitration as a
dispute resolution mechanism. I believe that this lack of broader dialogue has been a
failure and something I would have done differently, had I known what I know now, when I
started my career. The legal community needs to be more engaged with the other
stakeholders, especially the critics of arbitration.
The second question that I will try to answer is: what are the biggest challenges facing
arbitration? In the past few years, we have received abundant criticism of investor-State
arbitration. Today, bureaucrats from different governments, including, notably, the
European Union, are trying to fix the perceived problems of investment arbitration and, in
doing so, have come up with the idea of a permanent multinational investment court. As
you know, for example, the EU-Canada Comprehensive Economic and Trade Agreement
(CETA) already includes the new investment court system. I believe this system will fail. I
do not think that a permanent court system will resolve the perceived problems of
investor-State arbitration. Similarly, going back to diplomatic protection or to inter-State
resolution of investment disputes is certainly not a desirable solution.
As to the challenges facing international commercial arbitration, the main concern today is
the perception of excessive duration and cost. However, in my view, these concerns are not
hugely significant in practice. When parties and companies are faced with arbitration, they
are usually ready to incur the necessary costs and take the required time to win their
cases. Parties want to win. Although in-house counsel often raise the issue of excessive cost
and duration in conferences, when their companies are faced with a dispute, cost and
duration are usually not a problem. Therefore, I think the excessive cost and duration of
commercial arbitration is more of a perceived problem than a real problem.
P 162 Third, is arbitration taking the path that you would have predicted? In this regard, I would

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 P 162
P 163 like to mention two developments that we did not predict. First, thirty-five years ago,
we did not predict the volume of expansion of foreign trade and investment that the world
has seen. Some twenty-two years ago, when NAFTA was negotiated, few would have
imagined that the NAFTA region would become the world's most important trade bloc
together with the European Union. Similarly, nobody would have thought that the
European Union, which had nine member-States forty years ago, would enlarge to include
twenty-eight members within a single market.
Another development that we did not foresee is the technological revolution and its
impact on all aspects of life, including arbitration practice. Thirty-five years ago, we used
typewriters, and everything was done by hand. There was no email or computers. Similarly,
we had no DHL, no Federal Express. We transmitted documents through regular mail and,
as you can imagine, the dynamics of the work were completely different. Technological
advances and the digitalization of arbitral procedures can undoubtedly improve the
system. Unfortunately, technology has not always been used to that end. In the old days,
memorials used to be twenty-forty pages long and included a maximum of ten-twenty
exhibits. In contrast, today, the use of computers and software has resulted in longer briefs
that can easily include hundreds of exhibits. In practice, however, arbitral tribunals often
request core bundles of exhibits, which usually have only around twenty documents. At the
hearing, it is those twenty documents that are mostly used. Still, the record for the case
may include thousands of documents and while it is possible that some of those additional
thousands of exhibits will be useful in deciding the case, the reality is that, often, they are
not. Therefore, in my view, practitioners should use technology to make the system more
efficient, without abusing the new tools. For instance, I would advise against abusing the
facility of copy-pasting between documents. Before, to copy-paste, we actually had to cut
the pages and adapt them to the brief, so it was done far less frequently.
Finally, how will arbitration look in ten or twenty years to come? I am absolutely certain
that arbitration is the best method to resolve international disputes – both in the
commercial field and in the investor-State field. I believe that, ultimately, arbitration will
prevail. In fact, I believe that in the next ten or twenty years, arbitration will multiply by
perhaps 500 percent, as it has done in the past. If we compare the number of cases that we
had thirty-five years ago with those of today, the numbers have increased by 1,000 percent.
I believe this trend will continue. Free trade and free flow of investments will continue, as
it is the only means to create wealth in a world that keeps growing. In that context,
arbitration will continue to be the best method to resolve international disputes and, thus,
arbitration will continue to prevail.
P 163

References
*) The General Editors would like to thank Rapporteurs Mallory Silberman, Partner, Arnold
& Porter LLP, and Laura Sinisterra, Associate and member of the International Dispute
Resolution Group, Debevoise & Plimpton LLC, for preparing the transcript of the
Personal Reflections from Leading Arbitrators Luncheon Panel.
1) Partner, White & Case LLP; Co-Chair, Distinguished Faculty Chair, White & Case
International Arbitration LL.M. and Adjunct Faculty, International Arbitration Institute,
University of Miami School of Law; ICCA Governing Board Member.
2) Full-time Arbitrator at Twenty Essex; Professor and Head of the School of International
Arbitration, Centre for Commercial Law Studies, at Queen Mary University of London;.
involved with international arbitration for more than forty years as an academic,
counsel and arbitrator; before 2005, partner and, for some years, the head of the
international arbitration practice group of (what is now) Herbert Smith Freehills LLP.
3) Independent arbitrator with 39 Essex Chambers, based in Singapore; ICCA Governing
Board Member.
4) International arbitrator; Professor Emeritus, University of Paris - I Panthéon-Sorbonne;
Member and Vice-President of the United Nations Administrative Tribunal (2000-2009).
5) Managing Partner and head of the Dispute Resolution practice of Von Wobeser y Sierra,
S.C.

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 KluwerArbitration

Document information
The Definition of “Investment”: Recent Developments and
Publication Lingering Issues
Evolution and Adaptation: Wenhua Shan; Lu Wang
The Future of International (*)
Arbitration
(**)

Topics I Introduction
Investment Arbitration The term “investment” plays a fundamental role in the entire international investment
regime. On the one hand, the definition of “investment” determines the subject matter
coverage of investment treaties. Only “covered” investments enjoy protections granted by
investment treaties, such as non-discriminatory treatment, fair and equitable treatment
Bibliographic reference and compensation for expropriation. On the other hand, the definition of “investment”
Wenhua Shan and Lu Wang, determines a fundamental jurisdictional basis, namely the ratione materiae, for dispute
'The Definition of resolution under the Convention on the Settlement of Investment Disputes between States
“Investment”: Recent and Nationals of Other States (the ICSID Convention) and/or other investment treaties.
Developments and Lingering Earlier investment treaties tend to use a broad open-ended definition of “investment”, (1)
Issues', in Jean Engelmayer which may help to attract foreign investments, but may also expose States to undesired
Kalicki and Mohamed Abdel obligations and risks, as demonstrated by arbitration practices. The ICSID Convention
Raouf (eds), Evolution and stipulates that “[t]he jurisdiction of the Centre shall extend to any legal dispute arising
Adaptation: The Future of
International Arbitration, P 169 directly out of an investment”, (2) without defining what constitute an “investment”. While
ICCA Congress Series, Volume P 170 many arbitral tribunals have held that the concept of “investment” under the ICSID
Convention should be understood as connotating certain objective requirements, others
20 (© Kluwer Law insist on a party autonomy approach of treaty interpretation rejecting such objective
International; International criteria. Consequently, interpretations of the concept of “investment” remain widely
Council for Commercial divided and deeply controversial. In response, newer investment treaties have employed
Arbitration/Kluwer Law techniques for narrowing down the scope of protected investments and limiting the access
International 2019) pp. 169 - to investor-State dispute settlement (ISDS) mechanisms.
197
This article attempts to examine and assess the evolution of the definition of “investment”
in international investment law, by reference to recent developments in both investment
treaty-making and arbitration practices. Part II reviews the different definitions of
“investment” in investment treaties, including the traditional and newer definitions. Part
III focuses on the interpretations of the concept of “investment” in arbitral practice
including in ICSID and non-ICSID cases. Part IV discusses the key lingering issues, namely,
the relationship between Art. 25 of the ICSID Convention and the definition of “investment”
clause in the governing substantive investment treaty; the “ordinary meaning” of
“investment” and its constitutive elements; and the applicability of such “ordinary
meaning” in non-ICSID arbitration. It concludes that whilst the recent treaty practice has
generally responded to the need of clarification on the definition of “investment”
particularly by adding the “characteristics of investment” requirement, some treaties
might have gone too far to become overly restrictive. Further, it is submitted that the
“ordinary meaning” of the term “investment”, strictly confined to the minimum hard core of
the concept, should apply in ICSID arbitrations given that the term is undefined under the
ICSID Convention. Such “ordinary meaning” should also apply to non-ICSID arbitration
unless the governing substantive investment treaty contains a clear definition of
“investment” establishing a “special meaning” of the concept under Art. 31(4) of the Vienna
Convention on the Law of Treaties (VCLT). (3)

II Definitions of “Investment” in Investment Treaties

1 Asset-Based or Enterprise-Based Definitions
Almost all investment treaties have contained a definition of “investment”, but the specific
wordings of the definition differ. Most investment treaties provide that “investment”
means “every kind of assets”, suggesting that the term embraces everything of economic
value, virtually without any limitation. (4) For example, Art. 1 of the UK-Singapore Bilateral
Investment Treaty (BIT) (1975) provides that:

P 170 “(a) ‘investment’ means every kind of asset and in particular, though not
P 171 exclusively, includes:
(i) movable and inmovable property and any other property rights such as
mortgages, liens or pledges;
(ii) shares, stock and debentures of companies or interests in the property of
such companies;
(iii) claims to money or to any performance under contract having a financial

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 value;
(iv) intellectual property rights and goodwill;
(v) business concessions conferred by law or under contract, including
concessions to search for, cultivate, extract or exploit natural resources;”.
(5) (Emphasis added.)
Accordingly, the definition of “investment” is broadly worded covering all kinds of assets.
Such an asset-based definition of investment is often followed by a non -exhaustive list of
assets to be protected. Typically, these categories include movable and immovable
property, interests in companies, contractual rights, intellectual property rights, and
business concessions. (6)
Some treaties include fewer or more categories of assets as protected investments. The
China-Poland BIT (1988), for instance, includes only four categories: (i) movable and
immovable property and other rights in rem; (ii) shares in companies or other form of
interest in such companies; (iii) a claim to money or to any performance having an
economic value; (iv) copyrights, industrial property rights, know-how and technical
process. (7) By contrast, the Energy Charter Treaty (ECT) provides six illustrative categories
of “investment” as follows:
“(6) ‘Investment’ means every kind of asset, owned or controlled directly or
indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any
property rights such as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity
participation in a company or business enterprise, and bonds and other
debt of a company or business enterprise;
(c) claims to money and claims to performance pursuant to contract having
an economic value and associated with an Investment;
(d) Intellectual Property;
(e) Returns;
(f) any right conferred by law or contract or by virtue of any licences and
permits granted pursuant to law to undertake any Economic Activity in the
Energy Sector.” (8)
P 171
P 172
The 2012 U.S. Model BIT provides an open asset-based definition with eight categories
listed as investments, including:
“(a) an enterprise;
(b) shares, stock, and other forms of equity participation in an enterprise;
(c) bonds, debentures, other debt instruments, and loans;1
(d) futures, options, and other derivatives;
(e) turnkey, construction, management, production, concession, revenue-
sharing, and other similar contracts;
(f) intellectual property rights;
(g) licenses, authorizations, permits, and similar rights conferred pursuant to
domestic law;2,3 and
(h) other tangible or intangible, movable or immovable property, and related
property rights, such as leases, mortgages, liens, and pledges. (9)
[1 Some forms of debt, such as bonds, debentures, and long-term notes, are
more likely to have the characteristics of an investment, while other forms of
debt, such as claims to payment that are immediately due and result from the
sale of goods or services, are less likely to have such characteristics.
2 Whether a particular type of license, authorization, permit, or similar
instrument (including a concession, to the extent that it has the nature of such
an instrument) has the characteristics of an investment depends on such factors
as the nature and extent of the rights that the holder has under the law of the
Party. Among the licenses, authorizations, permits, and similar instruments that
do not have the characteristics of an investment are those that do not create
any rights protected under domestic law. For greater certainty, the foregoing is
without prejudice to whether any asset associated with the license,
authorization, permit, or similar instrument has the characteristics of an
investment.
3 The term ‘investment’ does not include an order or judgment entered in a
judicial or administrative action.]”
It should be noted that categories of investment are provided only as examples to clarify
the content of protected assets. (10) Therefore, an asset or interest in question falling out of
the listed categories may still be considered as a covered “investment” since assets of

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 “every kind” are included.
Whereas the broad asset-based definition is present in the vast majority of investment
treaties and has been subject to extensive arbitral interpretations, some treaties use an
enterprise-based definition of “investment”. For example, the North American Free Trade
Agreement (NAFTA) Art. 1139 provides that:
“investment means:
(a) an enterprise;
(b) an equity security of an enterprise;
(c) a debt security of an enterprise
(i) where the enterprise is an affiliate of the investor, or
P 172
P 173
(ii) where the original maturity of the debt security is at least three
years, but does not include a debt security, regardless of original
maturity, of a state enterprise;
(d) a loan to an enterprise
(i) where the enterprise is an affiliate of the investor, or
(ii) where the original maturity of the loan is at least three years, but
does not include a loan, regardless of original maturity, to a state
enterprise;
(e) an interest in an enterprise that entitles the owner to share in income or
profits of the enterprise;
(f) an interest in an enterprise that entitles the owner to share in the assets of
that enterprise on dissolution, other than a debt security or a loan
excluded from subparagraph (c) or (d);
(g) real estate or other property, tangible or intangible, acquired in the
expectation or used for the purpose of economic benefit or other business
purposes; and
(h) interests arising from the commitment of capital or other resources in the
territory of a Party to economic activity in such territory, such as under
(i) contracts involving the presence of an investor's property in the
territory of the Party, including turnkey or construction contracts, or
concessions, or
(ii) contracts where remuneration depends substantially on the
production, revenues or profits of an enterprise;
but investment does not mean,
(i) claims to money that arise solely from
(i) commercial contracts for the sale of goods or services by a national
or enterprise in the territory of a Party to an enterprise in the
territory of another Party, or
(ii) the extension of credit in connection with a commercial transaction,
such as trade financing, other than a loan covered by subparagraph
(d); or
(j) any other claims to money, that do not involve the kinds of interests set
out in subparagraphs (a) through (h);”. (11)
Similarly, the 2004 Canada Model BIT also provides an enterprise-based definition of
P 173 investment. (12) The enterprise-based definition provides a narrower scope of investment
P 174 compared with the asset-based definition, since the former is limited to assets and
interests related to an “enterprise”. An enterprise-based definition of investment also has
some practical implications: First, the affiliation or subsidiary of an enterprise is an
independent investment; Second, the subsidiary enterprise as an investment should
normally be established in accordance with the host State's law; Third, treaties with
enterprise-based approach often expressly enable a foreign investor to bring claims not
only on its own behalf but also on behalf of its enterprise. (13)

2 Newer Definitions of “Investment”

As demonstrated in the following part, the conventional definitions, particularly the open-
ended asset-based definition of “investment”, have caused many controversies and
criticisms. As a result, an increasing number of States have adopted newer definitions of
“investment” in their BITs and multilateral investment treaties (MITs) with a view to
P 174 clarifying and limiting the scope of the definition. Typical techniques include imposing the
P 175 “characteristics of investment” requirement, excluding specific assets from the
definition, adding a legality requirement or adopting a narrower enterprise-based
definition, as detailed below.
a Requiring investment to fulfill specific characteristics

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 The U.S. BITs typically provide that “investment” means assets that carry certain
“characteristics of investment”. (14) For example, both the 2004 and the 2012 U.S. Model
BITs define “investment” as “every asset that an investor owns or controls, directly or
indirectly, that has the characteristics of an investment, including such characteristics as
the commitment of capital or other resources, the expectation of gain or profit, or the
assumption of risk”. (15)
In recent years, an increasing number of treaties expressly require that the covered
investment must contain characteristics of an investment. For instance, the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) stipulates that
“investment means every asset that an investor owns or controls, directly or indirectly, that
has the characteristics of an investment, including such characteristics as the commitment
of capital or other resources, the expectation of gain or profit, or the assumption of risk”.
(16) The China-Australia Free Trade Agreement (FTA) also provides that the characteristics
of an investment include “the commitment of capital or other resources, the expectation of
gain or profit, or the assumption of risk”. (17) A similar definition was adopted in the 2016
amendments to the Singapore-Australia FTA. (18)
Some recent investment treaties, however, require four criteria for having the
characteristics of investment, which add an element of “duration”. For example, the EU-
Canada Comprehensive Economic and Trade Agreement (CETA) provides “investment” as
“every kind of asset that an investor owns or controls, directly or indirectly, that has the
characteristics of an investment, which includes a certain duration and other
characteristics such as the commitment of capital or other resources, the expectation of
gain or profit, or the assumption of risk”. (19) The latest model BIT draft of Netherlands of
P 175 2018 followed this approach and also included the four characteristics. (20) Likewise, the
P 176 Morocco-Nigeria BIT provides that “investment” must have the characteristics of an
investment involving “a commitment of capital or other similar resources, pending profit,
risk-taking and certain duration”. (21)
Notably, the Morocco-Nigeria BIT also requires that the investment has to be made “in
good faith”, in accordance with local law and make contribution to the sustainable
development of the host State: Art. 1 provides that “[i]nvestment means an enterprise
within the territory of one State established, acquired, expanded or operated, in good
faith, by an investor of the other State in accordance with law of the Party in whose
territory the investment is made taken together with the asset of the enterprise which
contribute sustainable development of that Party”; Art. 24 further provides that “investors
and their investments should strive to make the maximum feasible contributions to the
sustainable development of the Host State and local community through high levels of
socially responsible practices.” (Emphasis added.) (22) Likewise, the Egypt-Mauritius BIT
and the 2015 Indian Model BIT also contain the contribution to (sustainable) development
as a characteristic of investment. (23) In February 2016, India proposed a “Joint
Interpretative Statement for Indian Bilateral Investment Treaties” to twenty-five countries
with which it has BITs whose initial period of validity had not expired. (24) Paragraph 4.3 of
the Statement lays out that “the minimum characteristics of an ‘investments’ are (a) the
lasting contribution of capital or other resources; (b) the expectation of gain or profit; (c)
the assumption of risk by the investor; and (d) significance for development of the
Contracting Party receiving the investment”. (25)
b Excluding specific assets from the definition of “investment”
The broad asset-based definition of investment typically includes both direct investments
and portfolio investments without any limitations to the types of assets. However, some
recent treaties expressly exclude certain assets from the scope of “investment”, including
portfolio investments, sovereign debt, ordinary commercial transaction, etc. For example,
the Colombia-Turkey BIT (2014) provides that:
“[T]he term ‘investment’ does not include:
(a) investments which are in the nature of acquisition of shares or voting
power amounting to, or representing of less than (10) percent of a
company through stock exchange;
(b) public debt operations;
P 176
P 177 (c) claims to money arising solely from:
(i) commercial contracts for the sale of goods and services by a national
or legal entity in the territory of a Contracting Party to a national or a
legal entity in the territory of the other Contracting Party; or
(ii) credits granted in relation with a commercial transaction.” (26)
The 2015 Brazilian Model BIT provides:
“Investment means a direct investment of an investor of one Party, established
or acquired in accordance with the laws and regulations of the other Party, that,
directly or indirectly, allows the investor to exert control or significant degree of
influence over the management of the production of goods or provision of
services in the territory of the other Party, including but not limited to:

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 ….
For the purposes of this Agreement and for greater certainty, ‘Investment’ does
not include:
(i) an order or judgment issued as a result of a lawsuit or an administrative
process;
(ii) debt securities issued by a Party or loans granted from a Party to the other
Party, bonds, debentures, loans or other debt instruments of a State-
owned enterprise of a Party that is considered to be public debt under the
legislation of that Party;
(ii) [sic] portfolio investments, i.e., those that do not allow the investor to
exert a significant degree of influence in the management of the company;
and
(iii) claims to money that arise solely from commercial contracts for the sale
of goods or services by an investor in the territory of a Party to a national
or an enterprise in the territory of another Party, or the extension of credit
in connection with a commercial transaction, or any other claims to money
that do not involve the kind of interests set out in sub-paragraphs (a)-(e)
above.” (27)
Similarly, the Brazil-Malawi BIT (2015) provides that “investment” does not include: (a)
debt securities issued by a government or loans to a government; (b) portfolio investments;
and (c) claims to money that arise solely from commercial contracts. (28) The Morocco-
Nigeria BIT (2016) further excludes “letters of bank credits” and “claims to money with
P 177 maturities less than three years” from the definition of “investment”. (29) By contrast,
P 178 India's 2015 Model BIT additionally excludes “pre-operational expenditure relating to
admission, establishment, acquisition or expansion of the enterprise”, “goodwill, brand
value, market share or similar intangible rights” and “order or judgment” from the
definition of “investment”. (30) According to the Iran-Slovakia BIT of 2016, the term
“investment” shall not include:
“(a) goodwill or market share;
(b) portfolio investment, which is 10% or less shareholding;
(c) claims to money deriving solely from commercial contracts for the sale of goods or
services to or from the territory of a Contracting Party to the territory of another
country, or to a State enterprise;
(d) futures, swaps, forwards, options, and other derivatives;
(e) assets used for non-business purposes, other than assets of research and
development of non-profit organizations;
(f) funds;
(g) the following loans and debt securities:
i. debt securities and loans with the original maturity of less than three years;
ii. a loan to or debt security issued by a financial institution, which is not treated
as regulatory capital by the Contracting Party in whose territory the financial
institution is located;
iii. the extension of credit in connection with a commercial transaction, such as
trade financing”. (31)
Some recent treaties have used footnotes to exclude certain assets from the definition of
“investment”. The 2012 U.S. Model BIT, for instance, provides that “an order or judgment
entered in a judicial or administrative action” should not be included in the scope of
investment in footnote 3. (32)
Likewise, the above-mentioned India's “Joint Interpretative Statement” in 2016 contains
extensive limitations on the scope of protected investment. (33) Paragraph 4.1 clarifies
that “investment” does not cover “pre-establishment or pre-investment activities”.
Moreover, certain interests or assets that do not typically possess the characteristics of
“investments” are expressly excluded, including portfolio investments, claims to payment
resulting from a sale of goods or services by an individual or entity in one Contracting Party
to an individual or entity in the other, or an order or judgment sought or entered in a
judicial, administrative, or arbitral action. (34) In addition, an investor of one Contracting
Party must make its investments “in the territory of” the other Contracting Party. (35)
Hence, claims to money arising solely from cross-border commercial contracts for the sale
P 178 of goods or services, or the extension of trade financing in connection with a cross-border
P 179 commercial transaction, or other relationships or instruments not involving an
investor's actual investment project in the territory of the other Contracting Party, do not
constitute covered investments. (36) Furthermore, an investment that merely “benefits” the
Contracting Party is not sufficient to establish an investment made “in territory of” that
Contracting Party. (37)
c Adopting a narrower enterprise-based definition
As mentioned above, the 2015 Indian Model BIT defines “investment” as “an enterprise
constituted, organised and operated in good faith by an investor in accordance with the

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 law of the Party … taken together with the assets of the enterprise, has the characteristics
of an investment…”. (38) Accordingly, only enterprises owned and controlled by investors
and the assets of the enterprises are covered investments, i.e., no other types of assets are
included in the definition of “investment”.
In August 2016, members of the Southern African Development Community (SADC) amended
Annex 1 of the SADC Finance and Investment Protocol, which narrowed the definition of
“investment” to include only enterprises and their assets of an SADC member State
investing in another member State. The specific amendment read as follows:
“‘[I]nvestment’ means an enterprise within the territory of one State Party
established, acquired or expanded by an investor of the other State Party,
including through the constitution, maintenance or acquisition of a juridical
person or the acquisition of shares, debentures or other ownership instruments
of such an enterprise, provided that the enterprise is established or acquired in
accordance with the laws of the Host State and registered in accordance with
the legal requirements of the Host State….” (39)
d Including a legality requirement
Some treaties include a legality requirement of protected investments, with a reference to
“in accordance with laws and regulations”. Most Chinese BITs, for instance, typically
include the legality requirement in their definitions of “investment”. (40) Nonetheless,
P 179 most Chinese BITs do not further explain this qualification. However, an interesting
P 180 explanation is found in the amendment to the China-Cuba BIT, which statesthat:
“ONE: In reference to Article 1, Paragraph 1, the expression ‘pursuant to the
latter's laws and regulations’ (41) shall mean that for any kind of invested asset
to be considered as investment protected in this Agreement, it shall be in
accordance with any of the foreign investment modalities defined by the
legislation of the Contracting Party receiving the investment and registered as
such in the correspondent registry.” (42)
Many recent investment treaties also include the “in accordance with the laws and
regulations of the other Contracting Party” requirement in the definition of “investment”,
such as the Argentina-Qatar BIT, (43) the Egypt-Mauritius BIT, (44) the Algeria-Serbia BIT,
(45) etc.
Clearly, it can be seen that a new trend has emerged to clarify and limit the scope of
covered “investment” in the definition provisions of recent investment treaties. Such
practice is evident in both developed states (such as the United States and the EU) and
developing states (such as India and Brazil), though the measures taken by the latter tend
to be more dramatic and restrictive than the former. Such changes have been prompted
by a range of domestic and international events, one of which has been the rapid increase
of treaty-based investment arbitration cases, partly owing to the “open-end” definitions of
“investment” adopted in the vast majority of BITs worldwide.

III Definitions of “Investment” in Arbitration Practice

As mentioned above, Art. 25(1) of the ICSID Convention stipulates that the Centre's
P 180 jurisdiction “shall extend to any legal dispute arising directly out of an investment,
P 181 between a Contracting State … and a national of another Contracting State, which the
Parties to the dispute consent in writing to submit to the Centre”. (46) However, the ICSID
Convention ultimately does not give any explanation of what constitutes an “investment”.
It is against the fact of no-definition of “investment” under the ICSID Convention that
efforts of searching for and applying the ordinary, or “objective”/ “inherent” meaning of the
term have been made by numerous arbitral tribunals and commentators, in order to
prevent investors from abusing the ICSID system. (47) At times, however, the issue has also
arisen in non -ICSID arbitration cases, as it has been argued and accepted by some
tribunals that such objective or inherent meaning of “investment” shall equally apply to
investment treaties that provide for consent to investment treaty arbitrations.

1 From Fedax Decision to Salini Test

The Fedax v. Venezuela case was the first case in which a challenge to jurisdiction was made
on the ground that the underlying transaction did not quality as an “investment” under the
ICSID Convention. (48) The question at stake was whether the purchase of promissory notes
issued by the government could be considered as an “investment”. The tribunal eventually
decided that they were protected investments as they met the five “basic features” of an
investment, which included “a certain duration, a certain regularity of profit and return,
assumption of risk, a substantial commitment and a significance for the host State's
development”. (49) In identifying the features, the tribunal relied on earlier writing by
Schreuer, which read as follows:
“It would not be realistic to attempt yet another definition of ‘investment’ on
the basis of ICSID's experience. But it seems possible to identify certain
features that are typical to most of the operations in question: the first such

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 feature is that the projects have a certain duration. Even though some break
down at an early stage, the expectation of a longer-term relationship is clearly
there. The second feature is a certain regularity of profit and return. A one-time
lump-sum agreement, while not impossible, would be untypical. Even where no
profits are ever made, the expectation of return is present. The third feature is
the assumption of risk usually by both sides. Risk is in part a function of
duration and expectation of profit. The fourth typical feature is that the
commitment is substantial. This aspect was very much on the drafters' minds
P 181 although it did not find entry into the Convention. A contract with an individual
P 182 consultant would be untypical. The fifth feature is the operation's
significance for the host State's development. This is not necessarily
characteristic of investments in general. But the wording of the Preamble and
the Executive Directors' Report suggest that development is part of the
Convention's object and purpose. These features should not necessarily be
understood as jurisdictional requirements but merely as typical characteristics
of investments under the Convention.” (50)
Starting with Fedax, tribunals appear to have adopted these criteria, subject to variations,
to determine the existence of an investment for jurisdictional purposes. (51)
The Salini v. Morocco case, which produced the “Salini test”, was a landmark case
particularly in the jurisprudence on the definition of “investment” in investment treaty
arbitration history. One of the core issues that the tribunal had to decide was whether the
underlying transaction (i.e., a highway construction contract) qualified as an “investment”
under applicable treaties. Following the Fedax and other decisions, this tribunal first
opined that its jurisdiction depended on “the existence of an investment within the
meaning of both the Bilateral Treaty as well as that of the Convention”, i.e., a “dual test”.
(52) This approach reveals that although claimants may have access to investor-State
arbitration if the dispute falls within the scope of the consent to arbitration by parties in
investment treaties, the requirements ratione materiae in the ICSID Convention must also
be satisfied in order to obtain ICSID jurisdiction. Hence, Art. 25 of the ICSID Convention sets
out the “outer limits” of ICSID jurisdiction whereas parties retain discretion to determine
the scope of disputes to investor-State arbitration, including through the definition of
P 182 “investment” in a specific investment treaty. (53) The tribunal then set out five “elements”
P 183 of investment, which later became the famous “Salini test”:
“The doctrine generally considers that investment infers: contributions, a
certain duration of performance of the contract and a participation in the risks
of the transaction (cf. … commentary by E. Gaillard…). In reading the
Convention's preamble, one may add the contribution to the economic
development of the host State of the investment as an additional condition.
In reality, these various elements may be interdependent. Thus, the risks of the
transaction may depend on the contributions and the duration of performance
of the contract. As a result, these various criteria should be assessed globally
even if, for the sake of reasoning, the Tribunal considers them individually
here.” (54)
It then assessed the case against the five elements one by one, and like Fedax, arrived at a
conclusion confirming its jurisdiction. (55)
The Salini approach was followed by a series of subsequent decisions, and at one point was
thought to have been firmly accepted, (56) until it was challenged by the Biwater and the
MHS Annulment decisions. (57)
Among the cases that followed the Salini approach, the MHS v. Malaysia award stood out as
it drew a distinction between a “Typical Characteristics Approach” and a “Jurisdictional
Approach” in the application of the defining elements (or “hallmarks”), using the Sole
Arbitrator's language: the former approach used the elements merely as “typical
characteristics”, whilst the latter used them as “jurisdictional requirements”:
“The differences between the Typical Characteristics Approach and the
Jurisdictional Approach may only be the expression of the conclusion formed by
a tribunal on the strength of the particular facts of a case on the issue of
‘investment.’ While the Jurisdictional Approach, strictly defined, requires that
all the established hallmarks of ‘investment’ must be present before a contract
can even be considered as an ‘investment,’ the Typical Characteristics
Approach does not necessarily mean that a tribunal would find that there is an
‘investment,’ even if one or more of the established hallmarks of ‘investment’
were missing. Where the evidence in support of one or more of the hallmarks of
‘investment’ is weak, a tribunal may approach the issue from a holistic
perspective and determine whether there is other evidence in support of the
P 183 other hallmarks of ‘investment’ which is so strong as to off-set the weakness in
P 184 the other hallmarks of ‘investment.’ However, even under the Typical
Characteristics Approach, it would probably be exceptional for a tribunal to
conclude that there was an ‘investment’ where one or more of the hallmarks of
‘investment’ were completely missing.” (58)

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 Although the Sole Arbitrator conceded that “the differences between the two approaches
are likely to be academic” and might not “make any significant difference to the ultimate
finding of the tribunal” in practice, (59) the distinction proved to be important as the
following attacks to the so -called “Salini approach” were precisely directed at the
“jurisdictional requirement” approach, rather than the “typical characteristics” approach.

2 The Biwater and the MHS Annulment Challenges

The most serious attack came with the Biwater Gauff v. Tanzania and the MHS v. Malaysia
Annulment decisions. The Biwater tribunal pointed out that:
“[T]here is no basis for a rote, or overly strict, application of the five Salini
criteria in every case. These criteria are not fixed or mandatory as a matter of
law. They do not appear in the ICSID Convention. On the contrary, it is clear from
the travaux préparatoires of the Convention that several attempts to
incorporate a definition of ‘investment’ were made, but ultimately did not
succeed. In the end, the term was left intentionally undefined, with the
expectation (inter alia) that a definition could be the subject of agreement as
between Contracting States….
Given that the Convention was not drafted with a strict, objective, definition of
‘investment’, it is doubtful that arbitral tribunals sitting in individual cases
should impose one such definition which would be applicable in all cases and
for all purposes….
Further, the Salini Test itself is problematic if, as some tribunals have found, the
‘typical characteristics’ of an investment as identified in that decision are
elevated into a fixed and inflexible test, and if transactions are to be presumed
excluded from the ICSID Convention unless each of the five criteria are satisfied.
This risks the arbitrary exclusion of certain types of transaction from the scope
of the Convention. It also leads to a definition that may contradict individual
agreements (as here), as well as a developing consensus in parts of the world as
to the meaning of ‘investment’ (as expressed, e.g., in bilateral investment
treaties).” (60)
In the end, the tribunal concluded that “a more flexible and pragmatic approach to the
meaning of ‘investment’ is appropriate, which takes into account the features identified in
Salini, but along with all the circumstances of the case, including the nature of the
instrument containing the relevant consent to ICSID”. (61)
P 184
P 185
The Biwater reasoning was accepted and relied on by the MHS v. Malaysia Annulment
Decision which adopted a more critical position on the Salini approach. The ad hoc
committee first noted that “[t]he ‘ordinary meaning’ of the term ‘investment’ is the
commitment of money or other assets for the purpose of providing a return”. (62)
Nonetheless, it pointed out that the meaning of the term “investment” in the ICSID
Convention might be regarded as “ambiguous or obscure” under Art. 32 of the Vienna
Convention and hence justifying resort to the preparatory work of the Convention “to
determine the meaning”. (63) After examining the applicable BIT provisions, the ad hoc
committee then analyzed the meaning of investment under Art. 25 of the ICSID Convention,
by detailing the preparatory history of the Convention, (64) and stated that:
“However it is important to note that the travaux préparatoires do not support
the imposition of ‘outer limits’ such as those imposed by the Sole Arbitrator in
this case. Little more about the nature of outer limits is indicated in the travaux
than is contained in Article 25(1), namely that, ‘[t]he jurisdiction of the Centre
shall extend to any legal dispute arising directly out of an investment….’ It
appears to have been assumed by the Convention's drafters that use of the term
‘investment’ excluded a simple sale and like transient commercial transactions
from the jurisdiction of the Centre. Judicial or arbitral construction going further
in interpretation of the meaning of ‘investment’ by the establishment of criteria
or hallmarks may or may not be regarded as plausible, but the intentions of the
draftsmen of the ICSID Convention, as the travaux show them to have been, lend
those criteria (and still less, conditions) scant support.” (65)
The committee also highlighted the importance of the 2,800 investment treaties signed
after the adoption of the ICSID Convention and criticized that: “[i]t is those bilateral and
multilateral treaties which today are the engine of ICSID's effective jurisdiction. To ignore
or depreciate the importance of the jurisdiction they bestow upon ICSID, and rather to
embroider upon questionable interpretations of the term ‘investment’ as found in Article
25(1) of the Convention, risks crippling the institution”. (66)
Since the above two decisions, the jurisprudence on the definition of “investment” under
the ICSID Convention became unsettled, as some tribunals started to follow this “party
autonomy” approach of interpretation, whilst others continued to rely on the Salini
approach, albeit in modified form, mostly without mentioning Biwater and the MHS
Annulment decisions. (67)

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 The Pantechniki v. Albania and the Inmaris v. Ukraine decisions are good examples of
earlier decisions supporting the “party autonomy” approach to identifying what constitutes
P 185 an “investment”. In the first case, the tribunal considered that the Salini criteria were not
P 186 found in the Convention so that they introduced elements of subjective judgment and
led to unpredictability. (68) It submitted that “[f]or ICSID arbitral tribunals to reject an
express definition desired by two States-party to a treaty seems a step not to be taken
without the certainty that the Convention compels it”. (69)
In Inmaris v. Ukraine, the tribunal pointed out:
“[I]n most cases – including, in the Tribunal's view, this one – it will be
appropriate to defer to the State parties' articulation in the instrument of
consent (e.g. the BIT) of what constitutes an investment. The State parties to a
BIT agree to protect certain kinds of economic activity, and when they provide
that disputes between investors and States relating to that activity may be
resolved through, inter alia, ICSID arbitration, that means that they believe that
that activity constitutes an ‘investment’ within the meaning of the ICSID
Convention as well. That judgment, by States that are both Parties to the BIT
and Contracting States to the ICSID Convention, should be given considerable
weight and deference. A tribunal would have to have compelling reasons to
disregard such a mutually agreed definition of investment.” (70)
Among the tribunals that generally follow the Salini approach after the Biwater and MHS
rulings, most have modified the original concept by abandoning the “contribution to the
host State's development” requirement. (71) Examples of such cases include Société
Générale v. Dominican Republic, (72) Saba Fakes v. Turkey, (73) Alpha Projektholding v.
Ukraine, (74) Phoenix v. Czech Republic. (75)
An interesting decision was rendered by the Romak v. Uzbekistan tribunal sitting under the
rules of UNCITRAL (not ICSID), which for the first time considered that the word
“investment” in a BIT must also have an inherent meaning of its own that should be applied
to the definition of “investment” under the applicable BIT. (76) Resorting to the Black's Law
Dictionary, the tribunal identified the “ordinary meaning” of the term “investments” to be
P 186 “the commitment of funds or other assets with the purpose to receive a profit, or ‘return’,
P 187 from that commitment of capital”. (77) The tribunal then rejected the literal
interpretation approach held by the claimant and insisted that the “inherent meaning” of
the term must be applied. (78) The tribunal stated as follows:
“Indeed, as already mentioned, the categories of investments enumerated in
Article 1(2) of the BIT are not exhaustive, and do not constitute an all-
encompassing definition of ‘investment.’ Both Parties agree that this is the case.
Therefore, there may well exist categories different from those mentioned in the
list which, nevertheless, could properly be considered investments protected
under the BIT. Accordingly, there must be a benchmark against which to assess
those non-listed assets or categories of assets in order to determine whether
they constitute an ‘investment’ within the meaning of Article 1(2). The term
‘investment’ has a meaning in itself that cannot be ignored when considering
the list contained in Article 1(2) of the BIT.” (79)
The tribunal thus considered that the term “investments” under the BIT also has an
inherent meaning – irrespective of whether the investor resorted to ICSID or UNCITRAL
arbitral proceedings – entailing “a contribution that extends over a certain period of time
and that involves some risk”. (80) In the tribunal's view, asset types enumerated in the
BIT's non-exhaustive list might, by their nature, exhibit the inherent meaning of
“investment”. (81) But, if an asset did not correspond to the inherent definition of
“investment”, the fact that it fell within one of the categories listed in Art. 1 of the BIT did
not transform it into an “investment”. (82)

3 More Recent Decisions

The divergence in approaches in the appreciation and application of the ordinary meaning
of the concept of “investment” carried on in more recent decisions. In GEA v. Ukraine, the
tribunal highlighted the controversy about the relevant definition of “investment” for
purposes of Art. 25 of the ICSID Convention, noting the contrast between an “objective”
meaning and a “subjective” definition. (83) The tribunal avoided taking sides by noting that
whatever test was applied, each leads to the same conclusions (84) and concluded, inter
alia, that a previous ICC Award could not be deemed a protected investment as “the fact
that the Award rules upon rights and obligations arising out of an investment does not
equate the Award with the investment itself”. (85)
P 187 The SGS v. Paraguay tribunal suggested that “it would go too far to suggest that any
P 188 definition of investment agreed by states in a BIT (or by a state and an investor in a
contract) must constitute an ‘investment’ for purpose of Article 25(1)”. (86) However, the
tribunal ultimately adopted the approach of the BIVAC tribunal by defining the relevant
question as whether “the definition [of investment] in the BIT exceed[s] what is permissible
under the Convention”. (87)
In Quiborax v. Bolivia, the respondent objected that the claimants did not make an

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 “investment” in Bolivia within the meaning the Art. 25(1) of the ICSID Convention. The
tribunal concluded that the ICSID Convention contained an objective definition of
“investment”, which must be met regardless of whether that same test is also inherent to
the term “investment” used in the BIT or whether it is additional to the BIT definition. (88)
In the tribunal's view, the drafting history of the Convention, i.e., “no attempt was made to
define the term ‘investment’”, means that “the Contracting States to the ICSID Convention
intended to give to the term ‘investment’ an ‘ordinary meaning’ as opposed to a ‘special
meaning’” and the ordinary meaning is an objective one supported in the Saba Fakes
award. (89) The tribunal acknowledged that investor-State cases indeed give substance
and content to an objective meaning of “investment”. (90) It thus concluded that “[w]hether
the objective test under the ICSID Convention is independent from and additional to the
definition found in the BIT, or whether the same objective test is inherent to the term
investment used in the BIT, the Tribunal must in any event review the elements of the
objective definition to ascertain the existence of an investment”. (91)
In Phillip Morris v. Uruguay, the tribunal considered that the concept of “investment” is
“central to the Centre's jurisdiction and the Tribunal's competence ‘ratione materiae’”. (92)
It then pointed out that the consent of the Contracting Parties under the BIT to the scope of
“investment” is of relevance when establishing the meaning of the term under Art. 25(1) of
P 188 the ICSID Convention, though such Parties do not have an unfettered discretion to go
P 189 beyond what have been called the “outer limits” set by the ICSID Convention, the
establishment of which must be based on “the ordinary meaning to be given to the terms
of the treaty in their context and in the light of its object and purpose”. (93)
Regarding the relevance of the Salini test, the tribunal pointed out that:
“Whether the so-called Salini test relied upon by the Respondent has any
relevance in the interpretation of the concept of ‘investment’ under Article 25(1)
of the ICSID Convention is very doubtful…. Assuming arbitral decisions and
awards are ‘judicial decisions’ within the meaning of Article 38(d) of the Statute
of the ICJ, which is far from being commonly accepted, this would be on
condition that they have attained a sufficient degree of publicity and are part
of a ‘jurisprudence constante’. As shown hereafter, there is no such a
‘jurisprudence constante’ with respect to acceptance of the Salini test.
(….)
The Salini test has received varied applications by investment treaty tribunals
and doctrinal writings. In the tribunal's view, the four constitutive elements of
the Salini list do not constitute jurisdictional requirements to the effect that the
absence of one or the other of these elements would imply a lack of jurisdiction.
They are typical features of investments under the ICSID Convention, not ‘a set
of mandatory legal requirements’. As such, they may assist in identifying or
excluding in extreme cases the presence of an investment but they cannot
defeat the broad and flexible concept of investment under the ICSID
Convention to the extent it is not limited by the relevant treaty, as in the
present case.” (94)
In contrast, the KT Asia v. Kazakhstan decision made in the same year firmly upheld the
Salini and Romak approaches, deciding that an objective meaning not only existed under
Art. 25 of the ICSID Convention, but also within the definition of “investment” under the
applicable BIT. The tribunal stated that:
“… The absence of a definition of ‘investment’ under the ICSID Convention
implies that the Contracting States intended to give to the term its ordinary
meaning under Article 31(1) of the VCLT as opposed to a special meaning under
Article 31(4) of the same treaty. (95) This ordinary meaning is an objective one,
as was confirmed inter alia in Saba Fakes and Quiborax. It is inherent to the
word ‘investment’, irrespective of the application of the ICSID Convention….
As stated by the Romak tribunal, the inherent meaning of investment is also
present in the BIT. The assets listed in Article 1(1)(a) of the BIT are the result of
P 189 the act of investing. They presuppose an investment in the sense of a
P 190 commitment of resources. Without such a commitment of resources, the
asset belonging to the claimant cannot constitute an investment within the
meaning of the ICSID Convention and the BIT. Since the BIT does not add further
requirements to the inherent meaning of investment as it arises from the
objective definition, the decisive test for the existence of an investment is the
same under the BIT and the ICSID Convention.” (96)
The tribunal agreed that “a contribution of money or assets (that is, a commitment of
resources), duration and risk” formed part of the objective definition of the term
“investment”, while “the expectation of a commercial return” was sometimes viewed as a
separate component. This tribunal was rather of the opinion that “such expectation is part
of the risk element”. (97)
Following recent cases, the tribunal rejected the “contribution to host State's
development” element (98) and eventually concluded that “the objective definition of
investment under the ICSID Convention and the BIT comprises the elements of a

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 contribution or allocation of resources, duration, and risk, which includes the expectation
(albeit not necessarily fulfilled) of a commercial return”. (99)
In OIEG v. Venezuela, both parties accepted that the shares that the OI group held are
contemplated in the non-exhaustive list of assets in the broad notion of “investment” in
the BIT. The tribunal held that “[n]ot all assets, based on the simple fact that they are
included in the non-exhaustive list of examples, constitute an investment. Such assets
must be a true investment in order to meet the objective and inherent characteristics of
all investments”. (100) Hence, the tribunal held that:
“States enjoy wide discretion to define which investments they wish to protect
through a BIT and that Article 25(1) of the ICSID Convention should not be
subject to a restrictive interpretation. If two States have included a certain
asset within a list of investments, a tribunal should only exclude it if it fails to
meet the requirements of the objective and inherent concept of investment, if
there is a compelling reason to do so.” (101)
P 190
P 191
The Garanti v. Turkmenistan tribunal determined that claimant made an investment under
the BIT in Turkmenistan, as “[n]either the nature of the Claimant's investment itself nor the
definition of ‘investment’ in the BIT ‘exceed[s] what is permissible under the Convention’
(102) or is ‘absurd or patently incompatible with [the] object and purpose’ (103) of the ICSID
Convention”. (104)
In Vestey v. Venezuela, the majority of the tribunal generally followed the Salini approach
and held that “the term ‘investment’ in Article 25 of the ICSID Convention has an
independent meaning … [and] comprises three components: a commitment or allocation
of resources, risk and duration”. (105)
The Borissov and others v. Uzbekistan tribunal held that to establish jurisdiction, “the claim
must pass both through the institutional jurisdictional keyhole set forth in Article 25 as well
as the specific jurisdictional keyhole defined in the BIT”; the requirements of the ICSID
Convention “were cognizant that the parties to a particular BIT may construct a more
specific jurisdictional keyhole in their instrument”. (106) Also, the tribunal disagreed that
there was a restrictive test to be applied to the broad definition of “investment” in the BIT.
(107) In the tribunal's view, “the BIT itself contains no such restrictions [i.e., ‘must involve
substantial contribution and risk’] when read in accordance with [Article 31 of ] the VCLT.
The definition of ‘investment’ is broad, as is not uncommon in such treaties, so as to
encompass a wide range of business and financial activities in Host States.” (108)
In Orascom v. Algeria, the tribunal considered that the meaning of “investment” under the
ICSID Convention was an objective one, which included elements of (i) a contribution or
allocation of resources; (ii) a duration; and (iii) risk, which included the expectation (albeit
not necessary fulfilled) of a commercial return. (109) The tribunal agreed with the Saba
Fakes award that these requirements “are both necessary and sufficient to define an
investment” under the ICSID Convention. (110) Further, the tribunal quoted the KT Asia case,
P 191 considering that this “objective” or “inherent” meaning was also present in a bilateral
P 192 investment treaty's definition of “investment”. (111) It stated that:
“The listed items normally exhibit the hallmarks of an ‘investment’ in the
objective sense seen above. But, if any of these items does not correspond to
the inherent definition of ‘investment’, the fact that it falls within one of the
categories listed in Article 1(2) does not transform it into an ‘investment’. In
other words, the use of the term ‘investment’ in both the ICSID Convention and
the BIT imports the same basic economic attributes of an investment derived
from the ordinary meaning of that term, which comprises a contribution or
allocation of resources, duration, and risk.” (112)
Whilst it is clear that the investment arbitration community remains widely divided on the
appreciation and application of the definition of “investment”, three points of consensus
seem to have emerged. First, the “double test”, or “double keyhole” theory, has been
generally accepted in case of ICSID arbitrations, requiring the “investment” at issue to
meet both the requirements under Art. 25 of the ICSID Convention and the definition of
“investment” under applicable investment treaties. Second, all tribunals have agreed that
Art. 31(1) of the VCLT should be the governing rule for the interpretation of relevant
provisions. And under this rule, third, the “ordinary meaning” of the term “investment”
should be sought and applied particularly in case the term is not specifically defined in
the relevant treaties, as in the case of the ICSID Convention.
Regarding the key features, or elements, or “hallmarks” of the concept of “investment”, it
seems that elements such as contribution, duration, risk and return expectation have been
now generally accepted, whilst the “contribution to the development of the host State”
aspect seems to have been generally abandoned.

IV Lingering Issues
The central debate surrounding the definition of “investment” appears to remain focused
on the question of the legal function of the aforementioned features or elements of

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 “investment” known as the “Salini test”: jurisdictional requirement or merely
characteristics (indicia)? No tribunal seems to have denied that the aforementioned
elements can provide guidelines for the ascertainment or exclusion of certain extreme
transactions from the concept of “investment”. Schreuer also considered that these criteria
were typical features of investments under the ICSID Convention, rather than “a set of
mandatory legal requirements”. (113) Therefore, they might assist in “identifying or
excluding in extreme cases the presence of an investment”, but could not “defeat the
broad and flexible concept of investment under the ICSID Convention to the extent it is not
limited by the relevant treaty”. (114) What many tribunals have rejected seems to be a
rigid application as jurisdictional requirements of a set of loosely defined criteria, some of
which have gone beyond the ordinary, objective or inherent meaning of the term.
Indeed, the constitutive elements of the “investment” need to be clarified and
P 192 concentrated on the ones that constitute the inherent hardcore aspects of the term, such
P 193 as contribution, duration, risk and return expectation, as identified above, but without
further qualifications on such aspects in forms such as “substantial contribution” or
“regular return” or imposition of any extra-textual requirements such as legality, good faith
or contribution to the host State's development. This conforms to the “plain” or “ordinary”
meaning of the term “investment” as for example defined in the Oxford English Dictionary
(OED). In the OED, the term “investment” is defined as “the act of investing money in
something”, and “invest” is defined as “to buy property, shares in a company, etc., in the
hope of making a profit”. Clearly, the most fundamental elements involved under the OED
definition of “investment” are “contribution” (i.e., money or other resources “to buy
property, shares in company etc.”) and “return expectation” (i.e., “hope of making a profit”).
And from the “return expectation” (i.e., “hope of making a profit”), the “risk” and “duration”
elements can also deduced. It is important to note that the “plain” or “ordinary” meaning
of “investment”, as illustrated in the definition under OED, does not require the
contribution to be “substantial”, or the expected profit or return to be “regular”, let alone
any reference to extra-textual aspects such as legality, good faith or (significant)
contribution to the host State's (sustainable) development. The success of the “Salini test”
lies in the fact that it “substantiated” the “ordinary meaning” of the term “investment”
under Art. 25(1) of the ICSID Convention by identifying certain constitutive elements. But its
failure to receive wider acceptance was precisely due to the imposition of an extra-textual
element, namely, the contribution to the host State's development element, into the list of
the constitutive elements.
If the constitutive elements of the “investment” were so clarified to include only the
minimum, inherent core aspects of the term, there should be little hesitance for tribunals
to apply such “ordinary meaning” and its constitutive elements as jurisdictional
requirements, as there should be little difference in the result adopting either of the
“jurisdictional requirement” or “characteristics/indicia” approach. The ordinary meaning
constitutes implied terms of the relevant treaties, which shall apply unless it has been
overridden by explicit treaty provisions conferring it another “special meaning”, as
stipulated under Art. 31(4) of the VCLT.
In this connection, it helps to recall two most relevant paragraphs of the Report of the
Bank's Executive Directors on the ICSID Convention:
“While consent of the parties is an essential prerequisite for the jurisdiction of
the Centre, consent alone will not suffice to bring a dispute within its
jurisdiction. In keeping with the purpose of the Convention, the jurisdiction of
the Centre is further limited by reference to the nature of the dispute and the
parties thereto.
(….)
No attempt was made to define the term ‘investment’ given the essential
requirement of consent by the parties, and the mechanism through which
Contracting States can make known in advance, if they so desire, the classes of
disputes which they would or would not consider submitting to the Centre.” (115)
P 193
P 194
The first paragraph was significant in that it demonstrates that the jurisdictional
requirements under the ICSID Convention are independent from the jurisdictional
requirements under the applicable substantive investment treaty providing the consent to
ICSID arbitration. Although such consent is essential for ICSID arbitrations, it alone does
not necessarily fulfil jurisdictional conditions for ICSID arbitrations, as certain “further
limitations” are imposed by the Convention. It is on this basis that the “double test” or
“double keyhole” theory rests and is accepted.
However, a “double door” analogy might be more accurate, as the claim has to pass two
“doors” of jurisdictional test: First, the claim has to pass the jurisdictional threshold (the
first door) set by the applicable substantive investment treaty to access various dispute
settlement channels. Second, if ICSID arbitration is the chosen remedy, the claim then has
to pass the second door, namely, the jurisdictional threshold set by Art. 25 of the ICSID
Convention. The difference between this analogy and the “double test” or “double keyhole”
theory is that this analogy demonstrates the independence of the two jurisdictional tests
from each other, whilst the latter two, particularly the “double keyhole” theory, suggest

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 that the two tests are integrated as a united mechanism (a key to ICSID jurisdiction). Thus,
Art. 25 should be read and applied independently from the definition under the
applicable substantive investment treaty. This has been confirmed by numerous
investment arbitration decisions as well as rejections by the ICSID Secretary-General to
register certain disputes (such as pure commercial sales disputes) for ICSID arbitrations.
According to Art. 31(1) of the VCLT, the undefined “investment” under Art. 25(1) of the ICSID
Convention should be interpreted in accordance with its “ordinary meaning” and cannot be
deemed as “everything” or “anything”. Indeed as noted above, even tribunals that rejected
the “Salini approach” had accepted that the “Salini test” could assist in including or
excluding certain extreme transactions.
Regarding the second paragraph, many tribunals and commentators have noted it and
have considered that it exhibits a balance achieved between capital-exporting and -
importing States in the process of negotiating the Convention, as the former succeeded in
securing a “no definition” of “investment” in the Convention imposing no extra
qualifications on the term (such as a minimum amount of asset invested, or a debt of at
least a certain number of years as originally proposed), whilst the latter were satisfied by
the possibility of excluding classes of disputes that they would not want to be submitted to
the Centre. (116) However, it was not really a “balance”, since whilst the former's success
was substantial and substantiated as demonstrated in numerous arbitration cases, the
latter's satisfaction was illusionary, as the said declarations turned out to be of merely
declaratory value and could not amount to jurisdictional exclusions. (117) As developing
States were representing capital-importing States in international investment activities,
such factual imbalance can be read as an enhancement to the justification for the
application of the “ordinary meaning” of “investment” (including its inherent constitutive
elements) as a jurisdictional requirement for ICSID arbitrations.
P 194
P 195
Whether or not the same “ordinary meaning” and accordingly its constitutive elements
apply to substantive investment treaties (such as BITs, within or beyond ICSID arbitrations)
is another question of debate particularly in recent cases. According to the
aforementioned principle, the answer should depend on the wording of the relevant
provisions. If the governing treaty has clearly “defined” the term “investment” to the extent
that a “special meaning” under Art. 31(4) of the VCLT can be established as having been
conferred on the term, e.g., in the formula of “investment means…”, it would be
inappropriate to impose the said “ordinary meaning” and elements to qualify such clear,
explicit treaty definition, even if the treaty definition manifestly deviates from the
“ordinary meaning”. (118) However, if the governing treaty does not actually “define” the
term “investment” or otherwise confer a “special meaning” onto “investment”, but merely
provides some illustrations (or indicia) of what should or should not be included under the
term (even if it is placed in the “definition” provision), it would be appropriate and indeed
necessary to import and apply the “ordinary meaning” and its constitutive elements to
help out in treaty interpretation.

V Conclusions
The definition of “investment” is one of the fundamental and most controversial issues in
investor-State arbitration. The vast majority of investment treaties existing today adopt an
open-end asset-based definition, whilst other treaties employed an enterprise-based
definition. The open-end asset-based definition in particular, has caused many difficulties
and controversies in ISDS practice, as arbitral tribunals have been struggling to find a
balance between respecting the party autonomy as spelt out in the substantive treaties
and preventing abuse of the ISDS system by claimants for transactions that do not fall
within the ordinary meaning of “investment”. The issue became more complicated in cases
of ICSID arbitrations as the jurisdiction of the ICSID requires disputes to qualify as
“investment” disputes under both the ICSID Convention and applicable substantive
investment treaties and as the ICSID Convention is silent on the definition of “investment”.
P 195
P 196
The silence on the definition of “investment” under the ICSID Convention has given rise to
divided interpretations: earlier decisions started with Fedax and Salini where tribunals
adhered to an “objective” approach insisting that the ordinary, objective or inherent
meaning of the term “investment” should apply to establish ICSID jurisdiction. In so doing,
they have identified several constitutive elements of “investment” (such as resources
commitment, certain duration, assumption of risk, and contribution to the development of
the host State) to be applied to ascertain whether an investment existed in a given case.
This approach, which was later known as “Salini test”, was generally and consistently
followed by a number of subsequent decisions as established practice until it was
seriously attacked by the Biwater and the MHS Annulment Decisions. These two decisions
advocated a “subjective” or “party autonomy” approach of treaty interpretation insisting
that the absence of a definition of “investment” in the ICSID Convention was meant to leave
the definition to the discretion of the Contracting Parties, which was implemented when
they entered into bilateral or other substantive investment treaties granting consent to
ICSID arbitration.
Since the Biwater and the MHS Annulment Decisions the arbitration jurisprudence on the

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 issue became divided, as some tribunals followed the new “subjective” or “party
autonomy” line of treaty interpretation, whilst others continued the “Salini approach”.
Some “Salini approach” tribunals have gone further to require that the same “Salini test” be
applied in non-ICSID arbitrations, which was rejected by other tribunals.
As a response to the controversies generated by the open-end asset-based definition of
the “investment”, many States have adopted newer definitions of “investment” in more
recent investment treaties. A most common practice is the inclusion of certain
“characteristics of investment”, such as resource contribution, expectation of return, and
assumption of risk, in the definition of “investment”. More and more treaties also explicitly
exclude certain categories of asset from the investment treaty protection, such as claims
to money deriving solely out of commercial transactions, short term loans, an order or
judgement, or portfolio investments. Some States have gone further to opt for a narrower
enterprise-based definition of “investment”, and other States have attached a series of
further requirements such as legality, good faith, and significant contribution to the
development of host States, for investments to be protected under their BITs.
It is difficult to assess the propriety of the newer definitions, given that each State has its
own conditions and priorities. In general terms, inclusion of the “characteristics of
investment” in the investment definition should be regarded as a welcome development
considering controversies generated by the expansive open-end asset-based definition,
but adding extra-textual elements such as “contribution to the development of host
States” to the list of “characteristics of investment”, and excluding portfolio investments
altogether from treaty protection, seem to be a step too far.
Regarding ISDS interpretations of the concept of “investment”, a “double door” theory may
better describe the relationship between Art. 25 under the ICSID Convention and the
definition of “investment” clause under governing substantive treaties. Given that the
Convention requires a dispute to be “arising out of an investment” without defining the
term, it is appropriate and indeed necessary to apply the objective and inherent ordinary
meaning of the term “investment” in ICSID arbitrations, though it is essential to ensure that
P 196 the applied “ordinary meaning” should only be the minimum hard core of the concept. The
P 197 same ordinary meaning may also be applied in non-ICSID arbitrations in case an
applicable investment treaty does not clearly define “investment”. It seems to be too far-
fetched to apply it in investment treaties where “investment” is clearly (even if
expansively) defined to establish a “special meaning” under Art. 31(4) of the VCLT.
P 197

References
*) Wenhua Shan: Ministry of Education Yangtze River Chair Professor of International
Economic Law and Dean of Law School, Xi'an Jiaotong University; Vice President,
Judicial Case Academy, Supreme People's Court, PR China.
**) Lu Wang: Lecturer, Faculty of Law, UNSW Sydney, Australia
1) See, e.g., Art. 8(1) of the Germany-Pakistan BIT (1959), which provided that:
“(a) The term ‘investment’ shall comprise capital brought into the territory of the
other Party for investment in various forms in the shape of assets such as foreign
exchange, goods, property rights, patents and technical knowledge. The term
‘investment’ shall also include the returns derived from and ploughed back into
such ‘investment’.
(b) Any partnerships, companies or assets of similar kind, created by the utilisation
of the above mentioned assets shall be regarded as ‘investment’.”
2) Art. 25(1) of the ICSID Convention.
3) Art. 31(4) of the Vienna Convention provides that “[a] special meaning shall be given
to a term if it is established that the parties so intended”.
4) UNCTAD, Scope and Definition: UNCTAD Series on Issues in International Investment
Agreement II (UN 2011) p. 24.
5) Art. 1(a) of the UK-Singapore BIT (1975).
6) See Campbell MCLACHLAN, International Investment Arbitration: Substantive Principles
(OUP 2007) p. 171; Norah GALLAGHER and Wenhua SHAN, Chinese Investment Treaties:
Policies and Practice (OUP 2009) p. 59; Kenneth J. VANDEVELDE, Bilateral Investment
Treaties: History, Policy, and Interpretation (OUP 2010) pp. 126-128.
7) Art. 1(a) of the China-Poland BIT (1988).
8) Art. 1(b) of the ECT.
9) Art.1 of the 2012 U.S. Model BIT.
10) K. J. VANDEVELD, Bilateral Investment Treaties, fn. 6 above.
11) Art. 1139 of the NAFTA.

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 12) Art. 1 of the 2004 Canada Model BIT provides that:
“investment means:
(I) an enterprise;
(II) an equity security of an enterprise;
(III) a debt security of an enterprise
(i)
where the enterprise is an affiliate of the investor, or
(ii)
where the original maturity of the debt security is at least three
years,
but does not include a debt security, regardless of original
maturity, of a state enterprise;
(IV) a loan to an enterprise
(i) where the enterprise is an affiliate of the investor, or
(ii) where the original maturity of the loan is at least three years,
but does not include a loan, regardless of original maturity, to a
state enterprise;
(V)
(i) notwithstanding subparagraph (III) and (IV) above, a loan to or
debt security issued by a financial institution is an investment
only where the loan or debt security is treated as regulatory
capital by the Party in whose territory the financial institution
is located, and
(ii) a loan granted by or debt security owned by a financial
institution, other than a loan to or debt security of a financial
institution referred to in (i), is not an investment;
for greater certainty:
(iii) a loan to, or debt security issued by, a Party or a state
enterprise thereof is not an investment; and
(iv) a loan granted by or debt security owned by a cross-border
financial service provider, other than a loan to or debt security
issued by a financial institution, is an investment if such loan or
debt security meets the criteria for investments set out
elsewhere in this Article;
(VI) an interest in an enterprise that entitles the owner to share in
income or profits of the enterprise;
(VII) an interest in an enterprise that entitles the owner to share in the
assets of that enterprise on dissolution, other than a debt security or
a loan excluded from subparagraphs (III) (IV) or (V);
(VIII) real estate or other property, tangible or intangible, acquired in the
expectation or used for the purpose of economic benefit or other
business purposes; and
(IX) interests arising from the commitment of capital or other resources
in the territory of a Party to economic activity in such territory, such
as under
(i) contracts involving the presence of an investor's property in the
territory of the Party, including turnkey or construction
contracts, or concessions, or
(ii) contracts where remuneration depends substantially on the
production, revenues or profits of an enterprise;
but investment does not mean,
(X) claims to money that arise solely from
(i)
commercial contracts for the sale of goods or services by a
national or enterprise in the territory of a Party to an enterprise
in the territory of the other Party, or
(ii) the extension of credit in connection with a commercial
transaction, such as trade financing, other than a loan covered
by subparagraphs (IV) or (V); and
(XI) any other claims to money,
that do not involve the kinds of interests set out in subparagraphs (I)
through (IX);”.

13) UNCTAD, Scope and Definition, fn. 4 above, pp. 22-23.

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 14) K. J. VANDEVELD, Bilateral Investment Treaties, fn. 6 above, p. 129. Notably, earlier
treaties of the United States did not specify the “characteristics of investment” but
provided that “investment” means “every kind of investment”, See, e.g., Art. I(d) of the
Panama-U.S. BIT (1982). See also Kenneth VANDEVELDE, U.S. International Investment
Agreements (OUP 2009) p. 114.
15) See Art. 1 of the 2004 and the 2012 U.S. Model BITs.
16) See 9.1 of the TPP (2016). The CPTPP incorporates, by reference, the provisions of the
TPP with the exception of a small number of technical articles.
17) Art. 9.1(d) of the China-Australia FTA (2015).
18) Art. 8.1(k) of the Agreement to Amend the Singapore-Australia FTA (SAFTA). The SAFTA
entered into force on 28 July 2003, and the 2016 Agreement to Amend SAFTA entered
into force on 1 December 2017.
19) Art. 8.1 of the CETA (2016).
20) Art. 1(a) of the draft model BIT of the Netherlands (2018) stipulates: “‘[i]nvestment’
means every kind of asset that has the characteristics of an investment, which
includes a certain duration, the commitment of capital or other resources, the
expectation of gain or profit, and the assumption of risk”.
21) Art. 1 of the Morocco-Nigeria BIT (2016).
22) Art. 1 and Art. 24 of the Morocco-Nigeria BIT (2016).
23) See Art. 1(1) of the Egypt-Mauritius BIT (2014), and Art. 1.4 of the 2015 Indian Model BIT,
available at <http://indiainbusiness.nic.in/newdesign/upload/Model_BIT.pdf> (last
accessed 6 February 2018).
24) See India's Consolidated Interpretive Statements (dated 8 February 2016), available
at <http://indiainbusiness.nic.in/newdesign/upload/Consolidated_Interpretive-
Statement.pdf> (last accessed 6 February 2018). These countries are Bahrain,
Bangladesh, Bosnia and Herzegovina, Brunei, China, Colombia, Finland, Iceland,
Jordan, Kuwait, Laos, Latvia, Libya, Lithuania, Macedonia, Mexico, Mozambique,
Myanmar, Saudi Arabia, Senegal, Serbia, Sudan, Syria, Trinidad and Tobago, and
Turkey.
25) Para. 4.3 of the India's Consolidated Interpretive Statements.
26) Art. 1.1.2 of the Colombia-Turkey BIT (2014).
27) Art. 3.1.3 of the 2015 Brazilian Model BIT, available at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/4786> (last accessed 6
February 2018). This article provides that “investment” includes but is not limited to:
(a) an enterprise; (b) shares, stocks, participations and other equity types in an
enterprise; (c) movable or immovable property and other property rights such as
mortgages, liens, pledges, encumbrances or similar rights and obligations; (d)
concession, license or authorization granted by the Host State to the investor of the
other Party; (e) loans and debt instruments to a company; (f) intellectual property
rights as defined or referenced to in the TRIPS.
28) Art. 2.1 of the Brazil-Malawi BIT (2015).
29) Art. 1 of the Morocco-Nigeria BIT (2016).
30) Art. 1.4 of the 2015 Indian Model BIT.
31) Art. 1.2 of the Slovak Republic-the Islamic Republic of Iran BIT (2016).
32) Art. 1 of the U.S. 2012 Model BIT, footnote 3.
33) India's Consolidated Interpretative Statements (8 February 2016), available at
<http://indiainbusiness.nic.in/newdesign/upload/Consolidated_Interpretive-
Statement.pdf> (last accessed 6 February 2018).
34) Para. 4.3 of India's Consolidated Interpretative Statements, footnote 2.
35) Para. 4.4 of India's Consolidated Interpretative Statements.
36) Ibid.
37) Ibid.
38) Art. 1.4 of the Indian 2015 Model BIT, available at
<http://indiainbusiness.nic.in/newdesign/upload/Model_BIT.pdf> (last accessed 6
February 2018).
39) Art. 1(2) of the Agreement Amending Annex 1 (Co-operation on Investment of the
Protocol on Finance and Investment) (2016), available at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/5527> (last accessed 6
February 2018). The original definition of “investment” provided in Art. 1(2) of Annex 1
of the SADC Protocol on Finance and Investment read that, “‘investment’ means the
purchase, acquisition or establishment of productive and portfolio investment assets
…”, available at <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2730>
(last accessed 6 February 2018).
40) N. GALLAGHER and W. SHAN, Chinese Investment Treaties, fn. 6 above, p. 55.
41) The wording used in the original English version is actually “in accordance with the
laws and regulations”, see Art. 1(1) of the China-Cuba BIT (1995).
42) N. GALLAGHER and W. SHAN, Chinese Investment Treaties, fn. 6 above, at para. 55.
Amendment protocol of the China-Cuba BIT (2007).
43) Art. 1(2) of the Argentina-Qatar BIT (2016) read that: “The term ‘investment’ means any
kind of asset invested by an investor of one Contracting Party in the territory of the
other Contracting Party in accordance with the laws and regulations of the latter
Contracting Party, which involves commitment of resources into the territory of the
host Contracting Party,” available at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/5383> (last accessed 6
February 2018).

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 44) Art. 1(1) of the Egypt-Mauritius BIT (2014) provides that “investment” means assets
“established or acquired by an investor of one Contracting Party in the territory of the
other Contracting Party in accordance with the laws and regulations of the latter
Contracting Party”, available at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3285> (last accessed 6
February 2018).
45) Art. 1(1) of the Algeria-Serbia BIT (2012) provides that the term “investment” shall
mean “every kind of assets established or acquired by an investor of one Contracting
Party in the territory of the other Contracting Party in accordance with the laws and
regulations of the latter”, available at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3168> (last accessed 6
February 2018).
46) Art. 25(1) of the ICSID Convention.
47) See, e.g., Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco (ICSID
Case No. ARB/00/4), Decision on Jurisdiction (23 July 2001) para. 52, published at 42
International Legal Materials 621 (2003) 622. See also C. LAMM, “The Jurisdiction of the
International Centre for Settlement of Investment Disputes”, 6 ICSID Review (1991) p.
462 at p. 474; N. RUBINS, “The Notion of ‘investment’ in International Investment
Arbitration” in Norbert HORN, ed., Arbitrating Foreign Investment Disputes: Procedural
and Substantive Legal Aspects (Kluwer Law International 2004) p. 283 at p. 289.
48) Fedax N.V. v. The Republic of Venezuela (ICSID Case No. ARB/96/3), Decision on
Jurisdiction (11 July 1997) para. 25, published at 37 International Legal Materials 1387
(1998) p. 1383.
49) Ibid., para. 43 at p. 1387.
50) Ibid., citing Christoph SCHREUER, “Commentary on the ICSID Convention”, 11 ICSID
Review–Foreign Investment Law Journal (1996, no. 2) para. 122 at pp. 372-373. This
paragraph is substantively identical with C. H. SCHREUER, et al., The ICSID Convention:
A Commentary, 2nd edn. (CUP 2009) para. 153 at p. 128.
51) See C. H. SCHREUER, et al., The ICSID Convention: A Commentary, fn. 50 above, pp. 129-
133; N. RUBINS, “The Notion of ‘investment’ in International Investment Arbitration”,
fn. 47 above, pp. 297-300.
52) Salini v. Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction (23 July 2001)
para. 44, published in 42 International Legal Materials 621 (2003) p. 620. See also
Rudolf DOLZER, Christoph SCHREUER, Principles of International Investment Law, 2nd
ed. (OUP 2012) p. 61. This dual test has at times been referred to as the “double
keyhole” approach or the “double barreled” test, See, e.g., Aguas del Tunari, S.A. v.
Republic of Bolivia (ICSID Case No. ARB/02/3), Decision on Jurisdiction (21 October
2005) para. 278; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia
(ICSID Case No. ARB/05/10), Award on Jurisdiction (17 May 2007) para. 55.
53) See, e.g., Aron BROCHES, “The Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States”, 136 RC 331 (1972) pp. 360-361.
Nonetheless, the definition of investment in investment treaties is decisive in
jurisdiction ratione materiae if the parties' consent to arbitration permits arbitration
under other rules such as the UNCITRAL and ICC. See N. RUBINS, “The Notion of
‘investment’ in International Investment Arbitration”, fn. 47 above, p. 290.
54) Salini v. Morocco, Decision on Jurisdiction, para. 52 at p. 622.
55) Ibid., paras. 53-58.
56) See, e.g., Joy Mining Machinery Limited v. Arab Republic of Egypt (ICSID Case No.
ARB/03/11), Award on Jurisdiction (6 August 2004) para. 53; SGS Société Générale de
Surveillance S.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/01/13), Decision
on Jurisdiction (6 August 2003) para.133, footnote 153: Bayindir Insaat Turizm Ticaret Ve
Sanayi A.S. v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/29), Decision on
Jurisdiction (14 November 2005) para. 130; Jan de Nul N.V. and Dredging International
N.V. v. Arab Republic of Egypt (ICSID Case No. ARB/04/13), Decision on Jurisdiction (16
June 2006) paras. 91-96; Saipem S.p.A. v. The People's Republic of Bangladesh (ICSID
Case No. ARB/05/07), Decision on Jurisdiction (21 March 2007) paras. 99-111; Malaysian
Historical Salvors, SDN, BHD v. The Government of Malaysia (ICSID Case No.
ARB/05/10), Award on Jurisdiction (17 May 2007) paras. 108-145.
57) R. DOLZER, C. SCHREUER, Principles of International Investment Law, fn. 52 above, p. 67.
58) MHS v. Malaysia, Award on Jurisdiction (17 May 2007) para. 70.
59) Ibid., para. 105.
60) Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania (ICSID Case No.
ARB/05/22), Award (24 July 2008) paras. 312-314.
61) Ibid., para. 316.
62) MHS v. Malaysia, Decision on Annulment (16 April 2009) para. 57.
63) Ibid.
64) Ibid., paras. 58-74.
65) Ibid., para 69.
66) Ibid., para. 73.
67) R. DOLZER, C. SCHREUER, Principles of International Investment Law, fn. 52 above, p.
69.
68) Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania (ICSID Case
No. ARB/07/21), Award (30 July 2009) para. 43.
69) Ibid., para. 42.

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 70) Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine (ICSID Case
No. ARB/08/8), Decision on Jurisdiction (8 March 2010) para. 130.
71) R. DOLZER, C. SCHREUER, Principles of International Investment Law, fn. 52 above, pp.
70-72.
72) Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de
Electricidad del Este, S.A. v. The Dominican Republic (LCIA Case No. UN 7927), Award on
Preliminary Objections to Jurisdiction (19 September 2008) paras. 32-36.
73) Saba Fakes v. Republic of Turkey (ICSID Case No. ARB/07/20), Award (14 July 2010) para.
111.
74) Alpha Projektholding GmbH v. Ukraine (ICSID Case No. ARB/07/16), Award (8 November
2010) para. 312.
75) Phoenix Action Ltd v. Czech Republic (ICSID Case No. ARB/06/5), Award (15 April 2009)
para. 85.
76) Romak S.A. v. The Republic of Uzbekistan (PCA Case No. AA280), Award (26 November
2009) para. 176.
77) Ibid., para. 177, footnote 152.
78) Ibid., paras. 180-183.
79) Ibid., para. 180.
80) Ibid., para. 207.
81) Ibid.
82) Ibid.
83) GEA Group Aktiengesellschaft v. Ukraine (ICSID Case No. ARB/08/16), Award (31 March
2011) paras. 141-142.
84) Ibid., para. 143.
85) Ibid., para. 162.
86) SGS Société Générale de Surveillance S.A. v. Republic of Paraguay (ICSID Case No.
ARB/07/29), Decision on Jurisdiction (12 February 2010) para. 93.
87) Ibid., para. 94, citing Bureau Veritas, Inspection, Valuation, Assesment and Control,
BIVAC B.V. v. Republic of Paraguay (ICSID Case No. ARB/07/9), Decision on Jurisdiction
(29 May 2009) para. 94.
88) Quiborax S.A. and Non-Metallic Minerals S.A. v. Plurinational State of Bolivia (ICSID
Case No. ARB/06/2), Decision on Jurisdiction (27 December 2012) para. 211.
89) Ibid., para. 212.
90) Ibid., para. 214: for example, the Global Trading tribunal held that “it is now beyond
argument that there are two independent parameters that must both be satisfied [to
establish that there is an investment]”, see Global Trading Resource Corp. and Globex
International, Inc. v. Ukraine (ICSID Case No. ARB/09/11), Award (1 December 2010)
para. 43; the GEA tribunal considered that the objective meaning was inherent
regardless of whether it is mentioned in the ICSID Convention or in the BIT, see GEA
Group Aktiengesellschaft v. Ukraine (ICSID Case No. ARB/08/16), Award (31 March 2011)
para. 141; the Romak tribunal conducted arbitration under the UNCITRAL Rules also
held that “the term ‘investment’ under the BIT has an inherent meaning entailing a
contribution that extends over a certain period of time and that involves some risk…”,
see Romak S.A. (Switzerland) v . The Republic of Uzbekistan (UNCITRAL, PCA Case No.
AA280) Award (26 November 2009) para. 207.
91) Quiborax v. Bolivia, Decision on Jurisdiction, para. 217.
92) Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental
Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on Jurisdiction (2 July 2013)
para. 193.
93) Ibid., paras. 199-200.
94) Ibid., paras. 204 and 206.
95) Art. 31 of the VCLT provides as follows:
“1. A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose.
…
4. A special meaning shall be given to a term if it is it established that the
parties so intended.”

96) KT Asia Investment Group B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/09/8),
Award (17 October 2013) paras. 165-166.
97) Ibid., para. 170.
98) Ibid., paras. 171-172. In the tribunal's view, “such a contribution may well be the
consequence of a successful investment”; however, “if the investment fails, and thus
makes no contribution at all to the host State's economy, that cannot mean that there
has been no investment”. Similar conclusions see Phoenix Action, Ltd. v. Czech
Republic, Award, para. 85; Saba Fakes v. Republic of Turkey, Award, paras. 110-111;
Quiborax v. Bolivia, Decision on Jurisdiction, paras. 223-224.
99) Ibid., para. 173.
100) OI European Group B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/25),
Award (10 March 2015), para. 218. This conclusion is commonly accepted by case law,
see KT Asia v. Kazakhstan, Award, para. 165; Quiboraz v. Bolivia, Decision on
Jurisdiction, para. 214.

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 101) Ibid., para. 219. See also Ambiente Ufficio S.p.A. and others v. Argentine Republic (ICSID
Case No. ARB/08/9), Decision on Jurisdiction and Admissibility (8 February 2013) para.
470; Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine (ICSID
Case No. ARB/08/8), Decision on Jurisdiction (8 March 2010) para. 130.
102) See also SGS Société Générale de Surveillance S.A. v. Republic of Paraguay (ICSID Case
No. ARB/07/29), Decision on Jurisdiction (12 February 2010) para. 94.
103) See also Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case
No. ARB/01/3), Decision on Jurisdiction (2 August 2004) para. 42.
104) Garanti Koza LLP v. Turkmenistan (ICSID Case No. ARB/11/20), Award (19 December
2016) para. 241.
105) Vestey Group Ltd v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/06/4), Award
(15 April 2016) para. 187, see also LESI, S.p.A. and Astaldi, S.p.A. v. People's Democratic
Republic of Algeria (ICSID Case No. ARB/05/3), Decision on Jurisdiction (12 July 2006)
para. 72; Saba Fakes v. Turkey, Award, para. 102.
106) Pavel Borissov, Aibar Burkitbayev, Almas Chukin and others v. Republic of Uzbekistan
(ICSID Case No. ARB/13/6), Decision on Jurisdiction (8 March 2017) para. 242.
107) Ibid., para. 325.
108) Ibid., paras. 323 and 326-327.
109) Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria (ICSID Case
No. ARB/12/35), Final Award (31May 2017) para. 370.
110) Ibid., quoting Saba Fakes v. Turkey, Award, para. 110.
111) Ibid., quoting KT Asia v. Kazakhstan, Award, paras. 165-166.
112) Ibid., para. 372.
113) C. H. SCHREUER, et al., The ICSID Convention: A Commentary, fn. 50 above, para. 171 at
p. 133.
114) Philip Morris v. Uruguay, Decision on Jurisdiction, para. 206.
115) International Bank for Reconstruction and Development, Report of the Executive
Directors on the Convention on the Settlement of Investment Disputes Between States
and Nationals of Other States, 18 March 1965 (“Report of the Executive Directors”),
paras. 25 and 27.
116) See, e.g., MHS Annulment, fn. 62 above, paras. 63-68.
117) See, e.g., R. DOLZER, C. SCHREUER, Principles of International Investment Law, fn. 52
above, p. 78.
118) This view seems to have been supported by a most recent decision by the French Cour
de Cassation that quashed a 2016 decision of the Paris Court of Appeal. The Court of
Appeal decision had ruled the acquisition of a right of claim (originated in a delivery
of electricity contract) could not constitute, in the absence of contribution, an
“investment” within the meaning of the ECT. In the French Cour de Cassation's view,
the provisions of the ECT did not specify the criteria characterizing an investment, but
listed only, without limitation, assets considered as “investments”. According to the
French Cour de Cassation, if host States want to set a limit in the ratione materiae
application of investment treaties, they have to define the notion of “investment”
rather than using non-exhaustive lists. For the 2016 Paris Court of Appeal ruling, see
Energoalians SARL (Komstroy) v. Moldova - Cour d'Appel de Paris - Pôle 1 - Chambre
1Numéro d'inscription au répertoire général: 13/22531 - Arret du 12 avril 2016,
available at <https://www.transnational-dispute-management.com/legal-and-
regulatory-detail.asp?key=20201> (last accessed 10 March 2018); for the 2018 decision
of the Cour de Cassation, see Energoalians SARL (Komstroy) v. Moldova - Cour de
Cassation - Chambre civile 1 No de pourvoi: 16-16568 - 28 March 2018
<https://www.transnational-dispute-management.com/legal-and-regulatory-
detail.asp?key=20202> (last accessed 10 March 2018).

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 KluwerArbitration

Document information
Fair and Equitable Treatment – Ten Years On
Publication Christophe Bondy
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introduction
About a decade ago, as a newly hired counsel in Canada's Trade Law Bureau, I was asked to
speak about the obligation of fair and equitable treatment (FET), at an international
Topics investment treaty conference in Washington. Several investment treaty decisions recently
Investment Arbitration had been released that espoused an expansive view of the contents of FET. (1) The
buzzword at the time was arbitral precedent. Gabrielle Kaufmann-Kohler in a speech the
year before had asserted that arbitrators had a duty to follow arbitral precedent, to
promote investor certainty about the contents of international investment law. (2)
Bibliographic reference
The thrust of my remarks at the time was to raise the issue of the potential State responses
Christophe Bondy, 'Fair and to arbitral decision-making concerning the content of investment treaty rules in general,
Equitable Treatment – Ten and of FET in particular. (3) If States disagreed with current arbitral interpretations, I
Years On', in Jean suggested, there likely would be an eventual response in new treaties. This response
Engelmayer Kalicki and already had occurred in the context of the North American Free Trade Agreement (NAFTA),
Mohamed Abdel Raouf (eds), with the 2001 Note of Interpretation. That Note clarified that the reference to FET in Art.
Evolution and Adaptation:
The Future of International P 198 1105(1) of NAFTA meant a reference to the Minimum Standard of Treatment (MST) at
Arbitration, ICCA Congress P 199 customary international law. (4) The substance of that Note had then been translated
into the new Model Bilateral Investment Treaties (BITs) of both Canada and the United
Series, Volume 20 (© Kluwer States. Assuming such State restatements were to occur more broadly, what would be the
Law International; status going forward of arbitral jurisprudence developed before these new treaties
International Council for emerged, notably regarding the content of the FET standard?
Commercial
Arbitration/Kluwer Law Ten years on, and the biggest sea change in international investment law arguably has
International 2019) pp. 198 - been “the return of the State”. In their new treaties, in new model BITs and in public
225 statements about their respective investment treaty programmes, States around the world
have signalled a desire to reassert control both over the substance of investment treaty
standards, and over the process of investor-State dispute resolution. One of the key turning
points of this evolution arguably was the change in the European approach to investment
treaties, notably through the Canada-European Union Comprehensive Trade and
Investment Agreement (CETA). Before that, Western Europe had been a bastion of
liberalism vis-à-vis investment treaty obligations. One of the biggest targets in this new
wave of treaty-making has been to reign in the FET standard.
Meanwhile, through a steady stream of decisions the FET jurisprudence has grown
exponentially.
All of which returns to the question I asked ten years ago, with a new urgency: what will be
the impact of these new treaties on the direction of travel for investor-State obligations,
and notably for FET? How will the clash of norms between existing FET jurisprudence and
its treatment in new treaties be resolved?
This article seeks to provide an encapsulated history of the FET standard, providing a
backdrop to these questions. I first will reference early recognition of the need to provide
an objective minimum standard of treatment for investors, and the expression of that
standard in early model treaties (II). I then will evoke the split that occurred in investment
treaty jurisprudence, between FET understood as a reference to the minimum standard of
treatment (MST) at customary international law and FET as a treaty standard open to the
interpretations of investment tribunals (III). I then will describe the content tribunals have
ascribed to FET as a bare treaty standard (IV), before considering the parallel content of
FET as the customary international MST (V). This overview will serve as a backdrop for
considering recent State attempts at resetting the dial on FET – responses ranging from
eliminating all reference to FET, to expressly limiting FET to MST, to ascribing specific
content to FET (VI). Finally, I will consider potential responses to next-generation treaties
by current and future arbitral tribunals (VII).

II Towards an International Baseline

Legal theorists have been promoting an international standard of treatment of foreigners
since at least the eighteenth century. (5) Through the nineteenth century, States asserting
P 199 arbitral claims on behalf of their national investors abroad in effect were asserting the
P 200 existence of international standard of treatment. In the early twentieth century former US
Secretary of State Elihu Root famously asserted that
“There is a standard of justice, very simple, very fundamental and of such
general acceptance by all civilized countries as to form a part of the

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 international law of the world. The condition upon which any country is entitled
to measure the justice due from it to an alien by the justice which it accords to
its own citizens is that its system of law and administration shall conform to this
general standard. If any country's system of law and administration does not
conform to that standard, although the people of the country may be content or
compelled to live under it no other country can be compelled to accept it as
furnishing a satisfactory means of treatment to its citizens.” (6)
As Elihu Root's encapsulation confirms, the key characteristic of such theories was their
focus on protecting foreigners against the most egregious forms of treatment by States –
treatment that any international observer would view as unacceptable, regardless of the
standard of treatment accorded by that State to its own citizens. The theory of an
international “minimum standard” stood as a counterpart to the competing Calvo doctrine
protecting national sovereignty, which held that foreigners could expect no better
treatment in a host State than that State offered its own citizens. (7) The core elements of
customary international MST were protection against expropriation without compensation;
protection of the physical integrity of foreign nationals; and the provision of basic due
process – i.e., protection against “denial of justice” in judicial proceedings. The standard
thus expressed placed limited but nonetheless real boundaries on the absolute
sovereignty of States. The standard was articulated in various claims in the early twentieth
century – the most often cited is Neer (USA) v. United Mexican States, where the Mexican US
General Claims Commission held that “the treatment of an alien, in order to constitute an
international delinquency should amount to an outrage, to bad faith, to wilful neglect of
duty, or to an insufficiency of governmental action so far short of international standards
that every reasonable and impartial man would readily acknowledge its insufficiency”. (8)
P 200
P 201
As of at least the 1950s, the United States began expressing this basic protection of
foreigners as an obligation of “fair and equitable treatment” (FET) in its treaties of
friendship, commerce and navigation (FCN). FET shared with the MST the notion that States
should offer foreign investors a baseline level of treatment. (9) FCN treaties did not provide
a direct right of action for foreign investors, requiring State espousal of a claim. In the
absence of such claims, the content of FET and its relation to MST remained unexplored.
The 1960s saw new impetus for the development of international investment rules, to assist
in the promotion of developing economies emerging from colonialism. This notably
included the negotiation of the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (ICSID Convention): a Convention that set out
a procedural framework for disputes, and guarantees of the enforceability of the resulting
judgments, while deliberately avoiding substantive standards. Indeed, the drafters of the
ICSID Convention assumed that most investor-State disputes would arise out of investment
contracts, rather than investment treaties. (10)
On the substantive side, leading proponents of international investment protection sought
to generate a model investment protection treaty, notably the Abs-Shawcross draft of the
early 1960s, whose obligations included the requirement to provide “fair and equitable
treatment”. (11) Picking up on the language from US treaties of Friendship, Commerce and
Navigation, the draft 1967 model investment treaty of the Organisation for Economic Co-
operation and Development (OECD) also included an obligation of FET. The explanatory
notes to the OECD draft treaty confirmed that reference to FET was understood to be a
reference to MST. (12) By that time, the wave of anti-colonial and Cold War sentiment
P 201 prompted hostility to the notion of a (Western-generated) customary international
P 202 standard, which in any event had generated controversy over the course of the century.
(13) In the OECD Model, FET thus became a stand-in for the expression of the customary
MST. (14) Meanwhile one of the original elements of MST, protection against expropriation,
was set out in a distinct article, as was the obligation to provide full protection and
security.
The 1970s and 1980s saw virtually no investment treaty cases, addressing FET or otherwise.
(15) One exception was the ELSI case that exceptionally went before the International Court
of Justice (ICJ) in the late 1970s. The case concerned the application of the US-Italy Treaty
of Friendship, Commerce and Navigation, and turned on that treaty's express protection
against “arbitrary” treatment. The Court famously noted that “[a]rbitrariness is not so much
something opposed to a rule of law, as opposed to the rule of law… It is wilful disregard of
due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”
(16) The ICJ was interpreting a treaty-based protection against arbitrary treatment, and not
FET itself. Despite this, the decision would go on to inform arbitral tribunals'
interpretations of FET in later investment treaty decisions. (17)
In the 1980s and 1990s the number of investment treaties expanded exponentially, as
capital-importing States (moving on from anti-colonial sentiment in the 1960s and 1970s)
accepted the need to signal respect for international standards, in particular acceptance
of prompt and effective compensation for expropriation, as a counterpoint to attracting
P 202 additional investment. (18) Again, during this phase actual disputes arising under
P 203 investment treaties were rare. The drafters involved were international lawyers and
diplomats from State departments of foreign affairs. They were familiar with public
international law treaties, and with State-to-State disputes. Such disputes tend to be

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 pursued with a view to the systemic implications of particular interpretative positions.
Using the OECD Model Treaty as a basis, reference to an obligation of “fair and equitable
treatment” became commonplace in treaties entered into during this phase. The treaties
linked FET to an international standard in varying ways: under the express heading of
“Minimum Standard of Treatment”; by reference to FET “in accordance with international
law”; making reference to FET in conjunction with other standards, such as protection
against arbitrariness; and finally, by a “bare” reference to FET. (19)
As of the 1980s, the majority of international lawyers continued to recognize the link
between a reference to FET and the customary MST. A minority view was expressed by UK
international lawyer F.A. Mann. In an oft-cited publication, he asserted that
“the terms ‘fair and equitable treatment’ envisage conduct which goes far
beyond the minimum standard and afford protection to a greater extent and
according to a much more objective standard than any previously employed
form of words. A tribunal would not be concerned with a minimum, maximum or
average standard. It will have to decide whether in all the circumstances the
conduct at issue is fair and equitable or unfair and inequitable. No standard
defined by other words is likely to be material. The terms are to be understood
and applied independently and autonomously.” (20)
Less often-cited is Mann's follow-up comment in a paper published the following year,
where he noted that
“In some cases, it is true, treaties merely repeat, perhaps in slightly different
language, what in essence is a duty imposed by customary international law;
the foremost example is the familiar provision whereby states undertake to
accord fair and equitable treatment to each other's nationals and which in law
is unlikely to amount to more than a confirmation of the obligation to act in
good faith, or to refrain from abuse or arbitrariness.” (21)
Reflecting the international development origins of investment treaty protections, the vast
majority of treaties entered into during this period were between developed and
developing countries. One exception was the NAFTA, which bound together the United
States, Canada and Mexico. Its predecessor, the Canada-United States Free Trade
P 203 Agreement, contained an investment protection chapter, but only State-to-State dispute
P 204 resolution, and no reference either to FET or to protection of a customary MST. (22)
Given the long and troubled experience of US investors in Mexico (the Neer claim, for
example, related to a US national in Mexico), when the NAFTA was negotiated the United
States proposed the inclusion of investor-State dispute settlement, including an update of
the statement of obligations. Canada agreed. The obligations addressed (non-
discrimination, protection against expropriation with compensation, respect for an
international MST) were all consistent with basic standards of good governance, which
Canada fully respected. NAFTA therefore guaranteed investors among other things
“treatment in accordance with international law, including fair and equitable treatment
and full protection and security”, under the heading Minimum Standard of Treatment. (23)

III FET and MST Part Ways

By the mid-1990s, lawyers began to recognize the potential power of investment treaties,
which for the first time in public international law allowed investors to initiate arbitrations
directly against States for alleged violations of international obligations. (24) They began
launching what was to become a wave of claims over the next twenty years. In these claims,
the scope of FET and its relation to the MST at customary international law soon became
an issue. (25)
A key interpretative shift occurred when arbitrators began deciding that FET in investment
treaties was a pure treaty standard, not tied the contents of any international minimum
standard arising in customary international law. (26) In many treaties, FET had expressly
been tied neither to customary international law, nor to a MST. Arbitrators accordingly
reasoned that FET was a freestanding treaty standard. (27)
P 204
P 205
This crucial interpretative shift left the expression “fair and equitable treatment” open to
be interpreted in accordance with the Vienna Convention on the Law of Treaties (VCLT).
According to Art. 31 of the VCLT, treaty language is to be given its ordinary meaning, in its
context and in light of its object and purpose. (28)
Given the breadth of the expression “fair and equitable treatment” and its relative
indeterminacy, reference to an obligation of FET understood as a bare treaty obligation
(rather than an obligation disciplined by the evidentiary requirements of customary
international law) quickly became the site for a broad range of arbitral interpretations.
Indeed, arbitrators frequently have asserted that the content of FET can only be assessed
in concreto, in light of specific fact scenarios. (29)
This interpretative shift arguably first manifested itself in the context of NAFTA Chapter
P 205 Eleven claims. Early NAFTA cases recognized the typical public international law rule that
P 206 State sovereignty may be limited only by clear rules. (30) Yet early tribunals quickly

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 P 206
began to push the boundaries of FET. The Myers tribunal asserted that the breach of
another standard under NAFTA – in this case, the obligation to provide national treatment
– automatically would amount to a breach of FET, despite the lack of any grounding for a
protection against discrimination in purely customary international law. (31) The Metalclad
tribunal appeared to apply FET without any evaluation of customary international law,
adding to the standard an obligation of “transparency”. (32) Soon, the Pope & Talbot
tribunal expressly asserted that reference to FET in Art. 1105(1), despite appearing under
the heading “Minimum Standard of Treatment”, in effect was additive to the MST – in other
words, that investors were to be afforded customary international law MST, plus new
“fairness” elements derived from FET. (33)
The decision of the Pope & Talbot tribunal elicited a swift reaction from the three NAFTA
Parties. By 2001, the NAFTA Free Trade Commission (FTC) released what to date has been
the only binding interpretative statement issued by the Parties under Chapter Eleven of
NAFTA. The main thrust of the Note was to state plainly that reference to FET in NAFTA Art.
1105(1) was not meant to and did not bring into the scope of Chapter Eleven obligations
beyond those provided by the customary international law minimum standard of
treatment of investors. (34) Thus, the Note expressly ruled out the possibility of tribunals
treating the reference to FET as a pure treaty standard, open to their own interpretations
under the VCLT. Moreover, the Note confirmed that a breach of any other part of the NAFTA,
or of some other international standard, did not amount to a breach of FET.
It is noteworthy that this State intervention took place in the context of the only investor-
State dispute settlement procedure applicable at the time between developed States
(with the exception of the Energy Charter Treaty). Tribunals interpreting FET outside of the
NAFTA context, in treaties between capital exporting and largely capital importing States,
apparently did not face the same level of policy pushback to broad interpretations of FET,
at least from both treaty partners. Notably, the United States did not seek to intervene in
the numerous cases arising out of the Argentinian economic crisis of the early 2000s, to
P 206 argue that the reference to FET in its investment treaty with Argentina was limited to
P 207 customary international law. (35) As many of the broader interpretations of FET were
developed in cases arising out of the Argentinian economic crises, and heard under the US-
Argentinian BIT, the United States' silence on this issue outside of the NAFTA context
arguably was crucial to FET emerging as a stand-alone treaty standard, outside of the
NAFTA context. (36)
Indeed, while the 2001 FTC Note of Interpretation laid down a marker for the interpretation
of FET under NAFTA Art. 1105(1), effectively tying it to customary international law, an
increasing cleavage emerged between two expressions of the FET standard. (37) According
to the first line of interpretation, and consistent with its historical use, FET refers to the
MST of investors at customary international law. This was a standard that could expand
and change only to the extent custom itself evolved. (38) According to the second line of
interpretation, FET is a pure treaty standard, open to arbitral interpretation in light of the
rules set out in the VCLT. (39) Unsurprisingly, since the first half of the 2000s the “bare” FET
treaty standard has become the focal point of most investment treaty claims, and its
alleged content has far outstripped the protections offered under customary international
law FET.

IV Arbitral Interpretations of FET as a “Bare” Treaty Obligation

What amounts to “fair and equitable” can depend very much on one's point of view. When
interpreting an FET clause as a bare treaty obligation, arbitrators formally are bound by
the rules of the VCLT. Within the confines of the VCLT, however, arbitrators have ascribed a
broad array of substantive content to the phrase.
The breadth of such interpretations has been encouraged by at least three features of
international investment arbitration.
First, in early treaties (drafted before any claims had been launched) State treaty drafters
P 207 tended to use preambular language exclusively emphasizing their intended role to protect
P 208 and to promote investors. Since the preamble of a treaty has formal status as “context”
for purposes of the VCLT, arbitrators turning to this source as guidance for interpreting FET
took direction from the expansive language. (40)
Second, unlike traditional public international law dispute resolution, which was State to
State, investment treaties grant investors the right to bring claims directly against a State.
Investors' interests are bound to the outcome of their particular claim. In practice, this has
promoted creative and arguably expansive readings of FET, promoting a higher level of
recovery.
Third, arbitrators have tended to use FET as a fallback obligation, where State conduct
fails to rise to the level of express discrimination, or does not amount to a substantial
taking of the investment (a requirement for indirect expropriation). While arbitrators may
hesitate to sanction State regulation as a “taking”, they arguably have found it easier to
sanction the manner of its implementation as unfair to an investor. (41)
The development of FET as a bare treaty standard also has been encouraged by the notion
of arbitral precedent. While investment treaties expressly rule out a formal doctrine of
stare decisis, arbitrators nonetheless in practice pay close attention to decisions of

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 previous tribunals (where available). Indeed, as noted in the introduction to this article,
arbitrators have expressed respect for arbitral precedent as a formal duty on the part of
arbitrators, to promote certainty. (42) The result has been the rapid development over the
span of a decade of multiple repeating and expanding heads of content for FET.
Reliance on rapidly concretized initial readings of investment treaties has begged the
question whether such interpretations reflected State policy or State intentions when
entering into the treaty. The known contents of State submissions in investment treaty
claims suggest to the contrary. (43) This has generated an inherent tension between FET
jurisprudence and State policy intentions, arguably eliciting current State responses.
P 208
P 209
It is beyond the scope of this paper to conduct a definitive survey of the range of meaning
arbitrators have ascribed to FET interpreted as a pure treaty standard. The following
instead is a survey of some of the main lines of jurisprudence. (44)

1 Legitimate Expectations
No treaty iteration of the FET clause expressly affirms a right to protection of investors'
expectations. Nonetheless, protection of investors' “legitimate expectations” has become
a central feature of FET jurisprudence, when interpreting the clause as a “bare” treaty
standard. To a greater or lesser degree, the doctrine interprets FET as giving force of law to
the expectations of investors with regard to the operation and conduct of their investment.
State measures upsetting such expectations can give rise to a right to compensation. The
relative starkness of application of this doctrine arguably has evolved, from early cases
affirming a right to expectations in the “stability of the legal and regulatory environment”,
to more current expressions, which set out stricter requirements for legitimate reliance
and acknowledge that investors cannot expect the regulatory environment to remain
frozen. Nonetheless, protection of investor “expectations” marks a wide berth from a
customary standard focussed on the minimum levels of State protection.
The earliest expression of the doctrine was in TecMed, which (1) interpreted FET as an
obligation separate from MST under customary international law, and (2) grounded
enforcement of “legitimate expectations” of investors under FET upon the general principle
of good faith. (45)
The doctrine continued to gain prominence in investment treaty jurisprudence as
arbitrators considered claims relating to alleged dramatic changes to the legal and
regulatory environment of investments made in Argentina, flowing from the economic crisis
of the early 2000s. In that context, following the direction of the VCLT to interpret language
in light of its “context”, arbitrators interpreted the guarantee of FET in light of preambular
language asserting among the purposes of the treaty, the creation of a stable and
predictable environment for the investor. This led to early decisions affirming that to
provide FET, States had to respect investors' reasonable expectations in a “stable
regulatory and legal environment”. (46)
P 209
P 210
The challenge with this doctrine was that it risked imposing a standstill requirement on
States. Indeed, even within the four corners of VCLT interpretation, the approach adopted
in relation to investor expectations has tended to soften over time. Few arbitrators would
ascribe the extreme view that investment treaties protect the “subjective” expectations of
investors. (47) More typically, arbitrators find that to be enforceable under FET
expectations must be objectively reasonable, evidenced by a commitment made directly
to the investor prior to the making of the investment, upon which the investor in effect
relied when making the investment, and upon which it would be reasonable to rely. (48)
Indeed, the determination of what constitutes a “reasonable” expectation has been the
locus for working out a more tempered view of the obligation.
For example, tribunals early on rejected the notion that investors could expect the
regulatory environment for their investment to be frozen in time. (49) To the contrary,
tribunals now more typically assert that reasonable expectations must be that the
regulatory environment will evolve. This is all the more reasonable where an investment is
conducted in a highly regulated environment, in which State policy is in continual
evolution in light of expanding knowledge and shifting public tolerance for risk. For
example, some tribunals have considered the range of factors of which an investor ought to
have known at the time its alleged expectation was formed, based upon reasonable due
diligence. To the extent an investor's alleged expectations failed to account for such known
factors, they have been found unreasonable. (50)
Despite these tempering factors, and despite current centrality to FET analysis, the
enforcement of “legitimate expectations” is arguably the most controversial doctrine
arising out of arbitral interpretations of FET, and one that States regularly resist in their
P 210 submissions to tribunals. As the NAFTA Parties have noted, under general international law
P 211 it is widely accepted that violation of a contract entered into by a State with an
investor of another State is not, by itself, a violation of international law. (51) In these
circumstances, they argue, it is illogical and unwarranted to elevate disappointed
expectations to a breach of an international rule. Moreover, to the extent legitimate

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 expectations are grounded in a notion of quasi-contract, the NAFTA Parties note that such a
reading of FET would render the “umbrella clause” provision of investment treaties
redundant, in violation of the interpretive rule of effet utile. (52) Other critiques have
focussed on the disconnect between the doctrine and its alleged foundations on general
principles of law or the requirement of good faith. (53) Scholars have noted the limited
extent to which such expectations would give rise to obligations at domestic law, contra
the attempt of some tribunals to ground the doctrine through an exercise of comparative
law. (54) The stark contrast between the elevation of expectations of foreign investors to
legal obligations and typical domestic remedies has fed into public perceptions that
investment treaties – and notably the FET obligation –grant investors special rights
unavailable in domestic law.

2 Transparency
Investment tribunals also have asserted that FET includes a State obligation to act
transparently vis-à-vis investors. Metalclad v. Mexico was the first case under NAFTA
Chapter Eleven to suggest that Art. 1105(1) of NAFTA included an obligation of
“transparency” by reference to the provision in favour of transparency elsewhere in the
agreement (Art. 102(1)). The award was set aside in part by the British Columbia Supreme
P 211 Court on the grounds that the obligation of “transparency” had not been demonstrated to
P 212 form part of the applicable standard under Art. 1105(1), i.e. customary international law.
(55) Nonetheless, Metalclad has continued to be cited in support of this proposed element
of FET, understood as a “bare” treaty standard. The transparency requirement famously
was restated in the TecMed case, in which the tribunal set out an ideal view of how States
should act vis-à-vis investors (comments that were in effect obiter, as they did not form the
basis of the tribunal's actual finding of liability). (56) Tecmed quickly became the
wellspring for framing FET as the driver of international administrative law reform. Rather
than guaranteeing certain basic standards including protection against denial of justice,
reference to FET for some became seen as an invitation to engage in prescriptive
behaviour towards States in support of a broad range of good governance principles. (57)
The challenge with such approaches to FET, from a State perspective, is the democratic
gap inherent in an ad hoc tribunal purporting to engage in a prescriptive exercise of good
governance, relying to a greater or lesser degree on academic commentators' theories of
international administrative best practice, derived through an undoubtedly learned but
inevitably personal review of domestic practices collected from jurisdictions around the
world. In actual practice the circumstances in which FET violations have been found on the
basis of “lack of transparency” have tended to be egregious, suggesting that attempts to
fine-tune domestic administrative practice via investment law may be overrated.
However, from a State policy perspective concern about overreach through such
interpretations remains.
As with legitimate expectations, the ability to impose damages for perceived failings in
administrative practice highlights another gap between available remedies under FET
(understood as a “bare” treaty standard), and remedies available for equivalent breaches
in domestic administrative law. Administrative law rarely, for example, provides for an
award of damages in cases of breach. (58)
P 212
P 213
3 Reasonableness, Proportionality and the “Balancing” Exercise
On its face, the right to FET is an absolute right, reinforced by its status as a non-contingent
standard not dependent on the treatment offered by a State to its own citizens. Perhaps
inspired by this understanding of FET, arbitral tribunals and commentators on investment
law have fallen into the habit of referring to investors “rights”, without defining their scope.
Yet under classical international law, State sovereignty can be limited only to the extent of
express undertakings to this effect. Rather than acknowledge this formal legal
requirement, tribunals and commentators have instead evoked a need to “balance”
investors' rights (including to FET) against corresponding rights of the State, notably the
right to regulate. (59)
The challenge with this discourse is the lack of determinacy of FET understood as a bare
treaty norm: the analysis begs the question of the content of the “right” against which one
is “balancing” the State's right to regulate.
In practice, the approach has led to doctrinal formulations that arguably leave tribunals
significant leeway to second-guess and to sanction State regulatory decisions: notably, the
notion that States should be allowed to exercise “reasonable” regulatory powers, or
subjecting the actions of States affecting investors to a test of “proportionality”.
Thus, the tribunal in Philip Morris v. Uruguay, while stressing the right to regulate of the
State, and (in a majority) finding no violation of the FET obligation, nonetheless noted in its
reasoning that State regulation had to be “reasonable” to avoid sanction. This and other
tribunals have expressed the notion of reasonableness as “proportionality”, i.e. that the
State's means must be proportionate to the end pursued, and that no one investor may be
particularly singled out through the application of the measure. (60)
The potential breadth of limiting State regulatory action on the basis of potential

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 idiosyncratic notions of what constitutes “reasonable” regulation ora “proportionate”
response continues to generate controversy around FET as a treaty standard. Again, to the
extent State submissions in investment treaties are available, they suggest that States
vigorously contest the correctness of employing FET to second-guess good faith State
policy decisions that are not tainted by failure to respect the customary MST. (61)

V FET as the Customary International Law Minimum Standard of

Treatment
P 213 In parallel to the development of a jurisprudence interpreting FET as a treaty standard,
P 214 arbitrators (primarily but not exclusively under the NAFTA) have been prompted to
consider and to apply FET as the customary international law minimum standard of
treatment, on the understanding that reference to FET is a shorthand for that standard.
In this customary international law context, arbitral tribunals' interpretative role in
relation to FET formally is more constrained. In accordance with standard rules of public
international law, the content of customary international law must be determined in light
of consistent State practice, guided by a sense that such practice reflects a legal
obligation. (62) In practice, this means that any attempt to add to the recognized content
of a customary international law standard, or to lower the threshold for a breach of a
recognized element of the standard, must be based upon evidence of consistent State
practice and opinio juris. Proving advances to existing customary norms is difficult. This has
put a natural breaking effect on the expansion of the FET standard, understood as a
customary minimum norm.
The result has been a standard that includes a more limited range of obligations than FET
as a treaty standard open to arbitral interpretation, and one with a relatively higher
threshold for breach. (63) Notably, under their interpretation of FET understood as the
customary minimum standard of treatment of investors, NAFTA Parties exclude:
– legitimate expectations;
– discrimination on a national treatment basis;
– transparency; or
– the broad “fairness, equity and reasonableness” standard articulated by the tribunal
in Merrill.
To the contrary, core obligations recognized by NAFTA Parties under FET as a customary
standard include the prevention of denial of justice (including avoidance of gross
procedural unfairness in judicial decision-making), as well as direct targeting and
harassment of investors. Some NAFTA States also acknowledge that the MST precludes
State decision-making on manifestly arbitrary grounds. (64)
In this context, the notion of “balancing” investor rights against those of the State has been
far more mitigated, for the simple reason that the standard places fewer constraints on
State policy space in the first place.
Nonetheless, the standard continues to experience interpretive pressure.
First, claimants have relied upon decisions of arbitral tribunals interpreting FET as a stand-
alone treaty standard, to assert novel content for FET as a customary standard. Tribunals
typically have rejected such attempts, on the understanding that arbitral tribunals'
decisions do not count as State practice. (65)
P 214
P 215
Formally, there is no contradiction in referring to decisions of arbitral tribunals
articulating the contents of a customary rule, so long as these decisions themselves refer
back to consistent State practice and to opinio juris. Indeed, arbitral decisions often can
be a convenient shorthand when they summarize the contents of an existing rule. Where
arbitral tribunals simply hark back to a recognized articulation of the standard, their
statements arguably will be less scrutinized for evidence of State practice and opinio juris.
However, arbitral assertions necessarily will be subjected to greater scrutiny as statements
of customary international law when they assert novel content for the customary standard,
or suggest a lower threshold for a breach.
Indeed, State endorsement of a particular articulation of an international rule by an
arbitral tribunal is itself evidence of State practice and of opinio juris. By endorsing an
arbitrator's articulation of what the State considers a customary rule, the State gives
weight (although not necessarily definitive weight) to the rules' standing as part of
customary international law. A basic challenge to establishing State practice on the basis
of their investment case submissions is the failure of most States to publish their
submissions. Their endorsement of this practice, as of 2001, has given NAFTA Parties'
submissions substantial prominence in the analysis of international investment law. It is to
be hoped that States increasingly will adopt the same policy, by adopting the United
Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the
Mauritius Convention on Transparency). Currently, these submissions can only be
determined at second hand, as rehearsed by tribunals in awards.
Second, claimants and commentators have sought to ground an expanded notion of FET in

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 general principles of law. (66) They note that reference in investment treaties to a
guarantee of FET “in accordance with international law” formally does not restrict the
contents of “international law” purely to customary international law. According to the
Statutes of the International Court of Justice, the primary sources of international law are
treaties, custom, and general principles of law. (67) Harking to these “general principles of
law”, claimants have argued a general duty of good faith in dealings, through which they
seek (inter alia) to introduce respect for legitimate expectations amongst the obligations
of even customary FET.
The challenge with this second approach is that the contents of recognized general
principles of law are relatively limited. The duty of “good faith” or related requirement
that pacta sunt servanda are stated in general terms, rather than as specific obligations
owed by a State to an investor. Commentators have questioned expanding the content of
P 215 FET as a minimum standard in specific ways (such as respect for “legitimate expectations”),
P 216 by reference to such general obligations. (68) In any event, to the extent FET is
understood at a customary minimal norm, in formal terms this is distinct from general
principles.
Third, several tribunals have suggested that the content of FET as the customary minimum
standard of treatment has been expanded by the widespread reference to an obligation of
FET in the over 3,000 bilateral investment treaties signed over the past forty years. This is
put forward as evidence of consistent State practice, confirming that customary
international law has moved on, at least from the standard expressed in Neer. Tribunals
suggesting that MST has evolved through the introduction of thousands of additional
treaties providing for FET have been noticeably silent as to the precise new content added
to the customary standard through this mechanism. (69)
Commentators and States take issue with the above argument, on several grounds. As
recognized by the International Law Commission (ILC) in its commentary on the
development of customary international law, reference to an obligation in a treaty does
not necessarily signal an intention to make that obligation binding, other than as a treaty
standard. (70) Indeed, it arguably signals the reverse. Beyond this, there is no confirmation
that States when referencing FET in treaties meant anything other than the minimum
standard of treatment, as classically understood. Finally, there is an inherent circularity to
arguments that States in referencing FET intended to expand the recognized content of the
minimum standard. The jurisprudence interpreting FET clauses as a bare treaty standard
post-dates the wave of entry into force of most BITs. One can hardly ascribe to States an
intention to adhere to specific content for FET that was unknown at the time States began
inserting a requirement of “FET” into their investment treaties. The doctrine of legitimate
expectations, entirely arbitrator-made, is a good example. Indeed, as we shall see below,
the recent wave of treaties entered into by States suggests the reverse of any intention to
develop customary international law in the direction ascribed in FET jurisprudence.
P 216
P 217
Yet the inherent disciplines on FET as a customary standard have not entirely forestalled
attempts to expand the content of the standard.
In one approach, investment tribunals have waived away differences between FET
interpreted as a bare treaty standard and FET as a reference to the customary minimum
standard of treatment. (71) This typically arises where a claimant asserts that FET is a
(more expansive) treaty standard, and the responding State argues that reference to FET is
to the customary minimum standard. Some tribunals have resolved this difference by
finding that there is (or is not) a violation of the standard irrespective of which standard
applies, asserting (without any analysis or evidence) that the two expressions are
essentially the same thing, or have converged.
In another approach, tribunals have asserted that they are applying the customary
minimum standard of treatment, while going on to apply that standard in a manner
implying a substantial (and undemonstrated) expansion of its scope.
For example, in the Bilcon v. Canada case the tribunal recognized that the applicable
standard was FET as the customary MST. (72) Nonetheless, the Tribunal went on to find
Canada in violation of Art. 1105(1) of NAFTA (Minimum Standard of Treatment) because it
disagreed with the application of Canadian law by a domestic administrative tribunal. This
was in circumstances in which the Claimants had not sought judicial review of the decision
forming the “measure” at issue in the arbitration. It is difficult to square this interpretation
with MST, one of the core standards of which is protection against denial of justice. It is
trite law to note that in considering alleged State breaches of an international standard,
State behaviour must be taken as a whole. In the context of a claim based upon an
administrative review decision with which the claimant disagreed, this necessarily must
take into consideration the investor's ability to seek review of the impugned decision
through impartial courts. Where tribunals ignore this, as in Bilcon, they are in effect
dramatically expanding the scope of the FET obligation.
Other tribunals have purported to give novel content to the MST standard by referring
spontaneously to the results of their own investigation into State practice and opinio juris.
One example of this was the decision of the Tribunal in Merrill & Ring v. Canada. (73) The
Tribunal found no violation of Art. 1105(1) in that case. However, this did not constrain the

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 Tribunal from engaging in a lengthy excursion into alleged developments of public
international law since the 1960s. Curiously for a decision considering inter alia obligations
of due process, the Tribunal in that matter saw no need to consult with the disputing
P 217 parties for their views on the materials the Tribunal had relied upon sua sponte to set out
P 218 an elaborate new statement of FET as a customary norm. Still other tribunals have
looked to the decision-making of tribunals not purporting to apply the customary
minimum standard, to expand the scope of custom. The award in Railroad Development
Corp v. Guatemala (RDC) is an example of this approach. (74)
States have continued to push back on the contents of FET as the customary MST in their
submissions in ongoing cases. For example, in the Mesa v. Canada matter, the tribunal
invited the disputing parties to provide their views on the significance of the Bilcon
decision. In that context, the United States in a non-disputing party submission set out a
starkly restrictive view of the contents of the Minimum Standard. (75)
Overall, tying FET to the customary MST has had a mitigating effect on the strength of the
obligation. Nonetheless, the absence of universally recognized content for the customary
international law standard has led claimants, tribunals and commentators to seek through
a variety of means to expand the contents of the standard. While States regularly have
pushed back, the dynamic arguably has led to a climate of uncertainty. Given mounting
opposition of some members of civil society to investor-State dispute resolution – or at
least, mounting questions – continued reliance on an undefined standard, especially one
designated as the “core” protection, may seem unsatisfactory at best.

VI State Attempts at Redrafting the Standard

In light of the uncertainties surrounding the use of FET in investment treaties, States
around the world in recent years have pushed back by altering their treaty practice, in at
least three ways.
The most radical approach has been to remove reference to the FET obligation altogether
(1). The second approach has been to follow the practice of the NAFTA Parties, by clarifying
that FET provides no more than the MST at customary international law (2). The third has
been to ascribe specific content to the FET standard, while confirming that only States may
expand the scope of this content (3). However, there is also evidence of a failure on the
part of some States to react, and to pursue older approaches to treaty-drafting –
suggesting the emergence of a “split” in State practice (4).
Overall, the direction of travel is a challenge to existing arbitral jurisprudence interpreting
FET as a bare treaty standard. The end result of these efforts remains to be seen.
P 218
P 219
1 Eliminating FET Altogether
Faced with the perceived intolerable impact of FET on their policy space, some States
have responded to recent jurisprudence by eliminating the FET obligation altogether from
their investment treaties.
For some States, this has been accomplished as part of a broader effort to eliminate the
perceived restrictions of international investment agreements. States such as Venezuela,
Ecuador and Bolivia have pursued this policy, in parallel with denouncing the ICSID
Convention. While this arguably radical approach on its face does not specifically target
FET, concerns about the potential scope of this obligation (as applied to these States) have
been front and centre.
Ironically, this approach may be adopted by the United States in the new version of NAFTA
currently being renegotiated. According to current media reports, the United States has
accepted a policy proposal from Canada to remove the investment chapter from NAFTA
altogether. From a Canadian point of view, this may be seen as less of a radical policy
move, given that Canada in any event maintains investment protection vis-à-vis Mexico
through the parallel Trans-Pacific Partnership (TPP) treaty. Canadian investors in the
United States have met little success in NAFTA Chapter Eleven claims. Canada by contrast
has repeatedly been at the receiving end of claims brought by litigious US investors. From
a US perspective elimination of investment protection in NAFTA would amount to a radical
policy shift. To recall, the United States initially was demandeur of investor-State dispute
resolution in the original version of the Treaty. Failure to maintain investment protection
in what is arguably the United States' marquee free trade agreement may make it more
difficult to claim investment protection as a necessary feature of US relations with non-
NAFTA States, going forward. (76)
The approach of some other States has been to retain commitment to investment
protection, while eliminating FET from the scope of new treaties. This has been the
approach proposed by India in its new model bilateral investment treaty. (77) In the place
of even mentioning FET, India instead provides a list of protections that otherwise have
been proposed as elements of the standard:
“No Party shall subject investments made by investors of the other Party to
measures which constitute a violation of customary international law through:
(i) Denial of justice in any judicial or administrative proceedings; or (ii)

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 fundamental breach of due process; or (iii) targeted discrimination on
manifestly unjustified grounds, such as gender, race or religious belief; or (iv)
manifestly abusive treatment, such as coercion, duress and harassment.”

P 219 The challenges with this approach are twofold. In the first place, eliminating investment
P 220 treaties altogether may be perceived as reducing the attractiveness of the countries in
question as FDI destinations, given their apparent refusal to endorse international-level
protections in any form. Secondly, this outcome has the corresponding negative impact on
a State's own investors abroad, by removing any international protections they would
otherwise have enjoyed under the State's previous treaties (subject to sunset clauses). This
might not be a consideration for States that exclusively import capital. But increasingly,
Southern States and “emerging market” States are both capital exporters as well as capital
importers – particularly amongst countries in their region. This sort of reasoning applies a
fortiori for developed countries. Thus, this approach is arguably unlikely to be adopted by
most States.
As for the approach of eliminating FET while retaining other protections, this approach
continues to raise some of the issues arising with the elimination of investment treaties.
The challenge is that it sends a signal to investors that a State is unwilling to ascribe even
to a minimum threshold of treatment of investors.
In any event, this approach clearly signals the rejection by the States involved of modern
iterations of FET interpreted either as a bare treaty standard, or as a customary
international law norm (whether “minimum” or something more).

2 Confirming That FET Refers to the MST at Customary International Law

The alternative approach – one that arguably has gained the highest level of adherence
over the past ten years – has been for other States to follow the NAFTA Free Trade
Commission in expressly linking reference to FET in any new treaties to the customary
international law MST. (78) This connection frequently has been included in new draft
treaties prefaced by the words “for greater certainty”. In other words, States entering into
these treaties are formally signalling, not only that FET should be limited to a customary
international minimum norm, but that this has always been their intention. Given the
language of the explanatory note of the 1967 OECD Model Treaty, there is some historical
support for this contention. In any event, in terms of the lege lata, these new treaties
clearly distance State parties from obligations deemed to arise under FET interpreted as a
bare treaty obligation. This means that as in the NAFTA context, State parties to such
treaties likely will reject any attempt to interpret the FET standard along the lines of
recent arbitral jurisprudence.
Linking FET to the customary minimum standard of treatment naturally has been adopted
by States entering into international investment agreements with NAFTA Parties. But the
approach has also spread beyond negotiations involving NAFTA Parties. (79) The approach
also has been multilateralized through its use in the recently concluded renewed TPP
agreement. Given this, it seems an approach likely to gain more State adherents in the
future.
P 220
P 221
The challenge with continued reliance on FET as an expression of the MST at customary
international law, as reviewed above, is the relative indeterminacy of this standard. As
described above, in the NAFTA context linking FET to the customary minimum standard no
doubt constrained FET's scope, marking a substantial difference with FET understood as a
bare treaty option. Regardless, it has also prompted consistent attempts to expand the
standard beyond traditionally recognized categories, and to lower the threshold for breach
of the standard. Thus, while linking FET to MST arguably is the most common approach to
reform at the current juncture, it may not finally resolve longstanding uncertainty about
the content of the FET standard.

3 Setting Out a Clearly Delineated Definition of FET in the Treaty

A third State response to uncertainty about the scope FET clauses has been to seek to
define with more precision FET as a treaty standard, and expressly to preclude tribunals'
ability to move beyond that tight definition.
The best-known example of this approach is in the investment chapter of the Canada-
European Union Comprehensive Economic and Trade Agreement (CETA). (80) Under the
heading of “treatment of investors”, the CETA offers FET to investors, but then immediately
imposes a constraining definition on the content of FET:
“Article 8.10 Treatment of investors and of covered investments
1. Each Party shall accord in its territory to covered investments of the other
Party and to investors with respect to their covered investments fair and
equitable treatment and full protection and security in accordance with
paragraphs 2 through 7.
2. A Party breaches the obligation of fair and equitable treatment referenced
in paragraph 1 if a measure or series of measures constitutes:

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 (a) denial of justice in criminal, civil or administrative proceedings;
(b) fundamental breach of due process, including a fundamental breach
of transparency, in judicial and administrative proceedings;
(c) manifest arbitrariness;
(d) targeted discrimination on manifestly wrongful grounds, such as
gender, race or religious belief;
(e) abusive treatment of investors, such as coercion, duress and
harassment; or
(f) a breach of any further elements of the fair and equitable treatment
obligation adopted by the Parties in accordance with paragraph 3 of
this Article.”

P 221 The CETA then goes on to confirm that this interpretative list can be expanded only by the
P 222 agreement of the CETA Joint Commission (i.e. by the State Parties to the agreement):
“3. The Parties shall regularly, or upon request of a Party, review the content of
the obligation to provide fair and equitable treatment. The Committee on
Services and Investment, established under Article 26.2.1(b) (Specialised
committees), may develop recommendations in this regard and submit them to
the CETA Joint Committee for decision.”
The list of obligations set out in Art. 8.10.2 of the CETA as the fixed content of FET is notable
in several respects.
First, the list clearly sets out a high threshold for breach of FET. Overall, the list clearly
focusses on situations of substantially abusive and unfair behaviour of States vis-à-vis
investors. This is reflected both in the main content of the list, and in the accompanying
qualifiers (“manifest” arbitrariness, “fundamental” breach, “manifestly” wrongful grounds).
There is no reference to any ability to judge the reasonableness or proportionality of State
decision-making. There is no reference in this main list giving legal effect to investor
expectations.
Second, the list aligns with the kinds of behaviour that investment tribunals applying Art.
1105(1) of NAFTA have found in violation of the MST under customary international law.
Third, there is no reference in the passage to customary international law, nor indeed to
international law simpliciter, contrary to Canada's typical practice of expressly linking FET
to the customary minimum standard. Thus, one might a contrario consider that the list
refers to a purely treaty-based standard. This would mean that the standards set out in the
list would themselves be subject to interpretation in light of the requirements of the VCLT.
This might arguably lead to a recurrence of interpretative issues arising under “bare”
treaty versions of FET. The difference is that here, that power is substantially
circumscribed by the defined list.
Fourth, it is also notable that the FET article in CETA does not exclude reference to
legitimate expectations. However, the treaty makes it clear that breach of such an
expectation does not in and of itself amount to a breach of the standard. Instead, State
failure to respect an expectation arising in tightly defined circumstances is something that
may be “taken into account” by tribunals, in connection with established elements of the
list:
“4. When applying the above fair and equitable treatment obligation, the
Tribunal may take into account whether a Party made a specific representation
to an investor to induce a covered investment, that created a legitimate
expectation, and upon which the investor relied in deciding to make or
maintain the covered investment, but that the Party subsequently frustrated.”
The place of investor expectations in the analysis is further mitigated by the Article's
express affirmation of State right to regulate:
“Article 8.9 Investment and regulatory measures
1. For the purpose of this Chapter, the Parties reaffirm their right to regulate
P 222 within their territories to achieve legitimate policy objectives, such as the
P 223 protection of public health, safety, the environment or public morals,
social or consumer protection or the promotion and protection of cultural
diversity.
2. For greater certainty, the mere fact that a Party regulates, including
through a modification to its laws, in a manner which negatively affects an
investment or interferes with an investor's expectations, including its
expectations of profits, does not amount to a breach of an obligation under
this Section.” (Emphasis added.)
CETA also restates the basic public international law principle that a breach of domestic
law absent something more does not amount to a breach of international law.
The CETA approach to FET is part of arguably the biggest policy change in international

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 investment law since the 1960s. Rejecting the typical liberal approach of Western
European BITs, in the CETA the EU has moved to investment protection that is much more
tightly defined and much more clearly upholds the right of the State to regulate. And the
centrepiece of that effort arguably is its approach to FET.
The circumstances of this shift bear some consideration.
The first and likely driving circumstance has been the potential expansion of the EU's
existing treaty network (as developed by EU Member States) beyond treaties with
developing States, towards treaties with developed States. This trend began with EU
negotiations with Canada and Singapore. It accelerated when the EU began considering
entering into the TransAtlantic Trade and Investment Partnership (TTIP) with the United
States.
The second circumstance was the shift of investment treaty negotiation competency away
from EU Member States towards the EU Commission, through the 2009 Treaty of Lisbon.
This accelerated the EU policy shift by handing responsibility to a new set of officials,
answerable among others to the European Parliament. Members of the European
Parliament, alarmed by the prospect of investment protection in the CETA or (worse) TTIP,
pushed the EU Commission to reconsider and rebalance the traditional EU Member State
approach.
Ironically, this meant that while benefitting from arguably the densest network of
investment treaties in the world, Europe suddenly became one of the most vocal critics of
the system.
The EU policy shift is all the more significant in that, at least up to 2010-2011, EU Member
States resisted the “North Americanization” of investment treaties, i.e. the approach that
sought to give more definition to substantive standards, and more clarity to dispute
resolution procedures. The EU's shift took place in the context of discussions with Canada
relating to CETA investment protections. The ultimate consequences of this shift will be
worked out for years to come.

4 An Alternative Approach: The Status Quo

While reform to FET in investment treaties is widespread, one must also acknowledge that
the direction of travel for State treaty drafters is not all one way. Despite all of the
concerns expressed by States and by civil society about the contents of investment
treaties – and about interpretations of FET in particular – some States continue to enter
into bilateral investment treaties relatively unchanged from models current in the 1970s.
P 223 These States include, somewhat surprisingly, Argentina – if anything, the poster child for
P 224 States affected by tribunal's interpretations of “bare” FET clauses.
Interpreting this countercurrent of State practice presents challenges. It is difficult to
judge State intentions linked to this treaty-making practice in the current context. Does it
reflect an express intent to maintain liberally-defined investor obligations, with a view to
encouraging foreign investment? A conscious determination that adopting new language
comports as many risks as sticking to familiar texts? Or simply a lack of will and capacity
on the part of some States to adopt new treaty practices, with a view to mitigating risk?
In any event, the continued adopting of “first generation” style BITs by some States
suggests another parting of the ways in investment treaty practice: between a range of
States seeking to reform the system and “reset the dial” on obligations, notably on FET; and
some other States sticking to existing treaty practice. This in turn has implications for the
potential development of any further customary rules of international investment
protection.

VII Implications for Existing Treaties?

The above historical overview and review of current treaty practice brings us back to our
starting-point: what will be the implications of new State treaty practice on the
interpretation and application of existing BITs? More specifically, how will new treaty
practice affect existing interpretations of “bare” FET clauses in old treaties? Will it disrupt
the tendency of tribunals to rely upon existing jurisprudence, generated before States
sought to clarify their intentions?
At very least, from a formal point of view new treaties constitute evidence of State practice
and opinio juris regarding the emergence of standards of investment protection. Among
other things, in light of such evidence it is difficult to sustain the thesis of “convergence”
between FET interpreted as a bare treaty obligation, and the customary international law
minimum standard of treatment of investors. Beyond this, the specific list of content of FET
in CETA might be viewed by some as setting a new bar for the contents of a customary MST
standard.
As for the retroactive implications of new treaty practice for the interpretation of first-
generation “bare” FET clauses, tribunals may take different approaches.
Some may decide simply to ignore the new practice. Formally, each treaty is to be
interpreted on its own terms. The decision of States to adopt a different approach in
subsequent treaties might be viewed as irrelevant to the interpretation of a separate,

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 earlier instrument.
Others may look to the new treaties – in particular, language stating “for greater certainty”
that FET is intended to mean no more than MST at customary international law – to revisit
the interpretation of “bare” FET clauses in older treaties. The challenge in this regard are
the formal rules of interpretation under the VCLT: subsidiary rules of interpretation under
VCLT Art. 31, based upon State practice, depend upon concurrent practice of the same
parties to a treaty, not practice of one of the parties alone. This dynamic would of course
P 224 change if both parties indeed agreed to a joint statement regarding the interpretation of
P 225 the FET clause. More challenging would be circumstances where each of the State
Parties to Treaty A (containing a “bare” FET clause) individually entered into separate
treaties with B and C but with different State counterparts, each of which held that “for
greater certainty, the obligation to provide FET is limited to the level of protection
provided under the customary international law minimum standard of treatment”. Would
such different treaties interpreting the same language become “relevant rules of
international law applicable in the relations between the parties”, under VCLT Art. 31.3(c)?
Ultimately, the most efficient way States might collectively resolve any uncertainty arising
out of their new treaty practice would be to enter into a Mauritius-Convention type fix,
retroactively clarifying their intentions (whatever these may be) regarding the
interpretation of existing treaties, notably with regard to the content of FET. Given existing
divergences in State treaty practice, it remains to be seen whether there is sufficient
consensus at the international level to achieve such an instrument. As the drafters of the
ICSID Convention determined over fifty years ago, it is much easier to seek agreement on
process than on substance. Notably, drivers of the current UNCITRAL Third Committee
investment treaty reform process have studiously avoided addressing issues of substance.

VIII Conclusions
The modern expression of international investment law is in its infancy. Yet arbitrators,
counsel and commentators function in individual time. States function much more
naturally in the “longue durée” of international law. They are slow to rouse. They are slow to
respond. But in the long run they do react. And at the end of the day, despite the rise of
other actors, States remain the ultimate masters of the contents of public international
law – for reasons ultimately rooted in democracy. The analogy is to domestic legislation: if
a court has in the State's view misinterpreted a law, or the law requires clarification,
Parliament can reconsider the law.
The abundant international investment law jurisprudence generated over the past twenty
years provides rich grounds for arbitrators, commentators and State officials to consider
what international investment law might provide. There will be no lack of people
proposing what it ought to provide.
In a sense, academics and arbitrators have been the victims of their own success – through
their work, they have revealed to States the potential interpretative consequences of FET
language. The responding direction of travel of States largely reflects concerns about the
indeterminacy of the FET standard, and the limitations FET potentially may place on
State's right to regulate.
This article is not concerned with de lege ferenda. It is concerned de lege lata. And on the
basis of current evidence, for FET at least, the tectonics plates of international law appear
to be shifting.
P 225

References
*) Christophe Bondy: Special Counsel in the Public International Law Group, Cooley, LLP,
London.
1) Among others, Técnicas Medioambientales Tecmed SA v. Mexico (ICSID Case No. ARB
(AF)/00/2), Award (29 May 2003) (Tecmed); CMS Gas Transmission Company v. The
Republic of Argentina (ICSID Case No. ARB/01/8), Award (12 May 2005); LG&E Energy
Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic (ICSID Case
No. ARB/02/1), Award (3 October 2006)
2) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, 23
Arbitration International (2007) at pp. 357-377.
3) My remarks ultimately were published as “Fair and Equitable Treatment, Arbitral
Jurisprudence, and the Implications of State Treaty Practice” in Ian A. LAIRD and Todd
WEILER, eds., Investment Treaty Arbitration and International Law, Vol. 2 (Juris
Publications, New York 2009) pp. 233-251.
4) NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter Eleven
Provisions, 31 July 2001, at B.

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 5) E. DE VATTEL, Droit des Gens, Vol. II Chap. VIII (Duties owed to Foreigners), e.g. at para.
104: “The sovereign ought not to grant an entrance into his state for the purpose of
drawing foreigners into a snare: as soon as he admits them, he engages to protect them
as his own subjects, and to afford them perfect security, as far as depends on him.” For
this section, see generally the historical overview in Martins PAPARINSKIS, The
International Minimum Standard and Fair and Equitable Treatment (OUP 2013), Part I,
“Development of the International Minimum Standard”. For an earlier historical
overview, see OECD, Fair and Equitable Treatment Standard in International Investment
Law, in International Investment Law: A Changing Landscape: A Companion Volume to
International Investment Perspectives (OECD Publishing 2006) p. 118.
6) Elihu ROOT, “The Basis of Protection to Citizens Residing Abroad”, 4 Am. J. Int'l Law
(1910) pp. 517, 512-522.
7) Carlos Calvo set out the classical expression of this competing doctrine in his Derecho
internacional teórico y práctico de Europa y América (Paris, 1868).
8) LFH Neer and Pauline Neer (USA v. United Mexican States) (1926) 4 RIAA 60, 61-62. This
decision's status as reflective of a customary international law minimum standard of
treatment of aliens owes much to subsequent reliance by States on its formulation as
reflective of custom regarding the treatment of foreign investors and of their
investments.
9) See R. DOLZER and CH. Schreuer, Principles of International Investment Law (Oxford
University Press 2008) p. 120, for references to 1950s US FCN treaties. The Havana
Charter for an International Trade Organization (1948) (UN Doc E/CONF.2/78, 3) also
contained reference to the phrase. As Judge Higgins noted in Oil Platforms (Iran v. US)
(Preliminary Objections) [1996] ICJ Rep 803, Separate Opinion of Judge HIGGINS 847,
FET at that point in time (the mid-1990s) was a legal term of art well known in the field
of overseas investment protection.
10) See Andreas F. LOWENFELD, “The ICSID Convention: Origins and Transformation”, 38 Ga.
J. Int'l & Comp. L. (2009) p. 47.
11) E.g., the Abs-Shawcross Draft Convention on Investment Abroad (1960) 9 J Public L 116.
12) OECD, Draft Convention on the Protection of Foreign Property (1968) 7 ILM 117, Notes
and Comments to Art. 1, para. 4(a):
“The phrase ‘fair and equitable treatment’, customary in relevant bilateral
agreements, indicates the standard set by international law for the
treatment due by each State with regard to the property of foreign
nationals. The standard requires that – subject to essential security
interests – protection afforded under the Convention shall be that generally
accorded by the Party concerned to its own nationals, but, being set by
international law, the standard may be more exacting where rules of
national law or national administrative practices fall short of the
requirements of international law. The standard required conforms in effect
to the ‘minimum standard’ which forms part of international law.” (Emphasis
added.)
13) See discussion in Stephen SCHWEBEL, “The Influence of Bilateral Investment Treaties
on Customary International Law”, Proceedings of the 98th Annual Meeting of the
American Society of International Law, 31 March – 3 April 2004, pp. 27-30.
14) As noted by Judge Nikken, “… the question of why there is no mention in the BITs of the
international minimum standard cannot be answered properly if the historical
controversy on the concept of minimum standard is completely ignored….”, Judge
NIKKEN, Separate Opinion in AWG v. Argentina (UNCITRAL), Decision on Liability (30 July
2010) paras. 11-12. See also OECD, “Fair and Equitable Treatment Standard in
International Investment Law”, OECD Working Papers on International Investment
(2003/2004) p. 8, n. 33.
15) The UNCTAD database of decided cases only lists arbitrations initiated as of 1987, and
from that year until 1993 only two cases, with a further two in 1994 and 1995. As for 1996,
the rhythm of cases initiated accelerates: see
<http://investmentpolicyhub.unctad.org/ISDS/FilterByYear>. Of course, earlier cases
may not have been disclosed.
16) Elettronica Sicula S.p.A. (ELSI) Case (United States of America v. Italy), [1989] ICJ Rep. p.
15, at para. 128. Treaty of Friendship, Commerce and Navigation between the United
States and Italy, signed 2 February 1948, entered into force 26 July 1949 [79 UNTS 171].
17) As a recent OECD analysis notes, the United States expressly has rejected reliance on
ELSI as support for a customary international rule against arbitrary treatment given
that the ICJ was interpreting a specific treaty provision, not commenting on customary
international law: see David GAUKRODGER, “Addressing the Balance of Interests in
Investment Treaties: The Limitation of Fair and Equitable Treatment Provisions to the
Minimum Standard of Treatment Under Customary International Law”, OECD Working
Papers on International Investment 2017/03, p. 48, citing the US Counter-Memorial in
Glamis Gold, Ltd v. United States of America, 19 September 2006, p. 228.
18) Stephen SCHWEBEL, “The Influence of Bilateral Investment Treaties on Customary
International Law”, Proceedings of the 98th Annual Meeting of the American Society of
International Law, 31 March – 3 April 2004, pp. 27-30.

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 19) See overview in United Nations Conference on Trade and Development, “‘Fair and
Equitable Treatment’: UNCTAD Series on Issues in International Investment Agreements
II” (United Nations, New York and Geneva 2012) pp. xiiv-xiv.
20) F.A. MANN, The Legal Aspects of Money, 4th ed. (Clarendon Press, Oxford 1982) p. 510.
See related discussion in J.C. THOMAS, “Reflection on Article 1105 of NAFTA: History,
State Practice and the Influence of Commentators”, 17 ICSID Review – Foreign
Investment Law Journal (2002, no. 1) pp. 21-101, p. 58.
21) As quoted by J.C. THOMAS, “Reflection on Article 1105 of NAFTA: History, State Practice
and the Influence of Commentators”, p.58.
22) Canada–United States Free Trade Agreement, entered into force 1 January 1989:
<http://www.international.gc.ca/trade-commerce/assets/pdfs/agreements-
accords/cusfta-e.pdf>.
23) NAFTA Art. 1105(1).
24) Jan PAULSSON, “Arbitration Without Privity”, 10 ICSID Review – Foreign Investment Law
Journal, (1 October 1995, issue 2) pp. 232-257.
25) The 2004 OECD survey of FET in investment cases suggested that up to that date at
least, the earliest investment tribunals had not sought to interpret FET as a “bare”
treaty standard: OECD, “Fair and Equitable Treatment Standard in International
Investment Law”, OECD Working Papers on International Investment Law (2004/03). The
exception to this would be early cases under NAFTA Chapter Eleven, notably Metalclad
and Pope & Talbot. As set out in what follows, these initial decisions were in effect
overturned by the 2001 NAFTA Free Trade Commission Note of Interpretation.
26) Apparently the first tribunal to apply the FET standard as a “bare” treaty standard was
Emilio Augustin Maffezini v. The Kingdom of Spain (ICSID Case No. ARB/97/7), Award (13
November 2000), 5 ICSID Rep. 274 (2010). However, the OECD's 2004 analysis of FET
found that, to that date, no tribunal had yet interpreted FET as a “bare” treaty
obligation. This appears to have excluded the award in Tecmed, dating from 2003. See
OECD, “Fair and Equitable Treatment Standard in International Investment Law”, OECD
Working Papers on International Investment (2004/03).
27) One such case was Azurix v. Argentina (ICSID Case No. ARB/01/12), Award (14 July 2006),
where the tribunal interpreted a clause that said investments shall be provided FET
and “in no case be accorded treatment less than required by international law”. They
found that reference to international law “set a floor, not a ceiling” and thus “permits
to interpret fair and equitable treatment… as [a] higher [standard] than that required
by international law” (para. 361).
28) Vienna Convention on the Law of Treaties, Art. 31(1): “A treaty shall be interpreted in
good faith in accordance with the ordinary meaning to be given to the terms of the
treaty in their context and in light of its object and purpose”.
29) NAFTA Chapter Eleven tribunals have sought to retain the same margin for manoeuvre
in applying FET as the customary international minimum standard, holding that it
“cannot be reached in the abstract; it must depend on the facts of the particular case”
(Mondev International Ltd. v. United States of America (ICSID Case No. ARB(AF)/99/2),
Award (11 October 2002) para. 118; Chemtura Corporation v. Government of Canada,
(formerly Crompton Corporation v. Government of Canada) (UNCITRAL), Award (2 August
2009) p. 123:
“In assessing whether the treatment afforded to the Claimant's investment
was in accordance with the international minimum standard, the Tribunal
must take into account all the circumstances, including the fact that certain
agencies manage highly specialized domains involving scientific and public
policy determinations. This is not an abstract assessment circumscribed by
a legal doctrine about the margin of appreciation of specialized regulatory
agencies. It is an assessment that must be conducted in concreto. The
Tribunal will proceed to such assessment in concreto when reviewing the
specific measures challenged by the Claimant.”

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 30) Case of the S.S. Lotus (France v. Turkey), Permanent Court of Int'l Justice, P.C.I.J. (ser. A)
No. 10 (1927); Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican
States (ICSID Case No. ARB (AF)/97/2), Award (1 November 1999):
“Arbitral jurisdiction under Section B is limited not only as to the persons
who may invoke it (they must be nationals of a State signatory to NAFTA),
but also as to subject matter: claims may not be submitted to investor-
state arbitration under Chapter Eleven unless they are founded upon the
violation of an obligation established in Section A.
To put it another way, a foreign investor entitled in principle to protection
under NAFTA may enter into contractual relations with a public authority,
and may suffer a breach by that authority, and still not be in a position to
state a claim under NAFTA. It is a fact of life everywhere that individuals
may be disappointed in their dealings with public authorities, and
disappointed yet again when national courts reject their complaints. It may
safely be assumed that many Mexican parties can be found who had
business dealings with governmental entities which were not to their
satisfaction; Mexico is unlikely to be different from other countries in this
respect. NAFTA was not intended to provide foreign investors with blanket
protection from this kind of disappointment, and nothing in its terms so
provides.” (Emphasis in original.)
31) S.D. Myers, Inc. v. Government of Canada (UNCITRAL), Partial Award (13 November 2000),
para. 266.
32) Metalclad Corporation v. United Mexican States (ICSID Case No. ARB(AF)97/1), Award (30
August 2000). The decision was set aside in part by the British Columbia Supreme
Court for excess of jurisdiction, precisely because the Tribunal had not established
that transparency formed part of the applicable customary international law
standard: Mexico v. Metalclad, Supreme Court of British Columbia (2001). Despite this,
tribunals outside of the NAFTA context continued to rely on Metalclad to find that FET
as a bare treaty standard includes an obligation of “transparency”.
33) Pope & Talbot v. Government of Canada (UNCITRAL), Award on the Merits of Phase 2 (10
April 2001) para. 110.
34) NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter Eleven
Provisions (31 July 2001).
35) Treaty between the United States of America and the Republic of Argentina Concerning
the Encouragement and Reciprocal Protection of Investment (adopted 14 November
1991; entered into force 20 October 1994) 1992 (3) ILM 124 Art. II(2)(a): “Investment shall
at all times be accorded fair and equitable treatment, shall enjoy full protection and
security and shall in no case be accorded treatment less than that required by
international law.”
36) The Vienna Convention on the Law of Treaties provides at Art. 31(3)(a) that a
subsequent agreement of the States Parties to a treaty regarding its interpretation or
application “shall be taken into account” in interpreting that treaty.
37) This cleavage recently was explored in the OECD study by David GAUKRODGER,
“Addressing the Balance of Interests in Investment Treaties”, supra fn. 17.
38) MST is typically seen as comprising two main elements: FET, and Full Protection and
Security (FPS). As with FET, there has been a debate in arbitral jurisprudence as to the
scope of the FPS obligation, with some tribunals finding it a bare treaty standard, open
to expansive interpretations (including protection of “legal stability”). As with FET,
there has been a State reaction against such interpretations in more recent treaty
drafting such as CETA, with States confirming that FPS addresses only the physical
protection of investors and their investments.
39) See for example Azurix Corp. v. The Argentine Republic (ICSID Case No. ARB/01/12),
Award (14 July 2006), where the tribunal interpreted a clause providing that
investments shall be provided FET and “in no case be accorded treatment less than
required by international law”. Reminiscent of Pope & Talbot v. Canada, the tribunal
found that the reference to international law “set a floor, not a ceiling” and thus
“permits to interpret fair and equitable treatment … as [a] higher [standard] than that
required by international law” (para. 361).
40) E.g., CMS Gas Transmission Co. v. Argentine Republic (ICSID Case No. ARB/01/8), Award
(14 July 2006) at paras. 274 and 280, relying on the Preamble to the Treaty between the
United States of America and the Argentine Republic concerning the reciprocal
encouragement and protection of investment, which provided that “fair and equitable
treatment of investment is desirable in order to maintain a stable framework for
investment”.

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 41) PSEG Global Inc. v. Republic of Turkey (ICSID Case No. ARB/02/5), Award (19 Jan. 2007)
para. 238:
“The standard of fair and equitable treatment has acquired prominence in
investment arbitration as a consequence of the fact that other standards
traditionally provided by international law might not in the circumstances
of each case be entirely appropriate. This is particularly the case when the
facts of the dispute do not clearly support the claim for direct
expropriation, but when there are notwithstanding events that need to be
assessed under a different standard to provide redress in the event that the
rights of the investor have been breached.”
42) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, 23
Arbitration International (2007) at pp. 357-377.
43) David GAUKRODGER, in “Addressing the Balance of Interest in Investment Treaties”,
supra fn. 17, surveys the stark distinction between the content of FET as articulated by
the NAFTA Parties in their submissions in claims, compared with the expansive
readings of FET offered by tribunals who do not consider themselves bound to cleave
to customary international law in interpreting FET. Given the longstanding failure of
many States to take steps in favour of transparency of investment treaty proceedings,
the submissions of States in particular disputes outside of the NAFTA context are only
sporadically available. This hopefully will be increasingly remedied over time by the
adherence of most States to the United Nations Convention on Transparency in Treaty-
based Investor-State Arbitration (New York, 2014) (the Mauritius Convention on
Transparency).
44) Proposed content for FET as a stand-alone treaty standard includes protection against
denial of justice and in favour of administrative due process, protection against
coercion and harassment of investors, requirements of stability, predictability,
consistency and legality, protection of legitimate expectations, protection against
arbitrariness and discrimination, transparency, and a requirement of reasonableness
and proportionality See Stephan SCHILL, “Fair and Equitable Treatment, the Rule of
Law, and Comparative Public Law” in Stephan W. Schill, International Investment Law
and Comparative Public Law (OUP, Oxford and New York 2010) Chapter 5.
45) Tecmed, supra fn. 1, para. 154; Saluka Investments BV v. Czech Republic (UNCITRAL),
Partial Award (17 March 2006) para. 307.
46) See CMS supra.
47) See Eastern Sugar B.V. (Netherlands) v. The Czech Republic (SCC Case No. 088/2004),
Partial Dissenting Opinion of Robert Volterra (12 April 2007) para. 27: “The fair and
equitable treatment obligation in Art. 3.1 of the BIT protects the Claimant's legitimate
subjective expectations” (my emphasis), relying on Tecmed.
48) Duke Energy Electroquil v. Republic of Ecuador (ICSID Case No. ARB/04/19), Award (18
August 2008) para. 340 – protection of objective expectations based upon
representations made to investors.
49) Saluka v. Czech Republic (UNCITRAL Rules), Partial Award, (17 Mar 2006), para. 304 –
legitimate expectations in order to be protected must rise to the level of legitimacy
and reasonableness in light of the circumstances…. No investor may reasonably expect
that the circumstances prevailing at the time the investment is made remain totally
unchanged. In order to determine whether frustration of the foreign investor's
expectations was justified and reasonable, the host State's legitimate right
subsequently to regulate domestic matters in the public interest must be taken into
consideration as well … the determination of a breach of Article 3.1 by the Czech
Republic therefore requires a weighing of the Claimant's legitimate and reasonable
expectations on the one hand and the Respondent's legitimate regulatory interests on
the other.”
50) See, e.g., in Eli Lilly v. Canada treatment of Eli Lilly's apparent failure to engage in any
due diligence into the then-current state of Canadian patent law vs. Canada's
demonstration that the legal doctrine that took them by “surprise” had in fact been
widely discussed in contemporary commentary by leading patent scholars: Eli Lilly and
Company v. Government of Canada (UNCITRAL, ICSID Case No. UNCT/14/2), Final Award
(16 March 2017) paras. 383-384.
51) See SGS Société Générale de Surveillance S.A. v. Pakistan (ICSID Case No. ARB/01/13),
Decision on Jurisdiction (6 August 2003) para. 167; International Law Commission, 53rd
Session (2001), “Of course the breach by a State of a contract does not as such entail a
breach of international law”); see other sources cited in Glamis v. United States of
America, US Rejoinder, p. 179 and note 703. See also Parkerings-Compagniet AS v.
Lithuania (ICSID Case No. ARB/05/8), Award (11 September 2007); Hamester v. Ghana
(ICSID Case No. ARB/07/24), Award (18 June 2010).
52) Umbrella clauses typically provide that a State shall respect all undertakings to an
investor. Canada has never included umbrella clauses in its treaties, precisely since
they potentially elevate purely contractual disputes to the level of a breach of public
international law.

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 53) See Josef OSTRANSKY, “An Exercise in Equivocation: A Critique of Legitimate
Expectations as a General Principle of Law under the Fair and Equitable Treatment
Standard” in A. GATTINI; A. TANZI, F. FONTANELLI, eds., General Principles of Law and
International Investment Arbitration (Brill 2018); Jonathan BONNITCHA, “The Problem of
Moral Hazard and Its Implications for the Protection of ‘Legitimate Expectations’
Under the Fair and Equitable Treatment Standard”, International Institute for
Sustainable Development, Investment Treaty News (7 April 2011); Christopher
CAMPBELL, “House of Cards: The Relevance of Legitimate Expectations Under Fair and
Equitable Treatment Provisions in Investment Treaty Law”, 30 Journal of International
Arbitration (Kluwer Law International 2013, Issue 4) pp. 361-379.
54) See Josef OSTRANSKY, “An Exercise in Equivocation: A Critique of Legitimate
Expectations as a General Principle of Law Under the Fair and Equitable Treatment
Standard” in A. GATTINI, A. TANZI, F. FONTANELLI, eds., General Principles of Law and
International Investment Arbitration (Brill 2018); compare with survey in Total S.A. v. The
Argentine Republic (ICSID Case No. ARB/04/01), Decision on Liability (27 Dec 2010).
55) Metalclad Corporation v. The United Mexican States (ICSID Case No. ARB(AF)/97/1),
Award (30 August 2000).
56) Tecmed, supra fn. 1, para. 154:
“El Tribunal Arbitral considera que esta disposición del Acuerdo, a la luz de los
imperativos de buena fé requeridos por el derecho interncional, exige de las
Partes Contratantes del Acuerdo brindar un tratamiento a la inversión
extranjera que no desvirtúe las expectativas básicas en razón de las cuales el
inversor extranjero decidió realizar su inversión. Como parte de tales
expectativas, aquél cuenta con que el Estado receptor de la inversión se
conducirá de manera coherente, desprovista de ambigüedades y transparente
en sus relaciones con el inversor extranjero, de manera que éste pueda
conocer de manera anticipada, para. planificar sus actividades y ajustar su
conducta, no sólo las normas o reglamentaciones que regirán tales
actividades, sino también las políticas perseguidas por tal normativa y las
prácticas o directivas administrativas que les son relevantes….”
The reference to transparency has been incorrectly translated in the English version,
into a requirement to act “totally transparently”.
57) See, for example, Stephan SCHILL, “Fair and Equitable Treatment as an Embodiment of
the Rule of Law” in R. HOFMANN and C. TAMS, eds., The International Convention on the
Settlement of Investment Disputes (ICSID): Taking Stock after 40 Years (Nomos 2007).
58) See comments to this effect in OECD Working Papers on International Investment
2012/3, Investor-State dispute settlement: A scoping paper for the investment policy
community.
59) C. MCLACHLAN, L. SHORE and M. WEINIGER, International Investment Arbitration (OUP)
p. 206.
60) Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental
Republic of Uruguay (ICSID Case No. ARB/10/7), Award (9 July 2016).
61) See survey of NAFTA Party submissions in D. GAUKRODGER, “Addressing the Balance of
Interests in Investment Treaties: The Limitation of Fair and Equitable Treatment
Provisions to the Minimum Standard of Treatment under Customary International Law”,
supra fn. 17.
62) The North Sea Continental Shelf Cases (Germany/Denmark; Germany/Netherlands), ICJ
(1969).
63) As recently reviewed in D. GAUKRODGER, “Addressing the Balance of Interests in
Investment Treaties: The Limitation of Fair and Equitable Treatment Provisions to the
Minimum Standard of Treatment Under Customary International Law”, supra fn. 17.
64) For example, the United States recently acknowledged as such in its Non-Disputing
Party Submission in Mesa v. Canada, para. 9.
65) This has also been the consistent position of the NAFTA parties: “the Claimant cannot
turn to the decisions of international tribunals as evidence of State practice that the
protection of an investor's expectations is required by the customary international law
minimum standard of treatment.” Mesa v. Canada, Canada's Response to Non-
Disputing Party Submissions, para. 12. “Arbitral decisions interpreting ‘autonomous’
fair and equitable treatment and full protection and security provisions in other
treaties, outside of the context of customary international law, do not constitute
evidence of the content of the customary international law standard required by
Article 1105.” Mesa v.Canada, US Non-Disputing Party Submission, para. 6.
66) See C. MCLACHLAN, L. SHORE and M. WEINIGER, International Investment Arbitration
(OUP) p. 205, p. 259.
67) Art. 38(1) of the Statutes of the ICJ.

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 68) Martins PAPARINSKIS, “Good Faith and Equitable Treatment in International
Investment Law” in A. MITCHELL, M. SORNARAJAH and T. VOON, eds., Good Faith and
International Economic Law (Oxford University Press, Oxford 2015) recalls the standard
understanding at international law that good faith is a tool for interpreting existing
obligations, not a means of creating new ones : “… legitimate expectations may be a
particularly prominent element of good faith, and might provide a useful perspective
for thinking about treaty interpretation or customary law-making, but one still needs
to satisfy the usual law-making criteria to conclude that a primary obligation of
respect of legitimate expectations is imposed”. (p. 34).
69) See Mondev International Ltd v. United States of America (ICSID Case No. ARB (AF) 99/2),
Award (11 Oct. 2002) paras. 110-117; Pope & Talbot v. Canada, Award in respect of
damages, paras. 52-66; CMS Gas Transmission Co v. Argentina, Award, para. 284;
Stephen SCHWEBEL, “The Influence of Bilateral Investment Treaties on Customary
International Law”, Proceedings of the 98th Annual Meeting of the American Society of
International Law, 31 March – 3 April 2004, pp. 27-30. For a contrary view, see Patrick
DUMBERRY, “The Practice of States as Evidence of Custom: An Analysis of Fair and
Equitable Treatment Standard Clauses in States' Foreign Investment Laws”, 2 McGill J.
Disp. Resol. (2015-2016) p. 66, finding explicit reference to the FET standard in only a
small number of State laws protecting foreign investments. See also Patrick
DUMBERRY, “Are BITs Representing the ‘New’ Customary International Law in
International Investment Law?”, 28 Penn State International Law Review (2010, no. 4) at
pp. 675-701.
70) “[t]here is no presumption that a succession of similar treaty provisions gives rise to a
new customary rule with the same content.” – Principle No. 25 adopted by the
International Law Association Statement of Principles Applicable to the Formation of
General Customary International Law, Final Report 8 (2000) at p. 47. Work at the ILC on
this topic is ongoing.
71) In CMS v. Argentina, the Tribunal stated (without the aid of reference to state practice,
opinio juris, other cases, or academic commentary) that its interpretation of FET was
“not different from the international law minimum standard of treatment and its
evaluation under customary international law”. (para. 284). Occidental Exploration &
Production Co v. Ecuador (LCIA Case UN 3467), Final Award (1 Jul. 2004) at paras. 190 and
196, followed a similar reasoning.
72) Bilcon of Delaware et al. v. Government of Canada (UNCITRAL Case No. 2009-04), Award
(2 May 2018).
73) Merrill and Ring Forestry L.P. v. Canada (ICSID Case No. UNCT/07/1), Award (31 March
2010).
74) Matthew C. PORTERFIELD, “A Distinction Without a Difference? The Interpretation of
Fair and Equitable Treatment Under Customary International Law by Investment
Tribunals”, International Institute for Sustainable Development, blog, (22 March 2013:
<https://www.iisd.org/>).
See also Windstream Energy LLC v. Canada (UNCITRAL), Award (27 September 2016)
(finding breach of MST-FET without identifying supporting state practice or opinio juris
despite concordant interpretations from the three NAFTA Parties insisting on those
sources as the basis for an asserted customary international law rules).
75) United States Non-Disputing Party Submission in Mesa v. Canada, comment on the
Award in Bilcon v. Canada.
76) The United States did not include investor-State dispute resolution in its free trade
agreement with Australia, but this was prompted by Australia's policy opposition to
investment treaty protections at that time. Moreover, the US-Australia FTA is an
example of an FTA solely between two developed States, where concerns about appeal
to local courts presumably were mitigated.
77) 2016 Model Indian Bilateral Investment Treaty.
78) See, for example, the ASEAN-Korea Investment Agreement, Art. 5; ASEAN-India
Investment Agreement, Art. 7; China-Korea Free Trade Agreement, Art. 12.5 and Annex A;
Singapore-US FTA, Art. 15(5); Australia-Korea FTA, Art. 14.5; Canada-China BIT, Art. 4;
Japan-Mongolia EPA, Art. 10.5; Korea-US FTA, Art. 11(5) and Annex 11-A; Japan-
Philippines EPA, Art. 91 (cited in D. GAUKRODGER, supra fn. 17, at p. 18).
79) As demonstrated by the list in the preceding note.
80) Another approach, adopted, e.g., in the ASEAN-Australia-New Zealand Free Trade
Agreement (AANZFTA), is to link FET to customary international law, but then also
expressly to link FET with denial of justice. The ASEAN-China Investment Agreement
takes this a step further, in effect expressly limiting FET to denial of justice.

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 KluwerArbitration

Document information
The Evolution of the Expropriation Obligation in
Publication Investment Arbitration and Its Adaptation in Treaties to
Evolution and Adaptation: Reflect State Rights
The Future of International Mélida Hodgson; Patricia Cruz Trabanino
Arbitration
(*)
(**)
Topics
Investment Arbitration I Introduction
As recognized by an international tribunal in the early twentieth century, “the right of a
State … to appropriate private property for public use is unquestioned”. (1) The State's
Bibliographic reference right to expropriate has long been considered an essential component of sovereignty – a
fact that plays into foreign investors' decisions as to where, how much, and in what form, to
Mélida Hodgson and Patricia invest in other States. Foreign investment requires the movement of the investor's assets
Cruz Trabanino, 'The into the jurisdiction of the host State, where they may be subject to State acts that cause
Evolution of the severe interference with the investor's property rights. Unsurprisingly, a foreign investor's
Expropriation Obligation in preeminent concern is the risk that the host State may seize its assets.
Investment Arbitration and
Its Adaptation in Treaties to The sovereign right to expropriate, however, is not unqualified. Customary international
Reflect State Rights', in Jean law has long offered foreign investors certain protections in the realm of expropriation.
Engelmayer Kalicki and More recently, international investment agreements (IIAs) have crystallized these
Mohamed Abdel Raouf (eds), customary protections into treaty obligations and have expanded the scope of protection.
Evolution and Adaptation: These treaty provisions, however, have varied in their drafting and interpretation, leading
The Future of International to longstanding debates in the jurisprudence about how to appropriately balance investor
Arbitration, ICCA Congress protection and State sovereignty. More recently, States and several of their constituencies
Series, Volume 20 (© Kluwer P 226 have pushed back against perceived encroachment of expropriation provisions on States'
Law International; P 227 right to regulate in the public interest or welfare. Expropriation provisions have
International Council for accordingly been increasingly restricted over the last decade – raising complaints that
Commercial they are being gutted.
Arbitration/Kluwer Law
International 2019) pp. 226 - This paper provides an overview of the major issues relating to the protection against
256 expropriation by tracing the historical development of States' obligations on
expropriation by reference to customary international law, treaty provisions, arbitral
decisions and other legal materials. Part II will discuss the sovereign right to expropriate
under customary international law. Part III will examine how the customary norms were
incorporated into IIAs and the different ways in which States' obligations in regard to
expropriation have been articulated in bilateral and multilateral agreements. Part IV
examines the concept of indirect expropriation, and discusses tribunals' attempt to
distinguish this form of taking from non-compensable State regulation. Part V discusses the
difference between lawful and unlawful expropriation, as well as the consequences of
illegality. Finally, Part VI concludes by discussing open issues relating to expropriation,
including recent State efforts to balance their right to regulate with investor protection.

II The Sovereign Right to Expropriate under customary International

Law
International law has always recognized States' power to seize property in certain
circumstances. This right to expropriate derives from the concept of territorial sovereignty:
a State has sovereignty over all things within its boundaries. (2) This power is so
fundamental, that a State cannot validly bind itself not to exercise it at all, because its
“fundamental purpose is to safeguard the public interest of its citizens and, if such interest
will be properly safeguarded by nationalization, the state must be free to pursue that
course of action”. (3)
The State's right to expropriate foreign property, however, is not absolute. As stated in the
1928 Goldenberg case, “[r]espect for private property and the vested rights of foreigners is
without question part of the general principles accepted by the law of nations”. (4) For this
reason, it is understood that “up to a certain point, the interest of the State in being able
to protect its nationals and their property must carry more weight than respect for
territorial sovereignty, even in the absence of conventional obligations”. (5) Customary
international law imposes certain limitations on the taking of foreign investors' assets in
order to balance the protection of property and territorial sovereignty.
Early twentieth century jurisprudence explored the customary limitations on the power to
P 227 expropriate foreign property. One such limitation is that the taking of foreign property
P 228 must be for a public purpose. This requirement was discussed in the 1929 Walter Fletcher
Smith case, in which an American citizen's property in Cuba was “seized [and] turned over
immediately to the defendant company, ostensibly for public purposes, but, in fact, to be

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 used by the defendant for purposes of amusement and private profit”. (6) Accordingly, the
arbitrator found the expropriation of an American citizen's property in Cuba to be in
violation of international law. (7)
Customary international law repudiates the discriminatory treatment of foreign-owned
property, as was repeatedly explained in the jurisprudence of the Permanent Court of
International Justice (PCIJ). For example, in the Oscar Chinn case, the Court held that
“discrimination based upon nationality and involving differential treatment by reason of
their nationality as between persons belonging to different national groups” is “forbidden”.
(8) The dispossession of property for racially discriminatory reasons has also been deemed
to contravene international law. (9) To comply with this standard of non-discrimination, the
taking cannot merely be formally neutral; rather, it must also be non-discriminatory as a
matter of fact. As explained by the PCIJ, in the context of the treatment of Polish nationals
in Danzig, “the prohibition against discrimination, in order to be effective, must ensure the
absence of discrimination in fact as well as in law. A measure which in terms is of general
application, but in fact is directed against Polish nationals and other persons of Polish
origin or speech, constitutes a violation of the prohibition”. (10)
Customary international law also requires that an expropriation be effected against
payment of compensation. The U.S.-Venezuela Mixed Claims Commission highlighted this
requirement in the Upton Case, when it reasoned that “the right of the State … to
appropriate private property for public use is unquestioned, but always with the
corresponding obligation to make just compensation to the owner thereof”. (11) In the
Chorzów Factory case, the PCIJ echoed this view when it stated that “not having paid … the
just price of what was expropriated” would constitute a “wrongful act”. (12) This rule is also
embodied in the Hull Doctrine, which prohibits expropriation without “prompt, adequate,
and effective compensation”. (13)
P 228
P 229
The Restatement (Third) of the Foreign Relations Law of the United States summarizes
these customary international law limitations as follows:
“A state is responsible under international law for injury resulting from:
(1) a taking by the state of the property of a national of another state that
(a) is not for a public purpose, or
(b) is discriminatory, or
(c) is not accompanied by provision for just compensation.” (14)
As shown by the jurisprudence, already in the early twentieth century these three elements
– public purpose, non-discrimination, and compensation – were generally recognized as
limitations on the sovereign power to expropriate. (15) It is thus no surprise that in the
latter half of the twentieth century these protections were incorporated into IIAs as part of
the provisions dealing with the conditions and consequences of expropriations.

III Standard of Protection against Expropriation in IIAS

While customary international law continues to be applicable to the treatment of foreign
nationals and their property, in the present day any discussion about expropriation turns,
to a large extent, on the provisions in IIAs, and bilateral investment treaties (BITs) in
particular. The first BIT was signed by Germany and Pakistan in 1959. (16) There are almost
3,000 BITs in existence today and over 300 treaties with investment provisions. (17) The
vast majority of them contain protections against expropriation.
P 229
P 230
The 1959 Germany-Pakistan BIT included the customary international law protections of
public purpose, non-discrimination, and payment of compensation. Art. 2 of the BIT
enshrined the prohibition of discriminatory treatment (including in relation to
expropriation) as follows:
“Neither Party shall subject to discriminatory treatment any activities carried on
in connection with investments including the effective management, use or
enjoyment of such investments by the nationals or companies of either Party in
the territory of the other Party unless specific stipulations are made in the
documents of admission of an investment.” (Emphasis added.) (18)
The Germany-Pakistan BIT also included provisions specific to expropriation:
“Nationals or companies of either Party shall not be subjected to expropriation
of their investments in the territory of the other Party except for public benefit
against compensation, which shall represent the equivalent of the investments
affected. Such compensation shall be actually realizable and freely
transferable in the currency of the other Party without undue delay. Adequate
provision shall be made at or prior to the time of expropriation for the
determination and the grant of such compensation. The legality of any such
expropriation and the amount of compensation shall be subject to review by

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 due process of law.” (19) (Emphasis added.)
In addition to requiring that any expropriation be effected for a public purpose and
against compensation, the Germany-Pakistan BIT expanded the generally accepted scope
of protection by specifying how compensation is to be determined and carried out, as well
as by requiring that the expropriation be carried out in accordance with due process. (20)
P 230 More recent BITs retain similar language enshrining these customary protections. For
P 231 example, the 2010 United Kingdom-Colombia BIT states that
“Investments of investors of a Contracting Party in the territory of the other
Contracting Party shall not be the subject of nationalisation, direct or indirect
expropriation, or any measure having similar effects (hereinafter
‘expropriation’) except for reasons of public purpose or social interest (which
shall have a meaning compatible with that of ‘public purpose’), in accordance
with due process of law, in a non-discriminatory manner, in good faith and
accompanied by prompt, adequate and effective compensation.” (21) (Emphasis
added.)
These formulas are not limited to BITs. Agreements with investment provisions, such as free
trade agreements, also explicitly refer to the customary international law standard. The
investment chapter of the North American Free Trade Agreement (NAFTA), for example,
prohibits expropriation “except: (a) for a public purpose; (b) on a non-discriminatory basis;
(c) in accordance with due process of law…; and (d) on payment of compensation…”. (22)
Similarly, the Energy Charter Treaty permits expropriation only “where such Expropriation
is: (a) for a purpose which is in the public interest; (b) not discriminatory; (c) carried out
under due process of law; and (d) accompanied by the payment of prompt, adequate and
effective compensation”. (23)
While there are commonalities in the language used by different States at different points
in time, it has been noted that BITs include “a range of ‘boilerplate’ expropriation sections
that manifest … differences in diction”, but that the “fluctuation in terminology over time
defies easy identification of any trends. Perhaps the only safe conclusion that can be
drawn from such a review is that States generally seek to incorporate in their BITs the
‘customary international law standards for expropriation’.” (24)
Treaties drafted in recent decades are noteworthy in that they initially distinguished
between different kinds of expropriation creating a perception of an expansion of rights,
but soon after narrowed the scope of the expropriation protection. NAFTA commands that
“[n]o Party may directly or indirectly nationalize or expropriate an investment … or take a
P 231 measure tantamount” to expropriation. (25) Similar formulations abound: “measures
P 232 having an effect equivalent to nationalization or expropriation”; (26) “measure having a
similar effect”; (27) “measures having the same effect”; (28) “any other similar measures
having an effect equivalent to nationalization or expropriation”. (29) The United Kingdom-
Colombia BIT, for example, refers to “direct” and “indirect” expropriation, as well as
“measure[s] having similar effects”. (30) As discussed next, the meaning of these terms has
been debated in countless arbitral awards and academic works. While some of the debate
has settled, the scope of indirect expropriation, measures equivalent to expropriation, and
similar terms, remains the subject of discussion.

IV Indirect Expropriation: Blurred Demarcation Lines

1 Direct vs. Indirect Expropriation
Indirect expropriation is, or should be, understood by comparison to direct expropriation.
Direct expropriation occurs when State authorities take ownership or control of the
investor's assets, often tangible property such as a mine or a factory. In a direct
expropriation, title over the property may be transferred to the State or to a third party.
Some international tribunals that have provided definitions for the term “expropriation”
have done so in terms consistent with the traditional understanding of direct
expropriation. For example, the Iran-U.S. Claims Tribunal defined expropriation as “a
compulsory transfer of property rights”, (31) while the tribunal in the NAFTA case S.D. Myers
v. Canada explained that “the term ‘expropriation’ carries with it the connotation of a
‘taking’ by a governmental-type authority of a person's ‘property’ with a view to
transferring ownership of that property to another person, usually the authority that
exercised its de jure or de facto power to do the ‘taking’”. (32)
P 232
P 233
Despite those definitions, it is generally accepted that an expropriation can take place
even where the State action leaves the investor's title unaffected. In an indirect
expropriation, the investor may formally retain title over the property, but may still find
that the State's action has severely impaired his ability to use the investment in any
meaningful way, or has caused a significant depreciation in the value of the investment.
(33) While the jurisprudence on expropriation in the early twentieth century focused
largely on direct expropriation, (34) it also recognized that the concept of expropriation
extended beyond the direct taking of tangible property.

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 One example is the 1922 Norwegian Shipowners' Claims case. The case arose in 1917 when,
upon the United States' entry into World War I, the United States requisitioned all ships
over 2,500 tons, including those that were in the process of being constructed for a group of
Norwegian nationals who had put in their orders before the United States' requisition
action. (35) The order “expressly requisitioned not only the ships and the material, but also
the contracts, the plans, detailed specifications and payments made, and it even
commandeered the yards (depriving them of their right to accept any further contracts)”.
(36) The United States disputed that the order extended to contractual rights, (37) such as
those held by the Norwegian nationals, but the tribunal was not persuaded that the United
States' actions did not amount to a taking. The tribunal found that the Fleet Corporation
(an entity of the United States government) “took over the legal rights and duties of the
shipowners towards the shipbuilders”, “insert[ing] itself between the builders and the
shipowners by an exercise of what is called, in the United States Law and Jurisprudence,
the power of eminent domain”. (38) Consequently, it held that “the United States took, both
in fact and in law, the contracts under which the ships in question were being or were to be
constructed”. (39)
P 233
P 234
The case is an important precedent in the jurisprudence of indirect expropriation for two
reasons. First, the tribunal's holding expressly referenced a de facto taking, i.e., one that
need not require a formal transfer of title, but one where merely the effect of fully
depriving a foreign national of its property is sufficient to trigger international
responsibility. (40) Whether the United States' order was intended to seize title or only
control of the ships under construction was not specified. (41) The United States did claim
to hold title to the Norwegian property, but the tribunal deemed it unnecessary to decide
whether it could validly hold such title. (42) Instead, the tribunal considered it “sufficient
to state that the United States, in fact, did take and hold the title, the property of the
claimants; that they had the ‘de facto’ possession, enjoyment and use, and that they acted
as owners of the claimants' property after the formal taking”. (43) Thus it concluded that a
taking had been effected, and that compensation was due. (44)
Second, and more broadly, the Norwegian Shipowners case is noteworthy because of its
contribution to the jurisprudence expanding the traditional notion of the kinds of property
that could be expropriated. In the early twentieth century, expropriation claims usually
involved the taking of physical property, as was the case, for example, of the
nationalization of petroleum reserves, facilities and oil companies in Mexico in 1938. (45)
At the time, many still held the view that only physical property could be expropriated, as
the United States argued in the Norwegian Shipowners case. (46) The tribunal in that case,
however, expressly held that intangible property, such as contractual rights, could be
subject to expropriation (and by extension the protections against it). (47) This principle is
of key importance for the concept of indirect expropriation, given that State action can
interfere with the use and enjoyment of all kinds of property, not only tangible assets.
Subsequent jurisprudence continued to reinforce the validity of this principle. (48) It is
now well established that intangible property can also be the subject of an expropriation.
(49)
P 234
P 235
In the present day, expropriation is most often effected indirectly. This is due, in part, to
the rise of the global economy and States' resulting desire to foster a more welcoming
environment for foreign investment. Put simply, States are less willing to bear the
reputational cost of seizing property outright. In addition, the prevalence of indirect
expropriation is also due to States' increased regulatory activity in areas like the
environment, public health, and natural resources that can interfere with and cause a
diminution in the value of a foreign national's property. The prevalence of indirect
expropriation does not mean, however, that direct takings are a thing of the distant past.
(50)

2 One or More Kinds of Indirect Expropriation?

Indirect expropriation is now a well-established concept that has been explicitly
referenced in most IIAs in force today. (51) In addition to the use of the term “indirect”, IIAs
often refer to measures “tantamount”, (52) “equivalent” (53) or “similar” (54) to
expropriation. The variation in terminology has raised the question of whether there are
types of expropriation beyond the direct/indirect distinction. The jurisprudence and the
academic commentary suggest that there are not.
In the NAFTA case Metalclad v. Mexico, the claimant, a United States waste disposal
company, argued that the Mexican government's refusal to permit its subsidiary to open
P 235 and operate a hazardous waste facility constituted an expropriation of its investment. Art.
P 236 1110(1), the relevant NAFTA chapter, provides that:
“No Party may directly or indirectly nationalize or expropriate an investment of
an investor of another Party in its territory or take a measure tantamount to
nationalization or expropriation of such an investment (‘expropriation’), except:
(a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance
with due process of law and Article 1105(1); and (d) on payment of compensation

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 in accordance with paragraphs 2 through 6.” (55)
NAFTA's reference to indirect expropriations and measures “tantamount” to expropriation
raised the question of whether two (or three) different kinds of expropriation were
envisioned by this article. The United States, one of the NAFTA drafting parties, submitted
a non-disputing party submission in which it explained that the terms were equivalent.
According to the tribunal, the United States' position articulated in its submission was that
“the NAFTA, Article 1110, term ‘tantamount to expropriation’ addressed both
measures that directly expropriate and measures tantamount to expropriation
that thereby indirectly expropriate investments. The United States rejected the
suggestion that the term ‘tantamount to expropriation’ was intended to create a
new category of expropriation not previously recognized in customary
international law.” (56) (Emphasis added.)
Ultimately, the tribunal decided that Mexico's actions constituted an indirect
expropriation and acts tantamount to expropriation, with both terms being used
synonymously. (57) Other tribunals interpreting the same provision agreed with the
Metalclad tribunal's interpretation of these terms. For example, in the Feldman v. Mexico
case, the tribunal held that “Article 1110 deals not only with direct takings, but indirect
expropriation and measures ‘tantamount to expropriation,’ which potentially encompass a
variety of government regulatory activity that may significantly interfere with an investor's
property rights. The Tribunal deems the scope of both expressions to be functionally
equivalent (emphasis added).” (58)
There have been some dissenters, however. The tribunal in Waste Management v. Mexico,
for example, reasoned that the terms must have different meanings as the terms could not
be superfluous. It distinguished the terms as follows:
“Article 1110(1) distinguishes between direct or indirect expropriation on the
one hand and measures tantamount to an expropriation on the other. An
indirect expropriation is still a taking of property. By contrast where a measure
tantamount to an expropriation is alleged, there may have been no actual
P 236 transfer, taking or loss of property by any person or entity, but rather an effect
P 237 on property which makes formal distinctions of ownership irrelevant….
Evidently the phrase ‘take a measure tantamount to nationalization or
expropriation of such an investment’ in Article 1110(1) was intended to add to
the meaning of the prohibition, over and above the reference to indirect
expropriation. Indeed there is some indication that it was intended to have a
broad meaning, otherwise it is difficult to see why Article 1110(8) was necessary.”
(59)
Decisions like Waste Management are outliers. The majority opinion is that “[i]n practice,
the distinction between indirect expropriations and measures equivalent to
expropriations does not appear to be a meaningful one. No case has yet identified a
measure that was tantamount to an indirect expropriation but not itself an indirect
expropriation.” (60) For practical purposes, terms like “tantamount”, “equivalent”, and
“similar” to expropriation can be understood to be interchangeable with “indirect
expropriation”.
There is, however, at least one subcategory of indirect expropriation. An indirect
expropriation need not be accomplished through a single act of the State. When the
expropriation results from a series of State actions, it is referred to as a “creeping
expropriation”. The tribunal in Generation Ukraine defined a creeping expropriation as “a
form of indirect expropriation with a distinctive temporal quality in the sense that it
encapsulates the situation whereby a series of acts attributable to the State over a period
of time culminate in the expropriatory taking of such property” (emphasis removed). (61)
The Pope & Talbot tribunal described it more succinctly as “a process that has the effect of
taking property through staged measures”. (62) The concept of creeping expropriation
arose as a way to prevent States from circumventing the protections against expropriation
by realizing a taking in a series of cumulative steps that individually do not rise to the
level of expropriation, but in conjunction do have an expropriatory effect. (63)

3 Indirect Expropriation and Non-compensable Regulation

Perhaps the most significant unresolved question regarding indirect expropriation is where
to draw the line between indirect expropriation and a regulation that triggers no
P 237 international responsibility. The distinction is critical: an expropriation requires
P 238 compensation, while good-faith regulation pursuant to the police powers of the State
does not. (64) While the notion of “police powers” has been long recognized in the doctrine
and by the courts, the discussion on this issue has been lively, particularly in the arbitral
jurisprudence.
a Factors considered by arbitral tribunals
Arbitral tribunals have been at the front lines of the battle to delimitate the concepts of
indirect expropriation and non-compensable regulation. In deciding the cases before
them, tribunals have weighed a variety of factors in order to determine whether an

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 expropriation took place.
i The nature of the measure
The nature of the regulatory measures that are claimed to have effected an expropriation
are a factor in tribunals' analysis. The Saluka tribunal expressed the view that when the
measures are “within the police power of States” the State is not liable to pay
compensation to the foreign investor. (65) This was echoed in the Feldman v. Mexico award,
which stated that:
“governments must be free to act in the broader public interest through
protection of the environment, new or modified tax regimes, the granting or
withdrawal of government subsidies, reductions or increases in tariff levels,
imposition of zoning restrictions and the like. Reasonable governmental
regulation of this type cannot be achieved if any business that is adversely
affected may seek compensation, and it is safe to say that customary
international law recognizes this.” (66)
For example, taxation measures, as a general rule, are not considered to constitute an
expropriation. In the words of the EnCana tribunal: “In itself such a law [imposing a tax] is
not a taking of property; if it were, a universal State prerogative would be denied by a
guarantee against expropriation, which cannot be the case”. (67) The tribunal went on to
enumerate the exceptional circumstances under which a tax law would rise to the level of
P 238 an expropriation: “Only if a tax law is extraordinary, punitive in amount or arbitrary in its
P 239 incidence would issues of indirect expropriation be raised.” (68) The RosInvest case
echoed this view, stating that abusive tax law enforcement can constitute an
expropriation. (69)
In addition to taxation, other kinds of measures that generally are not categorized as
compensable takings include the imposition of criminal penalties or export controls. (70)
In fact, as will be discussed, some recent treaties even specify that certain kinds of non-
discriminatory regulatory actions do not constitute expropriations, except in rare
circumstances. The United States and Canada Model BITs, for instance, specifically carve
out measures “designed and applied to protect legitimate public welfare objectives, such
as public health, safety, and the environment” from the meaning of expropriation. (71) This
kind of language – codifying customary international law on police powers – may have
been added to treaties as a response to some tribunals' expansive view of the kinds of
measures that can be expropriatory. The tribunal in Santa Elena v. Costa Rica, for example,
rejected the argument that environmental measures were somehow exempted:
“Expropriatory environmental measures – no matter how laudable and
beneficial to society as a whole – are, in this respect, similar to any other
expropriatory measures that a state may take in order to implement its
policies: where property is expropriated, even for environmental purposes,
whether domestic or international, the state's obligation to pay compensation
remains.” (72)
ii The level of deprivation
A recurring factor in tribunals' determination of whether regulation amounts to
expropriation has been the level of deprivation caused by the State measure. While there
seems to be consensus that this is a relevant factor in the analysis, there is disagreement
as to the level of deprivation that is required for a finding of expropriation. Some tribunals
have expressed the view that a total deprivation is required. For example, the Goetz v.
Burundi tribunal's finding of expropriation was based on the fact that the State action
caused “all activity” of the enterprise to stop and deprived the investments of “all utility”
P 239 (emphasis added). (73) The Grand River tribunal expressed the same view in stronger terms:
P 240
“The starting point must be the language of Article 1110(1), providing that ‘[n]o
Party may directly or indirectly nationalize or expropriate an investment of an
investor of another Party in its territory,’ unless certain conditions are met….
The text speaks of ‘an investment,’ not ‘an investment or some portion thereof.’
The most natural reading of the language is that any act of expropriation will
affect the totality of an investment.” (74) (Some emphasis added; some emphasis
omitted.)
The reasoning in Goetz and Grand River may provide strong incentives to investors to “slice
and dice” their investment in order to be able to claim that the level of deprivation is
total. An example of this “slicing and dicing” took place in the Eli Lilly v. Canada case,
where the Claimant argued that the State measure expropriated the totality of its interest
in two patents, even though its full investment in Canada was far greater than those two
patents. (75)
The Goetz and Grand River cases, however, express a minority view. (76) Most tribunals have
been willing to find an expropriation where there has been significant, but not total,
deprivation. In Biwater Gauff, the tribunal explained that an indirect expropriation occurs
where there is a “substantial deprivation of rights, for at least a meaningful period of

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 time”. (77) Other tribunals have applied the same test, (78) but few have provided detailed
guidance on how to conduct this analysis. The Telenor tribunal, for example, merely
indicated that one must consider the “intensity and duration of the economic deprivation
suffered by the investor”. (79)
The Tokios Tokelés tribunal went further, suggesting a sliding scale approach for
determining whether the deprivation is substantial. While recognizing that this
determination was fact-specific, it argued that “a diminution of 5% of the investment's
value will not be enough for a finding of expropriation, while a diminution of 95% would
likely be sufficient”. (80)
P 240
P 241
Other tribunals have conducted a qualitative, rather than quantitative, analysis of the
level of deprivation. One such example was the Azurix case, in which the tribunal found
that no expropriation had taken place where, though there was a financial impact on the
investment, the State measures were not sufficient to strip Azurix of the attributes of
ownership:
“Therefore, the Tribunal finds that the impact on the investment attributable to
the Province's actions was not to the extent required to find that, in the
aggregate, these actions amounted to an expropriation; Azurix did not lose the
attributes of ownership, at all times continued to control ABA and its ownership
of 90% of the shares was unaffected. No doubt the management of ABA was
affected by the Province's actions, but not sufficiently for the Tribunal to find
that Azurix's investment was expropriated.” (81)
The jurisprudence contains a wide range of formulations defining the level of deprivation
that is required for a finding of expropriation. Commentators have summarized these
formulations in this way:
“In sum, in order to be considered an expropriation, the effect of a regulatory
measure on property rights – that is, the required level of interference with such
rights – has been variously described as: (1) unreasonable; (2) an interference
that renders rights so useless that they must be deemed to have been
expropriated; (3) an interference that deprives the investor of fundamental
rights of ownership; (4) an interference that makes rights practically useless; (5)
an interference sufficiently restrictive to warrant a conclusion that the property
has been ‘taken’; (6) an interference that deprives, in whole or in significant
part, the use or reasonably-to-be-expected economic benefit of the property;
(7) an interference that radically deprives the economical use and enjoyment of
an investment, as if the rights related thereto had ceased to exist; (8) an
interference that makes any form of exploitation of the property disappear (i.e.,
it destroys or neutralizes the economic value of the use, enjoyment or
disposition of the assets or rights affected); and (9) an interference such that the
property can no longer be put to reasonable use.” (82) (Emphasis removed.)
While the specific language may vary from treaty to treaty and from award to award, it is
generally accepted that the deprivation need not be absolute, but must at least be
substantial.
P 241
P 242
iii Duration
In addition to the level of deprivation experienced by the investor, tribunals also consider
the duration of the deprivation in determining whether there has been an indirect
expropriation. The tribunal in LG&E held that its analysis must consider not only the effects
of the measure on the use, enjoyment, and value of the investment, but also “the duration
of the measure as it relates to the degree of interference with the investor's ownership
rights”. (83) And as mentioned previously, the Biwater Gauff formula looked not only at
deprivation suffered by the investor, but also at its duration, which must be “at least a
meaningful period of time”. (84)
There is agreement that where the effect of the state measures is “irreversible and
permanent”, the duration requirement is met and the regulation is expropriatory. (85)
Permanence is not required, however. Even temporary measures may rise to the level of
expropriation if their effect is “lasting”. (86) But once again, this is a fact-specific inquiry
for which no hard and fast rules can be discerned.
iv The investor's legitimate expectations
The concept of the investor's legitimate expectations, most often discussed in the context
of fair and equitable treatment, has increasingly been considered by tribunals as a
relevant factor in the determination of indirect expropriation. (87) When foreign nationals
P 242 invest in a host State, they have expectations for the economic benefit to be derived from
P 243 their investment. States may create expectations by making assurances to investors
about, for example, the issuance of licenses and permits or the stability of the existing
regulatory regime. If the State fails to honor these assurances and thereby affects the use,

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 enjoyment or value of the investment, an indirect expropriation may be found. The
Metalclad tribunal, for example, explained that the concept of expropriation envisioned
by NAFTA includes “covert or incidental interference with the use of property which has the
effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-
expected economic benefit of property” (emphasis added). (88) Accordingly, the tribunal
took into account “the representations of the Mexican federal government, on which
Metalclad relied” as a factor in finding that the State measures amounted to an
expropriation. (89) Other tribunals have also considered the investor's legitimate
expectations in their expropriation analysis. (90)
In recent years, some States have pushed back and contextualized the concept of
reasonable investment-backed expectations in their treaties when determining if an
indirect expropriation has occurred. The 2012 United States Model BIT, for example, states
that the article on expropriation is to be interpreted in accordance with Annex B. (91)
Annex B, in turn, instructs that
“The determination of whether an action or series of actions by a Party, in a
specific fact situation, constitutes an indirect expropriation, requires a case-by-
case, fact-based inquiry that considers, among other factors: … the extent to
which the government action interferes with distinct, reasonable investment-
backed expectations….” (92) (Emphasis added.)
Many newer United States treaties include this instruction, (93) as do Canadian (94) and
P 243 Indian (95) treaties. The drafting of treaties containing this kind of provision reinforces the
P 244 increasingly recognized trend of directing tribunals to find direct expropriation only
where the investor is able to demonstrate that it had reasonable expectations that went
unmet due to the State's action. In essence, State parties are signaling to tribunals that in
making investments in highly regulated sectors, investors can only have limited
expectations regarding negative effects of regulation.
v Proportionality
Another factor taken into consideration when determining whether a State measure is
expropriatory is whether the measure is proportional to the end it seeks to achieve. Citing
Tecmed, the LG&E tribunal explained the role of proportionality in differentiating between
expropriation and regulation:
“With respect to the power of the State to adopt its policies, it can generally be
said that the State has the right to adopt measures having a social or general
welfare purpose. In such a case, the measure must be accepted without any
imposition of liability, except in cases where the State's action is obviously
disproportionate to the need being addressed. The proportionality to be used
when making use of this right was recognized in Tecmed, which observed that
‘whether such actions or measures are proportional to the public interest
presumably protected thereby and the protection legally granted to
investments, taking into account that the significance of such impact, has a key
role upon deciding the proportionality’.” (96) (Emphasis added.)
Subsequent tribunals have reaffirmed the importance of proportionality. The tribunal in
Deutsche Bank v. Sri Lanka rejected the respondent State's argument that it had
“extremely broad discretion to interfere with investments” so long as it did so in the
exercise of “legitimate regulatory authority”. (97) Rather, the tribunal reasoned that the
State's measures had to be proportionate to the public welfare purpose sought. It
explained that the proportionality requirement “prevents the States from taking measures
which severely impact an investor unless such measures are justified by a substantial
public interest”. (98)
Other States have imposed a less rigorous proportionality test for expropriation that
allows for a greater range of regulatory action and raises the legal standard for a finding of
expropriation. The Canadian Model Foreign Investment Promotion and Protection
P 244 Agreement, for example, states that non-discriminatory State measures to protect public
P 245 welfare objectives do not constitute indirect expropriation “[e]xcept in rare
circumstances, such as when a measure or series of measures are so severe in the light of
their purpose that they cannot be reasonably viewed as having been adopted and applied
in good faith”. (99) In other words, the measure must be so disproportionate to the end
sought that one is led to the conclusion that the measure was not adopted in good faith.
b Treaty guidance on the distinction between regulation and taking
Recently drafted treaties seek to draw a clear distinction between indirect expropriation
and non-compensable regulation, and provide guidance to assist adjudicators in
determining whether compensation is required by the facts before them. For example, the
United States 2012 Model BIT acknowledges that this exercise is fact-dependent and
requires a weighing of various factors (though it does not provide an exhaustive list of
factors to consider nor does it comment on the relative weight that should be given to each
enumerated factor). Specifically, its Annex B provides that:
“The determination of whether an action or series of actions by a Party, in a

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 specific fact situation, constitutes an indirect expropriation, requires a case-by-
case, fact-based inquiry that considers, among other factors: (i) the economic
impact of the government action, although the fact that an action or series of
actions by a Party has an adverse effect on the economic value of an
investment, standing alone, does not establish that an indirect expropriation
has occurred; (ii) the extent to which the government action interferes with
distinct, reasonable investment-backed expectations; and (iii) the character of
the government action. (b) Except in rare circumstances, non-discriminatory
regulatory actions by a Party that are designed and applied to protect
legitimate public welfare objectives, such as public health, safety, and the
environment, do not constitute indirect expropriations.” (100) (Emphasis
added.)
Despite the additional guidance in these treaties, the debate about the delimitation of
indirect expropriation is likely to continue. As tribunals have noted, the determination of
whether a State measure constitutes an indirect expropriation is fact-specific. Thus, even if
the applicable treaty lays out the specifics of the test to be applied by a tribunal,
including the factors to take into account, the tribunal will still have discretion to weigh
factors as it deems appropriate, including factors beyond those included in newer treaties'
non-exhaustive lists. (101) And disputes will continue to arise under treaties that do not
P 245 have this level of specificity as to the definition of indirect expropriation. As the Saluka
P 246 tribunal commented:
“international law has yet to identify in a comprehensive and definitive fashion
precisely what regulations are considered ‘permissible’ and ‘commonly
accepted’ as falling within the police or regulatory power of States and, thus,
noncompensable. In other words, it has yet to draw a bright and easily
distinguishable line between non-compensable regulations on the one hand
and, on the other, measures that have the effect of depriving foreign investors of
their investment and are thus unlawful and compensable in international law.”
(102)
The Saluka case arose under the Netherlands-Czech Republic BIT signed in 1991. As
mentioned earlier, in more modern treaties, particularly those drafted in the 2000s, States
have set clearer limits on the kinds of State measures that can constitute an indirect
expropriation.
To date, there have been relatively few arbitral awards examining these limits. One such
case is Berkowitz v. Costa Rica, which arose under the Dominican Republic-Central America
Free Trade Agreement (CAFTA). (103) CAFTA's Expropriation Annex, Annex 10-C, establishes a
non-exhaustive list of factors to be considered in the determination of whether State
measures have effected an indirect expropriation. The enumerated factors are the
economic impact of the government action, the extent to which the government action
interferes with distinct, reasonable investment-backed expectations, and the character of
the government action. (104) These factors clearly express a rejection of the sole effects
doctrine and a requirement that explicit consideration be given to the nature of the State
measure. For additional clarity, the Annex goes on to specify that measures intended to
protect public welfare do not constitute indirect expropriation. (105) It states:
“Except in rare circumstances, nondiscriminatory regulatory actions by a Party
that are designed and applied to protect legitimate public welfare objectives,
such as public health, safety, and the environment, do not constitute indirect
expropriations.” (106)
While the Berkowitz tribunal's award was focused on jurisdictional questions, the tribunal
nonetheless commented on CAFTA's Annex 10-C. It acknowledged that the Annex imposes a
high bar for a finding of indirect expropriation, and found that the claimants in the case
had not satisfied this burden:
“While the present enquiry is focused on issues of jurisdiction, the Tribunal
notes the exacting requirements in respect of claims of indirect expropriation
set out in paragraph 4 of Annex 10-C of the CAFTA, including that the fact of an
P 246 adverse effect on the economic value of an investment, standing alone, does
P 247 not establish that an indirect expropriation has occurred. The Tribunal does
not consider that the Claimants have satisfied the burden upon them in respect
of these claims.” (107)
As more tribunals engage with these new-generation treaty provisions on expropriation, it
will be possible to identify trends on whether States have provided sufficient clarity on –
and whether tribunals have recognized – the distinction between non-compensable
regulation and indirect expropriation.

V Legality of the Expropriation and its Consequences

As discussed in Part III, under most treaties, the requirements for a lawful expropriation
are a public purpose, non-discrimination, due process and the payment of prompt,
adequate and effective compensation. These four elements have been examined by

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 arbitral tribunals tasked with determining the legality of an expropriation.

1 Public Purpose
The concept of public purpose is both nebulous and broad. The Iran-U.S. Claims Tribunal
has stated that “[a] precise definition of the ‘public purpose’ for which an expropriation
may be lawfully decided has neither been agreed upon in international law nor even
suggested…. [T]his term is broadly interpreted, and … States, in practice, are granted
extensive discretion.” (108) Because of the broad discretion afforded to States, (109) the
public purpose requirement is not challenged often. Even when the public purpose prong
is challenged, Tribunals often decline to decide the question, because the illegality has
already been demonstrated by a finding of discrimination, lack of due process, and/or
inadequate compensation. (110) However, there have been some instances in which
tribunals explored the limits of the public purpose requirement.
Though the State is entitled to broad deference in this regard, public purpose requirement
for a lawful expropriation is not met when the State fails to provide “convincing facts or
legal reasoning” substantiating its claim that its measures were motivated by a legitimate
public purpose (emphasis removed). (111) It is not sufficient that the State declares it
acted in the public interest; the standard is not self-judging. This is because, as the ADC
tribunal explained, “[i]f mere reference to ‘public interest’ can magically put such interest
P 247 into existence and therefore satisfy this requirement, then this requirement would be
P 248 rendered meaningless”. (112) Some arbitral awards found States' claims of public
interest not credible. In British Caribbean Bank, for example, the tribunal found that the
expropriation had been carried out of personal animus towards a particular individual,
rather than for its stated purpose of providing reliable telecommunications services to the
public. (113) In Yukos, the tribunal found it “profoundly questionable” that “the destruction
of Russia's leading oil company and largest taxpayer was in the public interest”. (114)
Tribunals have also found that the State's claim that it acted for a public purpose is
questionable when the nexus between the measure and its stated purpose is unclear. In
Vestey, the tribunal questioned (but did not decide) the validity of Venezuela's claim that
it had seized the investor's farmland for the purpose of increasing domestic availability of
and access to food. While the Tribunal agreed that this was a legitimate purpose, the
government's post-expropriation conduct (i.e., the failure to increase domestic food
security) suggested the expropriation had been carried out for purposes other than
expanding access to food. (115)

2 Non-discrimination
To determine whether an expropriation was discriminatory, tribunals often apply the
three-pronged test formulated in Saluka (or a version of it), which posits that “State
conduct is discriminatory, if (i) similar cases are (ii) treated differently (iii) and without
reasonable justification”. (116) The Restatement (Third) of Foreign Relations further
explains that “a program of taking that singles out aliens generally, or aliens of a particular
nationality, or particular aliens, would violate international law”. (117) Foreign nationality,
of any kind, is therefore an illegitimate reason to treat an investor differently. In Quiborax,
the tribunal determined that Quiborax's subsidiary was targeted because of Quiborax's
Chilean nationality, thus making the expropriation of its concessions unlawful. (118)
Similarly, the expropriation in Eureko v. Poland was held to be discriminatory, because the
State measures were pursued in order to “keep PZU under majority Polish control and to
exclude foreign control such as that of Eureko”. (119)
Evaluating whether different treatment is justified, however, can be challenging. The
Restatement warns that “[d]iscrimination may be difficult to determine where there is no
comparable enterprise owned by local nationals or by nationals of other countries, or
where nationals of the taking state are treated equally with aliens but by discrete actions
P 248 separated in time”. (120) This was the case in ADC v. Hungary. (121) Hungary argued that
P 249 ADC could not have been treated in a discriminatory manner because the State's measure
affected all airport operators, and it was merely incidental that the only airport operator
was ADC. There could therefore be no different treatment for different parties – there was
only one party to begin with. The tribunal rejected Hungary's argument and found that
there had been discrimination. Unfortunately, the tribunal provided little reasoning for its
holding, making it difficult to derive further conclusions of general applicability.

3 Due Process
Many treaties require compliance with due process for an expropriation to be lawful. (122)
The ADC tribunal explained the requirement as follows:
“‘due process of law’, in the expropriation context, demands an actual and
substantive legal procedure for a foreign investor to raise its claims against the
depriving actions already taken or about to be taken against it. Some basic
legal mechanisms, such as reasonable advance notice, a fair hearing and an
unbiased and impartial adjudicator to assess the actions in dispute, are expected
to be readily available and accessible to the investor to make such legal
procedure meaningful. In general, the legal procedure must be of a nature to
grant an affected investor a reasonable chance within a reasonable time to

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 claim its legitimate rights and have its claims heard. If no legal procedure of
such nature exists at all, the argument that ‘the actions are taken under due
process of law’ rings hollow. And that is exactly what the Tribunal finds in the
present case.” (123)
In Yukos, the tribunal found that the expropriation had been effected without regard to
due process. In that case, the Russian courts were not “unbiased and impartial” as required
by the ADC standard, but rather “bent to the will of Russian executive authorities to
bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man
who gave signs of becoming a political competitor”. (124) The Bear Creek tribunal also
found an unlawful expropriation where the expropriation was effected by a decree that
was hastily drafted and issued – i.e., between the hours of 9:00 pm and 1:30 am, on the
basis of documents that the ministers did not review (and that respondent claimed to have
lost and therefore could not produce in the arbitration), and without giving Bear Creek the
opportunity to comment. (125)
P 249
P 250
There remains debate, however, on whether customary international law requires an
expropriation to be in accordance with due process to be lawful. In cases where the
applicable treaty does not include due process as a requirement for legality, tribunals
have reached disparate results on whether there is a general international law rule that
would require compliance with due process. (126)

4 Compensation
The requirement to provide prompt, adequate and effective compensation is perhaps the
most controversial. (127) The consensus appears to be that this requirement is met when
the fair market value of the investment is paid without delay and in a convertible currency.
Some argue, however, that the mere fact that compensation has not been paid does not
necessarily render an expropriation unlawful. The tribunal in Venezuela Holdings explained
that this is the case where the respondent State has made a fair offer that was not
accepted by the claimant:
“An offer of compensation may have been made to the investor and, in such a
case, the legality of the expropriation will depend on the terms of that offer. In
order to decide whether an expropriation is lawful or not in the absence of
payment of compensation, a tribunal must consider the facts of the case.
(….)
It is not disputed that negotiations too [sic] place, and it has been established
that Venezuela made proposals during those negotiations. It seems likely that
there were discussions at the time on the method of valuation of the
expropriated interests, on the relevance of the cap provisions referred to by
Venezuela and on the exact amount of the compensation payable to the
Claimants. The Tribunal finds that the evidence submitted does not
demonstrate that the proposals made by Venezuela were incompatible with the
P 250 requirement of ‘just’ compensation of Article 6(c) of the BIT. Accordingly, the
P 251 Claimants have not established the unlawfulness of the expropriation on that
ground.” (128)
What made the offer of compensation meaningful in Venezuela Holdings appeared to be
not just the existence of negotiations, but also the detailed discussion of the method by
which the assets would be valued and the determination of a precise amount of
compensation due.

5 Consequences of an Unlawful Expropriation

What is the effect of a finding of illegality with regard to an expropriation? Tribunals have
consistently held that where the applicable treaty does not contain a standard of
compensation specifically applicable to unlawful expropriation, the customary
international law standard is applicable. (129) That is to say, an unlawful expropriation
should entail full reparation, rather than the payment of fair market value of the
investment at the time of the taking.
Full reparation must “as far as possible, wipe out all the consequences of the illegal act
and reestablish the situation which would, in all probability, have existed if that act had
not been committed”. (130) This was the standard applied by the Burlington tribunal, which
considered that the United States-Ecuador BIT's prescription that expropriation could only
be effected upon “payment of prompt, adequate and effective compensation” was
inapplicable in the case of an unlawful expropriation. It stated:
“Article III(1) only describes the conditions under which an expropriation is
considered lawful; it does not set out the standard of compensation for
expropriations resulting from breaches of the Treaty. This conclusion has been
reaffirmed in a number of cases where the treaty in question had similar
language.” (131)

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 One of the main differences between full restitution and payment of compensation is that
the former permits the recovery of lost profits. (132) The reasoning is that “damages in the
case of an illegal nationalisation … will include both present and future loss, whereas in
the case of a legal nationalisation there is compensation which is payable by the state.
Future loss has no role to play in the assessment of the compensation, as the state has a
present right to terminate the venture.” (133)
P 251
P 252
An additional difference is the ability to recover for the increase in value that the
investment may have experienced between the date of the expropriation and the date of
the award. (134)

VI The Road Ahead: Open Issues and the Future of Standard

While much of the discussion about expropriation in recent years has focused on the
general contours of indirect expropriation and the requirements for the legality of
expropriation, there are other important issues that have not been the subject of as much
discussion but whose impact on the understanding of expropriation could be quite
significant. These topics include the question of whether judicial acts can have an
expropriatory effect and whether a new generation of treaties will successfully protect
States' regulatory space in the public health and environmental arenas by more clearly
demarcating the boundary between regulation and expropriation.

1 Expropriation by Judicial Act

Expropriation most often results from action by the State's executive or legislative branch.
Nationalizations, for example, are often achieved through the passing of laws or decrees.
Meanwhile, indirect expropriations are often the result of the State's regulation of
activities in the areas of public health, environment, and essential services, such as water,
electrical power, and telecommunications. While less common, expropriation can also be
effected by a judicial act. The Draft Articles on State Responsibility recognize that the
judiciary can also trigger international responsibility:
“Article 4. Conduct of organs of a State
1. The conduct of any State organ shall be considered an act of that State under
international law, whether the organ exercises legislative, executive, judicial or
any other functions, whatever position it holds in the organization of the State,
and whatever its character as an organ of the central Government or of a
territorial unit of the State.” (135) (Emphasis added.)
This principle has been recognized by international tribunals since at least the 1950s. (136)
Discussion of judicial takings, however, has been virtually nonexistent until recently.
P 252 The Eli Lilly tribunal provided the hypothetical example of a “judicial act (or omission)
P 253 [that] may engage questions of expropriation under NAFTA Article 1110, such as, perhaps,
in circumstances in which a judicial decision crystallizes a taking alleged to be contrary to
NAFTA Article 1110”. (137) Other tribunals have provided more detailed examples. In
Rumeli, the tribunal found that the claimant's investment, composed of shares in a
telecommunications company, had been taken via a creeping expropriation in which the
Kazakh courts participated with the intent of forcing the redemption of the claimant's
shares: (138)
“The Tribunal is left in no doubt, however, that the court process which resulted
in the expropriation of Claimants' shares was brought about through improper
collusion between the State, acting through the Investment Committee, and
Telcom Invest. The fact that the result may not have been intended by the
Investment Committee is not decisive of the issue of expropriation. Moreover, it
is beyond doubt that expropriation was the intended consequence of the court
orders for compulsory redemption of Claimants' shares.” (139) (Emphasis in
original.)
The Rumeli case is an example of the scenario envisioned by the Eli Lilly tribunal, in which
the courts play a deliberate role in crystallizing a taking.
Another example is the Saipem case. Saipem contracted with Petrobangla, a Bangladeshi
government entity, to construct a pipeline. The contract had a dispute resolution clause
that provided for arbitration under the ICC rules, and when a dispute arose, Saipem sought
recourse before an ICC arbitral tribunal. Petrobangla petitioned Bangladeshi courts to
revoke the arbitral tribunal's authority, and its request was granted. Saipem eventually
received an ICC award in its favor, but it was unenforceable in Bangladesh because of the
court's decision. Saipem initiated a separate arbitration, this time before ICSID, where it
argued that Bangladesh had expropriated its residual contractual rights, i.e., the right to
pursue ICC arbitration and to derive the benefit of the ICC award. (140) The ICSID tribunal
agreed that an expropriation had been effected by the judicial decision. The tribunal held
that
“Such actions [of the Bangladeshi courts] resulted in substantially depriving

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 Saipem of the benefit of the ICC Award. This is plain in light of the decision of
the Bangladeshi Supreme Court that the ICC Award is ‘a nullity’. Such a ruling is
tantamount to a taking of the residual contractual rights arising from the
investments as crystallised in the ICC Award. As such, it amounts to an
expropriation within the meaning of Article 5 of the BIT.” (141)

P 253 Some tribunals have been careful to note that a “seizure of property by a court as the
P 254 result of normal domestic legal process does not amount to an expropriation under
international law unless there was an element of serious and fundamental impropriety
about the legal process”. (142) Accordingly, an action by a state court to terminate a
contract, for instance, generally would not amount to an expropriation. (143)

2 Drafting Treaties to Protect Regulatory Space in the Health and Environmental

Arenas
Public health and the environment are two areas where States have especially sought to
protect their regulatory space. These are areas of great concern to increasingly vocal
citizenry and, accordingly, areas in which States wish to enforce regulations without the
threat of international liability looming over their heads. The increase in awards finding
indirect expropriation over the past two decades has led some States to add language to
their IIAs to protect their ability to regulate in the public interest, particularly in areas like
public health and the environment. The 2012 United States Model BIT, for instance,
provides that
“Except in rare circumstances, non-discriminatory regulatory actions by a Party
that are designed and applied to protect legitimate public welfare objectives,
such as public health, safety, and the environment, do not constitute indirect
expropriations.” (144)
The Comprehensive Economic and Trade Agreement (CETA) between Canada and the
European Union contains language intended to achieve a similar effect. The preamble
states that the provisions of the CETA are intended to protect investments and investors,
but “without undermining the right of the Parties to regulate in the public interest within
their territories”. (145) In addition, the CETA contains an annex that, like the U.S. Model BIT,
codifies a police powers exception. The CETA, however, provides more detail than the U.S.
Model BIT as to what the “rare circumstances” are in which non-discriminatory State
P 254 measures with a public welfare objective become expropriatory. The CETA's Annex clarifies
P 255 that “rare circumstance” is when the measures are grossly disproportionate:
“except in the rare circumstance when the impact of a measure or series of
measures is so severe in light of its purpose that it appears manifestly
excessive, non-discriminatory measures of a Party that are designed and
applied to protect legitimate public welfare objectives, such as health, safety
and the environment, do not constitute indirect expropriations”. (146)
The Trans-Pacific Partnership, now Comprehensive and Progressive Agreement for the
Trans-Pacific Partnership (CP-TPP) after the withdrawal of the United States, provides even
more specificity. In addition to stating that as a general rule “[n]on-discriminatory
regulatory actions by a Party that are designed and applied to protect legitimate public
welfare objectives, such as public health, safety and the environment” do not constitute
indirect expropriations, it further provides a non-exhaustive list of areas that are within
the scope of the term “public health”: pharmaceuticals, diagnostics, vaccines, and medical
devices, among others. (147)
Notably, CP-TPP includes a “carve-out” that permits member countries to block the use of
investor-state dispute settlement to seek compensation for tobacco control measures.
(148) This carve-out is unique – to the authors' knowledge, no other international
investment agreement excludes a specific product or industry from the scope of the
investment protection provisions. It remains to be seen whether this controversial use of
“carve-outs” is replicated in future agreements.
Perhaps the most recent indication that this trend will continue is the recently released
Netherlands Draft Model BIT, which in Art. 12 - Expropriation essentially adopts CETA, and
additionally notes the protection of consumer protection and the promotion and
protection of cultural diversity as “legitimate public interests”. (149)
It remains to be seen whether tribunals will be more likely to find that a State regulation
was lawful and non-compensable where the applicable treaty contains the kind of
P 255 language exemplified by the CETA, TPP, and U.S. Model BIT's provisions quoted above.
P 256 There are still too few awards to clearly identify trends. The jurisprudence that comes
out of the next few years will signal to States whether their concerns about their regulatory
range of action have been addressed or whether further recalibration is necessary in future
treaties.
These open issues – expropriation by judicial act and the continued demarcation of State's
regulatory space in the health and environmental arenas – will continue to evolve in the
near future, as the relevant actors continue voicing their interests and concerns: States,
drafting treaty provisions that enable them to serve the public interest without fear of

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 international liability; investors, lobbying for increased or at least, not eroding,
protections for their investments abroad; and tribunals, tasked with resolving disputes in
accordance with ever-evolving treaties.

VII Conclusion
So we have seen the protection against expropriation expand from a narrow physical
protection involving a direct taking in the twentieth century to protect against intangible
expropriation. But as the twenty-first century dawned we have experienced a recalibrating
by States concerned about protecting their policy space. Will tribunals follow?
P 256

References
*) Mélida Hodgson: Partner in the International Litigation and Arbitration Department of
Foley Hoag LLP.
**) Patricia Cruz Trabanino: Associate in the International Litigation and Arbitration
Department of Foley Hoag LLP. The views expressed in this chapter are solely of the
authors.
1) Upton Case (United States-Venezuela Mixed Claims Commission), 9 UNRIAA 234, Award
(17 February 1903), at p. 236 (henceforth Upton Case).
2) Jeswald W. SALACUSE, The Law of Investment Treaties, 2nd edn. (Oxford 2015) p. 64.
3) Ibid.
4) Goldenberg Case (Romania v. Germany), 2 UNRIAA 901 (27 September 1928), at p. 909
(original text in French: “Le respect de la propriété privée et des droits acquis des
étrangers fait sans conteste partie des principes généraux admis par le droit des gens.”).
5) British Claims in the Spanish Zone of Morocco (Spain v. Great Britain), 2 UNRIAA 615 (1
May 1925), at p. 641 (original text in French: “à un certain point l'intérêt d'un État de
pouvoir protéger ses ressortissants et leurs biens, doit primer le respect de la
souveraineté territoriale, et cela même en l'absence d'obligations conventionnelles”).
6) Walter Fletcher Smith Claim (Cuba/U.S.A.), 2 UNRIAA 913, at pp. 917-918 (henceforth
Walter Fletcher Smith Claim).
7) Ibid., p. 918.
8) Oscar Chinn (U.K. v. Belg.), Judgment, 1934 P.C.I.J. (ser. A/B) No. 63 (12 December 1934),
at p. 87.
9) Muthucumaraswamy SORNARAJAH, The International Law on Foreign Investment, 3rd
edn. (Cambridge 2010) p. 409 (citing the takings of Jewish property in Nazi Germany
and the expropriation of property of Indians in Uganda during the Idi Amin regime).
10) Treatment of Polish Nationals and Other Persons of Polish Origin or Speech in Danzig
Territory, Advisory Opinion, 1932 P.C.I.J. (ser. A/B) No. 44 (4 February 1932), at p. 28.
11) Upton Case, fn. 1 above, p. 236.
12) Factory at Chorzów (Germ. v. Pol.), Judgment, 1928 P.C.I.J. (ser. A) No. 17 (13 September
1928), at p. 47 (henceforth Factory at Chorzów); see also Marguerite de Joly de SABLA
(United States) v. Panama (United States-Panama Claims Commission), 6 UNRIAA 358,
Award (29 June 1933), at p. 366 (“It is axiomatic that acts of a government in depriving
an alien of his property without compensation impose international responsibility.”).
13) Letter from the Secretary of State of the United States Cordell HULL to the Mexican
Ambassador Francisco CASTILLO NAJERA (22 August 1938), available at
<https://history.state.gov/historicaldocuments/frus1938v05/d665> (last accessed 2
February 2018) (“The Government of the United States merely adverts to a self-
evident fact when it notes that the applicable precedents and recognized authorities
on international law support its declaration that, under every rule of law and equity,
no government is entitled to expropriate private property, for whatever purpose,
without provision for prompt, adequate, and effective payment therefor.”).
14) Restatement (Third) of the Foreign Relations Law of the United States, § 712 (Am. Law
Inst., 1987).
15) While already generally recognized in the early twentieth century, these limitations
on the sovereign power to expropriate were not entirely uncontested. For example, as
of 1959, the International Law Commission still considered that the topic of the
international responsibility that States may incur as a result of acts of expropriation
“require[d] more thorough study”. “Fourth report on State Responsibility by Mr. F.V.
Garcia-Amador, Special Rapporteur” (26 February 1959), International Law
Commission, UN Doc. A/CN.4/119 p. 2. Accordingly, the Special Rapporteur studied
“the new doctrinal and practical trends which have made their appearance mostly
since the last World War”, including the three topics of public purpose, non-
discrimination and compensation in the context of expropriation. See ibid. pp. 2, 13-
24.
16) Treaty Between the Federal Republic of Germany and Pakistan for the Promotion and
Protection of Investments, 25 November 1959, BGBl. II at 793, at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/1387> (last accessed 6
February 2018) (henceforth Germany-Pakistan BIT).

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 17) UNCTAD Investment Policy Hub, “International Investment Agreements Navigator”, at
<http://investmentpolicyhub.unctad.org/IIA> (last accessed 6 February 2018)
(indicating that there are 2,952 BITs and 374 treaties with investment provisions in
existence as of 6 February 2018).
18) Germany-Pakistan BIT, fn. 16 above, Art. 2.
19) Ibid. at Art. 3(2).
20) While Sect. 712 of the Restatement (Third) of the Foreign Relations Law of the United
States, fn. 14 above, does not refer to due process, many BITs and treaties with
investment provisions do. See, e.g., “2012 U.S. Model Bilateral Investment Treaty”, at
<https://www.state.gov/documents/organization/188371.pdf> (last accessed 6
February 2018), Art. 6(1)(d) (henceforth United States Model BIT). According to some
commentators, “[d]ue process is an expression of the minimum standard under
customary international law and of the requirement of fair and equitable treatment.
Therefore, it is not clear whether such a clause, in the context of the rule on
expropriation, adds an independent requirement for the legality of the
expropriation”. Rudolf DOLZER and Christoph SCHREUER, Principles of International
Investment Law, 2nd edn. (Oxford 2012) p. 100.
21) Bilateral Agreement for the Promotion and Protection of Investments between the
Government of the United Kingdom of Great Britain and Northern Ireland and
Republic of Colombia, 17 March 2010, Gr. Brit. T.S. No. 24 (2014), Cm. 8973 (henceforth
U.K.-Colombia BIT), Art. VI(1), at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3253> (last accessed 6
February 2018).
22) North American Free Trade Agreement between the Government of the United States
of America, the Government of Canada and the Government of the United Mexican
States, 17 December 1992, 32 I.L.M. 289 (henceforth NAFTA), Art. 1110(1).
23) Energy Charter Treaty, 17 December 1994, 2080 U.N.T.S. 95, Art. 13(1) (henceforth Energy
Charter Treaty).
24) Campbell MCLACHLAN, Laurence SHORE, and Matthew WEINIGER, International
Investment Arbitration: Substantive Principles, 1st edn. (Oxford 2007) p. 275.
25) NAFTA, fn. 22 above, Art. 1110(1).
26) Agreement between the Government of Canada and the Government of the Republic
of Costa Rica for the Promotion and Protection of Investments, 18 March 1998, 1999
Can. T.S. 43, Art. VIII(1), at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/601> (last accessed 6
February 2018) (henceforth Canada-Costa Rica BIT).
27) Agreement between the Government of the Republic of France and the Government of
the United Mexican States on the Reciprocal Promotion and Protection of
Investments, 12 November 1998, Art. 5(1), at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/1253> (last accessed 6
February 2018) (henceforth France-Mexico BIT).
28) Agreement between the Government of the Republic of Kenya and the Government of
the State of Qatar for Reciprocal Promotion and Protection of Investments, 13 April
2014, Art. 5(1), at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/5542> (last accessed 6
February 2018).
29) Agreement on the Promotion and Protection of Investments Between the Government
of the Republic of Korea and the Government of the Arab Republic of Egypt, 18 March
1996, Art. 5(1), at <http://investmentpolicyhub.unctad.org/Download/TreatyFile/1087>
(last accessed 6 February 2018).
30) U.K.-Colombia BIT, fn. 21 above, Art. VI(1).
31) Peter MUCHLINSKI, Federico ORTINO and Christoph SCHREUER, eds., The Oxford
Handbook of International Investment Law (Oxford 2008) p. 414 (citing Amoco
International Finance Corporation v. The Government of the Islamic Republic of Iran,
National Iranian Oil Company, National Petrochemical Company and Kharg Chemical
Company Limited (15 Iran-U.S. C.T.R. 189), 14 July 1987, para. 191.).
32) S.D. Myers, Inc. v. Government of Canada (UNCITRAL), Partial Award of 13 November
2000, para. 280, at <www.italaw.com/sites/default/files/case-
documents/ita0747.pdf> (last accessed 6 February 2018) (henceforth S.D. Myers v.
Canada).
33) See, e.g., Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt
(ICSID Case No. ARB/99/6), Award (12 April 2002), para. 107 (henceforth Middle East
Cement v. Egypt) (“When measures are taken by a State the effect of which is to
deprive the investor of the use and benefit of his investment even though he may
retain nominal ownership of the respective rights being the investment, the measures
are often referred to as a ‘creeping’ or ‘indirect’ expropriation or, as in the BIT, as
measures ‘the effect of which is tantamount to expropriation’.”). Commentators have
noted that there is no single generally accepted definition of an indirect
expropriation, and that “investment treaties rarely try to define indirect
expropriations”. P. MUCHLINSKI, F. ORTINO and C. SCHREUER, Oxford Handbook, fn. 31
above, p. 422.
34) See, e.g., Factory at Chorzow, fn. 12 above (involving the seizure of a nitrate factory);
Upton Case, fn. 1 above (dealing with the seizure and destruction of ships); Walter
Fletcher Smith Claim, fn. 6 above (in which the State condemned two parcels of land
and demolished the property on those parcels).

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 35) Norwegian Shipowners' Claims (Norway v. USA) (Permanent Court of Arbitration), 1
UNRIAA 307, Award (13 October 1922), at p. 323 (henceforth Norwegian Shipowners'
Claims).
36) Ibid., at p. 318.
37) Ibid., at p. 318 (“the United States have contended that there was no requisition,
except of ‘physical property’ and have strongly maintained that the word ‘contract’ in
the letter of 3rd August only referred to commitments for material”.).
38) Ibid., at p. 323.
39) Ibid., at p. 325.
40) Ibid., at p. 325 (holding that an expropriation had taken place both in law and in fact).
41) Ibid., at p. 323. The United States, however, kept the Norwegian claimants' ships after
the war, even though it had returned other ships back to their owners once they were
no longer needed for the war effort. Ibid., at pp. 329-330.
42) Ibid., at p. 329.
43) Ibid., at p. 329.
44) Ibid., at p. 340 (“Just compensation should have been paid to the Claimants or
arranged with them on the basis of the net value of the property taken.”).
45) See, e.g., Office of the Historian of the Department of State of the United States of
America, “Mexican Expropriation of Foreign Oil”, at
<https://history.state.gov/milestones/1937-1945/mexican-oil> (last accessed 7
February 2018).
46) Norwegian Shipowners' Claims, fn. 35 above, p. 318 (“the United States have contended
that there was no requisition, except of ‘physical property’”.).
47) The Norwegian Shipowners case, however, was certainly not the first with such a
holding. The 1903 Rudloff case, for example, articulated the same principle when it
held that “[t]he taking away or destruction of rights acquired, transmitted, and
defined by a contract is as much a wrong, entitling the sufferer to redress, as the
taking away or destruction of tangible property”. Rudloff Case (United States-
Venezuela Mixed Claims Commission), 9 UNRIAA 244, Interlocutory Decision (1903), at
p. 250.
48) See, e.g., Starrett Housing Corp. v. Iran, 4 Iran-US CTR 122, Interlocutory Award (19
December 1983), 1983 WL 233292 at *27 (noting that claimants relied on “precedents in
international law in which cases measures of expropriation or taking, primarily aimed
at physical property, have been deemed to comprise also rights of a contractual
nature closely related to the physical property”.); Amoco Finance Corp. v. Iran, 15 Iran-
US CTR 189, Partial Award (14 July 1987), para. 108, 1987 WL 503881 at *23 (stating, more
broadly, that “[e]xpropriation, which can be defined as a compulsory transfer of
property rights, may extend to any right which can be the object of a commercial
transaction”.) (henceforth Amoco v. Iran).
49) See Wena Hotels Limited v. Arab Republic of Egypt (ICSID Case No. Arb/98/4), Award (8
December 2000), para. 98 (“It is also well-established that an expropriation is not
limited to tangible property rights.”). Most IIAs include contractual and other
intangible rights within the scope of their protection. See, e.g., NAFTA, fn. 22 above,
Art. 1139 (protecting “real estate or other property, tangible or intangible”); Germany
Federal Ministry for Economics and Technology, “German Model Treaty – 2008”, Art.
1(c), at <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2865> (last
accessed 7 February 2018) (protecting “claims to any performance having an
economic value”); Free Trade Agreement between the Government of the United
States of America and the Government of the Republic of Chile, 6 June 2003, 42 I.L.M.
1026, Annex 10-D (protecting any “tangible or intangible property right or property
interest in an investment”.).
50) For example, the expropriation of American nationals' property in Iran after the
Iranian Revolution took place only forty years ago. And more recently, Zimbabwe
expropriated Dutch nationals' farmland as part of a land redistribution program. See
Funnekotter v. Zimbabwe (ICSID Case No. ARB/05/6), Award (22 April 2009).
51) See, e.g., NAFTA, fn. 22 above, Art. 1110(1); Energy Charter Treaty, fn. 23 above, Art. 13(1);
U.K.-Colombia BIT, fn. 21 above, Art. VI(1).
52) See, e.g., NAFTA, fn. 22 above, Art. 1110(1).
53) See, e.g., Canada-Costa Rica BIT, fn. 26 above, Art. VIII(1).
54) See, e.g., France-Mexico BIT, fn. 27 above, Art. 5(1).
55) NAFTA, fn. 22 above, Art. 1110(1).
56) Metalclad Corporation v. The United Mexican States (ICSID Case No. ARB(AF)/97/1),
Award (30 August 2000), para. 27 (henceforth Metalclad v. Mexico).
57) See Metalclad v. Mexico, fn. 56 above, paras. 111-112.
58) Marvin Feldman v. Mexico (ICSID Case No. ARB(AF)/99/1), Award (16 December 2002),
para. 100 (henceforth Feldman v. Mexico).
59) Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/00/3), Award
(30 April 2004), paras. 143-144.
60) SALACUSE, Law of Investment Treaties, fn. 2 above, p. 328.
61) Generation Ukraine, Inc. v. Ukraine (ICSID Case No. ARB/00/9), Award (16 September
2003), para. 20.22 (henceforth Generation Ukraine v. Ukraine).
62) Pope & Talbot Inc. v. The Government of Canada (UNCITRAL), Interim Award (26 June
2000), para. 83 (henceforth Pope & Talbot).

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 63) See Tradex Hellas S.A. v. Republic of Albania (ICSID Case No. ARB/94/2), Award (29 April
1999), para. 191 (“While the above examination in Sections b) to l) of this Award has
come to the conclusion that none of the single decisions and events alleged by
Tradex to constitute an expropriation can indeed be qualified by the Tribunal as
expropriation, it might still be possible that, and the Tribunal, therefore, has to
examine and evaluate hereafter whether the combination of the decisions and events
can be qualified as expropriation of Tradex' foreign investment in a long, step-by-
step process by Albania.”).
64) See Restatement (Third) of the Foreign Relations Law of the United States, fn. 14
above, §712, Comment (g) (“A state is not responsible for loss of property or for other
economic disadvantage resulting from bona fide general taxation, regulation,
forfeiture for crime, or other action of the kind that is commonly accepted as within
the police power of states, if it is not discriminatory.”). But see Metalclad v. Mexico, fn.
56 above, para. 103 (endorsing the “sole effects” doctrine, which posits that the effect
of the State measure alone can determine whether an expropriation has taken place,
meaning that the regulatory purpose of the State measure is irrelevant. The “sole
effects” doctrine is a minority position.).
65) Saluka Investments B.V. v. The Czech Republic (UNCITRAL), Partial Award (17 March
2006), para. 262 (henceforth Saluka v. Czech Republic).
66) Feldman v. Mexico, fn. 58 above, para. 103.
67) EnCana Corporation v. Republic of Ecuador (LCIA Case No. UN3481, UNCITRAL), Award (3
February 2006), para. 177.
68) Ibid.
69) RosInvestCo UK Ltd. v. The Russian Federation (SCC Case No. V079/2005), Final Award
(12 September 2010), para. 628 (“it is generally accepted that the mere fact that
measures by a host state are taken in the form of application and enforcement of its
tax law, does not prevent a tribunal from examining whether this conduct of the host
state must be considered, under the applicable BIT or other international treaties on
investment protection, as an abuse of tax law to in fact enact an expropriation.”).
70) M. SORNARAJAH, Foreign Investment, fn. 9 above, p. 374.
71) United States Model BIT, fn. 20 above, Annex B; Agreement between Canada and
_____ for the Promotion and Protection of Investments (2004), at
<https://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf> (last
accessed 7 February 2018), Annex B.13(1) (henceforth Canada Model BIT).
72) Compañía del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica (ICSID Case
No. ARB/96/1), Award (17 February 2000), para. 72. Note that in the Santa Elena case,
the fact of expropriation was not in dispute. Costa Rica had directly expropriated the
claimant's property by decree. Rather, the arbitral tribunal's task was to determine
the amount of compensation due.
73) Antoine Goetz et consorts v. Republic of Burundi (ICSID Case No. ARB/95/3, Award (10
February 1999), para. 124.
74) Grand River Enterprises Six Nations, Ltd., et al. v. United States of America (UNCITRAL),
Award (12 January 2011), para. 147.
75) See Eli Lilly and Company v. Government of Canada (ICSID Case No. UNCT/14/2), Final
Award (16 March 2017), para. 5 (henceforth Eli Lilly v. Canada).
76) Other tribunals have imposed a very high standard of deprivation in order to find that
there has been an expropriation, but the standard is not as absolute as the one
applied in Grand River. For example, the CMS tribunal stated that “[t]he essential
question is therefore to establish whether the enjoyment of the property has been
effectively neutralized”, but then accepted the “substantial deprivation” test as
applicable. CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case
No. ARB/01/8), Award (12 May 2005), para. 262. Similarly, the Pope & Talbot tribunal
stated that for interference to rise to the level of expropriation, it must prevent an
investor from using, enjoying, or disposing of his property. Pope & Talbot, fn. 62 above,
para. 102.
77) Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania (ICSID Case No.
ARB/05/22), Award (24 July 2008), para. 463 (henceforth Biwater Gauff v. Tanzania).
78) See e.g., Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A.
v. The Argentine Republic (ICSID Case No. ARB/03/19), Decision on Liability (30 July
2010), para. 134 (explaining that the relevant test was whether the State measures
effected “a substantial, permanent deprivation of the Claimant's investments or the
enjoyment of those investments' economic benefits”.).
79) Telenor Mobile Communications A.S. v. The Republic of Hungary (ICSID Case No.
ARB/04/15), Award (13 September 2006), para. 70.
80) Tokios Tokelés v. Ukraine (ICSID Case No. ARB/02/18), Award (26 July 2007), para. 120.
81) Azurix Corp. v. The Argentine Republic (ICSID Case No. ARB/01/12), Award (14 July 2006),
para. 322. But see LG&E Energy Corp., LG&E Capital Corp., and LG&E International Inc. v.
Argentine Republic (ICSID Case No. ARB/02/1), Decision on Liability (3 October 2006)
(henceforth LG&E v. Argentina), in which the tribunal found no expropriation where
Argentina's measures reduced the value of the claimants' investment by over 90
percent, because the investors retained control over and the right to enjoy the
investment.
82) L. Yves FORTIER and Stephen L. DRYMER, “Indirect Expropriation in the Law of
International Investment: I Know It When I See It, or Caveat Investor”, 19 ICSID Review
—FILJ (2004, no. 2) p. 293 at p. 305.

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 83) LG&E v. Argentina, fn. 81 above, para 193.
84) Biwater Gauff v. Tanzania, fn. 77 above, para. 463.
85) Técnicas Medioambientales Tecmed S.A. v. The United Mexican States (ICSID Case No.
ARB (AF)/00/2), Award (29 May 2003), para. 116 (“it is understood that the measures
adopted by a State, whether regulatory or not, are an indirect de facto expropriation
if they are irreversible and permanent and if … the economic value of the use,
enjoyment or disposition of the assets or rights affected by the administrative action
or decision have been neutralized or destroyed”.) (henceforth Tecmed v. Mexico). See
also Generation Ukraine v. Ukraine, fn. 61 above, para. 20.32 (holding that a regulation
is expropriatory where its effects are “persistent or irreparable”.).
86) S.D. Myers v. Canada, fn. 32 above, para. 283.
87) The analysis of the investor's legitimate expectations may also consider whether the
investor should have expected the level of regulation it experienced. For example,
the reasonable expectation of an investor in the tobacco industry is that the sector
will be regulated increasingly restrictively because of the well-known health effects of
tobacco use. In the fair and equitable treatment context, see Philip Morris Brands
Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay
(ICSID Case No. ARB/10/7), Award (8 July 2016), paras. 429-430 (henceforth Philip
Morris) (“Manufacturers and distributors of harmful products such as cigarettes can
have no expectation that new and more onerous regulations will not be imposed…. On
the contrary, in light of widely accepted articulations of international concern for the
harmful effect of tobacco, the expectation could only have been of progressively
more stringent regulation of the sale and use of tobacco products.”). The reasoning is
that investors in highly regulated sectors should have expected that the State would
exercise its police powers in these sectors. The Philip Morris tribunal resolved that
there was no expropriation on the basis of Uruguay's exercise of police powers, but
did not appear to specifically address the investor's expectation. See paras. 300, 305-
307. Given that the direction to tribunals to make this analysis in a regulatory context
is almost exclusively found in post-2000s treaties, a similar analysis in the
expropriation context has yet to materialize.
88) Metalclad v. Mexico, fn. 56 above, para. 103.
89) Ibid. at para. 107.
90) See, e.g., Tecmed v. Mexico, fn. 85 above, paras. 149-150.
91) United States Model BIT, fn. 20 above, footnote 10.
92) Ibid. at Annex B (4)(a). This provision in the 2012 U.S. Model BIT had been introduced
earlier by the 2004 U.S. Model BIT, which codified the concept of reasonable
investment-backed expectations articulated in the U.S. Supreme Court case Penn
Central Transportation Co. v. New York City, 438 U.S. 104, 124 (1978).
93) See, e.g., Treaty Between the United States of America and the Oriental Republic of
Uruguay Concerning the Encouragement and Reciprocal Protection of Investment, 4
November 2005, T.I.A.S. 06-1101, Annex B 4(a)(ii) (henceforth United States-Uruguay
BIT); Free Trade Agreement between the United States and the Republic of Korea, 30
June 2007, Annex 11-B(3)(a)(ii), at <https://ustr.gov/trade-agreements/free-trade-
agreements/korus-fta/final-text> (last accessed 9 February 2018); The Dominican
Republic – Central America – United States Free Trade Agreement, 5 August 2004,
Annex 10-C(4)(a)(ii).
94) See, e.g., Agreement Between the Government of Canada and the Government of the
Republic of Benin for the Promotion and Reciprocal Protection of Investments, 9
January 2013, 2014 Can. T.S. No. 13, Annex I(b)(2); Agreement Between the Government
of Canada and the Government of the People's Republic of China for the Promotion
and Reciprocal Protection of Investments, 9 September 2012, 2014 Can. T.S. No. 26,
Annex B.10(2)(b).
95) See, e.g., Agreement Between the Government of India and the Government of Nepal
for the Reciprocal Promotion and Protection of Investments, 21 October 2011, Art. 5(2)
(iii), at <http://investmentpolicyhub.unctad.org/Download/TreatyFile/1583> (last
accessed 9 February 2018); Agreement Between the Government of the Republic of
India and the Government of the Republic of Lithuania for the Promotion and
Protection of Investments, 31 March 2011, Annex (2)(iii), at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/1574> (last accessed 9
February 2018); Agreement for the Promotion and Protection of Investments Between
the Republic of Colombia and the Republic of India, 10 November 2009, Art. 6(2)(b)
(iii), at <http://investmentpolicyhub.unctad.org/Download/TreatyFile/796> (last
accessed 9 February 2018).
96) LG&E v. Argentina, fn. 81 above, paras. 194-195, citing Tecmed v. Mexico, fn. 85 above,
para. 122.
97) Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka (ICSID Case No.
ARB/09/2), Award (31 October 2012), para. 522.
98) Ibid.
99) Canada Model BIT (2004), fn. 71 above, Annex B.13(1)(c).
100) United States Model BIT, fn. 20 above, Annex B. The Canada Model BIT contains very
similar language. See Canada Model BIT (2004), fn. 71 above, Annex B.13(1).

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 101) For some, this very fact is unacceptable and leads to calls to remove expropriation
protections from IIAs or to remove the access of investors to dispute settlement on
the grounds of a violation of indirect expropriation. These issues will be discussed in
greater detail later.
102) Saluka v. Czech Republic, fn. 65 above, para. 263.
103) Aaron C. Berkowitz, Brett E. Berkowitz and Trevor B. Berkowitz (formerly Spence
International Investments and others) v. Republic of Costa Rica (ICSID Case No.
UNCT/13/2), Interim Award of the Tribunal (Corrected) (30 May 2017) (henceforth
Berkowitz v. Costa Rica).
104) Dominican Republic-Central America-United States Free Trade Agreement, 5 August
2004, 43 I.L.M. 514 (henceforth CAFTA), Annex 10-C (4)(a).
105) CAFTA, fn. 104 above, Annex 10-C (4)(b).
106) Ibid.
107) Berkowitz v. Costa Rica, fn. 103 above, para. 271.
108) Amoco v. Iran, fn. 48 above, para. 145.
109) See also Restatement (Third) of the Foreign Relations Law of the United States, fn. 14
above, § 712 Comment (e) (“the concept of public purpose is broad and not subject to
effective reexamination by other states”.).
110) See, e.g., Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia
(ICSID Case No. ARB/06/2), Award (16 September 2015), para. 245 (henceforth Quiborax
v. Bolivia).
111) ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary
(ICSID Case No. ARB/03/16), Award (2 October 2006), paras. 429-433 (henceforth ADC v.
Hungary).
112) Ibid., at para. 432.
113) British Caribbean Bank Ltd. v. Government of Belize (PCA Case No. 2010-18), Award (19
December 2014), paras. 239-240.
114) Yukos Universal Limited (Isle of Man) v. The Russian Federation (PCA Case No. AA 227),
Final Award (18 July 2014), para. 1581 (henceforth Yukos v. Russia).
115) Vestey Group Ltd v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/06/4), Award
(15 April 2016), paras. 293-300.
116) See Saluka v. Czech Republic, fn. 65 above, para. 313. See also Quiborax v. Bolivia, fn.
110 above, at fn. 272 (listing cases in which the test was applied).
117) Restatement (Third) of the Foreign Relations Law of the United States, fn. 14 above, §
712 Comment (f).
118) Quiborax v. Bolivia, fn. 110 above, paras. 247-248.
119) Eureko B.V. v. Republic of Poland, Partial Award (19 August 2005), para. 242.
120) Restatement (Third) of the Foreign Relations Law of the United States, fn. 14 above, §
712 Comment (f).
121) See ADC v. Hungary, fn. 111 above, paras. 441-443.
122) See, e.g., United States-Uruguay BIT, fn. 93 above, Art. 6(1)(d).
123) ADC v. Hungary, fn. 111, ¶ 435. The same test was applied in Kardassopoulos v. Georgia,
where the tribunal also found that the expropriation was not effected in accordance
with due process. Ioannis Kardassopoulos v. Georgia (ICSID Case No. ARB/05/18),
Award (3 March 2010), paras. 395-408.
124) Yukos v. Russia, fn. 114 above, para. 1583.
125) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Award
(30 November 2017), paras. 445-447.
126) Compare AIG Capital Partners Inc. and CJSC Tema Real Estate Company v. Republic of
Kazakhstan (ICSID Case No. ARB/01/6), Award (7 October 2003), para. 10.5.1.
(“Expropriation of alien property is not itself contrary to international law provided
certain conditions are met, and perhaps the most clearly established condition is
that expropriation must not be arbitrary (i.e., must not be contrary to ‘the due
process of law’).”) with Guaracachi America, Inc. and Rurelec PLC v. Plurinational State
of Bolivia (PCA Case No. 2011-17), Award (31 January 2014), para. 439 (“the Tribunal also
does not consider it possible to derive … the existence of a rule of customary
international law obliging expropriating States to grant to the expropriated national
or company a right to participate in such valuation process”.).
127) It is generally understood that for compensation to be appropriate it must be
prompt, adequate and effective. See “Guidelines on the Treatment of Foreign Direct
Investment” in World Bank, Legal Framework for the Treatment of Foreign Investment:
Report to the Development Committee and Guidelines on the Treatment of Foreign
Direct Investment, volume II (World Bank 1992), Guideline IV (2) (“Compensation for a
specific investment taken by the State will, according to the details provided below,
be deemed ‘appropriate’ if it is adequate, effective and prompt.”).
128) Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela
Holdings, B.V., et al.) v. The Bolivarian Republic of Venezuela (ICSID Case No.
ARB/07/27), Award (9 October 2014), paras. 301-305.
129) See, e.g., ADC v. Hungary, fn. 111 above, para. 483.
130) Factory at Chorzów, fn. 12 above, p. 47.
131) Burlington Resources Inc. v. Republic of Ecuador (formerly Burlington Resources Inc.
and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(PetroEcuador)) (ICSID Case No. ARB/08/5), Decision on Reconsideration and Award (7
February 2017), para. 160.
132) Tecmed v. Mexico, fn. 85 above, para. 195.

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 133) M. SORNARAJAH, Foreign Investment, fn. 9 above, p. 447.
134) Joseph Houben v. Republic of Burundi (ICSID Case No. ARB/13/7), Award (12 January
2016), para. 226; ADC v. Hungary, fn. 111 above, paras. 496, 499.
135) International Law Commission, “Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries” (2001), Art. 4(1), at
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>
(last accessed 9 February 2018).
136) See Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v.
Republic of Kazakhstan (ICSID Case No. ARB/05/16), Award (29 July 2008), para. 702
(citing the 1986 Oil Field of Texas Inc. v. The Government of the Islamic Republic of Iran
case, which in turn cited a 1952 decision by the French-Italian Commission)
(henceforth Rumeli v. Kazakhstan).
137) Eli Lilly v. Canada, fn. 75 above, para. 221.
138) Rumeli v. Kazakhstan, fn. 136 above, paras. 705-707.
139) Rumeli v. Kazakhstan, fn. 136 above, para. 707.
140) It is worth noting that the treaty under which the ICSID arbitration was initiated did
not contain a protection against denial of justice.
141) Saipem S.p.A. v. People's Republic of Bangladesh (ICSID Case No. ARB/05/07), Award (30
June 2009), para. 129.
142) Garanti Koza LLP v. Turkmenistan (ICSID Case No. ARB/11/20), Award (19 December
2016), para. 365 (henceforth Garanti Koza v. Turkmenistan). See also Middle East
Cement v. Egypt, fn. 33 above, para. 139 (“though, normally, a seizure and auction
ordered by the national courts do not qualify as a taking, they can be a ‘measure the
effects of which would be tantamount to expropriation’ if they are not taken ‘under
due process of law’”.). But see Sistem Muhendislik Insaat Sanayi ve Ticaret A.S. v.
Kyrgyz Republic (ICSID Case No. ARB(AF)/06/1), Award (9 September 2009), paras. 118,
128 (“That abrogation [of ownership rights in a hotel] was effected by an organ of the
Kyrgyz State…. The Court decision deprived the Claimant of its property rights in the
hotel just as surely as if the State had expropriated it by decree…. Any chance of the
restoration of that interest was removed by the decision of the Kyrgyz Supreme
Court.”)
143) Garanti Koza v. Turkmenistan, fn. 142 above, para. 365.
144) United States Model BIT, fn. 20 above, Annex B(4)(b).
145) Comprehensive Trade and Economic Agreement between Canada and the European
Union, 30 October 2016, Preamble, at <www.international.gc.ca/trade-
commerce/trade-agreements accords-commerciaux/agr-acc/ceta-aecg/text-t...>
(last accessed 9 February 2018) (henceforth CETA).
146) CETA, fn. 145 above, Annex 8-A(3), at <https://www.international.gc.ca/trade-
commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aec...> (last
accessed 9 February 2018).
147) Trans-Pacific Partnership, 4 February 2016, Annex 9-B, 3(b) and footnote 37, at
<https://www.mfat.govt.nz/assets/Trans-Pacific-Partnership/Text/9.-Investment-
Chapter.pdf> (last accessed 9 February 2018) (henceforth CP-TPP). The quoted Trans-
Pacific Partnership's provisions track the words of the tribunal in the 2010 case
Chemtura v. Canada, which arose out of the termination of the claimant's licenses for
pesticides containing the chemical lindane due to health concerns. In that context,
the Chemtura tribunal stated that there had been no indirect expropriation because
the State measures were taken “in a non-discriminatory manner, motivated by the
increasing awareness of the dangers presented by lindane for human health and the
environment. A measure adopted under such circumstances is a valid exercise of the
State's police powers and, as a result, does not constitute an expropriation.”
Chemtura Corporation v. Government of Canada (UNCITRAL), Award (2 August 2010),
para. 266.
148) TPP, fn. 147 above, Art. 29.5.
149) The draft model BIT also contains various other provisions protecting the right to
regulate for legitimate public policy objectives (and in Art. 2 this is even if such
regulation “negatively affects” investors' expectations). Netherlands draft model BIT,
16 May 2018, at <https://www.internetconsultatie.nl/investeringsakkooden> (last
accessed 1 June 2018).

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 KluwerArbitration

Document information
Reforming Substantive Obligations in Investment Treaties:
Publication Most Favoured Nation Clauses
Evolution and Adaptation: Max Bonnell
The Future of International (*)
Arbitration
I Introduction
Topics “Reform” is a concept loaded with connotations. It implies the existence of an
unsatisfactory practice, and the potential for change to improve that practice. It also
Investment arbitration suggests the existence of some power capable of effecting desirable change. Any
consideration of the potential for reform of substantive obligations in investment treaties
first requires an examination of the current practice, in order to identify what aspects of it
Bibliographic reference might be amenable to constructive change, and then leads to the question, if change is
desirable, by whom can it be made?
Max Bonnell, 'Reforming
Substantive Obligations in
Investment Treaties: Most II Roots and Purpose of MFN
Favoured Nation Clauses', in Most favoured nation (MFN) status is conferred when one state agrees to treat another
Jean Engelmayer Kalicki and state (or its nationals) in a manner that is at least as favourable as the treatment it accords
Mohamed Abdel Raouf (eds), to other states (or their nationals). MFN treatment is not a requirement of customary
Evolution and Adaptation: international law, so that any state that seeks to obtain MFN treatment from another must
The Future of International do so by way of treaty.
Arbitration, ICCA Congress
Series, Volume 20 (© Kluwer MFN clauses have been included in trade treaties for hundreds of years, and were
Law International; frequently found in early agreements concerning customs and tariffs. A well-known early
International Council for P 257 example is the treaty of 1642 between Great Britain and Portugal, while the first treaty
Commercial P 258 entered into by the United States of America (with France, in 1778) included an MFN
Arbitration/Kluwer Law clause. By the Jay Treaty of 1794, Great Britain and the United States exchanged mutual
International 2019) pp. 257 - promises to the effect that imported “Goods and Merchandize shall be subject to no higher
291 or other Duties than would be payable by His Majesty's Subjects on the Importation of the
same from Europe”. A more significant modern example is Art. 1.1 of the General Agreement
on Tariffs and Trade (GATT), which provided, in 1947, that in relation to the subject matter
of the treaty, “any advantage, favour, privilege or immunity granted by any contracting
party to any product originating in or destined for any other country shall be accorded
immediately and unconditionally to the like product originating in or destined for the
territories of all other contracting parties”. Its inclusion in GATT helped to entrench the
MFN concept in modern international trade law.
MFN clauses have been included in most bilateral investment treaties (BITs). One estimate
is that MFN clauses are found in more than 90 percent of investment treaties. (1) Their
purpose is to secure, for nationals of each party, treatment in the host state that is at least
as favourable as the treatment accorded to investors of other states.
A reasonably typical MFN clause is Art. 3 of the 1986 BIT between the United Kingdom and
China, which provides:
“(1) Neither Contracting Party shall in its territory subject investments or returns of
nationals or companies of the other Contracting Party to treatment less favourable
than that which it accords to investments or returns of nationals or companies of any
third State.
(2) Neither Contracting Party shall in its territory subject nationals or companies of the
other Contracting Party as regards their management, use, enjoyment or disposal of
their investments, to treatment less favourable than that which it accords to
nationals or companies of any third State.”
Arts. 3(1) and 3(2) (versions of which are to be found in the Model BITs of many states) are
qualified by Art. 3(4), which provides that they do not require either Party to extend to the
other's nationals or companies any treatment that results from “any existing or future
customs union or similar international agreement or agreement for facilitating frontier
trade” or from “any international agreement or arrangement relating wholly or mainly to
taxation or any domestic legislation relating wholly or mainly to taxation”. Similar
qualifications are, again, commonly found in investment treaties (they appear, for
example, in the German Model BIT).
In spite of these qualifications, the striking thing about most MFN clauses is their
unconditional and general language. One commentator has observed that “MFN clauses in
BITs … are of a particularly voracious variety”, and “overwhelmingly … are generalized
promises of MFN treatment with respect to all areas addressed by the BIT”. (2) It is this
apparent breadth of scope that has generated so many disputes about the true extent of
the protection offered by MFN clauses.
P 258

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 P 258
P 259

III Substantive MFN Treatment

Until recently, it has been relatively uncontroversial that “an MFN rule grants a claimant
the right to benefit from substantive guarantees contained in third treaties”. (3) The
earliest investment treaty award in which the question was considered was Asian
Agricultural Products Ltd v. Sri Lanka, (4) which dealt with a claim under the UK-Sri Lanka
BIT. That BIT offered full protection and security to investments made by investors of each
party, but included exemptions for war and civil disturbance. The claimant argued that the
MFN clause in that BIT allowed it to rely upon the equivalent provision in the BIT between
Sri Lanka and Switzerland, which did not contain the same exemptions. The tribunal
appears to have assumed that the MFN clause could operate to allow the obligation in one
BIT to be incorporated into another, although on the facts it found that it was “not proven
that the Sri Lanka/Switzerland Treaty contains rules more favourable than those provided
for under the Sri Lanka/U.K. Treaty, and hence, Article 3 of the latter Treaty cannot be
justifiably invoked in the present case”. (5)
Lawyers who practice in the field of investment treaty disputes lack neither ingenuity nor
imagination in their formulation of claims. It is perhaps surprising, therefore, that there
have not been more cases in which MFN clauses have been invoked by claimants seeking
to attract more favourable substantive protections. A large number of the cases in which
this has occurred concern the application of variations of the fair and equitable treatment
standard of treatment.

1 Fair and Equitable Treatment

Several tribunals (6) have ruled that the “fair and equitable treatment” standard, or some
variant of it, may be imported into a BIT by means of an MFN clause. In MTD v. Chile, (7) the
claimants commenced the arbitration under the provisions of the 1992 BIT between
Malaysia and Chile. Art. 3(1) of that BIT provided that “Investments made by investors of
either Contracting Party in the territory of the other Contracting Party shall receive
treatment which is fair and equitable, and not less favourable than that accorded to
investments made by investors of any third State.” The Malaysian investor (which was
undertaking a large construction project) relied upon that Article to invoke broader
protections that were not present in the BIT between Chile and Malaysia but were found in
Chile's BITs with Denmark and Croatia.
P 259
P 260
The claim in Bayindir v. Pakistan (8) was made under the BIT between Turkey and Pakistan,
which contained an MFN clause but no provision promising fair and equitable treatment.
The tribunal determined that the MFN clause operated to provide Turkish investors in
Pakistan with the same promise of fair and equitable treatment contained in the Pakistan-
Switzerland BIT. By 2008, this approach had become so commonplace that in Rumeli
Telekom v. Kazakhstan, the respondent state did not even trouble to dispute the claim that
“in view of the MFN clause contained in the BIT, Respondent's international
obligations assumed in other bilateral treaties, and in particular the United
Kingdom-Kazakhstan BIT, are applicable to this case, such obligations including:
– the obligation to ensure the fair and equitable treatment of the
investments of investors of the other Contracting Party;
– the duty not to deny justice;
– the obligation to accord full protection and security to such investments;
and
– the obligation not to impair by unreasonable, arbitrary, or discriminatory
measures the management, maintenance, use, enjoyment, or disposal of
such investments”. (9)

2 Umbrella Clauses
An umbrella clause, in the context of an international investment treaty, obliges the host
state to observe specific contractual obligations it has made to covered investors. MFN
clauses have been used to make the benefit of umbrella clauses available to investors.
In EDF v. Argentina, (10) the claimants relied upon Art. 4 of the BIT between France and
Argentina, by which each state promised the investors of the other “a treatment no less
favourable than that accorded to … investors of the most favoured Nation”. The claimants
argued that the effect of this provision was that they were “entitled to any substantive
protections in third-party investment treaties which might be considered more favourable
than those contained in the Argentina-France BIT” and, in particular, they sought to invoke
the umbrella clauses set out in Art. 10(2) of the Argentina-Luxembourg BIT and Art. 7(2) of
the Argentina-Germany BIT. Argentina disputed this: it contended that umbrella clauses
provide a distinctive form of protection that must be specifically negotiated. The tribunal
P 260 agreed with the claimants, pointing out that “To ignore the MFN clause in this case would
P 261 permit more favourable treatment to investors protected under third countries, which
is exactly what the MFN Clause is intended to prevent.”

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 Similarly, in Franck Charles Arif v. Moldova, (11) both parties agreed that the MFN clause in
the France-Moldova treaty could be used to import substantive protections from other
treaties, and the tribunal held that an umbrella clause was substantive in nature. There
have been at least two cases, however, in which tribunals were invited to apply umbrella
clauses from other treaties and refused to do so, on the basis that they did not consider
that those clauses would have any impact on the instant case. (12)

3 Measure of Compensation
In CME v. Czech Republic, (13) the Dutch claimant sought relief under the BIT between the
Netherlands and the Czech Republic, claiming (amongst other things) that the Czech
Republic had deprived it of its investment in certain television broadcasting licences. The
Czech-Netherlands BIT provided that when an expropriation occurred, the investor was
entitled to “just compensation” that reflected the “genuine value of the investment”. CME
argued that the appropriate measure of compensation was “fair market value”, and the
tribunal agreed, finding that:
“The determination of compensation under the Treaty between the Netherlands
and the Czech Republic on basis of the ‘fair market value’ finds further support
in the ‘most favored nation’ provision of Art. 3(5) of the Treaty. That paragraph
specifies that if the obligations under national law of either party in addition to
the present Treaty contain rules, whether general or specific, entitling
investments by investors of the other party to a treatment more favourable than
provided by the present Treaty, ‘such rules to the extent that they are more
favourable prevail over the present Agreement.’ The bilateral investment treaty
between the United States of America and the Czech Republic provides that
compensation shall be equivalent to the fair market value of the expropriated
investment immediately before the expropriatory action was taken…. The Czech
Republic therefore is obligated to provide no less than ‘fair market value’ to
Claimant in respect of its investment, should (in contrast to this Tribunal's
opinion) ‘just compensation’ representing the ‘genuine value’ be interpreted to
be less than ‘fair market value’.” (14)
P 261
P 262
4 But What Is “Treatment”?
The term “treatment”, in the present context, has usually been understood to operate in
the manner set out in the commentary to the ILC's Draft Articles on most-favoured-nation
clauses of 1978. That commentary states that an obligation contained in a treaty may be
considered “treatment” as such for the purposes of an MFN clause:
“[T]he fact of favourable treatment may consist also in the conclusion or
existence of an agreement between the granting State and the third State by
which the latter is entitled to certain benefits. The beneficiary State, on the
strength of the clause, may also demand the same benefits as were extended by
the agreement in question to the third State. The mere fact that the third State
has not availed itself of the benefits which are due to it under the agreement
concluded with the granting State cannot absolve the granting State from its
obligation under the clause….” (15)
This was also the position taken in the decision of the International Court of Justice in the
Rights of Nationals of the USA in Morocco, which found that but for the fact that more
favourable rights accorded by Morocco to France and Great Britain had ceased to apply at
the relevant time, the rights enshrined in Morocco's treaties with those States would
otherwise have sufficed for the purpose of establishing more favourable treatment. (16)
Thus, the existence of obligations in a third treaty is enough to demonstrate de jure
discrimination by reference to a hypothetical investor in like circumstances who is, as a
matter of law, entitled to the more favourable treatment. This is enough for a person in a
determined relationship with the beneficiary state to claim an entitlement to the
promised treatment through the operation of an MFN clause. (17)
Consequently, in international investment law, MFN clauses have functioned primarily to
enable the importation of more favourable provisions, subject to the ejusdem generis rule,
from a third treaty into the basic treaty.
This position has not been universally accepted. In NAFTA cases, Canada has frequently
expressed the view that Art. 1103 of NAFTA cannot “be invoked to import a standard
provided for in a different treaty that may potentially or theoretically result in a more
favourable treatment of an investor from another Party or of a non-Party. The provision is
concerned with ‘treatment’ accorded to investors.” (18)
In recent times, some respondents have followed the position taken by Canada, and the
P 262 other NAFTA States, and have challenged the notion that an MFN clause automatically
P 263 allows claimants the benefit of substantive provisions contained in other treaties. In
2016, the respondent in İçkale İnşaat Limited Şirketi v. Turkmenistan (discussed in further
detail below) succeeded in arguing that (at least under the terms of the Turkey-
Turkmenistan BIT), the mere making of a promise to investors of a third country did not

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 amount to “treatment”. It's reasonable to expect that, in future cases, there will be a more
searching test of the conventional proposition that MFN clauses permit a claimant to
benefit from mere promises contained in other treaties.
It may be, if the İçkale award finds favour with future tribunals, that claimants will no
longer be able to assume complacently that the mere existence of a promise in another
treaty constitutes more favourable treatment.

IV MFN Treatment and Procedural Questions

1 What Is an “Investment”?
Claimants in several cases have sought to expand the definition of “investment” by
invoking MFN clauses but, so far, without success.
Vannessa Ventures v. Venezuela (19) was a claim made under the Canada-Venezuela BIT,
which required that investments be made “in accordance with the … laws” of the host state.
The claimant argued that it was entitled to invoke the MFN clause to import into the
principal treaty a broader definition of “investment” from the BIT between Venezuela and
the United Kingdom. The tribunal decided
“that the MFN treatment under the Canada-Venezuela BIT is promised to
investments as defined in Article I of the BIT. The benefit of the MFN provision in
Article III of the Canada-Venezuela BIT can only be asserted in respect of
investments that are within the scope of Article I(f) of the Canada-Venezuela BIT
to begin with. The MFN clause cannot be used to expand the category of
investments to which the Canada-Venezuela BIT applies.” (20)
Similarly, the tribunal in Metal-Tech Ltd v. Uzbekistan (21) rejected the claimant's
contention that the MFN clause in the BIT between Israel and Uzbekistan could be used to
avoid the requirement in that treaty that investments be “implemented in accordance
with the laws and regulations of the Contracting Party in whose territory the investment is
made”. The tribunal explained that “one must fall within the scope of the treaty, which is in
particular circumscribed by the definition of investment and investors, to be entitled to
P 263 invoke the treaty protections, of which MFN treatment forms part. Or, in fewer words, one
P 264 must be under the treaty to claim through the treaty.” (22) Much the same reasoning
prevented the claimant in Rafat Ali Rizvi v. Indonesia (23) from avoiding the restrictive
definition of “investment” in the BIT between the United Kingdom and Indonesia.

2 Who Is an Investor?
Nor have claimants succeeded in using MFN clauses to broaden the definition of the term
“investor”. Such an argument was attempted in HICEE v. Slovakia, (24) in which the tribunal
ruled that since the “clear purpose” of the MFN clause was “to broaden the scope of the
substantive protection granted to the eligible investments of eligible investors”, it could
not “legitimately be used to broaden the definition of the investors or the investments
themselves”. (25)

3 Dispute Resolution Provisions

A more controversial question – indeed, in this area, the most controversial question – is
whether an MFN clause may be invoked in relation to matters of procedure, especially
dispute resolution procedure. The broad drafting of most MFN clauses allows room for
argument but, among academics and commentators, it remains the orthodox view that an
“MFN clause will not apply to investment treaties' dispute settlement provisions, save
where States expressly so provide”. (26)
This position has a cogent theoretical basis. The jurisdiction of any arbitral tribunal, even
one constituted under the terms of a treaty, is derived from the consent of the parties. In a
treaty arbitration, one finds that consent in the terms of the treaty: the conventional
analysis is that the treaty sets out a standing offer to arbitrate, extended by each state to
the investors of the other, which may be accepted by an investor by commencing an
arbitration. It is undesirable for a state's consent to arbitration to be given in ambiguous
or uncertain terms. Yet MFN clauses are contingent in nature; they have meaning only to
the extent that more favourable treatment has in fact been afforded to another state (or
its nationals). It is therefore undesirable for a tribunal, purportedly appointed under the
terms of one treaty, to search for the basis of its jurisdiction in a different instrument
(under which the claimant would have no standing to bring a claim). And it is especially
undesirable for this to occur when (as happens in many cases), the principal treaty sets out
the parties' consent to a very specific form of dispute resolution. Not only that, but an MFN
clause is a promise of protection; ordinarily, before a party can claim the benefit of that
promise in an arbitration, it must first establish jurisdiction and it is, at best, extremely
circular to find the basis of jurisdiction in a promise that cannot be enforced unless
jurisdiction exists.
P 264
P 265
So much for orthodoxy. There are, however, enough tribunal decisions to the contrary to
create a high degree of uncertainty in this area.

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 Oxygen was provided to the contrary position by the decision in Maffezini v. Spain. (27) In
that case, the BIT between Argentina and Spain provided that no arbitration could be
commenced by an investor until the host state's domestic courts had been provided with
an opportunity to resolve the dispute within eighteen months. The Argentine claimant
avoided the Spanish courts. Instead it relied upon Art. IV of the BIT between Argentina and
Spain, which relevantly provided that “In all matters subject to this Agreement, this
treatment shall not be less favourable than that extended by each Party to the
investments made in its territory by investors of a third country”, and invited the tribunal
to apply the dispute resolution provisions found in the BIT between Chile and Spain (which
allowed for arbitration after a six-month negotiation period). The tribunal agreed with the
claimant, finding that “the most favoured nation clause included in the Argentine-Spain
BIT embraces the dispute settlement provisions of this treaty”. More generally, it thought
that “if a third party treaty contains provisions for the settlement of disputes that are more
favorable to the protection of the investor's rights and interests than those in the basic
treaty, such provisions may be extended to the beneficiary of the most favored nation
clause as they are fully compatible with the ejusdem generis principle”.
Maffezini v. Spain has been followed in cases such as Tecmed v. Mexico (28) and Siemens v.
Argentina. (29) But some commentators have called it “heretical” (30) (another refers
simply to “an error made by the Tribunal”), (31) and prefer the approach adopted by the
tribunal in Salini v. Jordan (32) and Plama v. Bulgaria. (33)
The question that arose in Salini v. Jordan was whether the BIT between Italy and Jordan
allowed an investor to commence an ICSID arbitration against the host state. The claimant
urged the tribunal to follow the decision in Maffezini and employ the BIT's MFN clause to
establish jurisdiction. But the tribunal observed that the MFN clause “does not include any
provision extending its scope of application to dispute settlement. It does not envisage ‘all
rights or all matters covered by the agreement’. Furthermore, the Claimants have
submitted nothing from which it might be established that the common intention of the
P 265 Parties was to have the most favored-nation clause apply to dispute settlement.”
P 266 (Emphasis in original.) It concluded that the MFN clause “does not apply insofar as
dispute settlement clauses are concerned”, reflecting that it “shares the concerns that
have been expressed in numerous quarters with regard to the solution adopted in the
Maffezini case. Its fear is that the precautions taken by authors of the award may in
practice prove difficult to apply, thereby adding more uncertainties to the risk of ‘treaty
shopping’.” (34)
Plama was a Cypriot company which had purchased almost all of the shares in a Bulgarian
corporation that owned an oil refinery in Bulgaria. It complained that the Bulgarian
government had impaired the value of its investment in a manner that breached its
obligations under both the Cyprus-Bulgaria BIT and the Energy Charter Treaty (ECT). Plama
asserted that an ICSID tribunal had jurisdiction to hear the case, both under the ECT and by
application of the MFN clause in the Cyprus-Bulgaria BIT. The Cyprus-Bulgaria BIT provided
only for disputes concerning expropriation to be settled by reference to an ad hoc tribunal
applying UNCITRAL Rules. But Plama argued that the MFN clause “must be construed as
extending to more favourable dispute settlement mechanisms than those in the Bulgaria-
Cyprus BIT which are contained in other investment treaties concluded by Bulgaria” – such
as a clause in the Bulgaria-Finland BIT which referred disputes to ICSID arbitration.
The tribunal accepted that it had, under the ECT, jurisdiction to deal with any claims made
by Plama that fell within the scope of the ECT's dispute resolution provisions (that is,
claims for breaches of Part III of the ECT). But it also determined that
“The most favored nation provision of the Bulgaria-Cyprus BIT, read with other
BITs to which Bulgaria is a Contracting Party (in particular the Bulgaria-Finland
BIT), cannot be interpreted as providing the Respondent's consent to submit
the dispute with the Claimant under the Bulgaria-Cyprus BIT to ICSID arbitration
or entitling the Claimant to rely in the present case on dispute settlement
provisions contained in these other BITs.”
Central to the tribunal's reasoning was its belief in
“the basic prerequisite for arbitration: an agreement of the parties to arbitrate.
It is a well-established principle, both in domestic and international law, that
such an agreement should be clear and unambiguous. In the framework of a BIT,
the agreement to arbitrate is arrived at by the consent to arbitration that a
state gives in advance in respect of investment disputes falling under the BIT,
and the acceptance thereof by an investor if the latter so desires.”
Accordingly, the tribunal considered that any “intention to incorporate dispute settlement
provisions must be clearly and unambiguously expressed”. Incorporating a dispute
resolution provision by way of an MFN clause did not, in its view, satisfy that criterion.
P 266 There might be, for example, no clarity about which method of dispute settlement was
P 267 “more favourable”. The tribunal observed that
“It is also not evident that when parties have agreed in a particular BIT on a
specific dispute resolution mechanism, as is the case with the Bulgaria-Cyprus
BIT (ad hoc arbitration), their agreement to most-favored nation treatment

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 means that they intended that, by operation of the MFN clause, their specific
agreement on such a dispute settlement mechanism could be replaced by a
totally different dispute resolution mechanism (ICSID arbitration). It is one thing
to add to the treatment provided in one treaty more favorable treatment
provided elsewhere. It is quite another thing to replace a procedure specifically
negotiated by parties with an entirely different mechanism.”
Understandably, the claimant urged the tribunal to follow the approach adopted in
Maffezini v. Spain. Having dealt dismissively with the reasoning in that case, the tribunal
concluded that:
“The decision in Maffezini is perhaps understandable. The case concerned a
curious requirement that during the first 18 months the dispute be tried in the
local courts. The present Tribunal sympathizes with a tribunal that attempts to
neutralize such a provision that is nonsensical from a practical point of view.
However, such exceptional circumstances should not be treated as a statement
of general principle guiding future tribunals in other cases where exceptional
circumstances are not present.”
Plama was soon followed by Berschader v. Russia, (35) in which the tribunal insisted that
“the fundamental issue in determining whether or not an MFN clause
encompasses the dispute resolution provisions of other treaties must always be
an assessment of the intention of the contracting parties upon the conclusion of
each individual treaty. In each case, the question must be asked as to whether
the contracting parties to the treaty intended the MFN provision to incorporate
by reference the dispute settlement provisions of other treaties. Ultimately,
that question can only be answered by a detailed analysis of the text and,
where available, the negotiating history of the relevant treaty, as well as other
relevant facts.” (36)
The Berschader tribunal was not persuaded by the claimants' argument that the question
was settled by the fact that the MFN clause was expressed to apply to “all matters covered
by the present Treaty”. It stated that
“not even seemingly clear language like this can be considered to have an
unambiguous meaning in the context of an MFN clause. As emphasised by the
Maffezini tribunal, with regard to treaties which in their MFN clauses speak of
‘all rights’ or ‘all matters’ subject to the treaty in question, but which do not
P 267 provide expressly (our emphasis) that dispute settlement as such is covered by
P 268 the clause, ‘it must be established whether the omission was intended by the
parties or can reasonably be inferred from the practice followed by the parties
in their treatment of foreign investors and their own investors’.” (37)
The tribunal accepted that
“the ordinary meaning of the words ‘all matters covered by the present Treaty’
is clear. However, such expression must be seen in its context, particularly in
relation to the concept with which it is intertwined in the text of the Treaty, i.e.
‘the most favoured nation clause’. The Treaty itself contains no definition of the
expression ‘the most favoured nation clause’. However, the Protocol to the
Treaty provides that the Soviet Union will accord, in its territory, to Belgian
investors treatment at least equivalent to that accorded to investors from
countries that are members of the OECD on the date when the Protocol was
signed. This suggests that what the Contracting Parties had in mind was a fairly
standard form of MFN-clause, according to which each Contracting Party
accords, in its territory, to investors from the other Contracting Party, treatment
at least equivalent to that accorded to investors from third countries. The use of
the expressions ‘treatment’ and ‘in its territory’ should be noted. This language
appears to indicate that what the Contracting Parties had in view was the
material rights accorded to investors within the territory of the Contracting
States.” (38)
The tribunal decided that the words “‘all matters covered by the present Treaty’… certainly
cannot be understood literally” (39) and refused to extend their application to dispute
resolution procedures. Even commentators who agree with the result reached by this
tribunal might not be entirely comfortable with the route by which that result was
achieved, which was to deny the words used in the BIT their ordinary meaning.
Many commentators expressed satisfaction that awards such as Salini, Plama and
Berschader had resolved the uncertainty created by Maffezini. McLachlan, Shore and
Weiniger, for example, wrote that
“The result, if, as is suggested, the approach in Plama is preferred, will be that
the MFN clause will not apply to investment treaties' dispute settlement
provisions, save where the States expressly so provide. Its domain of
application will be as to the substantive rights vouchsafed to investors from

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 third States to which special preferences have been granted.” (40)

P 268 If. As it happened, the illusion of certainty was fleeting, and was soon dispelled by such
P 269 cases as the decision on jurisdiction in Garanti Koza v. Turkmenistan. (41) That case, and
others that followed it, illustrated the difficulty of identifying whether States had expressly
consented to MFN provisions being applied to dispute clauses.
Garanti Koza was a United Kingdom company which complained that it had suffered loss
and damage as a result of state interference in its contract to construct twenty-eight
highway bridges and overpasses in Turkmenistan. Art. 8 of the UK-Turkmenistan BIT
relevantly provided that
“(2) Where the dispute is referred to international arbitration, the national or
company and the Contracting Party concerned in the dispute may agree to refer
the dispute either to:
(a) the International Centre for the Settlement of Investment Disputes … ; or
(b) the Court of Arbitration in the International Chamber of Commerce; or
(c) an international arbitrator or ad hoc arbitration tribunal to be appointed
by a special agreement or established under the Arbitration Rules of the
United Nations Commission on International Trade Law.
If after a period of four months from written notification of the claim there is no
agreement to one of the above alternative procedures, the dispute shall at the
request in writing of the national or company concerned be submitted to
arbitration under the Arbitration Rules of the United Nations Commission on
International Trade Law as then in force. The parties to the dispute may agree in
writing to modify these Rules.”
Art. 3 of the UK-Turkmenistan BIT contained an MFN clause in a familiar form, but
significantly Art. 3(3) stated that “For the avoidance of doubt it is confirmed that the
treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of
Article 1 to 11 of this Agreement” – which included the dispute resolution provisions. For
that reason, Garanti Koza contended that it was able to rely upon the MFN clause to import
ICSID dispute resolution provisions from the BIT between Switzerland and Turkmenistan.
The majority of the tribunal accepted both that it was a fundamental requirement that the
State party must consent to jurisdiction, and that consent could not be presumed but must
be established by an express declaration or actions that demonstrate consent. But at that
point, the majority parted from the reasoning in Plama v. Bulgaria:
“Some arbitration tribunals have followed Plama v. Bulgaria in grafting onto the
requirement that the State must consent to arbitration the corollary that the
State's consent must be ‘clear and unambiguous.’ This Tribunal finds no basis in
the Vienna Convention for imposing such a standard onto the interpretation of
the terms of a treaty. Rather, this Tribunal agrees with the tribunal in Suez and
Interagua v. Argentina ‘that dispute resolution provisions are subject to
interpretation like any other provisions of a treaty, neither more restrictive nor
more liberal.’”
The majority found that the effect of Art. 8 of the UK-Turkmenistan BIT was that
P 269 “Turkmenistan has consented to international arbitration with UK investors, but not to
P 270 ICSID Arbitration. Turkmenistan has simply expressed its willingness to consider ICSID
arbitration as one of three options, and only on a case by case basis.” The tribunal then
entered the “fiercely contested no-man's land in international law” to consider “whether
the MFN clause of a BIT may be used to vary the terms of the investor-state arbitration
article of the same BIT”.
The tribunal was guided by the Concurring and Dissenting Opinion of Professor Brigitte
Stern in Impregilo v. Argentina, (42) in which Professor Stern explained “why, in principle,
an MFN clause cannot import, in part or in toto, a dispute settlement mechanism from a
third party BIT into the BIT which is the basic treaty applicable to the dispute”. She added,
however, that
“Naturally, an important caveat has to be presented here. The interpretation of
the MFN clause is only necessary when the intention of the parties concerning
its applicability or inapplicability to the dispute settlement mechanism is not
expressly stated or clearly ascertained. It is quite evident that if there is an
MFN clause expressly including the dispute settlement procedures or expressly
excluding them, there is no need for an interpretation. There are indeed cases
where the parties expressly state that the MFN clause applies to the dispute
settlement mechanism. This has been done, for example, by the drafters of the
UK Model BIT, who have provided in Article 3(3) that ‘for avoidance of doubt’
MFN treatment shall apply to certain specified provisions of the BIT including
the dispute settlement provision.”
It followed, on Garanti Koza's argument, that the MFN clause in the UK-Turkmenistan BIT
clearly applied to the dispute settlement provisions of that BIT, and Garanti Koza invoked

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 several other BITs entered into by Turkmenistan that included submissions to ICSID
arbitration. Taking those documents together, Garanti Koza asserted, the tribunal would
find the evidence of Turkmenistan's consent to jurisdiction. Specifically, Garanti Koza
argued that the dispute settlement provisions of the Switzerland-Turkmenistan BIT were
“more favourable” because they provided investors with a choice between ICSID
arbitration and UNCITRAL arbitration.
The majority of the tribunal found that “the essential consent of the State – the consent to
resolve disputes with UK investors by means of international arbitration – does not in this
case need to be imported by operation of the MFN clause, because that consent is
contained in Art. 8(1) of the BIT”. The majority rejected Turkmenistan's submission that “a
specific agreement” was necessary for ICSID arbitration, concluding that the effect of the
MFN clause was that “there is no reason why Turkmenistan's consent to ICSID arbitration in
its BIT with Switzerland may not be relied upon by a UK investor, if the provision for ICSID
arbitration or an unrestricted choice between ICSID Arbitration and UNCITRAL Arbitration
provides treatment more favourable to the investor than the treatment provided by the
base treaty”. And the majority found that the treatment offered by Turkmenistan to Swiss
investors was more favourable than the treatment offered to UK investors, primarily
P 270 because Swiss investors were given “the option of selecting, as between two different
P 271 systems of arbitration, the one that appears to that investor most favourable to the
presentation of the particular claim that investor wishes to pursue with regard to an
investment protected by the BIT”.
Similar considerations arose in Venezuela US v. Venezuela. (43) The claim was made under
the BIT between Barbados and Venezuela, Art. 8 of which set out the following dispute
resolution mechanism:
“(1) Disputes between one Contracting Party and a national or company of the other
Contracting Party concerning an obligation of the former under this Agreement in
relation to an investment of the latter shall, at the request of the national concerned,
be submitted to the International Centre for Settlement of Investment Disputes for
settlement by arbitration or conciliation under the Convention on the Settlement of
Investment Disputes between States and Nationals of other States, opened for
signature at Washington on March 18, 1965.
(2) As long as the Republic of Venezuela has not become a Contracting State of the
Convention as mentioned in paragraph 1 of this Article, disputes as referred to in that
paragraph shall be submitted to the International Centre for Settlement of
Investment disputes under the Rules Governing the Additional Facility for the
Administration of Proceedings by the Secretariat of the Centre (Additional Facility
Rules). If for any reason the Additional Facility is not available the investor shall have
the right to submit the dispute to arbitration under the rules of the United Nations
Commission on International Trade Law (UNCITRAL).
(3) The arbitral award shall be limited to determining whether there is a breach by the
Contracting Party concerned of its obligations under this Agreement, whether such
breach of obligations has caused damages to the national concerned, and if such is
the case, the amount of compensation.
(4) Each Contracting Party hereby gives its unconditional consent to the submission of
disputes as referred to in paragraph 1 of this Article to international arbitration in
accordance with the provisions of this Article.”
Venezuela had become a Contracting State to the Washington Convention, but denounced
the Convention with effect from 25 July 2012. The Claimant therefore commenced its
arbitration (in 2013) under the UNCITRAL Rules. Venezuela contested jurisdiction on the
ground that its consent to UNCITRAL arbitration set out in Art. 8(2) was extended only to
cover the interim period between the execution of the BIT on 15 July 1994 and the date (1
June 1995) upon which Venezuela became a Contracting State. The tribunal agreed with
Venezuela's argument, but the majority considered that the “Tribunal's analysis … cannot
stop here, as the Claimant also relies on Article 3” – the MFN clause. (44) The Claimant
asserted that it could rely upon the MFN clause to import provisions of other Venezuelan
BITS which were “more favourable because they provide investors with a choice of dispute
resolution fora”. (45)
P 271
P 272
The reasoning of the majority was founded upon the language of Art. 3(3), which provided
that the MFN clause “shall apply to the provisions of Article 1 to 11 of this Agreement”. The
dispute settlement clause, clause 8, “thus features among the Articles to the provisions of
which the MFN treatment shall apply”. (46) (Emphasis added.) The majority insisted that it
was unnecessary for it to “pronounce itself on the applicability of MFN clauses to
arbitration clauses or dispute settlement provisions in general”, but said that “it must give
bona fide effect to the provisions agreed by the Parties in their BIT, and not … empty
Article 3(3) of its meaning, thereby rendering it inapplicable to Article 8”. (47) The majority
accepted that “the MFN clause cannot serve the purpose of importing consent to
arbitration where none exists under the BIT between Barbados and Venezuela”, but found
that consent in the language of Art. 8(4). For these reasons, the majority found that the
Claimant was able to invoke the dispute resolution provisions of the BIT between
Venezuela and Ecuador, and commence an UNCITRAL arbitration on the same conditions

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 as would apply to investors from Ecuador.
The award in Venezuela US v. Venezuela was accompanied by a strongly worded dissenting
opinion by Professor Kohen, who did not accept that the MFN clause applied to Art. 8,
notwithstanding the provisions of Art. 3(3). Professor Kohen contended that the broad
language of Art. 3(3) could not be read literally. He also observed that the MFN provisions
of Arts. 3(1) and 3(2) referred to treatment by a Contracting Party “in its territory” and
argued that “[b]y definition, international arbitration does not occur in the territory of the
Contracting State”. (48) Professor Kohen acknowledged that in principle, MFN clauses might
be applied to dispute settlement provisions, but insisted that this should be done only
with great caution, and could not be done in the present case – in which, he asserted, “the
majority decision is the one that has gone the farthest in the use of an MFN clause in order
to establish jurisdiction”. (49) Professor Kohen may take some comfort in the fact that
precisely his reasoning has been adopted subsequently by the tribunal in Beijing Urban
Construction v. Yemen. (50) There the tribunal, faced with a similar provision and a similar
argument, accepted that “[f]ull meaning must be given to the words ‘in the territory’” and
found that international arbitration was not an activity linked to the territory of the host
state. (51)
Three further cases involving Argentina have offered additional encouragement to
claimants seeking to extend MFN clauses to include dispute resolution procedures. In
Siemens v. Argentina, (52) the claimant had been awarded a contract to establish a system
for migration control and personal identification. That contract was suspended, and later
P 272 terminated, following a change of government in Argentina. Siemens pursued some
P 273 administrative remedies in Argentina, without success, and then commenced an
arbitration under the BIT between Germany and Argentina. That BIT prevented a claimant
from commencing an arbitration before it had spent eighteen months seeking to resolve
the dispute in the courts of Argentina. Siemens invoked the MFN clause in the BIT, and
sought to rely upon the provisions of the BIT between Argentina and Chile, which did not
require any prior submission to local courts.
Argentina argued that the word “treatment” in the MFN clause should be taken to refer only
to substantive treatment. In its reasoning, however, the tribunal emphasized the very
general terms in which the MFN clause was cast:
“The first two clauses of Article 3 refer simply to a ‘not less favorable treatment’
– ‘trato no menos favorable’ in the Spanish version. ‘Treatment’ in its ordinary
meaning refers to behavior in respect of an entity or a person. The term
‘treatment’ is neither qualified nor described except by the expression ‘not less
favorable’. The term ‘activities’ is equally general. The need for exceptions
confirms the generality of the meaning of treatment or activities rather than
setting limits beyond what is said in the exceptions. In clarifying in the Protocol
the term ‘activities’ used in Article 3(2), the drafters were careful to qualify
twice that the clarification is special but not exclusive. This is a clear indication
that the clarifications do not limit the meaning of the term ‘activities’. They
simply emphasize matters of particular concern to the parties. When the parties
meant to provide an outright limitation by way of an exception they have done
so in paragraphs (3) and (4) of Article 3 and in the Protocol in relation to security
measures or taxation privileges of nationals or national companies. If it were
the intention to limit the content of Article 3 beyond the limits of those
exceptions, then the terms ‘treatment’ or ‘activities’ would have been qualified.
The fact that this is not the case is an indication of their intended wide scope.
Treatment in Article 3 refers to treatment under the Treaty in general and not
only under that article.” (53)
The tribunal, endorsing the decision in Maffezini, concluded that “the term ‘treatment’ and
the phrase ‘activities related to the investments’ are sufficiently wide to include
settlement of disputes”. (54)
That approach was also adopted by the tribunal in Impregilo S.p.A. v. Argentina. (55) There
the tribunal lamented the fact that
“these issues remain controversial and that the predominating jurisprudence
which has developed is in no way universally accepted. Nevertheless, the
Arbitral Tribunal finds it unfortunate if the assessment of these issues would in
each case be dependent on the personal opinions of individual arbitrators. The
best way to avoid such a result is to make the determination on the basis of
P 273 case law whenever a clear case law can be discerned. It is true that, as stated
P 274 above, the jurisprudence regarding the application of MFN clauses to
settlement of disputes provisions is not fully consistent. Nevertheless, in cases
where the MFN clause has referred to ‘all matters’ or ‘any matter’ regulated in
the BIT, there has been near-unanimity in finding that the clause covered the
dispute settlement rules. On this basis, the majority of the Tribunal reaches the
conclusion that Impregilo is entitled to rely, in this respect, on the dispute
settlement rules in the Argentina-US BIT and that the case cannot be dismissed
for non-observance of the requirements in Article 8(2) and (3) of the Argentina-
Italy BIT.” (56)

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 The claimant was equally successful in Hochtief v. Argentina. (57) Hochtief had been
awarded a twenty-five-year concession to construct, maintain and operate a toll road
between Rosario and Victoria. It claimed that it had suffered loss as a result of actions of
the Argentine government that breached the BIT between Germany and Argentina. In an
echo of the Siemens case, Hochtief argued that the MFN clause in that BIT allowed it to rely
upon the dispute resolution procedures set out in the BIT between Argentina and Chile.
Predictably, Argentina opposed this, arguing that the MFN clause applied only to
substantive provisions. The tribunal insisted that it was
“conscious of the advantages of consistency in the approaches of different
tribunals to similar questions. It is also aware of the significance that other
tribunals have attached to differences between the formulations of MFN
provisions in various treaties. That said, it is the responsibility of this Tribunal
to interpret to the best of its ability the specific provisions of the particular
treaties that are applicable in this case, and not to choose between broad
doctrines or schools of thought, or to conduct a head-count of arbitral awards
taking various positions and to fall in behind the numerical majority.” (58)
The tribunal went on to find that
“The BIT is an agreement both for the promotion and for the reciprocal
protection of investments. It is an agreement between two States, which no
doubt is intended to operate to the benefit of both States but which plainly
confers benefits directly upon investors. The Tribunal considers that the
provisions of Article 10, which on any interpretation confer upon investors the
possibility of recourse to arbitration in addition to the right to have recourse to
national courts, are a form of protection that is enjoyed within the scope of ‘the
management, utilization, use and enjoyment of an investment’. Unlike the inter-
State dispute settlement provisions in Article 9, which safeguard the interests of
P 274 the States parties in the event of a dispute regarding the interpretation or
P 275 application of the BIT, Article 10 is a benefit conferred on investors and
designed to protect their interests and the interests of a State Party in its
capacity as a host State party to a dispute with an investor: it is a protective
right that sits alongside the guarantees against arbitrary and discriminatory
measures, expropriation, and so on.” (59)
On that basis, the tribunal concluded that “the MFN provision is in principle applicable to
the pursuit of dispute settlement procedures”. (60)
If an MFN clause may be used to import from another treaty a basis for the tribunal's
jurisdiction, then it can circumvent the (presumably deliberate) use of very narrow
language by the parties to a treaty. This was demonstrated in RosInvest v. Russia, (61) a
claim made under the UK-USSR BIT. By Art. 8 of that BIT, each state agreed to submit to
arbitration any dispute concerning “the amount or payment of compensation” due for an
expropriation, or “concerning any other matter consequential upon an act of expropriation
in accordance with Article 5 of this Agreement”. The tribunal concluded that this language
did not confer jurisdiction upon a tribunal to determine whether an expropriation had
actually occurred and, if so, whether it was lawful. But that did not end the matter,
because the claimant argued that it was entitled to rely upon the much broader dispute
settlement provisions in the Denmark-Russia BIT. The tribunal took the view that
“While indeed the application of the MFN clause of Article 3 widens the scope of
Article 8 and thus is in conflict to its limitation, this is a normal result of the
application of MFN clauses, the very character and intention of which is that
protection not accepted in one treaty is widened by transferring the protection
accorded in another treaty. If this effect is generally accepted in the context of
substantive protection, the Tribunal sees no reason not to accept it in the
context of procedural clauses such as arbitration clauses. Quite the contrary, it
could be argued that, if it applies to substantive protection, then it should
apply even more to ‘only’ procedural protection. However, the Tribunal feels
that this latter argument cannot be considered as decisive, but that rather, as
argued further above, an arbitration clause, at least in the context of
expropriation, is of the same protective value as any substantive protection
afforded by applicable provisions such as Article 5 of the BIT.” (62)
As a result, the tribunal concluded that it had “jurisdiction beyond that granted” by the BIT
under which it had been constituted. This was directly contrary to the decision of the
tribunal in Telenor v. Hungary, (63) in which the tribunal was invited to expand a restrictive
P 275 dispute settlement provision in the Norway-Hungary BIT by use of its MFN clause. Refusing
P 276 to do so, the tribunal insisted that
“In the absence of language or context to suggest the contrary, the ordinary
meaning of ‘investments shall be accorded treatment no less favourable than
that accorded to investments made by investors of any third State’ is that the
investor's substantive rights in respect of the investments are to be treated no
less favourably than under a BIT between the host State and a third State, and
there is no warrant for construing the above phrase as importing procedural

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 rights as well. It is one thing to stipulate that the investor is to have the benefit
of MFN investment treatment but quite another to use an MFN clause in a BIT to
bypass a limitation in the very same BIT when the parties have not chosen
language in the MFN clause showing an intention to do this, as has been done in
some BITs.” (64)
It may be possible for some highly gymnastic intellect to reconcile these disparate
decisions by finding, for example, subtle nuances of meaning in the language used in
various treaties. And, to some extent, it's true that superficial inconsistencies between
decisions can be explained by reference to differences in the wording of various treaties.
But we cannot escape the fact that different tribunals have reached diametrically opposed
results when dealing with precisely the same wording. The fact is that some tribunals have
considered that, as a matter of principle, MFN clauses do not apply to dispute resolution
procedures, while others have taken the opposite view.
On one point, the thinking of tribunals has been, so far, consistent. The various decisions
which have applied MFN provisions to dispute resolution provisions have allowed investors
to expand or add content to the standards of treatment already contained in a BIT or
allowed investors to overcome unfavourable provisions in the BIT. But there is as yet no
decision where an investor has successfully been able to import an investor-State
arbitration clause where there was none before. The only publicly available decision in
which such an argument was rejected is Menzies Middle East and Africa SA v. Senegal, (65)
where the investor optimistically sought to invoke the MFN provision in the General
Agreement on Trade in Services (GATS) to rely on an investor-State arbitration provision
from a different (or two different) BITs. The investor failed. Reportedly, there is a similar
attempt currently underway against Australia, which seeks to import dispute resolution
procedures into the Australia-US FTA.
International investment law occupies a curious no-man's land, in which there is a general
consensus that tribunals ought to seek to achieve consistency in their application of
important principles, but those tribunals are not bound by any strict doctrine of
precedent. It is difficult to find many academic writers who endorse the decision in
Maffezini ; (66) but, even so, since that award was rendered, the tribunals who have been
asked to apply MFN clauses to dispute resolution provisions have been more or less evenly
divided on the point, so it cannot be said that anything resembling a jurisprudence
P 276 constante has yet developed. Of course, each case will depend upon its specific facts and
P 277 the language of the specific treaty in issue, so it is natural that there is scope for
different approaches. Yet we have reached a point at which the manner in which an MFN
clause will be applied, in this context at least, depends less upon any clear and settled
principles of international law, and more upon the composition of the specific tribunal.
There are arbitrators who have owed their appointments primarily to the fact that their
views on this question are known to tend in one direction or another. That is not a
circumstance that encourages confidence in the existing system of investor-state dispute
settlement. (67)
This is the single area of the law and practice of investment arbitration concerning MFN
clauses that is most in need of desirable change. That is not to suggest, for a moment, that
the outcome of each case should be identical, because not every treaty is identical to all
others. But it would be beneficial to investors and states alike to know with greater
certainty the principles that a tribunal will apply to the question of whether jurisdiction can
be established through an MFN clause.
It is easier to identify this problem than to solve it. To speak of “reform” implies the
existence of an authority capable of imposing change, yet there is no central authority
capable of imposing consistency upon the decisions of diverse tribunals, appointed under
different treaties and, often, conducting arbitrations under different rules. In a process
that began more than fifty years ago, the International Law Commission set out to
formulate what eventually became its 1978 Draft Article on Most Favored Nation Clauses;
but attempts to embody those clauses in a multilateral treaty were never successful. In
2015, the International Law Commission adopted a Final Report of the Study Group on the
Most-Favoured-Nation clause, but its conclusion on the question of dispute settlement
provisions amounted to little more than a frank confession of impotence:
“The Study Group decided not to attempt to decide between the conflicting
views of investment tribunals over the application of MFN clauses to dispute
settlement provisions. The Commission does not have an authoritative role in
relation to the decisions of investment tribunals, and to conclude that one
tribunal was right and another wrong would simply insert the Commission as just
another voice in an ongoing debate.” (68)
On one point there is general, if not unanimous, agreement, and that is that tribunals ought
to interpret treaties so as to give effect to the intentions of the parties. Tribunals
repeatedly invoke Art. 31 of the Vienna Convention on the Law of Treaties, which sets out
P 277 the unarguable principle that a “treaty shall be interpreted in good faith in accordance
P 278 with the ordinary meaning to be given to the terms of the treaty in their context and in
the light of its object and purpose”. (69) It follows that the most efficient way to improve
certainty in this area is for parties – the contracting States – to express their objects and

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 purpose in clearer language. In the United Kingdom's current model BIT, for example, para.
(3) of the MFN clause states that “For the avoidance of doubt it is confirmed that the
treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of
Articles 1 to 12 of this Agreement.” Since this encompasses the dispute settlement
provisions, it seems tolerably clear that dispute resolution mechanisms fall within the
scope of the MFN clause. Yet Professor Kohen, in his dissenting opinion in Venezuela US v.
Venezuela, did not think so, and certainly there is scope for the parties' intentions to be
expressed with even greater specificity. States negotiating investment agreements ought
now to be well aware of this issue, and there is no reason why they ought not to address it
squarely.
One can hope (not unreasonably) for greater clarity to be found in new treaties; that does
not assist in the interpretation of the thousands of existing treaties. In a few cases, parties
to a treaty have sought to clarify their attention by means of an addendum: the Protocol
appended to the Colombia-Switzerland BIT, for example, makes it plain that “the most
favourable treatment referred to in the” BIT “does not encompass mechanisms for the
settlement of investment disputes provided for in other international agreements related
to investments concluded by the Party concerned”.
Other states have exchanged diplomatic notes setting out their positions. In National Grid
v. Argentina, (70) the tribunal observed that “after the decision on jurisdiction in Siemens,
the Argentine Republic and Panama exchanged diplomatic notes with an ‘interpretative
declaration’ of the MFN clause in their 1996 investment treaty to the effect that, the MFN
clause does not extend to dispute resolution clauses, and that this has always been their
intention”. (71)
A slightly different approach was adopted in the Dominican Republic-Central American
Free Trade Agreement, a draft of which included a footnote, intended to form part of the
travaux préparatoires of the agreement, stating:
“The Parties agree that the following footnote is to be included in the
negotiating history as a reflection of the Parties' shared understanding of the
Most-Favored-Nation Treatment Article and the Maffezini case. This footnote
would be deleted in the final text of the Agreement. The Parties note the recent
decision of the arbitral tribunal in Maffezini (Arg.) v. Kingdom of Spain, which
found an unusually broad most-favored-nation clause in an Argentina-Spain
agreement to encompass international dispute resolution procedures. See
Decision on Jurisdiction ¶¶ 38-64 (Jan. 25, 2000), reprinted in 16 ICSID Rev. –
F.I.L.J. 212 (2002). By contrast, the Most-Favored-Nation Treatment Article of this
Agreement is expressly limited in its scope to matters ‘with respect to the
establishment, acquisition, expansion, management, conduct, operation, and
P 278 sale or other disposition of investments.’ The Parties share the
P 279 understanding and intent that this clause does not encompass international
dispute resolution mechanisms such as those contained in Section C of this
Chapter, and therefore could not reasonably lead to a conclusion similar to that
of the Maffezini case.”

V What is Treatment in Like Circumstances?

An MFN clause is subject to the ejusdem generis principle, so it may be invoked only in
relation to matters of the same kind as those contemplated by the clause. As the
International Law Commission explained in the commentary to its Draft Articles on most-
favoured-nation clauses:
“No writer would deny the validity of the ejusdem generis rule which, for the
purposes of the most-favoured-nation clause, derives from its very nature. It is
generally admitted that a clause conferring most-favoured-nation rights in
respect of a certain matter, or class of matter, can attract the rights conferred
by other treaties (or unilateral acts) only in regard to the same matter or class
of matter.” (72)
The effect of the ejusdem generis principle becomes especially important when a claimant
seeks to use an MFN clause to invoke the dispute resolution provisions of another treaty. In
Maffezini, Spain argued that application of the principle of ejusdem generis meant that the
reference to “all matters” in Art. IV (2) of the Argentine-Spain BIT should be read to mean
only “substantial matters or material aspects of the treatment granted to investors and not
to procedural or jurisdictional questions”.
The tribunal did not accept that argument. It ruled that: “if a third-party treaty contains
provisions for the settlement of disputes that are more favourable to the protection of the
investor's rights and interests than those in the basic treaty, such provisions may be
extended to the beneficiary of the most favoured nation clause as they are fully
compatible with the ejusdem generis principle”.
Conversely, if the protections covered by the MFN clause are more confined, the impact of
the clause may not apply to dispute resolution provisions. This was the tribunal's approach
in Renta4 v. Russia, (73) a claim made under the Spain-Russia BIT. Art. 5 of that BIT
relevantly provided that

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 “(1) Each Party shall guarantee fair and equitable treatment within its territory for the
investments made by investors of the other Party.
P 279
P 280
(2) The treatment referred to in paragraph 1 above shall be no less favourable than that
accorded by either Party in respect of investments made within its territory by
investors of any third State.”
The majority of the tribunal accepted Russia's argument that
“The MFN promise affects only matters within the scope of Article 5(2) of the
Spanish BIT which in turn covers only ‘treatment referred to in paragraph 1
above’. The treatment in question is ‘fair and equitable treatment’ (‘FET’). FET is
a substantive standard of treatment. Russia insists that access to international
arbitration is not an inherent part of FET. This is confirmed by the existence of
BITs guaranteeing FET without any recourse to international arbitration
whatever. A promise to match the level of FET extended to third-party nationals
therefore cannot in Russia's submission widen the scope of arbitral
jurisdiction.” (74)
Essentially, an application of the ejusdem generis principle in Renta4 limited the scope of
the MFN clause to fair and equitable treatment.
But it would be wrong to assume that this question arises only in cases concerning
questions of procedure. There may be many circumstances in which it will be relevant to
consider whether the treatment offered to nationals of a third state is actually treatment
of the kind envisaged in the MFN clause. The obvious difficulty with the ejusdem generis
principle is that while it is capable of a broad application, it can also be interpreted very
narrowly. On the broadest view, any substantive treatment afforded to investors by a host
state might be taken to fall within the subject matter contemplated by an investment
treaty. Tribunals taking a more narrow view, however, might seek a closer similarity
between the treatment promised in the primary treaty and the additional protections
claimed through the operation of an MFN clause.
The narrower approach was illustrated in Accession Mezzanine Capital L.P. and Danubius
Kereskedȍház Vagyonkezelȍ v. Hungary, (75) in which the claimants (under the UK-Hungary
BIT) argued that an MFN Clause could be used to import into that BIT more favourable
expropriation clauses from other Hungarian treaties. The tribunal agreed, but cautiously,
stating that
“Claimants maintain that the Respondent's expropriation measures permit
Claimants to utilize the BIT Articles 3 and 11 to bring in most-favored-nation
treatment with respect to expropriation. Care has to be taken in this context.
MFN clauses are not and should not be interpreted or applied to create new
causes of action beyond those to which consent to arbitrate has been given by
the Parties. In view of the relief sought at pages 31-32 of the Revised Amended
Request for Arbitration, it is the Tribunal's understanding that Claimants are not
now claiming that the MFN provisions allow more than Articles 3 and 11 would
P 280 properly permit, that is, the Tribunal jurisdiction over customary international
P 281 law insofar as that law is relevant to the Parties' rights and obligations
pursuant to Articles 6 of the BIT. The Tribunal is of the view that an investor may
properly rely only on rights set forth in the basic treaty, meaning the BIT to
which the investor's home state and the host state of the investment are
directly parties, but not more than that. The question should be whether the
rights and benefits sought by virtue of the MFN clause are included within the
arbitrable scope of the basic treaty. In the instant case, the arbitrable scope of
the basic treaty is expropriation, including fact and law questions related
thereto. In that light, Claimants are entitled to rely on the MFN provisions of the
BIT, but only insofar as such provisions relate to expropriation.” (76)
An equally restrictive approach appears to have been adopted in MTD v. Chile (although it
was not necessary, in that case, for the tribunal to decide whether the MFN clause might
apply more broadly). The MFN clause in the BIT between Malaysia and Chile provided
(relevantly) that “Investments made by investors of either Contracting Party in the territory
of the other Contracting Party shall receive treatment which is fair and equitable, and not
less favourable than that accorded to investments made by investors of any third State.”
The tribunal found that “matters that can be construed to be part of the fair and equitable
treatment of investors would be covered by the clause”. (77)
It's difficult, if not impossible, to reconcile this narrow approach with the decisions in such
cases as White Industries v. India or EDF v. Argentina, in each of which the tribunal
permitted the claimant to use an MFN clause to import into the principal treaty a
protection that had no obvious equivalent in that treaty.
The tribunal in İçkale İnşaat Limited Şirketi v. Turkmenistan (78) readily accepted that “the
legal effect” of Art. II(2) of the BIT between Turkey and Turkmenistan was “to prohibit
discriminatory treatment of investments of investors of a State party (the home State) in
the territory of the other State (the host State) when compared with the treatment
accorded by the host State to investments of investors of any third State”. But that was not

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 the end of the tribunal's deliberations, because Art. II(2) contained an express statement
that the MFN obligation applied to “treatment no less favourable than that accorded in
similar situations to investments of its investors or to investments of investors of any third
country”. The tribunal interpreted this language as imposing a significant restriction upon
the MFN undertaking, stating that
“this obligation exists only insofar as the investments of the investors of the
home State and those of the investors of the third State can be said to be in ‘a
similar situation.’ Conversely, the MFN treatment obligation does not exist if
and when an investment of an investor of the home State is not in a ‘similar
situation’ to that of the investments of investors of third States; in such a
situation, there is de facto no discrimination.” (79)
P 281
P 282
What was required, in this tribunal's view, was “a comparison of the factual situation of the
investments of the investors of the home State and that of the investments of the investors
of third States, for the purpose of determining whether the treatment accorded to
investors of the home State can be said to be less favorable than that accorded to
investments of the investors of any third State”.
The tribunal concluded that
“given the limitation of the scope of application of the MFN clause to ‘similar
situations,’ it cannot be read, in good faith, to refer to standards of investment
protection included in other investment treaties between a State party and a
third State. The standards of protection included in other investment treaties
create legal rights for the investors concerned, which may be more favorable in
the sense of being additional to the standards included in the basic treaty, but
such differences between applicable legal standards cannot be said to amount
to ‘treatment accorded in similar situations,’ without effectively denying any
meaning to the terms “similar situations.” Investors cannot be said to be in a
‘similar situation’ merely because they have invested in a particular State;
indeed, if the terms ‘in similar situations’ were to be read to coincide with the
territorial scope of application of the treaty, they would not be given any
meaning and would effectively become redundant as there would be no
difference between the clause ‘treatment no less favourable than that accorded
in similar situations … to investments of investors of any third country’ and
‘treatment no less favourable than that accorded […] to investments of investors
of any third country.’ Such a reading would not be consistent with the generally
accepted rules of treaty interpretation, including the principle of effectiveness,
or effet utile, which requires that each term of a treaty provision should be given
a meaning and effect.” (80)
As there was no evidence before the tribunal that other investors in a similar position to
the claimant had actually received superior treatment from the respondent, the tribunal
refused to allow the claimant simply to import other treatment standards into the BIT by
means of the MFN clause.
The award in İçkale İnş aat Limited Şirketi v. Turkmenistan is relatively recent, and it
remains to be seen what impact it will have. Perhaps the decision will be seen as confined
to its own facts, turning on the very specific language of the MFN clause in the Turkey-
Turkmenistan BIT. But, at the very least, the award opens up scope for argument that the
language of that BIT only enunciates the widely accepted ejusdem generis rule. It may be
that, in future, tribunals will no longer automatically assume that the promise of a
standard of treatment in a treaty itself constitutes “treatment”, without a closer
consideration of the underlying facts. Already, treaties are appearing (such as CETA and
JEEPA, discussed below), which make it explicit that a mere promise contained in another
treaty cannot be regarded as “treatment”.
P 282
P 283

VI UNCTAD Proposals for Reform

Late in 2017, the United Nations Conference on Trade and Development (UNCTAD)
published a policy document entitled Reform Package for the International Investment
Regime, which posited that the relevant “question is not about whether to reform, but
about the substance of such reform (the what), as well as the process and mechanisms of
reform (the how)”. (81) The UNCTAD group responsible for the Reform Package considered
MFN clauses to be ripe for reform. The “challenges” that it identified included the
tendency of investors to invoke “the MFN clause to access more ‘investor-friendly’
provisions in IIAs concluded by the host State with third countries”; (82) the use of “the MFN
clause to avoid dispute resolution requirements imposed by the applicable IIA”; (83) and
the practice of
“investors ‘cherry picking’ the most advantageous clauses from different
treaties concluded by the host State, thereby potentially undermining
individual treaty bargains and sidelining the base treaty. For example, treaty

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 commitments may clash, or hard-won concessions in a negotiation (e.g. on
flexibility in performance requirements) may be undone through the
application of a broadly worded MFN clause, as interpreted by arbitral
tribunals. This concern is particularly heightened given countries' current efforts
to reform their IIA regimes, which implies a refinement and rebalancing of
treaty standards. Clearly, States will need and want to be careful that the
desired effects of newly crafted treaty provisions are not obviated by the
application of a broadly worded MFN clause.” (84)
MFN clauses, the UNCTAD authors conclude, present a “particularly pronounced” (85)
challenge to the reform of international investment agreements. They offer several options
by which this challenge may be addressed. One is simply “to omit the MFN clause
altogether”, which “preserves a maximum of flexibility and can facilitate IIA reform” (86) –
but which is also reminiscent of the doctor whose cure for a pain in the leg is amputation.
The other options are:
– “to specify that the MFN clause does not allow for the importation of substantive or
ISDS-related elements contained in older treaties”;
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P 284
– “to specify that MFN treatment does not apply to ISDS provisions found in other IIAs,
existing or future”;
– “to specify that the MFN clause does not apply to substantive obligations undertaken
in (existing or future) IIAs”;
– “carving out from the MFN obligation certain sectors or industries or certain policy
measures through a general carve-out (applicable to both parties) or through
country-specific reservations”; and
– clarifying “that the MFN obligation requires comparison of investors/investments that
are ‘in like circumstances’”. (87)
These five “options” are, in fact, five expressions of the same basic principle, which is that
if two or more States wish their agreement to include an MFN clause that is limited in its
scope, it is sensible to express that wish in suitably precise terms. If this appears to be a
statement of the obvious, then it bears repeating that the overwhelming majority of MFN
clauses in investment agreements are neither narrow nor specific in their scope.

VII Treaty Responses to MFN Decisions: India, Joint Interpretative

Statements, CETA, TPP, JEEPA
In recent years, states have become increasingly aware of the potential impact of MFN
clauses, and BITs concluded in the twenty-first century are much more likely to display
greater clarity in their wording than treaties entered into in the second half of the previous
century.
Several recent BITs address specifically the question of whether MFN clauses may apply to
dispute settlement provisions. The positions adopted vary: the 2006 BIT between Colombia
and Switzerland, for example, specifically provides that the MFN clause “does not
encompass mechanisms for the settlement of investment disputes provided for in other
international agreements related to investments concluded by the Party concerned”. The
2004 Economic Partnership Agreement between Japan and Mexico includes a note
confirming that “Each Party shall in its Area accord to investors of the other Party
treatment no less favorable than the treatment which it accords, in like circumstances, to
its own investors or investors of a non-Party with respect to access to the courts of justice
and administrative tribunals and agencies in all degrees of jurisdiction, both in pursuit
and in defense of such investor's rights.” Whether dispute settlement provisions are
included or excluded, the trend towards greater clarity is both overdue and welcome.
Some states have come to regard MFN clauses as a threat, and have responded by
attempting to remove or restrict their exposure to claims. None has taken more emphatic
action than India.
P 284
P 285
1 India
The case of White Industries v. India developed from an ICC award rendered in Paris in May
2002. An Australian company, White Industries, the successful claimant, sought to enforce
its modest award against Coal India, an Indian government corporation, in the High Court
of Mumbai. Almost simultaneously, Coal India applied to the High Court of New Delhi to set
aside the award. The enforcement proceedings were stayed in 2006 so that the annulment
proceedings could be determined first. But the annulment proceedings did not progress,
partly because of the inefficiencies of the Indian court system, and partly because of
judicial indecision as to which Indian legislation ought to apply to the case.
White Industries lost confidence in its ability to enforce its award in India, and in 2010 it
commenced a claim against India under the BIT between Australia and India (Australia-
India BIT). White Industries advanced most of the usual claims that are made in
investment arbitration (expropriation, denial of fair and equitable treatment), but without

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 success. Significantly, it also relied upon Art. 4(2) of the Australia-India BIT, which provided
that “A Contracting Party shall at all times treat investments in its own territory on a basis
no less favourable than that accorded to investments or investors of any third country”.
White Industries argued that the effect of Art. 4(2) was that India undertook to Australian
investors an obligation equivalent to the one found in Art. 4(5) of the Agreement between
the Republic of India and the State of Kuwait for the Encouragement and Reciprocal
Protection of Investments of 2001. That Article relevantly provided that “Each Contracting
State shall maintain a favourable environment for investments in its territory by investors
of the other Contracting State. Each Contracting State shall, in accordance with its
applicable laws and regulations, provide effective means of asserting claims and enforcing
rights with respect to investments….” The tribunal accepted that the MFN clause imported
the “effective means” standard into the Australia-India BIT, and found that India had
breached Art. 4(2) by failing to provide “effective means of asserting claims and enforcing
rights”.
The quantum of the White Industries award was, by the standards of investment treaty
claims, tiny. But its impact in India was immense. One Indian commentator observed that
the “award opened a Pandora's box, and since then 17 investors have issued notices of
arbitration against India…. As a reaction to the White Industries case and the various
subsequent notices of arbitration, the government published a Draft Model proposing to
renegotiate the BITs it had already entered into in line with the draft.” (88)
In 2015, the Indian government produced a new Model Bilateral Investment Treaty, which
included a limited “national treatment” provision, but no MFN clause at all. Within India,
this was widely regarded as a direct consequence of the White Industries decision; there
had been an MFN clause in the previous Indian Model Bilateral Investment Treaty, drafted
in 1993. But, as the Law Commission of India commented,
“The Indian government has not provided any detailed explanation for its
absence. It appears that the purpose behind not having an MFN provision is to
P 285 ensure that foreign investors are not able to borrow beneficial provisions from
P 286 other Indian BITs (Treaty Shopping). India's major concern with the MFN is
the use of this provision by foreign investors to borrow beneficial substantive
and procedural provisions from third-country BITs. The absence of an MFN
provision will surely prevent the foreign investor from indulging in such
borrowing.” (89)
In July 2016, the Modi government announced its intention to terminate India's fifty-eight
BITs then in force in order to negotiate their replacement with new agreements based on
the new Model Bilateral Investment Treaty. Since that time, India has unilaterally
terminated at least thirteen of its BITs. (90) It has not, to date, replaced any of these with
new agreements, although a treaty based on the new Model was signed with Cambodia in
2016, and there have been reports that India and Brazil were negotiating a BIT that
included neither an MFN clause nor any provision for investor-state arbitration.
Any state entering into a BIT needs to weigh the potential benefits of increased inbound
investment and increased protection for its investors abroad against the risk of exposure
to claims by foreign investors. The Indian Model BIT now prioritizes reducing the risk of
claims against the state (partly, but not only, through the omission of an MFN clause); it
remains to be seen whether other states will find this approach palatable.

2 Joint Interpretative Statements

Art. 31(3)(a) of the Vienna Convention on the Law of Treaties provides that an interpretation
of a treaty may take account of “any subsequent agreement between the parties regarding
the interpretation of the treaty or the application of its provisions”. There is scope,
therefore, for States who have become concerned that the scope of their MFN clauses has
surpassed what was intended, to clarify the position in a joint interpretative statement.
India has already issued at least one such joint statement in connection with a BIT. (91)
In February 2016, India proposed a “Joint Interpretative Statement” to twenty-five
countries with which it has investment agreements whose initial period of validity had not
expired, which included India's interpretation of terms including MFN clauses. No such
statement can, of course, carry any weight while it remains unilateral.
The issuing of joint interpretative statements is potentially a useful mechanism for
addressing the problem of broad MFN clauses being given wider meaning than the parties
intended. Some newer treaties have established joint bodies with a mandate to issue
binding interpretations. (92)
P 286
P 287
3 Trans-Pacific Partnership
The text of the Trans-Pacific Partnership (TPP) (between Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and the United States) was
finalized on 5 October 2015 and the treaty was formally signed on 4 February 2016. The
treaty was to come into force if it was ratified within two years either by all signatories or
by at least six signatories who between them represent at least 85 per cent of the

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 combined GDP of the signatory states. The decision of the administration of the United
States not to ratify the TPP made it improbable that the treaty would ever come into force.
(93) However, the remaining eleven states resumed negotiations, which resulted, in
November 2017, in a further partial agreement, now known as the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership or TPP-11. This agreement was signed
in Santiago on 8 March 2018. Late in January 2018, the President of the United States
stated, in an interview, that he would consider re-entering the TPP if it were “substantially
better” for the United States, but without indicating what a “substantially better” deal
might look like. At about the same time, the United Kingdom announced an interest in
joining the agreement, as it prepared to sever its trading links with its more geographically
apposite neighbours.
The TPP remains an interesting example of a multilateral treaty that contains investor
protections but has been crafted with a view to limiting the vulnerability of states to
investor claims.
Chapter 9 of the TPP, which deals with investments, does contain an MFN clause (Art. 9.5).
Its first two paragraphs provide:
“1. Each Party shall accord to investors of another Party treatment no less favourable
than that it accords, in like circumstances, to investors of any other Party or of any
non-Party with respect to the establishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments in its territory.
2. Each Party shall accord to covered investments treatment no less favourable than
that it accords, in like circumstances, to investments in its territory of investors of any
other Party or of any non-Party with respect to the establishment, acquisition,
expansion, management, conduct, operation, and sale or other disposition of
investments.”
These are followed, however, by a third paragraph, which expressly excludes the dispute
resolution provisions from the scope of the MFN clause: “For greater certainty, the
treatment referred to in this Article does not encompass international dispute resolution
procedures or mechanisms, such as those included in Section B (Investor-State Dispute
Settlement).” It is a reasonable expectation that clauses of this nature will become
increasingly common in new investment treaties, as states seek to confine their disputes
with investors to the procedures expressly identified in their specific treaty.
P 287
P 288
In addition, the signatories to the TPP chose to impose further limits on the application of
the MFN clause, although they did so in a rather circuitous fashion. Australia's Schedule to
Annex II to the treaty contains numerous very specific reservations to the MFN clause, and
one broad reservation which makes it clear that the MFN clause is to have prospective
effect only: “Australia reserves the right to adopt or maintain any measure that accords
more favourable treatment to any service supplier or investor under any bilateral or
multilateral international agreement in force or signed prior to the date of entry into force
of this Agreement.” And every other signatory has made a reservation in substantially
similar terms. Canada, for example, in its Schedule to Annex II, stated that it: “reserves the
right to adopt or maintain a measure that accords differential treatment to countries
under any bilateral or multilateral international agreement in force or signed prior to the
date of entry into force of this Agreement”. Only those who were responsible for negotiating
the treaty can explain why every party to the TPP had the same attitude towards the TPP,
but expressed that consensus through reservations rather than the body of the treaty. Even
so, the trend that emerges here is a reluctance on behalf of states to enter into MFN
clauses with broad application.
Every state made further reservations to the MFN clause. Some were very specific, others
extremely broad. Japan, for instance, reserved “the right to adopt or maintain any measure
relating to investments or the supply of services in public law enforcement and
correctional services, and in social services established or maintained for a public
purpose: income security or insurance, social security or insurance, social welfare, public
training, health, child care and public housing”.
Another important limitation upon the scope of the MFN clause is that states may elect to
exclude from the dispute resolution provisions claims that they had “breached an
investment authorisation by enforcing conditions or requirements under which the
investment authorisation was granted”. These reservations, which are set out in Annex 9-H,
were made by Australia, Canada, Mexico and New Zealand. Effectively, this mechanism
excludes claims alleging that the investment policy of a state has been operated in such a
manner as to breach the MFN clause.

4 CETA
Canada and the European Union signed the Comprehensive Economic and Trade
Agreement (CETA) on 30 October 2016.
Chapter 8 of CETA deals with investment protection and includes, at Art. 8.7, a most-
favoured-nation clause. Paragraph 1 of Art. 8.7 is unremarkable:
“Each Party shall accord to an investor of the other Party and to a covered

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 instrument treatment no less favourable than the treatment it accords in like
situations, to investors of a third country and to their investments with respect
to the establishment, acquisition, expansion, conduct, operation, management,
maintenance, use, enjoyment and sale or disposal of their investments in its
territory.”

P 288 That obligation is, however, qualified in three interesting ways. Paragraph 2 deals with a
P 289 complication arising from the federal nature of both the European Union and Canada's
system of government. It is well established that the acts of a state or provincial
government within a federation may give rise to a breach of the obligations undertaken by
a federal government in a treaty. “For greater certainty, the treatment accorded by a Party
under paragraph 1 means, with respect to a government in Canada other than at federal
level, or, with respect to a government of or in a Member State of the European Union,
treatment accorded, in like situations, by that government to investors in its territory, and
to investments of such investors, of a third country.” This provision is designed to reduce
the risk of an investor seeking the benefit of an arrangement between third-country
investors and a state or province other than the one in which its investment is located.
Paragraph 3 of Art. 8.7 is a curiously specific exclusion applying to arrangements with any
third country “that recognises the accreditation of testing and analysis services and service
suppliers, the accreditation of repair and maintenance services and service suppliers, as
well as the certification of the qualifications of or of the results of work done by those
accredited services and service suppliers”.
Significantly, para. 4 expressly excludes the application of the MFN clause to dispute
resolution processes. It provides that “The ‘treatment’ referred to in paragraphs 1 and 2
does not include procedures for the resolution of investment disputes between investors
and states provided for in other international investment treaties and other trade
agreements.” But para. 4 also attempts to limit the application of the MFN clause to
substantive matters, stating that “Substantive obligations in other international treaties
and other trade agreements do not in themselves constitute ‘treatment’, and thus cannot
give rise to a breach of this Article, absent measures adopted or maintained by a Party
pursuant to those obligations.” This provision creates some curious conceptual difficulties.
As we have already seen, in most cases concerning MFN clauses, it has usually been
assumed that the promise that an investment or investor would be treated in a certain way
is sufficient to constitute “treatment”. It has generally been thought that an “MFN clause
allows a claimant investor to invoke certain more favourable provisions of investment
treaties that the host state had concluded with third states” (94) – that is, that the mere
making of the promise amounted to “treatment” offered to investors of a third state.
But the intention of this language of para. 4 appears to be to enable a State to rely on its
breach of an obligation in one treaty to circumvent that obligation being imported into
CETA through Art. 8.7. This places a substantial additional hurdle in the way of a claiming
investor, who must now demonstrate that the state has not only made a promise to the
third-state investor, but has actually honoured its obligation. The effect of this is that Art.
8.7(4) appears to allow a state to invoke its own breach of one treaty as a defence to a
claim brought under CETA. By way of example, had a similar clause existed in the
Australia-India BIT, India could have defended the claim in White Industries by arguing that
the provision in the Kuwait-India BIT promising “effective means of asserting claims and
enforcing rights” could not be invoked through an MFN clause because Kuwaiti investors in
India had never actually been provided with any such benefit.
P 289
P 290
Any claims made under CETA that call in aid the MFN provisions of Art. 8.7(1) will now
involve an extra degree of complexity, because it will no longer be sufficient for the
claimant to point to the existence of a promise in another treaty. The evidentiary burden
of proving that investors of a third country have in fact received preferable treatment
could, in some cases, be very substantial indeed.

5 JEEPA
Chapter 8 Art. 4 of the EU-Japan Economic Partnership Agreement (2017, but as of this
writing not yet in force) (JEEPA) specifically excludes ISDS from its promise of MFN
treatment. Chapter 8, Section G, Art. X1 contains wide-ranging general exceptions to the
protections afforded in the investment liberalization chapter of the agreement, including
for measures taken in relation to inter alia health, public order and privacy of individuals
in relation to personal data. At first blush, JEEPA seems to follow CETA in respect of defining
what constitutes “treatment” for MFN purposes. Art. 4(5) of JEEPA provides:
“Substantive provisions in other international agreements concluded by a Party
with a non-Party do not in themselves constitute ‘treatment’ under this Article.
For greater certainty, actions or inactions of a Party in relation to such
provisions can constitute treatment and thus can give rise to establishing a
breach of this Article to the extent that the breach is not established solely
based on the said provisions.”
This position is to some extent modified by Note 4 to Art. 4, which clarifies that “For greater

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 certainty, the entrepreneurs of the other Party or their covered enterprises would be
entitled to receive such treatment even in the absence of enterprises established by
entrepreneurs of the non-Party at the time when the comparison is made.”
Compared to CETA, therefore, JEEPA departs less dramatically from the generally accepted
position in international law.

VIII Conclusion
It is ultimately for contracting States to determine whether there is any need to change the
manner in which the MFN standard is articulated in their treaties. In doing so, each State
needs first to consider whether its MFN clauses are achieving their intended purpose of
attracting foreign investors by creating a desirable climate for investment, and whether
that benefit outweighs the risk to the State of broader investor claims. If there is a
discernible trend, it is towards a tightening of the application of MFN clauses – but that is
by no means universal. The most desirable trend is towards increasing specificity in the
content of MFN clauses, which will help to remove uncertainty as to their application.
The primary concerns of lawyers and arbitrators are different. They are less concerned with
P 290 the benefits of MFN clauses for the host economy, and for them, change is desirable if it
P 291 makes the principles applied in investment cases more consistent and predictable.
Prospectively, this aim can be pursued through more careful drafting of new clauses. There
are still, however, many hundreds of older, existing broad MFN clauses in operation, and
for almost every tribunal decision in which a controversy has been resolved in one
particular way, it remains possible to find another that reaches the opposite result. This
position will not change quickly. For the foreseeable future, we should expect that
arbitrators will continue to be appointed by parties who expect, from a careful study of
their awards and other writings, that they will resolve a particular controversy in a certain
way.
P 291

References
*) Max Bonnell: Partner, White & Case, LLP; Adjunct Professor of Law, University of Sydney.
Research assistance was provided by Marina Kofman, Associate, Norton Rose Fulbright.
While all responsibility for the contents of this paper is taken by the author, valuable
comments on an earlier draft, from Christophe Bondy and Professor Chester Brown, are
acknowledged with thanks.
1) Jonathan BONNITCH, Lauge N. Skovgaard POULSEN and Michael WAIBEL, The Political
Economy of the Investment Treaty Regime (Oxford University Press 2017) p. 93.
2) Tony COLE, The Boundaries of Most Favored Nation Treatment in International
Investment Law, 33 Michigan Journal of International Law (2012) p. 537
3) Rudolf DOLZER and Christoph SCHREUER, Principles of International Investment Law
(Oxford University Press 2008) p. 191
4) ICSID Case No. ARB/87/3, Award of 27 June 1990 (Dr.Dr. Ahmed Sadek El-Kosheri,
Professor Berthold Goldman, Dr. Samuel K.B. Asante).
5) At [54].
6) See, for example, ADF Group Inc v. United States of America, ICSID Case No.
ARB(AF)/00/1, Award of 9 January 2003; ATA Construction, Industrial and Trading Co v.
Jordan, ICSID Case No. ARB/08/2, Award of 18 May 2010; and Sergei Paushok, CJSC
Golden East Company, CJSC Vostokneftgaz Company v. Mongolia, (UNCITRAL Rules)
Award of 28 April 2011.
7) MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7,
Award of 25 May 2004 (Andres Rigo Sureda, Marc Lalonde and Rodrigo Oreamuno
Blanco).
8) Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic of Pakistan, ICSID Case
No. ARB/03/29, Award dated 27 August 2009 (Professor Gabrielle Kaufmann-Kohler, Sir
Franklin Berman and Professor Karl-Heinz Böckstiegel).
9) Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri A.S. v. Republic of
Kazakhstan, ICSID Case No. ARB/05/16, Award dated 29 July 2008 (Bernard Hanotiau,
Marc Lalonde, Stewart Boyd) at pp.152-153.
10) EDF International SA, Saur International SA and Leon Participiones Argentinas SA v.
Argentine Republic, ICSID Case No. ARB/03/23, Award of 11 June 2012 (William W. Park,
Gabrielle Kaufmann-Kohler and Jesus Remon).
11) ICSID Case No. ARB/11/23, Award of 11 June 2012.
12) Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15, Award
of 1 June 2009 (David Williams QC, Professor Michael Pryles, Professor Francisco Orrego
Vicuña) at [461]-[464]; Abaclat and others v. Argentine Republic, ICSID Case No.
ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011 (Professor Pierre
Tercier, Professor Georges Abi-Saab, Professor Albert Jan van den Berg) at [332].
13) Final Award, 14 March 2003 (UNCITRAL Rules) (Dr Wolfgang Kuhn, Judge Stephen M.
Schwebel and Mr Ian Brownlie QC).
14) At [500].

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 15) ILC Draft Articles on Most Favoured Nation Clauses 1978, comment 6 to draft article 5,
p. 23.
16) Campbell MCLACHLAN, Laurence SHORE and Matthew WEINIGER, International
Investment Arbitration: Substantive Principles, 2nd ed. (Oxford University Press 2017) p.
345 citing Rights of Nationals of the United States of America in Morocco (France v.
United States of America) (‘Morocco’) [1952] ICJ Rep 176, 190–7.
17) Jonathan BONNITCHA, Lauge N. Skovgaard POULSEN and Michael WAIBEL, The Political
Economy of the Investment Treaty Regime (Oxford University Press 2017) p. 97.
18) Chemtura Corporation v. Government of Canada, UNCITRAL arbitration, Canada's
Rejoinder dated 10 July 2009.
19) Vannessa Ventures Ltd v. The Bolivarian Republic of Venezuela, ICSID Case No.
ARB(AF)/04/6, Award of 16 January 2013 (Professor Vaughan Lowe QC, Hon. Charles N
Brower, Professor Brigitte Stern).
20) At [133].
21) Metal-Tech Ltd v. The Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award of 4
October 2013 (Professor Gabrielle Kaufmann-Kohler, John M Townsend, Claus von
Wobeser).
22) At [145].
23) Rafat Ali Rizvi v. Republic of Indonesia, ICSID Case No. ARB/11/13, Award on Jurisdiction,
16 July 2013 (Dr. Gavan Griffith QC, Judge Joan Donoghue, Professor Muthucumaraswamy
Sornarajah).
24) HICEE B.V. v. The Slovak Republic, PCA Case No. 2009-11, Partial Award, 23 May 2011 (Sir
Franklin Berman KCMG QC, Judge Charles N. Brower, Judge Peter Tomka).
25) At [149].
26) Campbell MCLACHLAN QC, Laurence SHORE and Matthew WEINIGER, International
Investment Arbitration (Oxford University Press 2007) p. 257 (henceforth McLachlan,
Shore and Weiniger).
27) Emilio Agustin Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the
Tribunal on Objections to Jurisdiction, 25 January 2000 (Professor Francisco Orrego
Vicuña, Judge Thomas Buergenthal and Maurice Wolf).
28) Tecnicas Medioambientales Tecmed SA v. United Mexican States, ICSID Case No.
ARB/00/2, Award of 29 May 2003 (Horacio A Grgigera Naon, Professor Jose Carlos
Fernandez Rozas and Carlos Bernal Verea).
29) Siemens AG v. Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3
August 2004 (Dr Andres Rigo Sureda, Judge Charles N. Brower and Professor Domingo
Bello Janeiro).
30) McLachlan, Shore and Weiniger, p. 254
31) Zachary DOUGLAS, “The MFN Clause in Investment Arbitration: Treaty Interpretation Off
the Rails”, 2 Journal of International Dispute Settlement (February 2011, Issue 1) p. 102
32) Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, ICSID
Case No. ARB/02/13, Decision on Jurisdiction, November 2004 (Judge Gilbert Guillaume,
Bernardo Cremades, Sir Ian Sinclair).
33) Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision
on Jurisdiction, 8 February 2005 (Albert Jan van den Berg, VV Veeder and Carl F. Salans).
34) At [115].
35) Vladimir Berschader and Moise Berschader v. The Russian Federation, SCC Case No.
080/2004, Award of 21 April 2006 (Bengt Sjovall, Sergei Lebedev, Professor Todd
Weiler).
36) At [175].
37) At [184].
38) At [185].
39) At [192].
40) McLachlan, Shore and Weiniger, p. 257.
41) Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Decision on the Objection
to Jurisdiction for Lack of Consent, 3 July 2013 (John M. Townsend, George Constantine
Lambrou and Laurence Boisson de Chazournes).
42) Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17.
43) Venezuela US, S.R.L v. The Bolivarian Republic of Venezuela, PCA Case No. 2013-34,
Interim Award on Jurisdiction, 26 July 2016 (Judge Peter Tomka, The Honorable Yves
Fortier QC, Professor Marcelo Kohen).
44) At [89]-[90].
45) At [91].
46) At [100].
47) At [102].
48) Venezuela US, S.R.L v. The Bolivarian Republic of Venezuela, PCA Case No. 2013-34,
Dissenting Opinion of Professor Marcelo G. Kohen, 26 July 2016, at [19].
49) At [6].
50) Beijing Urban Construction Group Co. Ltd v. Republic of Yemen, ICSID Case No.
ARB/14/30, Decision on Jurisdiction, 31 May 2017 (Ian Binnie QC, Zachary Douglas QC,
John M. Townsend).
51) At [116]-[121].
52) Siemens AG v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on
Jurisdiction, 3 August 2004 (Dr. Andres Rigo Sureda, Judge Charles N. Brower, Professor
Domingo Bello Janeiro).

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 53) At [85].
54) At [104].
55) ICSID Case No. ARB/07/17, Award of 21 June 2011 (Judge Hans Danelius, Judge Charles N.
Brower, Professor Brigitte Stern).
56) At [107]-[108]. In her Concurring and Dissenting Opinion, Professor Stern explained that
she remained “very strongly convinced that MFN clauses should not apply to dispute
settlement mechanisms”.
57) Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, Decision on
Jurisdiction, 24 October 2011 (Professor Vaughan Lowe QC, Judge Charles N. Brower,
Christopher Thomas QC).
58) At [58].
59) At [68].
60) At [72].
61) RosInvestCo UK Ltd v. Russia, SCC Case No. Arb V079/2005, Award on Jurisdiction,
October 2007 (Prof. Dr. Böckstiegel, Lord Steyn, Sir Franklin Berman KCMG, QC).
62) At [131]-[132].
63) Telenor Mobile Communications AS v. Republic of Hungary, ICSID Case No. ARB/04/15,
Award of 13 September 2006 (Professor Sir Roy Goode, CBE, QC, Nicholas W Allard,
Arthur Marriott QC).
64) At [92].
65) Menzies Middle East and Africa SA and Aviation Handling Services International Ltd v.
Republic of Senegal, ICSID Case No. ARB/15/21, Award of 5 August 2016 (Professor
Bernard Hanotiau, Hamid Gharavi and Professor Pierre Mayer).
66) One exception is Stephan SCHILL: see Multilateralization of International Investment
Law, (Cambridge University Press 2009) at pp. 152-163.
67) The problem is illustrated by the case of Astrida Benita Carrizosa v. Republic of
Colombia, ICSID Case No. ARB/18/5, in which the claimant has sought to use an MFN
clause to import into the US-Colombia Free Trade Agreement more favourable dispute
resolution provisions found in other Colombian treaties. The respondent state
appointed as arbitrator Zachary Douglas QC, the author of articles unsympathetic to
this use of MFN clauses. The claimant promptly raised a challenge to Douglas, the
result of which is unknown at the time of writing.
68) International Law Commission, Final Report of the Study Group on the Most-Favored-
Nation Clause (2015) at [8].
69) The tribunal in Venezuela US, S.R.L v. Venezuela (at [49]) went so far as to find that Arts.
31 and 32 of the Vienna Convention “reflect customary international law”.
70) National Grid plc v. The Argentine Republic (UNCITRAL Rules), Decision on Jurisdiction,
20 June 2006 (Dr. Andres Rigo Sureda, E. Whitney Debevoise, Professor Alejandro Garro).
71) At [85].
72) International Law Commission, Draft Articles on most-favoured nation clauses, with
commentaries, 1978, Commentary (10) to Arts. 9 and 10.
73) Renta4 S.V.S.A. Ahorro Corporacion Emergentes F.I., Ahorro Corporacion Eurofondo F.I.,
Rovime Inversiones SICAV S.A., GBI 9000 SICAV S.A. v. The Russian Federation (SCC
Arbitration 24/2007), Award on Preliminary Objections, 20 March 2009 (Jan Paulsson,
Judge Charles N. Brower, Toby T. Landau).
74) At [103].
75) ICSID Case No. ARB/12/3, Decision on Respondent's Objection under Arbitration Rule
41(5), 16 January 2013 (Arthur W. Rovine, Marc Lalonde, Donald M. McRae).
76) At [73-74].
77) At [104].
78) ICSID Case No. ARB/10/24, Award dated 8 March 2016 (Dr. Veijo Heiskanen, Carolyn B.
Lamm and Professor Philippe Sands QC).
79) At [328].
80) At [329].
81) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 7.
82) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 29.
83) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 30.
84) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 30
85) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 79.
86) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 31.
87) United Nations Conference on Trade and Development, “UNCTAD's Reform Package for
the International Investment Regime” (2017) p. 31.
88) Anirudh KRISHNAN, “A bit for the state, a bit for the investor”, The Hindu (8 September
2015).
89) Law Commission of India, Report No. 260, “Analysis of the 2015 Draft Model Indian
Bilateral Investment Treaty”, August 2015.
90) Between September 2016 and May 2017, India terminated its BITs with Australia,
Austria, Croatia, Czech Republic, Denmark, Germany, Hungary, Italy, Malaysia, the
Netherlands, Oman, Spain and Switzerland.

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 91) For example, the recent Joint Interpretative Declaration between India and Colombia
regarding the Agreement for the Promotion and Protection of Investments signed on 10
November 2009 <http://pib.nic.in/PressReleseDetail.aspx?PRID=1508988> last
accessed 13 February 2018.
92) UNCTAD Reform Package, p. 81 citing CETA (2016); Morocco-Nigeria BIT (2016); Chile-
Hong Kong BIT (2016).
93) At the time of writing, however, the stated position of the United States appeared to
change frequently and erratically.
94) Richard HAPP and Noah RUBINS, Digest of ICSID Awards and Decisions, 2003-2007
(Oxford University Press 2009) p. 364.

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 KluwerArbitration

Document information
Sustainable Development Obligations and Access to Treaty
Publication Remedies in Contemporary Investment Treaties and
Evolution and Adaptation: Models
The Future of International Won Kidane
Arbitration
(*)

Topics I Introduction
Investment Arbitration Traditionally, investment treaties impose external substantive standards on the host state,
and outsource dispute settlement to non-governmental international tribunals. The
external substantive standards (1) and the accompanying access to treaty remedies (2)
Bibliographic reference P 292 that investment treaties grant have, by structural design, (3) exclusively benefited foreign
P 293 investors without imposing meaningful reciprocal obligations on them. (4) The lack of
Won Kidane, 'Sustainable corresponding substantive treaty obligations on the investor, the unilateral investor access
Development Obligations to investor-state dispute settlement (ISDS) coupled with the perceived deficiencies and
and Access to Treaty excesses of ISDS (5) have in recent years prompted a significant rise in proposals for the
Remedies in Contemporary P 293 inclusion in contemporary investment treaties and models of provisions imposing certain
Investment Treaties and P 294 substantive obligations on investors, (6) and the reform of the ISDS (7) system. (8)
Models', in Jean Engelmayer Correspondingly, it also sparked academic discussions about the very essence of the
Kalicki and Mohamed Abdel structural design of the ISDS from an access vantage point. (9)
Raouf (eds), Evolution and Whereas the proposals for the equalization of access to international arbitration and the
Adaptation: The Future of related academic discourse currently remain at experimental stages, a growing number of
International Arbitration, contemporary investment treaties and models now contain some provisions on substantive
ICCA Congress Series, Volume obligations designed to widen the host state's policy space and impose corresponding
20 (© Kluwer Law obligations on investors. These contemporary substantive obligations often focus on four
International; International broad areas in varying formulations and frequency: (1) the environment, (2) labor
Council for Commercial standards, (3) anti-corruption, and (4) human rights. (10)
Arbitration/Kluwer Law
International 2019) pp. 292 - A 2014 OECD statistical study (11) surveyed 2,107 investment treaties and 1,113 investment
314 treaty based cases and arrived at the following useful conclusions: although only 12
percent of the entire stock of investment treaties in effect contained provisions relative to
sustainable development, more than three- quarters of treaties concluded between 2008
and 2013 contain provisions relating to at least one of the above four sustainable
development areas. (12) Moreover, the OECD Study has also established that nearly all
treaties concluded in 2012 and 2013 covered at least one of the four areas designed to help
sustainable development. (13)
The nearly complete lack of attention to sustainable development issues in the older
treaties and the greater attention paid to the same issues in the more contemporary
treaties is now well documented. With that as a background, this article intends to
accomplish three objectives: (1) survey the sustainable development related provisions of
P 294 selected recent models and treaties, (2) identify and critically analyze the structures and
P 295 substantive formulations of these provisions, and finally, (3) evaluate the mechanisms
of their enforcement against the investor including the challenges of the host states' and
host communities' access to ISDS or other treaty remedies.
It is divided into three parts mirroring the above listing with Part II offering the results of
the survey, and Parts III and IV dealing with the substantive formulations and procedural
access issues respectively.

II Sustainable Development Obligations in Contemporary Treaties and

Models
For purposes of this study, a defined set of representative treaties and models are
selected. These are: (1) Trans-Pacific Partnership (TPP) (14) (2) Transatlantic Trade and
Investment Partnership (TTIP), (15) (3 ) the EU-Canada Comprehensive Economic Trade
Agreement (CETA), (16) (4) India's new Model BIT, (17) (5) the Draft Pan-African Investment
Code (PAIC), and (6) sixteen BITs concluded in 2016 and 2017. (18)

1 Trans-Pacific Partnership (TPP) (19)

The TPP, before the United States withdrew, was to be the largest economic and trade
P 295 partnership of the United Sates and eleven Pacific Rim states representing about 40
P 296 percent of the world's GDP. (20) Although it was supposed to be a part of the most
contemporary models, the reforms that it sought to introduce to both investor obligations
and access to international arbitration were very modest.
Two provisions address the state's policy space and corporate social responsibility

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 matters but neither is extraordinary by any means. With respect to policy space, Art. 9.16
provides:
“Investment and Environmental, Health and other Regulatory Objectives
Nothing in this Chapter shall be construed to prevent a Party from adopting,
maintaining or enforcing any measure otherwise consistent with this Chapter
that it considers appropriate to ensure that investment activity in its territory is
undertaken in a manner sensitive to environmental, health or other regulatory
objectives.” (Emphasis added.)
Any policy measures that a state party might take for the protection of the environment or
health are subordinated to the treaty's investment protection provisions. This particular
approach is more akin to the traditional BITs than the recent treaties. Even the 2012 US BIT
envisions a more robust regulatory space for environmental and labor matters than this
TPP provision. (21)
With respect to Corporate Social Responsibility (CSR), Art. 9.17 of the TPP simply states:
“Article 9.17. Corporate Social Responsibility
The Parties reaffirm the importance of each Party encouraging enterprises
operating within its territory or subject to its jurisdiction to voluntarily
incorporate into their internal policies those internationally recognised
standards, guidelines and principles of corporate social responsibility that
have been endorsed or are supported by that Party.”
This basically sets up a voluntary compliance regime. In both the policy and CSR respect,
the TPP does not indicate a progressive trend. This fact is more important for its indication
of the position that the United State seems to have taken in the reform effort than the
substance of this particular model.
P 296
P 297
2 Transatlantic Trade and Investment Partnership (TTIP) (22)
The TTIP is the EU's most contemporary initiative and perhaps one of the most elaborate.
The reforms it introduces appear both fundamental and progressive. With respect to
substantive investor obligations, it adopts a non-interventionist approach.
“1. The provisions of this section shall not affect the right of the Parties to regulate within
their territories through measures necessary to achieve legitimate policy objectives,
such as the protection of public health, safety, environment or public morals, social
or consumer protection or promotion and protection of cultural diversity.
2. For greater certainty, the provisions of this section shall not be interpreted as a
commitment from a Party that it will not change the legal and regulatory framework,
including in a manner that may negatively affect the operation of covered
investments or the investor's expectations of profits.”
With the exception of a modest check “the necessity test” might impose, this essentially
gets rid of external standards that investment treaties impose on signatories and leaves
domestic regulatory space largely unconstrained in the areas of the environment, health
and other legitimate domestic concerns. Indeed, it specifically exempts such domestic
regulations from external scrutiny. (23) The chosen approach is thus not to prescribe
external substantive sustainable development standards but to leave the domestic
regulatory space unaffected by treaty standards. In fact, it goes as far as expressly
eliminating any semblance of a stabilization clause. (24)

3 EU-Canada Comprehensive Economic and Trade Agreement (CETA)

The EU-Canada Comprehensive Economic and Trade Agreement (ECTA) is the first fully in
force contemporary investment regime. In terms of investor obligations, just like TTIP, it
takes a non-interventionist domestic regulatory approach. It does not prescribe external
standards but almost completely preserves domestic policy space in the areas of
environment, health, safety and morals. (25) This would mean that to the extent the states
P 297 parties wish to impose certain obligations on the investors, they may do so in their
P 298 domestic laws, which will be exempt from any internationally agreed external standards.

4 Indian BIT Model

Profusely disappointed by its abysmal track record in ISDS, as of 2015, India sought to
renounce its existing BITs and replace them with a new model. (26) It unveiled a draft in
March 2015 for comment. (27) The comments overwhelmingly suggested that India might
have overcorrected to the perceived inequities of the existing mechanism. India issued a
final version, which moderated the initial changes. (28) Although the initially proposed
changes are put to rest for now as far as India is concerned, the changes they sought to
introduce will continue to have theoretical significance in shaping future policy directions.
As such, they are relevant to note here.
Sustainable development was front and center in the Indian Draft BIT Model, which

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 deemphasized protection:
“Reaffirming the right of Parties to regulate Investments in their territory in
accordance with their Law and policy objectives including the right to change
the conditions applicable to such Investments; and
P 298
P 299
Seeking to align the objectives of Investment with sustainable development and
inclusive growth of the Parties[.]” (29)
With respect to investor obligation and sustainable development, the Indian Draft BIT did
something quite remarkable. Not only did it prescribe elaborate investor obligation rules
on labor, environmental protection, finance and corruption, it also sanctioned their
violations by nullifying the investor's treaty protections. It sought to effect this as follows.
The investor obligations the Draft sets forth include compliance with anti-corruption laws,
(30) disclosure of information about the investor and its investments including the sources
of its finances, (31) compliance with labor and employment laws (32) as well as
environmental, human rights and tax laws. (33) Under the Draft,
“‘Investment’ means an Enterprise in the Host State, constituted, organised and
operated in compliance with the Law of the Host State and owned or controlled
in good faith by an Investor:
(i) in accordance with this Treaty; and
(ii) that is at all times in compliance with the obligations in Articles 9, 10, 11
and 12 of Chapter III of this Treaty.” (34)
Entitlement to treaty protection thus depends on holding the investment in good faith and
compliance to domestic laws relating to sustainable development. For example, Art. 9
imposes an obligation not to engage in corrupt activities and sets forth detailed rules on
what is prohibited, including lobbying. Technically, therefore, the violation of the anti-
corruption provision would deny the protection of the treaty to the investor because the
investment would not be a covered investment under the definition. The violations of Arts.
10 (failure to disclose required information), 11 (failure to comply with tax obligations), and
12 (failure to comply with host state laws including minimum wage requirements) have a
P 299 similar effect of the denial of protection. Consider the application of Art. 12 for example.
P 300
“12.1 Investors and their Investments shall be subject to and comply with the
Law of the Host State. This includes, but is not limited to, the following:
(i) Law concerning payment of wages and minimum wages, employment of
contract labour, prohibition on child labour, special conditions of work,
social security and benefit and insurance schemes applicable to
employees;
(ii) information sharing requirements of the Host State concerning the
Investment in question and the corporate history and practices of the
Investment or Investor, for purposes of decision making in relation to that
Investment or for other purposes;
(iii) environmental Law applicable to the Investment and its business
operations;
(iv) Law relating to conservation of natural resources;
(v) Law relating to human rights;
(vi) Law of consumer protection and fair competition; and
(vii) relevant national and internationally accepted standards of corporate
governance and accounting practices.”
Read in conjunction with the Draft Text's definition of investment, any violation of this
provision would deny protection by excluding whatever capital invested from the
definition of investment. That would mean any failure to meet “Law relating to human
rights” or “relevant national and internationally accepted standards of corporate
governance and accounting practices”. In practical terms, this would mean that any
alleged violations of any one of these provisions would have to be litigated to determine
whether there is a protected investment in the first place. (35)
The Final Model BIT kept only a considerably weakened and permissive provision on
corporate social responsibility. It reads in simple terms:
“Investors and their enterprises operating within its territory of each Party shall
endeavour to voluntarily incorporate internationally recognized standards of
corporate social responsibility in their practices and internal policies, such as
statements of principle that have been endorsed or are supported by the
Parties. These principles may address issues such as labour, the environment,
human rights, community relations and anti-corruption.” (36)

P 300

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 P 300
P 301
5 The Draft Pan-African Investment Code
The Draft Pan-African Investment Code (“PAIC” or the “Code”) (37) is also a part of the most
contemporary trend. It is remarkable for both the breadth and depth of the sustainable
development related provisions. The Code's objectives are stated in the following terms:
“[]to promote, facilitate and protect investments that foster the sustainable development
of each Member State, and in particular, the Member State where the investment is
located”. (38) It also aims at achieving “an overall balance of the rights and obligations
among Member States and the investors under this Code”. (39) Moreover, it recognizes “the
crucial role played by women and youth in the development of Africa”. (40) It uniquely
adds a note on the free movement of persons as a “fundamental pillar of African
integration”. (41)
PAIC also contains perhaps the most elaborate investor obligations rules. For example, it
requires investments to comply with “nationally and internationally accepted standards of
corporate governance”, (42) and “[e]nsure the equitable treatment of all shareholders, in
accordance with national laws”. (43) The Code also obligates investors to undertake “socio-
political obligations” and refrain from political interference and respect “socio-cultural
values”. (44)
PAIC's other notable provisions include anti-bribery, (45) corporate social responsibility,
the obligation to contribute to the achievement of “sustainable development of the host
state”, (46) business ethics, and human rights. The human rights provision requires member
states to “support and respect the protection of internationally recognized human rights”,
and more importantly, “[e]nsure equitable sharing of wealth incurred from investments”.
(47) PAIC goes further to uniquely provide that: “Member States may adopt policies on
P 301 cultural and linguistic diversity in promotion of investments.” (48) Relatedly, PAIC omits
P 302 the fair and equitable treatment and full protection and security provisions that most
traditional investment treaties contain. In this regard, the balance that the PAIC attempts
to strike appears to tilt towards sustainability than investment protection.

6 BITs Concluded in 2016 and 2017

There are at least forty-nine known BITs concluded in the years 2016 and 2017. (49) The
texts of sixteen of the forty-nine are publicly available in English. (50) This section surveys
the sustainable development provisions of these BITs.
A close review of the sustainable development related provisions of the sixteen BITs
concluded in 2016 and 2017 shows that all but four contain some reference to sustainable
development in varying details. (51) All of the twelve BITs that make express reference to
sustainable development goals do so in their preambles and a few provisions often
focusing on the environment, labor, corporate social responsibility, human rights, and anti-
corruption. All of these provisions, with one exception discussed below, seek to regulate
state behavior and are formulated in permissive terms. They do not seek to impose direct
sustainable development obligations on the investor. The most common formulation is the
following:
“Article 15 Health, Safety and Environmental Measures
The Parties recognize that it is inappropriate to encourage investment by
relaxing their health, safety or environmental measures. Accordingly, a Party
should not waive or otherwise derogate from, or offer to waive or otherwise
derogate from, those measures to encourage the establishment, acquisition,
expansion or retention in its area of an investment of an investor. If a Party
considers that the other Party has offered such an encouragement, it may
request consultations with the other Party and the two Parties shall consult with
a view to avoiding the encouragement.” (52)
The one exception mentioned above is the treaty between Iran and Slovakia. It slightly
departs from common formulation by seeking to impose certain affirmative obligations in
the following terms:
Article 10. Environmental and labor rights and other standards
1. The Contracting Parties recognize that it is inappropriate to encourage
investment by relaxing labor, public health, safety or environmental
measures. They shall not waive or otherwise derogate from, or offer to
waive or otherwise derogate from, such measures as an encouragement for
the establishment, acquisition, expansion or retention in their territories,
of an investment.
P 302
P 303
2. Recognizing the right of each Contracting Party to establish its own level of
environmental protection and its own sustainable development policies
and priorities, and to adopt or modify its environmental laws and
regulations, each Contracting Party shall ensure that its laws and
regulations provide for appropriate levels of environmental protection

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 and shall strive to continue to improve those laws and regulations.
3. Investors and investments should apply national, and internationally
accepted, standards of corporate governance for the sector involved, in
particular for transparency and accounting practices. Investors and their
investments should strive to make the maximum feasible contributions to
the sustainable development of the Host State and local community
through appropriate levels of socially responsible practices.” (53) (Emphasis
added.)
Even this provision is ostensibly permissive as the terminology employed is “should strive”
rather than a clear-cut mandatory rule. Overall, it is fair to conclude that there is no robust
movement towards using BITs for the purpose of imposing any meaningful substantive
obligations on investors. Although there appears to be an increase in the number of
references to sustainable development, the provisions are almost invariably designed to
preserve the state's policy space than to impose external obligations on the investor. As
such, to the extent the newer treaties depart from tradition, they purport do so only
inasmuch as they shrink the scope of the protection of investment under the treaties'
protection provisions.
Moreover, in terms of the substantive obligations, no South-South or North-South patterns
could be discerned. An example of the most elaborate one is the Morocco-Nigeria BIT.
P 303 Reference to sustainable development runs through the text beginning from the preamble
P 304 (54) and definition of investment, (55) and continues to address the environment, (56)
P 304 labor standards and human rights, (57) as well as corruption (58) in great detail. On the
P 305 opposite side of the spectrum are Rwanda-Morocco, Japan-Kenya, UAE-Mexico, and
UAE-Nigeria. These BITs contain no reference to sustainable development at all. The only
possible conclusion is that the treaty-making process in this field remains remarkably ad
hoc with no impressive movement towards the elaboration and harmonization of the
substantive rules.

III Access to International Arbitration in Contemporary Treaties and

Models
From the very beginning, ISDS is understood to be a profound aberration in the rules of
locus standi under international law. It is unclear whether the designers planned a one-way
street or it is just how it evolved. Be that as it may, this section begins with a brief
theoretical perspective on access and surveys how contemporary models are attempting
to redefine it.

1 Access Issues in Perspective

There is certainly some credible evidence suggesting either that the ICSID designers never
sought to purposefully exclude the possibility of a treaty-based claim against the investor
(whether in the form of counterclaims or direct claims) or that they never purposefully
intended to shield the investor from answering treaty-based claims against it on an
international arbitral platform. In their recently released book, Arbitrating the Conduct of
International Investors, Amado, Kern and Doe Rodriguez plausibly argue that the designers
did indeed anticipate the possibility, and, in fact, the prospect of proceedings against the
P 305 investor on the same arbitral platform either in the form of counterclaims or direct claims.
P 306 (59) They note in particular a forgotten provision that featured within an early
Netherlands-Indonesia economic treaty, to the effect that a foreign investor “shall comply
with any request of the [host State], to submit, for conciliation or arbitration, to [ICSID] any
dispute that may arise in connection with the investment”. (60) However, this language
“quickly disappeared from the provision”, (61) and whether by design or evolution, ISDS has
remained a one-way street. As Amado, Kern and Doe Rodriguez aptly describe: “Fifty years
later, we do not believe it controversial to observe that this aspiration often falls short of
reality: there has been a departure from this reciprocal vision of the founders.” (62)
There are two barriers to access: the first one is legalistic and mechanical; the second is a
quintessential policy dilemma. Whereas the frequently discussed mechanical access
problem is more or less symbolic with an engineering solution, the policy dilemma goes to
the genetic core of the ISDS design, and as such does not lend itself to a simple solution.
Each one is briefly discussed below.
The mechanical access problem revolves around two apparent complications: (1) obtaining
the investor's assent to the jurisdiction of the treaty tribunal, and (2) the absence of
substantive obligations on the investor in traditional investment treaties. (63) The assent
difficulty inheres in the nature of investment treaties. Reciprocal only to the contracting
states in the sense of granting each other's investors certain rights by law, the beneficiaries
P 306 are technically non-parties to the instrument that bestows the benefits on them. (64)
P 307 Where the political will exists, however, imposing somewhat corresponding duties and
designing mechanisms of their enforcement through the arbitral process are limited only
by imagination. Indeed, Amado, Kern and Doe Rodriguez chart out possible solutions to the
assent question in some detail. (65)
Unlike the mechanical problems that lend themselves to engineering solutions, the
political economy presents a more profound dilemma. Canada's dilemma in its recent

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 NAFTA negotiations demonstrates this aspect of the problem very well. Its dilemma is
rooted in its dual objectives of protecting its own policy space while at the same time
ensuring the maximum possible protection and access to its investors in less developed
markets. As a matter of fact, thirty-nine of all eighty-four known NAFTA cases were against
Canada. It has so far reportedly paid at least CAD 215 million in compensation to satisfy
these claims. On the other hand, however, Canada is a party to forty-three BITs and its
enterprises have initiated at least forty- four investor-state claims seeking billions in
damages. (66) The political economy does thus require a choice between these competing
interests and values. With this background, this section observes trends in both the
mechanics and political economy of investor obligations and access.

2 Counterclaims and Direct Claims Against Investors in Contemporary Treaties

and Models
P 307 Although it does not directly introduce any notable substantive investor obligations, the
P 308 TPP allows the submission by the host state of counterclaims. (67) The counterclaims
presumably arise out of what the text refers to as “investment authorization” (68) or
“investment agreement”. (69) These instruments would naturally contain certain reciprocal
obligations and a choice of law that governs such obligations. (70) The counterclaims would
thus assert breach of the investor's obligations under these instruments and the domestic
laws that they select in addition to principals of international law referred to in the treaty.
(71)
The TPP does not create any mechanism for direct treaty claim by the host state against
the investor. It appears then that the only mechanism for direct claims against the investor
would be limited to those contained in the investment agreements, which in many cases
would have some type of non-treaty contract-based international arbitration option.
Under the TPP, there is no direct or indirect reference to host communities' access to
international arbitration against the investor. The counterclaims provisions do, however,
anticipate that causes of action arising out of investment agreements could be brought to
international arbitration at least in the form of counterclaims by the host state. Since the
treaty effectively integrates the investment agreement, it is not inconceivable that where
the investment agreement provides for host community rights and imposes corresponding
substantive obligations on the investor for the benefit of such communities, the
communities would have standing to present counterclaims against the investor. The
mechanics of how these community counterclaims could be presented would be
determined by the exact prescriptions in the investment agreement and the arbitration
rules that apply in the treaty claim.
TTIP does not anticipate treaty-based sustainable development related counterclaims
P 308 before the treaty-based international investment court that it seeks to establish. (72) This
P 309 is consistent with its non-interventions complete domestic policy-space approach. (73)
By eliminating external substantive standards on certain narrowly defined areas of
regulation such as health and the environment, the TTIP effectively renders the provision of
access to international arbitration for the host state in the form of counterclaims both
improbable and unnecessary. It essentially presumes that the state would have domestic
remedies at its disposal and the treaty does not attempt to moderate it.
For the highly advanced economies represented in the TTIP, the elimination of access to
international decision-making may not have serious consequences but as emerging
literature would suggest, for developing host countries, an arbitral award against an
offending investor may at times have a greater chance of enforcement abroad than their
domestic court judgments. (74) As such, access in some cases remains essential. Some of
the other models discussed below would seem to have taken this into account.
Similarly, the TTIP dispute settlement design does not anticipate treaty claims by the host
state against the investor mainly because the remedy that it anticipates for matters of
sustainability is almost exclusively domestic.
The CETA establishes the Investment Court System (ICS) with an appellate mechanism (75)
but it does nothing to modify the existing ISDS rules of locus standi. Taking a similar
domestic approach as the TTIP, the CETA does not anticipate treaty-based counterclaims.
Barring some creative lawyering, which cannot be ruled out, counterclaims before the CETA
court thus generally appear improbable not only because the substantive treaty rules
P 309 impose no direct investor obligations but also because unlike the TPP, domestic
P 310 contractual documents such as the investment agreement, which presumably contain
contractual investor obligations, are not recognizably integrated. Direct claims against
investors is also not a part of the CETA investor court design.
The TTIP does not anticipate the possibility of host communities accessing international
decision-making because of its almost exclusive domestic remedies approach. Similarly,
there are no traces of host community standing under the CETA investment court system.
This is an issue left for domestic legal processes. In the United States and Canada, the
various Keystone pipeline cases demonstrate how local communities on both sides of the
border could hold the host state or the investor liable in domestic court processes. (76)
CETA seems to have left host community concerns to these kinds of domestic legal
processes.

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 Although the Indian Draft Text permits counterclaims by the respondent state for
violations of investor responsibilities, (77) the Final Model BIT Text maintains most of the
provisions of the Draft Text on dispute settlement including exhaustion requirements, but
it eliminates the counterclaims provision that would have allowed the host state to
proceed against the investor for violations of the investor's responsibilities in such areas
as corruption, taxation, disclosure, and generally compliance with the laws of the host
state. (78) In terms of access, the Indian Draft BIT had also done something unique: it
sought access to the home state's judicial process to hold the investor accountable for
actions and omissions in the home state presumably with effect in the host state. (79)
P 310
P 311
The Pan-African Investment Code contains an independent provision on counterclaims
against the investor. It provides in full as follows:
“Counterclaims by Member States
1. Where an investor or its investment is alleged by a Member State party in
a dispute settlement proceeding under this Code to have failed to comply
with its obligations under this Code or other relevant rules and principles
of domestic and international law, the competent body hearing such a
dispute shall consider whether this breach, if proven, is materially
relevant to the issues before it, and if so, what mitigating or off-setting
effects this may have on the merits of a claim or on any damages awarded
in the event of such award.
2. A Member State may initiate a counterclaim against the investor before
any competent body dealing with a dispute under this Code for damages
or other relief resulting from an alleged breach of the Code.” (80)
The intention here is clear that if the investor initiates a claim, the host state may submit
its own counterclaims for purposes of set-off or even independent damages. It anticipates
that the counterclaims could arise not only out of the Code but also “other relevant rules
and principles of domestic and international law”. Mechanical access issues such as
obtaining investor consent notwithstanding, it appears more expansive than almost all the
other models and treaties that make rules for possible counterclaims because almost all
reviewed for purposes of this article limit counterclaims to those arising out of the
particular substantive obligations contained in the particular treaty itself. In any case, the
Code has not taken the extra step of permitting host communities to proceed directly
against the investor in international arbitration or other international fora. Their claims
would presumably have to be espoused by the host state. (81)
The access provisions of the newer BITs do not show a great departure from the traditional
BITs with one exception profiled later. None of the sixteen most recent BITs reviewed
expressly permit counterclaims much less direct claims against the investor by the state or
its nationals or communities. Indeed most of these BITs do not refer to counterclaims at
P 311 all. Wherever counterclaims are referred to, it is often to prohibit, not to permit. For
P 312 example, a relevant provision in the Israel-Japan BIT says:
“Article 24
12. In an arbitration under this Article, the respondent shall not assert, as a
defense, counterclaim, right of setoff or otherwise, that the claimant has
received or will receive indemnification or other compensation for all or part of
the alleged damages pursuant to an insurance or guarantee contract.” (The only
reference to counterclaims.) (82)
In terms of investor liability and access, the Nigerian model concluded with Morocco
appears to depart in a significant way albeit in the context of domestic legal process than
in international arbitration. It states in relevant part:
“Article 20. Investor Liablity
Investors shall be subject to civil actions for liability in the judicial process of
their home state for the acts or decisions made in relation to the investment
where such acts or decisions lead to significant damage, personal injuries or
loss of life in the host state.” (83)
The most interesting access provision is in the Iran-Slovakia BIT. It is the only exception
mentioned above. It reads in relevant part:
“General provisions
2. For avoidance of doubt, an investor may not submit a claim under this
Agreement where the investor or the investment has violated the Host
State law. The Tribunal shall dismiss such claim, if such violation is
sufficiently serious or material. For avoidance of any doubt, the following
violations shall always be considered sufficiently serious or material to
require dismissal of the claim:
(a) Fraud;

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 (b) Tax evasion;
(c) Corruption and bribery; or
(d) Investment has been made through fraudulent misrepresentation,
concealment, corruption, or conduct amounting to an abuse of
process.
3. The respondent may assert as a defense, counterclaim, right of set off or
other similar claim that the claimant has not fulfilled its obligations under
this Agreement to comply with the Host State law or that it has not taken
all reasonable steps to mitigate possible damages. For avoidance of any
doubt, if the tribunal does not dismiss the claim under paragraph 2 above,
it shall take such violations into account when assessing the claim if raised
as a defense, counterclaim, right of set off or other similar claim by the
respondent.” (84)
P 312
P 313
This provision burdens the investor with two serious consequences if it violates the host
state's domestic laws by engaging in fraud, corruption, tax evasion and the like. The first
consequence is the loss of investment protection. In essence, it appears to shield the host
state from liability by serving as an affirmative defense. In other words, a state that has
violated the investor's rights by denying protection otherwise conferred by the treaty,
could escape liability by pleading the investor's violations of its domestic laws as a
substantive defense. (85) Secondly, the same provision seems to envision the possibility of
host state counterclaims for the purpose of mitigation of damages or set-off.
In practice, it is unclear how the tribunal would arrive at the second stage if it is required
to dismiss the case upon finding the said investor violation. In any case, even then,
however, the purpose of this provision seems to be limited to counterclaims only if the
investor initiates the claim first. It does not seem to anticipate a stand-alone or direct
claim against the investor in a situation where the investor has not chosen to initiate a
claim in the first place. Needless to say, however, that the state or its nationals may avail
themselves of domestic judicial remedies against the investor for violations of the
aforementioned state laws pertaining to fraud, corruption, and taxation. As mentioned in
Sect. III.1 above, access to international arbitration against the investor may at times be
preferable to domestic legal processes against the investor as, at the very least, it would
mean access to a more advanced international enforcement regime. (86) Although most
interesting by all means, even the Iran-Slovakia formulation does not herald a
revolutionary approach to resolving the access dilemma.

IV Conclusion
Designed principally for the purpose of encouragement and protection of investment,
traditional international investment treaties neither typically impose any meaningful
substantive obligations on the investor nor grant the host state or its nationals and local
communities access to international arbitration. Addressing the increasing concerns over
the imbalance, some contemporary treaties and models now appear to impose varying
degrees of substantive obligations on the investor. A close examination of the various
contemporary models and treaties shows that they do so mainly through reference to
domestic instruments, not through the addition of corresponding external standards.
P 313 The obligations are mostly crafted in the form of broadening the state's policy space in the
P 314 areas of labor, the environment, corporate social responsibility, anti-corruption, and to
a lesser extent, human rights. Indeed, with few exceptions these recent treaties and
models do not seek to impose direct obligations on the investor. Ultimately, however, what
most additions succeed in doing is constraining the rules designed for purposes of investor
and investment protection rather than adding independent investor obligations.
The contemporary models are even less successful in reformulating rules of standing
relative to access to international arbitration. The treaties and models surveyed, with few
exceptions, do not attempt to create a pathway to international arbitration for the host
state or its nationals and communities. This appears to be more a function of policy choice
or perhaps simple failure to give considered attention to the abundant range of
opportunities, rather than the mechanical – and thus eminently surmountable – barriers to
standing discussed in Sect. III above.
Finally, where there is the political will, there are credible engineering solutions to the
mechanical access barriers, but states, both developed and developing, may have chosen
to continue to believe that international investment law and ISDS should remain true to
what has become understood to be its original design of a one-way street. The dilemma
thus appears to be one of balancing economic priorities and values rather than the
absence of technical craftsmanship. At the more general level, as the North-South
dichotomy diminishes and the nationality of capital increasingly loses its meaning (87) and
many states simultaneously become recipients and senders of significant capital at the
same time, they seem to have left international investment treaties in a state of profound
doctrinal uncertainty.
P 314

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 References
*) Won Kidane: Associate Professor of Law, Seattle University School of Law.
1) See VATTEL, The Law of Nations, Vol. II, pp. 8, 104, cited in M. SORNARAJAH, The
International Law on Foreign Investment, 3rd ed. (2010) p. 19 (“[This view] was motivated
by the concern that the standards of treatment provided to nationals in a host state
may be low and therefore unacceptable.”) A modern articulation of the philosophical
predicate is contained in Elihu Root's 1910 statement, which reads in part:
“The condition upon which any country is entitled to measure the justice
due from it to an alien by the justice it accords to its own citizens is that its
system of law and administration shall conform to that standard. If any
country's system of law and administration does not conform to that
standard, although the people of that country may be content or compelled
to live under it, no other country can be compelled to accept it as
furnishing a satisfactory measure of treatment to its citizens.”
Quoted in Rudolf DOLZER and Christoph SCHREUER, Principles of International
Investment Law, 2nd ed. (Oxford 2012) p. 2.
2) By “treaty remedies” I mean both the procedural access to international dispute
settlement and the availability of treaty-based substantive rights.
3) The lack of reciprocity is by no means a design flaw. It is rooted in what Kate Miles
describes as the “process of applying these [the original Eurocentric] standards to non-
European states that became inextricably linked with colonialism, oppressive
protection of commercial interests, and military intervention”. Kate MILES, The Origins
of International Investment Law: Empire, Environment and the Safeguards of Capital
(Cambridge 2013) p. 28 citing Charles LIPSON, Standing Guard: Protecting Foreign
Capital in the Nineteenth and Twentieth Centuries (University of California Press 1985)
pp. 11-12. Joost Pauwelyn offers a slightly different perspective i.e., “abuses occurred
on both sides”, which means that
“[h]ost states abused their territorial power against aliens, discriminating,
expropriating, or expelling them. Home states even more so, used their
power to expand their territory, through conquest or colonialism, imposing
their laws and courts for the benefit of nationals abroad (e.g., the British
capitulation regime in China) and protected those nationals and their
assets by use or threat of force including invasions, gunboat attacks, and
blockades.”
Joost PAUWELYN, “Rational Design or Accidental Evolution? The Emergence of
International Investment Law” in Zachary DOUGLAS, Joost PAUWELYN and Jorge E.
VINUALES, The Foundations of International Investment Law: Bringing Theory into
Practice (Oxford 2014) p. 19. In any case, the design was a part of what Dezalay and
Garth call the “gradual legalization” of North-South relations. See Yves DEZALAY and
Bryant GARTH, Dealing in Virtue: International Commercial Arbitration and the
Construction of a Transnational Legal Order (University of Chicago Press 1996) p. 64.
4) Investors as third-party beneficiaries to investment treaties owe no duties to the host
state under the investment treaty and are largely immune from treaty claims against
them. The addition of substantive obligations in recent treaties introduces a new
concept but does not resolve the access dilemma. This will be discussed in Sect. III
infra.
5) The most notable of such efforts is spearheaded by the European Union Commission.
Both the diagnostics and reform proposals are very well captured in the Commission's
2015 Concept Paper. See European Union Commission Concept Paper, Investment in
TTIP and Beyond – the Path for Reform, Enhancing the Right to Regulate and Moving
from Current Ad Hoc Arbitration Towards an Investment Court (2015) at p. 1; available at
<http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF>. On the
question of the perceived deficiencies of ISDS, the Concept Paper states:
“Currently, arbitrators on ISDS tribunals are chosen by the disputing parties
(i.e. the investor and the defending state) on a case-by-case basis. The
current system does not preclude the same individuals from acting as
lawyers (e.g. preparing the investor's claims) in other ISDS cases. This
situation can give rise to conflicts of interest – real or perceived – and thus
concerns that these individuals are not acting with full impartiality when
acting as arbitrators. The ad hoc nature of their appointment is perceived
by the public as interfering in their ability to act independently and to
properly balance investment protection against the right to regulate. It has
also led to perceptions that this provides financial incentives to arbitrators
to multiply ISDS cases.”
Id. at pp. 6-7.

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 6) Such efforts are reflected in recent Bilateral Investment Treaties (BITs) and models
(including the new Indian Model) as well as investment chapters in many newly
negotiated and pending regional trade agreements including the Transpacific, Trans-
Atlantic Partnerships, and EU-Canada and EU-Vietnam. Some of these are cited and
discussed in Sect. III.2 infra.
7) The most radical of these efforts seeks to replace it with a standing court system
altogether. The European Union Commission is at the forefront of this effort. Indeed,
the EU-Canada and EU-Vietnam Treaties already have effected this transformation.
The opposition to a radical reform is also equally vocal and vigorous. See e.g., Speech
by Stephan M. SCHWEBEL (17 May 2016, Washington DC)
“A paramount question is, should ICSID in particular really be left to wither
and expire after having successfully administered a very large number of
cases, not because the criticism mounted against it and investor/State
arbitration more broadly is valid but because uninformed or misinformed
critics have made so much uninformed and misinformed noise that the EU
has been moved to appease the views of those critics?”
Full speech available at <http://isdsblog.com/wp-
content/uploads/sites/2/2016/05/THEPROPOSALSOFTHEEUROPEANCOMMISSION.pdf>.
A working group set up by United Nations Commission on International Trade Law
(UNCITRAL) is also currently looking into the matter. Materials relating to the works of
the working group including audio recordings of some sessions is available at
<http://www.uncitral.org/pdf/english/workinggroups/wg_3/WGIII-34th-
session/930_for_ the_website.pdf>.
EU Commission Concept Paper, supra fn. 5, at p. 7.
8) Whether it is a system or not is a subject of academic debate but it is used here
loosely without getting into such debate. For a discussion of the various schools on
whether it is a system or a framework, see Won KIDANE, The Culture of International
Arbitration (OUP 2017) pp. 64-89.
9) The most recent addition to the literature that directly addresses the access issue is
Jose Daniel AMADO, Jackson Shaw KERN and Martin DOE RODRIGUEZ, Arbitrating the
Conduct of International Investors (Cambridge 2018).
10) See Kathryn GORDON, Joachim POHL and Marie BOUCHARD, Investment Treaty Law,
Sustainable Development and Responsible Business Conduct: A Fact Finding Survey,
OECD Working Papers on International Investment Law, 2014/01, (OECD Publishing 2014)
Available at <www.oecd.org/investment/investment-policy/WP-2014_01.pdf> (OECD
Study).
11) Id.
12) See id. at p. 5.
13) Id.
14) Text of the investment chapter is available at
<https://ustr.gov/sites/default/files/TPP-Final-Text-Investment.pdf>.
15) The text is available at
<http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf>.
16) The text is available at
<http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf>.
17) The Model Text is available at <http://finmin.nic.in/reports/ModelTextIndia_BIT.pdf>
(December 2015).
18) Sixteen of the forty-nine most recent BITs as of this writing have been selected mainly
because of the accessibility of the texts but are fairly representative of recent trends.
These are Israel-Japan (2017), Morocco-Nigeria (2017), Chile-China/Hong Kong (2017),
Argentina-Qatar (2016), Nigeria-Singapore (2016), Rwanda-Turkey (2016), Rwanda-
Morocco (2016), Canada-Mongolia (2016), Japan-Kenya (2016), Austria-Kyrgyzstan (2016),
Argentina-US (2016), Canada-China/Hong Kong (2016), Japan-Iran (2016), UAE-Mexico
(2016), Iran-Slovakia (2016), Nigeria-UAE (2016). The texts of all the sixteen treaties
discussed below are available at
<http://investmentpolicyhub.unctad.org/IIA/MostRecentTreaties#iiaInnerMenu>.
19) The text of the investment chapter is available at
<https://ustr.gov/sites/default/files/TPP-Final-Text-Investment.pdf>.
20) See Peter BAKER, “Trump Abandons Trans-Pacific Partnership; Obama's Signature Deal”
(23 January 2017) available at <www.nytimes.com/2017/01/23/us/politics/tpp-trump-
trade-nafta.html>; Thomas L. FRIEDMAN, “Trump Is a Chinese Agent”, NY Times, 29
March 2017 at 1; available at <www.nytimes.com/2017/03/29/opinion/trump-is-a-
chinese-agent.html?mabReward=ACTM4&recp=5&action=click...>. Efforts are now
underway to revitalize TPP without the United States. See Daniel MOSS, “Revived TPP
Shows Trade Will Go on Without U.S.: A pact without the U.S. proves that American
leadership is not essential to the march of progress” (8 March 2018) available at
<www.bloomberg.com/view/articles/2018-03-08/revived-trans-pacific-partnership-
shows-trade-will-go-on-...>.

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 21) See, e.g., US BIT Model (2012) at Art. 12(3). (“The Parties recognize that each Party
retains the right to exercise discretion with respect to regulatory, compliance,
investigatory, and prosecutorial matters, and to make decisions regarding the
allocation of resources to enforcement with respect to other environmental matters
determined to have higher priorities. Accordingly, the Parties understand that a Party
is in compliance with paragraph 2 where a course of action or inaction reflects a
reasonable exercise of such discretion, or results from a bona fide decision regarding
the allocation of resources.”) The text of the Model BIT is available at
<www.state.gov/documents/organization/188371.pdf>.
22) The text and comprehensive information relative to the TTIP is available at
<http://ec.europa.eu/trade/policy/in-focus/ttip/documents-and-
events/index_en.htm#eu-position>.
23) TTIP, Art. 2(1): “The provisions of this section shall not affect the right of the Parties to
regulate within their territories through measures necessary to achieve legitimate
policy objectives, such as the protection of public health, safety, environment or
public morals, social or consumer protection or promotion and protection of cultural
diversity.”
24) TTIP, Art. 2(2) (“For greater certainty, the provisions of this section shall not be
interpreted as a commitment from a Party that it will not change the legal and
regulatory framework, including in a manner that may negatively affect the operation
of covered investments or the investor's expectations of profits.”).
25) CETA, Art. 8.9. (Investment and regulatory measures)
“1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within
their territories to achieve legitimate policy objectives, such as the protection of
public health, safety, the environment or public morals, social or consumer
protection or the promotion and protection of cultural diversity.
2. For greater certainty, the mere fact that a Party regulates, including through a
modification to its laws, in a manner which negatively affects an investment or
interferes with an investor's expectations, including its expectations of profits,
does not amount to a breach of an obligation under this Section.
3. For greater certainty, a Party's decision not to issue, renew or maintain a subsidy:
(a) in the absence of any specific commitment under law or contract to issue,
renew, or maintain that subsidy; or
(b) in accordance with any terms or conditions attached to the issuance,
renewal or maintenance of the subsidy,
does not constitute a breach of the provisions of this Section.
4. For greater certainty, nothing in this Section shall be construed as preventing a
Party from discontinuing the granting of a subsidy, or requesting its
reimbursement where such measure is necessary in order to comply with
international obligations between the Parties or has been ordered by a
competent court, administrative tribunal or other competent authority, or
requiring that Party to compensate the investor therefor.”
(Footnotes omitted.)
26) For a discussion of India's new model, see Won KIDANE, “China's and India's Investment
Treaty Approaches and Implications for Africa”, 49 Loyola Chicago Law Journal (2018)
pp. 406, 445-461.
27) The Draft Model BIT was released for comment in March 2015. A copy of the Draft is
available at
<www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20In
dian%20Bilateral%20Invest...>.
28) The official approved and signed final Model BIT Text is Referenced F. No. 26/5/2013-
iC, Government of India Ministry of Finance Department of Economic Affairs
(Investment Division), Northern Block, New Delhi, Dated 28 December 2015. The Model
Text is available on the Website of the Indian Ministry of Finance at
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3560> (last accessed 11
September 2018).
29) Draft Indian BIT Text, Preamble. The final Model Text states:
“Desiring to promote bilateral cooperation between the Parties with
respect to foreign investments; and
Recognizing that the promotion and the protection of investments of
investors of one Party in the territory of the other Party will be conducive to
the stimulation of mutually beneficial business activity, to the
development of economic cooperation between them and to the promotion
of sustainable development,
Reaffirming the right of Parties to regulate investments in their territory in
accordance with their law and policy objectives.”
Final Model Text, at Preamble.

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 30) See Draft BIT Text, Art. 9.
31) See Draft BIT Text, Art. 10.
32) See Draft BIT Text, Art. 12.
33) See Draft BIT Text, Arts. 11 and 12.
34) Draft BIT Text, at Art. 1.6.
35) The final text defines “investment” simply as:
“an enterprise constituted, organised and operated in good faith by an
investor in accordance with the law of the Party in whose territory the
investment is made, taken together with the assets of the enterprise, has
the characteristics of an investment such as the commitment of capital or
other resources, certain duration, the expectation of gain or profit, the
assumption of risk and a significance for the development of the Party in
whose territory the investment is made”.
Indian Final BIT Model Text, at Art. 1.4.
36) Model BIT Text, Art. 12.
37) The text of the Pan-African Investment Code is available at
<https://au.int/sites/default/files/documents/32844-doc-draft_pan-
african_investment_code_december_20...>. It is important to note this draft is under
review and may change substantially. Structurally, if the PAIC were to be adopted, it
would have the potential of replacing intra-Africa investment treaties over time. See
PAIC, Art. 3(2) (“Notwithstanding Paragraph 1, Member States may agree that this Code
could be reviewed to become a binding instrument and to replace the intra-African
bilateral investment treaties (BITs) or investment chapters in intra-African trade
agreements after a period of time determined by the Member States or after the
termination period as set in the existing BITs and investment chapters in the trade
agreements.”).
38) PAIC, Art. 1.
39) PAIC, Preamble.
40) PAIC, Preamble.
41) PAIC, Preamble.
42) PAIC, Art. 19(1).
43) PAIC, Art. 19(3)(a).
44) PAIC, Art. 20.
45) See PAIC, Art. 21.
46) PAIC, Art. 22(3).
47) PAIC, Art. 24(a) and (e).
48) PAIC, Art. 38.
49) See Recent IITs tab at
<http://investmentpolicyhub.unctad.org/IIA/MostRecentTreaties#iiaInnerMenu>.
50) See id.
51) The four that do not contain any express reference to any sustainable development
related provisions are Rwanda-Morocco; Japan-Kenya; UAE-Mexico, UAE-Nigeria.
52) Canada-Hong Kong /China, BIT, at Art. 15.
53) Iran-Slovakia BIT, at Art. 10.
54) “RECOGNIZING the important contribution investment can make to the sustainable
development of the state parties, including the reduction of poverty, increase of
productive capacity, economic growth, the transfer of technology, and the furtherance
of human rights and human development;
SEEKING to promote, encourage and increase investment opportunities that enhance
sustainable development within the territories of the state parties;
UNDERSTANDING that sustainable development requires the fulfillment of the
economic, social and environmental pillars that are embedded within the concept;
REAFFIRMING the right of the State Parties to regulate and to introduce new measures
relating to investments in their territories in order to meet national policy objectives
and taking into account any asymmetries with respect to the measures in place, the
particular need of developing countries to exercise this right;
SEEKING an overall balance of the rights and obligations among the State Parties, the
investors, and the investments under this Agreement;”.
55) Art. 1(3): “‘Investment’ Investment means an enterprise within the territory of one State
established, acquired, expanded or operated, in good faith, by an investor of the other
State in accordance with law of the Party in whose territory the investment is made
taken together with the asset of the enterprise which contribute sustainable
development of that Party and has the characteristics of an investment involving a
commitment of capital or other similar resources, pending profit, risk-taking and
certain duration.”

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 56) “Article 13. Investment and Environment
(1) The Parties recognize that their respective environmental laws policies and
multilateral environmental agreements to which they are both party, play an
important role in protecting the environment.
(2) The Parties recognize that each Party retains the right to exercise discretion with
respect to regulatory, compliance, investigatory, and prosecutorial matters and
to make decisions regarding the allocation of resources to enforcement with
respect to other environmental matters determined to have higher priorities.
(3) The Parties recognize that each Party undertakes to respect and observe the
social responsibility owed to the other Party.
(4) Nothing in this Agreement shall be constructed to prevent a Party from adopting
maintaining, or enforcing, in a non-discriminatory manner, any measure
otherwise consistent with this Agreement that it considers appropriate to ensure
that investment activity in its territory is undertaken in a manner sensitive to
environmental and social concerns.”
57) “Article 15. Investment, Labour and Human Rights Protection
(1) The Parties reaffirm their respective obligations as members of the International
Labour Organization (ILO) and their commitments under the ILO Declaration on
Fundamental Principles and Rights at Work and its Follow-up.
(2) The parties recognize that it is inappropriate to encourage investment by
weakening or reducing the protection accorded in domestic labour laws.
Accordingly, each Party shall ensure that it does not waive or otherwise derogate
from or offer to waive or otherwise derogate from its labour laws where the
waiver or derogation would be inconsistent with the labour rights conferred by
domestic laws and international labour instruments in which both are parties are
signatories, or fail to effectively enforce its labour laws through a sustained or
recurring course of action or inaction.
(3) The Parties recognize that it is inappropriate to encourage investment by
relaxing domestic labour, public health or safety. They shall not waive or
otherwise derogate from, or offer to waive or otherwise derogate from, such
measures as an encouragement for the establishment, acquisition, expansion, or
retention in their territories, of an investment.
(5) Each Party shall ensure that its laws and regulations provide for high levels of
labour and human rights protection appropriate to its economic and social
situation, and shall strive to continue to improve these law and regulations.
(6) All parties shall ensure that their laws, policies and actions are consistent with
the international human rights agreements to which they are a Party.”
58) “Article 17. Anti-Corruption
(1) Each Contracting Party shall ensure that measures and efforts are undertaken to
prevent and combat corruption regarding matters covered by this Agreement in
accordance with its laws and regulations.
(2) Investors and their Investments shall not, prior to the establishment of an
Investment or afterwards, offer, promise or give any undue pecuniary or other
advantage, whether directly or through intermediaries, to a public official of the
Host State, or a member of an official's family or business associate or other
person in close proximity to an official, for that official or for a third party, in
order that the official or third party act or refrain from acting in relation to the
performance of official duties, in order to achieve any favour in relation to a
proposed investment or any licenses, permits, contracts or other rights in
relations to an investment.
(3) Investors and their Investments shall not be complicit in any act described in
Paragraph 1 above, including incitement, aiding and abetting, and conspiracy to
commit or authorization of such acts.
(4) A breach of this article by an investor or an investment is deemed to constitute a
breach of the domestic law of the Host State Party concerning the establishment
and operation of an investment.
(5) The States Parties to this Agreement, consistent with their applicable law, shall
prosecute and where convicted penalize persons that have breached the
applicable law implementing this obligation.”

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 59) See AMADO et al., Arbitrating the Conduct of International Arbitrators, supra fn. 9.
Quoting from “Report of the Executive Directors of the International Bank for
Reconstruction and Development on the Convention on the Settlement of Investment
Disputes between States and Nationals of Other States”, para. 13, available at:
<http://icsidfiles.worldbank.org/icsid/ICSID/StaticFiles/basicdoc/partB-
section03.htm> (“‘The Convention [on the Settlement of Investment Disputes between
States and Nationals of Other States of 1965, sometimes known as the Washington
Convention or, more universally, the ICSID Convention] permits the institution of
proceedings by host States as well as by investors and the Executive Directors have
constantly had in mind that the provisions of the Convention should be equally
adapted to the requirements of both cases.’”).
Finding further support for the proposition that the ICSID design did not preclude
claims against the investor from commentary offered by none other than the former
general counsel of the World Bank, Ibrahim Shihata, who wrote: “The ‘balance’ which
pervades the provisions of the [ICSID Convention] is only natural; the system provides
conciliation and arbitration facilities to host States and foreign investors alike, and
the proceedings may be initiated by either party,” id. quoting from. I. F. I. SHIHATA, The
World Bank in a Changing World: Selected Essays and Lectures (M. Nijhoff Publishers
1995) p. 426.
60) Id., p. 13, citing Art. 11 of the Netherlands-Indonesia Agreement on Economic
Cooperation (with Protocol and Exchanges of Letters dated 17 June 1968), signed on 7
July 1968 (entered into force on 17 July 1971), 799 UNTS 13.
61) Id. p. 13, quoting K. VANDEVELDE, Bilateral Investment Treaties: History, Policy and
Interpretation (Oxford University Press 2010) p. 458.
62) AMADO et al, Arbitrating the Conduct of International Investors, supra fn. 9, at p. 1.
63) See id. at pp. 14-16. (“In the case of treaty-born investor-State arbitration, the scope of
a tribunal's jurisdiction is more heavily circumscribed still. As with contractual rights
and obligations falling within the scope of a contractual arbitration agreement, the
scope of a treaty-born tribunal's jurisdiction is often limited to the adjudication of
those rights and obligations enumerated within the treaty instrument itself. Further, in
sharp contrast to a typical bilateral or synallagmatic contract, there is a failure of
mutuality or reciprocity in the treaty model. Where the disputant parties in an
arbitration are not the States party to the treaty, but rather one of those States and an
investor-national of another, the substantive rights typically flow in a singular
direction. The treaty gives rise to obligations in the host State alone, with
corresponding rights arising in the foreign investor. Insofar as any ‘obligations’ might
fall upon the investor, these are typically addressed via rules of admissibility or
jurisdiction. In other words, an investor may face the need to satisfy certain conditions
in order to avail his right to enforce the treaty's substantive guarantees, to gain access
to the arbitration mechanism, but there is no justiciable obligation imposed upon the
investor. The forum often operates as a one-way street. There is thus little prospect
under the text of present investment treaties for host State claims, or indeed even a
host State counterclaim once an investor has elected to launch his own. In the case of
a host State counterclaim lodged in response to an investor's claim which is founded
upon the respondent State's treaty obligations alone, there often prevails a vacuum of
justiciable obligations of the investor. Prospects of any claim by a host State national
are smaller still.”)
64) Id.
65) See id. at Chapter 3, Jurisdiction Ratione Personae: The Foreign Investor; See also
Chapter 2, The Four Models. The authors envision the possibility of granting access to
host states and their nationals or communities via various treaty, contractual, or
municipal legislative instruments with a caution that this might require the
exploration of non-ICSID venues, as a claim by a host state national against the
investor would not involve “a Contracting State” for purposes of ICSID jurisdiction. Two
remedies they propose are to either make the home state a guarantor of the investor's
obligations, or to have the host state espouse the claims of its nationals, as in the old
saying “whoever ill-treats a citizen indirectly injures the State”. Id. at pp. 23-24, 42-55.
In their words, “[w]here a foreign investor becomes bound by obligations owing to a
host State national, where such host State national sufficiently assigns a corresponding
claim to the host State, and where the host State then initiates arbitration as
opposable to the investor, there is a dispute between a State and a national of
another State”. Id. at pp. 54-55. For more nuanced models they propose, see id. at pp.
55-66 (what they have labeled the Qui Tam Model, in which a host state national
prosecutes the state's claim as its appointed representative, even in an extreme case
where the state might ultimately oppose the action – this they suggest could be
achieved through domestic rules) and pp. 66-67 (what they have called the Hybrid
Model, where the host state national first assigns his claim to his state (as under the
Espousal Model), and the state thereafter appoints this national as its representative
for the prosecution of the claim (as under the Qui Tam Model)). For a tabular overview
of the models, including cross-references to graphical illustrations, see id. at p. 69,
Table 2.1.

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 66) See Riyaz DATTU, Sonja PAVIC, “Canada Seeks to Reform NAFTA Investor-State Dispute
Settlement Chapter” (23 August 2017). Available at
<www.lexology.com/library/detail.aspx?g=35def3e7-276a-4e78-9b31-e209151a927f>
(last accessed 26 December 2017).
67) See TPP Investment Chapter, Art. 9.19. (“2. When the claimant submits a claim pursuant
to paragraph 1(a)(i)(B), 1(a)(i)(C), 1(b)(i)(B) or 1(b)(i)(C), the respondent may make a
counterclaim in connection with the factual and legal basis of the claim or rely on a
claim for the purpose of a set off against the claimant.”)
68) See TPP, definition of terms (“investment authorisation means an authorisation that
the foreign investment authority of a Party grants to a covered investment or an
investor of another Party”).
69) See TPP, definition of terms: (“investment agreement means a written agreement that
is concluded and takes effect after the date of entry into force of this Agreement
between an authority at the central level of government of a Party and a covered
investment or an investor of another Party and that creates an exchange of rights and
obligations, binding on both parties under the law applicable under Article 9.25.2
(Governing Law), on which the covered investment or the investor relies in establishing
or acquiring a covered investment other than the written agreement itself, and that
grants rights to the covered investment or investor…”).
70) See TPP, Art. 9.25.
71) See TPP, Art. 9.25(2) (“2. Subject to paragraph 3 and the other provisions of this Section,
when a claim is submitted under Article 9.19.1(a)(i)(B) (Submission of a Claim to
Arbitration), Article 9.19.1(a)(i)(C), Article 9.19.1(b)(i)(B) or Article 9.19.1(b)(i)(C), the
tribunal shall apply: (a) the rules of law applicable to the pertinent investment
authorisation or specified in the pertinent investment authorisation or investment
agreement, or as the disputing parties may agree otherwise; or (b) if, in the pertinent
investment agreement the rules of law have not been specified or otherwise agreed: (i)
the law of the respondent, including its rules on the conflict of laws; and (ii) such rules
of international law as may be applicable.”)
72) As it is common knowledge by now, TTIP seeks to establish a court of first instance
(TTIP, Art. 9) and an appeals court (TTIP, Art. 10) to replace the existing ISDS
mechanism. This is an area of current debate but the aspect that is most related to the
topic counterclaims is the identification of the parties. The definitional and other
relevant sections recognize only three possible parties: the Claimant, the Respondent,
a third party called non-disputing Party, which is always the home state of the
investor. No other party is anticipated. See TTIP, at definition of terms: (“‘disputing
parties’ means the claimant and the respondent; ‘claimant’ means an investor of a
Party, as defined in Article 1 of Chapter X (General Provisions), which seeks to submit or
has submitted a claim pursuant to this section, either (a) acting on its own behalf; or
(b) acting on behalf of a locally established company which it owns or controls. The
locally established company shall be treated as a national of another Contracting
State for the purposes of Article 25(2)(b) of the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States of 18 March 1965
(ICSID-Convention). ‘Non- disputing Party’ means either the United States, when the
respondent is the European Union or a Member State of the European Union; or the
European Union, when the United States is the respondent. ‘Respondent’ means either
the United States; or in the case of the European Union, either the European Union or
the Member State of the European Union concerned as notified pursuant to Article 5.”).
73) TTIP, Art. 2 (“1. The provisions of this section shall not affect the right of the Parties to
regulate within their territories through measures necessary to achieve legitimate
policy objectives, such as the protection of public health, safety, environment or
public morals, social or consumer protection or promotion and protection of cultural
diversity. 2. For greater certainty, the provisions of this section shall not be interpreted
as a commitment from a Party that it will not change the legal and regulatory
framework, including in a manner that may negatively affect the operation of covered
investments or the investor's expectations of profits.”).
74) See AMADO et al, Arbitrating the Conduct of International Investors, supra fn. 9, at
Chapter 1, The Legal Landscape.
75) See CETA, Arts. 8.27 and 8.28. Canada is also reportedly advocating for a similar ICS
approach in the ongoing NAFTA negotiations. See Riyaz DATTU, Sonja PAVIC, “Canada
Seeks to Reform NAFTA Investor-State Dispute Settlement Chapter” (23 August 2017).
Available at <www.lexology.com/library/detail.aspx?g=35def3e7-276a-4e78-9b31-
e209151a927f>.

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 76) See Ethan LOU, “TransCanada's $ 15 billion U.S. Keystone XL NAFTA Suit Suspended” (28
Feb. 2017) available at <www.reuters.com/article/us-canada-pipeline-
lawsuit/transcanadas-15-billion-u-s-keystone-xl-nafta-sui...> (“TransCanada Corp
(TRP.TO) has suspended a $ 15 billion NAFTA suit filed against the United States over
the Keystone XL pipeline, the company said on Tuesday, after US President Donald
Trump approved the project last month.”) See also Valerie VOLCOVICI, “Environmental
Groups Sue Trump Administration for Approving Keystone Pipeline” (30 March 2017).
Available at <www.reuters.com/article/us-usa-pipeline-keystone-
lawsuit/environmental-groups-sue-trump-administrati...> (“In two separate filings to a
federal court in Montana, environmental groups argued that the U.S. State
Department, which granted the permit needed for the pipeline to cross the Canadian
border, relied on an ‘outdated and incomplete environmental impact statement’ when
making its decision earlier this month.”) An American subsidiary of the Canadian
Company, TransCanada Keystone Pipeline had also initiated its own lawsuit against
the Obama administration challenging the President's authority to stop the project on
environmental grounds. See TransCanada Keystone Pipeline, LP and TC Oil Pipeline
Operations Inc. Plaintiffs, v. John F. Kerry, complaint available at
<www.chamberlitigation.com/sites/default/files/cases/files/16161616/Complaint%20-
-%20Transcanada%20Ke...> (last accessed on 26 December 2017).
77) See Draft BIT Text, Art. 14.11. The matters that give rise for counterclaims are violations
of Art. 9 (obligations against corruption), Art. 10 (disclosure), Art. 11 (taxation), and Art.
12 (compliance with laws of host state).
78) See Draft BIT Text, Art. 14.11.
79) See Draft BIT Text, Art. 13:
“13.1 Without prejudice to the jurisdiction of the Courts located in the Host State,
Investors and its Investments shall be subject to civil actions for liability in the
judicial process of their Home State for the acts, decisions or omissions made in
the Home State in relation to the Investment where such acts, decisions or
omissions lead to significant damage, personal injuries or loss of life in the Host
State.
13.2 The Home State shall ensure that their legal systems and rules allow for, or do
not prevent or unduly restrict, the bringing of court actions on their merits before
their domestic courts relating to the civil liability of Investors and Investments
for damages resulting from alleged acts, decisions or omissions made by
Investments or Investors in relation to their Investments in the territory of the
Host State.”
80) PAIC, Art. 43. But note that under Art. 41, PAIC itself does not extend a standing offer of
arbitration to the investor. Presumably, some other instrument would express the
state's consent. (“1. Member States may, in line with their domestic policies, agree to
utilize the Investor-State dispute settlement mechanism. In the event that the
Investor-State dispute settlement mechanism is agreed upon, the process below shall
apply….”)
81) See AMADO et al, Arbitrating the Conduct of International Investors, supra fn. 9, at pp.
42-55 (The Espousal Model).
82) Israel-Japan BIT, Art. 24(12).
83) Nigeria-Morocco, Art. 20. Note that the other two Nigerian BITs (with Singapore and
UAE) concluded within months of the Nigeria-Morocco BIT do not contain this
particular access to the home state's judicial process provision. See generally, Nigeria-
Singapore, and Nigeria-UAE BITs.
84) Iran-Slovakia BIT, Art. 14.The remainder of this provision reads:
“4. The UNCITRAL rules on transparency in treaty-based investor-State
arbitration shall apply to any international arbitration proceedings
initiated against the Slovak Republic pursuant to this Agreement. The
Islamic Republic of Iran shall duly consider the application of the UNCITRAL
rules on transparency in treaty-based investor-State arbitration to any
international arbitration proceedings initiated against the Islamic Republic
of Iran pursuant to this Agreement. Nothing in this Agreement or the
applicable arbitration rules shall prevent the exchange of information
relating to a dispute between the European Union and the Slovak Republic
or vice versa.”
85) Given the first sentence of this provision, it could also be viewed as a jurisdictional
defense. (“2. For avoidance of doubt, an investor may not submit a claim under this
Agreement where the investor or the investment has violated the Host State law.”)
86) See AMADO et al, Arbitrating the Conduct of International Investors, supra fn. 9, at
Chapter 1, The Legal Landscape.
87) See, e.g., Mukhisa KITUYA, Secretary-General of the UNCTAD, “Key Messages in World
Investment Report 2016: Investor Nationality: Policy Challenges”, at p. xiii. Available at
<http://unctad.org/en/PublicationsLibrary/wir2016_en.pdf> (“The blurring of investor
nationality has made the application of rules and regulations on foreign ownership
more challenging…. About one third of ISDS claims are filed by claimant entities that
are ultimately owned by a parent in a third country (not party to the treaty on which
the claim is based.”).

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 KluwerArbitration

Document information
Private and Public Interest in International Commercial
Publication Arbitration
Evolution and Adaptation: Andrés Jana Linetzky
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference The topic of this Panel is whether there is a need to reform international commercial
arbitration in response to legitimacy concerns that have arisen. That requires addressing
Andrés Jana Linetzky, what are those legitimacy concerns, and whether a reform is required to address them. As
'Private and Public Interest was discussed in the Plenary Session on what legitimacy challenges lie ahead for
in International Commercial international arbitration, (1) legitimacy concerns in investment arbitration have received
Arbitration', in Jean significant attention. The voices that have raised these legitimacy concerns have focused
Engelmayer Kalicki and on what they perceive as an inappropriate structure of the current system to properly
Mohamed Abdel Raouf (eds), address the strong presence of public interest in such disputes. Emphasis is put on the fact
Evolution and Adaptation: that investment arbitration constitutes a form of adjudication of public international law.
The Future of International
Arbitration, ICCA Congress In the case of international commercial arbitration, criticism comes mostly from the user,
Series, Volume 20 (© Kluwer as explained in Laura Abrahamson's article, (2) in particular with respect to matters of
Law International; cost, efficiency and information. In contrast to investment arbitration, the presence of
International Council for public interests so far has not created major issues as to its legitimacy. Private interests
Commercial are considered to be predominant in commercial arbitration, whereas public interests
Arbitration/Kluwer Law appear to be rather exceptional.
International 2019) pp. 317 - This distinction between public and private interests is the standard traditionally used in
332 legal systems to decide whether a matter belongs to the realm of public or private law. In
this context, (international) commercial arbitration is seen as an exercise of freedom of
contract where private interests prevail: two parties freely agree to resolve their legal
dispute before a tribunal formed by private citizens, excluding the jurisdiction of domestic
P 317 courts. As a result, party autonomy is the basic principle on which arbitration is based.
P 318 With very few exceptions, parties are free to decide, among other things, how
arbitrators will be selected, the rules of arbitration, the seat of arbitration and the law that
will govern the dispute.
Nonetheless, international commercial arbitration also engages with concurring public
interests, which may lead to tension with its predominantly private nature: for instance,
the definition of what is considered arbitrable; what limitations public interest may
impose on the parties in the exercise of their private autonomy; the extent to which courts
are allowed to intervene in arbitral proceedings, and how much deference courts should
give to the decisions of arbitral tribunals. These are all questions that arise in the context
of commercial arbitration, and that arbitral tribunals and courts are struggling to answer,
both domestically and internationally.
Even though the tension between private and public interests has always been part of
commercial arbitration, various factors are pressing for an increased recognition of public
interests. The enhanced importance of transparency in modern society; the widespread
participation of state entities in commercial arbitration; the blurred distinction between
purely private and public interests; the possibility for arbitrators to decide in matters of
public interest, among others, are all factors that are making it more difficult to maintain
the traditional view pursuant to which international commercial arbitration belongs to the
private sphere of the parties and hence is controlled mostly by their interests.
This paper aims to explore the central question of this panel – how could or should
commercial arbitration adapt in light of these legitimacy concerns? – from the perspective
of the public and private interests concerned in commercial arbitration and how such
interests may enter into tension: in particular, how this tension may have an impact on the
understanding of arbitration and its traditional features.
For this purpose, it will first address some of the traditional sources of tension between
public and private interests: in particular, the determination of arbitrability and public
order. Later, it will deal with some of the new challenges that have arisen as a consequence
of the presence of public interest, to determine if such challenges demand that
international commercial arbitration needs to adapt aspects of its traditional private
character.

II Traditional Sources of Tension Between Public and Private Interests

in Arbitration
1 Traditional Categories of Tension

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 Law has always had to deal with a tension between private and public interests.
Notwithstanding the classification of an area of law as private, law has an inherently public
nature, as it is aimed at maintaining peace and facilitating collaboration. (3) Accordingly,
the tension between public and private interests is present in almost every field of law,
P 318 although in different degrees, and subject to different solutions. For instance, contract law
P 319 has to deal with the protection of consumers, establishing solutions to address abusive
clauses and offering remedies for breaches which differ from its traditional approach. (4)
International commercial arbitration is rooted in the logic of private law: party autonomy
is the main principle, reinforced by the principle of limited intervention of courts. (5)
Throughout the evolution of arbitration, some states have imposed several restrictions on
arbitration agreements, (6) and arbitrators and parties alike experienced judicial and
legislative hostility towards arbitration. (7) Such hostility lasted – in general terms – until
the twentieth century, when states started adopting conventions on arbitration, (8) while
also establishing procedures and an institutional framework to facilitate arbitration. (9)
Although a positive evolution of a state's disposition towards arbitration can be easily
identified, it remains true that almost all states have maintained some restrictions,
excluding certain matters from the competence of arbitral tribunals. Such restrictions are
usually aimed at protecting the public interest, in the understanding that such interest
cannot be subject to private dispute mechanisms.
Additionally, even in the most liberal and pro-arbitration states, arbitration still requires,
and remains dependent on, the acquiescence of such state. The general framework and
organization provided by a particular state to recognize and give effect to arbitration may
be categorized as public. (10) States need to give deference to arbitral awards, and most
P 319 importantly, allow individuals the possibility to submit their disputes to private
P 320 arbitration. (11) Additionally, international commercial arbitration – either if rooted
under national legal systems or in a transnational legal order (12) – constitutes a system
belonging to a public sphere.
Two traditional categories of tension between public and private interests are the
determination of what is arbitrable and the compatibility of the arbitral award with public
order. These two categories are useful for identifying basic concerns regarding public
interest and international commercial arbitration.
The first step in the analysis of arbitration is the determination of what is arbitrable, as
some matters are considered to be incapable of resolution by arbitration. (13) This
concerns the doctrine of non-arbitrability.
Traditionally, the definition of arbitrability was associated with public interest: it was
considered that a dispute was non-arbitrable if it went beyond the individual interests of
the parties and concerned public interests (e.g., disputes requiring the application of
competition laws, disputes connected with criminal conduct, disputes related to
insolvency proceedings, among others). (14) Arbitrability was allowed in matters which
were considered to be subject to the parties' freedom of contract. (15)
Consequently, the non-arbitrability doctrine was based on the idea that some matters
involving public rights or interests of third parties required resolution by the judicial
hierarchy of the state, so that agreements to resolve such disputes by “private arbitration”
should not be given effect. (16) In other words, this notion of non-arbitrability was
grounded upon the old notion that some categories of disputes, if not subjected to the
control of the state itself, may go against sovereign dignity (17) or public interest. (18)
A variation of the non-arbitrability doctrine went even further, stating that the damage
that private arbitration may cause constitutes a ground to dismantle arbitration
altogether, for the protection of the public interest. (19)
P 320
P 321
In more recent years, the scope of the non-arbitrability doctrine has changed. (20) National
courts have increasingly abandoned their traditional distrust of arbitral proceedings and
have reaffirmed the vital role of private autonomy, especially when it comes to
international commercial matters. (21) Pursuant to this new trend, public interest and non-
arbitrability are no longer synonyms: if a certain dispute concerns public interest or
requires the application of public law rules, it does not automatically mean that it is non-
arbitrable. (22) Further, the presumption in respect of arbitration has radically changed: it
is generally recognized that non-arbitrability is an exception to the general rule of
arbitrability.
The lack of substantial correlation between arbitrability and public interest is to be noted.
The restrictions of arbitrability that are more relevant today do not deal with public
interest, but are more related to the origin of arbitration: due to its contractual nature,
arbitration cannot affect third parties that are outside the scope of the arbitration
agreement. (23) In this sense, the limitation on arbitrability in insolvency disputes is
justified by the fact that the resolution of this type of claim can be more efficiently
achieved by collective litigation proceedings, where the parties may appear before the
same court, thereby eliminating the risk of contradictory awards. (24)
Despite the existence of some limitations, the scope of what can be considered arbitrable
is notably more comprehensive today than it was before. Therefore, disputes arising from

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 economic activities involving public interest may be resolved by arbitral tribunals,
including private-law enforcement of competition rules, claims related to illegal actions,
disagreements concerning intellectual property rights, among others. (25) In this sense, the
scope of arbitration has expanded to include new topics that may involve matters of
public interest.
Another traditional source of tension between private and public interests in arbitration is
related to the possibility of arbitrators to rule on matters of public order. (26) This general
category encompasses matters that are mandatory, and that accordingly, are not to be
disposed or modified by the parties' agreement.
P 321 As a preliminary matter – and as has been anticipated – it should be noted that authors
P 322 currently differentiate between arbitrability and public order. The fact that a certain
matter is arbitrable does not necessarily mean that it does not involve matters of public
order. Arbitrability and public order cover two different aspects. (27)
Public order constitutes a clear manifestation of the tension between private and public
interest in arbitration. While international commercial arbitration is fundamentally based
on the parties' autonomy, public order provides mandatory rules that restrict such
autonomy.
That explains why some authors considered that matters of public order were actually
excluded from arbitration. (28) However, nowadays, most scholars agree that the arbitrator
may make determinations on mandatory laws, and such determinations should not be
subject to revision by state courts. (29) As put forward by Paulsson, “if arbitrators were
powerless to make such decisions, any respondent could readily defeat any attempt to
arbitrate by raising a spurious defense said to involve public policy”. (30)
Other authors have adopted a position that further protects private interest – even
surpassing public interest, arguing that if the parties intended on a mandatory rule to be
excluded, the arbitrator should respect that will, as the parties could have easily chosen a
different law which did not contain such provision. (31) In that sense, the only limitation to
the parties' autonomy would be transnational public order – which may not be excluded
by any choice of law provision, and which would encompass basic ethical standards and
the enduring moral consensus of the international business community. (32)

2 Mechanisms for Addressing the Traditional Tension

As stated previously, the traditional tension between public and private interest has been
generally resolved in favor of arbitration. That explains why matters excluded from
arbitrability have been reduced, expanding the scope of arbitration, while at the same
time, allowing arbitral tribunals to decide on matters of public order.
This deference that states have shown towards arbitration is also reflected in the limited
grounds under which an arbitral award can be annulled, and in a similar manner, the also
limited grounds for denial of recognition and enforcement of such awards.
P 322
P 323
The United Nations Commission on International Trade Law Model Law on International
Commercial Arbitration (UNCITRAL Model Law) and the 1958 New York Convention, the two
main pillars of the normative architecture of international commercial arbitration, (33)
recognize such exceptionality. (34) These basic principles of both texts confirm the view of
their drafters that international commercial arbitration is mostly governed by and
intended to serve private interests. (35)
However, at the same time, the fact that both the New York Convention and the UNCITRAL
Model Law recognize non-arbitrability and public order as grounds (either for the
application to set aside or to deny enforceability), confirms that the drafters understood
the need to protect public interest in arbitration, even if such protection may be applied
only when the tribunal is dealing with “serious departures from fundamental notions of
procedural justice”. (36) It is in this sense that public order has been invoked – and
accepted by tribunals – only in cases of clear violations of fundamental and mandatory
legal rules. (37)
P 323
P 324
Under the influence of this “normative architecture”, national courts around the world have
upheld such basic principles. Latin America is a good example, having changed its attitude
towards arbitration, from hostility to acceptance.
Indeed, after the extensive application of the Calvo Doctrine during the nineteenth and
twentieth century, pursuant to which foreign investors could only make claims before the
national courts of the state where the investment was made, Latin American states have
shifted their traditional hostility towards arbitration, mostly since 1990. (38) Several Latin
American states have adopted the UNCITRAL Model Law, (39) expanding arbitration to
areas of public interest, (40) and the general trend nowadays is that national courts may
not use an application to set aside an award as an excuse to reopen the case and evaluate
the merits of the decision. (41)
However, the tension between private and public interests in commercial arbitration
becomes apparent by the fact that when courts depart from this framework, they justify

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 their intervention based on the presence of public interest. This shows that,
notwithstanding that this framework theoretically represents the worldwide consensus as
to the standards of international commercial arbitration, public interest constitutes a
permanent source of risk for unjustified judicial intervention.
Again, Latin America serves as an example. The use of domestic constitutional claims –
Amparos – against arbitral decisions (42) contravenes the special framework of arbitration
that provides for a single recourse against arbitral awards: the request for setting aside.
Such use is also problematic, considering that the application to set aside already
includes a ground that deals with public interest, which is precisely the reference to public
order. In this sense, using constitutional claims to allege transgressions of due process may
jeopardize the appropriate balance between public and private interests envisaged in
such framework, by granting state courts an excessive power to review arbitral awards. (43)
P 324
P 325

III New Sources of Tension Between Public and Private Interests in

Arbitration
1 New Sources of Tension
Against this general framework, new sources of tension have arisen. The concerns of civil
society, the internationalization of economic relations, the private presence in matters of
public interest, the worldwide demands for transparency, and the increasingly blurred line
between what is private and what is public, create an increased pressure for addressing
public concerns in areas traditionally considered of the exclusive interest of private
parties. This has been the case with law in general, and is also the case with commercial
arbitration where new forms of tension are present.
These changes in society, the expansion of arbitrability well beyond the traditional
contractual dispute that concerns only the two parties involved, and the participation of
state entities in commercial arbitration are sources of new tensions. Accordingly, in the
present day, arbitral tribunals deal with an extensive list of matters in which the public
interest involved is direct. (44)
Professor Stephan Schill mentions five main factors that explain the significant
development and large-scale social significance of commercial arbitration: (i) the
reorientation from ad hoc to institutional arbitration; (ii) the broadening of the subject
matter of disputes that are resolved through arbitration; (iii) the territorial expansion of
arbitration, now, of global reach; (iv) the participation of specialized law firms and
experienced actors and the proliferation of arbitration as a mechanism for settlement of
disputes; and, (v) a convergence of how arbitration is practiced worldwide. (45) All these
factors have affected arbitration and have given rise to new sources of tension between
private and public interests.
Expressions like transnational legal order or the universal character of arbitration (46) point
to the fact that arbitration needs to have a broader view of the interests at stake. In the
words of Professor Schill, this broader social impact has brought to the fore challenges to
international arbitration giving rise to a question of international arbitration's legitimacy.
(47)
Another effect of the expansion of arbitration as a dispute resolution mechanism is that
the participation of state entities now constitutes a common feature of international
commercial arbitration. (48) This has forced arbitrators, accustomed to dealing with
private parties, to address public interests that are relevant to the dispute. Statistics
P 325 published by the International Chamber of Commerce (ICC) show that 15.4 percent of the
P 326 arbitral proceedings initiated in 2017 involved a state or state entity as party. (49) In the
past years, the ICC commissioned a Task Force on Arbitration Involving States and State
Entities to consider the need to amend its rules to reflect this new reality, and finally
prepared a Report, (50) acknowledging that states – and state entities – have certain
peculiarities when it comes to arbitration, and that arbitration mechanisms must adapt to
address them. Nevertheless, as the result of the ICC Task Force shows, the perceived
required changes to the rules in the presence of a state or state entities were few, with
none of the changes altering any fundamental aspect of the ICC Rules. (51) This outcome
shows an interesting feature of the participation of states or state entities in commercial
arbitration, which is that such entities, by choosing to enter into international commercial
arbitration agreements, to a large extent, adapt their public interest to the predominant
private-interest nature of commercial arbitration.
Other cases, without the involvement of state entities, may also reflect an increased
presence of public interests, although in an indirect manner. This is the case in disputes
relating to natural resources or public works, or even consumer (52) or labor disputes. (53)
Additionally, the development of arbitration as a global system to resolve disputes that
requires predictability and certainty may also bring the issue of a broader interest
involved in the disputes that may go beyond the individual interest of the parties: an
interest that concerns the arbitration system as a whole. In other words, the notable
success of commercial arbitration as a means for resolving disputes has led authors to
characterize it as a transnational legal order: (54) an order that goes beyond individual

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 states and to some extent beyond individual disputes.
P 326
P 327
The question then is does this increased presence of public interest justify the adoption of
reforms in commercial arbitration, or are the current features of the system well suited to
absorb them?
As has been mentioned, the public interest is more direct and specific in cases where the
state or state entities are a party to a contract that goes to commercial arbitration, as is
the case with public works, concessions for public services, government procurement or
contracts for the exploitation of natural resources. Taking the findings of the ICC Task Force,
only a few changes were required. Interestingly, the Task Force did not consider that
transparency was an area where change was required due to the presence of a public
entity. (55)
This brings me to the particular area where a discussion for a need of reform in commercial
arbitration has taken place: the need for increased transparency in commercial
arbitration. (56)
This discussion is not specific to commercial arbitrations where a state or state entity is a
party, but is relevant for commercial arbitration as a whole. In particular the debate has
been focused on confidentiality and the publication of awards: specifically, the tension
between the private interest of the parties in having the dispute resolved with secrecy and
the public interest in having access to the result of such arbitration. In the words of Ben
Juratowitch “… international commercial arbitration is now a major forum for the resolution
of disputes that impact on those other than the parties to them….
There are therefore compelling reasons for people to be increasingly concerned about the
fact that it is to a substantial degree happening in secret.” (57)
To address this debate, it is useful to refer first to transparency in investment arbitration,
and then turn to the issue of confidentiality. During the discussion in UNCITRAL about the
adoption of transparency rules for investment arbitration, the justification for adopting
such rules was that in investment arbitration there was a public interest that went beyond
the interest of the parties involved in the dispute. It was also repeatedly stated that this
was a feature that distinguished investment arbitration from commercial arbitration,
where such interest was not present in the same form. Such argument does not seem very
convincing. As a general matter, it is true that all arbitration investment cases have a
direct public interest and that in commercial arbitration such an interest does not always
exists. But cases where a state entity is involved may have a similar if not bigger public
interest. It will not be long before similar demands for transparency will be made with
respect to commercial arbitration where states or state entities are involved. This does not
constitute the so-called spill-over effect of investment arbitration on commercial
arbitration, but the necessary acknowledgment of the same strong public interest in both
types of cases.
P 327
P 328
In this regard, it is interesting to note that certain countries that have accepted arbitration
as a mechanism to resolve contract disputes between state entities and private parties,
have established certain requirements of publicity to the arbitration. This is the case, for
example, of a recent reform to Arbitration Law in Brazil that made arbitrations that involve
public administration subject to the principle of publicity. (58)
Confidentiality is generally considered to be one of the most important features of
commercial arbitration. (59) A survey conducted in 2015 by Queen Mary University of
London shows that 33 percent of those consulted considered “confidentiality and privacy”
as one of the three most valuable characteristics of international arbitration. (60) Another
survey conducted in 2016, specific to technology, media and telecommunications disputes,
shows that 60 percent of those consulted consider that confidentiality is a “very important”
feature of international arbitration. (61) Indeed, it is common ground to mention
confidentiality as one of the benefits of arbitration, (62) useful for parties that wish to
avoid their conflict being in the public domain or accessible to the media, competitors or
third parties in general. (63)
There is no single solution to this matter, but in most places commercial arbitrations are
mostly confidential most of the time. Countries like the United Kingdom and France
recognize an “implied” duty of confidentiality in arbitration. (64) In turn, Australia has not
recognized such presumption: In a notorious case – Esso Australia – the High Court of
P 328 Australia found that confidentiality should not be considered an essential attribute of
P 329 private arbitration. (65) In turn, Brazilian law establishes that public-private arbitration
would be subject to a principle of publicity. (66) In a more radical provision, Chilean
arbitrators are obliged, under an old provision of the Organic Code of Tribunals – to submit
a copy of their entire case file to the Judicial Archive. (67) As for international instruments,
the UNCITRAL Model Law makes no reference to confidentiality or transparency, while Art.
22 of the ICC Rules on Arbitration provides the possibility for the tribunal to make orders
concerning confidentiality – without establishing a general rule; Art. 34 of the UNCITRAL
Arbitration Rules (as revised in 2010) refers to the possibility to publish awards with the
consent of the parties; (68) and Art. 30 of the London Court of International Arbitration

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 Rules (of 2014) imposes a general duty of confidentiality of the entire arbitration.
Notwithstanding these different approaches, in most places commercial arbitrations are
mainly confidential most of the time. In spite of this lack of uniformity, as was mentioned,
the prevailing view is that confidentiality is a core element of commercial arbitration
However, considering the development of arbitration, and particularly the increased
participation of state entities, several authors recognize that a “public interest” exception
may apply in international commercial arbitration, which would serve to mitigate the rule
of confidentiality, (69) and have even gone further, to support a default rule of publicity of
awards. (70) Other authors have emphasized the importance of confidentiality in
arbitration, but still have recognized that the duty of confidentiality is subject to
qualifications or exceptions. (71) Additionally, authors recognize that the principle of
confidentiality in commercial arbitration “could not stand in the way of a statutory duty to
publish the relevant information”. (72)
The underlying question is how to find the right balance. It is clear that there is a
P 329 requirement for more information, in particular for the benefit of the users as Laura
P 330 Abrahamson's paper shows, (73) which explains why the ICC has adopted certain
measures, such as the publication of the composition of the arbitral tribunals. (74) When
state entities are involved, the answer in some of the cases is simpler, considering the
existence of statutory duties of transparency of such entities. (75) But the more difficult
question is whether duties of transparency may be imposed on commercial arbitration, for
the benefit of the potential users but also in light of a public interest present in the
arbitration. This is especially relevant when the public interest may be indirect – for
instance, arbitrations in which the state is not directly involved, but which concern
activities developed with public funds, or with a public purpose.
More generally, as Ben Juratowitch argues:
“[I]nternational commercial arbitration …. is a forum in which claims of
corruption of public officials and of breaches of competition law are made and
decided, in which States and State-owned entities are routinely parties, and in
which large swathes of commercial law, including concerning standard form
commercial contracts, are applied….” (76)
It is not questionable that transparency may provide benefits, which are not novel to
arbitration: accountability, protection of due process, higher degree of trust and
acceptance of arbitration. (77) Transparency may also help to develop arbitral
jurisprudence. (78) The question is whether transparency will come as an unacceptable
cost for the parties. It seems compelling that the developments in arbitration require
acknowledging that arbitration has evolved into a widespread forum for the resolution of
disputes that have relevance not only for the parties involved. That being the case, a
balance needs to be found: the precise balance between transparency and confidentiality,
between private and public interests.

2 Have These New Sources of Tension Affected the Traditional Features of

Arbitration?
The new demands for transparency may be seen as clashing with the parties' interest in
confidentiality, which as explained, is a traditional feature of arbitration. In this matter, it
is worth mentioning that in 2014, UNCITRAL adopted Rules on Transparency for Treaty-
based Investor-State Arbitration. As its name confirms, such rules are not applicable to
international commercial arbitration. The question then is whether the rationale – or part
of it – that justified its adoption in investment arbitration may also be present in
commercial arbitration. Are there grounds to extend some of these rules to international
commercial arbitration, especially taking into consideration the increased participation of
state entities? This is relevant, as the main justification to impose these duties of
P 330 transparency was the fact that, in investment arbitration, public interests were involved.
P 331 There are several instances in international commercial arbitration where that
assertion is also applicable. But in that case, what should be the scope of transparency?
(79) Most of the voices favoring transparency in commercial arbitration have focused on
the publication of the final awards.
Can this tension between public and private interests affect arbitration's legitimacy as has
been the case with investment arbitration? Arbitration is a mechanism of dispute
settlement that competes with national courts; therefore the worldwide success of
arbitration and its expansion make competition a matter that raises serious potential
issues, (80) especially when national courts are also making efforts to become more
attractive to resolve commercial disputes. (81)
A system of adjudication of disputes must be concerned with the perception of its users in
terms of legitimacy, but also before the overall framework in which it operates. To that
end, international commercial arbitration needs to find a way not only to properly resolve
the private interest of the parties but also to strike a balance with the public interest
present in the dispute. As the question of confidentiality vs. transparency portrays, this
poses a challenge to our traditional understanding of arbitration and its function.
To this date, it is not clear how this tension between the traditional features of arbitration

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 and the new pressures coming from the appearance of public interests should be dealt
with. A change in the paradigm of commercial arbitration as a system of disputes based on
the autonomy of the parties is not required. Arbitration can incorporate these new
manifestations of public interest while maintaining its inherently private nature. Moreover,
the inherent flexibility of arbitration derived from the parties' autonomy allows for the
inclusion of specific arrangements by participants in arbitrations where the public interest
has a stronger presence, as is the case when a state or state entity decides to enter into an
arbitration agreement. On the other hand, commercial arbitration has to recognize its
public dimension, and that the increased relevance of such a public dimension requires
due attention to its legitimacy as a global mechanism for resolving disputes.

IV Conclusion
The question for the panel is whether international commercial arbitration should be
reformed to respond to legitimacy concerns. This paper proposes that such a question
should be addressed by analyzing the traditional tension between public and private
interests in international commercial arbitration.
So far, commercial arbitration has been successful in dealing with this public interest with
its traditional tools of arbitrability and public order.
P 331
P 332
International commercial arbitration is now facing new challenges. Some of them are
coming from external sources such as the legitimacy allegations against investment
arbitration, and others are, in a certain manner, a consequence of the incredible success of
international commercial arbitration and its expansion to new areas that demand actors
to take into consideration public interest, in both, a strict sense – when state entities are
directly involved– but also in a broad one – when the dispute between private parties may
have impact on others.
Considering its extraordinary expansion, international arbitration needs to address
possible concerns that the increased presence of public interests raised, both in specific
cases but also in its function as a worldwide system of dispute resolution.
It was suggested at the ICCA 2014 Congress in Miami that the more universal arbitration
becomes the more customized it will be for responding to the concerns of specific users.
This makes sense: arbitration should not function as a Procrustean bed. As has been
mentioned, the ICC's concern for developing special rules for arbitration involving States
or state entities is also reflected in arbitration legislation of countries such as Brazil or
Peru.
The new developments in international arbitration demand finding a balance between the
respect of what is considered to be fundamental and constitutive of arbitration, and the
acceptance of the changes that are required to consider the presence of public interests in
the dispute.
The debate about the need for increased transparency in commercial arbitration is a good
example of the new forms of tensions that commercial arbitration is facing and the need to
address them.
As was said, commercial arbitration, as a system of adjudication of disputes requires an
ongoing assessment of any possible legitimacy concerns from its users and more broadly
from those who have control over the normative structure that permits its functioning.
P 332

References
*) Andrés Jana L: Partner at Bofill Mir & Álvarez Jana Abogados (Santiago, Chile); Professor
of Law Universidad de Chile. This article was prepared with the collaboration of
Catalina Fernández Carter, associate at Bofill Mir & Álvarez Jana Abogados.
1) See this volume, pp. 23-149.
2) Laura ABRAHAMSON, “Costs, Delay and Transparency – A Comment on Continued
Legitimacy Concerns from the User's Perspective”, this volume, pp. 354-360.
3) Enrique BARROS, “Lo público y lo privado en el derecho”, 81 Estudios Públicos (summer
2001) p. 7.
4) Notwithstanding this tension, authors recognize that the protection of consumers is
still within the realm of contract (and thus, private) law. See Enrique BARROS, Tratado
de Responsabilidad Extracontractual (Editorial Jurídica, Santiago 2007) p. 244. See also
AT&T v. Concepcion, 563 US 333 (2011), a divided US Supreme Court decision on
whether the Federal Arbitration Act prohibited States from conditioning the
enforceability of certain arbitration agreements on the availability of class wide
arbitration procedures.
5) The principle of party autonomy is, for instance, recognized in Art. 19 of the UNCITRAL
Model Law on International Commercial Arbitration (1985, as amended in 2006), while
the limited intervention of courts is established in Art. 5.

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 6) Gary B. BORN, International Commercial Arbitration, Vol. I (Kluwer Law International
2009) p. 38.
7) Ibid., p. 40.
8) See for instance: Hague Convention of 1899 on Pacific Settlement of Dispute; Hague
Convention of 1907 on Pacific Settlement of International Disputes; Geneva Protocol of
1923, Geneva Convention of 1927; New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (1958); European Convention on International
Commercial Arbitration (1961); ICSID Convention (1966), Inter-American Convention on
International Commercial Arbitration (1975); Inter-American Convention on
Extraterritorial Validity of Foreign Judgements and Arbitral Awards (1979), and several
bilateral investment treaties (BITs).
9) UNCITRAL Model Law on International Commercial Arbitration (1985), with
amendments as adopted in 2006. As of this writing, 80 states have adopted the Model
Law, constituting a total of 111 jurisdictions. See
<www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_stat
us.html>.
10) Enrique BARROS, “Lo público y lo privado en el derecho”,. 81 Estudios Públicos (summer
2001) p. 8.
11) Indeed, as has been recognized, “[s]hould they so desire, states can simply legislate to
contract the boundaries of arbitrability, or deny it altogether”. See Andrew
BARRACLOUGH and Jeff WAINCYMER, “Mandatory Rules of Law in International
Commercial Arbitration”, 6 Melbourne Journal of International Law (2005, no. 2).
12) Emmanuel GAILLARD, “Transcending National Legal Orders for International
Arbitration” in International Arbitration: The Coming of a New Age?, ICCA Congress Series
no. 17 (2013) p. 371
13) Gary B. BORN, op. cit., fn. 6, p. 767.
14) Klára DRLIČKOVÁ, “Arbitrability and Public Interest in International Commercial
Arbitration”, 17 International and Comparative Law Review (2017, no. 2) p. 58.
15) See, for instance, in Spain, Art. 2 of Law 60 of 23 December 2003; in Peru, Art. 2 of
Legislative Decree 1071 of 1 September 2008, and in Costa Rica, Art. 37 of Law 8937 of 27
April 2011.
16) Gary B. BORN, op. cit., fn. 6, p. 768.
17) Loukas A. MISTELIS, and Stavros L. BREKOULAKIS, Arbitrability: International &
Comparative Perspectives (Kluwer Law International 2009) p. 6.
18) Accordingly, Courts often argued that “public law issues are too complicated for
arbitrators; that arbitration proceedings are too informal; or that arbitrators are like
foxes guarding the chicken coop, with a pro-business bias that will lead to under-
enforcement of laws designed to protect the public”. See William W. PARK, “National
Law and Commercial Justice: Safeguarding Procedural Integrity in International
Arbitration”, 63 Tulane Law Review (1989) p. 647.
19) See Heinrich KRONSTEIN, “Arbitration is Power”, 38 New York University Law Review
(1963) pp. 699-700:
“Arbitration is power, and courts are forbidden to look behind it. The
protection of awards against judicial interference, and, under that
umbrella, of the development of organized arbitration as a rule-maker have
established ‘judicial powers’ other than those provided by federal and
state constitutions. It is not possible to maintain any legally established
policy or order in domestic and international trade, whether it is an order
of free competition protected by antitrust legislation or any other type of
economic order provided by law, if courts abdicate their power in favor of
private tribunals serving private interests. American courts are presently
confronted with a conflict with such private courts. In the face of the current
trends in our society, the central concept of a social regime whose exclusive
ordering is the totality of legislative and judicial mandates, has been
weakened by the cession of the law to organized arbitration.”
20) See Stephan SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration”, Amsterdam Law School Legal Studies Research Paper No. 2017-23, p. 8.
21) Gary B. BORN, op. cit., fn. 6, p. 837.
22) Alexis MOURRE, “Arbitration and Criminal Law: Jurisdiction, Arbitrability and Duties of
the Arbitral Tribunal” in Loukas A. MISTELIS and Stavros L.BREKOULAKIS, op. cit., fn. 17,
p. 216.
23) Loukas A. MISTELIS and Stavros L.BREKOULAKIS, op. cit., fn. 17, p 32.
24) Ibid., p. 33.
25) Klára DRLIČKOVÁ, op. cit., fn. 14, p. 69.
26) Although authors have discussed the differences between both, this article will use the
concepts of public order to refer to matters traditionally treated both under public
order (from civil law, under the doctrine of ordre public or orden público) and public
policy (from common law).

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 27) This distinction is, for instance, expressed in the 1958 New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. Indeed, Art. V(2) of the New
York Convention differentiates between awards in which “the subject matter of the
difference is not capable of settlement by arbitration under the law of that country”
(dealing thus, with arbitrability), and awards whose recognition “would be contrary to
the public policy of that country”. In turn, the UNCITRAL Model Law on International
Commercial Arbitration (1985, as amended in 2006) also makes such a distinction. Art.
34(2)(b), regarding the application for setting aside, distinguishes between cases in
which “the subject matter of the dispute is not capable of settlement by arbitration
under the law of this State”, and cases in which “the award is in conflict with the public
policy of this state”. Such a distinction is also recognized in Art. 36 (b) of the Model
Law, regarding the possibility of enforcement.
28) Klára DRLIČKOVÁ, op. cit., fn. 14, p. 58.
29) Jan PAULSSON, The Idea of Arbitration (Oxford University Press 2013) p. 129.
30) Ibid.
31) Yves DERAINS, “L'ordre public et le droit applicable au fond du litige dans l'arbitrage
international”, Revue de l'Arbitrage (1986).
32) Andrew BARRACLOUGH and Jeff WAINCYMER, op. cit., fn. 11.
33) Michael W. REISMAN and Brian RICHARDSON, “The Present: Commercial Arbitration as
a Transnational System of Justice: Tribunals and Courts: An Interpretation of the
Architecture of International Commercial Arbitration” in Arbitration: The Next Fifty
Years, ICCA Congress Series no. 16 (Kluwer Law International 2012) pp. 17-65.
34) Indeed, for instance, the UNCITRAL Model Law establishes the application to set aside
as the only available recourse against arbitral awards, which will be available in
limited cases and provides for exceptional grounds for refusing recognition or
enforcement. Indeed, regarding the grounds that may be invoked (and proved) by the
party that makes the application for setting aside, Art. 34 of the UNCITRAL Model Law
on International Commercial Arbitration (1985, as amended in 2006) includes the
incapacity of one of the parties to the arbitration agreement; the invalidity of the
arbitration agreement; the lack of proper notice to the party making the application of
the appointment of arbitrator or lack of possibility to present its case; the dispute not
contemplated or not falling within the terms of the submission to arbitration, or
containing decisions on matters beyond the scope of the submission to arbitration;
and the composition of the arbitral tribunal or the arbitral procedure in violation of
the agreement of the parties. As for the grounds that may be identified by the Court,
the UNCITRAL Model Law includes: the subject matter of the dispute is not capable of
settlement by arbitration under the law of this state; or the award is in conflict with
the public policy of this state. The list is almost identical to the one contained in the
New York Convention (See Art. V of the 1958 New York Convention on the Recognition
and Enforcement of Foreign Arbitral Awards), and was prepared in an attempt to
harmonize international arbitration legislation and to restrict the possibility for state
tribunals to intervene. See Explanatory Note by the UNCITRAL Secretariat on the
Model Law on International Commercial Arbitration, p. 35:
“Some outdated laws on arbitration, by establishing parallel regimes for
recourse against arbitral awards or against court decisions, provide various
types of recourses, various (and often long) time periods for exercising the
recourse, and extensive list of grounds on which recourse may be based.
The situation (of considerable concern to those involved in international
commercial arbitration) is greatly improved by the Model Law, which
provides uniform grounds upon which (and clear time periods within which)
recourse against an arbitral award may be made.”
35) In a similar sense, explaining the view that sees arbitration as a “private normative
order”, see Stephan SCHILL, op. cit., fn. 20, pp. 17-19.
36) Ibid., p. 35.
37) In other words, “not in cases of judicial disagreement with a tribunal's substantive
decisions or procedural rulings”. Gary B. BORN, op. cit., fn. 6, p. 2625.
38) Andrés JANA, “International Commercial Arbitration in Latin America: Myths and
Realities”, 32 Journal of International Arbitration (2015, no. 4) p. 421.
39) Chile, Costa Rica, Dominican Republic, Guatemala, Honduras, Jamaica, Mexico,
Nicaragua, Paraguay, Peru and Venezuela. See
<www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_stat
us.html> for an updated list. Additionally, for a list of the relevant legislation adopted
by Latin American countries, see: Mario CASTILLO, et al., “El arbitraje en la experiencia
latinoamericana”, Revista de la Facultad de Derecho de la Pontificia Universidad
Católica del Perú (2008, no. 61).

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 40) For instance, Colombia has incorporated arbitration agreements in several contracts
celebrated by the state. The only limitation is that the arbitrator must decide
according to the law, and not ex aequo et bono. In the same sense, in 2004 Brazil
adopted Law 11.079 which allowed public entities to participate in arbitrations, and on
2005 adopted Law 11.196 which also permitted arbitration for disputes regarding
public concessions. For further details, see Marjorie CÁRDENAS, “El arbitraje en las
concesiones de obras públicas: ¿Fortalecimiento de la posición del Estado en el sistema
de solución de controversias?”. Master of Laws thesis, Pontificia Universidad Católica
de Chile (2013) pp. 104-110.
41) Andrés JANA, op. cit., fn. 38, p. 427.
42) Ibid., pp. 428-432.
43) This phenomenon of presenting constitutional challenges against arbitration – and
therefore the risk it envisages – has also developed in other countries. See Stephan
SCHILL, op. cit., fn. 20, pp. 14-16.
44) These matters even include disputes arising out of the state's exercise of regulatory
powers. See Stavros BREKOULAKIS, “The Protection of the Public Interest in Public
Private Arbitrations”, Kluwer Arbitration Blog (8 May 2017)
<http://arbitrationblog.kluwerarbitration.com/2017/05/08/the-protection-of-the-
publicinterest-in-publ...>.
45) Stephan SCHILL, op. cit., fn. 20, pp. 8-9.
46) Jan PAULSSON, 2012 Alexander Lecture at the Chartered Institute of Arbitrators
<www.ciarb.org/conferences/alexander-lecture-1/>.
47) Stephan SCHILL, op. cit., fn. 20, pp. 8-9.
48) Bernardo M. CREMADES, “La participación de los estados en el Arbitraje Internacional”,
Revista Internacional de Arbitraje (2011).
49) The International Chamber of Commerce has reported a total of 810 new cases in 2017,
which would mean that arbitrations involving states or state entities would correspond
to around 124 cases. Only four of them correspond to arbitration on the basis of a BIT.
See <https://iccwbo.org/media-wall/news-speeches/icc-announces-2017-figures-
confirming-global-reach-leadi...>.
50) See “ICC Commission Report: States, State Entities and ICC Arbitration” (2017).
Available at: <https://iccwbo.org/publication/arbitration-involving-states-state-
entities-icc-rules-arbitration-rep...>.
51) Indeed, the result of the Task Force was the introduction of minor amendment of
certain provisions of the ICC Rules, for instance: Art. 1, which used to refer to “business
disputes” and was changed to “disputes”; Art. 6 concerning possible objections to the
extension of an arbitration agreement; Art. 13 regarding the appointment of
arbitrators; the incorporation of the term “impartiality” in Arts. 11 and 14; among
others. Other amended rules referred exclusively to investment arbitration.
52) See Stephan SCHILL, op. cit., fn. 20, p. 14. See also Julia A. SCARPINO, “Mandatory
Arbitration of Consumer Disputes: A Proposal to Ease the Financial Burden on Low-
Income Consumers”, American University Journal of Gender Social Policy and Law
(2002, no. 3).
53) Stephan SCHILL, op. cit., fn. 20, p. 14, regarding the widespread practice of using
arbitration as a mechanism for settling disputes in labor matters. In contrast, Chilean
law only recognizes an arbitration proceeding in the Labor Code (Arts. 385-398), in the
context of collective bargaining with the employers, but not as a mechanism to solve
disputes between the employer and the employee.
54) See Emmanuel GAILLARD, op. cit., fn. 12, p. 373. Authors who support this position state
that arbitration transcends legal orders, constituting a different system (the “arbitral
legal order”). This does not mean that national legal systems are excluded, but that
“the arbitral process no longer hinges on the particularities of the national order of the
seat of the arbitration or elsewhere”.
55) See “ICC Commission Report: States, State Entities and ICC Arbitration” (2017). The
Report included minimum references to transparency, maintaining a rule of
confidentiality but referring to the possibility for the parties to agree on transparency.
It was also established that the ICC Rules were capable of accommodating to eventual
demands for transparency.
56) See Ben JURATOWITCH, “Departing from Confidentiality in International Dispute
Resolution”, Seminar on 8 June 2017 in London on Difficult Issues in Commercial,
Investor-State, and State-State Dispute Resolution: Differences and Commonalities, p.
8.
57) Id., pp. 9-10.
58) Brazilian Law No 13.129 of 26 May 2015. Art. 2, Third Paragraph. Also the Peruvian
Arbitration Act in its Art. 51 orders the publication of arbitral awards in the arbitrations
where the Peruvian State intervenes.

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 59) Gary. B. BORN, op. cit., fn. 6, p. 87. In a similar sense, Stephen Bond, a former ICC
Secretary General, stated:
“It became apparent to me very soon after taking up my responsibility at
the ICC that the users of international commercial arbitration … place the
highest value upon confidentiality as a fundamental characteristic of
international commercial arbitration … the fact that these proceedings and
the resulting award would not enter into the public domain was almost
invariably mentioned.”
See Stephen BOND, “Expert Report in Esso/BHP v. Plowman”, 11 Arbitration
International (1995, issue 3).
60) Queen Mary University of London and White & Case, “2015 International Arbitration
Survey: Improvements and Innovations in International Arbitration”.
61) Queen Mary University of London, International Dispute Resolution Survey “Pre-
empting and Resolving Technology, Media and Telecoms Disputes” (2016).
62) Bernardo CREMADES and Rodrigo CORTÉS, “The Principle of Confidentiality in
Arbitration: A Necessary Crisis”, 23 Journal of Arbitration Studies (2013, no. 3), pp. 25-38.
63) Avinash POOROOYE,and Ronán FEEHILY, “Confidentiality and Transparency in
International Commercial Arbitration: Finding the Right Balance”, 22 Harvard
Negotiation Law Review (spring 2017) p. 275 at p. 278.
64) Ibid., p. 279.
65) See Esso Australia Resources Ltd v. Plowman [1995] HCA, 19. In a similar sense, in
Commonwealth v. Cockatoo Dockyard Pty Ltd, the Court of Appeal of New South Wales
established that there could not be accepted that private agreement may exclude,
from the public domain, matters of legitimate public concern. Commonwealth v.
Cockatoo Dockyard Pty Ltd [2007], HCA.
66) See Brazilian Law No 13.129 of 26 May 2015. Art. 2, Third Paragraph of the law
establishes that “Arbitration that involves public administration will always be at law
and be subject to the principle of publicity”.
67) See Art. 455 of the Chilean Organic Code of Tribunals.
68) It is interesting to note that Costa Rica adopted the UNCITRAL Model Law almost
verbatim, with a few departures from its original text. One of these changes is the
requirement that arbitral awards shall be made public. See Arbitration Law of Costa
Rica Law No. 8937 of 27 May 2011, Art. 38.
69) Yves FORTIER, “Arbitrating in the Age of Investment Treaty Disputes”, 31 The University
of Southern Wales Law Journal (2008, no. 1) p. 8. See also Patrick NEILL, “Confidentiality
in Arbitration”, 12 Arbitration International (1996, no. 3) p. 312.
70) See Ben JURATOWITCH, op. cit., fn. 56, p. 8.
71) See Patrick NEILL, op. cit., fn. 69, p. 290: consent, compulsion of law, disclosure by
leave of the court and disclosure necessary for the purposes of protecting the
legitimate interest of an arbitrating party. Seminar on 8 June 2017 in London on
Difficult Issues in Commercial, Investor-State, and State-State Dispute Resolution:
Differences and Commonalities.
72) Ibid., p. 312.
73) Laura ABRAHAMSON, op. cit., fn. 1.
74) See <https://iccwbo.org/media-wall/news-speeches/icc-begins-publishing-arbitrator-
information-in-drive-fo...>.
75) Ibid., p. 62.
76) See Ben JURATOWITCH, op. cit., fn. 56, p. 9.
77) Avinash POOROOYE and Ronán FEEHILY, op. cit., fn. 63, p. 285.
78) Ibid., p. 303.
79) For instance, the UNCITRAL Rules on Transparency in Treaty-based Investor-State
Arbitration establish, in Art. 3, that certain documents will be made available to the
public in certain cases.
80) Some authors have referred to international commercial arbitration as a “system of
governance”, and state that such system raises questions of legitimacy, especially
considering the exercise of functions that affect third-parties that are not involved in
the arbitration, impacting social expectations. See Stephan SCHILL, op. cit., fn. 20, p.
11.
81) See the Jill Pool Memorial Lecture, “Keeping Commercial Law Up to Date” by Lord Chief
Justice of England and Wales, the Lord Thomas of Cwmgiedd. Aston University (8 March
2017).

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 KluwerArbitration

Document information
Commercial Arbitration and the Development of Common
Publication Law
Evolution and Adaptation: Noradèle Radjai
The Future of International (*)
Arbitration
I Overview
Bibliographic reference Recent years have seen concerns raised about the increasing use of arbitration and its
potential hindrance on the development of common law. The criticism across the common
Noradèle Radjai, law world is essentially that the growth of arbitration and the subsequent ebbing of court
'Commercial Arbitration and decisions are freezing doctrinal development. (1)
the Development of Common
Law', in Jean Engelmayer Some critics have gone so far as declaring arbitration responsible for “the end of law”. (2)
Kalicki and Mohamed Abdel Most recently, the Lord Chief Justice of England and Wales, Lord Thomas, fueled the debate
Raouf (eds), Evolution and with a controversial speech which called for an urgent rebalancing of the relationship
Adaptation: The Future of between courts and arbitration, accusing arbitration of turning the common law into “an
International Arbitration, ossuary”. (3) Another critic has lamented that: “Arbitration is retreating into its lair,
ICCA Congress Series, Volume dragging with it into the darkness the very cases that should be used to develop the
20 (© Kluwer Law common law as it applies to modern commerce”. (4)
International; International P 333
Council for Commercial P 334
Arbitration/Kluwer Law This paper will explore these criticisms of the legitimacy or reach of commercial
International 2019) pp. 333 - arbitration and assess how commercial arbitration should adapt in light of these
353 legitimacy concerns, by exploring the following questions:
(1) Does commercial arbitration hinder the development of common law?
(2) If so, does this hindrance render commercial arbitration any less legitimate?
(3) If so, how should commercial arbitration adapt?

II Does Commercial Arbitration Hinder the Development of Common

Law?
It is broadly accepted that arbitration is today the most common means of resolving
international commercial disputes. In particular, international arbitration has become the
method of choice for dispute resolution in certain industries when operating in a cross-
border context, such as major construction projects, insurance and reinsurance, and the oil
and gas industry. (5) Because arbitration proceedings are often confidential, (6) it is
difficult to cite numbers to support these assertions. A renowned German international
arbitration scholar, has stated that 90 percent of international economic contracts have an
arbitration clause. (7) Even if this may be an exaggeration, (8) data from the major
international arbitration institutions show a steady growth in the number of disputes they
P 334 administer. (9) In the survey conducted by the Queen Mary University of London and White
P 335 & Case in 2015, 90 percent of the respondents stated arbitration to be the preferred
dispute settlement method for cross-border commercial disputes. (10) Therefore, it cannot
be denied that arbitration is the primary means of resolving disputes. (11) It follows that
this has led, in turn, to a diversion of commercial disputes away from commercial courts.
This diversion of disputes away from the courts is further compounded by the broadening
scope of arbitrability, for instance over consumer and employment disputes. (12)
Many of these disputes that are being channelled away from commercial courts are
governed by common law. On the latest available statistics from the International
Chamber of Commerce (ICC), it would appear that English law and New York alone are the
most frequent choices of law. (13) In 2014 English law as a choice of law was in first place
with 14.1 percent, followed by US law. (14) It follows therefore that these cases, were they
not being diverted to arbitration, would be heard before the courts of the common law
jurisdictions. So, it seems logical to conclude that the increase of arbitrations is removing
from the state courts cases that might otherwise contribute to the development of
common law.
In England, the most recent and vocal proponent of this criticism, Lord Chief Justice
Thomas, argues that by taking place behind closed doors, arbitration undermines the
“means through which much of the common law's strength – its ‘excellence’ was
developed…”. It also “retards public understanding of the law” and “public debate over its
application”. (15)
P 335 In the United States, arbitration, mainly domestic, has been under attack for being
P 336 “confidential affairs shielded from public view and decided by arbitrators who do not
write precedential decisions”. (16) The lack of stare decisis in arbitration has been the

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 reason to suggest that arbitration does not generate law, and by stripping the courts from
the caseload consequently leads to the “end of law”. (17) The prohibition of class action
after the judgments of AT&T Mobility v. Concepcion (18) and American Express Company v.
Italian Colors Restaurant, (19) has resulted in assertions that “entire classes of claims” are
evicted from the public justice system, and that “arbitration … fundamentally precludes
the common law development”. (20) Even arbitration practitioners refer to the “dearth of
precedent”. (21)
In Australia, similar problems have been reported about fewer cases reaching the courts,
which “has the effect of stunting the development of the common law” in certain legal
fields, such as construction, where arbitration is preferred. (22)
Thus, the criticism that arbitration is stunting the development of common law is, to
varying degrees, shared across the common law world.
Many have protested against the criticism at this juncture, by referring to the fact that
there are still many cases before the courts that contribute to the development of common
law. (23) Indeed, 25.7 percent of the cases commenced in 2015 before the Commercial Court
P 336 were arbitration-related claims. (24) Furthermore, statistics from the Ministry of Justice
P 337 indicate that over 1,100 cases per year are heard by the commercial courts. (25) In 2015
the Ministry of Justice indicated that the caseload of the commercial courts was on the
rise. (26)
It is not only arbitration practitioners and scholars that have rallied against these
criticisms, (27) but also other judges. Sir Bernard Eder states that “the common law
continues to develop at a pace with a constant stream – indeed flood – of cases over a
wide area of jurisprudence”. (28) Lord Woolf has also been reported to say that the courts
retain a sufficient workload to develop the common law in commercial matters. (29) As
noted by Griffiths QC: “The Courts have had enough time to develop the common law and
still do so with plenty of opportunity to further refine the principles of common law which
have been there for centuries.” (30)
One could also argue that the rise of popularity of arbitration in England, Singapore,
Australia, etc. brings with it a tide of popularity for these jurisdictions including for their
state courts – the notion that increased competition brings with it increased business.
Ultimately, however, the weight of these arguments will always be questionable, against
the undeniable fact of the diminishing caseload of commercial courts relative to
arbitrations. Also undeniable is that new case law is required for common law to be able to
adapt to and respond to developments in markets, trade and commerce, including those
associated with globalization and new technologies. (31) Common law relies on precedent
P 337 developed over generations and prides itself on its ability to adapt its principles to
P 338 changes in trade, commerce and the markets. (32) As per the analogy drawn by Justice
McLachlin, Chief Justice of Canada, common law is akin to a living tree: “All areas of law …
are living, constantly evolving trees. Some branches sprout and grow; others crack and
need trimming. Thus, the law develops and remains responsive to changes in society.” (33)
There are numerous examples, across the common law world, of recent cases which have
marked important developments of law. (34) The relatively reduced caseload of
commercial courts must necessarily limit these developments. As put by the Right
Honourable Beverley McLachlin, Chief Justice of Canada in the context of construction case
law: “the tree looks different than it used to. It may not be dead, but new branches are not
appearing as often as they once did. And old branches that need pruning are often
neglected.” (35)
It seems safer to conclude, therefore, that commercial arbitration probably does hinder
the development of common law and that the debate cannot end at this first question.
More importantly, to curtail the debate at this juncture would be a missed opportunity – a
missed opportunity for a candid dialogue with the critics and a missed opportunity at a
potential solution. So rather than deny that arbitration is taking away cases from the
courts and therefore from the development of common law as we know it, it is preferable
to tackle the issue at the more crucial juncture: what does this hindrance of the common
law mean for the legitimacy of commercial arbitration and should we do anything about it?

III Does the Hindrance of Common Law Development Make Commercial

Arbitration any Less Legitimate?
The outcome of any debate about legitimacy will be influenced by how broadly or narrowly
P 338 the concept is defined. An analysis of the concept of legitimacy falls outside the scope of
P 339 this paper and has already been explored by many before me, including at the ICCA
2014 Congress. (36) This paper will therefore build on the commendable work on this
subject that has already been done.
The dominant perception of arbitration is that it constitutes a jurisprudential system that
provides the “legal infrastructure” for the settlement of private disputes. (37) This is of
course undeniable. What is, however, the nature of this quasi-judicial system? Depending
on the answer, the standard of its legitimacy changes.
If, for instance, arbitration is understood as an entirely private normative order, whose

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 existence derives solely from the will of its users, (38) then its legitimacy is also inferred by
the party autonomy of the disputing parties only, since their acceptance of the system is
what creates it.
However, such a perspective fails to take into consideration “the effects of international
arbitration on non-users”. (39)
Over recent years, arbitration has undergone a transformation from a purely private
mechanism of dispute resolution into an institution of governance, through a multitude of
factors. This phenomenon began in the field of investment arbitration but is by no means
limited to it.
It is by now indisputable that investment disputes involve issues that pertain to public
interests. (40) As explained by Professor Schill, the normative effects of arbitration “go
beyond the realm of the disputing parties and have important repercussions on
recalibrating social relations, and the rights connected to them, both private and public”.
(41)
The same can be argued, albeit to a lesser extent, in the context of commercial arbitration
P 339 where certain developments have contributed to its transformation into an institution of
P 340 governance. The first factor is the role of a state in its commercial capacity as jure
gestionis. (42) When a state participates in a commercial contract, it does so in its private
capacity. (43) However, even where the party to the contract is a state-owned entity, it is
still plausible that government officials signed the contract. (44) Moreover, a state-owned
entity is possibly exercising governmental authority, such that it deals with matters closely
linked to the public interests, especially in the fields of energy, construction or
telecommunications; an arbitral tribunal, in turn, will potentially have to deal with matters
arising out of the state's exercise of regulatory powers. (45) Consequently, the effect of the
contract, and disputes resolved under it, will not be confined to the contracting parties.
(46)
For instance, if a state-owned company that is in charge of energy-related policies in the
country enters into a contract with a foreign company for the installation of photovoltaic
panels, the two companies will not be the only affected parties. The population of the
state will also be affected, because they will have access to new sources of renewable
power; but also this project may be funded through their taxes, and if the project fails they
will also have to bear the consequences indirectly. Through this simple example, we see
that even with commercial arbitration, the pool of persons affected can be wider than just
the users or stakeholders.
The ever-increasing scope of arbitrability, noted above, also broadens the group of people
directly or indirectly affected by arbitral decisions. (47) The authority of arbitral tribunals
has expanded greatly, resulting in a wide range of cases being adjudicated by them, cases
which in the past belonged in the realm of public law and courts. (48) Most recently, for
example, the US Supreme Court decision in Epic Systems v. Lewis upheld mandatory
individual labor arbitration agreements. (49) A commentator observes that “the scope of
rights amenable to arbitration has grown to such an extent that, the concept of
arbitrability (or its mirror image, inarbitrability) as central as it may be to arbitration
theory, has virtually died in real arbitral life”. (50)
P 340
P 341
Such a development, it goes without saying, has had crucial implications for other actors,
outside the margins of commercial arbitration. Commercial tribunals, through dealing with
such issues, have an impact on other parties, unrelated to the specific dispute. Therefore,
it becomes apparent that international commercial arbitration is no longer confined
within the margin of the parties' autonomy, but has an increased social impact
transcending the disputing parties.
Furthermore, the increase of institutional arbitrations has led to a standardization and
consolidation of the arbitral procedure, with institutions and associations organizing
conferences, trainings and seminars for the promotion of arbitration. (51)
This function of arbitration, of developing rules and an arbitration culture, reflects the
transformation of arbitration from a dyadic mechanism of dispute settlement to a system
of global governance.
As such, arbitration is no longer a plain mechanism of private dispute settlement, where
party autonomy remains the single concern, but arbitration has grown to become a means
of decision-making, a system that provides transnational norms that affect many more
than just the disputing parties. (52)
Such a concept of arbitration, though, leads to the conclusion that the parties to the
disputes are not the only actors in arbitration, and their perspective is not the only one to
consider. The interests involved in the disputes go beyond the individual interest of the
parties, to “an interest that concerns the arbitration system as a whole”. (53) The standard
of legitimacy for arbitration must therefore evolve, also in the commercial realm, for the
simple reason that arbitration has evolved into a system of governance impacting on
social spheres beyond the disputing parties, and for this reason its legitimacy cannot
derive solely from the consent of the latter.

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 That assessment may not be shared by all, however, and for the purpose of this discussion,
the answer to the question before us – namely whether the hindrance of common law gives
rise to a legitimacy concern for commercial arbitration – may be the same regardless of
the standard of legitimacy adopted.
Generally speaking, we can consider a focused notion of legitimacy, looking at the interests
of the stakeholders, usually the parties themselves, or what Professor Schill referred to in
his seminal paper, as party or community legitimacy. (54) Or we can consider legitimacy
from the perspective of a broader population – per Professor Schill's categories, this would
be national or global legitimacy. (55)
P 341
P 342
Taking first the broader notions of legitimacy: from a national interest perspective, the
hindrance of the development of common law in any particular jurisdiction must be
viewed as contrary to those interests. This is true whether we view the issue from the
perspective of state courts whose mandate is to develop the law, from the perspective of
parties to commercial court cases who will have expectations of how common law
develops, or from the perspective of the public at large whose interest is to be governed
by a law that evolves and adapts in line with its programmed path.
From a global perspective, we could argue that the stifling of the evolution of common law
is not inconsistent with the interests of the population at large, since they may refer to
other legal systems to govern their relationships. However, few people would disagree that
the stifling – or death, taken to its extreme – of an entire system of law, is not a desirable
outcome, not least a system which forms the basis of almost one third of the world's 320
legal jurisdictions. (56) As Lord Thomas puts it, this hindrance undermines the very means
through which much of the common law's strength was developed. (57)
Even the civil law world is not unaffected by this stifling. While more poignant in common
law systems which base their development on binding precedent, civil law systems also
develop by reference to cases, even if these are not binding precedent. (58) Even the
reliance by civil law courts on doctrine and scholarly articles is necessarily curtailed by
the limited access to cases also for the purpose of commentary. Seen from this light, there
can be little doubt that legitimacy issues arise from the global and national perspectives.
Taking a more focused notion of legitimacy, which examines the issue from the perspective
of the parties or the arbitration community, one could argue that the courts and law are
there to serve the public, not the other way around. (59) Stakeholders of commercial
arbitration, the parties, care about one thing: their own commercial advantage. Few
commercial parties will be interested in acting altruistically in the interest of the wider
P 342 industry or the development of the common law as a whole. (60) If parties choose to
P 343 resolve their disputes in arbitration rather than before commercial courts, and as a
result the law is less developed, that is the parties' choice. In terms of legitimacy, one
could argue that there is thus no incoherence between the parties' choices and the
outcome. However, this is perhaps overly simplistic: when parties choose English or
another system of common law to govern their contracts, they do so with certain notions of
what that system of law represents. At the very least those notions must include an
assumption that the parties are referring to a system of law which evolves and adapts with
jurisprudence over time. If this aspect of common law is being limited by commercial
arbitration, then the legitimacy question must at least arise, even when seen from the
perspective of users, the principal stakeholders.
So, whichever concept of legitimacy is adopted, there is a more or less strong argument to
be made against commercial arbitration's legitimacy by virtue of its impact on the
development of law.
Moreover, whether we put on them the label of legitimacy or not, these concerns are
certainly enough to require us to consider the third and final question – how should
commercial arbitration adapt to these concerns?

IV How Could or Should Commercial Arbitration Adapt to These

Concerns?
1 The Proposal to Limit the Scope of Arbitration
Let us first examine the solution presented by the critics: their proposed solution is to
revise arbitration legislation to restrict the scope of arbitration and increase the scope of
court's jurisdiction over commercial disputes. (61) Lord Chief Justice Thomas contemplates
a revision of the English Arbitration Act 1996 to allow for more appeals from arbitration to
the courts, or to encourage a greater use of Sect. 45 of the Arbitration Act to enable the
courts to make judgments on points of law that arise during the arbitral proceedings
(before the award is rendered). (62) Essentially, the proposed solution is to force parties to
return to litigation to ensure the continued development of law.
But a solution that seeks to override party autonomy strikes at the heart of legitimacy.
Parties surely do not opt for arbitration, only to be returned to the state courts. (63) The
development of the law is not of primary concern to parties; if it were, they could elect to
go to the courts directly. On the contrary, the limitation of the referral to courts from

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 arbitration cases has evidently increased the number of cases going to arbitration. By
P 343 electing arbitration as their method of dispute resolution, the parties have agreed to
P 344 accept the decision of their chosen tribunal instead of that of the court. What an English
(or other national) court would have decided is of no concern to these parties. (64) Parties
use arbitration to resolve their disputes, not to add to the body of common law. And it is
undeniable that the courts should serve the public, not the other way around. (65)
The absurdity of the proposed approach is aptly illustrated by the response of Lord Devlin,
when confronted with the opposers of the initial curtailing of the right of appeal under the
1979 English Arbitration Act: “The next step would, I suppose, be a prohibition placed on
the settlement of cases concerning interesting points of law.” (66)
There is no legitimate reason why international (or English) parties should be put to the
expense and delay occasioned by appeals to the courts in the name of the development of
common law. (67) Indeed, while the critics accuse arbitration of not living up to its billing
when it comes to time and costs, (68) a topic covered by the paper of Laura Abrahamson at
this ICCA Congress, (69) the proposal to increase the scope of the courts' intervention in
arbitration cases would only compound those concerns. (70)
The proposed solution would moreover not serve its purpose: if parties are actively
choosing arbitration over courts, then a system that sends them back to the common law
P 344 courts will only likely alienate them also from arbitration in common law jurisdictions,
P 345 further compounding the problem of the dearth of precedent in the common law. As it
is, the English Arbitration Act is in the minority in that it upholds the appeals mechanism, a
provision that does not exist in most other arbitration jurisdictions. Even common law
judges accept that the critics' proposed approach would “[set] the clock back almost 40
years”. (71)
The development of the common law before courts cannot depend on, or call for, the
regression of arbitration. Instead a solution must be found which recognizes courts and
tribunals as “mutually supportive parts of what is a developing system of international
commercial dispute resolution”, (72) and which builds upon the place that arbitration
holds today – while enabling the courts to perform a mandate which in a strict sense can
be performed by them and them only. (73)

2 A Solution Based on Greater Interaction Between Courts and Tribunals

It is a fact that many parties today refer their large international disputes to arbitration. If
arbitration is hindering the development of common law, or even national law generally, to
the detriment of its legitimacy, then we must develop a solution which taps into the
lawmaking potential of arbitration.
a Body of decisions produced by arbitral tribunals (or “lawmaking” for the bold)
It cannot credibly be denied that a body of law is developing through arbitral awards, even
if there may continue to be – in the words of Lucy Reed – “persistent objectors”. (74)
P 345 Indeed, there was a time when even English judges tried to pretend that they did not make
P 346 new law – they merely declared it. (75) As Lord Reid put it in 1972, the “fairy tale” was
that common law was hidden in an Aladdin's cave and judges were given the magic
password on appointment. (76)
In the investment arbitration world, a “de facto doctrine of precedent” is by now a given,
which, as Professor Paulsson puts it, “can only be denied by those determined to close
their eyes”. (77)
In the realm of commercial arbitration, the expected development of “a formation of a
free-standing body of law responsive to the needs of international commerce” (78) has
been somewhat slower by virtue of the limited publication of awards. (79) Nonetheless,
arbitrators can and do perform a lawmaking function. (80) It is accepted that between
tribunals, awards, while not being binding precedent, may constitute persuasive
precedent: “past solutions have some impact on the thinking of arbitrators having to
resolve future cases”. (81) The arbitrators develop normative rules that may not be binding
but they influence future awards.
In other words, international arbitrators strive, as they must, (82) to be consistent with past
decisions of other tribunals so as to meet commercial parties' legitimate expectations for
their disputes to be resolved in a consistent fashion. These propositions are echoed by the
Chief Justice of Singapore Sundaresh Menon, who recognized that the international
commercial arbitration framework has begun a process leading towards a formation of a
“free-standing body of law responsive to the needs of international commerce”. (83)
P 346
P 347
In practice we can see this in the formation of a body of law in certain industries, for
instance a so-called lex petrolea in oil and gas industry and lex sportiva in sports. These
laws have been developed though the development of a group of principles that are
considered standard practices in the respective industries, and hence widely accepted by
them. (84) It may be true that arbitral decisions only rarely refer back to previous
decisions. (85) But in a context where a limited pool of players are involved, whether as
counsel or arbitrator, it is inevitable that prior decisions influence subsequent ones,

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 whether they are expressly referred to or not (86) – thus leading to an emergence of a
certain approach to certain issues. Indeed, when a party appoints any given arbitrator on
the basis of her prior expertise, that party accepts and even expects that the arbitrator
will take into account that prior experience and expertise in rendering her decision. As
summarized by one English law commentator: (87)
“For better or worse, international commercial arbitration is now a major forum
for the resolution of disputes that impact on those other than the parties to
them. It is a forum in which claims of corruption of public officials and of
breaches of competition law are made and decided, in which States and State-
owned entities are routinely parties, and in which large swathes of commercial
law, including standard form commercial contracts, are applied and
developed.”
Thus, if we define lawmaking as being when an award “supplements the corpus of
normative materials that counsel and tribunals will take into account in future
proceedings”, (88) certain commercial arbitration decisions are already making law today.
P 347 Moreover, regardless of whether commercial arbitration decisions could be said to create
P 348 a body of law, these decisions are being rendered, in the hundreds, each year and
access to those decisions could – directly or indirectly depending on the jurisdiction –
assist with the development of law. However we label these decisions, whether lawmaking
or not, they constitute an important source for state courts that could then in turn develop
the law in the strict sense. The debate on lawmaking by tribunals has largely focused on
lawmaking for the reference of parties and tribunals in future arbitrations. There is no
reason why tribunals cannot contribute to lawmaking in a broader sense of the word for
national systems of law as well. (89)
There is even precedent for this development, at least as far as issues of procedure are
concerned, where solutions adopted in past arbitration awards have not only been
considered as precedent by arbitrators but also by national courts. (90) There is no reason
why awards cannot form persuasive precedent also on matters of national law; as
explained by Alexis Mourre: “The assumption that reference to arbitral precedents would
not be conceivable with respect to substantive issues in presence of choice of law clause is
therefore incorrect.” (91)
b More systematic publication of arbitral decisions
The only way to enable this valuable interaction between arbitral tribunals and the courts,
for the furtherance of the law, is to engage in a more systematic publication of commercial
arbitral awards. Publication would enable parties to refer to such decisions in support of
their arguments before courts, which would then be free to allocate the appropriate weight
to such decisions. The awards would not have precedential value in a strict sense but can
be just as persuasive as other non-precedential material that is used by common law
courts – such as academic articles and court decisions from other jurisdictions. (92) Even
for the civil law realm, greater transparency of arbitral awards would also enable scholars
and practitioners to debate certain issues, which could indirectly also influence the
development of law by national courts.
It may be true that arbitral awards rarely offer insight into legal analysis useful beyond the
P 348 case at hand because the analysis is transaction-focused and fact-specific. (93) But
P 349 arbitrators are rarely presented with contracts that have no governing law and it cannot
be excluded that some make decisions which are founded on their application of that law.
Moreover, and this is hinted at by Lucy Reed in her paper for this Congress, (94) if there
were more systematic publication, the way awards are written and motivated may adapt
in order to provide the allegedly missing analysis.
Most importantly, the law would no longer be “underground”. (95) To the extent companies
are increasingly choosing arbitration over courts, and arbitrators are writing awards on
recurring commercial legal issues, the secrecy of those awards is a loss overall. It is this
consideration that has led to a broader call for publication of commercial arbitral awards,
with some suggesting that the publication of anonymized awards should be the norm. (96)
Others propose that publication should be automatic unless the tribunal decides
otherwise. (97)
In view of the lawmaking potential of commercial arbitration, a more systematic
publication of arbitral awards is also imperative from a legitimacy perspective. As
highlighted by one commentator: (98)
“As more and more international commercial cases go to arbitration rather than
the courts, we are more and more losing sight of the basic feedstock of our
commercial law. In such circumstances, it is in my opinion inevitable that the
public interest is being and will increasingly be damaged as more and more
decisions on areas of commercial law become inaccessible to the public arena.”
Indeed, this problem has been identified also by reference to the visibility of law from
within the arbitration community. In the field of construction, an illustrative example is
the observations Christopher Seppälä has made in relation to FIDIC – International
Federation of Consulting Engineers – contracts. After collecting arbitration awards

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 P 349 rendered in arbitration under FIDIC contracts he found only forty awards. Considering that
P 350 this type of contract has been in use for over fifty years, forty awards is only a small
sample. (99) In the same vein, in relation to oil and gas disputes, it has not been possible
for the courts, especially in the United States, to develop any new precedent. The absence
of it is so stark that the Second Circuit certified questions of contract interpretation for oil
and gas leases to the New York Court of Appeals. (100) Finally, the same can be said for the
excess insurance disputes, especially under the “Bermuda Form”, which calls for the
resolution of disputes by ad hoc arbitration in London, such that that there are almost no
reported decisions on the issue. (101)
A legitimacy concern therefore arises not only with regard to the arrested development of
national laws but also with regard to the exclusion of the public at large from the
development of law that is undoubtedly taking place before tribunals. In certain fields,
such as construction and energy, it is already the case that a practice is developing as to
the way certain matters are being argued before tribunals, which only a small group of
practitioners are privy to. As summarized by Ben Juratowitch QC: “there are a number of
high quality arbitral awards dealing with matters of general interest that very few people
have the benefit of reading”, and that: “There are therefore compelling reasons for people
to be increasingly concerned about the fact that it is to a substantial degree happening in
secret.” (102)
Finally, greater publication of awards is widely expected to enhance not only the
development of arbitral case law but also the quality of arbitration, (103) by resulting in
“greater certainty”. (104) It is broadly accepted by all practitioners and scholars that have
treated this topic, that increased publication will lead to awards being referred to more
P 350 often. (105) And an eminent law professor and arbitrator has stated that the legitimacy of
P 351 commercial arbitration depends on the coherence of published decisions. (106) More
widespread publication of awards would allow broader access to this body of decisions,
thus enhancing commercial arbitration's legitimacy.
c On issues of confidentiality
Of course, the manner and system we adopt for this broader publication of awards would
have to be carefully assessed, also in view of confidentiality concerns. But these are not
insurmountable.
First, there has already begun a shift away from confidentiality in arbitration in recent
years, and not only in the investment realm. The new edition of the ICC Rules, for example,
does not have a default provision on confidentiality. (107) In addition, in recent years,
several national courts have made findings that the country's arbitration law does not
include an express or implied duty of confidentiality. (108) Indeed, there is no unanimity
on the issue of confidentiality across different legal systems. (109) Even in systems which
do integrate notions of confidentiality, parties who arbitrate necessarily accept that the
details of an award may become public due to challenges to courts or through its
enforcement. (110) One notes also that in the investment realm, the increased
transparency has not by and large posed a hindrance to parties. On the contrary,
awareness of public scrutiny may have a positive effect on how the proceedings are
conducted and awards drafted.
P 351
P 352
Second, certain arbitral institutions and associations already publish excerpts of awards in
a redacted form, including the ICC Bulletin, the ICCA Yearbook Commercial Arbitration and
the American Arbitration Association. (111) Indeed, arbitration rules of several institutions
expressly allow the publication of awards under certain conditions. For instance, the Rules
of the American Arbitration Association-International Centre for Dispute Resolution (AAA-
ICDR) allow for the publication of selected awards that became public in the course of
enforcement, (112) while the Rules of the Vienna International Arbitral Centre (VIAC), which
have been revised in 2018, provide for the publication of anonymized summaries or
extracts of awards. (113) According to the Rules of the Swiss Chambers' Arbitration
Institution (SCAI) an award may be published if no party objects to it. (114) The
International Bar Association (IBA) Arbitration Committee has also formed a subcommittee
led by Professor Pierre Mayer with the aim of compiling and analyzing international
commercial arbitration decisions dealing with matters of contract interpretation. (115) In
the field of academia, scholars are also compiling arbitral awards for the purpose of
identifying an evolution in contract law as applied by tribunals. (116)
The publication of awards can also be done in a manner that preserves the confidentiality
of the parties and their business secrets, through a variety of means. Commentators have
suggested, for example, publication of the award only after a certain period has elapsed;
(117) publication limited to only the tribunal's reasoning; (118) and the possibility of
tribunals to exclude publication of certain parts of awards upon hearing the parties. (119)
For instance, the default rule of the applicable arbitration rules could be the publication
of awards in an anonymized version, from which the parties could opt out. (120)
P 352
P 353
There are therefore possible solutions for the publication of arbitral awards which can be
applied in a manner that respects the confidentiality expectations and interests of

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 arbitrations users. And while confidentiality remains an important element, even users
have expressed a growing appetite for the publication of awards. (121)

V Conclusion
The legitimacy of commercial arbitration is undoubtedly under fire for a variety of reasons.
As to the criticism regarding the development of common law, commercial arbitration
probably does have an impact and it is only with the more systematic publication of
awards that we can effectively respond. These latest calls for publication from the common
law world may thus be the cue to finally take this long-heralded next step in the journey of
commercial arbitration – a step which may also address some of the broader legitimacy
challenges being faced by arbitration today.
P 353

References
*) Noradèle Radjai: Partner in the international arbitration team at LALIVE, specializing
in commercial and investment arbitration in the energy, telecommunications and
construction sectors; member of the Steering Committee of the International Bar
Association Arbitration 40 Subcommittee (IBA Arb 40) as well as a member of several
other professional associations, namely the London Court of International Arbitration
(LCIA), the Chartered Institute of Arbitrators (CIArb), the British Institute of
International and Comparative Law (BIICL), the American Bar Association and Arbitral
Women. The author would like to thank Nicole Chalikopoulou for her assistance with
this paper.
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Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
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June 2018).
2) Myriam GILLES, “The Day Doctrine Died: Private Arbitration and the End Of Law”, 2016
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International Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. &
Mediation (2015) p. 73 at p. 76.

8
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 12) Stavros L. BREKOULAKIS, “Chapter 14: Systemic Bias and the Institution of
International Arbitration: A New Approach to Arbitral Decision-Making” in Tony Cole,
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16) Myriam GILLES, “The Day Doctrine Died: Private Arbitration and The End of Law”,
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17) Id.
18) AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011).
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University of Illinois Review (2016) p. 409.
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International Arbitration – Could the Cause Also Bring the Cure?”, (2015) 73(7) Yearbook
of Arbitration & Mediation.
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the Common Law – An Australian Point of View”, 33 International Construction Review
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EDER%20AGM%20Keynote...> (last accessed 7 June 2018); J. William ROWLEY QC,
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Commercial Court”, 2016 Commercial Litigation and Arbitration Forum (3 November
2016) p. 7.
25) J. William ROWLEY QC, “Rowley: London Arbitration Under Attack”, GAR Arbitration
Review (16 May 2016). Available at:
<https://globalarbitrationreview.com/article/1036328/rowley-london-arbitration-
under-attack> (last accessed 7 June 2018).
26) J. William ROWLEY QC, “Rowley: London Arbitration Under Attack”, GAR Arbitration
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<https://globalarbitrationreview.com/article/1036328/rowley-london-arbitration-
under-attack> (last accessed 7 June 2018).
27) J. William ROWLEY QC, “Rowley: London Arbitration Under Attack”, GAR Arbitration
Review (16 May 2016). Available at:
<https://globalarbitrationreview.com/article/1036328/rowley-london-arbitration-
under-attack> (last accessed 7 June 2018); Rachel Tan XI'EN, “Essay on Lord Chief
Justice Thomas' 2016 BAILII Lecture”, Singapore Academy of Law (2017) (unpublished).
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ubmission/Tan%20Xi%E2%8...> (last accessed 7 June 2018).
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29) Robert GRIFFITHS QC, “Litigation v Arbitration”, 2016 Speech during the British
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30) Robert GRIFFITHS QC, “Litigation v Arbitration”, 2016 Speech during the British
American Group of Lawyers (BAGOL) Conference (11 May 2016) para. 25.
31) A. STEPHENSON and A. ANDERSSON, “Arbitration: Can It Assist in the Development of
the Common Law – An Australian Point of View”, 33 International Construction Review
(2016, no. 4) p. 413 (Sect. 5).

9
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 32) Lord Chief Justice Thomas, “Developing Commercial Law Through the Courts:
Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
2016 (9 March 2016) p. 2. Available at: <https://www.judiciary.uk/wp-
content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf> (last accessed 7
June 2018); Harris BOR, “Comments on Lord Chief Justice Thomas' 2016 BAILII Lecture
which Promotes a Greater Role for the Courts in International Arbitration”, Kluwer
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<http://arbitrationblog.kluwerarbitration.com/2016/04/11/comments-on-lord-chief-
justice-thomas-2016-b...> (last accessed 7 June 2018).
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Development of the Common Law – An Australian Point of View”, 33 International
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Private Arbitration and the End of Law”, U. Ill. L. Rev. (2016) p. 371 at p. 375 et seq.;
Lord Chief Justice THOMAS, “Developing Commercial Law Through the Courts:
Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
2016 (9 March 2016) p. 5 et seq. Available at: <https://www.judiciary.uk/wp-
content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf> (last accessed 7
June 2018).
35) Justice Beverley MCLACHLIN PC, “Judging the ‘Vanishing Trial’ in the Construction
Industry”, 5 Construction Law International (2010, no. 2) p. 10.
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International Arbitration” in Legitimacy: Myths, Realities, Challenges, ICCA Congress
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37) Stephan W. SCHILL, “Conceptions of Legitimacy of International Arbitration” in David
D. CARON, Stephan W. SCHILL, Abby C. SMUTNY and Epaminontas E. TRIANTAFILOU,
eds., Practising Virtue: Inside International Arbitration (Oxford 2015) p. 106; Amsterdam
Law School Research Paper No. 2017-17; Amsterdam Center for International Law No.
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38) See, e.g., Jan PAULSSON, The Idea of Arbitration (Oxford University Press 2013); Jan
PAULSSON, “Arbitration Unbound: Award Detached from the Law of Its Country of
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International Commercial Arbitration: When and Why It Matters”, 32 Int'l & Comp LQ
(1983) p. 53.
39) Stephan W. SCHILL, “Conceptions of Legitimacy of International Arbitration” in David
D. CARON, Stephan W. SCHILL, Abby C. SMUTNY and Epaminontas E. TRIANTAFILOU,
eds., Practising Virtue: Inside International Arbitration (Oxford 2015) p. 106; Amsterdam
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International 2010) p. xxxvii – li, p. xxxvii.
41) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
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42) See, e.g., Veijo HEISKANEN; “State as a Private: The Participation of States in
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June 2018).
43) Veijo HEISKANEN; “State as a Private: The Participation of States in International
Commercial Arbitration”, 1 TDM (2010) p. 2. Available at: <www.transnational-dispute-
management.com/article.asp?key=1525> (last accessed 6 June 2018).
44) Veijo HEISKANEN; “State as a Private: The Participation of States in International
Commercial Arbitration”, 1 TDM (2010) p. 7. Available at: <www.transnational-dispute-
management.com/article.asp?key=1525> (last accessed 6 June 2018).
45) Andrés JANA, “Private and Public Interest in International Commercial Arbitration”,
this volume, p. 317 at p. 325.
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International Arbitration”, 14 The American Review of International Arbitration (2003)
p. 121 at p. 135.
47) See, e.g., Karim Abou YOUSSEF, “Part I: Fundamental Observations and Applicable
Law, Chapter 3 – The Death of Inarbitrability” in Loukas A. MISTELIS and Stavros L.
BREKOULAKIS, eds., Arbitrability: International and Comparative Perspectives (Kluwer
Law International 2009) p. 47.
48) Stavros L. BREKOULAKIS, “Chapter 14: Systemic Bias and the Institution of
International Arbitration: A New Approach to Arbitral Decision-Making” in Tony Cole,
ed., The Roles of Psychology in International Arbitration (Kluwer Law International
2017) p. 339 at p. 339.
49) Epic Systems Corporation v. Jacob Lewis, 584 U. S. (2018) p. 25.
50) Karim Abou YOUSSEF, “Part I: Fundamental Observations and Applicable Law, Chapter
3 -– The Death of Inarbitrability” in Loukas A. MISTELIS and Stavros L. BREKOULAKIS,
eds., Arbitrability: International and Comparative Perspectives (Kluwer Law
International 2009) p. 47 at p. 47.

10
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 51) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” in ICCA Congress Series no. 18, p. 796.
52) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” in ICCA Congress Series no. 18, p. 803.
53) Andrés JANA, “Private and Public Interest in International Commercial Arbitration”,
this volume, at p. 326.
54) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” in ICCA Congress Series no. 18, pp. 812-813.
55) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” in ICCA Congress Series no. 18, pp. 813-817.
56) J. William ROWLEY QC, “Rowley: London Arbitration Under Attack”, GAR Arbitration
Review (16 May 2016). Available at:
<https://globalarbitrationreview.com/article/1036328/rowley-london-arbitration-
under-attack> (last accessed 7 June 2018).
57) Lord Chief Justice THOMAS, “Developing Commercial Law Through the Courts:
Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
2016 (9 March 2016) p. 4. Available at: <https://www.judiciary.uk/wp-
content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf> (last accessed 7
June 2018).
58) Guy I. SEIDMAN, “Comparative Civil Procedure” in Colin B. PICKER and Guy I. SEIDMAN,
eds., The Dynamism of Civil Procedure – Global Trends and Developments (Springer
2015) p. 15.
59) Derek AUCHIE, “A Response to Judicial Comments on the Arbitration-Litigation
Debate”, University of Aberdeen BlogSpot (5 May 2016). Available at:
<https://www.abdn.ac.uk/law/blog/a-response-to-judicial-comments-on-the-
arbitrationlitigation-debate/> (last accessed 7 June 2018).
60) Harris BOR, “Comments on Lord Chief Justice Thomas' 2016 BAILII Lecture which
Promotes a Greater Role for the Courts in International Arbitration”, Kluwer
Arbitration Blog (11 April 2016). Available at:
<http://arbitrationblog.kluwerarbitration.com/2016/04/11/comments-on-lord-chief-
justice-thomas-2016-b...> (last accessed 7 June 2018).
61) Lord Chief Justice THOMAS, “Developing Commercial Law Through the Courts:
Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
2016 (9 March 2016) p. 13. Available at: <https://www.judiciary.uk/wp-
content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf> (last accessed 7
June 2018).
62) Id.
63) Dorothy MURRAY, “Are Arbitration Clauses Killing Development of Domestic Law?”,
Commercial Dispute Resolution Blog (28 November 2016). Available at:
<https://www.cdr-news.com/categories/arbitration-and-adr/6887-are-arbitration-
clauses-killing-develop...> (last accessed 7 June 2018).
64) Mark SAVILLE, “Reforms Will Threaten London's Place as a World Arbitration Centre”,
The Times (28 April 2016). Available at: <https://www.thetimes.co.uk/article/reforms-
will-threaten-londons-place-as-a-world-arbitration-centre...> (last accessed 7 June
2018).
65) Derek AUCHIE, “A Response to Judicial Comments on the Arbitration-Litigation
Debate”, University of Aberdeen BlogSpot (5 May 2016). Available at:
<https://www.abdn.ac.uk/law/blog/a-response-to-judicial-comments-on-the-
arbitrationlitigation-debate/> (last accessed7 June 2018).
66) Mark SAVILLE, “Reforms Will Threaten London's Place as a World Arbitration Centre”,
The Times (28 April 2016). Available at: <https://www.thetimes.co.uk/article/reforms-
will-threaten-londons-place-as-a-world-arbitration-centre...> (last accessed 7 June
2018).
67) As Lord Saville, who chaired the committee that formed the Arbitration Act 1996, has
argued “[p]eople use arbitration to resolve their disputes, not to add to the body of
English commercial law…. Why, in other words, should they be obliged to finance the
development of English commercial law?” Mark SAVILLE, “Reforms Will Threaten
London's Place as a World Arbitration Centre”, The Times (28 April 2016). Available at:
<https://www.thetimes.co.uk/article/reforms-will-threaten-londons-place-as-a-
world-arbitration-centre...> (last accessed 7 June 2018); see also Rachel Tan XI'EN,
“Essay on Lord Chief Justice Thomas' 2016 BAILII Lecture”, Singapore Academy of Law
(2017) (unpublished) p. 5. Available at:
<https://www.sal.org.sg/Portals/0/Documents/Christopher%20Bathurst%20Prize%20s
ubmission/Tan%20Xi%E2%8...> (last accessed 7 June 2018).
68) Lord Chief Justice THOMAS, “Developing Commercial Law Through the Courts:
Rebalancing the Relationship Between the Courts and Arbitration”, The BAILII Lecture
2016 (9 March 2016), p. 16 Available at: <https://www.judiciary.uk/wp-
content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf> (last accessed 7
June 2018).
69) Laura ABRAHAMSON, “Costs, Delay and Transparency – A Comment on Continued
Legitimacy Concerns from the User's Perspective” this volume, pp. 354-360.

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 70) Sir Bernard EDER, “Does Arbitration Stifle Development of the Law? Should s.69 Be
Revitalised?”, AGM Keynote Address for the Chartered Institute of Arbitrators (28 April
2016) p. 7-8. Available at
<https://www.londonarbitrators.org/sites/londonarbitrators.org/files/CIArb%20_%20
EDER%20AGM%20Keynote...> (last accessed 7 June 2018).
71) Sir Bernard EDER, “Does Arbitration Stifle Development of the Law? Should s.69 Be
Revitalised?”, AGM Keynote Address for the Chartered Institute of Arbitrators (28 April
2016) p. 10 Available at
<https://www.londonarbitrators.org/sites/londonarbitrators.org/files/CIArb%20_%20
EDER%20AGM%20Keynote...> (last accessed 7 June 2018).
72) Justice BLAIR, “Commercial Dispute Resolution – Current Developments in the
Commercial Court”, 2016 Commercial Litigation and Arbitration Forum (3 November
2016) p. 7.
73) Justice Beverley MCLACHLIN PC, “Judging the ‘Vanishing Trial’ in the Construction
Industry”, 5 Construction Law International (2010, no. 2) p. 321; Ank SANTENS and
Romain ZAMOUR, “Dreaded Dearth of Precedent in the Wake of International
Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. & Mediation (2015) p. 73
at p. 83.
74) Lucy REED, “Lawmaking in International Arbitration: What Legitimacy Challenges Lie
Ahead?”, this volume, p. 52 at p. 59. The “persistent objectors” still insist that their
role as arbitrators is to decide the dispute alone without any regard to future
interpretation of similar treaty provisions. An illustrative example is the finding of the
Romak tribunal that “the Arbitral Tribunal has not been entrusted, by the Parties or
otherwise, with a mission to ensure the coherence or development of ‘arbitral
jurisprudence.’ The Arbitral Tribunal's mission is more mundane, but no less
important: to resolve the present dispute between the Parties in a reasoned and
persuasive manner, irrespective of the unintended consequences that this Arbitral
Tribunal's analysis might have on future disputes in general,” Romak S.A. v. Republic
of Uzbekistan (UNCITRAL, PCA Case No. AA280) Award (26 November 2009) para. 171.
75) Joshua ROZENBERG, “Is English Common Law at Risk of Becoming Out of Date?”, BBC
News (31 March 2016). Available at: <https://www.bbc.com/news/uk-35883590> (last
accessed 7 June 2018).
76) Joshua ROZENBERG, “Is English Common Law at Risk of Becoming Out of Date?”, BBC
News (31 March 2016). Available at: <https://www.bbc.com/news/uk-35883590> (last
accessed 7 June 2018).
77) Jan PAULSSON, “International Arbitration and the Generation of Legal Norms: Treaty
Arbitration and International Law” in International Arbitration 2006: Back to Basics?,
ICCA Congress Series no. 13 (2007) p. 886.
78) Sundaresh MENON, “International Commercial Courts: Towards A Transnational
System of Dispute Resolution”, Opening Lecture for the DIFC Courts Lecture Series
(2015) p. 6. Available at: <https://www.supremecourt.gov.sg/docs/default-
source/default-document-library/media-room/opening-lect...> (last accessed 7 June
2018).
79) D. Brian KING and Rahim MOLOO, “International Arbitrators as Lawmakers”, 46 N.Y.U.
Journal International Law & Politics (2014) p. 875 at p. 886, noting that the publication
of awards is one of the critical prerequisites to arbitrators as lawmakers.
80) D. Brian KING, and Rahim MOLOO, “International Arbitrators as Lawmakers”, 46 N.Y.U.
Journal International Law & Politics (2014) p. 875 at p. 882; Alexis MOURRE, “Precedent
and Confidentiality in International Commercial Arbitration: The Case for the
Publication of Arbitral Awards” in Emmanuel GAILLARD and Yas BANIFATEMI, eds.,
Precedent in International Arbitration (Juris 2008) p. 39 at p. 41 et seq.
81) Alexis MOURRE, “Precedent and Confidentiality in International Commercial
Arbitration: The Case for the Publication of Arbitral Awards” in Emmanuel GAILLARD
and Yas BANIFATEMI, eds., Precedent in International Arbitration (Juris 2008) p. 39 at p.
43.
82) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, The
2006 Freshfields Lecture, 23 Arbitration International (2007, no. 3) p. 357 at p. 374,
noting that “when making law, decision makers have a moral obligation to strive for
consistency and predictability, and thus to follow precedents. It may be debatable
whether arbitrators have a legal obligation to follow precedents – probably not – but
it seems well settled that they have a moral obligation to follow precedents so as to
foster a normative environment that is predictable.”
83) Chief Justice Sundaresh MENON, “International Commercial Courts: Towards a
Transnational System of Dispute Resolution”, Opening Lecture for the DIFC Courts
Lecture Series (2015) p. 6. Available at:
<https://www.supremecourt.gov.sg/docs/default-source/default-document-
library/media-room/opening-lect...> (last accessed 7 June 2018).
84) Ank SANTENS and Romain ZAMOUR, “Dreaded Dearth of Precedent in the Wake of
International Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. &
Mediation (2015) p. 73 at p. 90.

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 85) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, The
2006 Freshfields Lecture, 23 Arbitration International (2007, no. 3) p. 357. A 2006 survey
of International Chamber of Commerce awards showed that out of the 190 awards
reviewed, about 15 percent cited other arbitral decisions in matters of jurisdiction
and procedure, the powers of the tribunal to order provisional measures, and in
connection with the determination of the law governing the merits.
86) “[M]ost of the time it is difficult to analyse the exact role that reference to the past
played in the arbitral tribunal's reasoning.” Alexis MOURRE, “Precedent and
Confidentiality in International Commercial Arbitration: The Case for the Publication
of Arbitral Awards” in Emmanuel GAILLARD and Yas BANIFATEMI, eds., Precedent in
International Arbitration (Juris 2008) p. 39 at p. 44.
87) Ben JURATOWITCH QC, “Departing from Confidentiality in International Dispute
Resolution”, BIICL Seminar on Difficult Issues in Commercial, Investor-State, and
State-State Dispute Resolution: Differences and Commonalities (8 June 2017) p. 9.
88) Alec S. SWEET, Michael Y. CHUNG and Adam SALTZMAN, “Arbitral Lawmaking and State
Power: An Empirical Analysis of Investor-State Arbitration”, 1 Journal of International
Dispute Settlement (2017) pp. 4-5. Available at SSRN:
<https://ssrn.com/abstract=2919723> (last accessed 6 June 2018).
89) Stefan PISLEVIK, “Precedent and Development of Law: Is It Time for Greater
Transparency in International Commercial Arbitration?” (Oxford University Press 2018)
p. 10.
90) Alexis MOURRE, “Precedent and Confidentiality in International Commercial
Arbitration: The Case for the Publication of Arbitral Awards” in Emmanuel GAILLARD
and Yas BANIFATEMI, eds., Precedent in International Arbitration (Juris 2008) p. 39 at p.
44, referring to the Dow Chemical Award (ICC Case No. 4131, Dow Chemical France v.
Isover Saint Gobain, Interim Award, 23 September 1982), which has been adopted by
national courts in relation to the issue of procedural jurisdiction over a group of
companies. See also Francois PERRET, “Is There a Need for Consistency in
International Commercial Arbitration?” in Emmanuel GAILLARD and Yas BANIFATEMI,
eds., Precedent in International Arbitration (Juris 2008) p. 37.
91) Alexis MOURRE, “Precedent and Confidentiality in International Commercial
Arbitration: The Case for the Publication of Arbitral Awards” in Emmanuel GAILLARD
and Yas BANIFATEMI, eds., Precedent in International Arbitration (Juris 2008) p. 39 at p.
47.
92) Andrew STEPHENSON and Astrid ANDERSSON, “Arbitration: Can It Assist in the
Development of the Common Law – An Australian Point of View”, 33 International
Construction Review (2016, no. 4) p. 413 at Sect. 6.
93) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”, The
2006 Freshfields Lecture, 23 Arbitration International (2007, no. 3) p. 357 at p. 376.
94) Lucy REED, “Lawmaking in International Arbitration: What Legitimacy Challenges Lie
Ahead?”, this volume, pp. 52-85.
95) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 18. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018).
96) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 19-20. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018).
97) Ben JURATOWITCH QC, “Departing from Confidentiality in International Dispute
Resolution”, BIICL Seminar on Difficult Issues in Commercial, Investor-State, and
State-State Dispute Resolution: Differences and Commonalities (8 June 2017) p. 8.
98) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 18-19. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018).
99) Christopher SEPPÄLÄ, “The Development of a Case Law in Construction Disputes
Relating to FIDIC Contracts” in Emmanuel GAILLARD and Yas BANIFATEMI, eds.,
Precedent in International
100) Ank SANTENS and Romain ZAMOUR, “Dreaded Dearth of Precedent in the Wake of
International Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. &
Mediation (2015) p. 73 at p. 81.
101) Ank SANTENS and Romain ZAMOUR, “Dreaded Dearth of Precedent in the Wake of
International Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. &
Mediation (2015) p. 73 at pp. 79-80.
102) Ben JURATOWITCH, “Departing from Confidentiality in International Dispute
Resolution”, BIICL Seminar on Difficult Issues in Commercial, Investor-State, and
State-State Dispute Resolution: Differences and Commonalities (8 June 2017) pp. 8-10.
103) Alexis MOURRE, “Precedent and Confidentiality in International Commercial
Arbitration: The Case for the Publication of Arbitral Awards” in Emmanuel GAILLARD
and Yas BANIFATEMI, eds., Precedent in International Arbitration (Juris 2008) p. 39.

13
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 104) Jean-Michel JACQUET, “Avons-nous besoin d'une jurisprudence arbitrale?”, 3 Revue de
l'arbitrage (2010) p. 445 at p. 445.
105) Alexis MOURRE, “Precedent and Confidentiality in International Commercial
Arbitration: The Case for the Publication of Arbitral Awards” in Emmanuel GAILLARD
and Yas BANIFATEMI, eds., Precedent in International Arbitration (Juris 2008) p. 39 at p.
53; Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse?”,
The 2006 Freshfields Lecture, 23 Arbitration International (2007, no. 3) p. 357 at p. 376;
Stefan PISLEVIK, Precedent and Development of Law: Is It Time for Greater Transparency
in International Commercial Arbitration? (Oxford University Press 2018) p. 8; Catherine
A. ROGERS, “Transparency in International Commercial Arbitration”, 54 University of
Kansas Law Review (2006) p. 1301 at pp. 1319-1320.
106) Pierre TERCIER, “La légitimité de l'arbitrage”, 3 Revue de l'arbitrage (2011) p. 653 at p.
667; Ank SANTENS and Romain ZAMOUR, “Dreaded Dearth of Precedent in the Wake of
International Arbitration – Could the Cause Also Bring the Cure?”, 7 Y.B. Arb. &
Mediation (2015) p. 73 at p. 83.
107) See ICC Arbitration Rules, Art. 22(3) (2017); Jason FRY, Simon GREENBERG and
Francesca MAZZA, The Secretariat's Guide to ICC Arbitration (International Chamber of
Commerce 2012) p. 235 at paras. 3-807: “The Rules do not provide that the arbitration
proceedings are confidential. Rather than creating a general rule requiring the
proceedings to be kept confidential and then attempting to define the exceptions
that will inevitably arise, the Rules take a more flexible and tailor-made approach,
leaving the matter for the parties or the arbitral tribunal to address in light of the
specific circumstances of the case.”
108) See, e.g., Esso Australia Res. Ltd v. Plowman, ICCA Yearbook Commercial Arbitration
XXI (1996) (henceforth Yearbook) pp. 137, 151 (Australian High Ct. 1995); Judgment of 27
October 2000, Bulgarian Foreign Trade Bank Ltd v. A.I. Trade Fin. Inc., Yearbook XXVI
(2001) pp. 291, 298 (Swedish S.Ct.).
109) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 6. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018); Samuel MAYANK, “Confidentiality in
International Commercial Arbitration”, Kluwer Arbitration Blog (2017). Available at:
<http://arbitrationblog.kluwerarbitration.com/2017/02/21/confidentiality-
international-commercial-arb...> (last accessed 7 June 2018).
110) Constantine PARTASIDES, “What Has Been The ‘Spillover’ Effect of The Transparency
Debate on Commercial Arbitrations?”, this volume, p. 699 at p. 706, referring also to
the fact that the obligation of confidentiality is not implied by the agreement of the
parties, but is a matter of law, meaning that it can change.
111) See, e.g., 25 ICC International Court of Arbitration Bulletin (2015, no.2) for ICC Oil and
Gas Cases, or 25 ICC International Court of Arbitration Bulleting (2015, no.1) for the first
ICC cases dealing with Emergency Arbitrator procedures.
112) AAA-ICDR Arbitration Rules, Art. 30(3).
113) VIAC Rules of Arbitration, Art. 41.
114) SCAI Rules of International Arbitration, Art. 44(3).
115) The link to the Subcommittee's page is the following:
<https://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Default.aspx>.
116) See, e.g., Joshua D. H. KARTON, The Culture of International Arbitration and the
Evolution of Contract Law (Oxford University Press 2013).
117) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 21. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018).
118) Mark FELDMAN, “International Arbitration and Transparency”, Peking University
School of Transnational Law Research Paper No. 16-12 (25 September 2016) p. 21.
Available at SSRN: <https://ssrn.com/abstract=2843140 or
http://dx.doi.org/10.2139/ssrn.2843140> (last accessed 7 June 2018).
119) Ben JURATOWITCH, “Departing from Confidentiality in International Dispute
Resolution”, BIICL Seminar on Difficult Issues in Commercial, Investor-State, and
State-State Dispute Resolution: Differences and Commonalities (8 June 2017) p. 8.
120) Sir Bernard RIX, “Confidentiality in International Arbitration: Virtue or Vice”, Jones Day
Professorship in Commercial Law Lecture, Singapore Management University in
Singapore (12 March 2015) p. 21. Available at:
<https://law.smu.edu.sg/sites/default/files/law/CEBCLA/Notes_Confidentiality_in_In
ternational_Arbitra...> (last accessed 7 June 2018); Constantine PARTASIDES, “What Has
Been The ‘Spillover’ Effect of The Transparency Debate on Commercial Arbitrations?”,
this volume, pp. 699-710.

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 121) When asked about what institutions could do to improve international arbitration, 64
percent of the respondents to the Queen Mary University of London survey mentioned
the publication of awards in a redacted form and/or summaries. 2015 International
Arbitration Survey: Improvements and Innovations in International Arbitration,
conducted by the Queen Mary University of London and White & Case, p. 23. Available
at: <https://www.whitecase.com/publications/insight/2015-international-arbitration-
survey-improvements-an...> (last accessed 7 June 2018).

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 KluwerArbitration

Document information
Costs, Delay and Transparency – A Comment on Continued
Publication Legitimacy Concerns from the User’s Perspective
Evolution and Adaptation: Laura C. Abrahamson
The Future of International (*)
Arbitration
I The Concerns: Costs, Delay and Lack of Transparency
Bibliographic reference International commercial arbitration, like any type of arbitration, is of course a creature of
contract – it is only possible with the consent of the parties. Corporate users of arbitration
Laura C. Abrahamson, 'Costs, have in recent years become more vocal about their concerns about the costs of
Delay and Transparency – A arbitration, the delay between filing and award, and the transparency of the arbitral
Comment on Continued process in getting to an award. (1) If those concerns are not adequately addressed, they
Legitimacy Concerns from could ultimately pose an existential threat to the continued legitimacy of international
the User’s Perspective', in commercial arbitrations. (2) Almost every major arbitral institution has paid lip service to
Jean Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), P 354 concerns about costs, delays and transparency in the last few years, (3) but are they doing
P 355 enough about it? From the perspective of corporate end users, will it be too little, too
Evolution and Adaptation: late?
The Future of International
Arbitration, ICCA Congress Historically, corporate decision makers have been motivated to select international
Series, Volume 20 (© Kluwer arbitration as their contractual dispute mechanism because it offered a faster, more
Law International; effective way to decide disputes, in addition to providing comfort on enforceability, and
International Council for avoiding some specific legal systems/national courts. (4) But as it is becoming increasingly
Commercial common for large commercial international arbitrations to take months to constitute a
Arbitration/Kluwer Law panel, and years to reach an award, the goal of a faster, more cost efficient process seems
International 2019) pp. 354 - to be a mirage – and corporate counsel may start to seriously look at courts in some
360 countries as a viable, and perhaps preferred solution. (5)
Although international arbitral institutions appear to have taken some steps forward, their
actions are not robust enough to allay corporate users concerns. In 2015, the London Court
of International Arbitration (LCIA) became the first major institution to provide actual
average cost and duration figures, (6) followed by the Stockholm Chamber of Commerce
(SCC). (7) In 2016, the Singapore International Arbitration Centre (SIAC) and Hong Kong
P 355 International Arbitration Centre (HKIAC) provided more limited data about the mean and
P 356 median duration of their arbitrations. (8) The latest statistical reports issued by the
International Chamber of Commerce (ICC) and the International Center for Dispute
Resolution (ICDR) still do not provide any information about the average, median or any
other measure of the duration of their proceedings, leaving corporate users frustratingly in
the dark about the time and cost it can be expected to take to arbitrate a matter under
their auspices.
The gap between what international commercial arbitral institutions are currently
providing and what users want in terms of data is massive. The 2015 Queen Mary University
of London/White & Case survey: “Improvements and Innovations in International Arbitration”
reported that respondents felt arbitral institutions could improve international arbitration
by publishing data not only on the average length of their cases, but also on the time taken
by individual arbitrators to issue awards. (9) In fact, 65% of respondents want institutions
to publicize the average length of time their arbitrations take, and almost 50% want
institutions to disclose the time individual arbitrators took from appointment to award in
previous cases. (10) None of the international commercial arbitral institutions appears to
have made any attempt to respond to this latter suggestion, (11) nor do any of them appear
to be taking steps to respond to respondents' desires to publish awards, either in full, in a
redacted form, or in summary. (12)
In 2016, the ICC did announce that it would publish names of arbitrators sitting in ICC
cases, but that information alone is of limited utility to corporate arbitration users. (13) At
the same time, the ICC announced a new policy that established ICC tribunals are
expected to submit draft awards within three months after the last substantive hearing or
P 356 last substantive written submissions, (14) with cost consequences for “unjustified” delays
P 357 beyond that time frame. This was touted as a “groundbreaking move”, but was it? It is
difficult to assess without transparency as to what the typical time to award in ICC
proceedings was before the policy was adopted. (15) Although the ICC President
acknowledged that users are rightly “concerned by the time and costs of international
arbitrations”, and declared “[t]he expeditious resolution of disputes is one of our top
priorities”, corporate users are left wondering whether that is true, or if the ICC does not
understand that it is often the time and cost it takes to get to that last substantive hearing
that drives corporate concerns. While one would be hard-pressed not to agree it is
important for tribunals to deliver awards within two to three months of the last substantive
hearing or briefing, when larger cases appear to be taking two to three years on average to
get to award, that alone doesn't get at the crux of the problem with delays and costs. If the

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 ICC and other arbitral institutions are to really make the expeditious (and cost-effective)
resolution of disputes a top priority, then they need to enact policies to shorten the time
between filing a request for arbitration and getting to that last substantive hearing.
Recognizing that in any individual matter multiple factors may influence the time it takes
to get from filing to the substantive hearing, from a corporate perspective there seem to
be two particular factors which predominantly contribute to the lengthy (and costly) time
lapse of up to twelve to eighteen months or more between filing and the last substantive
hearing: (1) arbitrator availability and schedules; and (2) the “due process paranoia”
identified in the 2015 Queen Mary University/White & Case survey – a concern that
respondents described as a “reluctance by tribunals to act decisively in certain situations
for fear of the arbitral award being challenged on the basis of a party not having had the
chance to present its case fully”. (16) Without transparently tackling these issues, it is
difficult to see how international commercial arbitration will continue to be the default
preferred dispute resolution procedure. (17) Unfortunately for users, none of the arbitral
institutions appear to be ready to do so.
P 357
P 358

II Possible Solutions
So what is needed? Here are some suggested steps, from a corporate client's perspective,
to minimize the length, cost and increase transparency in international commercial
arbitration:
First, from our corporate clients' perspective, arbitral institutions across the board need to
share much more data with their potential customers. Preserving the confidentiality of
arbitrations is often cited as the insurmountable obstacle to publishing data, but it need
not be. Protecting corporations' confidentiality and privacy concerns and publishing the
types of data arbitral stakeholders are looking for to provide greater transparency are not
mutually exclusive. (18) Even if publishing redacted awards is a step too far, (19) arbitral
institutions have a significant amount of data corporate users could use to better inform
their decision makers both in drafting arbitration clauses and in selecting arbitrators that
can be shared without compromising the privacy or disclosing the identity of the parties to
an arbitration. In particular, the date of filing, the names of arbitrators, the names of
counsel, the date of substantive hearings, whether a matter is pending, and date of award
could all be published without violating the confidentiality of the parties. This information
would go a long way to providing corporations with the data they need to enable them to
assess how busy potential arbitrators are before they consider nominating them. It would
be even more helpful if institutions would publish this data in a format that allows
potential customers to search by potential arbitrators' names to pull up the list of matters
an individual arbitrator has been appointed in.
Second, arbitral institutions need to adopt rules or policies to reduce the length of time
between when a case is filed and the last substantive hearing date. These could include:
(a) Obtaining a commitment in advance from prospective arbitrators – before they are
appointed – that they have sufficient time in their diaries to hold all necessary
substantive hearings in a matter within the following twelve months (or six months for
smaller matters);
(b) Obtaining a commitment in advance from prospective arbitrators – before they are
appointed – that they will not take on additional appointments during the duration
of a matter that would reduce the arbitrator's ability to conduct the case efficiently;
(20)
(c) Requiring arbitrators to set an early procedural conference (within the first two
P 358 months of filing) and then encouraging tribunals to make use of that early procedural
P 359 conference to set a definitive schedule for all substantive hearings, as well as for
deliberations.
Arbitrators who cannot commit that they have the time to sit for hearings within the next
year, or who aren't willing to commit the time necessary to conduct an arbitration in the
most efficient, expeditious manner – by not taking on additional work that would interfere
– could contribute to, if not cause, significant delays that might be seen as disqualifying
from a corporate perspective. At the least, corporate clients will take comfort knowing that
if they choose a certain arbitral institution, that institution's procedures for appointing
arbitrators are designed so that the appointed panel can and will devote sufficient time to
their matter. Similarly, a tribunal's focus at the outset on completing the substantive
hearings at the earliest possible date could significantly improve the time to award.
Knowing that the arbitral institution directs its tribunals to focus on this will provide
reassurance to potential customers that the arbitral process is designed to be as efficient
as possible.
Third, arbitral institutions need to adopt rules or policies to reduce “due process paranoia”.
The fact reported in the 2015 Queen Mary University of London/White & Case survey that
“many” arbitrators revealed in interviews that their decisions were influenced by concerns
their awards would be vulnerable to challenge if they did not allow parties to “fully”
present their cases (21) is troubling – and arbitral institutions need to respond. Arbitral
tribunals can and should be encouraged to use their experience and discretion to

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 appropriately limit submissions – before, during and after the hearings. Adopting explicit
rules or policies that encourage this could counter concerns about challenges. Similarly,
arbitral institutions can encourage arbitral tribunals to utilize available sanctions to deal
with dilatory or abusive parties or counsel. Corporate users want arbitral tribunals to be
proactive in managing their matters: (22) overly cautious, permissive panels that are
unwilling to set limits or impose sanctions drive up costs and delay resolution.
Corporations today have many choices when drafting dispute resolution clauses. If they
want to continue to provide for international arbitration, there are an increasing number of
arbitral institutions, and updated rules, to choose from. (23) As of the 2015 Queen Mary
University of London/White & Case survey, the ICC, LCIA, HKIAC, SIAC, SCC, ICSID and ICDR
were still the preferred institutions. (24) It will be interesting to see if any of them, in an
effort to satisfy the needs of corporate clients, continue to attract new users and/or
increase their market share in the future, start providing the types of enhanced reporting
P 359 and data corporate clients are clamoring for, or if some of the other international arbitral
P 360 institutions, like the Australian Centre for International Commercial Arbitration (ACICA),
the Dubai International Arbitration Centre (DIAC), the Swiss Chambers Arbitration
Institution (SCIA), or the Vienna International Arbitration Centre (VIAC) step up to fill the
void and successfully capitalize on the desire for more information.
P 360

References
*) Laura C. Abrahamson: Senior Vice President, Deputy General Counsel and Global Head
of Litigation at AECOM.
1) See, e.g., Queen Mary University of London and White & Case, 2015 International
Arbitration Survey: Improvements and Innovations in International Arbitration (2015) p. 7
(showing 68% of respondents cite “cost” among the worst characteristics or arbitration,
39% cite “lack of insight into arbitrators' efficiency”, 36% cite “lack of speed” and 12%
cite “lack of insight into institutions' efficiency”) (henceforth 2015 QMUL Survey); Queen
Mary University of London and PriceWaterhouseCoopers, Corporate Choices in
International Arbitration: Industry Perspectives (2013) p. 5 (“For respondents who
considered arbitration not to be well suited to their industry, costs and delay were
cited as the main reasons more than any other factors.”) (henceforth 2013 QMUL
Survey).
2) Notably, in the 2013 QMUL Survey, across all sectors, respondents referred equal
percentages of disputes to arbitration as they did to litigation. 2013 QMUL Survey,
supra fn. 1, at p. 7. In the 2010 survey, of the 68% of corporate respondents who had a
dispute resolution policy, only 10% had a mandatory policy to choose arbitration over
state court. Queen Mary University of London and White & Case, 2010 International
Arbitration Survey: Choices in International Arbitration (2010) p. 6 (henceforth 2010
QMUL Survey). A full 50% of the corporate respondents either left the choice of
arbitration vs. state courts to the judgment of the negotiators, or it was not a feature of
their corporate policy. Id.
3) See, e.g., International Chamber of Commerce, “ICC Court Announces New Policies to
Foster Transparency and Ensure Greater Efficiency”, News and Releases (1 May 2016)
(“Users are concerned by the time and costs of international arbitrations, and rightly
so. The expeditious resolution of disputes is one of our top priorities…. By releasing
this new note, we send a clear signal to tribunals that unjustified delays will not be
tolerated, and we provide transparency on the consequences that the Court will draw
from such situations.”).
4) See 2013 QMUL Survey, supra fn. 1, at p. 8.
5) Although the 2015 QMUL Survey reported a strong preference for international
arbitration as a dispute resolution mechanism, that result is hardly surprising given
the population surveyed. The 2015 QMUL Survey, unlike the 2013 QMUL Survey, cast a
much broader net and included responses from private practitioners, arbitrators,
academics, experts, institutional staff and third-party funders in addition to
corporations' in-house counsel. In fact, in-house counsel only comprised 8% of the
respondents. 2015 QMUL Survey, supra fn. 1, at p. 51. It is notable that, even with the
wider pool, in the 2015 survey only 2% of respondents indicated cost was the most
valuable characteristic of international arbitration, and only 10% indicated speed was
the most valuable. Id.

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 6) Prompted by the 2015 QMUL Survey, in the fall of 2015 the LCIA first provided users with
its analysis of average costs and duration of LCIA arbitration. The LCIA's 2015
publication and its recent 2017 updated publication are the most forthcoming
disclosures of all arbitral institutions, but still fall far short of survey respondents'
requests. See generally London Court of International Arbitration, Facts and Figures –
Costs and Duration: 2013-2016 (2017) p. 3; London Court of International Arbitration,
Tools to Facilitate Smart and Informed Choices (2015). The most recent publication
shows that 70% of cases with an amount in dispute under US$ 1 million are resolved in
twelve months. London Court of International Arbitration, Facts and Figures – Costs and
Duration: 2013-2016 (2017) p. 3. However, since the average duration of all cases is 16
months, it appears that large matters are still taking two to three years to get to award.
Id.
7) The SCC reports shorter durations – only 16% of SCC matters take two years or more to
award. Celeste E. Salinas QUERO (Legal Counsel to SCC), Costs of Arbitration and
Apportionment of Costs Under the SCC Rules (February 2016) p. 9. It does not provide a
breakdown by amount in dispute. However, since almost half of SCC cases have an
amount in dispute of under € 500,000, compared to only 17.5% of the SCC docket are
cases involving € 5 million or more, the SCC report similarly suggests that large cases
can take two to three years or more to get to award. Id.
8) In the fall of 2016, SIAC and HKIAC also provided more basic cost and duration of
proceedings information for the first time. SIAC reported a mean duration of 15.3
months for three-member tribunals and an average duration of 11.3 months, but did
not provide a further breakdown based on the size of its matters. Singapore
International Arbitration Centre, “SIAC Releases Cost and Duration Study” (10 October
2016) p. 1. The HKIAC study, based on 62 matters, reported a median duration of 14.3
months and a mean duration of 16.3 months. Hong Kong International Arbitration
Centre, “Costs and Duration” (2017), available at <www.hkiac.org/content/costs-
duration>. It did not provide any further breakdown by size, but did acknowledge that
ten of those matters were decided under its expedited procedures. The mean duration
of expedited arbitrations was reported as 8.1 months. Id.
9) 2015 QMUL Survey, supra fn. 1, at p. 2.
10) A full 64% of respondents also would like to see arbitral institutions publish
arbitration awards, in redacted form or in summary, 50% would like to see decisions on
challenges to arbitrators published, and almost 20% suggest arbitral institutions
should publish full awards. Id. at p. 23.
11) ICSID is publishing data from which one can derive the time it takes arbitrators to
render awards in individual cases. But since the average time between registration
and award was reportedly averaged 1,381 days, that will hardly help to allay corporate
concerns. Global Arbitration Review, “How Long Is Too Long to Wait for an Award?”,
Arbitration News (18 February 2016), available at
<https://globalarbitrationreview.com/article/1035249/how-long-is-too-long-to-wait-
for-an-award>.
12) 2015 QMUL Survey, supra fn. 1, at p. 23.
13) Unfortunately from a corporate user's perspective, the information on the ICC website
is provided in a table that is not searchable by name. See International Chamber of
Commerce, ICC Arbitral Tribunals (2018), available at <https://iccwbo.org/dispute-
resolution-services/arbitration/icc-arbitral-tribunals/>. As of 19 February 2018, there
were 1,200 entries, as the table includes both pending and closed matters. One can
only imagine that as time goes by, attempting to use the data as it is presently
published to determine how many active cases a prospective arbitrator is sitting on
will be increasingly time consuming and inefficient.
14) This excludes written cost submissions and is two months in matters with a single
arbitrator. International Chamber of Commerce, “Note to Parties and Arbitral Tribunals
on the Conduct of the Arbitration Under the ICC Rules of Arbitration”, para. 92 (Revised
30 October 2017).
15) The LCIA reported median “time to award” is three months across all cases except
those under US$ one million; if the ICC experience was similar, this might not have
much impact on the total time to award. Users may also question whether the
“consequences” lack teeth: the new policy suggest the ICC court will reduce by 5% to
10% the fees it otherwise would have “considered fixing” for unjustified delays in
submitting awards up to four months late (seven months after the last substantive
hearing or submissions), reducing by 10% to 20% for draft awards submitted up to
seven months late, and reducing by 20% or more if awards are submitted more than
seven months late.
16) Particularly interesting is the report that both arbitrators and participants agreed that
this is a prevalent problem contributing to delays. Not only did interviewees complain
about situations where deadlines were repeatedly extended, fresh evidence
submitted late in the process and disruptive behavior was permitted due to a
perceived concern by tribunals that otherwise their award would be vulnerable to
challenge, but arbitrators confirmed that concern had influenced their decisions. 2015
QMUL Survey, supra fn. 1, at p. 10.
17) Id.

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 18) See Avinash POOROOYE and Ronan FEEHILY, “Confidentiality and Transparency in
International Commercial Arbitration: Finding the Right Balance”, 22 Harvard Neg. L.
Rev. (2017) p. 275.
19) There is significant demand among users for publication of awards, whether in full, in
redacted form, or in summary. 2015 QMUL Survey, supra fn. 1, at p. 23. Publication of
awards, even in a redacted or summary form, would be a huge step towards
transparency and would provide corporate clients a much greater ability to assess
potential arbitrators' performance and reasoning. A. POOROOYE and R. FEEHILY, supra
fn. 18, at p. 305.
20) See Debevoise & Plimpton LLP, Protocol to Promote Efficiency in International
Arbitration (2010, revised in 2018).
21) 2015 QMUL Survey, supra fn. 1, at p. 10.
22) 2015 QMUL Survey, supra fn. 2, at p. 25.
23) Almost every major international arbitration institution seems to have updated its
rules at least once in the last five years: Vienna International Arbitration Centre (VIAC)
and Dubai International Arbitration Centre (DIAC) in 2018, ICC and SCC in 2017, SIAC and
the Australia Centre for International Commercial Arbitration (ACICA) in 2016, LCIA and
ICDR in 2014, HKIAC and UNCITRAL in 2013. MARC (the alternative dispute resolution
arm of the Mauritius Chamber of Commerce and Industry) is proposing new
amendments in 2018 to their 2014 rules.
24) 2015 QMUL Survey, supra fn. 1, at p. 17.

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 KluwerArbitration

Document information
Allocation of Competence Between a National Court and an
Publication Arbitral Tribunal: Striking a Balance Between Efficiency
Evolution and Adaptation: and Legitimacy of Arbitration – Asian Perspectives
The Future of International Yoshimi Ohara; John Lane
Arbitration
(*)
(**)
Bibliographic reference
Yoshimi Ohara and John I Overview
Lane, 'Allocation of This article considers how best to allocate the “competence” between an arbitral tribunal
Competence Between a and a national court in order to strike a balance between efficiency and legitimacy in
National Court and an arbitration. Arbitral proceedings will only be legitimate if they are based on a valid and
Arbitral Tribunal: Striking a effective arbitration agreement. A national court's power to review the jurisdiction of an
Balance Between Efficiency arbitral tribunal is therefore essential to ensure the legitimacy of arbitration. However,
and Legitimacy of excessive judicial intervention in arbitration undermines both party autonomy and the
Arbitration – Asian efficiency of arbitration and can cause unwarranted procedural delay. Indeed, it is not
Perspectives', in Jean uncommon that a court's jurisdiction is invoked by a party as a dilatory tactic.
Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), One recent high profile dispute, between a Malaysian media group (Astro), and its former
Evolution and Adaptation: JV partner, a group company of the Indonesian conglomerate Lippo Group (PT First Media
The Future of International TBK (First Media)), illustrates how jurisdictional disputes can make arbitration inefficient.
Arbitration, ICCA Congress This matter, which has been going on for more than a decade, offers an opportunity to
Series, Volume 20 (© Kluwer pause and revisit the fundamental principle of competence-competence to see how
Law International; P 361 different approaches have been adopted in Asia by comparing Singapore, Hong Kong,
International Council for P 362 Japan and China, and to consider as a policy matter the optimal balance between the
Commercial powers of an arbitral tribunal and those of a national court when questions of jurisdiction
Arbitration/Kluwer Law arise.
International 2019) pp. 361 -
376 II Competent and Competence
“Competence-competence” is one of the basic doctrines in modern international
arbitration. It is taken for granted that an arbitral tribunal has the power to determine its
own jurisdiction (i.e., it is “competent” to determine its own “competency”, hence
“competence-competence”). Such power includes the tribunal's ability to rule on the
existence, validity, legality and scope of the parties' arbitration agreement. (1) It derives
from the notion of party autonomy and ensures an efficient and viable alternative dispute
resolution mechanism. Otherwise a dissatisfied party could always go to a court to derail
arbitration proceedings.
This principle of competence-competence was incorporated by the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) (2) and
further developed in the UNCITRAL Model Law on International Commercial Arbitration
1985 (Model Law).
Whilst the principle of competence-competence is widely recognized, its implementation
varies by jurisdiction. The variation between jurisdictions includes areas such as the
priority of review between an arbitral tribunal and a national court and the standard and
timing of judicial review and its finality. (3)

1 New York Convention

Art. II of the New York Convention provides for so-called “negative competence”, requiring
a national court whose jurisdiction has been invoked in relation to an arbitration
agreement to refer parties to arbitration unless the court finds that the purported
agreement is “null and void, inoperative or incapable of being performed”. (4) Later, at the
enforcement stage, the New York Convention contemplates that a national court may
refuse to recognize and grant leave to enforce an award in circumstances where, inter alia,
the arbitral tribunal has made the award in excess of its jurisdiction. (5)
P 362 Under the New York Convention, it is clear that both arbitral tribunals and national courts
P 363 have the power to consider and decide jurisdictional disputes. However, the timing,
scope and standard of review by national courts on the issue of the arbitral tribunal's
jurisdiction is less clear.

2 UNCITRAL Model Law

The Model Law defines, and limits, the appropriate intervention by a national court in
international arbitration in favour of arbitration. In addition to negative competence,
which is prescribed in the New York Convention, (6) the Model Law provides for an arbitral

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 tribunal's “positive competence”, i.e. the ability to rule on its own jurisdiction. (7) Such a
ruling can be made either: (a) “as a preliminary question”; or (b) “in an award on the
merits”. In response to the former, a party may request the court to review the arbitral
tribunal's positive jurisdictional ruling. (8) Such national court's decision on jurisdiction is
subject to no appeal. (9) In response to the latter, a court review of the arbitral tribunal's
ruling on jurisdiction has to wait until setting-aside proceedings. (10)

3 Unsettled Answers in the UNCITRAL Model Law

The Model Law unequivocally prescribes an arbitral tribunal's competence, but it also
provides for judicial review of a tribunal's competence potentially four times without: (a)
providing clear guidance as to how those opportunities for judicial review relate to each
other; or (b) specifying review standards for a national court.
First, when a party submits a dispute in breach of an arbitration agreement to a national
court, the court must refer the parties to arbitration unless a court finds that the
arbitration agreement is null, void, inoperable or incapable of being performed (the First
Stage). (11)
Second, when a tribunal makes a determination on its jurisdiction as a preliminary
question, a dissatisfied party may apply to a national court for its review (the Second
Stage). (12)
Third, once an award is issued, a dissatisfied party may apply to a national court of the
seat of arbitration to have the award set aside based on a jurisdictional objection (the
Third Stage). (13)
Fourth, at the time of enforcement, a dissatisfied party may resist the enforcement of an
award on a jurisdictional objection at a national court in the place of enforcement (the
Fourth Stage). (14)
It is not clear from the Model Law whether a national court's review standard in each of the
above four occasions is the same, how each judicial review interrelates to the other or the
consequence of failure to apply for judicial review at any one of those stages.
P 363
P 364
Since the Model Law does not give a clear answer to these questions, national arbitration
acts (even among the countries that have adopted the Model Law) and national courts
have taken divergent approaches. (15) The battle between Astro and First Media in the
courts of Singapore and Hong Kong, which lasted more than eight years, centered on the
question of whether First Media could successfully argue – at the Fourth Stage in both
jurisdictions – that the courts should decline to enforce the awards because the arbitral
tribunal lacked jurisdiction in circumstances where First Media deliberately chose not to
challenge the arbitral tribunal's jurisdiction at the Second and Third Stages.

III Judicial Review of an Arbitral Tribunal's Jurisdictional Decision – The

Dispute Between Astro and First Media
1 Facts
First Media entered into a joint venture with a number of companies from the Astro group
for the provision of multi-media and television services in Indonesia. The JV vehicle was
called ‘PT Direct Vision’ (DV), and the terms of the JV were set forth in a subscription and
shareholders' agreement dated 11 March 2005 (SSA). The SSA contained a clause stating
that the parties would submit any disputes to arbitration under Singapore International
Arbitration Centre (SIAC) rules.
By mid-2007 it had become apparent that certain conditions precedent contained in the
SSA would not be met. As a result, the JV deal never closed. However, before it became
clear that the deal would not work out as envisaged, DV had already launched its satellite
television service in Indonesia and a number of Astro group companies had been providing
substantial funding to DV since about December 2005. However, the Astro group companies
that had been providing the majority of the funding to the DV (16) were not parties to the
SSA (the Additional Parties).

2 Arbitration Procedural History

First Media commenced litigation against the Additional Parties in the Indonesian courts
in September 2008, seeking the continued funding of DV. As would ultimately become
clear, commencing litigation rather than arbitration against the Additional Parties was the
proper course of action. However, in response, Astro commenced arbitration proceedings
in Singapore in October 2008. At the same time, Astro made an application to the arbitral
tribunal (the Tribunal) to join the Additional Parties to the arbitration (the Application).
Having considered the Application at a hearing in February 2009, the Tribunal issued an
award in May 2009 finding that it did have jurisdiction to add the Additional Parties to the
P 364 arbitration (erroneously, as it would turn out) and deciding to exercise that jurisdiction
P 365 (the Joinder Award). At this point, First Media could have appealed the Joinder Award to
the Singapore High Court, (17) but it chose not to. Instead, First Media simply reserved its

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 position. (18)
The Tribunal proceeded to hear the substance of the dispute and rendered four awards in
favour of Astro in excess of US$ 130 million between October 2009 and August 2010 (the
Awards). The vast majority of that sum was in relation to claims advanced by the Additional
Parties.

3 Singapore Proceedings
a Singapore enforcement
First Media took no action to set aside the Award. Astro sought to enforce the Awards in
Singapore and received leave to enforce on 5 August and 3 September 2010 (the Singapore
Enforcement Orders). The Singapore Enforcement Orders were then served on First Media
in Indonesia. On 24 March 2011, Astro had judgments entered against First Media in
Singapore. First Media then applied to set aside the judgments on 3 May 2011.
On 22 August 2011, an Assistant Registrar set aside the judgments and granted First Media
leave to set aside the Enforcement Orders. Astro appealed, but the Registrar's decision
was upheld by a judge. First Media then made an application on 12 September 2011 to set
aside the Singapore Enforcement Orders. This application was dismissed by a judge in
chambers. First Media appealed to the High Court.
b Singapore High Court decision
First Media argued, amongst other things, that there was never an arbitration agreement
between it and the Additional Parties, but in a decision handed down on 22 October 2012,
(19) the High Court essentially held that it was too late for First Media to rely on this
argument.
The High Court found that First Media could have challenged the Joinder Award under the
International Arbitration Act 2002 (Singapore) (IAA), read with Art. 16(3) of the Model Law,
when the Joinder Award was made. However, it had chosen not to. The High Court held that
this meant First Media had, as a result, lost its “sole and exclusive opportunity to raise its
jurisdiction objection before the Singapore courts”. (20) First Media appealed to the
Singapore Court of Appeal.
c Singapore Court of Appeal decision
The issue before the Court of Appeal was whether a party to an international arbitration
P 365 under the IAA can resist enforcement of an award against it in Singapore on the grounds of
P 366 an alleged lack of jurisdiction of the arbitral tribunal in circumstances where that party
did not challenge the lack of jurisdiction at an earlier stage despite having had an
opportunity to do so. (21)
In a thoroughly reasoned judgment delivered by the Chief Justice, Sundaresh Menon, the
Court of Appeal answered that question affirmatively and unanimously allowed the appeal.
The Court of Appeal held that the enforcement of international arbitration awards in
Singapore is governed by Sect. 19 IAA and this section, which contains the power to refuse
enforcement, is to be interpreted in conjunction with the “underlying philosophy” of the
Model Law, (22) which provides for the principle of a “choice of remedies”, namely choice
between an active remedy to set aside an award and a passive remedy to contest the
enforcement of an award. (23) This principle however is not explicit in the Model Law, so
the Court of Appeal undertook a forensic analysis of the Model Law travaux préparatoires.
Having reviewed the travaux préparatoires of the Model Law Working Group, the Court of
Appeal held that a “choice of remedies” is “fundamental to the design of the Model Law”,
(24) and that this applied both to domestic international arbitration awards and foreign
international arbitration awards. (25)
Given that one of the purposes of the IAA is to incorporate the Model Law in Singapore
legislation, the Court of Appeal held that First Media may resist enforcement of the award
under Sect. 19 of the IAA on the same grounds for resisting enforcement under Art. 36(1) of
the Model Law. (26) It then refused to enforce the award because it found that the Tribunal
had exceeded its jurisdiction by joining the Additional Parties to the arbitration.
The Singapore Court of Appeal handed down its decision on 31 October 2013, four years and
five months after the Tribunal's Joinder Award.
P 366
P 367
4 Hong Kong Proceedings
a Hong Kong enforcement
Astro also sought to enforce the awards in Hong Kong and a number of enforcement orders
were made against First Media between August 2010 and October 2013. Originally, First
Media did not apply to set aside any of the enforcement orders because it believed that it
did not have assets in Hong Kong. It later transpired that First Media did have assets in the
jurisdiction and it made an application to have the enforcement orders set aside, fourteen
months late after the expiry of the time limit.

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 b Hong Kong Court of First Instance
The issues before the Court of First Instance were whether: (i) First Media would be granted
leave to appeal out of time to resist enforcement; and (ii) if the answer to the first question
was “yes”, whether First Media could bring itself within one of the recognized grounds in
Hong Kong for refusing enforcement of an international arbitral award under Sect. 44(2)(b)
Arbitration Ordinance (Cap 341) (AO). (27)
In a decision handed down on 17 February 2015, the Court of First Instance upheld the
enforcement orders and rejected First Media's application for leave to apply out of time to
set them aside on the ground that they had been made without jurisdiction.
The judge, Chow J, answered the second question first. He found that, prima facie, First
Media had brought itself within Sect. 44(2)(b) because the Singapore Court of Appeal had
held that the Tribunal lacked jurisdiction to join the Additional Parties, and that it was not
now open to Astro to dispute this. (28) However, Chow J stated that the Singapore Court of
Appeal's finding was not “definitive”, and that the question of enforcement of arbitral
awards is governed by Hong Kong law and that refusal of enforcement of an award in
another jurisdiction is not a proper ground for refusal in Hong Kong.
Chow J refused First Media leave to set aside the enforcement orders on two grounds: (i)
the “good faith” principle; and (ii) a refusal of an extension of time of the fourteen-day
period stipulated under the AO to have the enforcement orders set aside. (29) In relation to
the latter, Chow J held First Media could not rely on Sect. 44(2) because it had not acted in
good faith. As a result, he exercised his residual discretion to permit enforcement, even
though Sect. 44(2) otherwise applied. (30)
Chow J refused to grant leave out of time because: (a) the delay of fourteen months was
P 367 very significant; (b) First Media's original decision not to challenge the enforcement of the
P 368 Awards in Hong Kong was deliberate; and (c) the Awards had not actually been set aside
in Singapore. (31) First Media appealed to the Hong Kong Court of Appeal (HKCA).
c Hong Kong Court of Appeal
The HKCA heard First Media's appeal in November 2016 and gave its judgment on 5
December 2016. (32) The Court of Appeal overturned Chow J's decision on the good faith
principle, but upheld his decision refusing an extension of time. (33) First Media then
appealed to the Hong Kong Court of Final Appeal.
d Hong Kong Court of Final Appeal
The issue for the Court of Final Appeal (HKCFA) was whether Chow J's reliance at first
instance on the fact that the Awards had not been set aside at the seat of the arbitration
was a proper factor to consider when refusing the extension of time. The HKCFA held that it
was not a proper factor and unanimously allowed the appeal.
The HKCFA held that the choice of remedies principle is subsumed within Sect. 44(2) of the
AO and, therefore, a party may resist enforcement of an arbitral award in Hong Kong, even
if the award was not challenged in the courts of the supervisory jurisdiction.
The HKCFA handed down its decision on 11 April 2018, nearly nine years after the Tribunal's
Joinder Award.

IV Comparative Analysis
The choice of remedies recognized by the courts in Singapore and Hong Kong allowed First
Media to continue to challenge the Awards nearly a decade after the Tribunal's
preliminary jurisdictional decision. Would the outcome have been the same in civil law
jurisdictions in Asia, such as Japan and China – i.e. do these jurisdictions also recognize the
choice of remedies? Also what is the standard of judicial review – a full review or deference
to an arbitral tribunal's decision absent manifest error?
This Section compares remedies available in Singapore, Hong Kong, Japan and China at
each stage of the four stages in circumstances where it has been alleged that the arbitral
tribunal lacks jurisdiction.
P 368
P 369
1 Singapore
Singapore, which is a signatory to the New York Convention, has adopted the Model Law. It
incorporated nearly all the Model Law's provisions in Sect. 3 IAA, thereby recognizing both
positive and negative competence. (34)
The law in Singapore appears to be settled in relation to the standard of judicial review of
an arbitral tribunal's jurisdiction. At the First Stage, if a party submits a dispute to a
national court in breach of an arbitration agreement, the court must stay its proceedings
and refer the matter to arbitration so long as the court, having conducted a prima facie
review, finds the arbitration agreement to be valid.
Judicial review at the outset of the proceedings is made on a prima facie basis as a full
review could “significantly hollow [out]” the competence-competence principle since a

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 party could strategically manoeuvre away from arbitration merely by bringing its claim in
court if the court were to conduct a full review. (35)
On the other hand, once the arbitral tribunal has determined its own jurisdiction,
regardless of whether it does or does not find it has jurisdiction, the court may review the
arbitral tribunal's jurisdictional decision de novo (36) at the Second, Third and Fourth
Stages. The de novo review ensures a court's ability to verify whether a party has truly
forgone its right of access to a court.
A party that wishes to challenge the High Court's judgment on its review of the arbitral
tribunal's jurisdictional ruling at the Second Stage may appeal to the Court of Appeal,
provided that leave to appeal is granted by the High Court. (37) The Court of Appeal is the
highest court in Singapore, so any decision by the Court of Appeal is final and binding. This
is different to the Model Law, which does not provide for a right of appeal to the judicial
review at the High Court at the Second Stage.
In Astro v. First Media, the High Court held that if a party fails to appeal a tribunal's
preliminary ruling on jurisdiction, such ruling will be treated as final between the parties
and a party is then precluded from challenging the tribunal's jurisdiction in a subsequent
annulment action. (38) As this particular issue ultimately did not arise on appeal, the Court
of Appeal observed obiter that a party which fails to avail itself of the active remedy in the
Second Stage would be precluded from doing so in the Third Stage. (39) Thus, pending a
ruling by the apex court of Singapore on a future occasion, the current position appears to
be that Singapore courts are unlikely to afford a choice of the active remedies between the
Second and Third Stage.
What if a party did not participate at all in the arbitral proceedings and therefore failed to
make known its challenge to the tribunal's ruling on jurisdiction? In Rakna Arakshaka
P 369 Lanka Ltd v. Avant Garde Maritime Services (Private) Limited, (40) the High Court dismissed
P 370 an application filed by a non-participating party to set aside an award on jurisdictional
grounds on the basis that the non-participating party had failed to challenge the tribunal's
preliminary ruling on its own jurisdiction within the time prescribed in Sect. 10(3) IAA.
The High Court stated:
“Art 16(3) of the Model Law was intended as an early avenue for parties to
promptly and finally resolve jurisdictional disputes so as to save costs and
time, and it would defeat these purposes to allow a party to reserve
jurisdictional challenges to the award on the merits […] It was therefore
intended that a failure to raise a plea on jurisdiction within the 30-day limit
should have a preclusive effect on subsequent setting aside proceedings at the
seat.” (41)
The Court of Appeal recently overturned the decision of the High Court and upheld the
application by the non-participating party to set aside the final award on jurisdictional
grounds. (42) Departing from the emphasis placed by the High Court on the need to reduce
delays and wastage of costs, the Court of Appeal ruled that a respondent which believes
that the tribunal has no jurisdiction (as the non-participating party in question did) can
legitimately refuse to participate in arbitral proceedings.
The Court of Appeal stated:
“The established rule is that a party to a contract which contains an arbitration
clause is legally obliged to resolve disputes arising under that contract by
arbitration. This principle is enshrined in the IAA via s 6 which directs the court
to stay any court proceedings that have been instituted in breach of an
agreement to arbitrate. While a claimant in this situation is obliged to arbitrate
however, there is no such duty on the respondent. The law does not compel a
respondent against whom arbitration proceedings have been started to take
part in those proceedings and defend his position. If the respondent believes
that the arbitration tribunal has no jurisdiction, for one reason or another, he is
perfectly entitled to sit by and do nothing in the belief that either the
proceedings will not result in a final award against him or that if an award is
made, he will have valid grounds to resist enforcement. Such a respondent may
therefore let the opportunity to challenge the tribunal's jurisdiction afforded to
him by Art 16 go unutilised. This might be a risky course of action to pursue but
it is one that lies within the prerogative of every respondent. If the respondent
is mistaken in his belief, then the arbitration which proceeds without his
participation will end in an award which will be enforceable against him and no
challenge to jurisdiction that he seeks to mount thereafter will be successful. If
in fact he does not have a valid objection, then even if Art 16(3) does not have
preclusive effect, whatever he does would not affect the ultimate result or the
justice of the case.” (43)
P 370
P 371
In terms of the relationship amongst the four opportunities for judicial review, the Court of
Appeal clarified in its judgment in First Media v. Astro that a party has a choice between an
“active remedy” and a “passive remedy” under the IAA. Provided that a party has made its

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 jurisdictional objection known in the arbitration proceedings in a timely manner, it is not
obliged to seek a judicial review of the arbitral tribunal's jurisdictional decision at the
Second Stage or at the Third Stage by seeking to set aside the award on the merits. Rather,
it may wait until enforcement is attempted – i.e. the Fourth Stage – to “passively” resist.
The High Court in Rakna also noted in reliance on the decision of the Singapore Court of
Appeal in First Media v. Astro that a defaulting party who fails to challenge the tribunal's
preliminary decision on jurisdiction does not lose its right to passively resist enforcement
of the award.
The Singapore courts apply different standards of judicial review depending on the stage
of the arbitration proceedings and thereby encourage the arbitral tribunal to rule on its
own jurisdiction first, subject to a full judicial review in the later stages. Among remedies at
the four different stages, while the court recognizes a choice between active remedies (at
the Second and Third Stages) and a passive remedy (at the Fourth Stage), the court by
denying a choice between two active remedies, at least partly incentivizes a party to make
an immediate appeal to the tribunal's jurisdictional decision which permits prompt
resolution of jurisdictional disputes.

2 Hong Kong
China acceded to the NY Convention in 1987 and the Convention therefore applies in Hong
Kong due to its status as a Special Administrative Region of China.
The AO (see above) came into force in 2011 and governs both international and domestic
arbitration. The AO is substantially modelled on the 2006 version of the Model Law and
recognizes both positive and negative competence.
As in Singapore, the position in Hong Kong is that arbitral tribunals are encouraged to rule
on their own jurisdiction first.
At the First Stage, unless it is a clear that an arbitration agreement is “null and void,
inoperative or incapable of being performed”, (44) the court should stay its proceedings in
favour of arbitration. It will then be for the arbitral tribunal to determine whether there is
a valid arbitration agreement. (45)
The arbitral tribunal's preliminary ruling on its jurisdiction is provisionally binding, but it
is subject to challenge in the Hong Kong Court of First Instance, (46) which has authority to
make a final decision in relation to the question of a tribunal's jurisdiction. Unlike in
Singapore, there is no right of appeal against the Court of First Instance's decision. (47)
P 371
P 372
In terms of the relationship amongst the four opportunities for judicial review, as in
Singapore if a party fails to appeal an award on jurisdiction, the award will be treated as
final between the parties and a party is precluded from challenging the tribunal's
jurisdiction in a subsequent annulment action under Art. 34 of the Model Law. (48) Thus, the
Hong Kong court does not afford a choice of remedies between the Second and Third Stage.
It is now clear following the HKCFA's judgment in Astro v. First Media that a choice of
remedies (i.e., between an active remedy whereby an award is set aside, and a passive
remedy whereby enforcement of an award is resisted) is also available in Hong Kong.
It is worth noting that in Hong Kong it may be acting in bad faith for a party who wishes to
subsequently raise a jurisdictional challenge to keep silent about some procedural or
jurisdictional irregularity in the course of arbitration proceedings. (49) On this point the
HKCA made the following obiter observation in its judgment in First Media v. Astro:
“The principle of ‘good faith’ and the ‘choice of remedies’ principle are not
mutually exclusive but complementary. Applying the principle of ‘good faith’
too rigorously whenever there is a failure to pursue active remedies might bring
this into conflict with the ‘choice of remedies’ principle.” (50)
In what circumstances a choice of remedies may be affected by a lack of good faith
requires further consideration by the courts in Hong Kong.

3 Japan
Japan, which is a signatory to the New York Convention, enacted its Arbitration Act (AA) in
2003. The AA is substantially based on the 1986 version of the Model Law and it recognizes
both positive and negative competence-competence. (51)
Unlike courts in Singapore and Hong Kong, courts in Japan will conduct a full review of an
arbitration agreement if a party submits a dispute to the court in breach of an arbitration
agreement. For instance, in a case in which a subcontractor brought court proceedings
seeking payment of its fees under a contract – which included a provision in general terms
that in the event a party considered that it would be unlikely that a dispute could be
resolved by mediation, the parties shall refer the matter to arbitration upon their
agreement – the Tokyo High Court denied the contractor's application to dismiss the
proceedings based on the existence of an arbitration agreement. The court reasoned that
because an agreement to arbitrate precludes a party's right of access to the court, the

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 court should carefully construe the meaning of any purported agreement to arbitrate. (52)
P 372
P 373
Courts in Japan will also conduct a full review of the arbitral tribunal's jurisdiction at the
Second, Third and Fourth Stages. However, the drafters of the AA considered that the
court's decision at the Second Stage in relation to the arbitral tribunal's preliminary ruling
on its jurisdiction would not carry a res judicata effect despite the court having conducted
a full review. (53) This is because the AA provides for abridged judicial proceedings at the
Second Stage without any guarantee of a full hearing, and subject to no appeal, while the
AA stipulates that proceedings at the Third and Fourth Stage include a full hearing and a
right to appeal. (54) However, it is possible that a losing party may be estopped at the
Third and Fourth Stages from raising the same argument raised at the Second Stage if that
argument was dismissed by the court at the Second Stage. (55)
Since the AA provides for abridged judicial proceedings at the Second Stage, the drafters
considered that a party contesting the arbitral tribunal's jurisdiction has a choice of
remedies between the Second and Third Stages. (56) This means that, provided a party has
filed a jurisdictional plea with the arbitral tribunal within time limits, a party who failed to
appeal the arbitral tribunal's preliminary ruling on its jurisdiction to the court will not be
precluded from challenging an award on the merits at the Third Stage on a jurisdictional
ground. This is different to the current position in Singapore and Hong Kong but it has not
been tested before the courts in Japan.
The drafters also interpreted the Model Law to afford a party a choice of remedies
between the Third and Fourth Stages and the AA is drafted in a way which recognizes this.
(57) Again, although this choice of remedies has not been tested by courts in Japan, it
seems likely that a court will recognize a choice of remedies at the Second, Third and
Fourth Stages considering both the plain meaning of the AA (which does not explicitly
preclude such choice of remedies) and the drafters' intent.

4 China
China, which is a signatory to the New York Convention, enacted its Arbitration Law in 1994
(AL) and it came into force in 1995. The AL governs both domestic and international
arbitration. The Supreme People's Court plays a quasi-legislative role in China and from
P 373 time to time issues judicial interpretations of laws related to arbitration. (58) While the AL
P 374 incorporates some Model Law principles there is also significant divergence, including
arbitral tribunals' lack of positive competence-competence. (59)
A party that wishes to challenge the validity of an arbitration agreement may request an
‘Arbitration Commission’, which is considered to be an arbitral institution (as opposed to
an arbitral tribunal), to make a decision or request that the People's Court makes a ruling.
If one party requests an Arbitration Commission to make a decision and the other party
requests a ruling from the People's Court, the People's Court shall rule on the validity of an
arbitration agreement. (60) However, once an Arbitration Commission has determined the
question of the validity of an arbitration agreement, a party may not appeal to the
People's Court for a review of this decision. (61) In this sense there is no judicial review of a
jurisdictional decision by an Arbitration Commission at the Second Stage in China. (62)
A party must raise any challenge to the validity of an arbitration agreement prior to the
first hearing. Failure to do so precludes a party from challenging the arbitral tribunal's
jurisdiction in the People's Court at the Third or Fourth Stage. (63)
If a jurisdictional challenge is submitted to the People's Court before the Arbitration
Commission rules on its jurisdiction, the arbitral tribunal suspends its proceedings
pending the People's Court's review. The People's Court conducts a full review and its
decision binds the arbitral tribunal. Whether the rulings on a jurisdictional issue by the
People's Court bind the court at the Third or Fourth Stage may vary depending on
jurisdictions.
While the AL does not recognize positive competence, the AL does provide for negative
competence. If court proceedings are brought in China in relation to a dispute governed by
a valid arbitration agreement, the People's Court must dismiss the proceedings, save for
instances where the court finds that the arbitration agreement is void (provided that
evidence of the arbitration agreement has been submitted prior to the first court hearing).
(64)
In China, a party contesting jurisdiction has a choice of remedies between the Third and
Fourth Stage provided that the party has submitted a jurisdictional plea to the arbitral
tribunal within the time limits for doing so, i.e. a failure to apply to set aside the award on
the merits will not preclude a party from resisting the enforcement of the award.
P 374
P 375
At the Third and Fourth Stages the court will review the validity of an arbitration
agreement de novo. However, once a party raises a jurisdictional objection at the Third
Stage (setting aside) such party is precluded from resisting an award on the same grounds
at the Fourth Stage. (65)

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 V Conclusion
As international arbitration has played an increasingly essential role in resolving disputes,
not only between private parties but also disputes involving public interests, it would not
be surprising if judicial scrutiny became even more robust. With that backdrop it is
important to revisit the basic principle of competence-competence, and the timing and
extent of judicial intervention, in arbitration to consider how best to streamline the
judicial review process of international arbitration.
The Model Law laid the foundation for the recent tremendous growth of international
arbitration in the globalized economy by limiting court intervention into arbitration
proceedings and by promoting efficiency and harmonization of arbitration practices in
many different jurisdictions.
It is therefore lamentable that a choice of remedies, which courts in two prominent
jurisdictions in Asia have found to be a fundamental part of the architecture of the Model
Law, has caused tremendous delay in resolving the dispute between Astro and First Media.
After more than eight years from the date of the tribunal's preliminary ruling on
jurisdiction First Media was still able to challenge the Tribunal's jurisdiction in the Hong
Kong court.
There are at least two areas of prevailing practices in judicial review that are worth
revising to better strike the balance between efficiency and legitimacy of arbitration: (i)
the standard of judicial review; and (ii) the consequence of a failure to seek remedies at
certain stages.
First, the standard of juridical review. In all four jurisdictions (Singapore, Hong Kong, Japan
and China) a court will conduct a full review of an arbitral tribunal's jurisdiction except at
the First Stage in Singapore and Hong Kong.
In terms of a judicial review at the First Stage the approach of a prima facie review
adopted by the court in Singapore and Hong Kong is highly recommended. Such approach
serves efficiency of arbitration by encouraging the arbitral tribunal to rule on its
jurisdiction first and deters dilatory tactics to bring a claim to the court in contravention of
an arbitral agreement.
In terms of a judicial review at the Second, Third and Fourth Stages, it may make more
sense for a court to determine the standard of judicial review (either a de novo review or a
deferential approach) depending on the nature of jurisdictional disputes, rather than to
apply a full judicial review in a blanket manner. For instance it has been suggested that
admissibility issues, such as issues of whether preconditions to arbitrate have been met,
P 375 are more adequately dealt with by an arbitral tribunal and therefore a court should be
P 376 more deferential to an arbitral tribunal's determination. (66) Some jurisdictions, such
as Canada, in principle have gone as far as to apply deference to the arbitral tribunal's
decisions. (67)
When a jurisdictional decision inextricably relates to disputes on the merits, a court
should take a more deferential approach. For instance, when the parties dispute whether a
certain claim arises out of or in connection with underlying contracts and thereby falls
within an arbitration agreement it is inevitable for the tribunal and the court to analyze
the nature and substance of the claim to rule on the tribunal's jurisdiction. Once the
tribunal has interpreted the underlying contracts and analyzed the claims in full it makes
more sense for the court to defer to such tribunal's findings in the same way as the court
refrains from stepping into the tribunal's ruling on the merits of the case at the Third and
Fourth Stages. This will discourage a party from having two (or more) bites at the cherry by
re-running the same, or similar, arguments in the jurisdictional context.
Second, final resolution of jurisdictional disputes at the early stage of the arbitration
proceedings will bolster both the efficiency and legitimacy of arbitration. To that end,
certain consequences should follow the failure to seek a judicial review in order to
encourage early determination of jurisdictional disputes.
For instance, assuming the Second Stage affords a full judicial review of the tribunal's
jurisdictional determination, the failure to seek a judicial review at the Second Stage
should prevent a dissatisfied party from seeking to set aside an award on a jurisdictional
ground unless there is a justifiable reason for its failure to do so or evolution of the case
warrants a full judicial review. When a party disputing jurisdiction of the arbitral tribunal
has fully participated in the arbitration proceedings such party may bear the
consequences of its failure to seek a judicial review at the Third Stage (active remedy)
without any reasonable reason. The Model Law attaches weight to “freedom of a party to
decide on how to raise its objections.” (68) From the perspectives of early determination of
jurisdictional disputes, however, a choice of remedies afforded under the Model Law is
worth revisiting. The final resolution of a jurisdictional issue at the court of the seat, rather
than the same being left at hands of the courts of the place of enforcement serves not only
efficiency but also consistency of the resolution of jurisdictional disputes.
Competition among arbitral institutions and seats of arbitration in different jurisdictions
has been increasing and it has become government policy in some states to actively
promote arbitration in the hope of turning their jurisdiction into an arbitration hub. It is
time for each country to revisit its own system to see if any reforms to streamline judicial

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 review of jurisdictional challenges in international arbitration can be made. The Model
Law should not impede each country's continued efforts to improve efficiency and
legitimacy of arbitration.
P 376

References
*) Yoshimi Ohara: Partner in Nagashima Ohno & Tsunematsu; serves as both counsel and
arbitrator in international arbitration in various seats under the rules of major
arbitration institutions and the UNCITRAL; currently serves as a Vice-President of the
ICC International Court of Arbitration (ICC), a Board Member of the Japan Association of
Arbitrators (JAA) and the Swiss Arbitration Association (ASA); former Vice President of
the London Court of International Arbitration (LCIA); ICCA Governing Board Member.
The author would like to thank Claire Chong and Mo Yan for their valuable assistance.
**) John Lane: Registered Foreign Lawyer (England & Wales) in Nagashima Ohno &
Tsunematsu's disputes and global investigations practice; contributed Sect. III of this
article.
1) Gary BORN, International Commercial Arbitration, 2nd ed. (Kluwer 2014).
2) New York Convention, Art. II(3).
3) Supra. Simon GREENBERG, “Chapter 4 – Direct Review of Arbitral Jurisdiction Under the
UNCITRAL Model Law on International Commercial Arbitration: An Assessment of Article
16(3)” in F. BACHAND and F. GÉLINAS, eds., The UNCITRAL Model Law After Twenty-Five
Years: Global Perspectives on International Commercial Arbitration (Juris 2013). Nadja
ERK-KUBAT, Julian D.M. LEW, Parallel Proceedings in International Arbitration: A
Comparative European Perspective (Kluwer 2014). George A. BERMANN “The Role of
National Courts in the Threshold of Arbitration”, 28 American Review of International
Arbitration (2017, no. 3).
4) Model Law, Art. 8.
5) New York Convention, Art. V.
6) Model Law, Art. 8.
7) Model Law, Art. 16(1).
8) Model Law, Art. 16(3).
9) Model Law, Art. 16(3).
10) Model Law, Art. 34(2).
11) Model Law, Art. 8.
12) Model Law, Art. 16(3).
13) Model Law, Art. 34.
14) Model Law, Art. 35.
15) Supra.
16) These companies were: “Astro All Asia Networks Plc”; “Measat Broadcast Network”; and
“All Asia Multimedia Network FZ-LLC”.
17) Under Sect. 10 International Arbitration Act 2002 (Singapore), First Media had the right
to appeal this decision.
18) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [223].
19) Astro Nusantara International BV and ors v. PT Ayunda Prima Mitra and ors [2013] 1 SLR
636.
20) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [21].
21) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [1].
22) The Court of Appeal undertook a detailed analysis of the legislative history of Sect. 19
IAA. Sect. 19 can be traced back to Sect. 26 Arbitration Act 1950 (United Kingdom) via
Sect. 20 Arbitration Act 1985 (Singapore) and Sect. 20 Arbitration Act 1953 (Singapore).
By the 1970s, at the latest, it was settled law in the United Kingdom that a “choice of
remedies” was available to a party that wanted to challenge an arbitral tribunal's
jurisdiction. This was likely the position in Singapore until the IAA because both the
Arbitration Act 1953 and the Arbitration Act 1985 closely followed the wording of the UK
Act. The question was whether the position changed when the IAA was promulgated
because the IAA was informed not only by the previous Arbitration Acts in Singapore,
and, ultimately, the UK Act, but also by the Model Law. The Court of Appeal held that it
had not changed, see PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro
Nusantara International BV and ors [2014] 1 SLR 372, [34]-[35], [40], [44] and [55].
23) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [26] and [71].
24) PT First Media TBK (fka PT Broadband Multimedia TBK) v Astro Nusantara International
BV and ors [2014] 1 SLR 372, [65]-[68], [71] and [143].
25) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [71].
26) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [143].

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 27) “Enforcement of a [New York] Convention award may be refused if the person against
whom it is invoked proves … (b) that the arbitration agreement was not valid under the
law to which the parties subjected it or, failing any indication thereon, under the law of
the country where the award was made.”
28) Astro Nusantara International BV and ors v. PT First Media TBK (fka PT Broadband
Multimedia TBK) and ors HCCT 45/2010 (17 February 2015), [95].
29) Astro Nusantara International BV and ors v. PT First Media TBK (fka PT Broadband
Multimedia TBK) and ors HCCT 45/2010 (17 February 2015).
30) Astro Nusantara International BV and ors v. PT First Media TBK (fka PT Broadband
Multimedia TBK) and ors [2018] HKCFA 12, [24]-[32].
31) Astro Nusantara International BV and ors v. PT First Media TBK (fka PT Broadband
Multimedia TBK) and ors HCCT 45/2010 (17 February 2015) [129].
32) PT First Media TBK (fka PT Broadband Multimedia TBK) and ors v. Astro Nusantara
International BV and ors CACV 272/2015 (5 December 2016).
33) The Hong Kong Court of Final Appeal summarized the Court of Appeal's reasons for not
interfering with the exercise of Chow J's discretion to refuse an extension of time: “The
Court of Appeal declined to interfere with Chow J's exercise of discretion and endorsed
his reliance on the three factors mentioned above, namely, (i) the length of the delay,
(ii) the fact that deliberate decision was taken not to apply to set aside within the time
prescribed and (iii) the fact that the awards had not been set aside at the seat of the
arbitration.” See Astro Nusantara International BV and ors v. PT First Media TBK (fka PT
Broadband Multimedia TBK) and ors [2018] HKCFA 12, [46].
34) Model Law, Arts. 8 and 16.
35) Tomolugen Holdings Ltd and anor v. Silica Investors Ltd and ors [2015] SGCA 57.
36) Insigma Tech. Co. v. Alstom Tech. Ltd. [2008] SGHC 134.
37) Sect. 10(4) and (5) IAA.
38) Astro Nusantara Int'l BV v. PT Ayunda Prima Mitra, [2012] SGHC 212, para. 151.
39) PT First Media TBK (fka PT Broadband Multimedia TBK) v. Astro Nusantara International
BV and ors [2014] 1 SLR 372, [130].
40) [2018] SGHC 78 (Quentin Loh J).
41) Rakna Arakshaka Lanka Ltd v. Avant Garde Maritime Services (Private) Limited [2018]
SGHC 78, 61-62.
42) Rakna Arakshaka Lanka Ltd v. Avant Garde Maritime Services (Private) Limited [2019]
SGCA 33.
43) Rakna Arakshaka Lanka Ltd v. Avant Garde Maritime Services (Private) Limited [2019]
SGCA 33, [73].
44) Model Law, Art. 8.
45) Chimbusco International Petroleum (Singapore) Pte ltd v. Fully Best Trading Ltd HCA No.
2416 of 2014, 2 December 2015 (Mimmie Chan J) at [19].
46) Sect. 34(1) and (5) AO.
47) Sect. 34(4) and (5) AO.
48) Gary BORN, International Commercial Arbitration, 2nd ed. (Kluwer 2014) Chapter 7.
49) Anselmo REYES, The Practice of International Commercial Arbitration (Informa Law from
Routledge 2018) p. 173.
50) PT First Media TBK (fka PT Broadband Multimedia TBK) and ors v. Astro Nusantara
International BV and ors CACV 272/2015 (5 December 2016) [69].
51) Arts. 14 and 23 AA.
52) Tokyo High Court decision, 10 July 2013, 2013 (Ne) 2899.
53) Koichi MIKI and Kazuhiko YAMAMOTO Theory and Practice Under New Arbitration Act
(2006) p. 189 (in Japanese).
54) Art. 44(5)(8) AA.
55) MIKI, supra, p. 190.
56) MIKI, supra, p. 191.
57) MIKI, supra, p. 381.
58) Some of the interpretation relevant to arbitration issued by the Supreme Court of
China is as follows: Interpretation of the Supreme People's Court on Certain Issues
Relating to Application of the Arbitration Law of the PRC; Notice of the Supreme
People's Court on Handling by People's Courts of Relevant Issues Pertaining to Foreign-
related Arbitration and Foreign Arbitration; Notice of the Supreme People's Court on
Matters Relating to Setting Aside of Foreign-related Arbitral Awards by the People's
Courts; and Notice of the Supreme People's Court on Implementing the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, to which this State Has
Acceded.
59) Some Arbitration Commissions occasionally delegate their power to make decisions on
jurisdictional challenges to arbitral tribunals. Art. 6.1, of the Chia International
Eeconomic and Trade Arbitration Commission (CIETAC) Rules, Art. 6.4, the Beijing
Arbitration Commission (BAC) Rules.
60) Art. 20 AL. Art. 20 provides for the power of an “Arbitration Commission” to decide the
validity of an arbitration agreement. Lu SONG, “National Report China” in ICCA
International Handbook on Commercial Arbitration (2018).
61) Art. 13, Interpretation of the Supreme People's Court.
62) The People's Court may decide on a jurisdictional issue after the Arbitration
Commission decides its jurisdiction so long as a jurisdictional question arises from so-
called splits between the CIETAC and its former sub-commissions of Shanghai and
Shenzhen.

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 63) Art. 20, AL, Art. 13, Interpretation of the Supreme People's Court. Some institutional
rules require that the jurisdictional objection be raised before the submission of the
first substantive defense (Art. 6.2, the CIETAC Rules).
64) Art. 26 AL.
65) Art. 26, Interpretation of the Supreme People's Court.
66) GREENBERG, supra, p. 88; BERMANN, supra, p. 46; REYES, supra, p. 168.
67) GREENBERG, supra, p. 86.
68) Report of the UNCITRAL Working Group on International Contract Practices on the Work
of its Seventh Session (A/CN.9/246, 6-17 February 1984) at para. 154.

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 12
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 KluwerArbitration

Document information
A Special Role of Party-Appointed Arbitrators?
Publication Alfonso Gomez-Acebo
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introduction
One of the questions addressed at the ICCA Sydney 2018 Congress is “Party Autonomy in
Choosing Decision-Makers: Advantages and Drawbacks – Should it be Revisited?”. This
Bibliographic reference question raises the issue of whether or not it is worth keeping the system of unilateral
Alfonso Gomez-Acebo, 'A appointments in international arbitration as the default method for the constitution of
Special Role of Party- multiple-member tribunals, or keeping it at all.
Appointed Arbitrators?', in The main advantage of unilateral nominations is the possibility for each party to influence
Jean Engelmayer Kalicki and the composition of the arbitral tribunal by alone deciding the identity of some of its
Mohamed Abdel Raouf (eds), members, a possibility that is valued by many arbitration users. (1) Unilateral
Evolution and Adaptation: appointments enable each party to appoint someone with the combination of qualities
The Future of International that, in the eyes of that party, must be present in the arbitral tribunal (e.g., education,
Arbitration, ICCA Congress professional experience or expertise in a given field, personal integrity, knowledge of the
Series, Volume 20 (© Kluwer rules applicable to the merits of the dispute, arbitration practice, gravitas, academic
Law International; background, availability, cultural awareness, communicative or language skills, etc.). This
International Council for allows each party to directly manage the risk of a bad arbitral award, something that is
Commercial important because human beings are fallible, judging can be a difficult task, justice is also
Arbitration/Kluwer Law in the eye of the beholder and, last but not least, the parties rarely have any legal remedy
International 2019) pp. 381 - against a bad arbitral award. Furthermore, the possibility for each party to make a
416 unilateral appointment may also allow each party to feel more reassured that the dispute
will be settled in a fair process.
On the downside, the main drawback of unilateral nominations is the widespread
perception that party-appointed arbitrators are not truly impartial and independent, at
least on appearance. First, right from the outset, party-appointed arbitrators offer one less
objective reason than presiding arbitrators to believe in their impartiality and
independence, as they lack a neutral appointor. Party-appointed arbitrators who are
P 381 under the duty of impartiality and independence must be willing and able to act without
P 382 favouritism or bias towards any of the disputing parties, but their appointment is the
result of each party's natural tendency to choose someone who is believed to be better
(closer or less hostile) to the appointor's case than other possible candidates – better
therefore meaning in this context, as arbitration is normally a zero-sum game (what is
gained by one party is lost by the other), worse for the non-appointing party. Second, most
arbitrators like to be appointed and nowadays virtually all of them receive fees for their
services. Party-appointed arbitrators may have a natural feeling of thankfulness towards
the appointing party for the intangible and tangible satisfaction that the unilateral choice
of that party will bring them. Each party may legitimately wonder if the arbitrator
appointed by the other party will be unwilling or unable, perhaps even unconsciously, not
to reward the sense of professional achievement that the appointment as an arbitrator
procures him (2) with bias in favour of the appointing party, without it being possible to
know or prove – at least in most cases – if such bias exists. Third, it is a fact of life that,
more often than not, each party-appointed arbitrator finds more strengths in the
appointing party's case than the arbitrator appointed by the other party, again without it
being possible to know or prove – at least in most cases – if there is an ethical problem or
rather the arbitrator genuinely sees certain propositions of law or circumstances of fact in
the same way as the party who appointed him. And fourth, even when one can reasonably
suspect that there is an ethical problem, the ethical analysis may not always be an easy
one because some party-appointed arbitrators are cynically disingenuous about their duty
to be impartial at all times (3) while others breach that duty in the understanding that it is
a legitimate defense against a prior breach of fair play by the other. All this creates a
pervasive problem of ethical tension that is unsolvable.
There has been an interesting debate for and against unilateral appointments in
arbitration for quite some time. This debate has been particularly lively in recent years,
since Paulsson lit the fuse in 2010. It has been argued that the system of impartial and
independent party-appointed arbitrators is not worth keeping in international arbitration,
with some critics suggesting that it would be better not to require the duty of impartiality
and independence from party-appointed arbitrators (4) and others deeming it preferable
to do away with unilateral nominations completely or, at least, as the default solution for
the constitution of multiple-member tribunals. (5) Many others, including myself, consider
that the system is worth keeping. (6)
P 382
P 383
It is not my intention here to revisit that debate but rather to simply focus on the role of

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 party-appointed arbitrators, role meaning their mission or job description, what they have
to do to earn their fees. I think that any possible reflection on whether unilateral
nominations are worth keeping depends, to a certain extent, on such role. Whatever one's
preference in relation to unilateral appointments, all progress towards a common
international understanding of what the role of party-appointed arbitrators is, should or
could be, would benefit us all.
In this paper, I attempt to achieve two objectives. They may seem contradictory at first
glance, although actually they are not. First, I would like to create more awareness of the
P 383 present unsatisfactory situation of the role of party-appointed arbitrators, with written
P 384 rules suggesting that all arbitrators have the same mission and non-written rules
suggesting that party-appointed arbitrators have a so-called special role to perform in
relation to the appointing party's case. In this respect it is also a call for clarity, in the
hope that arbitral institutions, soft law producers and arbitration practitioners may
contribute to building trust and value for international arbitration by reducing the
ambiguity and confusion about the role of party-appointed arbitrators. It would be
desirable to reach a common international understanding that, unless otherwise agreed by
the parties, party-appointed arbitrators who are under the duty of impartiality and
independence do not have a duty to do anything special in relation to the appointing
party's case. And second, I would like to share some thoughts on how the role of party-
appointed arbitrators may evolve in the future and, in particular, why a special role of
party-appointed arbitrators combining arbitration and mediation, if clearly and openly
agreed upon by the parties, could bring added value to international arbitration. In my
opinion, a meaningful evolution of party-appointed arbitrators would be for them to be
impartial and independent arbitrators that are nevertheless required to act as mediators
who support their respective appointing parties for the sole purpose of exploring zones of
possible agreement in one or more mediation periods within the arbitration process.

II A Call for Clarity

1 The Long Journey Made to Avoid Confusion About the Role of Party-Appointed
Arbitrators
In private arbitration in ancient Greece, all arbitrators had the two-tier role of mediating
between the parties and, if mediation failed, to adjudicate the dispute. Close links
between unilateral appointors and appointees were common, the appointment often
being based on the existence of family relationships or friendship. (7) Party-appointed
arbitrators were expected to support their respective appointing parties while trying to
mediate between them. However, if mediation failed, they were expected to reach a
decision based only on what they regarded as just, under oath. (8) As explained by
Roebuck:
“Mediation was expected to come first. Private arbitration could be by a single
arbitrator but it was more common for each side to appoint one, or sometimes
two. These were considered to be ‘friends’ or ‘supporters’ of the parties
appointing them, which was not inappropriate because their first responsibility
was to help them reach a settlement. They might take an oath to do so. If
P 384 mediation failed, they would usually go on to adjudicate, even if reluctantly,
P 385 and would then take the oath appropriate for anyone sitting in judgment, as
dikasts did.” (9)
The oath that dikasts (ordinary judges or jurors) had to take was:
“I shall vote according to the laws and the decrees of the Athenian people and
the Council of the Five Hundred, but concerning things about which there are no
laws, I shall decide to the best of my judgment, neither with favor nor enmity. I
shall judge concerning those things which are at issue and shall listen
impartially to both the accusation and the defense. I swear these things by
Zeus, by Apollo, by Demeter. May there be many blessings on me if I keep my
oath, but if I break it may there be destruction on me and my family.” (10)
In the Middle Ages, the role of party-appointed arbitrators became more ambivalent.
Party-appointed arbitrators were often expected to support their respective appointing
parties while seeking conciliation and an amicable settlement before proceeding to judge.
(11) This two-fold role resembles the two-tier role of party-appointed arbitrators in ancient
Greece, although without the clean separation in ancient Greece between the time to
conciliate and the time to adjudicate. Yet, similarly to ancient Greece, the two-fold role of
party-appointed arbitrators in the Middle Ages seems to be related to the broad powers
that arbitrators were frequently given, as ‘peace-makers’ or amiables compositeurs. (12) .
This ambivalence remained during the early Modern era, when arbitrators were generally
appointed as arbitrators and amiables compositeurs as far as it could be useful. (13) As
noted by Ralston: “before the Eighteenth Century it was often very difficult, sometimes
impossible, to clearly separate cases of mediation and of arbitration, either because the
terminology was not yet very well defined, or because the expressions employed were
equivocal, or that the difference was not clearly in the thought of the negotiators”. (14)
P 385

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 P 385
P 386
Historical sources show that, from the seventeenth century onwards, there was criticism in
Europe and the United States of party-appointed arbitrators who acted more like
advocates than judges, both in arbitration between private parties and in interstate
arbitration. Domat complained in the seventeenth century that each party often expected
the arbitrator it appointed to defend its interests and urged party-appointed arbitrators
not to allow the intentions of the parties to prevent them from indeed being arbitrators
obliged to determine the rights of both parties. (15) Russell contended in 1849 that it was
in general much better for the parties to agree on a single arbitrator because of the
frequent confusion of roles incurred by both party-appointed and non-party-appointed
arbitrators. In his view, “notwithstanding the objectionable nature of such a course, the
arbitrators named by the parties often seem to think that they are to represent their
respective nominors, and act rather as advocates than judges, while the third arbitrator
frequently supposes that he is an umpire, and that his active interference is not to
commence until the others have differed finally”. (16) The main case referred to by Russell
in support of his view, which ended with the arbitral award being set aside, contains strong
criticism of the judiciary against such confusion:
“I am, therefore, upon the whole, brought to the conclusion that the objection is
made out, and that the miscarriage arose from the arbitrators mistaking the
duty they had to perform. Holt seems to have thought that his active
interference was not to commence till Keyton and Buxton differed finally, and
Keyton and Buxton that they were to represent their respective nominors, and
act as advocates instead of judges. Courts of law will always construe awards,
and hear motions respecting them with a desire to sustain the judgment of the
tribunal which the parties have selected, and which in so many instances act
most beneficially for them; but I must say that I the less regret the conclusion I
am now brought to, because references of this kind, which are frequently
resorted to, are, in my opinion, senseless and mischievous, founded on a totally
wrong principle, expensive in their operation, and constantly ending in failure
and disappointment.” (17)
Signs of disappointment with the confusion as to the role of party-appointed arbitrators,
when they were obliged to be impartial, were also visible in treaty-based arbitration in the
nineteenth century. A good example of this is provided by Mr. William Henry Wadsworth,
the arbitrator unilaterally appointed by the United States in J.G.A. McKenny v. Mexico,
when he complained of what he saw as “a total misconception of the nature and character”
of his office as a party-appointed arbitrator. J.G.A. McKenny v. Mexico was one of the cases
P 386 between Mexico and the United States that were settled under a Convention between both
P 387 countries of 1868. (18) This Convention provided for an arbitral body comprised of two
commissioners, one appointed by each party, and a third person to act as an umpire when
the first two differed in opinion. It also stated that the party-appointed commissioners
“shall, before proceeding to business, make and subscribe a solemn declaration that they
will impartially and carefully examine and decide, to the best of their judgment, and
according to public law, justice, and equity, without fear, favor, or affection to their own
country”, in all the claims that were brought before them. The umpire, once subsequently
appointed, had to make a solemn declaration similar to the one made by the other two
arbitrators.
In J.G.A. McKenny v. Mexico the claimant sought compensation for the destruction of
property by allegedly Mexican authorities in 1859, while Mexico contended that it was not
liable for such acts because the persons that had destroyed Mr. McKenny's property were
not Mexican authorities, but members of the revolutionary movement which, led by Félix
Zuloaga, had rebelled against the constitutional authorities at the end of 1857. Mr.
Wadsworth, while reasoning his view that there was no liability on the part of Mexico,
rejected the argument raised by the claimant that he, as the commissioner appointed by
the United States, was bound by the recognition of the Zuloaga government which had
been made by a minister of the United States in January of 1858. In Mr. Wadsworth's
opinion, his authority was derived from both the United States and Mexico, he was not
more bound to represent the interests of one party as opposed to the other and he was
obliged to act impartially for the benefit of both countries.
“[I]t is argued by counsel that the act of the United States Government in
recognizing Zuloaga is conclusive upon Mr. Commissioner Wadsworth, because
he is the ‘judicial representative of the United States in this commission,’ and
that for this reason he is precluded from even inquiring into the propriety of the
recognition by the United States of the government of Zuloaga. It is scarcely
necessary to remark that this view is founded upon a total misconception of the
nature and character of the office of a commissioner under the convention
between the United States and Mexico. Mr. Commissioner Wadsworth is not a
‘judicial representative of the United States in this commission,’ nor ‘a judicial
officer’ of that government. The authority which he possesses he derives from
both the United States and Mexico, and is obliged to exercise it impartially for
the benefit of both. He would possess neither office nor authority without the
consent and concurrence of both nations, and is not more bound by the official

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 acts or municipal regulations of the United States than by those of Mexico. He
derives his appointment to a place on the board – a place created by the action
of both governments – from the Government of the United States, indeed, but is
no more bound by this appointment to represent the interests of the United
P 387
States than those of Mexico, and no more bound by the acts of that government
P 388 than his colleague on the board, or their umpire. He is an impartial arbiter
selected by the United States, but deriving all his powers from the United
States and Mexico, nor more the officer of the former than of the latter.” (19)
In the twentieth century there was a long doctrinal discussion as to whether party-
appointed arbitrators should be required to be impartial and independent. The need for
them to have such qualities was probably obvious for many legal minds. National
legislators around mid-century, for instance, usually provided that arbitrators could be
challenged for the same reasons as judges. However, and perhaps paradoxically, some of
the same legal minds preferred not to require the duty of impartiality or independence
from party-appointed arbitrators for the sake of consistency with what they often observed
in practice. The UNIDROIT draft of a uniform law on arbitration of 1954, for example,
allowed the challenge of an arbitrator “if any circumstances exist capable of casting doubt
on his impartiality or independence”, but excluded these grounds of challenge in the case
of party-appointed arbitrators. The reason then given for this exclusion was that party-
appointed arbitrators should not be subject to challenge due to their lack of impartiality
or independence when practice often showed that they did not possess such qualities. As
the UNIDROIT Committee put it at the time:
“it did not seem desirable to the members of the Committee to confine
themselves to a theoretical point of view and it was not possible to ignore the
unsatisfactory practice, according to which arbitrators nominated by the
parties too often tend to conduct themselves as advocates for the parties which
have nominated them, the only really judicial function being then, in truth,
reserved for the third arbitrator”. (20)
Eventually UNIDROIT changed its mind. The UNIDROIT draft of a uniform law on arbitration
of 1957, which was prepared with the participation of the Council of Europe, allowed the
challenge of any arbitrator on the grounds of a lack of impartiality or independence. (21)
Most of the following steps also abandoned the idea of making any distinction between
party-appointed and non-party-appointed arbitrators. The 1966 Rules of the United
Nations Economic Commission for Europe (UNECE) and the 1966 Rules of the United
Nations Economic Commission for Asia and the Far East (UNECAFE ) allowed the challenge
of arbitrators on the grounds of a lack of impartiality or independence irrespective of the
method of appointment of the arbitrator and this same approach was the same one later
adopted by the United Nations Commission on International Trade Law (UNCITRAL). (22)
P 388
P 389
When the drafters of the UNCITRAL Arbitration Rules discussed the question of whether or
not the duty of impartiality and independence should be required from party-appointed
arbitrators, those who considered that the answer to the question should be affirmative –
as it eventually was – contended that the institution of arbitration would gain greater
respect if the arbitrators acted with independence and impartiality; that the obligation
was in accordance with the arbitration law of many countries, it would be widely
acceptable and it would not come into conflict with the law governing the arbitration; and
that the parties, eventually, were free to waive this requirement by agreement. (23) In the
same line Kopelmanas, commenting on the end of the long doctrinal discussion, noted that
to consider party-appointed arbitrators as independent and not as party representatives
was a solution that could perhaps not correspond entirely with “the reality of our days” (“la
réalité de nos jours”) but would contribute to the good administration of justice in
arbitration. (24)
Nowadays the impartiality and independence of arbitrators, however appointed, is clearly
an international standard. Virtually all arbitration rules and national laws require the
impartiality and independence of all arbitrators, without making any distinction between
party-appointed and non-party-appointed arbitrators. This is also the standard set by the
most well-known guidelines on arbitrator conduct, such as the International Bar
Association (IBA) Rules of Ethics for International Arbitrators, the IBA Guidelines on
Conflicts of Interest in International Arbitration and the American Arbitration
Association/American Bar Association (AAA/ABA) Code of Ethics for Arbitrators in
Commercial Disputes. The last Code explains that the term “neutral” is used equivalently
to “independent and impartial” and specifically states that in three-member tribunals
with two party-appointed arbitrators “all three arbitrators are presumed to be neutral and
are expected to observe the same standards as the third arbitrator”, further noting that
“[t]his expectation generally is essential in arbitrations where the parties, the nature of the
dispute, or the enforcement of any resulting award may have international aspects”. (25)
The twentieth century was also witness from its very outset to the interest in separating
arbitration from other systems of dispute resolution, following a trend particularly visible
P 389 in interstate arbitration during the nineteenth century. The clear distinction between
P 390 mediation and arbitration received a strong boost by the Hague Conventions of 1899

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 and 1907. (26) These Conventions promoted the use of different methods to resolve
international disputes between states: good offices and mediation, international
commissions of inquiry and international arbitration. While the role of the mediator
consisted in trying to reconcile the parties only by way of advice, (27) and the role of the
international commissions of inquiry was to issue a report limited to a statement of facts,
leaving the parties free to determine the effects of the statement, (28) the role of the
international arbitrator was to settle disputes on the basis of the respect for law (29) and
by means of a binding arbitral award. (30)
The clear distinction between arbitration and mediation is common ground nowadays.
Furthermore, an increasing number of rules, laws and guidelines make it expressly clear
that arbitrators are not allowed to act as mediators in the same dispute unless otherwise
agreed by the parties. (31)
Alongside the interest to separate arbitration from other alternative dispute resolution
(ADR) mechanisms, there was a movement in the twentieth century to make the rule of law
prevail in arbitration over other forms of adjudicating disputes (e.g., “peace-making” and
amiable composition). The power of the arbitrator to decide ex aequo et bono or as an
amiable compositeur, which used to be the fall-back rule for centuries, became the
exception. The international standard today is that arbitrators can only assume such
power if the parties have expressly agreed to grant it to them. (32)
P 390
P 391
2 Present Ambiguity and Confusion About the Role of Party-Appointed
Arbitrators
One would expect that, after the long journey to achieve international consensus on the
impartiality and independence of all arbitrators, the clean separation between arbitration
and mediation and the arbitrators' duty to decide the dispute by default under the rule of
law, these achievements would have brought the ambiguity and confusion about the role of
party-appointed arbitrators to an end. Of course, there would still be people that do not
honour fair play, which is something we cannot change. But at least the standards would be
clearly set (the role of party-appointed arbitrators as supporters, mediators or peace-
makers for their respective appointing parties cannot be presumed to exist) and these
standards would allow arbitration users to expect all arbitrators to perform the same
fundamental role that anyone would expect from a judge: to decide the case on the sole
basis of the applicable procedural and substantive rules, without leaning or favouritism
towards any party.
However, if we look outside the written rules, what we see makes us doubt whether the
international arbitration community is currently in a position to provide a clear answer to
the question of whether party-appointed arbitrators who are under the duty of impartiality
and independence have the same mission as the presiding arbitrator. And I cannot help
thinking with unease about something the famous anthropologist Margaret Mead once
said, “If one cannot state a matter clearly enough so that even an intelligent twelve-year-
old can understand it, one should remain within the cloistered walls of the university and
laboratory until one gets a better grasp of one's subject matter,” because some seemingly
non-written rules make me unable to find an answer to that question that is clear enough
to pass Mead's twelve-year-old test.
A significant number of members of the arbitration community have suggested that party-
appointed arbitrators have a so-called special role to perform which is compatible with
their impartiality and independence. It is a presumed special role because arbitration
rules and laws do not provide for any such thing as a different arbitrator role depending on
the method used for appointment. This special role is usually formulated in terms of a
specific behaviour that each party-appointed arbitrator may deploy in relation to the
appointing party's case. In particular, many authors consider that party-appointed
arbitrators have the special role of ensuring that the appointor's case is properly
understood by the other members of the arbitral tribunal. Promoters of such a special role
normally justify it by suggesting that it is implicitly accepted by the parties and good for
the arbitration process – a sort of reasonable unwritten rule of the game.
Explanations of this so-called special role are found since the early 1970s up to the present
day. For De Vries, “[t]he party-appointed arbitrator must be truly impartial yet ensure that
in the course of the tribunal's deliberations full understanding is attained by the entire
tribunal of the presentation of facts and law advanced by his nominator”. (33) For Blessing,
the impartiality that is expected from the party-appointed arbitrator “does not prevent
P 391 the arbitrator from examining the arguments advanced by ‘his party’ with particular care,
P 392 seeing to it that they are carefully examined and weighed within the framework of the
deliberations”. (34) Werner conceived the role of a party-appointed arbitrator as someone
“who must be independent enough to award against the party who appointed him should
the merits of the case warrant it, but who will ensure that all the arguments of his party get
a thorough and fair hearing”. (35) In Bond's view the party-appointed arbitrator should be
someone who “will endeavor to see that this party's position [the appointing party's
position] is clearly understood by the arbitral tribunal”. (36) Lowenfeld noted that a party-
appointed arbitrator has a special role consisting in giving confidence to the appointing
party in that he will carefully consider its case, and also serving as a cultural translator:

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 “While the same legal and ethical duties in principle apply equally to party-
appointed arbitrators, it is nevertheless recognized that they have a special
role to perform. In particular, the party-appointed arbitrator must give
confidence to the party who appointed him, in that he will listen carefully to
that party's presentation and will study any supporting documents with care. In
this way, the two party-appointed arbitrators attempt to offer, if not ensure a
fair hearing and sound decision where all evidence and arguments are
considered. Second, the arbitrator serves as a translator, not of language only,
but rather of legal and business culture between lawyers from different
countries.” (37)
This author also notes that one role that is proper for a party-appointed arbitrator is to
ensure that the appointing party's case is adequately heard. (38)
Blackaby and Partasides, sharing the vision of Redfern and Hunter, note that party-
appointed arbitrators should be able to ensure that the case presented by the party that
appointed them is properly understood by all members of the arbitral tribunal:
“An arbitrator nominated by a party will be able to make sure that the arbitral
tribunal properly understands the case of the appointing party. In particular,
such an arbitrator should be able to ensure that any misunderstandings that
may arise during the deliberations of the arbitral tribunal (for example because
of differences of legal practice, culture, or language) are resolved before they
P 392 lead to injustice. In this way, a party-nominated arbitrator can fulfil a useful
P 393 role in ensuring due process for the party that nominated him or her, without
stepping outside the bounds of independence and impartiality.” (39)
Bishop and Reed note that the party-appointed arbitrator may “serve” the appointed
party in the limited sense of ensuring that the party's case is understood and carefully
considered by the tribunal:
“It is also generally recognized that the party-appointed arbitrators may ‘serve’
the appointing party in the limited sense – consistent with deciding the case
impartially – of ensuring that the presiding arbitrator selected will not be
inimical to the party's case, ensuring that the party's case is understood and
carefully considered by the panel, ‘translating’ the party's legal and cultural
system (and occasionally the language) for the benefit and understanding of the
other arbitrators, and ensuring that the procedure adopted by the panel will
not unfairly disadvantage the appointing party.” (40)
For Lew, Mistelis and Kröll, “[b]y working as a cultural interpreter the party appointed
arbitrator can and should help to ensure that the arguments [of the party that appointed
him] will be properly appreciated and considered during the tribunal's deliberations”. (41)
Also putting a special emphasis on the cross-cultural encounters that take place in
international arbitration, De Fina suggests that party-appointed arbitrators, while they
cannot be an advocate or a servant of the appointing party, can and should fulfil the role
of ensuring that the contentions and arguments of the appointing party are fully
understood and appreciated. (42)
For Seppälä, “[t]he duty of any party-nominated arbitrator should be to ensure that all of
the arguments made by the party who nominates him or her are fully considered, properly
weighed and taken into account by the tribunal in making its decisions”. (43) For Júdice
and Calado, party-appointed arbitrators, notwithstanding their duty of impartiality and
P 393 independence, have the function of ensuring that the position of the appointing party is
P 394 duly known, taken into account and understood by the other members of the tribunal.
(44) Draetta criticizes party-appointed arbitrators who assume the role of an extra
advocate for his appointing party by “uncritically defending the party's arguments with a
pleading stance” while also suggesting that party-appointed arbitrators must ensure that
the arguments of the appointing party are taken into account and given due consideration.
(45)
Rogers has gone a step further by suggesting that party-appointed arbitrators can perform
the function of acting as a devil's advocate that challenges, within the tribunal, the
positions that are harmful to the appointing party's position. (46) Conthe, Elsing and
Shchavelev concur with this vision. (47)
I understand all the above-mentioned opinions that support a special role of party-
appointed arbitrators in relation to the appointing party's case. However, I find it difficult,
with great respect, to agree with the suggestion that a special role of party-appointed
arbitrators should be presumed to exist. My disagreement does not lie with the idea itself
that a special role may exist but rather with the outright presumption of its existence. This
presumption carries the risk of bringing ambiguity and confusion to the arbitral process
because it condones the party-appointed arbitrator's conduct of doing something special
in relation to the appointing party's case irrespective of whether or not such conduct is
expressly provided for or allowed under the rules governing the arbitration.
The presumption of a special role of party-appointed arbitrators that is conceived only in
terms of cultural assistance is not of great concern and may even be considered

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 reasonable, although it seems unnecessary to me. When the party-appointed arbitrators
share a common cultural background with their respective appointing parties, as is often
the case, each party-appointed arbitrator is probably the member of the tribunal who is
exposed to fewer risks of a cultural misunderstanding affecting the party who appointed
him; and in such capacity, if the risk of such a misunderstanding ever arises and he can
clarify it, he must help the other members of the tribunal to get out of the dark. Attentively
considered, a party-appointed arbitrator who is in a position to perform this special role
when necessary must do so because, otherwise, he would be acting with bias. Hence, it
would not be necessary to call this cultural assistance a special role, all the more so when
such cultural assistance should take place regardless of whether it benefits the appointing
party's case or not.
However, the presumption of a special role of party-appointed arbitrators that goes
beyond a mere cultural translation, such as that of paying particular attention or care to
the appointing party's case in some respect, faces more relevant difficulties. In particular,
the special role consisting of each party-appointed arbitrator ensuring that the
P 394 appointor's case is properly understood by the other members of the arbitral tribunal
P 395 poses three problems: it can cause confusion as to its compatibility with the impartiality
and independence of the arbitrator, it can cause an imbalance in the arbitral procedure
and it introduces a bias into the arbitration in the form of an advantage for the party
appointing the best arbitrator.
First, the presumption of a special role consisting of making sure that the appointor's case
is properly understood by the other members of the arbitral tribunal can cause confusion
as to its compatibility with the arbitrator's impartiality and independence. Does such a
special role not resemble what non-neutral party-appointed arbitrators have always done?
The point was fairly made by Branson when he noted that the special role of party-
appointed arbitrators is sometimes formulated in the field of international arbitration not
only in terms of paying particular attention to the appointing party's case, but also in
terms of being “sympathetic” to the appointing party. This observation led him to wonder
whether the “sympathetic” reference in international arbitration does not really amount to
advocacy inasmuch as such term is used as encompassing some kind of special action by
the party-appointed arbitrator in relation to the appointing party's case. (48) Along the
same lines, Rau observed the tension between “an official rhetoric of independence” and
“a tolerated latent sympathy”, and warned against the ambiguities of the system of
impartial and independent party-appointed arbitrators. (49)
Against these concerns it could be said that the formulation of “being sympathetic” has
normally been used in the context of unilateral nominations in international arbitration to
express how the appointing party pictures the arbitrator in its mind, not how the arbitrator
actually sees the case. (50) There is indeed a common international understanding that a
party's attempt to appoint someone “in sympathy” with its case does not allow that party,
nor anyone acting on its behalf, to ask the prospective candidates for appointment as
arbitrators about their views on the substantive and procedural issues that are expected
P 395 to arise in the case. (51) Furthermore, none of the authors who accept that party-appointed
P 396 arbitrators have a special duty of care with regard to the appointing party's case
suggest in the slightest way that party-appointed arbitrators may be allowed to favour
their respective appointing parties by giving support for or recommendation of their
respective causes. (52)
However, the foregoing remarks do not remove the risk of confusion, as the boundaries of
what is appropriate to ask a prospective arbitrator during a pre-appointment interview
are blurry and there is not even an international consensus on the inappropriateness of
certain topics of discussion, such as the specific facts related to the dispute or prior views
expressed on a particular legal issue. (53) So when it is said, as Shani notes, that party-
appointed arbitrators “are often nominated because of their presumed dispositions”, (54)
we do not know what is presumed and what is not. We actually do not know if different
arbitration users would understand the following remarks by Draetta in the same way: “The
system according to which, in a three-member arbitration panel, each party appoints an
arbitrator and the two so appointed nominate the President is precisely aimed at ensuring
that each party-appointed arbitrator, though remaining independent and impartial, has
views on legal, commercial and cultural issues which make him/her particularly responsive
to his/her nominating party.” (55) This uncertainty creates a risk of double yardsticks that
can undermine the parties' trust in the ability of the system to serve as a fair dispute
resolution system.
Second, the presumption of a special role consisting in making sure that the appointor's
case is properly understood by the other members of the arbitral tribunal can cause an
imbalance in the arbitral process. Given that the rules governing the arbitration do not
normally provide for any such thing as a duty of each party-appointed arbitrator to inspire
particular confidence in the appointing party or pay particular attention to the appointing
party's case, the situation may arise in which one of the party-appointed arbitrators works
on the assumption that he has such a special role to perform whereas the other works as if
P 396 his role were the same as the presiding arbitrator. This imbalance can produce injustice
P 397 and should be avoided. The status of party-appointed arbitrators must not be defined
on the basis of assumptions of what the parties' expectations are, given that these
presumed expectations may actually be expectations of none of the parties or of only

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 some of them.
The risk of an imbalance might not disappear even if all the parties think that a special
role of party-appointed arbitrators exists, as they could still see in different ways what
specific behaviour this special role allows. Diverging approaches on the understanding of
what party-appointed arbitrators are allowed to do differently from the presiding
arbitrator are likely to bring confusion to the arbitration and jeopardize a level playing
field, a process in which the disputing parties can legitimately expect to be required to
follow the same rules and be given equal opportunity to present their case. Where should
we draw the line between a party-appointed arbitrator's acceptable behaviour and
misbehaviour when performing his supposedly existing special role? Should we draw the
line applying the vision of a special role of party-appointed arbitrators consisting in them
acting only as cultural interpreters? Should we apply the broader vision of a special role
consisting in ensuring that the position of the appointing party is properly understood by
the other members of the arbitral tribunal? Should we draw the line applying the even
broader view that suggests that the party-appointed arbitrator can go as far as acting as a
devil's advocate that challenges, within the tribunal, the positions that are harmful to the
appointing party's position? Or should we apply Minoli's old vision that the parties'
agreement to have unilaterally appointed arbitrators on the tribunal encompasses in most
cases a common understanding that each party may expect the arbitrator appointed by it
to give special consideration to the aspects of the case that are favourable to that party's
position (“envisage spécialement les aspects du cas traité qui lui sont favorables”) and, at
the same time, accept that the arbitrator appointed by the other party will do likewise in
the opposite direction (“dans le sens contraire”)? (56) There is again a risk of double
yardsticks that may jeopardize the parties' trust in the ability of the system to serve as a
fair dispute resolution system.
Third, the presumption of a special role consisting in making sure that the appointor's case
is properly understood by the other members of the arbitral tribunal introduces a bias into
the arbitration in the form of an advantage for the party appointing the best arbitrator.
The presumption of a special duty of care on the part of each party-appointed arbitrator
with regard to the appointing party's case implies that the smarter or more hard-working a
party-appointed arbitrator, as compared to the other party-appointed arbitrator, the
better the position of the appointing party in comparison to the other party. A special role
that carries such a risk, in my opinion, should not be presumed.
This risk is a subtle one. An impartial and independent party-appointed arbitrator who
believes that he must perform the special role of making sure that the other members of
the tribunal properly understand the case of the party who appointed him may reasonably
wish to first make sure that he thoroughly understands that case; and, given that a day has
twenty-four hours for everyone, this may easily lead him to devote more time and
attention to the “case” of the party who appointed him than to that of the other party.
P 397 While both party-appointed arbitrators may genuinely be impartial and see such a special
P 398 role just as an allocation of tasks within the arbitral tribunal, the differences between
both party-appointed arbitrators may introduce a bias into the arbitral process, a kind of
consequential bias, in the form of an advantage for the party who chooses the most
intelligent, diligent or zealous arbitrator. Ironically enough, the same sort of advantage
that results from the parties' choice of counsel.
In short, as I have expressed elsewhere, I believe that the presumption of a special role of
party-appointed arbitrators consisting in a special duty of care by them with respect to
the appointing party's case is not good for international arbitration and should be
rejected. (57) I agree with Menon when he says that “to the extent it is suggested that a
party-appointed arbitrator should see himself as having a special duty to one of the
parties, I remain fundamentally uncomfortable with such a view”. (58) Arbitration users and
observers may raise their eyebrows in distrust when they read in so many places – none of
which are within the rules governing the arbitration proceedings – that party-appointed
arbitrators have the same obligation of impartiality and independence as the presiding
arbitrator but, unlike the latter, they have an unwritten special duty of care towards their
respective appointing parties' cases. This theoretical construction is confusing and
unnecessary. Unless the arbitration agreement or the arbitration rules provide otherwise,
the only acceptable presumption is that impartial and independent party-appointed
arbitrators must attempt to give equal confidence to all parties in that they will carefully
listen to and study their case, and must also attempt to ensure that all the parties' cases
are properly understood by all the members of the arbitral tribunal.
Here comes a call for clarity. Given the circumstances, it is probably not enough for
arbitration rules and laws to require a duty of impartiality and independence from all
arbitrators, no matter how they are appointed, nor is it probably even enough to include in
the rules governing the arbitration proceedings that party-appointed arbitrators must not
act as advocates for appointing parties nor advise them on the merits or outcome of the
dispute, as some rules and laws already do. (59) I think that we need an active change to
make it clear to arbitration users that, unless otherwise agreed by the parties, the role or
mission of party-appointed arbitrators is the same as that of the presiding arbitrator. (60)
This active change could be made by leading arbitral institutions and organizations such
P 398 as UNCITRAL given their important role in defining and refining the rules governing
P 399 international arbitration proceedings. Whatever their view may be on the question of

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 whether unilateral appointments should be the default mechanism for the constitution of
arbitral tribunals, both those that answer yes (e.g., International Chamber of Commerce
(ICC), International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL) and no
(e.g., London Court of International Arbitration (LCIA)) could build trust and value for
arbitration if they made it clear to arbitration users that, unless otherwise agreed by the
parties, (i) the role or mission of party-appointed arbitrators is the same as that of the
presiding arbitrator, (ii) a special role of party-appointed arbitrators whereby they are
supposed to do something special in relation to the appointing party's case cannot be
presumed and is not allowed and (iii) party-appointed arbitrators do not have any more
responsibility towards the appointing party than they have towards the non-appointing
party.
Soft law producers like the IBA and the Chartered Institute of Arbitrators (CIArb) could also
join in on this task of clarification. They could and probably should help to eliminate the
ambiguity about the role of party-appointed arbitrators, especially because they have a
powerful influence on what may be taken as best international arbitration practice and I
feel, with great respect, that they might have partly contributed to that ambiguity. It
should be recalled that the IBA Rules of Ethics for International Arbitrators, the IBA
Guidelines on Conflicts of Interest in International Arbitration and the IBA Guidelines on
Party Representation in International Arbitration, as well as the Chartered Institute of
Arbitrators (CIArb) Guidelines on the Interviewing of Prospective Arbitrators, have for years
embraced the presumption that party-appointed arbitrators can do certain things relating
to the appointing party that the presiding arbitrator cannot (unilateral pre-appointment
interviews and post-appointment discussions about the choice of the presiding arbitrator)
even though the rules governing the arbitration proceeding do not allow such things, as
long as the rules do not prohibit them. (61) Perhaps the IBA and the CIArb could in the
future include in their recommendations a statement clarifying the role of party-
appointed arbitrators or, at least, a clarification that their acceptance of the presumption
of appropriateness of certain unilateral communications between appointors and
appointees must not be seen as tacit authorization for party-appointed arbitrators to
assume a special role of making sure that the appointing party's case is properly
understood by the other members of the arbitral tribunal or, in more general terms, any
special role consisting of doing something special in relation to the appointing party's
case.
P 399
P 400

III A Proposal for the Future

1 A Special Role of Party-Appointed Arbitrators for the Future?
I have explained above why, in my view, there should be no presumption of a special role
of party-appointed arbitrators and why their role, unless otherwise agreed by the parties,
should be the same as that of the presiding arbitrator: to decide the case on the sole basis
of the applicable procedural and substantive rules and without leaning or favouritism
towards any party.
The question is now a different one and focus on the “unless otherwise agreed by the
parties” appearing in the previous paragraph. Still thinking about the future of
international arbitration, which is the topic of the 24th ICCA Congress (Evolution and
Adaptation: The Future of International Arbitration), is it worth exploring possible special
roles of party-appointed arbitrators that we may recommend arbitration users to
expressly agree on, at least in some cases? And if this effort is worthwhile, what could those
special roles be?
The approach to these questions requires a taste for theoretical discussion but also a good
dose of healthy pragmatism. For the arbitration users who believe that party-appointed
arbitrators should not have the same role as the presiding arbitrator – and these users
exist and their number is probably not negligible –, is it worth offering or encouraging them
to expressly agree on special party-appointed arbitrator roles that could be useful to
better serve their needs? Does this make sense as a way of arbitration adapting itself to
the evolving needs of users in both commercial and investor-state arbitration?
There is a wide range of options when thinking about possible special roles of party-
appointed arbitrators. One of them, almost always inadvisable, is to agree to have partisan
party-appointed arbitrators on the arbitral tribunal. Contrary to oversimplifications that
are sometimes made, partisan party-appointed arbitrators have rarely been throughout
history mere representatives or advocates of the appointing party, something that indeed
makes no sense. In most cases, they have been arbitrators that defended the interests of
the appointing party while at the same time being fully or partly entitled to vote against
the appointing party without the need for its permission if they considered it appropriate.
They have traditionally had their own place in arbitration and they should keep it, as tiny
as this place may be in current international arbitration practice. However, partisan party-
appointed arbitrators are generally unadvisable, for one reason because of the high
degree of uncertainty about what they are allowed to do. “Partisan he may be, but not
dishonest,” as the Court of Appeals of New York in the Astoria case nicely put it. (62) The
problem comes later, when defining “partisan” and “dishonest”. Even in national contexts

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 like domestic US arbitration, where parties and arbitrators have a common cultural
background that may allow all of them to have a similar understanding of what fair
P 400 partiality may be, there has been confusion and disagreement about the role of “non-
P 401 neutral” party-appointed arbitrators (63) and they have been criticized as “something
of an embarrassment” (64) and a system leading “to all kinds of mischief, including overly
contentious proceedings, gamesmanship, additional expense and delay”, (65) with the
practice of non-neutral party-appointed arbitrators being progressively abandoned. (66) If
the parties in a particular case want partisan party-appointed arbitrators on the arbitral
tribunal, they may for example give their consent to the non-neutral party-appointed
arbitrators allowed under Canon X of the ABA/AAA Code of Ethics for Arbitrators in
Commercial Disputes (2004), or adopt the formula suggested elsewhere that each party-
appointed arbitrator “is expected to understand and support” the appointing party's
position. (67) However, none of this will probably be enough in most cases to deter future
deceit. The parties will have to take utmost care to make it clear what the arbitrators can
do and where the line between fair and unfair partiality is drawn.
Except in very exceptional circumstances, arbitration agreements providing for biased,
partial, partisan or non-neutral party-appointed arbitrators are a step backwards in
international arbitration and cannot be wisely recommended to arbitration users who
believe that party-appointed arbitrators should not have the same role as the presiding
arbitrator. Only impartial party-appointed arbitrators are generally advisable. For good
reason, the standard of impartiality and independence of all arbitrators currently reigns
by default. The adoption of this standard is the best way to achieve a common
international understanding of the rights and obligations of party-appointed arbitrators
and thereby to ensure that arbitration is a truly neutral dispute resolution system, because
the uncertainty about what a fair biased party-appointed arbitrator may or may not do is
too great. Fouchard noted in 1995, speaking of arbitrators in general, that “[l]e statut de
l'arbitre international doit tendre naturellement a l'universalité”. (68) This is particularly
P 401 desirable in party-appointed arbitrators when the parties have not reached any specific
P 402 agreement on what they are expected to do. Furthermore, this standard was also
adopted and should serve as a valuable means to protect party-appointed arbitrators
against pressure from the appointing party. (69)
Another option, when considering possible special roles of party-appointed arbitrators, is
to expressly accept what so often nowadays seems to be an implicit or non-written rule of
the game: that party-appointed arbitrators have the special role of ensuring that the
appointing party's case is properly understood by the other members of the arbitral
tribunal. This could be expressly provided for in the arbitration agreement, the arbitration
rules or any other form. (70) However, I do not see much benefit from this possibility, nor
from expressly agreeing a special role of party-appointed arbitrators acting as devil's
advocates in favour of their respective appointing parties. In my opinion, these special
roles are dangerously close to advocating for the appointing party. Their theoretical
underpinnings are different from that of advocacy but not their effects. The adjudicative
role of an arbitrator requires him to determine the rights and obligations of all the parties.
If we wish that each and every member of an arbitral tribunal may be able to properly
fulfil this duty, I find it difficult for an arbitrator to form his own judgment about the rights
and obligations of all the parties if, at the same time, he also has a special duty to take
particular care to ensure the proper understanding of the appointing party's case by all
the members of the arbitral tribunal, let alone if he has to play devil's advocate. To make
sure that the appointing party's case is properly understood by the other members of the
tribunal or to play devil's advocate in favour of the appointing party's case seems to me to
be similar to attempting to get as much of what the appointing party claims as possible.
Every successful step of the party-appointed arbitrator in performing this special role may
be one step closer to improving the outcome of the arbitration for the appointing party.

2 A Proposal of a Special Role of Party-Appointed Arbitrators Combining

Arbitration and Mediation
a Some brief preliminary remarks on concepts and terminology
P 402 The combination of arbitration and mediation has been increasingly researched in recent
P 403 decades. (71) There are several methods combining arbitration and mediation, often
described using a kind of alphabet soup terminology: Med-Arb (M-A, M/A), Arb-Med-Arb (A-
M-A, A/M/A, AMA), Co-Med-Arb, etc. (72)
In this paper the terms “mediation” and “conciliation” are used indistinctively to refer to
the process whereby one or more persons assist the parties in trying to reach a settlement
of their dispute. This broad notion of “conciliation” and “mediation” is the one adopted by
the UNCITRAL Model Law on International Commercial Conciliation:
“For the purposes of this Law, ‘conciliation’ means a process, whether referred
to by the expression conciliation, mediation or an expression of similar import,
whereby parties request a third person or persons (‘the conciliator’) to assist
them in their attempt to reach an amicable settlement of their dispute arising
out of or relating to a contractual or other legal relationship. The conciliator
does not have the authority to impose upon the parties a solution to the
dispute”. (73)
P 403

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 P 403
P 404
Med-Arb is a process in which the parties first attempt to resolve the dispute through
mediation and, if mediation fails, it is decided by arbitration, with the same third person
assuming both roles of arbitrator and mediator: firstly serving as a mediator to assist the
parties in trying to reach a settlement and later, if necessary, changing hats and serving as
an arbitrator to resolve the dispute. (74)
Arb-Med-Arb is an arbitration process in which the parties agree to attempt to resolve the
dispute through mediation at some point during the course of the arbitration proceedings.
If the mediation is successful the parties may request the arbitrator to record their
settlement as a consent award and, in any event, the arbitration comes to an end. If
mediation fails, the arbitrator resumes the arbitration proceedings and renders an arbitral
award. The arbitrator and the mediator in this variant are often different persons (75)
although nothing prevents the parties from agreeing otherwise. (76)
Co-Med-Arb is a process in which two different people, one acting as a mediator and the
other as an arbitrator, work together but separately to resolve the dispute. They jointly
appear before the parties and organize an information exchange between them. If the
mediator does his job and is unable to get the parties to reach a settlement, the dispute is
decided by the arbitrator. (77)
b A peculiar form of Arb-Med-Arb: Impartial arbitrators and partial mediators
In my opinion, the special role of party-appointed arbitrators that may in the future be of
more practical interest for some arbitration users, those who believe that party-appointed
arbitrators should not have the same role as the presiding arbitrator, is a special role
combining arbitration and mediation in a peculiar – and presently uncommon – type of
Arb-Med-Arb.
In this arbitration process, with a three-member tribunal, the parties would clearly and
openly agree to have impartial and independent party-appointed arbitrators that are
P 404 nevertheless required to act as mediators who support their respective appointing parties
P 405 for the sole purpose of exploring zones of possible agreement in one or more mediation
periods – mediation windows – within the arbitration process.
A fundamental requirement of the parties' agreement should be the clear separation of
roles at different moments in time. The party-appointed arbitrators would have the normal
role of an impartial and independent arbitrator during the entire arbitration proceedings
except for the mediation periods or windows, in which they would be required to act as
mediators supporting their respective appointing parties. The party-appointed arbitrators
would not be allowed to perform both roles simultaneously at any single time.
This special role is similar to the normal two-tier role that was performed by party-
appointed arbitrators in ancient Greece, where they were expected to support their
respective appointing parties while trying to mediate between them but, if mediation
failed, they were obliged to reach a decision based only on what they regarded as just,
under oath, if they had to make an award. However, unlike the system in ancient Greece,
party-appointed arbitrators with this special role would be arbitrators under the duty of
impartiality and independence from the commencement of the arbitration, as is standard
procedure today. They would only be allowed to act with bias in favour of their respective
appointing parties when acting as mediators during the mediation windows. This is
advisable to enhance the fact that the party-appointed arbitrators are first and foremost
arbitrators with the same duty of impartiality and independence as the presiding
arbitrator throughout the entire arbitration proceedings, with the only exception of the
mediation periods.
The parties would be free to agree on the manner in which the mediation windows are to
be included in the arbitration and what activities within the mediation windows must take
place. This could be discussed and agreed in writing by the parties in their arbitration
agreement, or later discussed and agreed with the arbitral tribunal at some – preferably
early – procedural stage. The Centre for Effective Dispute Resolution (CEDR) Rules for the
Facilitation of Settlement in International Arbitration, for example, state that, at the first
procedural conference, the arbitral tribunal (i) shall “where appropriate, discuss with the
Parties how other dispute resolution processes used to facilitate settlement might be
accommodated at an appropriate time within the procedure for the arbitration (for
example by way of a Mediation Window)” and (ii) “insert a Mediation Window in the
arbitral proceedings when requested to do so by all Parties in order to enable settlement
discussions, through mediation or otherwise, to take place”. (78) The possibility of
including the mediation windows in the arbitration may also be suggested by the arbitral
tribunal as one of the various case management techniques that arbitrators may apply in
ICC arbitrations. (79)
The exact number, timing and duration of the mediation windows should be determined in
P 405 each particular case. Whatever the specific arrangement may be, it would be required in
P 406 all cases to have been clearly determined when each mediation window starts and
ends. Furthermore, it seems generally advisable to start the first mediation window only
after the first round of written submissions, in which the parties have made a full
substantive presentation of their positions and evidence. It also seems advisable to agree,

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 when appropriate, that the mediation window periods will not affect other time periods in
the arbitration proceeding.
The minimum content of one mediation window would include two things: a meeting
between each party-appointed arbitrator and his appointing party and a meeting between
the two party-appointed arbitrators.
With respect to the caucusing, the agreement of the parties should provide that each
party-appointed arbitrator, when acting as a mediator in the mediation periods or
windows: (i) is authorized to conduct separate or ex parte meetings (caucuses) or other
types of unilateral communications with the appointing party or its representatives; (ii) is
obliged to maintain the confidentiality of all that comes to his knowledge in the course of
those meetings or communications, including all information and documentation received
from the appointing party or its representatives and all views expressed by the appointing
party or its representatives; and (iii) is also obliged to keep confidential all assessments
and proposals made and views expressed by him in the course of those meetings or
communications.
The mission of the party-appointed arbitrators, while performing their role as a mediator
during the caucus, would basically be to assist the appointing party in exploring ways of
ending the arbitration with a settlement agreement. They would be required to listen to
the appointing party and assist it in exploring zones of possible agreement with the other
party. In doing this, the party-appointed arbitrator could take a facilitative role or rather a
more proactive evaluative role that may include expressing opinions on the merits of the
case, suggesting solutions or making proposals for possible settlements, providing
preliminary views on the party's perceptions of the strengths and weaknesses of its case or
whatever other activity deemed useful for the purpose of identifying zones of possible
agreement.
Whether the mediator should adopt a more facilitative or more evaluative approach would
depend to a large extent on the circumstances of each particular case. It would be safer for
both party-appointed arbitrators to adopt the same approach, but the parties could agree
to allow each party-appointed arbitrator to use the mediation techniques he considered
more appropriate in the light of the cultural background of the appointing party or any
other factors. The techniques that best help the party to enlarge its zone of possible
agreement may be different from one party to another.
In any event, a minimum evaluative role would always appear to be advisable, at least in
terms of assessing and letting the party know what the party-appointed arbitrator
considers to be clearly unrealistic aspirations in the light of the facts or applicable legal
rules. This could also be achieved through a facilitative role by the mediator asking the
right – uncomfortable – questions at the right time. A shot of reality, even if only a
preliminary and non-binding view of the party-appointed arbitrator, would be most
helpful to later face the discussion of the sacrifices that the party may be willing to accept
in order to reach a settlement.
After the caucus, the party-appointed arbitrators would meet and explore whether there
P 406 are any common zones of possible agreement. The party-appointed arbitrators' mission
P 407 during this meeting would be to attempt to help the parties reach a resolution of the
dispute that they all consider acceptable, within the boundaries of their confidentiality
obligations.
The third presiding arbitrator would not serve as a mediator nor participate in the
mediation activities with the parties or the party-appointed arbitrators at any time during
the proceedings. Neither would he be informed of the content of any settlement
discussions, offers, proposals or other statements made during the mediation window or
windows. Nevertheless, as a member of the arbitral tribunal, he would always keep the role
of establishing the instructions to be followed by the parties and the party-appointed
arbitrators during the mediation windows and, more in general, of resolving all disputes
between the parties on how the mediation activities should be organized or conducted.
If no settlement is reached during the mediation window, the party-appointed members of
the arbitral tribunal would retake their role as impartial and independent arbitrators
automatically at the very moment the mediation window ends. It is essential for the
procedural rules to make it clear that, if mediation fails, the party-appointed arbitrators
will have the obligation to decide the case impartially, exactly in the same way as the
presiding arbitrator.
Finally, it goes without saying that the party-appointed arbitrators would be obliged to
maintain all the deliberations of the arbitral tribunal confidential at all times. In this
regard, to have the mediation window or windows scheduled before the substantive
deliberations of the arbitral tribunal would appear to be the safest option, not just for
avoiding improper conduct but also not to put the party-appointed arbitrators in
potentially very uncomfortable situations.
The first peculiarity of the Arb-Med-Arb variant described is the allocation of the
mediation functions to the party-appointed arbitrators. Modern formulations of Arb-Med-
Arb are not normally articulated to assign the mediation functions to a team comprised of
the two party-appointed arbitrators. The more common assumption is that the mediator
will be a single person who is not an arbitrator in the case; or, if the same person or

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 persons are going to act as arbitrators and mediators, that the mediation functions in
multiple-member tribunals will be assumed either by the whole tribunal or by the
presiding arbitrator. (80)
Nonetheless, there are possible combinations of arbitration and mediation in which party-
appointed arbitrators form a “settlement team” to perform a conciliatory role without the
participation of the presiding arbitrator. (81) It is equally possible, when all the members
of the arbitral tribunal take on a role of settlement facilitators, that the allocation of roles
between the arbitrators inter se in the settlement process may lead the party-appointed
arbitrators to have a different role. (82) The possibility for the party-appointed arbitrators
P 407 to assume a special conciliatory role, with or without the presiding arbitrator assuming
P 408 conciliatory functions, would also appear to be implied in the ICC Mediation Guidance
Notes when they make reference to the so-called co-mediation, understood as two or more
mediators appointed to work together on the same matter. The same Guidance Notes add
that this type of mediation may be used when the parties wish to have the benefit of
mediators from different cultural backgrounds or with different expertise and experience.
(83)
The second and perhaps most striking peculiarity of this form of Arb-Med-Arb is the
partiality of the mediators. Mediation rules usually impose the same obligations of
impartiality and independence on mediators that arbitration rules impose on arbitrators.
Today's standards require mediators to conduct the mediation in an impartial manner,
(84) even in combinations whereby the party-appointed arbitrators perform mediation
functions without the participation of the presiding arbitrator. (85) There is little explored
nowadays as to the possibility of the conciliation functions of a “settlement team” of party-
appointed arbitrators being performed by each of them supporting his respective
appointing party. It is likely that the historical movement towards the standard of
impartiality and independence of all arbitrators and the desire of the international
arbitration community to end improper behaviour by party-appointed arbitrators has, for
a good reason, held back any interest in exploring the potential conciliatory functions of
party-appointed arbitrators consisting in them supporting howsoever their respective
appointing parties.
Be it as it may, there is no fundamental obstacle to requiring party-appointed arbitrators
to support or be biased towards their respective appointing parties while acting as
mediators during the mediation windows. As a matter of principle, the parties should be
free to agree to try to settle their dispute with the assistance of two partial mediators as
long as this system is openly agreed upon by the parties and the integrity of the system
can therefore be protected.
It is yet unclear whether this form of Arb-Med-Arb might be allowed by some well-known
mediation rules. The Singapore International Mediation Centre (SIMC) Mediation Rules
(2014) require the mediator to be impartial and independent (Art. 4.5) but give the parties
to power to waive any disclosed actual or potential conflict (Art. 4.6). This seems consistent
with the possibility that the same rules offer to appoint more than one mediator (Art. 4.4)
and the SIMC Request Form (Appendix A of the SIMC Mediation Rules) actually offers the
parties the possibility to request the SIMC to appoint one or two mediators. However, in
the case of the AAA International Mediation Rules (2014) and the International Institute for
P 408 Conflict Prevention and Resolution (CPR) International Mediation Procedure (2017), the
P 409 mediation appears to be only envisioned with one single mediator, whose impartiality
and independence should obviously always be required.
c Potential benefits of this form of Arb-Med-Arb
There are several potential benefits of this specific form of Arb-Med-Arb.
First, the benefits that are typical of mediation: the chance of a faster, cheaper and
perhaps substantially better end to the dispute.
Second, the benefits that are typical of Arb-Med-Arb. The way the combination of
arbitration and mediation is structured, by means of mediation windows during the course
of the arbitration, can make the parties expect that there will be no significant loss of
time, money or overall efficiency of the arbitration due to the fact of accepting to create
some room for mediation. (86) Furthermore, the room for mediation is created without
putting any of the parties in the situation of suggesting mediation only on its own motion,
something that in certain cultures is perceived as an uncomfortable move, a sign of
weakness or a loss of face.
Third, the likelihood of a successful conciliation may be increased. A settlement
agreement needs by hypothesis two previously opposed points of view. When the parties
agree to the arbitrators performing a conciliatory role before an adjudicative one, the
assignment to each party-appointed arbitrator of the conciliatory role of exploring zones
of possible agreement from the appointing party's perspective can make conciliation more
effective than if managed by the three members of the tribunal, each assuming an equal
conciliatory role. There is always hope of constructive dialogue after a clash of views. To be
biased, in this particular context (party-appointed arbitrators acting as biased mediators
during the mediation windows), would be a strength rather than a weakness. Two serious
party-appointed arbitrators meeting each other in order to confront two opposed
positions for conciliation purposes can bring added value to the arbitration.

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 The idea that bias can be useful in a mediation context with two party-appointed
arbitrators is very intuitive and more than 2,000 years old. Some authors have evoked it
when considering the possible advantages of biased party-appointed arbitrators. As Bellet
put it, biased party-appointed arbitrators can serve the needs of disputing parties who
wish to submit their dispute to arbitration but also wish that the arbitration could end with
a settlement. (87) Similarly, Coulson considered that biased party-appointed arbitrators
can discuss possible settlements with their respective appointing parties and this could
produce advantageous settlements. (88) However, as explained above, biased party-
appointed arbitrators are generally unadvisable in international arbitration because the
dangers outweigh by far the benefits. (89)
P 409 Party-appointed arbitrators, according to this proposal, would not be partisan arbitrators
P 410 but rather impartial and independent arbitrators who would be exceptionally allowed –
and required – during the mediation window or windows to act as mediators who support
their respective appointing parties for the sole purpose of exploring zones of possible
agreement. The difference between a partial mediator and a partial arbitrator is of critical
importance because the bias dynamics change completely from one role to the other. As
much as they could and should try to support their respective appointing parties, there
would be no point whatsoever in any of the partial mediators considering anything that
could not also be satisfactory to the party who did not appoint him. Their bias would not
be aimed at making the appointing party prevail in the arbitration but rather at exploring
what settlement agreement, if at all possible, could be most beneficial for the appointing
party while also being acceptable to the other party.
Fourth, these partial mediators and impartial arbitrators may contribute to the relief of
ethical tension in the arbitration. The conceptual underpinning of certain criticism of
party-appointed arbitrators is their alleged burden of feeling that they owe something to
the appointing party that they do not owe to the other. For example, Smit notes that “[a]
party-appointed arbitrator cannot help but realize that counsel who selected him was
motivated by the desire that his selection would contribute to the favorable result he
seeks and, to some extent, the arbitrator may act upon that realization”. (90) In the same
vein, Stevenson claims that the principle of independence of arbitrators is “somewhat
negated if the parties have the option to select one of the three arbitrators since such
arbitrator will feel that he has a certain responsibility to the party selecting him”. (91) More
recently, in his dissenting opinion in Supervisión y Control S.A. v. Costa Rica, Klock noted
that “the arrangement whereby two of the panel members are selected by the parties to
the agreement creates an uncomfortable aura of conflict which permeates, in my view, the
proceedings. It creates a true ethical burden on these other two parties to separate
themselves from the interest of those who have selected them to serve.” (92)
Bias in the mediation role can contribute to liberating party-appointed arbitrators from
this ethical burden. A conciliatory role of party-appointed arbitrators whereby each of
them supports his appointing party is consistent with the presumption – which more often
than not proves correct – that each party-appointed arbitrator will find more strengths in
the appointing party's case than the other party-appointed arbitrator. By each party-
appointed arbitrator assuming the biased role as mediator of exploring the limits of what
an acceptable solution for the appointing party may be, the parties could achieve a more
accurate match between what they expect from party-appointed arbitrators and what they
ultimately get. Party-appointed arbitrators would not be worried about their bias towards
the appointing party when exploring zones of possible agreement and, thanks to that, they
would probably feel relieved from any sense of owing anything to the appointing party
after conciliation attempts had failed. And the presiding arbitrator could perhaps be more
P 410 confident that the party-appointed arbitrators would sit with him, if mediation fails, to
P 411 simply perform an adjudicative role according to the rules applicable to the merits of
the dispute. History shows that we have moved from systems in which the parties expected
party-appointed arbitrators to first try to persuade each other to the present system, in
which many parties simply expect the arbitrator they unilaterally appoint to persuade the
presiding arbitrator. (93) One may have opposed feelings about this evolution and wonder
whether a time in the arbitral proceedings for party-appointed arbitrators to confront
their views with each other, an arbitral feature as old as nowadays neglected, may perhaps
help to raise the sense of ethics in international arbitration.
Fifth, and finally, this peculiar form of Arb-Med-Arb mitigates certain risks that are usually
associated with the same individual serving as an arbitrator and mediator in the same
case.
There is a paradox in the world where arbitration and mediation are combined: some
powerful strengths are also powerful weaknesses. On the one hand, there is the perception
that the most efficient combination is that in which the same person acts both as an
arbitrator and conciliator (94) and the perception that some mediation techniques, like
meeting separately with the parties (caucusing) (95) or expressing preliminary views, (96)
P 411 can be very useful. On the other, there is the perception that the appropriateness for an
P 412 arbitrator to act as a conciliator is controversial (97) and the perception that the same
techniques that can be useful, such as caucusing (98) and expressing views on the case, (99)
are dangerous.
Over the years, it can be observed that there is a growing number of arbitration rules and
laws that admit the possibility of the same person assuming both roles in the same dispute

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 as long as it is expressly authorized by the parties. (100) Although this possibility is still not
free from controversy, and is seemingly still far from being a preferred choice by those with
experience in combining mediation and arbitration, (101) the epicentre of the debate has
probably shifted from the possibility itself to how to face the dangers created by the
vesting of the two roles in the same person.
The most serious dangers, which may make the arbitral award vulnerable, are related to
the impartiality of the arbitrator and to due process. On the one hand, there is a risk
relating to the arbitrator's impartiality if he, when acting as a mediator, expresses
preliminary views on the merits of the case or makes settlement proposals that lead one
party to question the ability of the arbitrator to decide impartially. The risk of
prejudgment may also arise from the arbitrator being influenced, consciously or
unconsciously, by confidential information received during the mediation. On the other
hand, there is a threat to due process that is associated with the practice of caucusing. This
threat lies in the possibility that, if mediation fails, the arbitrator's decision may be
influenced, consciously or unconsciously, by circumstances that he knew privately from
one party and that the other party is unaware of and could never answer or rebut. (102)
In addition to these dangers, there is a problem relating to the parties' reluctance to speak
frankly and candidly to the mediator. As noted by Marriot,

P 412 “[t]he main conceptual objection to a combination of roles in one person is that
P 413 parties will be reluctant to speak freely in private to mediators who will then
decide the case if the mediation fails and, the other side of the same coin, that
it will be difficult or impossible for arbitrators in deciding the case to forget or
ignore what they have been told by the parties privately and confidentially”.
(103)
It stands to reason that parties may be reluctant to disclose where their true bottom line
for settlement lies to the mediator but possible future adjudicator, even in a caucus or
separate meeting. The parties may also be reluctant to disclose facts to mediators that
may later become arbitrators. (104) Moreover, as Elliot notes, the problem may get worse if
the parties pretend to be interested in the mediation when they actually are not:
“If the parties know that the mediator will become the arbitrator if the dispute
is not resolved, it is possible that the parties will use mediation to introduce
material and say things strictly with a view to influencing the arbitrator's final
decision, rather than with any real intention of reaching a settlement. Of course,
if one side sees this happening, they may play the same game, or call the other
party on it, but the damage may already be done.” (105)
The variation of Arb-Med-Arb proposed mitigates some of the risks that are derived from
the fact that the same person or persons act both as arbitrators and mediators in the same
dispute. The risk of the parties' reluctance to disclose information to the mediator still
exists, but is probably reduced by the fact that the information will only be disclosed to
the arbitrator chosen by that party. The risk of the arbitrator being perceived as no longer
able to be impartial still exists, but does not affect the whole arbitral tribunal. And the risk
to due process disappears, because it is almost impossible for the tribunal to decide on
the basis of something that one party disclosed in a caucus and the other party does not
know. If mediation fails, each party has to assume that the confidential information that it
only shared with the arbitrator it appointed will have no bearing whatsoever in the
adjudication phase.
d Limitations and risks of this form of Arb-Med-Arb
The form of Arb-Med-Arb proposed has limitations relating to its scope of application.
Many arbitration users are well acquainted with the pros and cons of arbitration and other
ADR methods. They know when and why they want only arbitration, when and why they want
mediation and arbitration in separate processes and when and why they want a
combination of arbitration and mediation in the same process. As Lalive noted, warning
against an excessive enthusiasm for ADR, “there will always be complex and important
disputes which simply cannot be settled by agreement of the parties – so that ADR
methods will prove time-consuming and inadequate, the only remaining way out being a
P 413 third-party binding decision (by a state judge or arbitrator)”. (106) Moreover, some cultures
P 414 emphasize the value of mediation to a greater extent than others, not all arbitration
users like the combination of arbitration and mediation and, even if they like it, they may
not like or wish party-appointed arbitrators to perform a role different to that of the
presiding arbitrator.
In any event, it would be generally advisable in cases with party-appointed arbitrators,
both in commercial and investment arbitration, to submit this form of Arb-Med-Arb to the
parties at the first procedural conference, for their consideration. The organization of the
arbitration procedure with one or more mediation windows would not appear to be
particularly difficult. Whatever the decision by the parties, and I assume that in many
instances the parties would reject anything different from the arbitrators just performing
their adjudicative function, I can only see benefits in making the parties spend some time
in thinking and expressing what role they expect from party-appointed arbitrators. At the
very least, to ensure a level playing field.

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 In addition to the above-mentioned limitations, the critical question relating to this
specific form of Arb-Med-Arb is, of course, to what extent may party-appointed arbitrators
be eventually able to perform their adjudicative role as arbitrators in an impartial manner
if mediation fails? Is it realistic to expect that someone who supports one of the disputing
parties, even if only for conciliation purposes, can later be able to act impartially? Some
may think that his willingness or self-awareness of his capability to act without bias as an
arbitrator may possibly have been undermined by the performance of his role as a partial
mediator.
It is clear that anyone who assumes the role of settlement facilitator and later that of
adjudicator faces the risk of losing his ability to act in an impartial manner in the second
stage, and that this risk might increase if the first of those two roles encompasses support
for one the parties. Perhaps it would be naive to presume that most party-appointed
arbitrators could perform the two-tier biased-unbiased role satisfactorily in practice. The
old English system of arbitrator-advocates, for what it is worth as an example of
pragmatism, is based on the quite opposite idea that party-appointed arbitrators who try
and fail to reach an agreement had better change their role to that of advocates of the
parties. (107)
Nevertheless, for the reasons explained above, I believe that the bias of the party-
appointed arbitrators when performing their mediation functions during the mediation
windows does not necessarily decrease and could even increase their ability to later act
impartially, if mediation fails, in the performance of their adjudicative role.
Ultimately, how the limitations and risks of the form of Arb-Med-Arb proposed are viewed
also depends on the glasses that one decides to wear when considering party-appointed
arbitrators. One may recall Judge Loder, the first president of the Permanent Court of
International Justice, when in his inaugural speech at the first session of this Court in 1922
he criticized the power of each party to appoint one of the Court judges as a “concession
P 414 faite à la faiblesse humaine” (“a concession made to human weakness”). (108) With these
P 415 glasses, party-appointed arbitrators will always be inferior to judges or arbitrators
appointed by neutral appointors, like a product with an inherent factory flaw. In terms of
appearance of impartiality and independence, there is little doubt that party-appointed
arbitrators offer fewer guarantees than arbitrators appointed by neutral appointors. If such
an appearance is of paramount importance to the parties, they should not agree to
unilateral appointments in the first place and, even less, to the form of Arb-Med-Arb
herein proposed. However, one can see things through a different prism. As eloquently put
by Eisemann, if arbitration is less than judicial systems in the sense that it does not offer
the same guarantees as professional permanent judges, it is certainly at the same time
much more because of its fundamental orientation towards the appeasement of social and
business relationships, an outcome that only the element of trust will ever be able to
provide. (109) Furthermore, the main driver of success of international arbitration has
never been the same appearance of impartiality and independence in each and every
member of an arbitral tribunal (something that is not even required in the judiciary), (110)
but rather something much simpler: its usefulness for resolving international disputes.

IV Conclusion
The role of party-appointed arbitrators is nowadays shrouded by ambiguity and confusion.
Arbitration rules and laws do not provide for a different arbitrator role depending on the
appointment method used. However, there is a widespread presumption that party-
appointed arbitrators have a special role to perform in relation to the appointing party's
case, irrespective of whether or not such a special role is expressly allowed in the rules
governing the arbitration, as long as these rules do not prohibit it. A special role that
presiding arbitrators are not allowed to perform and that is still deemed compatible with
the duty of arbitrators to be impartial and independent. In this respect, it has been
suggested that party-appointed arbitrators have a special role of ensuring that the
appointor's case is properly understood by the other members of the arbitral tribunal and
even of acting as a devil's advocate that challenges, within the tribunal, the positions that
are harmful to the appointing party's position.
In my opinion, we should reject the presumption that party-appointed arbitrators who are
P 415 under the duty of impartiality and independence have a special role of ensuring that the
P 416 appointor's case is properly understood by the other members of the arbitral tribunal
or, in general, any special role consisting of doing something that the presiding arbitrator
cannot, especially if it consists in certain conduct relating to the appointing party's case.
This presumption can cause confusion about the arbitrator's duty of impartiality and
independence, can cause an imbalance in the arbitral process and introduces a bias into
the arbitration in the form of an advantage for the party who chooses the most intelligent,
diligent or zealous arbitrator.
Unless otherwise agreed by the parties, the role or mission of party-appointed arbitrators
should always be the same as that of the presiding arbitrator: to decide the case on the
sole basis of the applicable procedural and substantive rules, without leaning or
favouritism towards any party. This would help achieve the desirable goal of making
international arbitration a truly neutral dispute resolution system and is also consistent
with the international standard of impartiality and independence of all arbitrators. There
is no justification for accepting the existence of an unwritten special duty of party-

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 appointed arbitrators who are under the obligation to be impartial and independent,
much less so in light of the increasing demands for transparency in international
arbitration.
Arbitral institutions, UNCITRAL, soft law producers and practitioners could build trust and
value for arbitration if they made it clear to arbitration users that, unless otherwise agreed
by the parties, (i) the role or mission of party-appointed arbitrators is the same as that of
the presiding arbitrator, (ii) a special role of party-appointed arbitrators whereby they are
supposed to do something special in relation to the appointing party's case cannot be
presumed and is not allowed and (iii) party-appointed arbitrators do not have any more
responsibility towards the appointing party than they have towards the non-appointing
party.
Once clarity has been achieved, the next question for the future is if it is worth exploring
possible special roles of party-appointed arbitrators that can be useful to better serve the
needs of the arbitration users who believe that party-appointed arbitrators should not
have the same role as the presiding arbitrator.
I believe this exploration is worth the effort and, in my opinion, the special role of party-
appointed arbitrators that may be of more practical interest for such arbitration users is a
special role combining arbitration and mediation in a peculiar – and currently uncommon
– type of Arb-Med-Arb. In this arbitration process, with a three-member tribunal, the
parties would clearly and openly agree to have impartial and independent party-
appointed arbitrators that are nevertheless required to act as mediators that support their
respective appointing parties for the sole purpose of exploring zones of possible
agreement during one or more mediation periods – mediation windows – within the
arbitration process.
To a certain extent, this form of Arb-Med-Arb would give back party-appointed arbitrators
part of their historical raison d'être and value without renouncing the most useful
achievement of convergence in the status of international arbitrators: the obligation for all
of them, no matter how appointed, to be impartial and independent.
P 416

References
*) Alfonso Gómez-Acebo: Lawyer, Doctor in Law, Partner at Cuatrecasas and author of the
book Party-Appointed Arbitrators in International Commercial Arbitration (Kluwer 2016),
on which this paper is partly based.
1) According to the 2012 International Arbitration Survey conducted by the School of
International Arbitration, Queen Mary University of London, on Current and Preferred
Practices in the Arbitral Process, 71 percent of in-house counsel considered unilateral
party appointments as the preferred method of selecting co-arbitrators in a three-
member tribunal.
2) All generic references to the masculine obviously include the masculine and
feminine.
3) The “truly independent arbitrators”, the way a witty and very fine lawyer humorously
used to call the party-appointed arbitrators who will always agree with the position
of the appointing party independently of the case.
4) Elihu LAUTERPACHT, Aspects of the Administration of International Justice (Grotius
Publications, Cambridge 1991) pp. 79-81 and fn. 9; Robert COULSON, “An American
Critique of the IBA's Ethics for International Arbitrators”, 4 J. Int'l Arb. (1987, no. 2) pp.
107-109.
5) Lucius R. EASTMAN, “The Independence of Commercial Arbitration Tribunals”, 2 Arb. J.
(1938) p. 9; Tom ARNOLD, “The Unacceptable Common Partiality of ‘Neutral’ Party
Appointed Arbitrators” in G.M.BERESFORD HARTWELL, ed., The Commercial Way to
Justice – The 1996 International Conference of the Chartered Institute of Arbitrators
(Kluwer Law International 1997) pp. 162 and 152; Hans SMIT, book review of Quo Vadis
Arbitration? Sixty Years of Arbitration Practice, by Pieter Sanders, 11 Am. Rev. Int'l Arb.
(2000) pp. 430-431; Jan PAULSSON, “Moral Hazard in International Dispute Resolution”,
25 ICSID Review –Foreign Investment Law Journal (2010, issue 2) pp. 348 and 352 (a
shorter version of this text was presented as Inaugural Lecture as Holder of the
Michael R. Klein Distinguished Scholar Chair at the University of Miami School of Law
on 29 April 2010); Hans SMIT, “The Pernicious Institution of the Party-Appointed
Arbitrator”, Columbia FDI Perspectives, No. 33 (14 December 2010); Juan FERNÁNDEZ-
ARMESTO, “Salient Issues of International Arbitration”, 27 American University
International Law Review (2012, no. 4) p. 726; Joseph P. KLOCK, Dissenting Opinion of 18
January 2017 in Supervisión y Control S.A. v. Costa Rica (ICSID Case No. ARB/12/4); Jan
PAULSSON, “Shall We Have an Adult Conversation About Legitimacy?”, a summary of
his keynote address on 2 March 2017 at the Annual Meeting of the CPR Institute at the
Biltmore Hotel, Coral Gables, available at <https://blog.cpradr.org/2017/03/15/shall-
we-have-an-adult-conversation-about-legitimacy/> (last accessed 12 February 2018).

17
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 6) Frédéric EISEMANN, “L'arbitre-partie” in Pieter SANDERS, ed., International Arbitration:
Liber Amicorum for Martin Domke (Martinus Nijhoff, The Hague 1967) pp. 84-85; Jean
ROBERT, “Conclusion” in Qualification de l'arbitre international –Symposium du 20
novembre 1970, Rev. arb., (1970, no. 4 special) p. 260; René DAVID, Arbitration in
International Trade (Kluwer Law and Taxation Publishers 1985) p. 254; Joseph M.
MATTHEWS, “Difficult Transitions Do Not Always Require Major Adjustment – It's Not
Time to Abandon Party-Nominated Arbitrators in Investment Arbitration”, 25 ICSID
Review – Foreign Investment Law Journal (2010, issue 2) p. 366; Alexis MOURRE, “Are
Unilateral Appointments Defensible? On Jan Paulsson's Moral Hazard in International
Arbitration” in Stefan M. KRÖLL, Loukas A. MISTELIS, Pilar PERALES and Vikki ROGERS,
eds., International Arbitration and International Commercial Law: Synergy,
Convergence and Evolution, Liber Amicorum Eric Bergsten (Kluwer Law International
2011) pp. 381-386 (first published on Kluwer Arbitration Blog on 5 October 2010);
Giorgio SACERDOTI, “Is the Party-Appointed Arbitrator a ‘Pernicious Institution’? A
Reply to Professor Hans Smit”, Columbia FDI Perspectives, No. 35 (15 April 2011);
Michael E. SCHNEIDER, “Forbidding Unilateral Appointments of Arbitrators – A Case of
Vicarious Hypochondria?”, President's Message, 29 ASA Bull. (2011, no. 2) pp. 273-276;
Charles N. BROWER and Charles B. ROSENBERG, “The Death of the Two-Headed
Nightingale: Why the Paulsson – Van den Berg Presumption that Party-Appointed
Arbitrators Are Untrustworthy Is Wrongheaded”, 29 Arb. Int'l (2013, no. 1) pp. 7-44; V. V.
VEEDER, “The Historical Keystone to International Arbitration: The Party-Appointed
Arbitrator – From Miami to Geneva” (Inaugural Charles N. Brower Lecture on
International Dispute Resolution), 107 ASIL Proceedings (2013) pp. 401-403; Alfonso
GÓMEZ-ACEBO, Party-Appointed Arbitrators in International Commercial Arbitration,
International Arbitration Law Library, Vol. 34 (Kluwer Law International 2016) paras.
3.66-3.78 (against doing away with unilateral nominations) and 4.41-4.57 (in favour of
requiring the duty of impartiality and independence by default from party-appointed
arbitrators); Manuel CONTHE, “Paulsson's Nirvana Fallacy”, Spain Arbitration Review
(2017, issue 29) pp. 58-60; Siegfried H. ELSING and Alexander SHCHAVELEV, “Chapter 8:
The Role of Party-Appointed Arbitrators” in Patricia SHAUGHNESSY and Sherlin TUNG,
eds., The Powers and Duties of an Arbitrator: Liber Amicorum Pierre A. Karrer (Kluwer
Law International 2017) p. 77.
7) The Attic orator Lysias, in his speech “Against Archebiades”, refers to the party-
appointed arbitrators, from the parties' perspectives, as “my friends and yours”
(Lysias, The Oratory of Classical Greece, Vol. 2, translated by S. C. Todd (University of
Texas Press, 2000) p. 362). Another Attic orator, Isaeus, notes in his speech “On the
Estate of Dicaeogenes” that one of the party-appointed arbitrators was the brother-
in-law of the party appointing him (Isaeus, translated by Edward Seymour Forster,
(The Loeb Classical Library 1943) para. 33, p. 183).
8) Ibid., para. 32, p. 183: “The arbitrators said that if they could effect a compromise
without putting themselves under an oath, they would do so; otherwise they would
themselves also take an oath and declare what they regarded as just.”
9) Derek ROEBUCK, Ancient Greek Arbitration (Holo Books, The Arbitration Press 2001) p.
205.
10) James Farley CRONIN, The Athenian Juror and his Oath (University of Chicago 1936) p.
18, citing FRANKEL's Der Attische Heliasteneid.
11) Jackson Harvey RALSTON, International Arbitration from Athens to Locarno (Garland
Pub, New York 1929) p. 179, citing NOVACOVITCH; Derek ROEBUCK, “Odds or Evens: How
Many Arbitrators?”, 80 Arbitration (2014, issue 1) p. 15.
12) In England, the role of arbitrators, irrespective of the method of their appointment,
could normally be seen as that of restoring peace between the parties as “peace-
makers” (Derek ROEBUCK, “L'arbitrage en droit anglais avant 1558”, Rev. arb. (2002, no.
3) pp. 551-552). In the French, Italian and Swiss cases, it was common for the
arbitrators to be appointed as “arbiters, arbitrators and amiable compositeurs” (Yves
JEANCLOS, “La pratique de l'arbitrage du XIIe au XVe siècle: éléments d'analyse”, Rev.
arb. (1999, no. 3) p. 439; Fabrizio MARRELLA, “L'arbitrage à Venise (XIIe-XVIe siècles)”,
Rev. arb. (2002, no. 2) p. 286; Jean-François POUDRET, “Deux aspects de l'arbitrage dans
les pays romands au moyen âge: l'arbitrabilité et le juge-arbitre”, Rev. arb. (1999, no. 1)
p. 6).
13) Jean HILAIRE, “L'arbitrage dans la période moderne (XVIe-XVIIIe siècle)”, Rev. arb. (2000,
no. 2) p. 199.
14) J. H. RALSTON, fn. 11 above, p. 179, citing MÉRIGNHAC.
15) Jean DOMAT (1625-1695), Les loix civiles dans leur ordre naturel, le droit public, et legum
delectus, revised edition (Nicolas Gosselin, Paris 1713) p. 189.
16) Francis RUSSELL, A Treatise on the Power and Duty of an Arbitrator and the Law of
Submissions and Awards (Benning, London 1849) p. 207.
17) Templeman and Reed, 1841, A. Dowling, Vol. IX, p. 966.
18) Convention for the arbitration of all pending claims of the citizens of either state
against the government of the other, signed in Washington on 4 July 1868. The
arbitration provisions of this Convention are available, for instance, at William Ray
MANNING, Arbitration Treaties Among the American Nations: To the Close of the Year
1910 (Oxford University Press, Publications of the Carnegie Endowment for
International Peace 1924) pp. 72-76.

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 19) Vincent COUSSIRAT-COUSTERE and Pierre Michel EISEMANN, Répertoire de la
jurisprudence arbitrale internationale – Repertory of International Arbitral
Jurisprudence, Vol. I (1794-1918), (Martinus Nijhoff Publishers 1989) p. 395.
20) “Draft of a Uniform Law on Arbitration in Respect of International Relations of Private
Law and Explanatory Report”, UNIDROIT, U.P.L. 1954, Draft III (3), Art. 12, second
paragraph, p. 15, and Explanatory Report, p. 43.
21) “Draft Uniform Law on Arbitration in Respect of International Relations of Private
Law”, UNIDROIT Y.B. 1957, Art. 12, second and third paragraphs.
22) UNECE Rules (1966), Art. 6; UNECAFE Rules (1966), Art. III.1; UNCITRAL Arbitration Rules
(1976), Art. 10.1; UNCITRAL Model Law (1985), Art. 12.2.
23) “Report of the United Nations Commission on International Trade Law on the work of
its eighth session” (Geneva, 1-17 April 1975), UN Doc. A/10017, UNCITRAL Y.B. 1975, Vol.
VI, Annex I (“Preliminary draft set of Arbitration Rules for optional use in ad hoc
arbitration relating to international trade: Summary of discussion by the United
Nations Commission on International Trade Law”), p. 32, para. 68.
24) Lazare KOPELMANAS, “Le role des règlements d'arbitrage dans le développement des
procédures arbitrales applicables au règlement de litiges commerciaux a caractère
international (a propos de quelques règlements et projets de règlements d'arbitrage
récents)”, XXI Annuaire Français de Droit International (1975) pp. 301-302.
25) IBA Rules of Ethics for International Arbitrators (1987), Rule 1 (“Fundamental Rule”);
IBA Guidelines on Conflicts of Interest in International Arbitration (2014), Part I(1),
General Principle and Explanation to General Standard 1; ABA/AAA Code of Ethics for
Arbitrators in Commercial Disputes (2004), Canon IX(A) and Note on Neutrality.
26) Conventions for the Pacific Settlement of International Disputes of 29 July 1899 and 18
October 1907, adopted at the first and the second Hague Peace Conferences,
respectively.
27) Hague Convention of 1899, Art. 4: “The part of the mediator consists in reconciling the
opposing claims and appeasing the feelings of resentment which may have arisen
between the States at variance”; Art. 6: “Good offices and mediation, either at the
request of the parties at variance, or on the initiative of Powers strangers to the
dispute, have exclusively the character of advice, and never have binding force.”
28) Hague Convention of 1899, Arts. 9 and 14.
29) Hague Convention of 1899, Art. 15: “International arbitration has for its object the
settlement of disputes between States by judges of their own choice and on the basis
of respect for law”. In equal terms, Hague Convention of 1907, Art. 37.
30) Hague Convention of 1899, Arts. 18 and 56. According to the former: “The Arbitration
Convention implies the engagement to submit loyally to the Award.” In similar terms,
replacing “loyally” with “in good faith”, Hague Convention of 1907, Art. 37.
31) See, e.g., IBA Rules of Ethics for International Arbitrators (1987), Rule 8; IBA Guidelines
on Conflicts on Interest in International Arbitration (2014), General Standard 4(d); ICC
Mediation Rules (2014), Art. 10(3); Spanish Arbitration Act, Art. 17(4); ABA/AAA Code of
Ethics for Arbitrators in Commercial Disputes (2004), Canon IV(F); Singapore
International Arbitration Act, Sect. 17; International Institute for Conflict Prevention
and Resolution (CPR) International Mediation Procedure (2017), Art. 3(k); UNCITRAL
Model Law on International Commercial Conciliation (2002), Art. 12.
32) See, e.g., UNCITRAL Model Law, Art. 28(3); UNCITRAL Arbitration Rules (1976), Art. 33(2)
[Art. 35(2) in the 2010 version]; ICC Arbitration Rules (2017), Art. 21(3); ICSID Convention
(1965), Art. 42(3); Hong Kong International Arbitration Centre (HKIAC) Administered
Arbitration Rules (2013), Art. 35(2); China International Economic and Trade Arbitration
Commission (CIETAC) Arbitration Rules (2015), Art. 47.
33) Henry P. DE VRIES, “Practical Aspects of International Litigation-Arbitration”, 64
American Journal of International Law (no. 4) The United Nations: Appraisal at 25 Years
(September 1970) p. 253.
34) Marc BLESSING, “The New International Arbitration Law in Switzerland”, 5 J. Int'l Arb.
(1988, no. 2) p. 39.
35) Jacques WERNER, “Editorial – The Independence of Party-Appointed Arbitrators: For a
Rule of Reason”, 7 J. Int'l Arb. (1990, no. 2) p. 5.
36) Stephen BOND, “The International Arbitrator: From the Perspective of the ICC
International Court of Arbitration”, 12 Northwestern Journal of International Law and
Business (1991) p. 7.
37) Andreas F. LOWENFELD, “The Party-Appointed Arbitrator in International
Controversies: Some Reflections”, 30 Texas International Law Journal (1995) p. 86.
38) A. F. LOWENFELD, “The Party-Appointed Arbitrator: Further Reflections” in Lowenfeld
on International Arbitration – Collected Essays over Three Decades (Juris Publishing
2005) p. 104 (previously published in The Leading Arbitrators' Guide to International
Arbitration (Juris Publishing 2003)).
39) Nigel BLACKABY and Constantine PARTASIDES with Alan REDFERN and Martin HUNTER,
Redfern and Hunter on International Arbitration, 6th ed. (Oxford University Press 2015)
para. 4.30, in the same vein as A. REDFERN and M. HUNTER, Law and Practice of
International Commercial Arbitration, 3rd ed. (Thomson – Sweet & Maxwell 1999) p. 193.

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 40) Doak BISHOP and Lucy REED, “Practical Guidelines for Interviewing, Selecting and
Challenging Party-Appointed Arbitrators in International Arbitration”, 14 Arb. Int'l
(1998, no. 4) p. 405 and fn. 56. The authors added: “It might be questioned whether the
last point should be listed since it is the duty of all arbitrators to ensure that the
procedure used does not unfairly prejudice either party.”
41) Julian D. M. LEW, Loukas A. MISTELIS and Stefan M. KRÖLL, Comparative International
Commercial Arbitration (Kluwer Law International 2003) para. 11.48.
42) Antonino A. DE FINA, “The Party Appointed Arbitrator in International Arbitration –
Role and Selection”, 15 Arb. Int'l (1999, no. 4) p. 382.
43) Christopher R. SEPPÄLÄ, “Obtaining the Right International Arbitral Tribunal: A
Practitioner's View”, 25 International Construction Law Review, Part 2 (April 2008) p.
212.
44) José Miguel JÚDICE and Diogo CALADO, “Independencia e imparcialidad del árbitro:
algunos aspectos polémicos, mediante una visión ibérica”, VIII Arbitraje: Revista de
arbitraje comercial y de inversiones, (2015, no. 3) p. 762.
45) Ugo DRAETTA, “Cooperation Among Arbitrators in International Arbitration”, V Indian
Journal of Arbitration Law (2016-2017, issue 1) pp. 132-133.
46) Catherine A. ROGERS, Ethics in International Arbitration (Oxford University Press 2014)
paras. 8.57-8.76.
47) M. CONTHE, “Paulsson's Nirvana Fallacy”, fn. 6 above, pp. 55-56; S. H. ELSING and A.
SHCHAVELEV, “The Role of Party-Appointed Arbitrators”, fn. 6 above, p. 75.
48) David BRANSON, “American Party-Appointed Arbitrators – Not the Three Monkeys”, 30
University of Dayton Law Review (2004, no. 1) p. 46. By the same author, more
recently, “Sympathetic Party-Appointed Arbitrators: Sophisticated Strangers and
Governments Demand Them”, 25 ICSID Review – Foreign Investment Law Journal (2010,
issue 2) pp. 367-392.
49) Alan Scott RAU, “The Culture of American Arbitration and the Lessons of ADR”, 40
Texas International Law Journal (2004-2005) pp. 459-461. By the same author,
previously, “On Integrity in Private Judging”, 14 Arb. Int'l (1998, no. 2) pp. 129-131.
50) See, e.g., Martin HUNTER and Jan PAULSSON, “A Code of Ethics for Arbitrators in
International Commercial Arbitration?”, 13 International Business Lawyer (April 1985,
no. 4) p. 153: “Naturally, when the arbitration agreement calls for party-appointed
arbitrators, the parties will wish to choose persons who are in a very general sense
likely (in their view) to be sympathetic to their respective cases. No one would expect
a government which has undertaken an act of nationalisation to nominate as its
arbitrator a banker with a life-long career history of defending the inviolability of
foreign investments. This is obvious, and it is perfectly proper.”
51) See, e.g., N. BLACKABY, C. PARTASIDES, A. REDFERN and M. HUNTER, Redfern and
Hunter, fn. 39 above, paras 4.72 and 4.76, rejecting any attempt to ascertain the
prospective arbitrator's views on the substantive or procedural issues that are
expected to arise in the case but considering good policy “to appoint a person who
may, by reason of culture or background, be broadly in sympathy with the case theory
to be put forward, but who will be strictly impartial when it comes to assessing the
facts and evaluating the arguments on fact and law”.
See also, setting limits in pre-appointment interviews: AAA International Arbitration
Rules (2014), Art. 13.6; CPR Rules for Administered Arbitration of International
Disputes (2014), Rule 7.4; London Court of International Arbitration (LCIA) Arbitration
Rules (2014), Art. 13.5; World Intellectual Property Organization (WIPO) Arbitration
Rules (2014), Art. 21; HKIAC Administered Arbitration Rules (2013), Art. 11.5; Singapore
International Arbitration Centre (SIAC) Arbitration Rules (2016), Rule 13.6.
52) Some of these authors have been particularly adamant in making it clear. See, e.g., D.
BISHOP and L. REED, “Practical Guidelines”, fn. 40 above, p. 405: “[I]t bears repeated
emphasis that party-appointed and presiding arbitrators alike are expected to
maintain an impartial demeanour and to decide the case in favour of the party with
the better factual and legal position.”
53) Niklas ELOFSSON, “Ex Parte Interviews of Party-Appointed Arbitrator Candidates: A
Study Based on the Views of Counsel and Arbitrators in Sweden and the United
States”, 30 J. Int'l Arb. (2013, no. 4) p. 396. As I developed elsewhere, this lack of
consensus and other reasons question the presumption that unilateral pre-
appointment interviews and post-appointment discussions on the choice of the
presiding arbitrator are appropriate even if the rules governing the arbitration do not
expressly allow them. A. GÓMEZ-ACEBO, Party-Appointed Arbitrators, fn. 6 above, paras
5.29-5.41.
54) Yuval SHANI, “Squaring the Circle? Independence and Impartiality of Party-Appointed
Adjudicators in International Legal Proceedings”, 30 Loyola of Los Angeles
International and Comparative Law Review (2008) p. 488.
55) U. DRAETTA, “Cooperation among Arbitrators”, fn. 45 above, p. 142.
56) Eugenio MINOLI, “Relations entre partie et arbitre”, in Qualification de l'arbitre
international –Symposium du 20 novembre 1970, Rev. arb. (1970, no. 4 (special)) p. 223.
57) A. GÓMEZ-ACEBO, Party-Appointed Arbitrators, fn. 6 above, paras. 5.14-5.28.

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 58) Sundaresh MENON, “Adjudicator, Advocate, or Something in Between? Coming to
Terms with the Role of the Party-Appointed Arbitrator”, 34 J. Int'l Arb. (2017, issue 3) (a
version of this article was first presented as the 2016 Herbert Smith Freehills –
Singapore Management University Asian Arbitration Lecture on 24 November 2016) p.
364.
59) See, e.g.: LCIA Arbitration Rules (2014), Art. 5.3: “All arbitrators shall be and remain at
all times impartial and independent of the parties; and none shall act in the
arbitration as advocate for or representative of any party. No arbitrator shall advise
any party on the parties' dispute or the outcome of the arbitration”; Hungarian
Arbitration Act (1994), Sect. 11: “The arbitrators are independent and impartial, they
are not the representatives of the parties”; CIETAC Arbitration Rules (2015), Art. 24: “An
arbitrator shall not represent either party, and shall be and remain independent of
the parties and treat them equally.”
60) Notwithstanding the fact, irrelevant in this respect, that the presiding arbitrator may
often be empowered to carry out certain activities of a procedural nature alone and,
if no majority is reached, to render the arbitral award alone.
61) IBA Rules of Ethics for International Arbitrators (1987), Rule 5; IBA Guidelines on
Conflicts of Interest in International Arbitration (2014), Part II, para. 7 and Green List
at para. 4.4.1 [Part II, para. 6 and Green List at para. 4.5.1 in the 2004 version]; IBA
Guidelines on Party Representation in International Arbitration (2013), Guidelines 7
and 8; CIArb Guidelines on the Interviewing of Prospective Arbitrators (2016), Arts. 1-3
[Guidelines 9-11 in the 2007 version].
62) Astoria Medical Group v. Health Ins. Plan, 1962, 11 N.Y.2d at 137.
63) James H. CARTER, “Living with the Party-Appointed Arbitrator: Judicial Confusion,
Ethical Codes and Practical Advice”, in IUS Arbitrale International – Essays in Honor of
Hans Smit, 3 Am. Rev. Int'l Arb. (1992, nos 1-4) pp. 153 et seq.; Seth H. LIEBERMAN,
“Something's Rotten in the State of Party-Appointed Arbitration: Healing ADR's Black
Eye That is Nonneutral Neutrals”, 5 Cardozo Journal of Conflict Resolution (2004, no. 2)
pp. 233-241.
64) James H. CARTER, “Improving Life with the Party-Appointed Arbitrator: Clearer
Conduct Guidelines for ‘Nonneutrals’”, 11 Am. Rev. Int'l Arb. (2000, no. 3) p. 305.
65) Robert D. TAICHERT, “Why Not Provide for Neutral Party-Appointed Arbitrators?”, 57
Dispute Resolution Journal (2002, no. 4) p. 22.
66) Gary BORN, International Commercial Arbitration, 2nd ed., Vol. II, (Kluwer Law
International 2014) pp. 1797-1801.
67) Mauro RUBINO-SAMMARTANO, “Optional Additions to Standard Arbitration
Agreements Issued by the European Court of Arbitration”, 30 J. Int'l Arb. (2013, issue 2)
p. 163, offering two alternatives with respect to party-appointed arbitrators: “For
Neutral Party Appointed Arbitrators – The parties formally request the arbitrator,
respectively appointed by them as to these proceedings, to be totally neutral, since
the combination of the full neutrality of all the party-appointed arbitrators will
ensure that the arbitral tribunal will be fully independent”; and for “Partisan Party
Appointed Arbitrators – The parties formally agree that the arbitrator, whom each of
them will appoint in these proceedings, is expected to understand and support their
respective position.”
68) Philippe FOUCHARD, “Les rapports entre l'arbitre et les parties et l'institution arbitrale”
in Le statut de l'arbitre, ICC Bulletin, Special Supplement (1995, ICC Publ. no. 564) p. 16.
69) Pierre LALIVE, “Sur des dimensions culturelles de l'arbitrage international” in J.
MAKARCZYK, ed., Theory of International Law at the Threshold of the 21st Century –
Mélanges Krzysztof Skubiszewski (Kluwer Law International 1996) p. 779.
70) For instance, Matthews proposes that this could be done in investment treaty
arbitration by adding to the oath taken by party-appointed arbitrators an obligation
to “ensure that during deliberations with other members of the tribunal the positions
asserted on behalf of the party that nominated me are fully understood and
considered”. J. M. MATTHEWS, “Difficult Transitions”, fn. 6 above, p. 365.

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 71) See, e.g.: David ELLIOT, “Med-Arb: Fraught with Danger or Ripe with Opportunity?”, 34
Alberta Law Review (1995, no. 1) pp. 163-179; Michael E. SCHNEIDER, “Combining
Arbitration with Conciliation” in International Dispute Resolution: Towards an
International Arbitration Culture, ICCA Congress Series no. 8 (1996 Kluwer Law
International) (henceforth ICCA Congress Series no. 8), pp. 57-97; Harold I. ABRAMSON,
“Protocols for International Arbitrators Who Dare to Settle Cases”, 10 Am. Rev. Int'l
Arb. (1999, no. 1) pp. 1-17; Peter TALBOT, “Should an Arbitrator or Adjudicator Act as a
Mediator in the Same Dispute?”, 67 Arbitration (2001, issue 3) pp. 221-229; Haig
OGHIGIAN, “Discussion: On Arbitrators Acting as Mediators”, 68 Arbitration (2002, issue
1) pp. 42-45; Christian BÜHRING-UHLE, Gabriele SCHERER and Lars KIRCHHOFF, “The
Arbitrator as Mediator”, 20 J. Int'l Arb. (2003, issue 1) pp. 81-88; Klaus Peter BERGER,
“Integration of Mediation Elements into Arbitration – ‘Hybrid’ Procedures and
‘Intuitive’ Mediation by International Arbitrators”, 19 Arb. Int'l (2003, no. 3) pp. 387-
403; Arthur MARRIOTT, “Arbitrators and Settlement”, 70 Arbitration (2004, issue 4) pp.
297-307; Andrew BURR, “Med-Arb: A Viable Hybrid Solution?” in José ROSELL, coord.,
Les arbitres internationaux (Centre Français de Droit Comparé, Société de Législation
Comparé 2005) pp. 57-76; Hilmar RAESCHKE-KESSLER, “The Arbitrator as Settlement
Facilitator”, 21 Arb. Int'l (2005, no. 4) pp. 523-536; Christian BÜHRING-UHLE, Arbitration
and Mediation in International Business , 2nd ed., International Arbitration Law
Library, Vol. 13 (Kluwer Law International 2006); Gabrielle KAUFMANN-KOHLER and
Víctor BONNÍN, “Arbitrators as Conciliators: A Statistical Study of the Relation
Between an Arbitrator's Role and Legal Background”, 18 ICC Bulletin (2007, no. 2) pp.
79-90; Gabrielle KAUFMANN-KOHLER and Fan KUN, “Integrating Mediation into
Arbitration: Why It Works in China”, 25 J. Int'l Arb. (2008, issue 4) pp. 479-492; Gabrielle
KAUFMANN-KOHLER, “When Arbitrators Facilitate Settlement: Towards a Transnational
Standard”, 25 Arb. Int'l (2009, no. 2) pp. 187-205; Harry Kenneth WOOLF, “Mediation in
Arbitration in the Pursuit of Justice”, 65 Arbitration (2009, issue 2) pp. 169-176; Bernd
EHLE, “The Arbitrator as a Settlement Facilitator”, in Walking A Thin Line - What an
Arbitrator Can Do, Must Do or Must Not Do, Recent Developments and Trends,
Colloquium CEPANI 40, 29 September 2010 (Bruylant 2010) pp. 77-95; Sophie NAPPERT
and Dieter FLADER, “A Psychological Perspective on the Facilitation of Settlement in
International Arbitration – Examining the CEDR Rules”, 2 Journal of International
Dispute Settlement (2011, issue 2) pp. 459-470; Paul Eric MASON, “The Arbitrator as
Mediator, and Mediator as Arbitrator”, 28 J. Int'l Arb. (2011, Issue 6) pp. 541-551; P. E.
MASON, “Follow-Up Note to ‘The Arbitrator as Mediator, and Mediator as Arbitrator’”,
J. Int. Arb. (2011, issue 6) pp. 541 et seq.”, 29 J. Int'l Arb. (2012, issue 2) pp. 225-226;
Robert RHODES, “Mediation-Arbitration (Med-Arb)”, 79 Arbitration (2013, issue 2) pp.
116-119; Kerrod GILES, “Mediation-Arbitration Processes in Queensland: Do They
Work?”, 81 Arbitration, (2015, issue 2) pp. 150-166; Dilyara NIGMATULLINA, “The
Combined Use of Mediation and Arbitration in Commercial Dispute Resolution:
Results from an International Study”, 33 J. Int'l Arb. (2016, issue 1) pp. 37-82; Stefan
Michael KRÖLL, “Chapter 22: Promoting Settlements in Arbitration: The Role of the
Arbitrator” in Patricia SHAUGHNESSY and Sherlin TUNG, eds., The Powers and Duties of
an Arbitrator: Liber Amicorum Pierre A. Karrer (Kluwer Law International 2017) pp. 209-
224.
72) For an overview, A. BURR, “Med-Arb: A Viable Hybrid Solution?”, fn. 71 above, pp. 57-70.
73) UNCITRAL Model Law on International Commercial Conciliation (2002), Art. 1.3. In the
same line, ICC Mediation Guidance Notes (2014) para. 1 (“For the purpose of the ICC
Mediation Rules (the ‘Rules’), mediation is a flexible settlement technique,
conducted privately and confidentially, in which a mediator acts as a neutral
facilitator to help the parties try to arrive at a negotiated settlement of their dispute.
The parties have control over both the decision to settle and the terms of any
settlement agreement”) and fn. 2 (“Internationally, the terms ‘conciliation’ and
‘mediation’ are used sometimes to describe processes that are substantively the
same and sometimes to describe processes that are similar but have some
differences. Where there are substantive differences, there is no uniform
understanding of what those differences are. Mediation as referred to in the ICC
Mediation Rules and these Mediation Guidance Notes is a concept sufficiently broad
to encompass both mediation and conciliation”).
74) M. E. SCHNEIDER, “Combining Arbitration with Conciliation” in ICCA Congress Series no.
8, p. 70; A. BURR, “Med-Arb: A Viable Hybrid Solution?”, fn. 71 above, p. 61.
75) See, e.g., Singapore International Arbitration Centre-Singapore International
Mediation Centre (SIAC-SIMC) Arb-Med-Arb Model Clause (“Arb-Med-Arb Clause”) and
SIAC-SIMC Arb-Med-Arb Protocol.
76) See, e.g., CPR Global Rules for Accelerated Commercial Arbitration (2009),
Accelerated Rule 19.4: “With the consent of the parties, the Arbitral Tribunal at any
stage of the proceeding may arrange for mediation of the claims asserted in the
arbitration by a mediator acceptable to the parties who may be a member of the
Arbitral Tribunal.”
77) D. ELLIOT, “Med-Arb: Fraught with Danger or Ripe with Opportunity?”, fn. 71 above, p.
178, recalling that the variation of Co-Med-Arb was suggested by the Harvard
Negotiation Project to address the concern about the impartiality of the arbitrator.

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 78) Centre for Effective Dispute Resolution (CEDR) Rules for the Facilitation of Settlement
in International Arbitration (2009), Arts. 4.2.3 and 5.3.1. Available at
<https://www.cedr.com/about_us/arbitration_commission/Rules.pdf> (last accessed
2 March 2018).
79) ICC Arbitration Rules (2017), Appendix IV, h(ii); ICC Mediation Guidance Notes (2014),
paras. 29-30.
80) See, e.g.: IBA Rules of Ethics for International Arbitrators (1987), Rule 8 (“Involvement
in Settlement Proposals”); CEDR Rules for the Facilitation of Settlement in
International Arbitration (2009), Art. 5; ICC Mediation Guidance Notes (2014), para. 34.
81) H. I. ABRAMSON, “Protocols”, fn. 71 above, pp. 12-13. For an account of a successful
example, Ch. BÜHRING-UHLE, Arbitration and Mediation in International Business, fn.
71 above, pp. 255-259 (the IBM v. Fujitsu case).
82) S. NAPPERT and D. FLADER, “A Psychological Perspective on the Facilitation of
Settlement”, fn. 71 above, pp. 466-467.
83) ICC Mediation Guidance Notes, para. 36.
84) See, e.g.: AAA International Mediation Rules (2014), Art. 5.1; CPR International
Mediation Procedure (2017), Art. 3(c); SIMC Mediation Rules (2014), Art. 4.5; UNCITRAL
Model Law on International Commercial Conciliation (2002), Art. 5.4.
85) Ch. BÜHRING-UHLE, Arbitration and Mediation in International Business, fn. 71 above,
p. 124: “[I]t also occurs that the party-appointed arbitrators act as (co-) mediators.
Deliberate mediation attempts where all sides agree that the party-appointed
arbitrators serve as mediators and in this function ‘officially’ confer with their parties
are comparatively rare since it creates a potential conflict with the principle that
party-appointed arbitrators are supposed to be completely impartial and should,
after their appointment, abstain from any contact to ‘their party’.” In the same vein,
H. I. ABRAMSON, “Protocols”, fn. 71 above, p. 13.
86) Ch. BÜHRING-UHLE, Arbitration and Mediation in International Business, fn. 71 above,
pp. 259-260.
87) Pierre BELLET, “Des arbitres neutres et non neutres” in Christian DOMINICE, Robert
PATRY and Claude REYMOND, eds., Études de droit international en l'honneur de Pierre
Lalive (Helbing & Lichtenhahn 1993) p. 408.
88) R. COULSON, “An American Critique”, fn. 4 above, pp. 107-109.
89) See Sect. III.1 above.
90) H. SMIT, book review of Quo Vadis Arbitration?, fn. 5 above, p. 430.
91) John R. STEVENSON, “Regarding Selection of Arbitrators” in Christian DOMINICÉ,
Robert PATRY and Claude REYMOND, eds., Études de droit international en l'honneur de
Pierre Lalive, (Helbing & Lichtenhahn 1993) p. 691.
92) Joseph P. KLOCK, Dissenting Opinion of 18 January 2017 in Supervisión y Control S.A. v.
Costa Rica (ICSID Case No. ARB/12/4) pp. 13-14.
93) According to the 2010 International Arbitration Survey conducted by the School of
International Arbitration, Queen Mary University of London, on Choices in
International Arbitration, the seventh most important factor in the choice of co-
arbitrators, acknowledged by 47 percent of the respondents, was the likelihood that
the co-arbitrator will be able to influence the presiding arbitrator.
94) M. E. SCHNEIDER, “Combining Arbitration with Conciliation” in ICCA Congress Series no.
8, p. 77: “ln many respects, the most efficient combination of arbitration and
conciliation is that in which the same person acts both as arbitrator and conciliator”;
A. BURR, “Med-Arb: A Viable Hybrid Solution?”, fn. 71 above, p. 63: “The most efficient
combination of arbitration and mediation is when the same person acts both as
arbitrator and mediator”; G. KAUFMANN-KOHLER, “When Arbitrators Facilitate
Settlement”, fn. 71 above, p. 197, noting the existence of an added value for three
reasons: the arbitrator's knowledge of the case, the arbitrator's ideal position to
choose the right timing for settlement purposes and the possibility that the
settlement agreement may form part of a consent award enforceable under the New
York Convention.
95) See, e.g.: AAA International Mediation Rules (2014), Art. 7.2: “The mediator is
authorized to conduct separate or ex parte meetings and other communications with
the parties and/or their representatives, before, during, and after any scheduled
mediation conference. Such communications may be conducted via telephone, in
writing, via email, online, in person, or otherwise”; CPR International Mediation
Procedure (2017), Art. 3(d)(i): “The mediator is free to meet and communicate
separately with each party and confidentially with each party”; UNCITRAL Model Law
on International Commercial Conciliation (2002), Art. 7: “The conciliator may meet or
communicate with the parties together or with each of them separately.”
96) M. E. SCHNEIDER, “Combining Arbitration with Conciliation” in ICCA Congress Series no.
8, p. 75: “The most controversial but perhaps also the most promising form of
preparing for settlement is the indication of preliminary views by the arbitral tribunal
itself.”
97) Ibid., p. 77: “The admissibility and appropriateness for an arbitrator to act as
conciliator is among the most controversial issues among international arbitration
practitioners. The views and practices in this respect differ widely.”

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 98) Martin HUNTER, “Ethics of the International Arbitrator”, 53 Arbitration, (November
1987, no. 4) p. 224; IBA Rules of Ethics for International Arbitrators (1987), Rule 8
(“Involvement in Settlement Proposals”); D. ELLIOT, “Med-Arb: Fraught with Danger or
Ripe with Opportunity?”, fn. 71 above, pp. 166-167; M. E. SCHNEIDER, “Combining
Arbitration with Conciliation” in ICCA Congress Series no. 8, p. 90: “The most
controversial question about an arbitrator's activity as conciliator is no doubt that
concerning the admissibility for him to meet a party in the absence of the others and
discuss the case and a settlement with it”; CEDR Rules for the Facilitation of
Settlement in International Arbitration (2009), Art. 5.2: “The Arbitral Tribunal shall not:
2.1. meet any Party without all other Parties being present; or 2.2. obtain information
from any Party which is not shared with the other Parties.”
99) See fn. 96 above. See also Mercédeh AZEREDO DA SILVEIRA, “Impartiality v.
Substantive Neutrality: Is the Mediator Authorized to Provide Legal Advice?” in
Sophie NAPPERT, ed., Arbitrator Bias, 5 Transnational Dispute Management (July 2008,
no. 4).
100) See fn. 31 above.
101) D. NIGMATULLINA, “The Combined Use of Mediation and Arbitration”, fn. 71 above, p.
60, showing some specific results of an empirical study carried out by the author in
2014. Participants in the study were asked if the neutral that conducted mediation in
the dispute involving the combined use of mediation and arbitration was the sole
arbitrator, a member of the arbitral tribunal or a neutral other than the sole
arbitrator or a member of the arbitral tribunal. The vast majority of the twenty-six
participants who answered this question (84.6 percent) noted that there were
different individuals for mediation and arbitration stages.
102) On these dangers, e.g.: G. KAUFMANN-KOHLER, “When Arbitrators Facilitate
Settlement”, fn. 71 above, pp. 197-200; H. I. ABRAMSON, “Protocols”, fn. 71 above, pp. 3-
5.
103) A. MARRIOTT, “Arbitrators and Settlement”, fn. 71 above, p. 303.
104) A. BURR, “Med-Arb: A Viable Hybrid Solution?”, fn. 71 above, p. 61.
105) D. ELLIOT, “Med-Arb: Fraught with Danger or Ripe with Opportunity?”, fn. 71 above, p.
179.
106) Pierre LALIVE, “Towards a Decline of International Arbitration?”, 65 Arbitration (1999,
no. 4) pp. 253.
107) Michael J. MUSTILL and Stewart C. BOYD, Commercial Arbitration, 2nd ed.
(Butterworths 1989) pp. 258-264.
108) “Arbitral Procedure – Rapport par Georges Scelle, rapporteur spécial”, United Nations
International Law Commission, UN Doc. A/CN.4/18 (21 March 1950) 1950 U.N.Y.B. Int'l L.
Comm'n, para. 36, p. 126.
109) F. EISEMANN, “L'arbitre-partie”, fn. 6 above, p. 85.
110) The European Court of Human Rights (ECtHR), for example, has on several occasions
dealt with tribunals in which some of the members are nominated by appointors that
generally represent the interests of groups to which one of the disputing parties
belongs or is closely connected, notwithstanding the obligation of all the members of
the tribunal to act impartially. In Langborger v. Sweden (Judgment 22 June 1989) there
was a four-member Housing and Tenancy Court of which two members were
nominated by non-neutral appointors, one by an owners' association and one by a
tenants' association. In Ab Kurt Kellermann v. Sweden (Judgment 26 January 2005)
there was a seven-member Labour Court of which four members were nominated by
non-neutral appointors, two by employers' associations and two by employees'
associations. In both cases, the ECtHR seemed to suggest that tribunals with some
members nominated by non-neutral appointors are acceptable as long as there is a
balance of interests in the tribunal's composition. The nomination of some members
of the tribunal by non-neutral appointors was indeed not even an issue in either of
the two cases.

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 KluwerArbitration

Document information
Institutional Appointment of Arbitrators
Publication Ruth Stackpool-Moore
Evolution and Adaptation: (*)
The Future of International
Arbitration Arbitration has long been lauded for its flexibility, its ability to adapt to the demands of
its users in a way that the rigidity of national legal systems cannot. Another, much praised,
feature of arbitration is the opportunity parties have to influence the nature of the
decision-maker in their case, to have a say in the appointment of arbitrators to their
Bibliographic reference tribunal. Nevertheless, debate has arisen, mainly amongst practitioners, around the
Ruth Stackpool-Moore, continued desirability of parties retaining the ability to make such appointments. The
'Institutional Appointment of question has been asked: Is it time to rethink the parties' latitude to shape the tribunal?
Arbitrators', in Jean And, if the answer to this question is “yes”, how viable is it to substitute arbitral institutions
Engelmayer Kalicki and in the appointment process?
Mohamed Abdel Raouf (eds), Party appointment having been included in the checklist of advantages of arbitration since
Evolution and Adaptation: many can remember, a reflex response to these questions tends to be (i) party
The Future of International appointment, as an expression of party autonomy, is a keystone of international
Arbitration, ICCA Congress arbitration, a right guaranteed in the arbitration process; (ii) if party appointment is taken
Series, Volume 20 (© Kluwer away, arbitration's position as the preferred method of dispute resolution for cross-border
Law International; disputes will diminish; and (iii) even if it is accepted that something other than party
International Council for appointment is required, users do not have requisite faith in institutions to make
Commercial appointments for them, and another alternative must be sought.
Arbitration/Kluwer Law
International 2019) pp. 417 - It is useful to examine these propositions and consider whether this initial reaction is
431 justified. What arguments exist to support the continued reliance on party appointment?
What factors are against it? It is also important to look at what people involved in
arbitration say, and then consider in conjunction with that, what they actually do, before
concluding one way or another on the best way forward.
P 417
P 418

I Arguments in Favour of Party Appointment

The opportunity to choose the decision-maker has long been one of the leading reasons
cited for parties to opt for arbitration over litigation. In fact, the ability of parties to
choose their own arbitrators has been described as a “well-established right”, providing
the foundation for the “perceived legitimacy” of arbitration, the restriction of which would
“impede the further development of the field”. (1) Why?
First and foremost, it engages issues of confidence and control. Psychologically, parties to
a dispute are said to gain the former, and at least an illusion of the latter, when they are
given the ability to appoint arbitrators and influence the composition of their tribunal, the
ultimate decision-maker. This ability to select one of the arbitrators gives a party a sense
of control and proximity to the arbitration proceedings which engenders greater
confidence in the arbitral process overall. (2) Confidence in the process has a knock-on
effect in relation to the perceived legitimacy of the outcome, the final award. For this
reason, it is often argued that removal of party appointments will “erode party autonomy
and adversely affect party confidence in international arbitration as a desirable method of
dispute resolution”. (3)
Second, one of the drivers for the selection of arbitration as a means of resolving
international disputes stems from the general lack of trust of the other party's “home
court”. The “I don't feel comfortable in yours, you don't feel comfortable in mine”
conundrum is overcome by the ability of each party to select decision-makers with whom
they feel at least some degree of comfort. Party appointment is seen as a means for parties
to ensure that there is someone on the tribunal who, if desired, shares their own cultural or
legal tradition, again increasing the legitimacy of the process from the party's point of
view.
Third, parties know their dispute best and are therefore, at least theoretically, in the best
position, particularly with the assistance of instructed counsel, to prioritize important
characteristics for an arbitrator, in terms of their ability to successfully resolve it.
It is often here that the waters become muddied, in that the priority of these
characteristics may be determined not only in relation to suitability to resolve a particular
dispute, but also in relation to an estimate of whether or not potential candidates will be
“sympathetic” to a particular party's case. It is the acceptable degree of sympathy, both
expected and provided, where opinions on the appropriateness of party appointment
diverge.
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 II What are the Criticisms?
The frequency of challenges for so-called “issue conflicts” or repeat appointments, studies
demonstrating the prevalence of dissents by party- appointees in favour of their
appointing parties, proposals for standing tribunals and appellate mechanisms, and
transparency initiatives, among others, are all recent developments which reflect concerns
about the limits and risks of abuse in the party-appointment system.
Such concerns fall along a broad spectrum, for some the practice is undesirable, but in the
context of the established status quo regarding its adoption, unlikely to change. For others,
party-appointed arbitrators signify a far greater problem, constituting a “moral hazard”
which, unless forbidden or rigorously policed, will ultimately destroy the legitimacy of the
arbitration process. (4)
The first criticism of party appointment is that it interferes with the impartiality and
independence of arbitrators and leads to bias on the tribunal. In the 2018 Berwin Leighton
Paisner Survey (BLP Survey), 52% of respondents felt that party appointments increase the
risk of partisan arbitrators, while 70% of those who act as counsel said they had been in a
situation where they believed a party-appointed arbitrator tried to favour the party that
had appointed them and 55% of those who serve as arbitrators said they had encountered
a party-appointed arbitrator who had tried to favour the appointing party by some means.
Second, it is suggested that parties select arbitrators they think will help them win, rather
than the best arbitrator for the dispute.
Third, it has been said that party appointments may breed distrust and lead to increased
challenges.
Finally, party appointments are criticized on the basis that they do not encourage diversity
of tribunals, since parties tend to opt for well-known names from a “short list of favourites”.

III What do Recent Studies Tell us?

The 2012 International Arbitration Survey on current and preferred practices in the arbitral
process conducted by White & Case and Queen Mary University of London (2012 Queen
Mary Survey) found that a significant majority, 76%, of the 710 respondents, prefer selection
of the two co-arbitrators in a three-member tribunal to be made by each party. (5)
Interestingly, although party appointment was the preferred method of arbitrator
P 419 selection for all categories of respondents, private practitioners voiced a higher degree of
P 420 support (83%) to in-house counsel (71%), (6) although it is worth noting that respondents
to the 2012 Queen Mary Survey were primarily private practitioners (53%), with only 10% of
respondents being in-house counsel. The remainder were arbitrators (26%); counsel from
arbitral institutions; academics and expert witnesses (together, 11%). (7)
On the basis of these figures, the authors of the 2012 Queen Mary Survey concluded that
“the arbitration community generally disapproves of the recent proposals calling for an
end to unilateral party appointments”. (8)
Although based on a smaller sample, the 151 participants in Berwin Leighton Paisner's
latest international arbitration survey were specifically asked about the issue of the party
appointment of arbitrators. Those taking part included counsel, academics, arbitrators,
users of arbitration and staff at arbitral institutions. (9)
Overall, the 2018 BLP Survey found that 66% of participants still consider party
appointments to be a desirable practice. (10) As a subset of that, 83% of the respondents
who identified themselves as being “parties to arbitration” believed that such
appointments were “very desirable”. Interestingly, of the survey participants who work at
arbitral institutions, the same percentage (83%) also considered the practice to be very
desirable, albeit that that category of respondents represented only 4% of the overall
number of participants. (11)
Counter to that, 17% of respondents to the BLP Survey said the practice of party
appointment is undesirable. Seventeen percent were ambivalent. (12)
And all of this in the context that 52% of the BLP Survey respondents think party
appointment increases the risk of partisan arbitrators appearing on a tribunal. (13)

IV Where are we now? the Current Framework

A review of four major arbitral institutions' rules – two Asia-based, the Hong Kong
International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre
(SIAC) and two from the United Kingdom and Europe, the London Court of International
Arbitration (LCIA) and the International Court of Arbitration of the International Chamber of
Commerce (ICC), in Paris – demonstrates very clearly that, despite recent amendments
(either in force or currently proposed) to each institution's set of rules, party appointment
remains a pillar of the modern arbitral framework.
To the extent that parties fail to exploit the opportunities provided to appoint, invariably
it is an organ of the relevant institution which is then called upon to exercise this function.
How this is done in the case of each of the four surveyed institutions is also set out below.
P 420

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 P 420
P 421
1 HKIAC
The general framework under the 2013 HKIAC Administered Arbitration Rules (14) is that the
parties have the opportunity to agree (on a sole arbitrator) or appoint (their own co-
arbitrator) in the first instance (Art. 7; Art. 8) subject to the confirmation of the HKIAC (Art.
9). Likewise, the default position is that the party-appointed arbitrators will choose the
Chair (Art. 8). HKIAC will only undertake appointment if the parties (or, in the case of the
Chair, the co-arbitrators) fail to do it themselves.
There are only two exceptions to this general framework. First, if there are more than two
parties to an arbitration, the dispute is to be referred to three arbitrators and the parties
fail to agree that they represent two separate sides for the purposes of designating
arbitrators, HKIAC may then appoint all arbitrators without regard to any party's
designation (Art. 8.2). Second, if two or more cases are consolidated under Art. 28.6, (i) the
parties are deemed to have waived their right to designate an arbitrator, (ii) HKIAC may
revoke the appointment of any arbitrators already designated or confirmed and (iii) HKIAC
shall appoint the arbitral tribunal in respect of the consolidated proceedings.
In circumstances where HKIAC is required to make appointments, how are these
appointments made?
HKIAC maintains both a Panel and a List of Arbitrators. The Panel of Arbitrators comprises
members who have demonstrated particular experience acting as arbitrator, and are
generally stated to include “senior members of the arbitration community who have been
appointed as arbitrator in multiple disputes and have significant experience in award
drafting”. (15) The List of Arbitrators comprises members who may have some, but not
necessarily extensive, experience acting as arbitrator as well as those who may have not
yet achieved their first or multiple appointments, but who nevertheless have “significant
experience in arbitration to the extent that they would be suitable for appointment as
arbitrator in cases either of smaller value or those with less complex issues for decision”.
(16) Membership is by application only and lasts for a determined duration (three or five
years, respectively) with renewal possible only upon proof of continued compliance with
membership criteria, including the experience component, and completion of sufficient
continued professional development. Notably also, the HKIAC has a designated complaints
procedure available in relation to arbitrators on its Panel and List to assist the institution
ensure the quality of its members. (17) Unlike other institutions, HKIAC includes full details
of members of both the Panel and List of Arbitrators on a fully searchable online database.
(18)
Maintenance of the Panel and List of Arbitrators, and the making of arbitrator
P 421 appointments by HKIAC are conducted by a designated committee, the Appointments
P 422 Committee, formed by members of the HKIAC's governing body, the HKIAC Council. The
names of Members of the Appointments Committee are listed on the HKIAC website. (19)
Despite generally informative content, several salient features of how HKIAC makes
arbitrator appointments are either not present or not easily accessible, on HKIAC's
website. For example, when HKIAC is called on to make arbitrator appointments, it is not
limited to members of its Panel or List of Arbitrators, and may, if circumstances require,
appoint a non-listed arbitrator. It does not appear that this is specified on the HKIAC
website. Nor is it easy to find out that the HKIAC provides parties with the opportunity to
comment on any proposed institutional appointment. It is only in the answer to FAQ no. 19
on the Administered Arbitration Rules, that it is stated that “[i]n any case where HKIAC
appoints an arbitrator, the parties will be given the opportunity to comment on the
arbitrator proposed”. (20) Lastly, although it is known to the author that the HKIAC requests
users and arbitrators alike to complete feedback forms, following their conclusion of an
HKIAC arbitration, including comment in relation to the performance of arbitrators, this
information does not appear to be included on HKIAC's website.

2 SIAC
The appointment procedures under the 2016 SIAC Rules are not dissimilar to those under
the 2013 HKIAC Administered Arbitration Rules. Initial opportunity for nomination rests
with the parties, subject to appointment by the President of the SIAC Court (Art. 10; Art. 11;
in conjunction with Art. 9.3). A failure by the parties to utilize this opportunity leads to
appointment by the President of the Court. This includes circumstances where multi-party
appointments are required (Art. 12). In circumstances where an additional party is joined
to the proceedings or where two or more cases have been consolidated into a single
arbitration (if the application for consolidation was made prior to any tribunal's
constitution), any appointments already made may be revoked by the SIAC Court. However,
rather than the institution stepping in at this point (as is the case at the HKIAC), under the
SIAC Rules, the parties are given the opportunity to complete the appointment process in
accordance with the usual rules again (Arts. 7.6 and 8.6).
In circumstances where SIAC is required to make appointments, how are these
appointments made?
SIAC publishes the list of the arbitrators included on their Panel on their website. (21)

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 Although SIAC maintains a Reserve Panel, information regarding its existence is relatively
hard to find, (22) and details of members of the reserve panel or circumstances in which
they might be appointed do not appear to be made available at all.
P 422
P 423
To be eligible for inclusion on SIAC's Panel of Arbitrators, arbitrators must demonstrate an
appropriate level of expertise and experience in international arbitration and be of good
standing and character. (23) A number of minimum qualifications or experience apply,
including that arbitrators have (i) a tertiary education; (ii) at least ten years' post-
qualification experience; (iii) a fellowship from the Chartered Institute of Arbitrators,
Singapore Institute of Arbitrators or any comparable professional arbitration institute; (iv)
experience as an arbitrator in five or more cases; (v) completed at least two commercial
arbitral awards; and (vi) be aged between thirty and seventy-five years. As with the HKIAC,
membership on the Panel is for a fixed term only, although it is not clear from the website
or the application form what that term is.
How SIAC makes appointments when it is required to do so is set out in the Practice Note
for Administered Cases, PN - 01/14 (2 January 2014), applicable to all cases commenced or
submitted for administration on or after 2 January 2014. (24) PN - 01/14 clarifies that the
criteria for appointment shall follow the provisions specified in legislation or the contract
between the parties, and that in all cases, SIAC's objective is to appoint an arbitrator with
the attributes of integrity and competence, who is independent and impartial, and who
will be perceived as such by the parties.
In all cases where the President is to make an appointment of an arbitrator, he may, where
appropriate, consult two members of the SIAC Court and may seek the assistance of the
Secretariat. The Practice Note makes it clear that, in exceptional cases, such as where
there are no suitable candidates on the SIAC panel of arbitrators, the President may
appoint an arbitrator who is not on the SIAC panel of arbitrators.

3 LCIA
The default position under the 2014 LCIA Arbitration Rules differs significantly from that of
the HKIAC and SIAC Rules. According to the LCIA Rules, the LCIA will select the members of
the tribunal unless the parties have agreed otherwise, whether that be by their arbitration
clause or by later agreement.
The LCIA Court is the final authority for the proper application of the LCIA rules, amongst
whose principal functions (according to Art. D.1.(a). of its constitution) includes acting as
appointing authority under the LCIA Rules. (25) According to those Rules, the LCIA Court
alone is empowered to appoint arbitrators, albeit taking into account any written
agreement or joint nomination by the parties (Art. 5.7) and with due regard for any
particular method or criteria of selection agreed in writing by the parties (Art. 5.9). If the
parties have agreed that an arbitrator is to be appointed by one or more of them or by any
third person, then a nominee put forward in accordance with that agreement will be
appointed by the LCIA Court, subject to the nominee's satisfaction of certain criteria (Art.
7.1). Where the agreed-upon nomination is not made, or not made within time, the LCIA
Court shall make the appointment (Art. 7.2). The same is true where multiple parties cannot
agree on which “side” they represent for the purpose of agreeing appointment (Art. 8.2).
P 423
P 424
In circumstances where the LCIA is required to make appointments, how are these
appointments made?
Under Art. D.2. of the Constitution of the LCIA Court, all appointments of arbitrators shall be
made in its name by the President or by a Vice President, whose names are listed on the
LCIA's website. (26)
A FAQ listed on the LCIA website asks “[h]ow does the LCIA Court select and appoint
arbitrators?” (27) However, unhelpfully, when the link to the answer to this question is
clicked, the reader is taken to a page providing a general description of the advantages of
LCIA arbitration, mentioning only that the arbitrator appointment process is quick and
efficient. (28)
Beyond this, the LCIA states on its website that it has access to “the most eminent and
experienced arbitrators … from many jurisdictions, and with the widest range of expertise”.
(29) These arbitrators are not included on a panel, similar to those maintained by the
HKIAC or SIAC. The LCIA does not maintain such panel. It does, however, maintain a
database of neutrals from around ninety jurisdictions, but this database is not publicly
available.
Users are told in the FAQ section of the LCIA website that (i) appointments are made
“strictly on the basis of the most appropriate qualification for the specific case”, (30) and
that (ii) if the parties agree, once an arbitration has been commenced, the LCIA will
provide both sides with a list of the names of arbitrators who it would be prepared to
appoint to determine the dispute, from which the parties may seek to agree the
arbitrator(s).

4 ICC

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 As with its Asian counterparts, the default position under the 2017 ICC Arbitration Rules is
that parties are initially given the opportunity to appoint sole and co-arbitrators, failing
which, the ICC Court will step in (Arts. 12.2 to 12.4). However, unlike under the rules of the
HKIAC and SIAC, where the dispute is to be referred to three arbitrators, the default
mechanism is that the president of the tribunal shall be appointed by the ICC Court (rather
than selected by the party-appointed co-arbitrators), unless the parties have agreed upon
another procedure for such appointment (Art. 12.5). Where there are multiple claimants or
multiple respondents, or a third party has been joined to the proceedings and parties are
unable to agree to a method for the constitution of the tribunal, the ICC Court may appoint
each member of the arbitral tribunal and designate one of them to act as President (Art.
12.8).
In circumstances where the ICC is required to make appointments, how are these
appointments made?
Where the ICC Court is to appoint an arbitrator, it usually makes that appointment upon
P 424 the proposal of suitable candidates by an appropriate National Committee or Group of the
P 425 ICC. If the ICC Court does not accept the proposal, or if the National Committee or Group
fails to make the proposal requested, the Court may (i) repeat its request, (ii) request a
proposal from another National Committee or Group that it considers to be appropriate, or
(iii) appoint directly any person whom it regards as suitable (Art. 13.3).
According to Art. 13.4, the ICC Court may also directly appoint an arbitrator it considers to
be suitable to act where:
(a) one or more of the parties is a state or may be considered to be a state entity;
(b) the Court considers that it would be appropriate to appoint an arbitrator from a
country or territory where there is no National Committee or Group; or
(c) the President certifies to the Court that circumstances exist which, in the President's
opinion, make a direct appointment necessary and appropriate.
The ICC has published a Practice Note entitled “Note to National Committees and Groups
of the ICC on the Proposal of Arbitrators” which explains (i) the role of National Committees
and Groups of ICC in the appointment process pursuant to the ICC Rules of Arbitration and
(ii) the manner in which interaction between the ICC Court and the Secretariat should be
conducted with Committees and Groups, in order to enhance the appointment process. (31)
In essence, when the ICC Court is to appoint an arbitrator, it will seek proposals of
prospective arbitrators from Committee(s) or Group(s) who may then put forward several
names for the Court's consideration. The Secretariat will provide the relevant Committee(s)
and/or Group(s) with a letter formally requesting the proposal of an arbitrator as well as
detailed information concerning the case and specific requests regarding the profile of
prospective arbitrators. Committees and Groups have discretion in relation to the process
by which they select arbitrators for proposal to the Court; however, the candidates they
propose should be those they consider to be best suited to act, taking into account the
circumstances of the case and bearing in mind that proposals are to be made in the
interest of the parties.
According to the Practice Note, Committees and Groups are encouraged (i) to propose
prospective arbitrators having sufficient experience as arbitrators, preferably in ICC cases,
when the case is complex or the amount in dispute is high; (ii) to propose prospective
arbitrators with experience in arbitration, but not necessarily as arbitrators (such as
experience as counsel or as administrative secretary), for simpler cases or cases involving
lower amounts in dispute; (iii) to propose new or young arbitrators in relatively simple
cases with lower amounts in dispute, as this may help the pool of potential arbitrators in
that community to grow; (iv) to favour gender diversity in their proposals; and (v) to
propose a prospective arbitrator residing at or near the place of arbitration when the
amount in dispute is relatively low, in order to help keep the costs of the arbitration as low
as possible. (32)
The ICC Court maintains full discretion as to whether or not to appoint any of the
candidate(s) proposed.
P 425
P 426
While the ICC website does list the Members of the Court of Arbitration, (33) information,
beyond address and contact details, is harder to find in respect of its National
Committees, or the nominations commissions they are strongly encouraged to set up for
selecting and proposing arbitrators.
Unlike the HKIAC and SIAC, the ICC does not maintain a panel of arbitrators, nor does it
keep a centralized database of possible appointees, like the LCIA. Instead, according to
the Note on the Proposal of Arbitrators, Committees and Groups may keep unofficial lists of
arbitrators for their own internal work, but the Note clearly specifies that such lists should
not be published as an official ICC roster. (34)

V Institutional Appointment as an Alternative to the Current System?

Increased roles for institutions feature heavily in proposed alternatives to the current
party appointment model. Suggested approaches fall along a continuum in relation to the

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 degree of residual party input.
One option, the most radical departure from the current system, leaves the appointment
of all three arbitrators up to the institution entirely, allowing for no consultation or input
form the parties. This approach is generally resisted and rates poorly in surveys of user's
preferences. If the institution's appointment were to be made from a pre-existing closed
list of candidates, 81% of respondents to the 2018 BLP Survey considered this option
undesirable, a figure which reduced to only 34%, if the list of candidates was open. (35)
Another option is for the institution to prepare a short list of candidates for appointment,
with input from the parties solicited prior to appointments being made. Variants of this
option include giving the parties the opportunity to (i) suggest the arbitrators to be
included on the short list, (ii) rank the suitability of the listed arbitrators, leading to those
with the highest overall ranking being appointed, or (iii) strike out as well as rank names on
the list prepared by the institution that a party considers inappropriate for appointment.
One option tested in the 2018 BLP Survey and ranked as desirable by 62% of respondents,
involved the parties suggesting to the institution arbitrators who they would like to see
included on the initial short list, before then having the opportunity to rank those
candidates for suitability for appointment, with the institution appointing the candidates
with the highest overall ranking. (36) Another option, ranked as desirable by 60% of
respondents, leaves the composition of the list entirely to the institution, but allows the
parties the ability to both rank and strike out candidates on that list. (37)
P 426
P 427

VI What is Actually Happening?

Having examined reported views about party appointment in various surveys, it is
important to also look at what is happening in practice. How many appointments are
parties making? How many are being handled by institutions?
The HKIAC, whose figures for 2017 are not yet available, reported for 2016 that it made a
total of 137 arbitrator appointments, (38) of which the majority, 75, were HKIAC
appointments (54.7%) in comparison with 62 confirmations of party nominations (45.3%).
(39)
SIAC reports that in 2017 it made a total of 145 individual arbitrator appointments. 114 of
those were to sole arbitrator tribunals and 31 to three-member tribunals. This is compared
to a reported total of 118 arbitrators nominated and confirmed by SIAC. Therefore, of the
263 appointments made by SIAC in 2017, 44.9% were appointments made by SIAC itself.
In 2016, SIAC made a total of 167 individual arbitrator appointments, 137 to sole arbitrator
tribunals and 30 to three-member tribunals. This is compared with a total of 174
arbitrators nominated and confirmed by SIAC. Therefore, of the 341 appointments made by
SIAC in 2017, 51% were appointments made by SIAC itself. (40)
Turning to figures for the LCIA, as noted previously, the default position under the LCIA
Rules is that the LCIA will select members of the tribunal, unless the parties have agreed
otherwise. In the Registrar's Reports for 2015 and prior, the Registrar notes that “[t]he LCIA
… tends to select more candidate arbitrators than many other institutions”. (41)
The LCIA reports for 2016 that it made a total of 496 appointments, an increase from 2015
when the LCIA made a total of 449 appointments.
Of the 496 appointments made in 2016:
– 219 (44.2%) were candidates selected by the parties;
– 197 (39.7%) were candidates selected by the LCIA Court; and
– 80 (16.1%) were candidates selected by the co-arbitrators. (42)
This compares to 2015, where, of the 449 appointments:
– 204 (or 45.4%) were of candidates selected by the parties;
– 195 (or 43.5%) were of candidates selected by the LCIA Court;
– 50 (or 11.1%) were of candidates selected by the co-arbitrators. (43)
P 427
P 428
During the course of 2014, the LCIA made a total of 420 appointment, of which:
– 205 (or 49%) were of candidates selected by the parties;
– 159 (or 38%) were of candidates selected by the LCIA Court;
– 56 (or 13%) were of candidates selected by the co-arbitrators. (44)
Contrary to the Registrar's observation, it actually appears that the percentage of
appointments made by the LCIA Court, is lower than comparable figures for its Asian
counterparts, the HKIAC and SIAC.
Full statistics for 2017 are not yet available for the ICC, however, those for 2016 are set out
below: (45)

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 Sole Co-arbitrator President Total %
arbitrator
Nominated 65 702 27 794 56.3
by parties /
confirmed by
Court or
Secretary
General
Nominated N/A N/A 206 206 14.6
by Co-
arbitrators,
confirmed by
Court or
Secretary
General
Appointment 145 18 69 232 16.4
by Court on
proposal
from National
Committee or
Group
Appointment 76 42 57 175 12.4
directly by
ICC Court
Appointment 0 2 2 4 0.3
by an
authority
other than
the ICC Court
Total 286 764 361 1411 100
According to the reported figures, 28.8% of arbitrators were appointed by the ICC Court
directly or as a result of a proposal of a National Committee or Group. This represents the
lowest percentage of any of the four institutions surveyed.
P 428
P 429

VII Where to from Here?

As much as arbitration practitioners would like to think otherwise, dispute resolution
provisions remain a midnight clause. Few want to think about possible deal breakers when
expectation and anticipation remain very squarely at the feet of the dealmakers. As a
consequence, aside from sophisticated and/or repeat users of arbitration, often little
attention is paid to the institution or the rules selected, or, if they are considered, they are
often seen as an easy give vis-à-vis other more “important” commercial terms. To the
extent that careful thought is given to arbitration issues, it remains rare for consideration
of an institution's process and panel for the appointment arbitrators to fall too firmly
within the frame.
Contrary to expectations, the four institutions surveyed are already making a significant
number of appointments, and, in the case of the HKIAC and SIAC, this number is around, or
in some instances even greater than, 50 percent. This number is likely to come as a
surprise to many users.
The relative prevalence of institutional appointments in what we still describe as a party-
appointment driven system has not caused the end of arbitration as we know it, nor in fact
has it generated much concern, or even a great deal of notice. Perhaps the sanctity of party
appointment is not as important as general opinion holds, or even as user surveys bear out
(after all how people say they will react in response to a hypothetical question is often
vastly different to how they actually react when engaged in an actual, concrete dispute).
In this context, should we reassess the importance that we continue to ascribe to the
parties' opportunity to choose their decision -maker? Should other values, such as
accountability and consistency, be promoted in its stead? Is it time to rethink the parties'
latitude to shape the tribunal?
Although starting at the end may be seen as letting the tail wag the dog, surely it is only
possible to question the prevalence of party appointment if there is a viable alternative to
replace it with.
To have any real legitimacy as the default mechanism, institutional appointment must
garner the considered support of users, which can only be achieved if they have confidence
in the ability of institutions to appoint good arbitrators.
At the moment, despite the fact that institutions, at least those surveyed, are making

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 significant numbers of appointments, the necessary confidence is lacking. Fifty-nine
percent of the 2018 BLP Survey respondents believed that not all institutions can be
trusted to maintain an inclusive and qualified list of arbitrators from which all
appointments can be made. Sixty-nine percent said “no” when asked if institutions should
amend their rules so that all arbitral appointments would be made by them. (46) Distrust
of institutions' appointment of arbitrators was also voiced in the 2012 Queen Mary Survey.
In particular, respondents were concerned about “the small and static pool from which
some institutions pick their arbitrators”, and that not all institutions are paying sufficient
attention to the availability of arbitrators. (47)
P 429
P 430
A further consideration of the viability of this alternative lies with the institutions
themselves. Do they have the appetite to pick up the slack, should party appointments be
dispensed with? Arbitral institutions are typically not-for-profit organizations, operating on
shoestring budgets in a highly competitive market. Their goal is to facilitate efficiency and
administrative ease in the arbitral process and in so doing help to attract future business.
Can they stretch to being the default appointers of all arbitrators? And how can this be
assessed on a one-size-fits-all basis?
Putting that question aside, assuming institutions have the desire to accept the mandate,
in the event that it is given, what can institutions do to better perform the role and foster
user confidence?
Although some warn of the risk of increased challenges, (48) transparency will be key. As
the ICC concludes in its Note to Parties and Arbitral Tribunals on the Conduct of
Arbitration, “[t]ransparency provides greater confidence in the arbitration process, and
helps protect arbitration against inaccurate or ill-informed criticism”. (49) For users to
have the confidence to entrust default decision-making on arbitrator appointment to
institutions, they will need to be furnished with clear and complete information about how
the process works, in particular, what opportunities, if any, there will be for party input;
which candidates will be considered; who within the institution is making the decisions
and on what basis.
Parties looking to decide on an institution to administer their arbitration (and potentially
appoint their arbitrators) are, if they chose to do any research at all, likely to do a quick
search of available (i.e. free) resources, or they may rely on the insight of their lawyers.
While lawyers will gain knowledge of appointments processes over time, from the
standpoint of transparency and user confidence, this cannot be the principal means that
information is shared. Websites have to improve.
Clear, comprehensive and easily accessible information must be available about the
appointment process. In particular, details must be provided about who within the
institution is responsible for its implementation, and importantly, how those people are
selected and for how long they will perform this role. Parties need to know what criteria the
institution applies when making appointments. They need to understand if, and at what
stages, they may contribute their input. Very important is the quality of individuals from
which the institution will choose the arbitrators. Clarity needs to exist about the pool of
potential candidates for selection. Is there a panel of arbitrators, what about a secondary
list? Are the individuals on it publicly known? How do arbitrators secure inclusion? Further,
parties need to understand when an institution will look to its panel, or alternatively, the
list, and when it might go beyond listed candidates altogether. It is to be expected that
P 430 maintained lists will be regularly reviewed and refreshed, both for diversity and quality –
P 431 is this in fact the case? How is that review conducted? Is there an opportunity for party
feedback of both the arbitrators appointed and the appointment process?
Clear and comprehensive information should also be available about the outcomes of the
appointment process. How many appointments are being made, in what circumstances,
which arbitrators are being appointed, are there breadth and diversity amongst the
appointees? At the beginning of 2016, the ICC introduced a policy whereby it publishes on
its website the names of the arbitrators sitting in ICC cases, their nationality, as well as
whether the appointment was made by the Court or by the parties and which arbitrator is
the tribunal chairperson. It is this kind of initiative that will help to foster user confidence
in arbitral appointments made by institutions, and perhaps take us to a point where party
appointment could be relinquished in their favour.
P 431

References
*) Ruth Stackpool-Moore: Managing Director of Asia Dispute Funding, Singapore.
1) Charles N. BROWER and Charles B. ROSENBERG, “The Death of the Two-Headed
Nightingale: Why the Paulsson – Van den Berg Presumption that Party-Appointed
Arbitrators Are Untrustworthy Is Wrongheaded”, 29 Arbitration International (1 March
2013, issue 1) p. 7.

8
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 2) Berwin Leighton Paisner's annual International Arbitration Survey “Party Appointed
Arbitrators: Does Fortune Favour the Brave?” released on 12 January 2018 (henceforth
2018 BLP Survey) p. 3.
3) 2018 BLP Survey, p. 2.
4) Professor Jan PAULSSON, “Moral Hazard in International Dispute Resolution”, Inaugural
Lecture as Holder of the Michael R. Klein Distinguished Scholar Chair, University of
Miami School of Law, 29 April 2010
5) White & Case and Queen Mary University of London's 2012 International Arbitration
Survey, Current and Preferred Practices in the Arbitral Process, p. 5.
6) Ibid.
7) Op. cit., p. 44.
8) Op. cit., p. 2.
9) 2018 BLP Survey.
10) Op. cit., p. 7.
11) Op. cit., p. 8.
12) Ibid.
13) 2018 BLP Survey, p. 7.
14) The 2013 HKIAC Administered Arbitration Rules are subject to consultation for
amendment. None of the proposed changes relates to the mechanisms for
appointment of arbitrators.
15) <http://hkiac.org/arbitration/arbitrators>.
16) <http://hkiac.org/arbitration/arbitrators>.
17) <http://hkiac.org/arbitration/arbitrators/complaints>.
18) <http://hkiac.org/arbitration/arbitrators/panel-and-list-of-arbitrators>.
19) <http://hkiac.org/about-us/council-members-and-committees/appointments-
committee>.
20) <http://hkiac.org/arbitration/why-choose-hkiac/hkiac-administered-arbitration-
faqs#019>.
21) <http://www.siac.org.sg/our-arbitrators/siac-panel>.
22) The application form for inclusion on the Panel of Arbitrators provides applicants with
an option to apply for the Reserve Panel. See
<http://siac.org.sg/images/stories/documents/application_form/SIACPanelApplicatio
nForm_Mar2017.pdf>.
23) <www.siac.org.sg/our-arbitrators/standards-for-admission-to-siac-panel>.
24) <www.siac.org.sg/our-rules/practice-notes/practice-note-for-administered-cases>.
25) <www.lcia.org/LCIA/constitution-of-the-lcia-court.aspx>.
26) <www.lcia.org/LCIA/the-lcia-court.aspx>.
27) <www.lcia.org/Frequently_Asked_Questions.aspx#Appoint>.
28) <www.lcia.org/Dispute_Resolution_Services/LCIA_Arbitration.aspx>.
29) <www.lcia.org/LCIA/introduction.aspx>.
30) <www.lcia.org/Frequently_Asked_Questions.aspx#Eligible>.
31) <https://cdn.iccwbo.org/content/uploads/sites/3/2016/06/Note-to-National-
Committees-and-Groups-of-the...>.
32) Note para. 33 <https://cdn.iccwbo.org/content/uploads/sites/3/2016/06/Note-to-
National-Committees-and-Groups-of-the...>.
33) <https://iccwbo.org/dispute-resolution-services/icc-international-court-
arbitration/court-members/>.
34) Note para. 24 <https://cdn.iccwbo.org/content/uploads/sites/3/2016/06/Note-to-
National-Committees-and-Groups-of-the...>.
35) 2018 BLP Survey, p. 12.
36) Ibid.
37) Ibid.
38) HKIAC Annual Report (2016)
<http://hkiac.org/sites/default/files/annual_report/annual%20report%202016%20%2
8low%20resolution%29%2...>, p. 10.
39) <http://hkiac.org/about-us/statistics>. A breakdown of the number of total
appointments into those made rather than simply confirmed by the HKIAC is not
available for 2015 or 2014 for comparative purposes.
40) Figures of the number of arbitrators nominated and confirmed by SIAC are not
available for 2014 and 2015 for further comparison.
41) Registrar's Report 2015 p. 4.
42) Facts and Figures – 2016: A Robust Caseload <www.lcia.org//media/download.aspx?
MediaId=570>.
43) Registrar's Report 2015, p. 3 <www.lcia.org//media/download.aspx?MediaId=500>.
44) Registrar's Report 2014, p. 3 <www.lcia.org//media/download.aspx?MediaId=499>.
45) ICC Dispute Resolution Bulletin (2017, issue 2) p. 92
46) 2018 BLP Survey, p. 12.
47) 2012 Queen Mary Survey, p. 5.
48) Juliet BLANCHE, “Appointment and Confirmation of Arbitrators”, Chapter 4 in Philipp
HABEGGER, Daniel HOCHSTRASSER, Gabrielle NATER-BASS, Urs WEBER-STECHER, eds.,
Arbitral Institutions Under Scrutiny, ASA Special Series No. 40 (Juris 2013) p. 72.
49) Note to Parties and Arbitral Tribunals on the Conduct of Arbitration
<https://cdn.iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-
arbitral-tribunals-on...>, p. 27.

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 KluwerArbitration

Document information
The T(h)reat of Party Autonomy in ISDS Arbitrator
Publication Selection: Any Options for Preservation?
Evolution and Adaptation: Natalie Y. Morris-Sharma
The Future of International (*)
Arbitration
I Introduction
Topics Calling for “replacement or radical redesign” of the mechanism of investor-State dispute
settlement is the flavour a la mode. (1) For better or for worse, rightly or wrongly, the
Investment Arbitration investor-State dispute settlement mechanism is facing a legitimacy crisis. The polemics
against investor-State dispute settlement have essentially focussed, in one way or another,
on how “arbitral awards erroneously privatise disputes that should only be heard in public
Bibliographic reference forums”. (2)
Natalie Y. Morris-Sharma, Against this backdrop, this Article will briefly review the advantages and drawbacks that
'The T(h)reat of Party have been perceived in respect of the institution of the party-appointed arbitrator. It will
Autonomy in ISDS Arbitrator also examine (a) the enhanced role of institutions; and (b) institutionalization, being two of
Selection: Any Options for the alternatives to the party-appointed arbitrator that have been put forward as part of
Preservation?', in Jean suggestions for reform. Questions are posed as points for reflection. Finally, this Article will
Engelmayer Kalicki and P 432 explore the possibilities for the preservation of party autonomy in choosing decision-
Mohamed Abdel Raouf (eds), P 433 makers, to see if there are calibrations of party autonomy in choosing decision-makers
Evolution and Adaptation: that could be undertaken to strike a balance between the treat and threat of such party
The Future of International autonomy. Specifically, three options are suggested for consideration: agreed
Arbitration, ICCA Congress appointments, circumscribed appointments, and arbitrator ad hoc appointments.
Series, Volume 20 (© Kluwer In this way, this Article seeks to contribute to the dialogue on this issue, in the hope that
Law International; whatever the outcome of bilateral or multilateral negotiations on the issue may be, the
International Council for eventual system design – whether a multilateral court, rules-based reform, or preserving
Commercial the status quo (3) – is one that benefits from rigorous and robust deliberations.
Arbitration/Kluwer Law
International 2019) pp. 432 -
447 II Overview of the Debate
1 In Support of Party Autonomy in Choosing Decision-Makers
The linchpin argument in favour of party-appointed arbitrators is the principle of party
autonomy in international arbitration. At the very least, the disputing parties'
participation in the appointment of their arbitrators would ensure “that the decision-
making process is not perceived as something wholly extraneous to the parties”, thereby
enhancing the legitimacy of the process. (4) This has been said to be “particularly
important when states are involved”. (5)
The appointment of an arbitrator has been described as “the ultimate form of forum
shopping”. (6) Apart from the substantive outcome of the case, in the absence of party
agreement, the arbitral tribunal can determine critical procedural questions such as those
pertaining to the conduct of hearings, the allocation of costs and fees, and issues of
evidence. (7) Party appointment of arbitrators therefore offers disputing parties, whether
the claimant investor or the respondent State, confidence in their dispute resolution
process as a whole.
P 433
P 434
Further, the opportunity to appoint one's arbitrator affords comfort to the disputing party
that his case will be properly understood and fairly considered. Proper understanding and
fair consideration would involve an understanding of the relevant legal and technical
intricacies of the case, as well as cultural factors. As it has been pointed out, “[t]his
consideration of sympathy or affinity would seem to be of great importance to many
parties in particular in international arbitration where parties and tribunals often are of
wide cultural diversity”. (8) In a sense, party-appointed arbitrators are an “important
structural feature” of arbitral tribunals, as they can “break through groupthink”. (9) These
elements promote accountability and confidence, and thereby enhance the legitimacy of
the arbitral process, in the eyes of its users.

2 Criticisms of Party Autonomy in Choosing Decision-Makers and Responses

Thereto
a The criticisms
Criticisms of the party appointment of arbitrators have mainly had two facets, both united
by the ultimate concern over the undermining of the impartiality and independence of the
arbitral process and outcome. The first facet is the ability of the disputing parties,

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 including the private investor, to unilaterally appoint arbitrators to the panel. The second
facet is that arbitrators are appointed ad hoc, that is, only for a specific dispute and
without tenure beyond the dispute.
Where a party to the dispute is able to appoint an arbitrator, arbitrators may be biased or
see themselves as party-advocates. This is a concern that was expressed already in the
early years when the Convention on the Settlement of Investment Disputes between States
and Nationals of Other States (the ICSID Convention) was being negotiated and the
modality of party appointment of arbitrators was being considered. (10) In respect of the
ad hoc nature of arbitration and how arbitrators lack tenure or permanence in their
appointments, arbitrators may be perversely incentivized to seek reappointments in
future cases by “cater[ing] to the interests of those who will appoint them in the future”.
(11)
P 434
P 435
Additionally, the ad hoc nature of panel constitution by way of party appointments can
have systemic impacts, such as a lack of consistency and coherence in arbitral decisions.
(12) Although, on this count, the issue can also be said to be owed to reasons other than
party autonomy in the appointment of arbitrators, such as international investment law
being a creature formed by an array of unconnected bilateral treaties rather than
“agreements that are linked in a comprehensive treaty regime”, the lack of Secretariat
support, or the possibility for separate and dissenting opinions to be issued. (13)
b A comment on independence and impartiality
Indeed, impartiality and independence are vital to any legitimate adjudicatory process.
(14) The challenge is not in agreeing on the value of these qualities, but in determining
whether they have been displayed or compromised. The arbitral tribunal that rejected the
proposal to disqualify one of the arbitrators in Suez v. Argentina noted that
“[i]ndependence and impartiality are states of mind”, and nobody is “capable of probing
the inner workings of any arbitrator's mind to determine with perfect accuracy whether
that person is independent and impartial”; there has to be inference from the conduct of
the arbitrator or persons connected with him. (15)
Importantly, one must differentiate between prejudice and predilection, between actual
bias and a general favourable disposition. While the former suggests a willingness to
decide a case in favour of the appointing party regardless of the merits and would
therefore be unacceptable, the latter can be overcome by consideration of the merits and
would not be problematic. (16) In a recent case, it was noted that “[n]o arbitrator and,
more generally, no human being of a certain age is, in absolute terms, independent and
impartial. Simply put, every individual is conveying ideas and opinions based on its moral,
cultural, and professional education and experience”. (17)
These realities give texture to the debate over whether and how the selection and
appointment of arbitrators can or should impact the independence and impartiality of the
P 435 arbitral process. One wonders if the competing interests have as direct a correlation as
P 436 some have suggested: the trade-off being between improved confidence and therefore
greater inclination to resort to adjudication, on the one hand, and judicial independence
and impartiality, on the other hand. (18)
c Responses to the criticisms: Ensuring impartiality and independence
In response to the question of bias and the possible perverse incentive to pander,
investment treaties set out standards that arbitrators are expected to adhere to so as to
ensure their impartiality and independence. Some of these standards are more
expounded on than others.
For example, in the revised Singapore-Australia Free Trade Agreement (SAFTA) that
entered into force on 1 December 2017, a code of conduct for appointed arbitrators was
introduced. (19) The code of conduct provides, inter alia, that arbitrators appointed
pursuant to the SAFTA “shall avoid impropriety and the appearance of impropriety, shall
be independent and impartial, shall avoid direct and indirect conflicts of interests and
shall observe high standards of conduct so that the integrity and impartiality of the
dispute settlement process are preserved”. (20) The code of conduct also sets out
disclosure obligations; requires that arbitrators are thorough, expeditious, fair and
diligent, in carrying out their duties; and requires that arbitrators are not influenced by
factors such as self-interest, outside pressure, or loyalty to a disputing party or non-
disputing Party. (21) Violation of the code of conduct may lead to removal of the arbitrator
from the panel. (22)
There is also the reputational element that may be factored in. As it has been underlined,
“[r]eputation is difficult to build up and is easily destroyed; these characteristics thus work
against any incentive to taint one's decision-making in favour of either party in order to
secure future appointments.” (23)
On the prospect of a party-appointed arbitrator who would serve as a party-advocate,
generally speaking, parties and arbitrators in investment arbitrations do understand that
unilaterally appointed arbitrators are not party-advocates. (24) Moreover, with two party-
appointed arbitrators, some form of balance of perspectives would be achieved. Where

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 there may be a misperception of what the intended role of an arbitrator is, an imbalance
may be introduced. (25) However, this can be addressed through a clear articulation or
shared understanding of the party-appointed arbitrator's role and function. (26)
P 436
P 437
As such, there are procedural mechanisms that have been introduced to ensure
independence and impartiality on the part of arbitrators in investment arbitration cases,
including of party-appointed arbitrators. The question is whether these mechanisms are
enough. Can more be done that would make a qualitative difference? If not, may we
nevertheless need to look to making a break from the past simply to show that something
is being done?

III Suggestions for Reform

Against the backdrop of investment arbitration's legitimacy deficit, various suggestions for
reform have been proposed. Insofar as it is possible to separate the broader debate on the
reform of investor-State dispute settlement from the specific questions on the party
appointment of arbitrators, two “solutions” which focus on the latter are of particular
interest.
The first is that the role of institutions in the appointment of arbitrators should be
enhanced. The second is that there should be the institutionalization of investment
arbitration panels, specifically, through the establishment of standing panels or a
permanent investment court. The two “solutions” are not necessarily mutually exclusive,
particularly in the context of a possible multilateral arrangement.

1 An Enhanced Role for Institutions in Appointments

a The approaches under ICSID and UNCITRAL
Currently, both the ICSID Convention and the Arbitration Rules of the United Nations
Commission on International Trade Law (UNCITRAL) provide for the possibility of
institutional appointment only of the presiding arbitrator of a tribunal. In the
establishment of a tribunal of three arbitrators, one arbitrator is to be appointed by each
party and the third, presiding arbitrator, is to be appointed either by agreement of the
disputing parties (under ICSID) or by agreement of the other two arbitrators appointed
(under UNCITRAL). (27)
Where the disputing parties or co-arbitrators cannot agree on the presiding arbitrator, the
duty to select a presiding arbitrator falls to the relevant appointing authority. For ICSID
P 437 cases, the default appointing authority is the Chairman of the Administrative Council (de
P 438 facto the president of the World Bank). For UNCITRAL cases, unless the disputing parties
select the Secretary-General of the Permanent Court of Arbitration as the appointing
authority, the Secretary-General would choose the appointing authority. (28)
Beyond the difference in the identity of the appointing authority, varied approaches are
taken by appointing authorities in how they go about selecting arbitrators, including how
the disputing parties are engaged as part of that process. Under the UNCITRAL Rules, for
example, a “veto-rank” procedure is provided for. If this procedure fails, the appointing
authority will exercise its discretion to appoint the remaining arbitrator. (29) It has been
noted that “these different approaches can produce significantly different selections of
sole and presiding arbitrators”. (30)
b Arguments in favour
In the absence of an agreement between the disputing parties, appointment of arbitrators
by a neutral body or institution was the only mechanism that passed muster in the eyes of
Jan Paulsson and in the face of the moral hazard he had identified; “the only decent
solution”. (31) Alternatively, at least to “reduce contamination”, Jan Paulsson has suggested
that, even if institutions do not appoint the arbitrators, they could compile a pre-existing
list of qualified candidates from which appointments could be made by the disputing
parties.
The thinking is that “each potential nominee has been vetted by the institution and is less
likely to be beholden to the appointing party”. (32) In addition, institutional appointments
offer disputing parties the opportunity to leverage on the expertise and experience of the
relevant arbitral institution, which would have been built through its exposure to various
arbitrators over multiple cases and to how the various arbitrators go about carrying out
their duties. To this extent, turning to institutions to appoint arbitrators would offer one
way around the information asymmetries between law firms and parties with more
experience and tighter informal networks, and those with less experience and looser
networks. (33)
c Overcoming the challenges constante
One difficulty that institutions face as appointing authorities is the allegation that they
P 438 lack neutrality. (34) Where there may be a lack of trust, conferring arbitral institutions with
P 439 the duty of arbitrator appointments may shift not only the weight of the responsibility
to these institutions but also the scrutiny, without doing much for resolving the underlying

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 concerns. In place of reproaches over the party appointment of arbitrators, we may see
suspicion over how arbitral tribunals select arbitrators: their starting points, their guiding
principles, the candidates who were considered, the reasons for selection and rejection.
Could these be addressed by institutions increasing transparency over various processes
by making more information available as appropriate? (35) Or is the ineluctable reality
that we will always desire to know “who pulls the strings and who pays the piper”? (36)
Further, “institutional staff … may prioritise qualities that are helpful from an
administrative and institutional perspective”. (37) These may be different from the
qualities that the disputing parties may hold dear, possibly even the qualities that the
non-disputing Parties may seek out. Even the perception of such a misalignment in the
prioritization of values could be potentially problematic for building legitimacy in the
system amongst its users, even the general public. In order to address this, could the
disputing parties be given the opportunity to be consulted? If so, how should they be
consulted and to what extent should their input be taken into account?
Above and beyond issues of perception, in the event that an institution seeks out
“improvements” in the fielding of investment arbitrators, such as promoting diversity in
gender or racial profile or in geographical origin, certain normative questions could arise.
For instance, to what extent should this be prioritized over what is desired by the disputing
parties, or even the non-disputing Parties, whose interests would be impacted by the
choice of persons who would hear their dispute or a dispute arising from a treaty to which
they are party? This is also a question that would need to be answered.

2 Institutionalization and an Investment Court System

As for institutionalization, the establishment of standing panels of arbitrators has been one
P 439 of the options for possible reform that has been highlighted. It is useful to recall that the
P 440 idea of a standing tribunal is a revisiting of an option that was considered when the
ICSID Convention was first being negotiated. At the time, the suggestion to have a standing
tribunal was dismissed for being “clearly impractical in the current context”, without
further elaboration. (38)
Those in favour of reform along the lines of the establishment of standing panels have
averred that such a move would “enhance transparency, expedite appointments and
promote greater quality and consistency of decisions”, and promote global investment
governance and institutionalization by creating “a community that would standardise legal
norms and practices”. (39)
An evaluation of the pros and cons of standing panels is beyond the scope of this Article.
That said, from the narrower perspective of the appointment of arbitrators, one can
appreciate that there would at least be time and cost savings from a standing panel,
arising from dispensing with the need to identify potential arbitrators, as well as
subsequent challenges and disqualifications. (40) The question is whether or not, and if so
to what extent, this would come at the expense of other costs.
a The European Union's model
The European Union (EU) has already begun to introduce the seeds for an investment court
system in its agreements. This system would envisage, amongst other features, the
establishment of a permanent investment court instead of the traditional ad hoc
arbitration tribunal. This followed the European Parliament's adoption of a resolution
which called for “a new system for resolving disputes between investors and states … by
publicly appointed, independent professional judges …”. (41) The intention is to “adopt a
court-like solution that adheres to certain key public law principles (for example,
independence, impartiality, correctness)”. (42)
For example, in the Free Trade Agreement between the EU and the Socialist Republic of
Vietnam (EU -Vietnam FTA), a permanent investment tribunal and a permanent appeal
tribunal are to be established as of the entry into force of the free trade agreement. The
first-instance tribunal will have nine members: three appointed by Vietnam, three
appointed by the EU, and three jointly appointed. The appeal tribunal will have six
members. Generally speaking, the members of each tribunal are to be appointed for four-
year terms, which can be renewed once. Vacancies are to be filled as they arise. The
members will hear cases in “divisions”, made up of one member from Vietnam, one
P 440 member from the EU, and one jointly-appointed member who shall chair the “division”.
P 441 The determination of the composition of each “division” will be by the President of the
Tribunal, who is to appoint members “on a rotation basis, ensuring that the composition of
the divisions is random and unpredictable, while giving equal opportunity to all Members
to serve”. (43)
The Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one
part, and the EU and its Member States, of the other part is similar in how, in the case of a
dispute, all three members of a “division” in the first-instance tribunal would be
appointed by the President of the tribunal on the basis of “random and unpredictable”
rotation. The first instance tribunal established under the CETA, however, would feature
appointments of five nationals of Canada, five nationals of the EU, and five third-country
nationals, all of whom would be appointed by the CETA Joint Committee generally for a
renewable five-year term (instead of nine members for a four-year term, as with the EU-

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 Vietnam FTA). Further, unlike the EU-Vietnam FTA, the CETA leaves it to the Joint Committee
to “promptly” adopt a decision regarding the appointment of members of the appellate
tribunal, who will hear cases in divisions of three “randomly appointed” members. (44)
More recently, the Investment Protection Agreement between the EU and its Member
States, of the one part, and the Republic of Singapore, of the other part (EU-Singapore IPA),
like the EU-Vietnam FTA, features the establishment of both a tribunal of first instance as
well as a permanent appeal tribunal. In the case of the EU-Singapore IPA, for both the first
instance and appellate tribunals, two nationals of Singapore, two nationals of the EU, and
two third-country nationals, would be appointed by the EU-Singapore IPA Committee for
an initial eight-year term. Three persons on each tribunal, of the six who are appointed
immediately after the entry into force of the EU-Singapore IPA, shall have their terms
extended to twelve years. The three persons will be identified by the drawing of lots.
Members on each tribunal will be appointed by the President of the relevant tribunal on a
rotation basis, ensuring that the composition of each “division” is “random and
unpredictable”, to hear an individual case. The disputing parties may also agree to have a
case heard by a sole Member. (45)
b Points of departure
In abandoning the ability of the disputing parties to appoint their arbitrators, either
P 441 unilaterally or by agreement, the EU's agreements with Canada and with Vietnam (and
P 442 more recently with Singapore) marked a departure from the arbitrator appointment
mechanisms in the investment treaties that provided for such mechanisms, either by
elaboration of applicable procedures in the text of the investment treaty or by reference
to the arbitration rules of UNCITRAL or ICSID or other arbitration institutions.
There is also a conscious change in terminology: “Members of the Tribunal” is used in place
of “arbitrator”, and “division” in place of “panel”. This echoes the nomenclature of the
World Trade Organization (WTO) dispute settlement mechanism (although there are critical
distinctions between the WTO and investment arbitration contexts that need to be
recognized before further parallels can or should be drawn). (46) It has been observed that
these “symbolic” adjustments were likely part of the attempt to respond to legitimacy
concerns expressed, by stakeholders and other members of the public, about party-
appointed arbitrators. (47)
In these respects, the EU's agreements with Canada and with Vietnam (and more recently
with Singapore) also marked a departure from their earlier EU position, that was up till
then most recently reflected in the CETA text that was made public on 5 August 2014, (48)
and the chapter on investment in the free trade agreement that had been negotiated
between the EU and the Republic of Singapore (EUSFTA), that was initialled on 22 May
2015. (49) The timing between the previous and subsequent positions hints at the sense of
urgency that the EU has had to approach investor-State reform.
c Of randomness and unpredictability
Some questions surrounding randomness and unpredictability immediately arise.
Would the random and unpredictable allocation of arbitrators to hear a dispute, from a
list of names pre-established by the treaty Parties, give sufficient comfort to the disputing
parties that their case would receive the consideration by arbitrators with the requisite
expertise, which may include industry-specific familiarity? Should the pre-established list
be enlarged to accommodate a greater diversity of arbitrator profiles, or kept smaller so
that the costs of the retainer fees are manageable? Would treaty Parties be able to afford
the cost of remunerating the persons on their pre-established lists over an extended
period? Should investors bear any of this cost? Further, one does query if there would be
problems – real or perceived – that may arise depending on how the President of the
Tribunal, who is to appoint members on a random and unpredictable rotation basis,
carries out his function as an appointing authority. If comfort is to be had in randomness
and unpredictability, should a system of lot drawing be considered, in lieu of the
intervention of the President of the Tribunal?
P 442
P 443
It may be that some of these questions can only be answered through time and experience
with the EU model or other similar models. Suffice it to say that the attempt to achieve
randomness and unpredictability in arbitrator appointment is not wholly unprecedented.
Lot drawing already features in some of the older free trade agreements such as the
Agreement between Japan and the Republic of Singapore for a New-Age Economic
Partnership (JSEPA). In JSEPA, a procedure of lot drawing is described, whereby the
disputing parties would select their presiding arbitrator in the absence of being able to
agree on an arbitrator who would be available. In JSEPA, the lots are drawn from ten
names, compiled on the basis of two lists of five names prepared and exchanged by the
disputing parties (and where there is no name common to both lists). (50) Lot drawing is
also a fallback procedure that has been used in the context of State-State dispute
settlement mechanisms of free trade agreements. (51)

IV Possibilities for the Preservation of Party Autonomy in Choosing

Decision-Makers

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Assuming that we do need to reform the institution of unilateral party appointments, and
understanding how party autonomy in the selection of arbitrators for investor-State
dispute settlement can be seen by some as a treat and others as a threat, one may ask
whether there are conditions under which party autonomy in the selection of arbitrators
could be preserved. Three scenarios appear to demonstrate the possibility.

1 Agreed Appointments: Appointment by Agreement

First, considering that the invective has been directed at the unilateral appointment of
arbitrators, there could be a provision for agreed appointments, thereby preserving some
measure of party autonomy in the selection of arbitrators. In other words, disputing parties
could be empowered to agree on the constitution of their tribunal, including on the
appointment of a sole arbitrator.
In the investor-State dispute settlement mechanisms established by a number of treaties,
P 443 there is sometimes a provision stating that “[u]nless the disputing parties otherwise agree,
P 444 the tribunal shall comprise three arbitrators, one arbitrator appointed by each of the
dispute parties and the third … appointed by agreement of the dispute parties” (emphasis
added). (52) One way of interpreting this provision is as a clause empowering the disputing
parties to agree on the composition of their arbitral tribunal. That is, the disputing parties
may agree on all of the arbitrators on the arbitral tribunal that is established, whether
they may decide to go with one or three or more arbitrators. The EU-Vietnam FTA, CETA,
and EU-Singapore IPA, however, do not enable the disputing parties to agree thus.
In the design of their investor-state dispute settlement mechanisms, treaty Parties could
consider retaining an option of agreed appointments, howsoever drafted. The concerns
over an arbitrator's partiality and a lack of independence would necessarily be resolved
by virtue of the disputing parties being able to agree on the arbitrator being appointed to
the tribunal. The disputing parties' agreement would speak to their convergence in opinion
that the arbitrator could be trusted to hear and decide on the dispute in a fair and
impartial manner.
Provision could still be made for a disputing party to resort to an appointing authority, a
pre-established list, or other means of composing a tribunal, in case of a need to pre-empt
dilatory tactics. Such fallback options (coupled with clear timelines) would be useful to
ensure that no disputing party can, by his uncooperativeness, delay the dispute settlement
process.
As for whether the freedom and flexibility to agree to the composition of an arbitral
tribunal would render the tribunal an instance of “privatized” dispute resolution, one may
refer to how the mandate for the appointment and any accompanying circumscriptions
would be found in the investment treaty concluded by the States Parties. In this way,
unlike commercial arbitrations, “the arbitrators' authority … is founded in a public office”.
(53)
Thus far, it is not usual for disputing parties submit investor-State dispute settlement
cases to a sole arbitrator. It is also rare that the disputing parties are able to agree on all
the arbitrators. However, the signalling effect and upsides of empowering the disputing
parties to agree thus, could weigh in favour of providing for such an option in an
investment treaty.

2 Circumscribed Appointments: Choosing from a Pre-established List

Second, States Parties to an investment treaty could establish and maintain a list or lists
of arbitrators, who could be appointed by the disputing parties to form a tribunal in the
event of a dispute. The circumscription of options which would form the basis of party
appointments would respond to the various criticisms of decision-makers who may lack, or
be seen to lack, impartiality and independence.
P 444
P 445
A key feature of investment arbitration is that the investor is always the claimant, and the
State is always the respondent. At the same time, a State Party to an investment treaty
does not conclude the treaty only with the perspective of being a respondent State. For
every investment arbitration, any State Party to an investment treaty would have an
interest in the dispute: if not as a respondent State then either as the home State of the
investor, or as a host State of other investors with an interest in how the investment treaty
in issue, that it is also party to, is interpreted and applied. States Parties to an investment
treaty (or a network of treaties) have a systemic interest in the decision-making
undertaken by arbitral tribunals, where investors may not.
As such, States Parties to an investment treaty, especially prior to the crystallization of a
dispute, would be effective “gatekeepers” of the investor-State dispute settlement process
established by the treaty. (54) When States establish a list or lists of potential arbitrators
prior to a dispute, their choices would be internally rationalized. They would be choosing
from behind a veil of ignorance of whether they may be a respondent State appearing
before any of the shortlisted arbitrators, or a home State of the investor. (55) It would not
be the case, for instance, that the interests of investors would be forgotten. Indeed, in
investor arbitration as in commercial arbitration, the “appointment” of arbitrators “takes
on a different character depending on whether it takes place prior to the dispute arising or

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 subsequent to it”. (56) As such, a pre-established list or lists of arbitrators would form a
basis for disputing parties to select arbitrators who, ceteris paribus, would have been
assessed as suitable to be entrusted with conducting an impartial and independent
process.
In the case where the Parties to the investment treaty have a pre-established list or lists of
arbitrators from which the arbitrators are to be chosen in the event of a dispute, party
autonomy in the selection of arbitrators could be preserved.

3 Arbitrator Ad Hoc Appointments: Arbitrators Ad Hoc on a Permanent

Investment Court
Third, in the event a permanent investment court is established, some measure of party
autonomy in the selection of arbitrators could be preserved through having arbitrators ad
hoc join the members of the permanent court in hearing a particular dispute. This would
be an adaptation of the approach in some State-State dispute settlement mechanisms.
This could be useful in the context of a multilateralized system in particular, whether a
permanent investment body is established at the stage of an initial panel or an appellate
panel or at both stages.
It is relevant to examine how party-appointed arbitrators may still be relevant in the
context of a multilateral, permanent investment court, because of the efforts underway to
P 445 establish such a court. For example, looking beyond the EU-Vietnam FTA, CETA, EU-
P 446 Singapore IPA, and other individual free trade agreements, the EU's objective is the
“creation of one permanent court … to multi-lateralise the court”. (57) In the Joint
Interpretative Instrument on the CETA, the EU and Canada have articulated a commitment
to “work expeditiously towards the creation of the Multilateral Investment Court. It should
be set up once a minimum critical mass of participants is established and immediately
replace bilateral systems”. (58) The EU is engaging with all of its partners to introduce the
investment court system in all of its bilateral agreements, as well as to discuss the
possible creation of a multilateral court system. (59) For the EU, and other early adopters
who may introduce the system of permanent investment tribunals across a series of their
investment agreements, there would potentially be particular cost savings to be had from
multilateralization, from the perspective of being able to share the costs of employing
fulltime adjudicators.
Multilateral discussions on an investment court are at its nascent stages, and this paper
does not have the intention to assess the proposal to have such a court. Nevertheless, the
assumption appears to be that there would be a small group of arbitrators who would be
selected to be a part of the permanent court. In other words, a multilateral court, whether
established as a first instance forum or as an appellate mechanism, would be constituted
by a restricted group of judges. Further, the process of selection would be by a diplomatic
process, involving States. Necessarily, while one may strive for regional or other forms of
representation and diversity, it would not be possible to achieve “full representation” in
the composition of a multilateralized institution that is conceptualized as an adjudicatory
or quasi-judicial process rather than, for instance, a peer review process.
In State -State dispute settlement, there are adjudicatory bodies that provide for the
possibility of having one or two judges ad hoc complement a permanent bench of three or
more judges. For example, if the bench of the International Court of Justice (ICJ) does not
already include a judge of the nationality of a party to the dispute, that party may choose
a person to sit as a judge ad hoc. (60) A similar provision can be found in the statute of the
International Tribunal for the Law of the Sea (ITLOS). (61) The judge ad hoc in the context of
P 446 the ICJ and ITLOS, would have the role of ensuring that “every relevant argument in favour
P 447 of the party that has appointed him had been fully appreciated in the course of
collegial consideration”. (62) That said, this would not bind him to decide in favour of that
party. The innovation of judges ad hoc, in the experience of State-State dispute
settlement, was to ensure States' confidence in submitting their disputes to the relevant
adjudicatory body, and in the eventual decision. It was also said to be helpful to States in
accounting for the body's eventual decision to their populations. (63)
Similarly, in the investor-State context, even with the establishment of a multilateral
investment court, unilateral appointments of arbitrators could be retained for arbitrators
ad hoc, who would complement the sitting members of the permanent court for a
particular dispute. The arbitrators ad hoc on a permanent investment tribunal would form
only the minority of the bench or tribunal hearing the dispute. As such, the real or
perceived concerns over bias or lack of independence would fall away. At the same time,
the disputing parties may still take comfort from having an arbitrator familiar with their
condition sitting alongside the other decision-makers.

V Concluding Remarks
“The history of human opinion is scarcely anything more than the history of
human errors.” – Voltaire
We are unlikely to ever be able to all fully agree on whether the institution of the party-
appointed arbitrator is a boon or bane to investor-State dispute settlement. Diagnoses will
be made. Some will disagree with the remedies. Others will question whether the

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 identification of a source ailment is traceable to a case of hypochondria. (64)
If there is to be any change at all to how investor-State dispute settlement is perceived,
whether by way of debate to sort out the real problems from the perceived or by way of
system reform, what is clear is that, at this stage, truly inclusive multilateral dialogue is
needed. Efforts in this regard are already underway at ICSID and UNCITRAL. Some of the
dialogue may need to start off with an exchange of views and experiences. In this way,
States with less experience are able to appreciate the tensions and trade-offs that may
need to be made. But the process cannot be rushed. Consensus cannot be compromised.
In order to tackle the legitimacy crisis that the investor-State dispute settlement
mechanism is facing, all options need to be on the table. Middle-of-the-road options, such
as the possibilities for calibrating party autonomy in choosing decision-makers, cannot be
overlooked or their value underestimated. Such options, including those put forward in
this paper, are useful ways to consider how the balance could be struck between giving
disputing parties comfort that their case will be properly understood and considered, and
assuring others that the arbitrators will not be biased, so that the various stakeholders can
have confidence in the system and the outcomes that it generates.
P 447

References
*) Natalie Y. Morris-Sharma: Director of the International Legal Division in Singapore's
Ministry of Law; negotiated a number of trade and investment agreements, and has
represented Singapore at UNCITRAL meetings since 2010; Chairperson of UNCITRAL
Working Group II (Dispute Settlement) for its work on mediation; Vice-Chairperson of
the 50th UNCITRAL Commission session, and chaired the discussions on UNCITRAL's
mandate for investor-State dispute settlement reform. The views expressed herein are
the views of the author and do not necessarily represent the views of the Government
of Singapore.
1) Charles BROWER and Stephan SCHILL, “Is Arbitration a Threat or a Boon to the
Legitimacy of International Investment Law?”, 9 Chicago Journal of International Law
(2009, no. 2) p. 471 at p. 475.
2) Jose ALVAREZ and Gustavo TOPALIAN, “The Paradoxical Argentina Cases”, 6 World
Arbitration and Mediation Review (2012) p. 491 at p. 494. Also see Colin BROWN, “A
Multilateral Mechanism for the Settlement of Investment Disputes. Some Preliminary
Sketches”, 32 ICSID Review (2017, issue 3), p. 673 at p. 677; and Daniel BEHN,
“Legitimacy, Evolution, and Growth in Investment Treaty Arbitration: Empirically
Evaluating the State-of-the-Art”, 46 Georgetown Journal of International Law (2015) p.
363 at p. 367.
3) The author has previously suggested drawing the distinction between institutional and
rules-based reform, rather than the bifurcations that commentators have used as
between multilateral or bilateral reform; or between systemic or procedural reform.
The bifurcation between institutional and rules-based reform is not intended to
suggest that one necessarily precludes the other, but to clarify the suite of options that
could be considered. Both institutional reform (for example, a new permanent court or
body, so that investor-State dispute settlement is not subject to an ad hoc mechanism)
and rules-based reform (for example, amendments to or drafting of provisions of rules
and procedures of investor-State dispute settlement) can feature as part of a suite of
options or as a transitional arrangement, and could be avenues for multilateral reform
that introduces systemic solutions.
4) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 494.
5) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 494.
6) Catherine ROGERS, “A Window into the Soul of International Arbitration: Arbitrator
Selection, Transparency and Stakeholder Interests”, 46 Victoria U. Wellington Law
Review (2015) p. 1179 at p. 1179. The debate over the party-appointed arbitrator in the
context of investment arbitration overlaps significantly with the debate that has taken
place in the space of international commercial arbitration. Many of the sources cited
in this paper draw from commentary made vis-à-vis international commercial
arbitration. Distinctions are drawn where necessary.
7) Catherine ROGERS, “The International Arbitrator Information Project: An Idea Whose
Time Has Come”, Kluwer Arbitration Blog (9 Aug 2012) at
<arbitrationblog.kluwerarbitration.com/2012/08/09/the-international-arbitrator-
information-project-an...> (last accessed 13 April 2018).
8) Michael SCHNEIDER, “President's Message: Forbidding Unilateral Appointments of
Arbitrators – A Case of Vicarious Hypochondria?” 29 ASA Bulletin 2 (June 2011) p. 273 at
pp. 274-275.

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 9) C. ROGERS, “A Window into the Soul”, pp. 1184 and 1185. Further, at p. 1186, Rogers
highlights that “[i]n the United States and in other systems that have civil law juries, or
even in criminal cases, parties very intentionally pick people who are like themselves
and are likely to be sensitive to, or reflective of, their concerns in the case. The idea of
picking or having some input into the constitution of a tribunal is not as much of an
anathema as sometimes suggested in the abstract when people are being critical of
arbitration.”
10) Christopher THOMAS and Harpreet DHILLON, “The Foundations of Investment Treaty
Arbitration: The ICSID Convention, Investment Treaties and the Review of Arbitration
Awards”, 32 ICSID Review (2017, issue 3) p. 459 at p. 466, citing ICSID, History of the ICSID
Convention: Documents Concerning the Origin and the Formulation of the Convention on
the Settlement of Investment Disputes between States and Nationals of Other States,
(ICSID Publication 1968), Vol. II-1 p. 40, that the World Bank's Working Paper (of June
1962) had stated that party-appointed arbitrators might be the “least desirable
method [of appointment], because of the danger that each party will look upon the
arbitrator to be appointed by it as an advocate”.
11) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 490.
12) Anna JOUBIN-BRET, “The Growing Diversity and Inconsistency in the IIA System” in Karl
SAUVANT, ed., Appeals Mechanism in International Investment Disputes (OUP 2008) p.
137 at pp. 137-139.
13) Donald MCRAE, “The WTO Appellate Body: A Model for an ICSID Appeals Facility?”, 1
Journal of International Dispute Settlement (2010, issue 2) p. 371 at p. 384.
14) Alfonso GÓMEZ-ACEBO, “A Special Role of Party-Appointed Arbitrators?”, this volume,
pp. 381-416 at p. 388.
15) Suez, Sociedad General de Aguas de Barcelona S.A. & InterAguas Servicios Integrales del
Agua S.A. v. The Argentine Republic (ICSID Case No. ARB/03/17), Decision on the Proposal
for the Disqualification of a Member of the Arbitral Tribunal (22 October 2007) para. 30.
16) Doak BISHOP and Lucy REED, “Practical Guidelines for Interviewing, Selecting and
Challenging Party-Appointed Arbitrators in International Commercial Arbitration”, 14
Arbitration International (1998, no. 4) p.395 at p.396.
17) Urbaser S.A. v. The Argentine Republic (ICSID Case No. ARB/07/26), Decision on
Claimants' Proposal to Disqualify Professor Campbell McLachlan, Arbitrator (12 August
2010) para. 40.
18) Yuval SHANY, “Squaring the Circle? Independence and Impartiality of Party-Appointed
Adjudicators in International Legal Proceedings”, 30 Loyola of Los Angeles International
and Comparative Law Review (2008) p. 473.
19) Singapore-Australia Free Trade Agreement (SAFTA), Annex 7 (Code of Conduct for
Arbitrators appointed under Chapter 8 (Investment) and Chapter 16 (Dispute
Settlement)) at <dfat.gov.au/trade/agreements/in-force/safta/Pages/Singapore-
australia-fta.aspx> (last accessed 13 April 2018).
20) SAFTA, Annex 7, para. 1.
21) SAFTA, Annex 7, paras. 2, 3, 5 and 12.
22) SAFTA, Annex 7, para. 22.
23) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 492.
24) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 491.
25) David BRANSON, “Sympathetic Party-Appointed Arbitrators: Sophisticated Strangers
and Governments Demand Them”, 25 ICSID Review (2010) p. 367 at p. 368.
26) Sundaresh MENON, “Adjudicator, Advocate, or Something in Between? Coming to Terms
with the Role of the Party-Appointed Arbitrator”, 34 Journal of International Arbitration
(2017, no. 3) p. 347, where Menon expresses support for (i) the publication of clear
guidelines on what constitutes acceptable conduct in the appointment process; (ii) the
institution of a clear rule against unilateral communications following appointment;
and (iii) the promulgation of guidelines on conflicts of interest. Also see D. BISHOP and
L. REED, “Practical Guidelines”, at p. 396; and Alfonso GÓMEZ-ACEBO, “A Special Role of
Party-Appointed Arbitrators?”, this volume, pp. 381-416 at p. 388.
27) Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, Art. 37(2)(b) at
<https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Convention%20Englis
h.pdf> (last accessed 13 April 2018); UNCITRAL Arbitration Rules (as revised in 2010),
Rule 9 at <www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-
rules-revised-2010-e.pdf> (last accessed 13 April 2018).
28) UNCITRAL Arbitration Rules (2010), Rule 6(2) and Rule 9(3).
29) UNCITRAL Arbitration Rules (2010), Rule 8(2) and Rule 9(3).
30) David GAUKRODGER and Kathryn GORDON, “Investor-State Dispute Settlement: A
Scoping Paper for the Investment Policy Community”, 2012/03 OECD Working Papers on
International Investment (2012), Annex 5, at p. 90. Also see Geoffrey DE CLIPPEL, Kfir
ELIAZ and Brian KNIGHT, “On the Selection of Arbitrators”, 194 The American Economic
Review (2014) p. 104.
31) Jan PAULSSON, “Moral Hazard in International Dispute Resolution”, Inaugural Lecture
as Holder of the Michael R. Klein Distinguished Scholar Chair, University of Miami
School of Law (29 April 2010) at https://www.arbitration-
icca.org/media/0/12773749999020/paulsson_moral_hazard.pdf (last accessed 13 April
2018) at p. 11.
32) J. PAULSSON, “Moral Hazard”, p. 11.
33) C. ROGERS, “A Window into the Soul”, p. 1186.

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 34) Gus VAN HARTEN, Investment Treaty Arbitration and Public Law (OUP 2007) at pp. 169-
171. Also see V. V. VEEDER, “Historical Keynote to International Arbitration: The Party-
Appointed Arbitrator – from Miami to Geneva”, 107 Am. Soc'y Int'l L. Proc. (2013) p. 387
at p. 388, declaring that “most arbitral tribunals cannot be trusted with arbitral
appointments”.
35) See Ruth STACKPOOL-MOORE, “Institutional Appointment of Arbitrators”, this volume,
pp. 417-431. As shared during the ICCA panel session, the author would further note
that, first of all, trust and confidence in arbitral institutions as appointing authorities
stem from more than just the quality of their appointments. It is important for an
arbitral institution to have a generally good reputation all round, such as in terms of
its reputation for independence and impartiality, and experience with investor-State
dispute settlement. Further, for an arbitral institution to earn trust, it would need to
strike the right balance with transparency, both in terms of the types of transparency
and the extent. For example, some elements, such as the information pertaining to the
identities and nationalities of arbitrators selected, may be important to be made
available. Other elements may have a more tenuous link to accountability and may
raise other concerns. These include the disclosure of names of arbitrators who were
rejected. Usefully, there are now consolidated efforts to promote information and
feedback on arbitrators to assist in future arbitration decisions.
36) J. PAULSSON, “Moral Hazard”, p. 13.
37) Steven FINIZIO and Claudio SALAS, “It's My Party”, CDR News (28 January 2013) at
<www.cdr-news.com/categories/arbitration-and-adr/its-my-party> (last accessed 13
April 2018).
38) C. THOMAS and H. DHILLON, “The Foundations”, p. 465.
39) Leon TRAKMAN and David MUSAYELYAN, “Arguments For and Against Standing Panels of
Arbitrators in Investor-State Arbitration: Evidence and Reality” at
<https://law.unimelb.edu.au/__;data/assets/pdf_file/0004/1954156/Trakman,-
ARGUMENTS-FOR-AND-AGAINST-S...> (last accessed 13 April 2018) at p. 3.
40) C. BROWN, “A Multilateral Mechanism”, p. 683.
41) European Parliament, Resolution of 8 July 2015 at
<http://www.europarl.europa.eu/doceo/document/TA-8-2015-0252_EN.html?redirect>
(last accessed 13 April 2018), containing the European Parliament's recommendations
to the European Commission on the negotiations for the Transatlantic Trade and
Investment Partnership.
42) C. BROWN, “A Multilateral Mechanism”, p. 677.
43) EU-Vietnam FTA: Agreed text as of January 2016, published on 1 February 2016, Sect. 3
(Resolution of Investment Disputes) of Chapter 11 (Investment) of Chapter 8 (Trade in
Services, Investment and E-Commerce), Art. 12 (Tribunal) and Art. 13 (Appeal Tribunal)
at <trade.ec.europa.eu/doclib/docs/2016/february/tradedoc_154210.pdf> (last
accessed 13 April 2018).
44) The revised text of the CETA, made public on 29 February 2016, Chapter 8 (Investment),
Art. 8.27 (Constitution of the Tribunal) and Art. 8.28 (Appellate Tribunal) at
<trade.ec.europa.eu/doclib/docs/2016/february/tradedoc_154329.pdf> (last accessed
13 April 2018).
45) EU-Singapore IPA (replacing the EUSFTA chapter on investment), made public on 18
April 2018, Chapter 3 (Dispute Settlement), Art. 3.9 (Tribunal of First Instance) and Art.
3.10 (Appeal Tribunal) at
<trade.ec.europa.eu/doclib/docs/2018/april/tradedoc_156731.pdf> (last accessed 18
April 2018).
46) See generally D. MCRAE, “The WTO Appellate Body”, p. 371.
47) Elsa SARDINHA, “The New EU-Led Approach to Investor-State Arbitration: The
Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)
and the EU-Vietnam Free Trade Agreement”, 32 ICSID Review (2017, issue 3) p. 625 at p.
633.
48) European Commission, DG Trade, “Note for the Attention of the Trade Policy
Committee” (5 August 2014) (appending the 1 August 2014 “consolidated version of all
chapters, annexes, declarations, understandings as well as side letters” of CETA) at
<www.tagesschau.de/wirtschaft/ceta-dokument-101.pdf> (last accessed 13 April 2018).
49) EUSFTA, Chapter 9 (Investment), Art. 9.18 (Constitution of the Tribunal). The EUSFTA
chapter on investment was later superseded by the EU-Singapore IPA, which text was
made public on 18 April 2018.
50) JSEPA, Annex Vc (Investor-to-State Dispute Settlement Special Arbitration Procedure)
at
<ie.enterprisesg.gov.sg/~/media/IE%20Singapore/Files/FTA/Existing%20FTA/Japan%2
0Singapore%20EPA/Legal...> (last accessed 13 April 2018).

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 51) For example, in the event of a dispute under the US-Singapore Free Trade Agreement
(USSFTA), if a Party fails to appoint a panellist for the constitution of a dispute
settlement panel, or if the Parties are unable to agree on the chair of the panel within
a specified period of time, the panellist (or chair) shall be selected by lot from the
relevant contingent list established under the Free Trade Agreement. See para. 4(a) of
Art. 20.4 (Additional Dispute Settlement Procedures). The text of the USSFTA is
available at
<ustr.gov/sites/default/files/uploads/agreements/fta/Singapore/asset_upload_file70
8_4036.pdf> (last accessed 13 April 2018). A similar mechanism is in place in the Free
Trade Agreement between Mercosur and the Arab Republic of Egypt. See para. 1 of Art.
14. The text of the FTA is available at
<http://www.sice.oas.org/Trade/MER_EGY/English/Text_e.pdf> (last accessed 13 April
2018).
52) For example, see the ASEAN Comprehensive Investment Agreement, Art. 31 (Selection
of Arbitrators) at <cil.nus.edu.sg/wp-content/uploads/formidable/18/2009-ASEAN-
Comprehensive-Investment-Agreement.pdf> (last accessed 13 April 2018); and the
North American Free Trade Agreement, Chapter Eleven, Art. 1123 (Number of Arbitrators
and Method of Appointment) at <www.sice.oas.org/trade/nafta/chap-112.asp> (last
accessed 13 April 2018).
53) C. BROWER and S. SCHILL, “Is Arbitration a Threat or a Boon”, p. 490.
54) The term “gatekeeper” is borrowed from Charles BROWER and Sadie BLANCHARD,
“What's in a Meme? The Truth About Investor-State Arbitration: Why It Need Not, and
Must Not, Be Repossessed by States”, 52 Columbia Journal of Transnational Law (2014)
p. 689 at p. 768.
55) John RAWLS, A Theory of Justice (Belknap Press 1971).
56) Daphna KAPELIUK, “Collegial Games: Analyzing the Effect of Panel Composition on
Outcome in Investment Arbitration”, 31 The Review of Litigation (2012) p. 267 at p. 288.
57) European Commission, “Investment in TTIP and Beyond – The Path for Reform:
Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration Towards
an Investment Court”, (May 2015) at
<trade.ec.europa.eu/doclib/docs/2015/october/tradedoc_153846.pdf> (last accessed
13 April 2018).
58) Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement
(CETA) between Canada and the European Union and its Member States, L 11/3 Official
Journal of the European Union (14 January 2017) p. 3.
59) C. BROWN, “A Multilateral Mechanism”, p. 682.
60) Statute of the International Court of Justice, Art. 31 at
<legal.un.org/avl/pdf/ha/sicj/icj_statute_e.pdf> (last accessed 13 April 2018). Note
that the innovation of judges ad hoc of the ICJ was not uncontroversial. See generally,
Stephen SCHWEBEL, “National Judges and Judges Ad Hoc of the International Court of
Justice”, 48 I.C.L.Q. (1999, no. 4) p. 889.
61) Statute of the International Tribunal for the Law of the Sea, Art. 17 (Nationality of
members) at
<https://www.itlos.org/fileadmin/itlos/documents/basic_texts/statute_en.pdf> (last
accessed 13 April 2018).
62) Application of the Convention on the Prevention and Punishment of the Crime of
Genocide, I.C.J. Rep. (1993), pp. 408-409.
63) S. SCHWEBEL, “National Judges”, p. 890.
64) See generally, M. SCHNEIDER, “President's Message”.

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 KluwerArbitration

Document information
The Risk of Groupthink in a Multilateral Investment Court
Publication Audley William Sheppard; Daphna Kapeliuk-Klinger
Evolution and Adaptation: (*)
The Future of International (**)
Arbitration
I Introduction
Topics The current paradigm for investor- State dispute settlement (ISDS), which is arbitration by
a three-person ad hoc tribunal, with one arbitrator appointed by the investor, the second
Investment Arbitration by the State, and the third (president) being agreed by the parties or selected by the co-
arbitrators or by the relevant appointing authority, has been criticized as lacking
legitimacy and has resulted in calls for far-reaching structural and systemic reform.
Bibliographic reference The United Nations Conference on Trade and Development (UNCTAD) has, since 2015,
Audley William Sheppard embarked on a programme aimed at reforming the investment treaty regime. (1) The
and Daphna Kapeliuk- United Nations Commission on International Trade Law (UNCITRAL) is focusing on a review
Klinger, 'The Risk of of options for ISDS. (2)
Groupthink in a Multilateral One option being considered for reform is for investment treaty disputes to be resolved by
Investment Court', in Jean a global permanent and multilateral standing court that would have jurisdiction to resolve
Engelmayer Kalicki and disputes under multiple investment treaties (PMIC).
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: This proposal is already some way to being realized. The European Union has included a
The Future of International P 448 standing court on a bilateral basis in its Free Trade Agreements (FTAs) with Canada, (3)
Arbitration, ICCA Congress P 449 Vietnam, (4) and Singapore. (5) The European Commission favours an all-encompassing
Series, Volume 20 (© Kluwer multilateral version of such court, which it hopes will have jurisdiction with respect to all
Law International; existing and future bilateral and multilateral trade related agreements to which the EU is
International Council for party.
Commercial The proposed PMIC has obvious similarities to the World Trade Organization (WTO) dispute
Arbitration/Kluwer Law resolution mechanism, (6) which appears to enjoy widespread legitimacy amongst States
International 2019) pp. 448 - (save notably the United States presently). There are several other standing international
461 courts and tribunals to which States appoint semi-permanent judges, such as the
International Court of Justice (ICJ) (albeit that the disputing States can appoint one ad hoc
judge each), the European Court of Human Rights (ECtHR), and the Court of Justice of the
European Union (CJEU). A hybrid is the International Tribunal for the Law of the Sea (ITLOS),
to which the disputing States appoint some of the adjudicators.
This paper addresses the risk of ‘groupthink’ amongst the members of a standing court or
tribunal, tested by the propensity to issue dissenting opinions. Groupthink is a
psychological phenomenon that occurs within a group of people in which the desire for
harmony or conformity in the group influences the decision-making outcome. It has also
been observed that those in a group who disagree often take a more extreme position. (7)

II Current System
The current system for constituting tribunals is the same in the vast majority of investment
treaties and identical to most commercial arbitration agreements, i.e. two party-
appointed arbitrators. Whichever procedural rules are prescribed in the treaty (almost
invariably the ICSID and UNCITRAL Rules) and selected by the investor, they provide for the
claimant-investor to select one arbitrator, the respondent-State to appoint the second,
and the parties or the co-arbitrators to agree the third who will be the president of the
tribunal, failing which the stipulated appointing authority will make the selection (e.g., the
Chairman of the Administrative Council of ICSID under the ICSID Rules, and the Secretary-
General of the Permanent Court of Arbitration under the UNCITRAL Rules).
The parties' ability to select their own arbitrator has been considered as one of the most
important advantages of commercial arbitration. (8) This opportunity has been described
as “the single most determinative step in the arbitration”. (9)
P 449
P 450
However, it is the sense of participation in the arbitration process that has engendered
criticism by scholars who have questioned the legitimacy of the selection of arbitrators by
the disputing parties. (10) While acknowledging that all arbitrators are required to act
independently and impartially, (11) critics have argued that the very concept of party-
appointed arbitrator is contrary to traditional notions of judicial impartiality. (12) One
author has questioned the ability of party-appointed arbitrators to exercise true
independent judgement. (13) This concern stems from the fact that each party selects an
arbitrator in the hope that she/he will hold in their favour. This has led one author to
question whether “party-appointment leads to ‘moral hazard’ because those who appoint

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 want to win and those who want to be appointed want the income that appointment
brings”. (14) This in turn leads one party to be suspicious about the other's appointment.
In investment arbitration, party autonomy in selecting an arbitrator (subject of course to
requirements of independence and impartiality) has inevitably led parties, both investors
and States, to seek to appoint arbitrators who are considered to be likely to be
sympathetic to the presumed opposing mind-sets, namely protecting risk capital from
government interference versus permitting governments wide regulatory and sovereign
discretion. As a result of more and more published awards and serial appointments, a
picture is emerging of how some arbitrators are perceived as falling into one camp or the
other, as being investor-friendly or State-friendly. UNCTAD recently observed that “the
increasing number of challenges to arbitrators suggests that disputing parties perceive
them as biased or predisposed”. (15)
Moreover, arbitrators appointed by investors tend to be drawn from lawyers in private
practice, rather than being known as academics or former government lawyers (with
notable exceptions). (16) This has led to criticism that some arbitrators do not fully
appreciate public law and international law issues. There is also a view that investor
appointees have a greater influence on tribunals, resulting in procedures more akin to
P 450 commercial arbitration (which adds to the costs of the State defending claims) and pro-
P 451 investor awards. While the evidence does not appear to substantiate that conclusion,
the perception remains that investment treaty tribunals favour investors.
There is also disquiet about the apparent lack of consistency in the interpretation and
application of key provisions found in similarly worded BITs and the absence of a
corrective and harmonising appeal structure.
There is also concern about lack of procedural transparency. This had led to greater
voluntary transparency (for example, by the State parties to the North American Free
Trade Agreement), and to the adoption in 2014 of the UNCITRAL Rules on Transparency in
Treaty-based Investor-State Arbitration. (17)
The EU Commission's proposals and UNCTAD's review are driven by the view that the
current ad hoc system lacks legitimacy, consistency and transparency.

III EU Commission Proposals

The European Commission's vision for a PMIC was first articulated most fully in its
recommendation in favour of a European Council decision authorizing the opening of
negotiations for a convention establishing a multilateral investment court (EUMIC), of 13
September 2017. (18)
The Commission proposes a two-tier court, comprising a court of first instance and an
appeal function which has the power to review decisions on the grounds of error of law
(including serious procedural shortcomings or “manifest errors in the appreciation of
facts”), as well as the ability to remand cases back to the tribunal of first instance. (19)
The adjudicators should be appointed for a fixed period of time on a long and non-
renewable mandate. The proposal envisages that they would be subject to “high ethical
P 451 requirements” and mechanisms should be put in place to ensure their independence and
P 452 impartiality, including random allocation of cases and a certain regime to ensure
ethical concerns are upheld. They would “ideally” be appointed by an independent body,
or an independent body would have a significant role in the selection process. (20) The
proposal further considers that the number of adjudicators would be determined by the
court's workload. The EUMIC would rely on a secretariat.
The EU Commission made further proposals in its submission to the UNCITRAL Working
Group on ISDS reform in January 2019 in which the EU indicates that: (i) adjudicators should
be employed full-time and should not have activities that interfere with their duties to the
court (save teaching), (ii) terms of office should be commensurate with other international
tribunals (e.g., nine years), and (iii) there should be qualification requirements comparable
with other international tribunals (e.g., appointment to the highest judicial office or a
jurisconsult of recognized competence in international law). Moreover, the EU proposes
that the standing mechanism create its own enforcement regime which does not allow for
the review of awards at a domestic level. (21)
These proposals are somewhat different to the court composition that the Commission
already has in place in the EU's FTAs with Canada, Vietnam and most recently Singapore.
CETA (22) provides that a joint committee (23) will appoint fifteen members to form a
standing tribunal, consisting of five EU nationals, five Canadian nationals and five third-
country nationals. (24) The tribunal will hear cases in divisions consisting of three
members, comprising one EU national, one Canadian national and one third-country
national, with the division chaired by the third-country national. (25) The members of the
tribunal are to possess the qualifications required in their respective countries for
appointment to judicial office, or be jurists of recognized competence, who have
demonstrated expertise in public international law and ideally have expertise in
international investment law, international trade law and the resolution of disputes arising
under international investment or international trade agreements. (26) The members are
also to be independent and not affiliated with any government, but it is stated that the

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 fact that a person receives remuneration from a government does not in itself make that
person ineligible. (27) Upon appointment, the members are to refrain from acting as
P 452 counsel or as party- appointed expert or witness “in any pending or new investment
P 453 dispute under this or any other international agreement”. (28) The members are
appointed for five -year terms with a maximum of two terms. (29) Within ninety days of the
submission of a claim, the president of the tribunal will appoint the members comprising a
division hearing the case on a rotation basis, ensuring that the composition of the divisions
is “random and unpredictable”, while giving “equal opportunity” to members to serve. (30)
Unlike the EUMIC proposal, Canada and the EU agreed that the disputing parties may
agree that a case be heard by a sole member to be appointed at random from the third-
country nationals. (31) An appellate tribunal will also be established, appointed by the
joint committee and meeting the same requirements as the first instance court. The
appellate tribunal has the power to uphold, modify or reverse an award based on (i) errors
in the application or interpretation of applicable law; (ii) manifest errors in the
appreciation of the facts; and (iii) the grounds set out in Art. 52(1)(a) through (e) of the ICSID
Convention. (32) Each division of the appellate tribunal will consist of three randomly
appointed members. (33) It is expressly stated that the UNCITRAL Transparency Rules will
apply to proceedings and that hearings shall be open to the public. (34)
The ISDS provisions in the EUVFTA (35) and EUSFTA (36) are broadly similar.
None of these FTAs is yet in force. CETA entered provisionally into force on 21 September
2017. The ISDS provisions require ratification by all EU Member States to take full effect;
P 453 (37) however, the ISDS provisions had been challenged by Belgium, but, in April 2019, the
P 454 CJEU rendered an opinion that these are compatible with EU law. (38) Following that
favourable ruling, establishment of the investment court system is a step closer. (39)

IV Kaufmann-Kohler and Potestà Reports

In June 2016, Professor Kaufmann-Kohler and Dr Potestà, from the CIDS-Geneva Center for
International Dispute Settlement, wrote a report for UNCITRAL, entitled: “Can the Mauritius
Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection
with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism?”. (40)
It was supplemented in November 2017 by an extensive report entitled: “The Composition
of a Multilateral Investment Court and of an Appeal Mechanism for Investment Award”. (41)
In the Supplemental Report, the authors identify the composition of the tribunal as a
“critical aspect of the possible reform of the investor-State dispute settlement”. (42) The
Report examines key structural considerations, including: (i) the number of members and
whether there should be “full representation” or “selective representation” (i.e. whether
each State will have an adjudicator on a permanent basis); (43) (ii) who should be
appointed, taking into account competence (by way of specifying appropriate professional
experience and expertise), diversity (including geographical and gender) and
independence, the latter encompassing both structural independence (i.e. whether an
arbitrator is potentially influenced by selection method, security of tenure, term of office,
financial security, adequate resources, incompatibilities, privileges and immunities and
case assignment rules) and individual independence and impartiality (i.e. whether an
arbitrator is potentially influenced by repeat appointments and issue conflicts, as well as
accountability); (44) (iii) the procedure for selection (where the authors submit that the
selection process should be multi-layered, open to stakeholders and transparent) and
whether there should be screening (and if so, the composition of such an advisory panel,
the scope of its mandate and its procedural powers); (45) (iv) the term of office; (46) (v) the
assignment of cases (be it by a roster, the disputing parties participating in the
constitution of the chamber hearing their case, or by a standing body in which disputing
P 454 parties play no role) and the number of members in each chamber and their
P 455 nationality. (47) The Supplemental Report concludes that, regardless of the exact manner
of composition, there are three elements which are essential to the success of any PMIC:
competence, diversity and independence.
The authors recognize that, depending upon the appointment mechanism, a standing court
may give rise to acute issues relating to arbitrator neutrality and independence. They
state: “appointment on the basis of political considerations rather than competence and
merit may undermine the quality of the decisions and ultimately the perception of
independence, credibility and legitimacy”. (48)
The Supplemental Report points to a number of empirical studies examining the voting
patterns of the decision-makers in permanent international courts and tribunals to try to
evaluate the potential bias of such decision-makers. Many studies demonstrate that these
adjudicators allow their policy preferences and nationalism to influence the outcomes of
their cases. Such findings support the view that establishing standing tribunals for
investment treaty arbitration cannot necessarily avoid the problem of bias in decision-
making.
For instance, Eric Posner and Miguel de Figueiredo found evidence that national bias has
significant influence on the judges' decision making in the ICJ. The judges tended to favour
the parties from their home States. Whilst the ICJ judges voted for non-home parties about
48 percent of the time, they voted for home State parties around 90 percent of the time.
The judges were also more likely to vote for parties from the States that were similar to

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 their home State, in terms of wealth, culture and political regime (e.g., sharing
membership of NATO, the EU, OECD or sharing language or religion). (49) Likewise, Erik
Voeten found some evidence of national bias amongst the judges in the ECtHR. In
particular, the ECtHR judges who had previous careers as diplomats were more likely to
favour their national governments and national interest compared to judges who had had
other careers. (50)
Michael Waibel and Yanhui Wu in 2017 conducted a study in the context of investment
treaty arbitration and reached similar conclusions. The correlation between the legal
strength of the case and its arbitral outcome was significantly weaker when personal
characteristics and policy preferences of the arbitrator exhibited a strong correlation with
the decision outcomes. In particular, the developing status of a country was most
prominent amongst the factors of bias. (51) These bias factors were not related to the
undesirable incentives attributed to ad hoc arbitral tribunals. Therefore, the authors
further argue that establishing a standing arbitral tribunal will not necessarily address the
bias factors and may even allow arbitrators greater room to influence disputes with their
own policy preferences.
P 455
P 456
Scholars such as Susan Franck found no significant statistical relationship between arbitral
outcomes, the amount of awards and any characteristics of the parties (e.g., nationality)
that match with the arbitrators in investment treaty arbitration. (52)
Ultimately, the empirical research is not conclusive. Catherine Rogers cautions against
overstating the implications of any particular study. (53) Instinctively, however, one
suspects there is some correlation between party-appointment and decision-making,
which has support in research by Albert Jan van den Berg. (54)

V Dissenting Opinions
We now turn to consider whether, in the international context, the issuing of dissenting
opinions distinguishes ad hoc party-appointed tribunals and standing courts. (55)
It is said that dissenting opinions are a phenomenon of the common law and not of the
civil law. A principal reason given as to why common law jurisdictions permit dissenting
opinions is because the courts are making and developing the law, unlike civil law
jurisdictions where the law is prescribed in a written code, and therefore it is important
that common law appellate courts be allowed to articulate differing opinions. (56)
Underpinning the civil law tradition is the principle that the court's decision should
appear as the decision of the court as a whole; not the result of a simple mathematical
vote in favour of a majority view. Various theories underpin this approach. Richard Mosk
and Tom Ginsburg suggest that it “rests on the jurisprudential view of the law as fixed,
unchanging and determinate…. Under this theory, courts do not ‘make law’, but merely find
it through the exercise of legal science.” (57) Another reason for avoiding dissents in civil
law jurisdictions is that they offend against the secrecy of the deliberations, a principle
which protects the deliberations process from undue external pressures imposed by the
parties or other actors in the proceedings. However, times have changed and civil law
countries are now more permissive in their approach to dissents. (58) For example, as at
2012, only seven of the twenty-seven non-UK EU member States (which are generally
P 456 considered civil law jurisdictions, albeit not homogenous) expressly prohibited the
P 457 publication of individual opinions by judges. In the remaining twenty member States, the
publication of separate opinions was allowed, although practice varies as to when dissents
are most commonly issued. (59)
Undoubtedly, one needs to exercise caution before concluding that the presence of
dissenting opinions evidences free and frank debate and the freedom to disagree. Such
debate and disagreement may well exist behind the veil of a judgment or award signed by
all the judges or arbitrators. Nevertheless, it is an indicia of possible differences (or not)
between international ad hoc party appointed tribunals and standing courts.
Looking first at ISDS, the UNCITRAL Arbitration Rules 2010 do not expressly refer to
dissents. The ICSID Arbitration Rules 2006 provide at Rule 47(3) that: “Any member of the
Tribunal may attach his individual opinion to the award, whether he dissents from the
majority or not, or a statement of his dissent.” (60)
In 2009, Professor Albert Jan van den Berg carried out an extensive review of 150
investment treaty arbitrations (not limited to ICSID) and found that in 34 (or 23 percent)
separate opinions were issued (not all of which were dissents). (61) Other commentators
have noted that this actually demonstrates a high degree of agreement between
arbitrators, as no fewer than 77 percent of the decisions reviewed were unanimous. (62)
Between 2011 to 2014, ICSID authenticated at least seventy publicly known final awards, in
respect of which twelve arbitrators issued dissenting opinions, i.e. in approximately 17
percent of cases, which means 83 percent were unanimous.
The following is a small sample of well-known dissents.
In Tokios Tokeles v. Ukraine, (63) Professor Prosper Weil dissented. It is one of the rare
occasions in which the president of the tribunal has dissented from the decision of the two

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 party-appointed arbitrators. He believed the issue on which he dissented to be a matter of
significant legal principle and stated that adopting the majority's view “might jeopardize
the future of [ICSID]”. Professor Weil also wrote that “I would fail in my duty if I were to
conceal my doubts out of friendship for my colleagues”. (64)
In CME v. Czech Republic, the dissenting opinion of Dr. Jaroslav Hándl, appointed by the
Czech Republic, was scathing of his fellow arbitrators, especially with respect to his
P 457 treatment by them, (65) with his co-arbitrators critical of him. (66) The alleged procedural
P 458 unfairness of the deliberations formed the basis, amongst others, of a challenge to the
award to the Svea Court of Appeal, with the court hearing evidence from all the arbitrators.
The challenge was rejected. (67)
Some dissents concern the substantive legal issues. The lengthy dissent of the late
Professor Thomas Wälde in Thunderbird v. Mexico (68) has become one of the main
authorities on the scope of legitimate expectations that forms part of the fair and
equitable treatment standard of protection and has contributed to the emerging de facto
system of precedent. (69)
Some dissents concern procedural issues. In Impregilo SpA v. Argentina Republic, (70)
Professor Brigitte Stern in her dissenting opinion forcefully warned of the “great dangers” of
the majority's view that a conditional right to ICSID could “magically be transformed into
an unconditional right by the grace of the [most-favoured nation] clause”. (71)
In RSM Production Corporation v. Saint Lucia, (72) the tribunal's decision on the State's
request for security for costs from the claimant was accompanied by a separate “assenting”
opinion by the claimant's appointed arbitrator, Dr Gavan Griffith QC. (73) While agreeing
with the orders made by the tribunal, Dr Griffith disagreed as to the basis for making such
orders and was unflattering about third-party funding – which generated substantial
comment, not least from the third-party funding industry.
Turning now to international standing courts and tribunals, separate opinions and dissents
are also fairly commonplace. This may be because public international law derives in part
from custom and practice, and because these sources of law are not codified, decision-
making is similar to the common law, and consequently the prevalence of dissenting
decisions is unsurprising.
The ICJ expressly permits dissents, (74) as did its predecessor, the Permanent Court of
International Justice. Dissents are frequent and in only a few cases has the ICJ rendered a
judgment to which no separate or dissenting opinion was attached. (75)
P 458
P 459
Many other international courts or tribunals take the same approach. (76) For example, the
rules of the Iran-US Claims Tribunal also expressly provide for dissents. (77)
Similarly, in the ECtHR, any judge can attach a dissenting opinion to a judgment of the
Court. (78) There is some evidence that the issue of dissenting opinions depends on judicial
temperament and the background of judges prior to their election to the Court. (79) A study
of judgments rendered between 1960 and 2006 found that national judges dissented from
the majority (in favour of their home State, in judgments finding a violation) in 16 per cent
of cases, whereas non-national judges voted against the majority (in favour of the State
respondent) in 8 per cent of cases. (80)
The practice of the CJEU stands apart. Although dissents are not prohibited, in practice the
CJEU values and protects the secrecy of the deliberations and dissents are not issued. (81)
It may be significant that all the founding States of the CJEU, namely Belgium, France,
Germany, Italy, Luxembourg and Netherlands, are civil law jurisdictions which
predominantly prohibit or at least disfavour dissents.
Similarly, at the WTO, while published dissents are allowed under the rules, they were
initially uncommon, (82) but are becoming more frequent. (83)
Thus, at the international level, practice varies, but in general there is a tendency for
separate dissenting opinions to be permitted and many are issued.
From this review, it does not appear that there is a great difference between international
ad hoc party-appointed ISDS tribunals and standing courts in respect of the ability and
frequency of dissents.
P 459
P 460

VI Costs of Disagreeing
We now consider the personal ramifications of disagreeing (referred to as the economic
cost) and whether this may be different between party- appointed tribunals and standing
courts, again viewed from the perspective of dissents.
The analysis of arbitral behaviour from an economic perspective aims at explaining or
predicting the behaviour of arbitrators in their decision-making process, based on the
assumption that they are rational actors. While it is often the case that economics is
associated with money or finances, this economic analysis does not focus on money, but
rather on the costs and benefits of the choices that an individual considers. In our

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 discussion here, the analysis focuses on the costs and benefits of an arbitrator's decision
whether or not to dissent.
When analyzed from an economic lens, arbitrators and judges incur two types of costs
during the decision -making process – internal and external. The internal costs are
incurred by all the members of the tribunal/court who have to adopt a collective decision.
The external costs are those incurred by an arbitrator/judge who disagrees with the other
members of the tribunal/court but finally gives in and agrees with the others. A unanimity
rule has the largest internal costs, because the arbitrators/judges must agree on a
decision. A majority rule, by contrast, has larger external costs because each
arbitrator/judge must decide whether to form a united front or break from it and issue a
dissenting opinion. The majority rule may mean that some arbitrators/judges strive less
hard to reach a unanimous decision or to persuade the third (or more) arbitrator/judge of
their views, safe in the knowledge that a majority is all that is required. However, since
dissents are optional, it may well be that the dynamic within the tribunal or the
arbitrators' wish to maintain collegiality, causes the majority to moderate the award in
order to satisfy the dissenting arbitrator, so that she/he does not write a dissenting
opinion.
During the deliberations each arbitrator/judge has to weigh the costs and benefits that her
or his decision may engender. (84) From an economic perspective, since writing a
dissenting opinion is a cost, an arbitrator who wishes to dissent will do so only if she/he
expects the benefits from writing the dissent will offset the costs. However, the costs of a
dissent are not imposed on the dissenting arbitrator only. When the dissenting opinion
criticizes the majority, the arbitrator who is assigned to write the majority opinion will
have to bear the cost of reviewing the minority opinion and addressing the criticism. In
addition to the effort and time imposed on the arbitrator/judge assigned to write the
majority opinion, there may also be reputational costs, especially when the dissenter
criticizes the majority severely. (85) If the costs of dissent for the majority exceed the
benefits of ruling only in majority, they may give way. (86)
P 460 There are also collegiality costs that may be imposed on the arbitrators/judges. These
P 461 costs may be different in arbitration tribunals and in standing courts, and between
established arbitrators and newcomers. Arbitrators are selected by the parties to decide a
specific dispute. In investment arbitration, there is a small group of elite arbitrators who
are repeatedly appointed, but there are also many newcomers or arbitrators with some
but fewer appointments, so it is uncommon for tribunals to be composed of the exact same
three arbitrators, albeit it is relatively common for two arbitrators to both be appointed in
more than one arbitration. Judges in a standing court are very likely to sit together on
several cases. There may be a cost in terms of the relationship between the
arbitrators/judges in future cases, and a dissenter may need to take into account the
possibility of wanting to persuade the other arbitrators/judges in another case.
The possibility of future appointments may have a conscious or unconscious effect, to the
extent that the dissenter may want it known that she/he has a certain view of a particular
subject. (87) This may be less of a cost for judges in a standing court, but they too may be
thinking of the renewal of their appointment.

VII Conclusion
Widespread criticism of the current system of ISDS is very likely to result in the EU
establishing a standing court for its investment treaties, with the potential for
UNCTAD/UNCITRAL to recommend a court with global jurisdiction. There is legitimate
concern that the judges appointed to such PMIC, following a selection process established
by the State parties, will have a homogeneity and predisposition towards the State
respondents. This homogeneity may lead to groupthink and an unwillingness publicly to
disagree. It is hoped that the individuals appointed will be sufficiently diverse and after
constructive debate feel able to publish a dissenting opinion where appropriate, without
there being a disadvantageous cost either to the minority or majority. Investment treaties
are intended to promote investment and for this to be achieved there must continue to be
transparent debate and a balancing of the interests of both investors and States.
P 461

References
*) Audley Sheppard QC: Partner, Clifford Chance LLP, London; Chairman of LCIA Board.
**) Daphna Kapeliuk: Partner, Goldfarb Seligman Law Offices, Tel Aviv.
1) UNCTAD, “World Investment Report 2015: Reforming International Investment
Governance”, available at:
<http://unctad.org/en/PublicationChapters/wir2015ch4_en.pdf>.

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 2) Working Group III (Investor-State Dispute Settlement Reform) met on 27 November – 1
December 2017 and, since the ICCA 2018 Congress Sydney, has met again on 23 – 27
April 2018, 29 October – 2 November 2018, and 1 – 5 April 2019. It has been mandated:
(i) to identify and consider concerns regarding ISDS; (ii) to consider whether reform
was desirable in light of any identified concerns; and (iii) if the Working Group were to
conclude that reform was desirable, to develop any relevant solutions to be
recommended to the Commission.
See:
<http://www.uncitral.org/uncitral/en/commission/working_groups/3Investor_State.ht
ml>.
3) Comprehensive Economic and Trade Agreement (CETA), Ch. 29, available at:
<http://ec.europa.eu/trade/policy/in-focus/ceta>.
4) EU-Vietnam Trade and Investment Agreement (EUVFTA), Ch. 15, available at:
<http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437>.
5) EU-Singapore Trade and Investment Agreement (EUSFTA), Ch. 14, available at:
<http://trade.ec.europa.eu/doclib/press/index.cfm?id=961>.
6) See:
<https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c1s1p1_e.htm
>.
7) See, e.g., Cass SUNSTEIN, Going to Extremes: How Like Minds Unite and Divide (OUP
2009); also Conformity (NYU Press 2019).
8) Daphna KAPELIUK, “Collegial Games – Analyzing the Effect of Panel Composition on
Outcome in Investment Arbitration”, 31 The Review of Litigation (2012) p. 267; see also
Queen Mary University of London – White & Case International Arbitration Survey 2018,
p. 7, available at: <http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-
International-Arbitration-Survey---The...>.
9) Yves DEZALAY and Bryant GARTH, Dealing in Virtue (University of Chicago Press 1996) p.
8; David BRANSON, “Sympathetic Party-Appointed Arbitrators: Sophisticated Strangers
and Governments Demand Them”, 25 ICSID Rev. (2010) pp. 367, 381.
10) Detlev F. VAGTS, “Note and Comment: The International Legal Profession: A Need For
More Governance?”, 90 Am. J. Int'l L (1996) pp. 250, 258.
11) As most major arbitration rules and national laws require.
12) See, e.g., Yuval SHANY, “Squaring the Circle? Independence and Impartiality of Party-
Appointed Adjudicators in International Legal Proceedings”, 30 Loy. L. A. Int'l & Comp.
L. Rev. (2008) p. 473.
13) Jan PAULSSON, “Moral Hazard in International Dispute Resolution”, 25 ICSID Rev. (2010)
pp. 339, 348. See also Stavros BREKOULAKIS, “Systemic Bias and the Institution of
International Arbitration: A New Approach to Arbitral Decision Making”, 4 Journal of
International Dispute Settlement (2013) p. 553.
14) David BRANSON, supra fn. 9, p. 381.
15) UNCTAD, IIA Issues Note: “Improving Investment Dispute Settlement: UNCTAD Policy
Tools” (November 2017) p. 6, available at:
<https://unctad.org/en/PublicationsLibrary/diaepcb2017d8_en.pdf>.
16) See statistics at: <https://investmentpolicyhub.unctad.org/ISDS/FilterByArbitrators>.
17) Available at:
<http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency.ht
ml>.
18) Recommendation for a Council Decision authorizing the opening of negotiations for a
Convention establishing a multilateral court for the settlement of investment disputes,
COM (2017) 493 final, together with COM (2017) 493 final 2017/0224(COD), Annex 1,
available at: <https://eur-lex.europa.eu/resource.html?uri=cellar:df96826b-985e-11e7-
b92d-01aa75ed71a1.0001.02/DOC_...> and Commission Staff Working Document Impact
Assessment, Multilateral Reform of Investment Dispute Resolution (SWD (2017) 302) and
Commission Staff Working Document Executive Summary of the Impact Assessment
Recommendation for a Council Decision authorising the opening of negotiations for a
Convention establishing a multilateral court for the settlement of investment disputes
(SWD (2017) 303). Since the ICCA Sydney Congress, the European Commission has
confirmed the main features of what is envisaged in a speech on 22 June 2018, by Colin
Brown, Deputy Head of Unit, Dispute Settlement and Legal Aspects of Trade Policy,
Directorate General for Trade, European Commission (available at
<http://trade.ec.europa.eu/doclib/docs/2018/july/tradoc_157112.pdf>). The European
Commission has also expressed its support for the work of the ISDS Reform Working
Group established by UNCITRAL. In a speech on 22 November 2018, the European
Commissioner for Trade, Cecilia Malmström, noted that the creation of a PMIC was the
only option that effectively addresses concerns with ISDS (available at
<http://trade.ec.europa.eu/doclib/press/index.cfm?id=1943)>.
19) Supra fn. 18, COM (2017) 493 final, 2017/0224(COD), Annex 1, para. 8.
20) Supra fn. 18, SWD (2017) 302, Sect. 6.3, p. 63.
21) Submission of the European Union and its Member States to UNCITRAL Working Group
III: Establishing a standing mechanism for the settlement of international investment
disputes, 18 January 2019, available at:
<http://trade.ec.europa.eu/doclib/docs/2019/january/tradoc_157631.pdf>, paras. 16,
19, 20, and 30-31.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 22) Supra fn. 3.
23) CETA, Art. 26.1, comprising representatives of the EU and of Canada and co-chaired by
the Minister for International Trade of Canada and the Member of the European
Commission responsible for Trade (or their respective designees).
24) CETA, Art. 8.27, para. 2.
25) CETA, Art. 8.27, para. 6. Note that either party may instead propose to appoint up to
five members of any nationality, who will be considered to be nationals of the
appointing party for these purposes.
26) CETA, Art. 8.27, para. 4.
27) CETA, Art. 8.30, para. 1.
28) CETA, Art. 8.30, para. 1.
29) CETA, Art. 8.27, para. 5. Note that the terms of seven of the initial fifteen members
appointed immediately after the agreement enters into force will be extended to six
years as determined by lot. In addition, if a member is serving on a division when his
or her term expires, in principle, he or she may continue to serve until a final award is
issued.
30) CETA, Art. 8.27, para.7.
31) CETA, Art. 8.27, para.9.
32) CETA, Art. 8.28, paras. 1-3.
33) CETA, Art. 8.28, para. 5. Note that no specific provisions are made in relation to
nationality of the members.
34) CETA, Art. 8.36, para. 5.
35) Supra fn. 4.
36) Supra fn. 5.
37) Following the CJEU ruling on the EU's free trade agreement with Singapore
(Commission LI:EU:C:2017:376), of 16 May 2017, which found that ISDS mechanisms are
mixed competences, each Member State must ratify said agreements before they can
take effect, available at: <http://curia.europa.eu/juris/document/document.jsf?
text=&docid=190727&pageIndex=0&doclang=EN&mode=re...>.
38) On 6 September 2017, Belgium requested an opinion from the Court of Justice of the
European Union (CJEU) on the compatibility of the investment court system
established by CETA with (i) the exclusive competence of the CJEU to provide the
definitive interpretation of EU law; (ii) the general principle of equality and the
“practical effect” requirement of EU law; (iii) the right of access to the courts; and (iv)
the right to an independent and impartial judiciary. The Advocate General in his
advisory opinion, dated 29 January 2019, approved the provisions, available at:
<http://curia.europa.eu/juris/document/document.jsf?docid=210244>. The CJEU's
Opinion confirmed that the investment court system provided for in CETA is fully
compatible with EU law and, specifically, complies with: (i) the principle of autonomy
of EU law and the exclusive jurisdiction of the CJEU for the interpretation of EU law; (ii)
the principle of equal treatment and of the requirement of effectiveness of EU law; and
(iii) the Charter of Fundamental Rights, in particular of the right of access to a court
and right to an independent and impartial tribunal under the Charter; Opinion 1/17 of
the CJEU, 30 April 2019; available at:
<https://curia.europa.eu/jcms/upload/docs/application/pdf/2019-
04/cp190052en.pdf>.
39) European Commission Directorate-General for Trade, “EU-Canada Trade Agreement
Enters into Force” (Brussels, 20 September 2017), available at:
<http://trade.ec.europa.eu/doclib/press/index.cfm?id=1723>.
40) Available at:
<http://www.uncitral.org/pdf/english/CIDS_Research_Paper_Mauritius.pdf>.
41) Available at:
<http://www.uncitral.org/pdf/english/workinggroups/wg_3/CIDS_Supplemental_Repor
t.pdf>.
42) Ibid., para. 213.
43) Ibid., paras. 21-27.
44) Ibid., paras. 28-105.
45) Ibid., paras. 106-160.
46) Ibid., paras. 161-165.
47) Ibid., paras. 166-204.
48) Ibid., para. 108.
49) Eric A. POSNER and Miguel DE FIGUEIREDO, “Is the International Court of Justice
Biased?”, John M. Olin Program in Law and Economics Working Paper No. 234 (2004) pp.
18-19 and 28-29; available at: <https://escholarship.org/uc/item/35j504rg>.
50) Erik VOETEN, “The Impartiality of International Judges: Evidence from the European
Court of Human Rights”, 10 American Political Science Review (2008, no. 4) pp. 428 and
430.
51) Michael WAIBEL and Yanhui WU, “Are Arbitrators Political? Evidence from International
Investment Arbitration” (2017) pp. 23-25; available at: <http://www-
bcf.usc.edu/~yanhuiwu/arbitrator.pdf>.
52) Susan D. FRANCK, “Development and Outcomes of Investment Treaty Arbitration”, 50
Harvard Journal of International Law (2009, no. 2) p. 473.
53) Catherine ROGERS, “The Politics of International Investment Arbitrators”, 12 Santa
Clara Journal of International Law (2013) p. 223 at p. 262.

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 54) Albert Jan VAN DEN BERG, “Dissenting Opinions by Party-Appointed Arbitrators in
Investment Arbitration” in Mahnoush H. ARSANJANI, Jacob COGAN, Robert SLOANE and
Siegfried WIESSNER, eds., Looking to the Future: Essays on International Law in Honor of
W. Michael Reisman (Brill 2011) p. 822 at p. 824.
55) See Audley SHEPPARD and Daphna KAPELIUK, “Dissents in International Arbitration” in
Tony COLE, ed., The Roles of Psychology in International Arbitration (Wolters Kluwer
2017).
56) See, e.g., Lord NEUBERGER, “No Judgment – No Justice”, First Annual BAILII Lecture (20
November 2012) para. 24, <https://www.supremecourt.uk/docs/speech-121120.pdf>.
57) Richard MOSK and Tom GINSBURG, “Dissenting Opinions in International Arbitration”, 4
Mealey's Int'l Arb. Rep (2000) pp. 26, 27.
58) See Rosa RAFFAELI, European Parliament Policy Department C: Citizens' Rights and
Constitutional Affairs, Legal and Parliamentary Affairs, “Dissenting Opinions in the
Supreme Courts of the Member States” (European Parliament 2012) para. 2.1.2 (EP
Report).
59) EP Report, paras. 2 and 2.2.
60) Rule 47(3) is in identical terms to Art. 48(3) of the ICSID Convention 1965: see, e.g.,
Christoph SCHREUER, et al., The ICSID Convention: A Commentary, 2nd ed. (CUP 2010)
paras. 48.92 to 102.
61) A.J. VAN DEN BERG, supra fn. 54, p. 824.
62) Charles BROWER and Charles ROSENBERG, “The Death of the Two-Headed Nightingale:
Why the Paulsson-Van den Berg Presumption that Party-Appointed Arbitrators Are
Untrustworthy Is Wrongheaded”, 29 Arb. Int'l (2013, no. 1) p. 7.
63) ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004).
64) Ibid., Dissenting opinion of Prosper WEIL (29 April 2004).
65) CME Czech Republic B.V. v. The Czech Republic, UNCITRAL Rules, Dissenting opinion of
the Arbitrator JUDr Jaroslav HÁNDL against the Partial Arbitration Award (13 September
2001).
66) Partial Award on Liability, para. 625.
67) Czech Republic v. CME Czech Republic BV, Case No T 8735-01, 87-90 (15 May 2003), 42 ILM
919 (Svea Court of Appeals).
68) International Thunderbird Gaming Corporation v. United Mexican States, UNCITRAL,
Separate Opinion (1 December 2005) (of 135 pages); Christoph SCHREUER and Ursula
KRIEBAUM, “At What Time Must Legitimate Expectations Exist” in Jacques WERNER and
Arif Hyder ALI, eds., A Liber Amicorum Thomas Wälde (CMP Publishing 2009) p. 265.
69) In Lemire v. Ukraine (ICSID Case No. ARB/06/18), the substantive award was 107 pages
and awarded the Claimant US$ 8.7 million, but Dr. Jurgen Voss wrote a dissenting
opinion of 173 pages: Award (28 March 2011); Dissenting Opinion (1 March 2011).
70) Impregilo S.p.A. v. Argentine Republic (ICSID Case No. ARB/07/17), Concurring and
Dissenting Opinion of Professor Brigitte STERN (21 June 2011).
71) Ibid., para. 99.
72) RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on Saint
Lucia's Request for Security for Costs (13 August 2014).
73) Ibid., Assenting reasons of Dr. Gavan GRIFFITH QC, para. 18.
74) Art. 57 of the ICJ Statute provides: “If the judgment does not represent in whole or in
part the unanimous opinion of the judges, any judge shall be entitled to deliver a
separate opinion” and Art. 95(2) of Rules of Court of the ICJ states: “Any judge may, if he
so desires, attach his individual opinion to the judgment, whether he dissents from the
majority or not; a judge who wishes to record his concurrence or dissent without stating
his reasons may do so in the form of a declaration. The same shall also apply to orders
made by the Court.” See generally, Ijaz HUSSAIN, Dissenting and Separate Opinions at
the World Court (Kluwer Academic Publishers, 1984).
75) ICJ, The International Court of Justice: A Handbook (ICJ 2013) p. 74.
76) See generally, Gleider HERNÁNDEZ, The International Court of Justice and the Judicial
Function (OUP 2014) p. 112.
77) Rules of Procedure, Art. 32(3) states that “[a]ny arbitrator may request that his
dissenting vote or his dissenting vote and the reasons therefore be recorded”. Notably,
the UNCITRAL Rules which were adopted for the Claims Tribunal did not contain any
provision for dissenting opinions and were amended to allow dissenting and
concurring opinions.
78) Rule 74 of the Rules of the ECtHR provides that judges are “entitled to annex to the
judgment either a separate opinion, concurring with or dissenting from that judgment,
or a bare statement of dissent”.
79) See Robin WHITE and Iris BOUSSIAKOU, “Separate Opinions in the European Court of
Human Rights”, 1 Human Rights Law Review (2009, no. 9) pp. 37, 46 citing Fred J.
BRUINSMA, “Judicial Identities in the European Court of Human Rights” in A VAN HOEK,
ed., Multilevel Governance in Enforcement and Adjudication (Intersentia, Antwerp 2006)
p. 203; Fred J. BRUINSMA, “The Room at the Top: Separate Opinions in the Grand
Chamber of the ECHR (1998-2006)”, Ancilla Juris (2008) p. 32; Nina-Louisa AROLD, The
Legal Culture of the European Court of Human Rights (Brill 2007).
80) EP Report, supra fn. 58, para. 1.2.3 citing E. VOETEN, supra fn. 50 and M. KUIJER, “Voting
Behaviour and National Bias in the European Court of Human Rights and the
International Court of Justice”, 10 Leiden J. of Int'l Law (1997, no. 1) p. 49.
81) EP report, supra fn. 58, pp.33-38.

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 82) See, e.g., Meredith Kolsky LEWIS, “The Lack of Dissent in WTO Dispute Settlement: Is
There a “Unanimity” Problem?”, 9 Stanford J. Int'l Econ. (2006) p. 895, available at:
<http://law.bepress.com/cgi/viewcontent.cgi?article=6124&context=expresso>.
83) More recently by LEWIS, see her blog at:
<https://worldtradelaw.typepad.com/ielpblog/2010/06/a-debate-on-wto-dissents-
merediths-opening-post.h...>.
84) Stephen J. CHOI and G. Mitu GULATI, “Trading Votes for Reasoning: Covering in Judicial
Opinions”, 81 S. Cal. L. Rev. (2008) pp. 735, 746-747.
85) Lee EPSTEIN, William M. LANDES and Richard A. POSNER, “Why (and When) Judges
Dissent: A Theoretical and Empirical Analysis”, 3 J. Legal Analysis (2011) pp. 101, 116.
86) Richard A. POSNER, How Judges Think (Harv. Univ. Press 2008) p. 33.
87) Daphna KAPELIUK, “The Repeat Appointment Factor: Explaining Decision Patterns of
Elite Investment Arbitrators”, 96 Cornell L. Rev. (2010) pp. 48, 58.

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 KluwerArbitration

Document information
Costs in International Arbitration: Navigating Through the
Publication Devil’s Sea
Evolution and Adaptation: Mohamed S. Abdel Wahab
The Future of International (*)
Arbitration
I Prologue: Deconstructing Costs and the Economic Dynamics of
Bibliographic reference International Arbitration
It is an undying academic myth of international arbitration that arbitration is an
Mohamed S. Abdel Wahab, inexpensive mechanism for dispute resolution. This is diametrically opposed to the
'Costs in International general positive aspiration regarding costs in international arbitration, as shared by
Arbitration: Navigating several authors and expressed in court decisions, (1) that is: “the underlying reason many
Through the Devil’s Sea', in parties choose arbitration is the relative speed, lower cost, and greater efficiency of the
Jean Engelmayer Kalicki and process”, as stated by the Drafting Committee of the 2000 Revised Uniform Arbitration Act.
Mohamed Abdel Raouf (eds), (2)
Evolution and Adaptation:
The Future of International More recently, the reality of the high costs of international arbitration led to significant
Arbitration, ICCA Congress criticism(s) of the system at large. (3) Users of international arbitration often express their
Series, Volume 20 (© Kluwer concerns about costs and this was affirmed by the Queen Mary University of London
Law International; (QMUL) 2013 International Arbitration Survey stating that “many corporations continue to
International Council for express concerns over costs and delays in arbitration proceedings”. (4) The said Survey
Commercial P 465 adds that “[f]or respondents who considered arbitration not to be well suited to their
Arbitration/Kluwer Law P 466 industry, costs and delay were cited as the main reasons more than any other factors”.
International 2019) pp. 465 - (5) These concerns were further reiterated in the QMUL 2015 International Arbitration
503 Survey stating that “[w]e also asked respondents what they perceived as the worst
characteristics of international arbitration. ‘Cost’ was by far the most complained of
characteristic.” (6) Most recently, the QMUL 2018 International Arbitration Survey affirmed
that “‘cost’ is yet again the most selected option, and by a significant margin” and
“continues to be seen as arbitration's worst feature”. (7)
With the heightened cost-related complaints from the users of the international
arbitration system, it appears that the increase in costs is a composite result of two main
factors. The first being the fact that the parties bear in arbitral proceedings significant
costs that they do not normally bear in court proceedings. These costs are mainly the fees
and expenses of the arbitrators, the administrative fees of the arbitral institution (in the
case of institutional arbitration), the fees and costs of counsel and experts and the costs
associated with prosecuting the arbitral proceedings including costs of hearings, tribunal
secretaries, transcription and interpretation services, etc. In comparing costs' segments,
practitioners and scholars often submitted that tribunal and institutional costs “are
usually a drop in the ocean compared with the fees and expenses of the parties' legal
advisers and expert witnesses”. (8) It is these legal fees and costs that constitute the
second and most important factor contributing to increased costs in international
arbitration. Several scholars and practitioners have alluded to and highlighted the high
costs involved in arbitration, (9) and even submitted that such costs are substantial “not
only in absolute terms but also compared to the amount in dispute”. (10)
Accordingly, it is not unbeknownst to parties that they shall be incurring substantial costs
in international arbitration. Neil Kaplan affirmed that “[j]oint claims for costs totaling $ 30-
50 million are not uncommon”, (11) and that he had to deal with costs claims totaling over $
75 million. (12) This is just an illustration of the prohibitively high costs associated with
arbitral proceedings.
P 466
P 467
It is this aspect of prohibitively high costs that may deter the parties from agreeing and
commencing arbitral proceedings that they may not afford to fund, (13) which, in turn,
creates an issue of access to justice. (14)
Conversely, it may be argued that despite the significance of costs, the parties may,
nonetheless, accept to bear such costs on the premise that arbitration offers a high quality
and “one stop shop” resolution of highly contentious and high-value complex disputes. (15)
In other words, even though international arbitration is a costly process, users, when
deciding to bear the high costs of arbitral proceedings, take into account the nature of
their dispute(s), the desirability of resolving their disputes by individuals of their choice,
and the legitimate expectation to have their dispute determined by a well-reasoned and
final decision.
However, it is submitted that even if the issue is not as bleak as it sounds, the high costs of
international arbitration do ring a bell and serve as a whistle-blower to warn the
community of the deterring impact of costs on the future development of international

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 arbitration.
Notwithstanding the view that arbitration users may grudgingly accept the high costs of
international arbitration, it is undisputable that they will not be willing to forego the
predictability of the decision on costs. (16) In other words, “they often seek advice on how
much the arbitration is going to cost them if they lose and whether they will recover their
costs if they win. A quick answer to this question may be: “generally, the loser pays”, but
this statement does little to dispel the flou artistique which can sometimes be observed in
arbitral practice on costs.” (17)
In fact, the added layer of complexity with respect to high costs stems from the fact that
arbitral practice reveals that the awarding of costs in international arbitration is “often
arbitrary and unpredictable”. (18) Thus, the parties would be unable to predict either
whether the arbitral tribunal would order a party to incur all or part of costs, or whether
and to what extent certain categories of costs would be recoverable. (19)
P 467
P 468
Thus, the compounded effect of the costs of international arbitration being high and
unpredictable as to their allocation by arbitral tribunals creates two major challenges:
“First, arbitrary awards undermine the legitimacy of the dispute resolution system. Second,
the lack of predictability may hinder parties from being able to settle the dispute and
could rob arbitration of its efficiency.” (20)
Against this background, the present article aims at providing an overview of certain
intricate issues of costs in international arbitration as well as scrutinizing the legal
principles and norms governing costs. In light of this, it is important to commence by
identifying the categories of costs that may be claimed or recoverable in international
arbitration (II). Thereafter, the process of the awarding of and allocating costs in
international arbitration should be examined (III). Subsequently, the author shall shed
light on the major differences between national jurisdictions regarding the awarding of
costs (IV), before considering some solutions to cost-related challenges. The author will
then conclude with some recommendations (V).

II Categories of Costs in International Arbitration

In international arbitration, costs are usually classified into two main categories:
Procedural Costs or Costs of the Arbitration (1) and Costs of the Parties (2). (21) Each category
includes different types of costs whose recoverability is controversial as discussed herein.
The issue is that, as shall be discussed further below, whilst arbitral tribunals often hold
that the losing party shall pay the costs incurred by the successful party in relation to the
arbitral proceedings, it is not anomalous that arbitral tribunals may conversely hold that
each party shall bear all its costs and accordingly none of the categories of costs will be
recovered, which could be frustrating to the parties and contrary to their legitimate
expectations, absent an agreement to that effect.
It is this controversy that affects more the “Costs of the Parties” category rather than the
“Procedural Costs” as will be discussed. It has been submitted that the “Costs of the Parties”
“make up the bulk (83% on average) of the overall costs of the proceedings” as reported by
the 2015 International Chamber of Commerce (ICC) Commission Report on Costs. (22)
P 468
P 469
1 Procedural Costs or Costs of the Arbitration
The “Costs of the Arbitration” (23) – also referred to as the “Procedural Costs” (24) – include:
(i) the fees of the arbitrators; (ii) the travel and others expenses incurred by the
arbitrators; (25) (iii) the administrative fees of the arbitral institution, if any; (iv) the fees
and expenses of any tribunal secretary; (v) the fees and expenses of any experts appointed
by the arbitrators; and (vi) the expenses of related logistics such as hiring rooms for
hearings and meetings, any administrative services related to the arbitration, such as
transcription, interpretation and translation.
These costs are, in principle, recoverable in arbitration, unless the arbitral tribunal
determines otherwise. The fees and expenses of arbitrators as well as institutional fees are
normally fixed according to the applicable arbitration rules in institutional arbitration or
set pursuant to an agreement between the parties and the arbitral tribunal in ad hoc
arbitration. (26) Most legal systems allow the full recovery of these costs, (27) and it is
difficult to imagine that the arbitral tribunal would consider the costs paid for tribunal-
appointed experts are unreasonable, (28) although the parties may consider, in certain
situations, such costs to be unreasonable and undesired, especially if the tribunal
exercised its authority according to the applicable procedural rules and appointed
experts contrary to the parties' expectations and desire for reasons that the arbitral
tribunal considered legitimate and necessary for the proper determination of the dispute.
(29)
P 469
P 470
2 Costs of the Parties

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 The Costs of the Parties consist of all the costs incurred by the parties in preparing for,
prosecuting and presenting their case. (30) Thus, this category of costs is in a constant state
of flux and is largely variable with no clear arbitral practice or doctrinal consensus on what
type of costs may fall under this category and whether all such types are recoverable or
not.
By and large, this category of costs could be classified on the basis of the time/phase in
which such costs are incurred or on the basis of the type of costs associated with the
parties. If classified temporally, they could fall into three sub- categories: (i) pre-
arbitration costs; (ii) in-arbitration costs; and (iii) post-award costs for vacatur motions and
enforcement.
If classified on the basis of their type, they could be sub-categorized into: (a )
claim(s)preparation and dispute-associated costs incurred prior to the arbitral proceedings;
(b) counsel's fees; (c) contingency success fees; (d) parties' own internal costs; (e) case
preparation costs including costs of mock arbitration(s); (f) third- party funding or arbitration
finance costs; (g) costs for party-appointed witness(es) and experts, claims consultants and
advisors; (h) costs of contemporaneous and related court proceedings; and (i) costs incurred
in vacatur and/or enforcement proceedings.
For the purpose of the present contribution, the author submits that the type-based
categorization of parties' costs offers a better insight and a more detailed sub-
classification when compared to the phased/temporal categorization. Thus, this section
shall address the sub-classification of parties' costs on the basis of the type-based
categorization.
a Claim(s) preparation and dispute-associated costs incurred prior to the arbitral
proceedings
This category includes all the costs that a party incurs in relation to the dispute for the
preparation of its claim(s) before the commencement of the arbitral proceedings. This
would include any legal opinions sought, expenses incurred for any pre-arbitration
procedures such as negotiations, mediation, litigation, legal notifications, dispute boards,
etc.
This first sub-category is quite challenging and the parties should be aware that being
awarded such costs in arbitration is difficult for several reasons.
Firstly, absent an agreement to the contrary, arbitral tribunals may refuse to award such
costs on the ground that they do not pertain to the arbitral proceedings and are
“premature”. (31)
Secondly, such costs may be considered unforeseen, unreasonable and excessive. (32)
P 470 Thirdly, the non-recoverability of the said costs may be a function of the terms of the
P 471 arbitral rules. (33) For instance, Art. 38 of the 2017 ICC Rules defines the parties' costs as
“the reasonable legal and other costs incurred by the parties for the arbitration”.
Accordingly, costs which are not directly pertinent for “the arbitration” may not be
recoverable.
Finally, since these costs are incurred before the commencement of the arbitral
proceedings, there is always an issue of the arbitral tribunal's jurisdiction and powers to
consider and award such costs. (34)
By and large, whilst this sub-category is indeed problematic, it is submitted that said sub-
category is not barred outright, but must be considered on a case-by-case basis. This sub-
category ought to be subject to a three-dimensional test of: (a) consent and foreseeability ;
(b) direct proximity to the arbitral proceedings; and (c) reasonableness. If collectively
fulfilled, such costs may be claimed and awarded.
By way of illustration, if the parties are in agreement that such costs can be claimed or said
costs are indeed claimed by all parties, this can offer the basic consent to confer on the
arbitral tribunal the authority and jurisdiction to consider such costs.
With respect to the foreseeability and proximity to the arbitration, it is submitted that in
certain cases requisite conditions precedent must be fulfilled prior to resorting to
arbitration, such as resorting to mediation, expert determination, negotiations and/or
dispute board proceedings, etc. Thus, the failure to fulfill such clear conditions precedent
could lead to the inadmissibility of the claims on account of the arbitration proceedings
being prematurely commenced. If so, then it is arguable that the costs directly associated
with the fulfillment of the conditions precedent to resorting to arbitration would be in
direct proximity with, and are objectively foreseeable for the purpose of, the arbitral
proceedings.
With respect to reasonableness, this offers an added balancing factor in cases where such
pre-arbitration costs fulfill the requirements of consent, foreseeability and proximity. In
essence, arbitral tribunals should also consider whether such inseparably associated
foreseeable costs are reasonable in content and quantum before awarding same, noting
that not every incurred cost is recoverable. Accordingly, if such costs are exaggerated,
inflated or unreasonable in any way, they ought to be disregarded. In considering whether
to award or decline to award these costs, arbitral tribunals should consider the pertinent
factual matrix, the parties' expectations and the conduct of the parties and the

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 quantitative proximity of the amounts claimed by all parties.
b Counsel's fees
The counsel's fees constitute the most significant type or part of party-related costs. (35)
Despite the importance of such costs, “[i]t is also the category where legal families
generally differ the most, some tribunals are more reluctant to award counsel's fees than
arbitration fees and expenses”. (36) However, as will be discussed further below, the trend
P 471 in international arbitration is that the counsel's fees are recoverable and this trend is also
P 472 existent in international investment arbitration. (37) As is the case with all categories of
costs, the indispensable requisite is to ascertain that the arbitral tribunal has the
jurisdiction and the power to consider, allocate and award costs.
In this specific context, it is important to note that the recoverable counsel's fees should
be limited to reasonable fees. (38) In other words, the main limitation to the recovery of
counsel's fees is the test of reasonableness which should be objectively applied by the
arbitral tribunal as discussed further below. (39)
In applying the test of reasonableness on counsel's fees, arbitral tribunals usually take into
account some relevant factors, such as the complexity of the case, the amount in the
dispute, (40) and also counsel stature and conduct throughout the proceedings. They may
also take into account the awards of costs rendered in similar circumstances. (41)
In the same vein, it is argued that the arbitral tribunal shall reduce counsel's fees to
equate the fees of a “hypothetical counsel capable of conducting the particular case”. (42)
However, it is too difficult to identify what is the normal fee in an international dispute
given that “party representation costs may vary widely because of a number of reasons,
including the vastly different conditions under which lawyers work around the world and
the varying ability of lawyers used to their domestic civil procedure to adapt to the often
unfamiliar ways of international commercial arbitration”. (43)
In addition, in assessing the reasonableness of counsel's fees, arbitral tribunals may also
take into consideration and be guided by the fees and practices in counsel's jurisdiction.
(44) This presupposes the existence of comparable counsel within said jurisdiction. In
other words, this is not simply a jurisdictional survey, but rather the arbitral tribunal must
be able to identify comparable counsel with the requisite stature, expertise, experience,
standing and similar fee structures, which is a daunting exercise that may not be easily
and readily possible to implement.
In this context, the easier approach that arbitral tribunals usually resort to is to compare
the legal costs of each party in order to assess the reasonableness of the claimed legal
costs. (45) However, this presupposes that counsel for both parties are of comparable
P 472 standing. Accordingly, if the legal costs claimed by the successful party are close to those
P 473 incurred by the losing party, they are in principle held reasonable. Nevertheless, the
legal costs incurred by a party may still be considered reasonable even though they are
higher than those incurred by the other party because depending on the circumstances of
the particular case a party may be forced to incur more costs. (46)
Notwithstanding the above, nothing prevents arbitral tribunals from holding that the legal
costs claimed are unreasonable. In assessing the reasonableness and unreasonableness, a
quantitative analysis is usually undertaken since a qualitative one is more difficult to
establish and more sensitive to adopt. In certain cases, arbitral tribunals have held that
the claimed legal costs are unreasonable based on the fact that the legal costs claimed by
the successful party were four times higher than those paid by the losing party. (47)
Similarly, in another case, three firms had been involved in favor of the successful party
and so the arbitral tribunal reduced the recoverable costs. (48)
c Contingency success fees
At the outset, whilst contingency success fees may form part of counsel legal fees and so
should have been addressed as part of counsel fees under sub-section (b) above, owing to
the intricate legal issues pertaining to contingency fees and the fact that they do not form
a standard part of counsel fees, they are addressed herein as a separate type of cost.
Contingency fees are the fees paid by a party to its counsel in case of winning the case,
depending on their agreed definition of the winning threshold. The typical agreement of
contingency fees is the success fee agreement under which the counsel's fees vary
depending on the outcome of the case.
The problem with the recoverability of such fees arises from the fact they are higher than
the normally applicable fees. Accordingly, it is controversial whether the losing party
should reasonably reimburse the successful party “that kind of a systemic trade-off not
agreed to by the loser” even in the case where the “loser-pays” rule is applied. (49)
The first complication that a party claiming the recovery of contingency fees may
encounter is the preliminary issue of whether the arbitral tribunal is empowered to award
this as part of the costs because such fees are normally unbeknownst to the losing party
and are commonly used in jurisdictions which adopt the ‘each party bears its costs’ rule.
(50)
On a related note, contingency success fee agreements are not globally and uniformly

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 upheld; they are prohibited in certain jurisdictions as being in contravention of public
policy or ethical rules. Accordingly, arbitral tribunals must prudently ascertain whether
such fees are recoverable under the applicable governing law or not. Arbitral tribunals
may refuse to award such fees if there is a credible risk that the award may be annulled or
refused to be enforced, especially if the lex loci arbitri or lex loci executionis prohibits such
fees on account of champerty.
P 473
P 474
Notwithstanding the above, some practitioners argue that it would be too extreme to
refuse the recovery of any contingency fee. (51) From their perspective, it would be illogical
and unfair to deprive a party of its right to recover counsel's fees based on the fact that
such fees were dependent on the outcome of the case. However, it is worth noting that a
number of authors are against the full recovery of contingency fees. If the losing party who
paid its counsel on an hourly basis is held liable to pay all the contingency fees paid by
the successful party, the entire cost risk of that party's counsel is shifted to the other party.
(52)
In any event, if validly recoverable legally and factually, the recoverability of contingency
fees should be limited to reasonable fees. (53) In the same vein, some practitioners are of
the opinion that the recoverable contingency fees should be limited to “an amount that
would have been payable on a time charge basis”. (54) This would offer the needed
reasonableness and would arguably be foreseeable by the losing party, who is a third party
to the contingency fee arrangement between opposing party and its counsel, and so would
normally not be bound by it.
d Parties' own internal costs
The parties' own personnel are usually involved in the preparation of the case and in
working closely with external counsel. Moreover, sometimes it is an internal team that
represents the party and so, in such case, there is no reason to treat them differently from
external counsel.
More specifically, the parties' managers and other staff usually “spend time on instructing
their legal representatives, assisting them with regard to factual issues, attending the
hearing, etc.”. (55) Accordingly, the question whether the parties may request the recovery
of the costs for such executive time arises.
As to costs for internal personnel and executive time, arbitral tribunals understandably
seem to be reluctant to order the losing party to reimburse such costs. This is based on the
“outdated view that before a court, lay parties are ‘not allowed anything for their time and
trouble, but only for their out-of-pocket expenses’”. (56) , (57) Moreover, it is argued that
costs for executive time are not recoverable since they are “part of the normal costs for
running a business enterprise”. (58)
P 474
P 475
Notwithstanding the above, arbitral tribunals may exceptionally award costs for executive
time, if the circumstances so warrant. Amongst the circumstances that may exceptionally
warrant awarding costs for executive and internal personnel time are situations where: (a)
the judicial practice at the place of the arbitration allows parties to be compensated for
such costs in relation to litigation; (b) the parties' consent to the recoverability of such
costs; (c) the parties have been put on reasonable notice that such costs will be claimed,
are reasonably separable from the usual workplace time and are reasonably quantifiable.
In any event, the principle should remain that personnel's and executives' time form part
of the costs for running the business and so is not reimbursable, unless exceptional
overwhelming circumstances exist so as to warrant the recoverability of such cost as
discussed herein above.
Regarding the costs for in-house counsel, there is also no consensus on the recoverability
of such costs. (59) It seems that arbitral tribunals are more likely to allow the recovery of
costs for external counsel than internal counsel. (60)
Conversely, a number of notable practitioners are of the opinion that in-house counsel
costs should be recoverable. (61) In the same vein, the recovery of in-house counsel costs
has been, in principle, accepted in a number of cases. (62) More importantly, in an ICC
case, the arbitral tribunal held:
“‘There is no justification to privilege a party in terms of costs for the sole
reason that it retained outside rather than in-house counsel. (…) A party must
be free in allocating the work between outside counsel and its own services. A
P 475 party which decides to perform most of the preparatory work for the case by its
P 476 own legal and technical departments should not be placed at a
disadvantage compared to one which confers all work to outside counsel and
experts.’” (63)
This position has now gained increasing acceptance, both in scholarly writings (64) and in
practice. (65) However, even if the recovery of in-house counsel costs is allowed, further
challenges exist as to the recovery of such costs.

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 By contrast to external legal costs which could be easily identified and established, if
properly recorded, a party may encounter difficulties in terms of identifying and
evidencing in -house counsel costs, especially with respect to the nature of such costs, the
persons who incurred them and the type of work performed. (66) That said, a party which is
desirous to claim such costs must maintain a proper, reliable and independent record of
the work performed by its in-house counsel team in order to be able to claim and recover
such costs.
Similarly, the determination of the recoverable portion of such costs is by no means an
easy task. On one hand, it has been argued that the principle is that “the costs allowed
should not exceed the actual and direct costs suggests using the salary of the in-house
lawyer, plus arguably a general overhead, as the basis for the computation”. (67) On the
other hand, and in light of the complications arising out this computation, it has been
suggested that the costs that a party may recover for in-house counsel shall be equal to the
normal fees that an external lawyer would have been paid. (68) However, there is an
inherent difficulty in ascertaining what would constitute a normal fee, especially if the
party resorted to in-house expertise to save costs and expenses that it now seeks to claim
in the arbitration.
By and large, the recoverability of in-house counsel costs is far from settled and requires
due consideration of the facto-legal circumstances of each case and the applicable legal
norms at the place of arbitration and/or place of enforcement, if this matter raises issues
of overriding mandatory rules or public policy principles. Nevertheless, it is submitted
that the competing interests of saving costs by resorting to in-house expertise and non-
P 476 discrimination between external and in-house counsel when assessing costs must be
P 477 balanced on a case-by-case basis to discern whether it is sufficiently reasonable to claim
such costs or not.
e Case preparation costs including costs of mock arbitration(s)
It is increasingly becoming common to resort to innovative techniques to best prepare for
hearings and maximize the chances for prevailing in the arbitral proceedings. To that
extent, parties and counsel resort to the use of technology and innovative techniques when
prosecuting arbitral proceedings. This involves using technology and artificial intelligence
applications such as predictive coding technology, predictive justice, document
production and e-discovery software, as well as mock arbitration techniques.
Whilst it is difficult to provide an all-inclusive account of the diverse case preparation and
case prosecution applications and techniques and the possible costs associated therewith,
it is important to shed light on a specific type of costs: that is, costs pertaining to mock
arbitrations.
Mock arbitrations are arguably a useful tool to prepare for an arbitration case as they help
the parties to predict the opinion and reaction of actual arbitrators on the issues at stake.
(69) This mock exercise is rooted in US litigation tradition, but its use in arbitration “is
likely to grow significantly … as those in the arbitration community become more familiar
with the availability of these tools and their benefits”. (70)
Whilst the proliferated use of mock arbitration tools in mega disputes remains rooted
across the Atlantic in the United States, it is important to know whether a party may
recover the costs of mock arbitration from the losing party. In this regard, some scholars
are of the opinion that most tribunals would be reluctant to award costs for mock
arbitration. (71) This is because most likely these costs will not pass the reasonableness
test as a requisite for entitlement to recovery.
However, it may be argued that the costs that the successful party paid for mock
arbitration are reasonable if the losing party itself resorted to mock arbitration and would
have claimed same as part of its costs. (72) Nevertheless, in the case where the successful
party is the only party who used mock arbitration “and especially if it had deeper
pockets”, arbitrators will most likely refuse the recovery of the costs incurred in relation to
this mock arbitration. (73)
As the practice of recoverability of mock arbitration costs is not yet established, the
pertinent question is whether these costs are claimed in full transparency under a clear
and specific heading for costs, or whether they are claimed as part of case preparation
fees by counsel. In as much as such costs require careful consideration and review as to the
P 477 legality and reasonableness of claiming them, it is submitted that transparency
P 478 considerations militate against claiming such costs as part of counsel fees, without
expressly indicating that they pertain to mock arbitration. The author submits that the
only excused case where such costs could be claimed as part of counsel fees without
expressly referring to such costs as mock-arbitration- related is when counsel does not
resort to external support and/or does not outsource the process of mock arbitration.
f Third-party funding or arbitration finance costs
Third-party funding has rocked the world of international arbitration and the implications
of arbitration finance extend to all aspects of the arbitration process and costs are no
exception.
Whilst the issue of costs in the context of third-party funding arrangements, which are

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 newly branded in practice as ‘arbitration finance’ arrangements, are subject to a separate
contribution for a different author, it seems in order to briefly shed light on this facet of
party costs as a matter of principle.
Over the past few years, third-party funding or arbitration finance has emerged as a new
practice in international arbitration. It gained acceptance at an accelerated pace in
different jurisdictions, notably in England and in the United States. (74) Other jurisdictions
such as Australia, Hong Kong and Singapore, etc. followed. In a nutshell, third- party
funding or arbitration finance is “a financing method in which an entity that is not a party
to a particular dispute funds another party's legal fees or pays an order, award, or
judgment rendered against that party, or both”. (75)
The initial selling point for third- party funding arrangements was that they promote
access to justice by helping a party to present its claim(s) or defense(s). (76) Basically, a
third-party funding agreement offers a party that faces financial distress the necessary
funds to access justice. In other words, if a party cannot afford to present its claim or
defense because of its limited financial resources, it may resort to a third-party funding
agreement in order to overcome this financial status and be able to present its claim or
defense. (77)
However, theory and practice have shown that third -party funding and arbitration finance
are not limited to impecunious parties; they are frequently used by financially viable
parties in order to share the risk and maintain their liquidity. (78)
P 478
P 479
It is in this context that scholars have argued that the existence of a third-party funding
agreement may render the arbitral proceedings more expensive. (79) This is because
“defending against a funded claim will turn out more costly than defending against the
claim of a financially weak claimant that uses only internal resources”. (80) However, this
argument is practically refuted by the fact that third-party funders are normally keen on
conducting the arbitral proceedings in a cost-effective manner to ensure the best return on
their investment. (81)
On the specific issue of recoverability of the third-party funder's costs, the fact remains
that the costs had been paid by a third-party funder and this gives rise to the question of
whether the funded party may recover these costs. A losing party may argue that the
successful party is not entitled to recover the costs which have been paid by a third-party
funder and not directly by the funded party.
In reference to the arbitration rules in this regard, many arbitration provisions require that
the costs have been “incurred” (82) or “directly incurred” (83) by the party claiming them.
While, at first sight, these provisions seem to bar the recovery of the costs paid by a third-
party funder, the terms used in these provisions “are broad enough to encompass” the said
costs. (84)
Arbitral tribunals have set certain requirements in order to recover costs paid by a third-
party funder. (85) For instance, in the Supplier v. First distributor, Second distributor case
and the Price Waterhouse SARL and PW Conseil SARL v. Pricewaterhouse Coopers
International Limited case, the arbitral tribunals affirmed that, in order to recover the legal
costs incurred by a third-party funder, it is required that the funded party was
contractually engaged towards its counsel to pay these costs. (86)
Furthermore, in the Supplier v. First distributor, Second distributor case and the Quasar de
Valores v. the Russian Federation case, the arbitral tribunals affirmed that the funded party
should be legally bound to reimburse to the third-party funder the costs claimed. (87)
However, it may be argued that, according to the principle of privity of contractual
obligations, the relationship between the funded party and the third-party funder “should
P 479 not relieve the opposing party from its responsibility to pay costs”. (88) Nonetheless, “it
P 480 can be asked why the opposing party should still have to pay if the funder decided to
give the funded party a ‘total free ride’ in the arbitration”. (89)
Based on the foregoing, even if the above-mentioned decisions are not binding, “[t]he
preferable view is that an arbitral tribunal which decides to allocate costs based on the
outcome of the case should generally require that the prevailing (funded) party has at
least incurred a liability in return for the funding of these costs”. (90)
On this specific issue of recoverability, it has been argued that while the funded party may
recover the costs that have been paid by the funder, it is debatable whether it may
recover the costs payable to the third-party funder as compensation. Accordingly, a
distinction should be made between the “Actual Legal Expenses” and the “Funder's Return”.
(91)
At the outset, it is worth noting that this funder's return or compensation could take many
forms, “such as an additional hourly fee payable to counsel (conditional fee arrangements),
a return calculated as a percentage of the recovery payable to a litigation funder or
contingency fee lawyer, or a contingent insurance premium (after-the-event insurance)”.
(92)
While responding to the question of whether the funded party may recover the funder's
return, it should be noted that there are two interests at stake: the funded party has a

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 vested interest to recover the success fees payable to the funder according to the full
indemnity principle, and the duty of fairness requires to take into consideration the losing
party's interest to avoid bearing fees exceeding the reasonable legal costs. (93)
Accordingly, the majority of scholars are of the opinion that the funded party may not
recover the funder's return. (94) All the costs that the funded party is obliged to pay only in
case of success shall not be recoverable since “a party who knows that it need not pay
procedural costs if it loses should also not enjoy the benefit of recovering costs if it wins”.
(95)
It has also been argued that, in any event, the successful party shall not recover more or
less than the costs that have been reasonably incurred in preparing and presenting the
case. (96) In this context, it has been said that “[i]f the funder's success portion is deemed
recoverable, overcompensation would result”. (97)
P 480
P 481
g Costs for party-appointed witness(es) and experts, claims consultants and advisors
During the arbitral proceedings, the parties may incur fees and expenses of witnesses,
experts, consultants and advisors other than counsel. The parties may incur costs to secure
the testimony of fact witnesses, pay fees for experts, claim consultants and advisors to
help them prepare and present their case legally, technically and logistically.
In principle, a party that incurs such costs in preparing or presenting its case in arbitration
may recover them as long as they are reasonable. (98) In assessing the reasonableness of
such costs, arbitral tribunals are guided by the complexity of the case, the amount of
dispute, the parties' conduct and behavior, and the necessity of averting double recovery.
On the specific issue of averting double recovery, if a party seeks advice and assistance
about the strategy and conduct of the arbitral proceedings from individuals other than
counsel, this may be seen as an unreasonable cost “as doubling up with the role of counsel
and may lead overall to unreasonably high total fees”. (99)
h Costs of contemporaneous and related court proceedings
The parties may incur costs for ancillary and related court proceedings, “such as
applications for stays of proceedings, anti-suit injunctions, interim measures, assistance in
obtaining evidence or the like”. (100)
Technically speaking, the said costs are not arbitration costs per se; they are incurred in
separate proceedings beyond the four corners of the arbitration proceedings. As such, they
do not technically qualify as arbitration costs, but can arguably be claimed as damages if
the applicable law and the circumstances of the case so permit.
However, if the parties are in agreement to claim such costs or have both claimed them in
arbitration, the arbitral tribunal may, subject to ascertaining the reasonableness of such
costs, consider awarding them in whole or part if they have not been claimed in the
parallel, ancillary and/or related proceedings. Alternatively, the said costs may better be
claimed and recovered in the relevant court proceedings in which they were incurred. (101)
Ideally, the latter alternative would be the best and least problematic option.
i Costs incurred in vacatur and enforcement proceedings
The costs incurred in relation to the proceedings of challenging or enforcing the award are
not considered as arbitration costs in themselves. In fact, they are post-award costs that
arbitral tribunals cannot award. At that stage, the arbitral tribunal itself is functus officio
and accordingly has no jurisdiction to award any such costs, and the recovery of such costs
will be subject to the rules applicable to the vacatur or enforcement proceedings.
P 481 However, the question arises when the arbitral tribunal renders partial awards that have
P 482 been subjected to vacatur motions and/or enforcement proceedings whilst the
arbitration proceedings are still pending. It is in such case that the arbitral tribunal is not
functus officio, but such costs would be treated as costs of parallel, ancillary and related
proceedings as discussed above.
Having discussed the diverse categories of costs in international arbitration, we shall now
address the principles and practices governing the awarding of costs.

III Awarding Costs in International Arbitration: Principles and Practices

In order for an arbitral tribunal to allocate and award costs in international arbitration
cases, it should, in the first place, determine the law(s) governing the awarding of costs and
the arbitral tribunal's authority to so award (1). Following this, it is important to consider
and identify the standards according to which the arbitral tribunal will allocate and award
costs (2). Nonetheless, in practice, the arbitral tribunals rarely discuss questions of the law
applicable to the awarding of costs; instead they prefer to apply general principles (3).
Also, civil and common law approaches to costs do not offer useful guidance for the
arbitral tribunals (4).

1 Applicable Law to the Awarding of Costs

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 In order to determine the applicable law to the awarding of costs, a preliminary question
should be answered. This question consists of determining whether the awarding of costs is
a procedural or substantive matter (i). The answer to this question reveals that a
distinction should be made between the tribunal's power to award costs (ii) and the
standards applicable for awarding costs (iii). Additionally, arbitral tribunals should take
into consideration the laws that may affect the validity or enforceability of costs award(s)
(iv).
a The characterization of awarding costs: Procedure or substance?
At first sight, awarding costs may come across as a procedural matter. However, the
question of characterization of awarding costs is controversial. Some tribunals and authors
consider that, in determining whether the awarding of costs is a procedural or substantive
matter, a distinction should be made between the question of the tribunal's power to
award costs (i) and the question of the standards for awarding costs (ii).
i The tribunal's power to award costs
The first matter that an arbitral tribunal should consider is whether it enjoys the power to
render an award on costs. This question of the tribunal's power to award costs is commonly
P 482 considered as a procedural matter. (102) This assertion is almost uncontroversial since it is
P 483 in line with the position followed in regard to the characterization of other powers
granted to arbitral tribunals. For instance, the tribunal's powers to grant interim relief and
to order document production are procedural matters. (103)
ii The standards for awarding costs
Once the arbitral tribunal concludes that it has the power to award costs, it should
determine the standards according to which it will award such costs. In this regard, it may
be argued that the awarding of costs is a matter which is more closely connected to
substantive issues on the ground that the costs incurred in order to prepare and present a
claim or a defense are more connected to this claim or defense than to the process of
resolving the dispute. (104) The substantive nature of the said issue is similar to the
damages approach adopted under substantive laws which consists of compensating an
aggrieved party. (105)
b The law governing the tribunal's power to award costs
Given that there is little doubt that the question of the tribunal's power to award costs is a
procedural matter, the applicable law to this issue is the procedural law. (106) Accordingly,
the first source that could grant to the arbitral tribunal the power to award costs in
international arbitration is the lex loci arbitri.
Whilst many national laws include provisions regarding the tribunal's power to award
costs, there exist jurisdictions whose arbitration laws do not regulate this issue. If so,
arbitral tribunals will need to resort to others sources, notably the arbitration agreement
and the applicable institutional arbitration rules, in order to rule on its jurisdiction and
power to award costs in an arbitration case.
c The law governing the standards for awarding costs
Having established that the awarding of costs incurred in the process of preparing and
P 483 presenting a claim or a defense should be governed by the applicable law to the said
P 484 claim or defense, (107) being arguably best placed to guide an arbitral tribunal in
determining the allocation of those costs, (108) others have argued that the law governing
the standards for awarding costs is the lex loci arbitri. (109)
It is this controversy over what law governs the standards for awarding costs that has
motivated other scholars to argue that it is better to award costs in international
arbitration according to international standards and not national laws. (110) The rationale
for this suggestion is that international standards established by arbitral tribunals would
be more adapted to international disputes than the rules enshrined in national laws. (111)
This suggestion is in line with the approach adopted by the majority of arbitration rules
since, indeed, these rules usually provide general principles as guidance for the awarding
of costs but at the same time they allow the tribunal to depart from these general
principles depending on the circumstances of each particular case and its applicable
norms. (112) In practice, arbitral tribunals rarely discuss the issue of the applicable law,
and prefer to follow the general principles in awarding costs, unless a clear case on other
applicable national norms is pleaded and substantiated.
d Laws potentially affecting the validity or enforcement of awards on costs
In awarding costs, arbitral tribunals should consider the laws that could affect the validity
or enforceability of their decisions on costs. (113) These are either the lex loci arbitri or the
lex loci executionis. Arbitral tribunals should be mindful of any overriding mandatory laws
or public policy principles prevailing in these jurisdictions. (114)

2 Tribunal's Jurisdiction and Powers over Costs and Determination of

Recoverable Costs

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 The arbitral tribunal should determine whether or not it has the power to award costs (i)
and how it should exercise this power (ii). In doing so, the arbitral tribunal should be
careful in the event that it lacks jurisdiction to decide on the merits since, in this case, its
power is controversial (iii). It should also take into consideration the obstacles which could
limit its power (iv).
P 484
P 485
a Tribunal's power to award costs
As detailed herein above, and absent an express and valid agreement by the parties, the
first source of the tribunal's power to award costs is the procedural law, i.e. lex loci arbitri.
(115) Some of these national laws explicitly provide that the arbitral tribunal has the power
to award costs and others are silent on the issue but they are commonly considered as
impliedly empowering the arbitral tribunal to award costs. For instance, Sect. 61 of English
Arbitration Act, Sect. 1057 of the German Code of Civil Procedure, Art. 27(1) of Australia's
International Arbitration Act 1974 and Sect. 609 of Austria's Arbitration Act explicitly
empower the arbitral tribunal to award costs, subject to any contrary arbitration
agreement. (116) However, the laws of France and Switzerland, for example, are silent on
the issue of awarding costs but it is well established that in these jurisdictions the arbitral
tribunal has the power to award costs. (117) The United States Federal Arbitral Act is also
silent on the issue, but it is controversial whether or not it allows the awarding of costs. In
this context, a number of state laws in the United States provide that arbitral tribunals
may only award the costs of the arbitration but the legal costs should be borne by each
party. (118) However, a number of US courts have held that the arbitral tribunal has the
power to award costs. (119)
Apart from the lex loci arbitri, the tribunal's power to award costs may derive from an
arbitration agreement that explicitly empowers the arbitral tribunal to allocate costs or
refers to institutional arbitration rules which provide that the arbitral tribunal has the
power to allocate costs. (120) In fact, most institutional arbitration rules empower the
arbitral tribunals to allocate costs. (121) For instance, there are Art. 38 of the 2017 ICC
Arbitration Rules, Art. 42 of the 2013 Arbitration Rules of the United Nations Commission on
International Trade Law (UNCITRAL), Art. 40(1)-(2) of the 2012 Swiss Arbitration Rules, Art.
28.3 of the 2014 London Court of International Arbitration (LCIA) Rules, Art. 42 of 2011 Cairo
Regional Centre for International Commercial Arbitration (CRCICA) Rules and others. (122)
P 485 If the lex loci arbitri, the arbitration agreement and any applicable institutional arbitration
P 486 rules are silent on the awarding of costs, some scholars have argued for an inherent and
implied power to award costs by arbitral tribunals, and that such inherent and implied
power is derived from the general power to decide the dispute. (123)
b The tribunal's controversial jurisdiction to award costs without jurisdiction to rule on
the merits
The arbitral tribunal's power to award costs incurred in preparing and presenting a claim
over which the tribunal held that it lacks jurisdiction is controversial. (124) If the arbitral
tribunal concluded that there is no valid arbitration agreement concluded between the
parties on a given claim, it is questionable whether it could award costs related to this
claim, absent any legal basis to do so. (125)
In this context, it is submitted that a provision in the lex loci arbitri or the applicable
institutional rules empowering the arbitral tribunal to award costs is sufficient to grant the
arbitral tribunal the power to allocate costs incurred for a claim over which it lacks
jurisdiction. (126) Despite the controversy over this issue, arbitral tribunals have usually
awarded costs against a claimant who loses on jurisdiction. (127)
c Determining and awarding recoverable costs: the reasonableness criterion
In regard to the exercise of the tribunal's power to award costs, most national laws and
arbitration rules grant to the arbitral tribunal “the widest” (128) and “unfettered” (129)
discretion. As a result, in practice, the arbitral tribunals follow general principles in
awarding costs.
On the issue of recoverable costs, this has been detailed herein above when analyzing the
categories of costs and the criteria determining the recoverability of them. It is worth
noting that certain types of costs can be recoverable according to costs schedules
established by the institutional arbitration rules in institutional arbitration and the rules
determined by the parties in ad hoc arbitration. (130)
P 486
P 487
In practice, arbitral tribunals usually asses the reasonableness of the claimed costs. (131)
Most arbitral tribunals, in assessing the reasonableness of costs claimed, adopt a broad
approach which is similar to the approach proposed in a case before the Iran-United
States Claims Tribunal. (132) The suggested approach involves answering four questions: (1)
“were costs claimed in the arbitration?”; (2) “was it necessary to employ lawyers in the case
in question?”; (3) “is the amount of the costs reasonable?”; and (4) “are the circumstances of
the particular case such as to make it reasonable to apportion such costs?”. (133)
In this context, it is worth noting that the test of reasonableness is not “an invitation to

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 mere subjectivity”, (134) but is undertaken “from an objective viewpoint”. (135) Typically, in
applying this test, arbitral tribunals take into account the time spent as well as the
complexity of the case. Accordingly, the time that needs to be spent in order to prepare
and present a claim “can be measured by the number of issues involved in a case and the
amount of evidence requiring analysis and presentation”. (136)
More importantly, in assessing the reasonableness, the reasoning of the arbitral tribunal
should be based on an important fact that the party that incurred the costs claimed
agreed to pay these costs without knowing whether or not it will be reimbursed for these
costs. This fact “is a strong indication that the amount billed was considered reasonable by
a reasonable man spending his own money, or the money of the corporation he serves”.
(137)
d Limitations on tribunal's power over costs and determination of recoverable costs
Even if the arbitral tribunal is granted a discretionary power to award costs under the lex
loci arbitri, arbitration agreement, or arbitration rules, this power is not absolute. It can be
limited or restrained by certain overriding mandatory rules or principles of public policy
under the lex loci arbitri or the lex loci executionis. For instance, under Sect. 60 of the
English Arbitration Act 1996, an arbitral tribunal in awarding costs shall not follow an
agreement concluded between the parties on the apportionment of costs before the
dispute has arisen. (138)
Similarly, a court in the Philippines denied the enforcement of a cost award on the ground
P 487 that the arbitral tribunal in upholding the “costs follow the event” principle “gravely
P 488 abused its discretion” since “[i]t is a well-settled public policy of the Philippines that, in
the absence of bad faith, a litigant cannot be penalized for the exercise of his right to
litigate”. (139) Nonetheless, a number of court decisions in other jurisdictions have
adopted a more liberal approach and have been reluctant to set aside or refuse to enforce
an award on the basis of a public policy principle. (140)

3 Principles Governing the Awarding of Costs in International Arbitration

The practice in international arbitration reveals that arbitral tribunals apply one of two
main principles in allocating and awarding costs: (i) the “costs follow the event”/the “loser
pays” principle, and (ii) “each party bears its costs” principle (the so-called “American
rule”). (141)
a The “costs follow the event”/“loser pays” principle and its variants
At the outset, the gist of the said principle shall be addressed (i), and then its general
application in international commercial arbitration will be considered (ii), before
considering its emerging application in international investment arbitration (iii).
i Overview of the “costs follow the event/loser pays principle”
The “costs follow the event” principle, sometimes referred to as the “loser pays” principle,
provides that the losing party shall bear, in addition to its own costs, the costs incurred by
the successful party in the arbitral proceedings. (142)
In application of the said principle, arbitral tribunals have followed different approaches.
In some cases, arbitral tribunals have adopted a “winner takes all” approach”. (143)
According to this approach, the losing party shall be ordered to bear all the costs incurred
in the arbitral proceedings. However, in the majority of cases, arbitral tribunals adopted a
more varied approach, where the allocation of costs is based on the relative successes and
failures of the claims and defenses pursued by each party as well as the conduct of the
P 488 parties during the arbitral proceedings. In doing so, arbitral tribunals adopt the “costs
P 489 follow the event” as the starting point and then adjust the principle while taking into
account the circumstances of each particular case.
It is worth noting that such principle and its variants discourage arbitration users from
raising frivolous claims since the losing party would bear the significant cost-related
ramifications of its losses. (144) Accordingly, the application of the “costs follow the event”
principle will help ensure that the arbitral proceedings are conducted in an expeditious
and cost-efficient manner.
However, the said principle has been criticized by some authors and practitioners, (145) on
the premise that
“[a]rbitrators may consider it too draconian to impose the burden of an
opponent's attorney fees on a losing party, and thereby create a system that
could chill the assertion of claims unreasonably, without evidence of additional
culpability in a particular case. Some claims are deservedly brought, even if
they are largely unsuccessful for sound factual or legal reasons that emerge
after an airing by adversarial process.” (146)
Others have suggested that the risk that a party with a complex case bears all or the
substantial part of costs could be avoided by taking into consideration the complexity of
issues and facts while awarding costs according to the “costs follow the event” principle.
(147)

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 ii The “costs follow the event/loser pays” principle is the general principle in international
commercial arbitration
The “costs follow the event” principle is widely considered as the general principle
followed by arbitral tribunals in international commercial arbitration. This fact was
confirmed by several arbitral decisions which held that the losing party shall bear the
costs in international arbitration “according to general principles” (148) or “[i]n accordance
with basic procedural principles”. (149)
In the same vein, several authors have clearly affirmed that the said principle is the
“emerging trend” (150) and the “most common approach” (151) followed by arbitral
tribunals in international commercial arbitration.
P 489
P 490
Furthermore, some arbitration laws (152) and several institutional arbitration rules (153)
provide that arbitral tribunals shall in principle adopt the “costs follow the event”
principle in awarding costs and accordingly shall order the losing party to bear all or the
substantial part of arbitration costs and legal costs.
The ICC Commission Report regarding Decisions on Costs in International Arbitration
affirms that “[d]espite the fact that the ICC and at least half of the other major institutional
rules contain no presumption in favour of the recovery of costs by the successful party, it
appears that the majority of arbitral tribunals broadly adopt that approach as a starting
point, thereafter adjusting the allocation of costs as considered appropriate”. (154) The
Report adds that in the majority of ICC, Hong Kong International Arbitration Centre (HKIAC),
International Centre for Dispute Resolution (ICDR), Singapore International Arbitration
Centre (SIAC), and Stockholm Chamber of Commerce (SCC) awards (institutions with rules
that do not explicitly provide that the costs shall be borne by the losing party), arbitral
tribunals have adopted the “costs follow the event” principle. (155)
In light of the foregoing, it is well established that arbitral tribunals in awarding costs in
international commercial arbitration generally adopt the “costs follow the event/loser
pays” principle with some adjustments in order to take into consideration the
circumstances of each particular case.
iii The “costs follow the event/loser pays” principle as the emerging principle in
international investment arbitration
At the outset, it is worth noting that the principle trending in regard to the awarding of
costs in international investment arbitration differs from the one trending in international
commercial arbitration. More specifically, contrary to the case of international
commercial arbitration, arbitral tribunals in investment arbitration proceedings have
generally followed the “each party bears its costs” principle. However, in recent years, the
“costs follow the event” principle has been adopted by a significant number of arbitration
tribunals in investment cases. (156)
P 490
P 491
That said, scholars have affirmed that “ICSID tribunals and commentators alike have
observed that the loser-pays principle is gaining currency”. (157) For instance, in Telenor
Mobile Communications AS v. Republic of Hungary, the arbitral tribunal adopted the “costs
follow the event” principle and ordered the claimant to reimburse to respondent its
contributions to the costs of the arbitration and legal costs. (158) In addition, in the ADC
Affiliate Limited v. Hungary case, the arbitral tribunal ordered respondent to reimburse to
the successful claimant the sum of US$ 7,623,693 to cover the claimant's costs and
expenses in this arbitration. (159) In doing so, the arbitral tribunal clearly stated that “[i]n
the present case, the Tribunal can find no reason to depart from the starting point that the
successful party should receive reimbursement from the unsuccessful party”. The
interesting thing about this decision is that the arbitral tribunal considered the “costs
follow the event” principle as the starting point in awarding costs, which “exemplifies the
‘growing application to investment arbitration’ of ‘costs follow the event’”. (160) This was
further affirmed in many other cases, where arbitral tribunals have upheld the “costs
follow the event” principle. (161)
It is worth noting in this regard that when the arbitral tribunals order the unsuccessful
party to bear costs in investment arbitration cases, “they do not tend to do so on an all-or-
nothing basis”. (162) Instead, they usually take into consideration the circumstances of
each particular case, including “(i) the degree or extent of a party's success, (ii) the novelty
and complexity of the issues raised by the party, and (iii) the conduct of the parties during
the proceedings”. (163)
Notwithstanding the above, it is difficult to identify a general and uniform principle
P 491 regarding the awarding of costs in investment arbitration. (164) In the Waste Management,
P 492 Inc. v. United Mexican States case, the arbitral tribunal asserted that “[t]here is no rule
in international arbitration that costs follow the event. Equally, however, the Tribunal does
not accept that there is any practice in investment arbitration (as there may be, at least
de facto, in the International Court and in interstate arbitration) that each party should
pay its own costs.” (165)
Interestingly, the 2018 proposed amendments of the Arbitration Rules of the International

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 Centre for Settlement of Investment Disputes (ICSID) include a new provision (Rule 19)
requiring the arbitral tribunals to take into consideration, while allocating costs, all the
relevant circumstances, in particular the following four specific factors: (i) the outcome of
any part of the proceeding or overall; (ii) the parties' conduct during the proceeding,
including the extent to which they acted in an expeditious and cost-effective manner; (iii)
the complexity of the issues; and (iv) the reasonableness of the costs claimed. (166) It is
submitted that the introduction of this provision to the ICSID Rules will likely make the
“costs follow the event/loser pays” principle the default rule in ICSID arbitrations.
b The “each party bears its costs” principle/the American rule
As is the case with the principle of “loser pays”, we shall commence by shedding light on
the nature of this principle (i). Subsequently, the commonality of the said principle in
international commercial arbitration will be considered (ii), before considering its stature
in international investment arbitration (iii).
i An overview of the “each party bears its costs” principle/the American rule
The principle that “each party bears its costs” in arbitral proceedings is also referred to as
the American rule given its prevailing application in US-based arbitration proceedings.
The purpose of this American rule is to safeguard the parties' right to access justice and
avert being deterred from raising claims or defenses owing to the risk of bearing the costs
of the adverse party in the event of losing the case. (167)
Moreover, it has been argued that the application of the American rule will reduce the
costs and time spent in arbitral proceedings, since the parties will be exempted from
substantiating costs-related claims and the arbitrators will not be required to identify the
winning party or ascertain the recoverable costs in content and quantum. (168)
P 492
P 493
ii The non-prevalence of the American rule in international commercial arbitration
As previously mentioned, in international commercial arbitration, arbitral tribunals
commonly adopt the “costs follow the event” principle and its adjusted variants. The alter
ego of such practice is the marginalization of the American rule in international
commercial arbitration cases. (169) Even in proceedings seated in the United States, where
the principle of “each party bears its costs” prevails, it is not uncommon that international
arbitral tribunals allocate costs based on the “costs follow the event” principle pursuant to
the arbitration agreement or arbitration rules agreed upon by the parties. (170) That is due
to the fact that a significant number of arbitration rules permit the allocation of costs
based on the “costs follow the event” principle.
This practice emphasizes the fact that “this approach [the American rule] is probably
considered as contrary to the preference of parties in most contemporary international
commercial arbitrations”. (171)
iii The prevalence of the American rule in international investment arbitration
In contrast to commercial arbitration cases, arbitral tribunals in investment arbitration
have long adopted the “each party bears its costs” principle in allocating costs. This
distinction between the practice prevailing in commercial arbitration and that which
prevails in investment arbitration was expressly underlined by an ICSID decision stating
that: “[t]he Tribunal notes that in reference to the allocation of costs, the practice of ICSID
investment arbitration differs from commercial arbitration, which tends to award costs to
the successful party. Most ICSID tribunals have determined that each party should bear its
own costs.” (172) Similarly, in Bayview Irrigation District et al. v. The United Mexican States,
the arbitral tribunal affirmed that the practice of ordering the parties to pay equally the
costs of the arbitration and to bear its own legal costs is the “normal practice”. (173)
The fact that “each party bears its costs” is the prevailing principle in investment
arbitration is not normally deviated from, unless such deviation was justified by special or
P 493 exceptional circumstances, notably a party's frivolous or bad faith conduct. (174)
P 494 Nonetheless, in recent years, a decline in the American rule could be traced in
investment arbitration. Indeed, “[i]n cases before 2006, some 65% of investment tribunals
declined to adjust costs. Since 2006, however, that figure has declined to 51%, as the ‘loser
pays’ and ‘relative success’ approaches have gained traction.” (175)

4 Civil-Common Law Approaches to Costs: ‘No One Size Fits All’

As detailed herein above, the principles governing costs in international arbitration were
generally developed and applied by arbitral tribunals, which are composed of members of
diverse legal cultures and systems.
Whilst the world's legal systems are not reduced to civil and common law and there is
indeed a broader array of systems, the debate on costs was further considered in the
context of the civil-common law dichotomy, noting that the approaches followed by
national courts in relation to awarding costs do not constitute “an appropriate guide” for
the standards that arbitral tribunals should uphold and endorse when allocating and
awarding costs. (176)

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 At the outset, awarding costs in civil and common law systems is governed by “the most
general principles”. (177) More specifically, many civil and common law systems adopt the
“costs follow the event/losers pays” approach. (178) The notable exception to this general
trend is the United States which generally follows the American rule, which seems to have
gained endorsement in a few other countries, notably: Japan, Indonesia, China and the
Philippines. (179) It is also not uncommon in some Arab countries in the MENA region that
arbitrators would be inclined not to award legal costs to the prevailing party, especially
given that the filing of costs submissions is not fully developed or practiced.
In any event, it is submitted that the debate over costs and the polarized approaches to
the “costs follow the event/losers pays” and “each party bears its own costs/American rule”
principles are not a function a civil-common law divide. Practice has shown that arbitral
tribunals tend to take into consideration the circumstances and peculiarities of each case
to mitigate the sharp application of both principles.
Accordingly, arbitral tribunals sitting in jurisdictions generally upholding the “costs follow
the event” principle have not hesitated to deviate from the full application of the said
P 494 principle in certain cases, hence denying the successful party recovery of all or part of its
P 495 costs. Amongst those cases are: situations where the successful party's conduct caused
delay to the arbitral proceedings; (180) cases where the party's success was minimal
compared to the overall claims; (181) cases where the losing party was cooperative and
efficient in presenting its case; and cases where the successful party's costs claim was
unreasonably excessive or exaggerated.
Similarly, arbitral tribunals sitting in jurisdictions generally upholding the “each party
bears its costs” principle have not hesitated to deviate from the full application of the said
principle in certain cases, where full or partial recovery of the costs of the winning party
was warranted in light of the specificities and circumstances of the particular case. (182)
Amongst those cases are: situations where the losing party's conduct was unreasonable,
uncooperative, and this caused the winning party to incur further costs; cases where the
party's success was manifest and colossal; and cases where both parties unequivocally
claimed full recovery of costs and the successful party's costs claim was reasonable,
warranted and substantiated.
On such account, it is submitted that there is no specific model or a sweeping golden
standard that governs awarding costs in civil and common law jurisdictions. The
overarching principle, absent any specific legal rule or an agreement to the contrary, is
that no one size fits all, and that allocating and recovering costs are considered on a case-
by-case basis, in due consideration of whether the underlying principle is the “costs follow
the event/losers pays” or “each party bears its own costs/American rule”.

5 Claiming, Awarding, Challenging and Enforcing Costs Awards

Cost-related claims should generally be treated as any other claim in international
arbitration, and so arbitral tribunals usually invite the parties to submit their claims and
defenses in regard to costs. However, in general, no lengthy submissions on costs are
required or expected, and “summary statements of the costs billed by and paid to legal
representatives are ordinarily sufficient” except in some cases the tribunal may require
extensive submission and evidence. (183)
Thus, there is no specific form or format for costs submissions in international arbitration
apart from the fact that arbitral tribunals should grant to the parties the opportunity to
present their cost claims or contest the adverse cost claims. (184) Some parties “just
submit a total figure followed by a short breakdown of the different cost items” and other
parties “submit copies of all invoices and bills”. (185)
P 495
P 496
Following the submission of their succinct, yet substantiated, claims and defenses as to
costs, the arbitral tribunal will need to consider and rule on the basis of allocating and
awarding costs-related claims. In so considering, the arbitral tribunal can either render
awards on costs as partial or interim awards, (186) depending on the circumstances, or
include its decision on costs in the final award.
Once a final award is rendered, the arbitral tribunal becomes functus officio, (187) yet
arbitral tribunals can also deal with issues of costs in an additional award subsequent to
the final award, (188) if the circumstances so warrant and if the applicable arbitration
rules or laws so permit.
In any event, a decision on costs ordering a party to pay the other party's costs constitutes
an award under national arbitration laws, the 1958 New York Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, and the UNCITRAL Model Law on International
Commercial Arbitration. (189)
Such decision is, therefore, treated as any award in terms of annulment, recognition and
enforcement. (190) Accordingly, the decision on costs may be annulled or denied
enforcement if it violates the principles of public policy of the lex loci arbitri or the lex loci
excutionis respectively.
However, institutional or arbitral tribunal's decisions on the advance on costs regarding
the fees and expenses that the parties should pay to the arbitral tribunal and the arbitral

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 institution do not constitute an award as such, (191) since such decisions do not rule on a
claim between the parties, but resolve a procedural issue between the parties and the
arbitrators or the arbitral institution. (192) It is the decision allocating costs and enabling
recovery of same from either party which qualifies as an award that would normally have a
res judicata effect, unless it is an interim award, which the arbitral tribunal may reconsider
or revisit throughout the proceedings.

IV Regional Specificities and Costs

In as much as a global overview of costs and the analysis of the governing principles are
important, it is submitted that national and regional perspectives on costs may prove
useful to analyze whether the prevailing international principles uniformly or
harmoniously apply across jurisdictions or whether certain regional or national anomalies
or variances exist with respect to allocation and recoverability of costs.
P 496 That said, this section intends to succinctly test the view that rules and principles
P 497 applicable to the “allocation of costs” may vary from a jurisdiction to another (1), before
considering the magnitude of variation with respect to certain issues pertinent to
“recoverable costs” (2).

1 Regional Specificities on Allocation of Costs

As mentioned herein above, most legal systems generally allocate costs according to the
general principle that the loser pays, subject to any needed adjustments based on law,
agreement and factual circumstances. According to a global survey on costs in national
courts undertaken by the leading firm Hogan Lovells (formerly Lovells), forty-nine of the
fifty-six surveyed jurisdictions, representing 87.5 percent, adopt the “loser pays” principle
in litigation. (193)
As expected, the notable exception to this trend is the United States where the general
rule is that each party shall bear its own legal costs. In addition, the survey demonstrated
that in Japan counsel's fees are not recoverable in any event, (194) and in Taiwan, counsel's
fees are not recoverable unless counsel has been appointed by the court. (195)
In Europe, the “costs follow the event/loser pays” principle is generally recognized and
considered the prevailing applicable practice to the allocation of costs. (196) For instance,
this is the case in Austria, (197) Denmark, (198) England, (199) Finland, (200) France, (201)
Germany, (202) Greece, (203) Italy, (204) the Netherlands, (205) Portugal, (206) the Russian
Federation, (207) Spain (208) and Switzerland. (209)
P 497 In contrast, in the United States, whilst national courts generally hold that each party shall
P 498 bear its legal costs, (210) US courts have held that arbitral tribunals have discretion to
award and allocate costs, (211) which is demonstrative of US courts' disinclination to treat
the American rule as an overriding policy principle.
With respect to the MENA region, the majority of legal systems apply the “costs follow the
event/loser pays” principle in allocating costs. For instance, in Algeria, (212) Egypt, (213)
Qatar, (214) Tunisia (215) and Turkey (216) the prevailing practice is that courts and arbitral
tribunals award costs according to the “costs follow the event/loser pays” principle subject
to variations in the quantum of the costs awarded.
In contrast, in Saudi Arabia, the prevailing practice seems to be that the legal costs are
shared equally by the parties. (217) However, this practice is expected to change given that
Art. 42(2) of the Arbitration Regulations requires that the arbitral award states, inter alia,
the arbitration costs and how costs should be apportioned between the parties. (218)
More interestingly, whilst the prevailing practice in the United Arab Emirates (UAE) is that
“costs follow the event/loser pays”, the practice regarding the implementation of the said
principle merits a mention. This practice largely depends on whether the arbitration is
strictly seated in the so-called “onshore” UAE, is governed by the UAE Federal Code of Civil
Procedure (1992) and whether the proceedings involve domestic or international parties, or
whether the arbitration takes place in one of the UAE's free zones benefiting from a
distinct arbitration regime as is the case of the Dubai International Financial Centre (DIFC)
and the Abu Dhabi Global Market (ADGM). (219)
Whilst in non-DIFC and non-ADGM arbitrations, arbitral tribunals are still able to allocate
and award costs, the practice is that the parties may need to agree on the arbitral
tribunal's authority to award costs, including specifically legal costs. In contrast, in DIFC
and ADGM arbitrations, arbitral tribunals, operating under a specific arbitration regime,
have more discretion and authority in allocating and awarding costs including legal costs
without need for a specific agreement to that effect.
Similarly, in Australia (220) as well as a significant number of Asian and African countries,
the “costs follow the event/loser pays” principle is the prevailing approach in a significant
number of jurisdictions, such as Hong Kong, (221) Kenya, (222) Malaysia, (223) Nigeria, (224)
Pakistan (225) and Singapore. (226) However, as previously mentioned, the American rule
found support in some jurisdictions in Asia, mainly in China, Indonesia and Japan.
P 498
P 499
In Latin America, the prevailing practice is somewhat divided and less clear. In Argentina,

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 (227) Mexico, (228) Peru, (229) Colombia (230) and Costa Rica, (231) courts and arbitral
tribunals normally apply the “costs follow the event/loser pays” principle when allocating
costs. In addition, although the general rule in Chile is that the party who loses on all the
points shall be ordered to bear all the costs, courts and arbitral tribunals, in practice, are
reluctant to make such an order. (232) Furthermore, in Brazil, arbitral tribunals normally
order each party to bear its own legal costs but share the costs for the administration of
the arbitral proceedings. (233)
In this regard, it is worth reiterating, in virtually all the jurisdictions mentioned above
which apply the “costs follow the event/loser pays” principle in allocating costs, courts and
arbitral tribunals are allowed to depart from this general principle when the
circumstances of a given case so warrant. Thus, in effect, such principle serves as a default
presumption that can be displaced or adapted as necessary in light of the factual matrix
of the case or as agreed between the parties before or after the commencement of the
proceedings.
In specific reference to the parties' agreement on the allocation of costs, it may stipulate
that a party will bear all the costs irrespective of the outcome of the dispute. If so, such
agreements will generally be upheld and enforced in most jurisdictions, such as Algeria,
Austria, Bahrain, British Columbia, Egypt, Finland, Germany, Ghana, Ireland, Italy, Jordan,
Lebanon, Mexico, Morocco, the Netherlands, New Zealand, Oman, Qatar, Quebec, Russia,
Saudi Arabia, Senegal, Spain, Sweden, Tunisia, the United Arab Emirates and the United
States. (234)
In contrast, in the United Kingdom, the enforceability of prior agreements binding a party
to bear the costs in any and all cases is questionable. However, subsequent agreements,
concluded after a dispute has arisen, raise no issue. (235) In Switzerland, the parties'
conclusion of an agreement on costs will not bar the court's discretion in awarding costs.
(236) In France, whilst it is permissible, in domestic proceedings, for the parties to agree on
allocating counsel's fees, an agreement regarding the allocation of court costs is null and
void. (237) However, in arbitration, all types of agreements would generally be upheld in
France. (238)
P 499
P 500
2 Regional Specificities Regarding Recoverable Costs
With respect to recoverability of costs, there remain certain differences between
jurisdictions and the ICC Commission's Report regarding Decisions on Costs in International
Arbitration (the Report) illustrates the differences between jurisdictions on costs-related
arrangements as well as third-party funding agreements and the recoverability of costs in
the presence of such agreements. (239)
This Report affirms that the fee/costs-related agreements are generally permitted in most
jurisdictions, such as Austria, Brazil, British Columbia, Egypt, France, Kuwait, Lebanon,
Ontario, Poland, Mexico, Saudi Arabia, the United Arab Emirates and the United States.
(240)
However, in others jurisdictions, namely Argentina, British Colombia, Finland, Ghana, New
Zealand, Nigeria, Senegal, Spain, Sweden and Tunisia, the fee arrangements are permitted
under certain requirements, such as being reasonable and complying with the rules of
professional conduct. (241)
On the specific issue of contingency fee agreements, this is quite controversial. Such
agreements are considered null and void in Austria, Bahrain, Iraq, Ireland, Morocco, Oman
and Qatar. They are also prohibited in French domestic proceedings but permitted in
international arbitration. In Germany, such agreements are generally prohibited, but the
German Federal Constitutional Court held that the prohibition of such agreements is
unconstitutional since it restricts party autonomy and counsel freedom. (242) Nonetheless,
contingency fee agreements remain uncommon in arbitration and litigation in Germany. In
Russia, the regulation of the contingency fee agreements is also unclear. Although the
courts have long refused to enforce contingency fee arrangements, in recent years, they
“have become more open to enforcing” said agreements, and arbitral tribunals also allow
contingency fees as long as they are reasonable. (243) In contrast, in Argentina and Poland,
contingency fee agreements are not taken into account in the calculation of the costs of
the arbitration. (244)
As to third-party funding agreements, their impact on the recoverability of costs also
varies from one jurisdiction to another due to the jurisdictional perception of third-party
funding arrangements. In Argentina, Austria, Ghana, Germany, Ireland, and the United
Kingdom, third-party funding agreements do not seem to affect the recoverability of legal
costs in court proceedings. Conversely, the costs of third-party funding are not recoverable
in Brazil, Finland, Nigeria, Singapore and Sweden. (245)
In the MENA region, the validity of third-party arrangements and recoverability of the
third-party-funding-related costs are unclear because such agreements are not yet that
P 500 common in the region and third-party funders have not yet established notable existence
P 501 within local markets, especially in the Arab world. This may be due to the skepticism
over the validity and/or enforceability of third-party funding arrangements in local
markets within some of those jurisdictions.

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 However, it is submitted that absent any legal constraint on the validity and/or
enforceability of third-party funding arrangements, courts and arbitral tribunals would
have no ground not to uphold such arrangements. Nevertheless, on the specific issue of
recoverability of third-party funding costs, arbitral tribunals and courts would need to
consider the specificities and peculiarities of the applicable legal system, taking into
consideration the parties' legitimate expectations, the reasonableness of such costs and
the factual circumstances of each case. Whilst this does not offer much certainty or
predictability, this would be the status quo until such jurisdictions enact regulatory rules
that govern all pertinent aspects of third-party funding or arbitration finance.

V Epilogue: Towards Predictability and Certainty

Costs are at the forefront of hot topics in international arbitration. They represent a major
concern of law, justice and procedure to all those involved in arbitral proceedings,
notably: parties, counsel, arbitrators, arbitral institutions and more recently financiers of
arbitral proceedings. The law and economics of cost-related issues remain challenging and
problematic amidst the reality of prohibitively high costs and the sea of uncertain
practices as to costs in terms of allocation and recoverability.
In addition to the fact that costs are high, the awarding of same remains eventfully
unpredictable, owing to the broad discretion granted to arbitral tribunals in this regard. It
has been said that matters of costs are left to “the widest discretion of arbitrators”, (246)
where arbitral tribunals exercise “‘their discretionary power’ [to award] costs in a diverse
and sometimes highly inconsistent manner' which amounts to ‘arbitral free styling,
devising a formula to apportion costs without relying on any traditional approach’”. (247)
Amidst such convoluted realism, the common denominators underlying all the issues of
costs in international arbitration, are: (i) the absence of sufficient predictability on
microcosmic practices as to costs; (ii) the insufficient attention given to issues of costs by
the parties and the arbitral tribunals at the last mile of the proceedings, especially with
respect to the characterization of cost issues as matters of procedure or substance, the law
that shall govern the awarding of costs and the standards according to which the arbitral
tribunals award costs; (248) and (iii) the scarcity of legal studies and comparative analyses
P 501 on cost-related issues. As correctly stated by some leading practitioners: “There is indeed
P 502 an arbitral precedent to support nearly any approach a tribunal may wish to apply to
its cost decision. Even cost awards rendered under the same arbitration rules sometimes
vary fundamentally without any apparent reason.” (249)
Accordingly, there is a dire need for more certainty, predictability and harmonization as to
the standard(s), principles and norms governing all issues of costs in international
arbitration and the role of national courts when reviewing awards on issues of costs.
A balance needs to be struck between several issues: (i) the fact that awarding costs is
originally intended to compensate the successful party and allow it to recover the costs it
has incurred in prosecuting its case; (ii) the consideration that awarding costs can be an
effective tool to mitigate the risk of frivolous claims; (iii) the need to sanction
inappropriate conduct by counsel or party when prosecuting the arbitral proceedings,
which would encourage more cooperation between parties and counsel for efficiency
purposes; and (iv) the importance of disambiguating the prevailing principle, and its
variants and applications, when allocating and ordering the recoverability of costs.
That said, it is submitted that the departing default rule ought to be the “costs follow the
event/loser pays” principle, subject to any warranted adjustments to cater for the
specificities of each case, based on reasonably predictable guiding factors. This warrants
encouraging arbitral tribunals to ascertain, at the beginning of the proceedings, the
criteria and factors which the arbitral tribunal should consider regarding all issues of costs.
This would require a detailed process of consultation with the parties, which will facilitate
distilling areas of agreement and disagreement on cost-related issues and will enable the
arbitral tribunal to chart a proper and transparent course when navigating through the
devil's sea of costs.
Taking the above recommendation more globally, it is submitted that the international
community is under a duty to consider streamlining and harmonizing international
practices and principles governing the awarding of costs, and it is in this context that soft
law instruments, treaties and global players such as international arbitral institutions can
play a role.
Indeed, costs is an area where international arbitral institutions can showcase the benefits
of institutional arbitration when compared to ad hoc proceedings. On such account, in
recent years, global and institutional efforts to reduce costs and to set clear standards for
the awarding of costs are gaining momentum and a growing awareness of the need to
address cost-related issues is manifest.
Having recognized the direct relationship and the causation between time and costs and
P 502 that the longer the proceedings, the more expensive they become, arbitral institutions are
P 503 taking a leading role to control time and costs. (250) Whilst institutional efforts testify to
the importance of costs and their related challenges, much remains to be done to ensure
proper and informed navigation through the Devil's Sea to guarantee safe arrival at the
shores of certainty and predictability and the harbours of justice.
P 503

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 P 503

References
*) Mohamed S. Abdel Wahab: Chair of Private International Law and Professor of Dispute
Resolution, Cairo University; Founding Partner and head of International Arbitration,
Construction and Oil & Gas, Zulficar Law & Partners Law Firm; Vice-President, ICC
International Court of Arbitration. The views expressed by the author in this article
are his own and are not attributed to any institution with which he is affiliated.
1) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
86, fn. 595.
2) See Prefatory Note on the Revised Uniform Arbitration Act, 2000, p. 2.
3) See, e.g., N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) p. 36; See also G. BORN, International Commercial Arbitration
(Kluwer Law International 2014); See also M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 249.
4) See Queen Mary, University of London, 2013 International Arbitration Survey: Corporate
Choices in International Arbitration: Industry Perspectives, p. 5.
5) Ibid.
6) See Queen Mary, University London, 2015 International Arbitration Survey:
Improvements and Innovations in International Arbitration, p. 7.
7) See Queen Mary, University London, 2018 International Arbitration Survey:
Improvements and Innovations in International Arbitration, pp. 2, 6 and 7.
8) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press, 2015) p. 36.
9) See, e.g., Ibid; See also J. GOTANDA, “Attorneys' Fees Agonistes: The Implications of
Inconsistency in the Awarding of Fees and Costs in International Arbitrations” in
Miguel Ángel FERNÁNDEZ-BALLESTEROS and David ARIAS, eds. (Wolters Kluwer España
2010) p. 540; See also M. BÜHLER, “Awarding Costs in International Commercial
Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 249.
10) See M. BÜLER, “Awarding Costs in International Commercial Arbitration: An Overview”,
22 ASA Bull. (2004, issue 2) p. 249.
11) See N. KAPLAN, “Decision on Costs – A ‘Mind Field’ for Arbitrators and Uncertainty for
Participants”, Harbour Lecture (19 October 2016).
12) Ibid.
13) See N. KAPLAN, “Decision on Costs – A ‘Mind Field’ for Arbitrators and Uncertainty for
Participants”, Harbour Lecture (19 October 2016); See also P. NOWACZYK and K. CZECH,
“Rethinking Costs and Costs Awards in International Arbitration: A Call for Less
Criticism of Arbitration Costs, But Improvement of Costs Allocation Practices”, 33 ASA
Bull. (2015, issue 3) (Kluwer Law International 2015) pp. 494-495.
14) Ibid.
15) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) p. 37.
16) See P. NOWACZYK and K. CZECH, “Rethinking Costs and Costs Awards in International
Arbitration: A Call for Less Criticism of Arbitration Costs, but Improvement of Costs
Allocation Practices”, 33 ASA Bull. (2015, issue 3) p. 496.
17) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 249.
18) See J. GOTANDA, “Bringing Efficiency to the Awarding of Fees and Costs in International
Arbitrations”, cited in S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration
Procedure, Law Applicable to Costs Claims in International Arbitration: Why Does It
Matter?” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2015, p. 176.
19) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 249.
20) See J. GOTANDA, “Attorneys' Fees Agonistes: The Implications of Inconsistency in the
Awarding of Fees and Costs in International Arbitrations” in Miguel ÁNGEL
FERNÁNDEZ-BALLESTEROS and David ARIAS, eds., Liber Amicorum Bernardo Cremades
(Wolters Kluwer España, 2010) p. 540.
21) See, e.g., N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) pp. 532-533; See also M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 250;
See also J. LEW, L. MISTELIS, and S. KRÖLL, Comparative International Commercial
Arbitration (Kluwer Law International 2003) p. 653.
22) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
3.

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 23) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) pp. 532-533; See also J. POWER and C. KONRAD, “Chapter IV: The
Award – Costs in International Commercial Arbitration – A Comparative Overview of
Civil and Common Law Doctrines” in Christian KLAUSEGGER, Peter KLEIN, et al., eds.,
Austrian Arbitration Yearbook 2007, p. 262; See also J. LEW, L. MISTELIS, and S. KRÖLL,
Comparative International Commercial Arbitration (Kluwer Law International 2003) p.
653.
24) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 250.
25) One specific issue that is often unaddressed or overlooked with respect to expenses
incurred by the arbitral tribunal is that the parties' and arbitrators' expectations
should be aligned regarding the type and class of travel, level of accommodation and
any other costs incurred by the arbitrators.
26) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) pp. 1251-1252.
27) Ibid.
28) See J. POWER and C. KONRAD, “Chapter IV: The Award – Costs in International
Arbitration – A Comparative Overview of Civil and Common Law Doctrines:
Determination of Costs” in Gerold ZEILER, Irene WELSER, et al., eds., Austrian
Arbitration Yearbook 2008, pp. 407 and 426.
29) An experienced arbitral tribunal should always endeavour to seek and secure the
parties' consensus on tribunal-appointed experts and would consult the parties on
the necessity of appointing expert(s), their profile, determining their mission and its
scope and the likely costs associated with such expertise, prior to rendering its order
or decision on appointing the expert(s).
30) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 250.
31) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) pp. 1238, 1255; See also M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) pp.
268-269.
32) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1238.
33) Ibid.
34) Ibid.
35) Ibid., p. 1239.
36) Ibid.
37) See infra Sect. III.3.
38) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 272; See also J. WAINCYMER, Procedure and
Evidence in International Arbitration (Kluwer Law International 2012) p. 1239.
39) See infra Sect. III.2.c.
40) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 273; See also J. WAINCYMER, Procedure and
Evidence in International Arbitration (Kluwer Law International 2012) p. 1239.
41) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1239.
42) See Michael O'REILLY, “Rethinking Costs in Commercial Arbitration”, cited in M.
BÜHLER, “Awarding Costs in International Commercial Arbitration: An Overview”, 22
ASA Bull. (2004, issue 2) p. 273.
43) See Pierre A. KARRER and Marcus DESAX, “Security for Costs in International
Arbitration: Why, When, and What If…”, cited in M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 273.
44) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 272.
45) Ibid., p. 273.
46) Ibid.
47) See ICC Case No. 5008 (1992), cited in M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) pp. 273-274.
48) See ICC Case No. 5726 (1992), cited in M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 274.
49) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International, 2012) pp. 1241-1242.
50) Ibid., p. 1242.
51) Ibid., p. 1243.
52) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) fn. 122.
53) See D. WEHRLI, “Contingency Fees/Pactum de Palmario ‘Civil Law Approach’”, cited in
J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1244.
54) See M. O'REILLY, Costs in Arbitration Proceedings, cited in J. WAINCYMER, Procedure
and Evidence in International Arbitration (Kluwer Law International 2012) p. 1243.
55) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 274.

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 56) See Jonathan Alexander Ltd v. Proctor [1996], cited in M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 274.
57) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 274.
58) See, e.g., J. GOTANDA, Supplemental Damages in Private International Law (Kluwer Law
International 1998); ICC Case No. 5029 (1991), stating that “arbitrations inevitably take
up time of the parties themselves and their staff, but the cost of any such time is (…)
not part of the legal costs of the proceedings”, cited in M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 274.
59) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) pp. 1246-1247; see also M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) pp.
274-275.
60) See ICC Case No.5029 (1991); ICC Case No. 6293 (1990); Anderson Consulting Business
Unit Member Firms v. Arthur Andersen Business Unit Member Firms, ICC Case No. 9797
(2000): the sole arbitrator dismissed a US$ 15 million claim for internal employee
costs with a single sentence: “The Tribunal shall not grant [respondents] their internal
costs because their allocation of their employees' time and effort to the present
arbitration is a decision dependent entirely on the [respondents'] discretion and
therefore, these costs must be assumed by [respondents],” cited in J. WAINCYMER,
Procedure and Evidence in International Arbitration (Kluwer Law International 2012) p.
1246 and M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 275; See also W. CRAIG, W. PARK and J.
PAULSSON, International Chamber of Commerce Arbitration (2002), cited in M. BÜHLER,
“Awarding Costs in International Commercial Arbitration: An Overview”, 22 ASA Bull.
(2004, issue 2) pp. 274-275.
61) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1247.
62) See, e.g., ICC Case No. 8787 (1997), cited in J. WAINCYMER, Procedure and Evidence in
International Arbitration (Kluwer Law International 2012) p. 1246
63) See ICC Case 6564 (1993), cited in M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 275.
64) See, e.g., M. WIRTH, Art. 189 PIL and M. BÜHLER and S. Jarvin, The Arbitration Rules of
the International Chamber of Commerce, cited in M. BÜHLER, “Awarding Costs in
International Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 275.
65) See ICC Case No. 8786 (1997) in which the tribunal allowed the costs for in-house
counsels, apparently as a matter of course; see also Yves DERAINS and Eric A.
SCHWARTZ, A Guide to the New ICC Rules of Arbitration (Kluwer Law International 2005)
who state that the allowability of costs for in-house counsel “appears to be
increasingly accepted”, cited in M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 275.
66) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1247; See also M. BÜHLER, “Awarding Costs in International
Commercial Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 275.
67) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 276.
68) Ibid.
69) See E. SUSSMAN, “Improving Your Arbitration Presentation with a Mock Arbitration”,
New York Dispute Resolution Lawyer (2012); See also N. KAPLAN and O. BOLTENKO, A
Secret Tool for Winning an Arbitration Case (Hong Kong International Arbitration Centre
2015) p. 118.
70) See E. SUSSMAN,, “Improving Your Arbitration Presentation with a Mock Arbitration”,
New York Dispute Resolution Lawyer (2012)
71) See N. KAPLAN and O. BOLTENKO, A Secret Tool for Winning an Arbitration Case (Hong
Kong International Arbitration Centre 2015) p. 120.
72) Ibid.
73) Ibid.
74) See, e.g., Ch. BOGART, “Chapter 4. Overview of Arbitration Finance” in Bernardo M.
CREMADES SANZ-PASTOR and Antonias DIMOLITSA, eds., Third-Party Funding in
International Arbitration (Kluwer International Law 2013) p. 55; See also M. STOYANOV
and O. OWCZAREK, “Third-Party Funding in International Arbitration: Is It Time for
Some Soft Rules?”, 2 BCDR International Arbitration Review (2015, issue 1) pp. 171-199,
p. 173.
75) See L.B. NIEUWVELD and V. SHANNON, Third-Party Funding in International Arbitration
(Kluwer Law International 2017) p. 1.
76) See, e.g., J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact
on Procedure (Kluwer Law International 2016) p. 82; See also B. CREMADES ROMÁN,
Third Party Litigation Funding: Investing in Arbitration (Wolters Kluwer España 2012)
p.181; See also M. STOYANOV and O. OWCZAREK, “Third-Party Funding in International
Arbitration: Is It Time for Some Soft Rules?”, 2 BCDR International Arbitration Review
(2015, issue 1) p. 172.
77) Ibid.

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 78) See J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact on
Procedure (Kluwer Law International 2016) p. 83; See also M. STOYANOV and O.
OWCZAREK, “Third-Party Funding in International Arbitration: Is It Time for Some Soft
Rules?”, 2 BCDR International Arbitration Review (2015, issue 1) p. 172.
79) See J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact on
Procedure (Kluwer Law International 2016) p. 345; See also M. STOYANOV and O.
OWCZAREK, “Third-Party Funding in International Arbitration: Is It Time for Some Soft
Rules?”, 2 BCDR International Arbitration Review (2015, issue 1) p. 191.
80) See J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact on
Procedure (Kluwer Law International 2016) p. 345.
81) See M. STOYANOV and O. OWCZAREK, “Third-Party Funding in International Arbitration:
Is It Time for Some Soft Rules?”, 2 BCDR International Arbitration Review (2015, issue
1) p. 191.
82) See, e.g., Art. 38(1) ICC Rules; Art. (40)(2)(e) of UNCITRAL Rules; Art. 50(2) China
International Economic and Trade Arbitration Commission (CIETAC) Rules.
83) See, e.g., Art. 44(e) Australian Centre for International Commercial Arbitration (ACICA)
Rules.
84) See J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact on
Procedure (Kluwer Law International 2016) p. 380.
85) Ibid., pp. 380-386.
86) Ibid., p. 383.
87) Ibid., pp. 383-384.
88) Ibid., p. 384.
89) Ibid.
90) Ibid., p. 385.
91) Ibid., p. 387.
92) Ibid., p. 388.
93) Ibid.
94) See authors cited in J. VON GOELER, Third-Party Funding in International Arbitration
and Its Impact on Procedure (Kluwer Law International 2016) fn. 108 (RONEY and VON
DER WEID in New Developments in International Commercial Arbitration (2013);
WEHRLI, 26 ASA Bull. (2008); O'REILLY, Costs in Arbitration Proceedings; HANOTIAU,
Evaluation of Damages; WAINCYMER, Procedure and Evidence in International
Arbitration; BÜHLER, 22 ASA Bull. (2004); JÄGER, Reimbursement for Attorney's Fees).
95) See J. VON GOELER, Third-Party Funding in International Arbitration and Its Impact on
Procedure (Kluwer Law International 2016) p. 380.
96) Ibid., p. 393.
97) Ibid.
98) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) pp. 1249-1250.
99) Ibid., p.1250.
100) Ibid., p. 1255.
101) B. HANOTIAU, “The Parties' Costs of Arbitration”, cited in J. WAINCYMER, Procedure and
Evidence in International Arbitration (Kluwer Law International 2012) p. 1255.
102) See, e.g., S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure,
Law Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 171; See also J. WAINCYMER, Procedure and Evidence in
International Arbitration (Kluwer Law International 2012) p. 1194.
103) See G. BORN, International Commercial Arbitration, (Kluwer Law International 2014) p.
3100; See also S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration
Procedure, Law Applicable to Costs Claims in International Arbitration: Why Does It
Matter?” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2015, p. 171.
104) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 175.
105) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 251; See also J. WAINCYMER, Procedure and
Evidence in International Arbitration (Kluwer Law International 2012) p. 1194.
106) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) pp.
3099-3100.
107) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, pp. 175-176; See also G. BORN, International Commercial Arbitration
(Kluwer Law International 2014) p. 3100.
108) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, pp. 175-176.
109) Ibid., p.176.
110) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) pp.
3100-3101.

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 111) Ibid., p. 3101.
112) Ibid.
113) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
10; See also S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure,
Law Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 181.
114) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 181.
115) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 171.
116) Ibid.
117) Ibid.
118) Ibid., p. 172.
119) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3090.
120) Ibid., p. 3093; See also S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration
Procedure, Law Applicable to Costs Claims in International Arbitration: Why Does It
Matter?” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2015, pp. 173-174.
121) Ibid.
122) See, e.g., Art. 34 of the 2018 Hong Kong International Arbitration Centre (HKIAC)
Administered Arbitration Rules; See also Art. 33 of the 2018 Deutsche Institution für
Schiedsgerichtsbarkeit (German Arbitration Institute – DIS) Arbitration Rules.
123) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3095; See also S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration
Procedure, Law Applicable to Costs Claims in International Arbitration: Why Does It
Matter?” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2015, p. 174.
124) See, e.g., G. BORN, International Commercial Arbitration (Kluwer Law International
2014) p. 3101; See also See M. BÜHLER, “Awarding Costs in International Commercial
Arbitration: An Overview”, 22 ASA Bull. (2004, issue 2) p. 258.
125) Ibid.
126) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 258; See also G. BORN, International
Commercial Arbitration (Kluwer Law International 2014) p. 3102.
127) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 259.
128) Ibid., p. 253.
129) See GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 172.
130) See J. POWER and C. KONRAD, “Chapter IV: The Award – Costs in International
Arbitration - A Comparative Overview of Civil and Common Law Doctrines:
Determination of Costs” in Gerold ZEILER, Irene WELSER, et al., eds., Austrian
Arbitration Yearbook 2008, pp. 404-407.
131) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
5.
132) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) p. 535.
133) Ibid.
134) Ibid.
135) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 271.
136) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) p. 536.
137) See Separate opinion of Judge HOLTZMANN, reported in 1985 Iranian Assets Litigation
Reporter 10860, cited in N. BLACKABY, et al., Redfern and Hunter on International
Arbitration (Oxford University Press 2015) p. 536, fn. 128.
138) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 181.
139) See Court of Appeals, Manila, Luzon Hydro Corp. v. Hon. Rommel O. Baybay and
Transfield Philippines, Inc., 29 November 2006, cited in S. GREENBERG, “Chapter II: The
Arbitrator and the Arbitration Procedure, Law Applicable to Costs Claims in
International Arbitration: Why Does It Matter?” in Christian KLAUSEGGER, Peter KLEIN,
et al., eds., Austrian Yearbook on International Arbitration, 2015, p. 182.

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 140) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 183.
141) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 250; See also “ICC Commission Report:
Decisions on Costs in International Arbitration” (2015) p. 3.
142) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 250; See also S. GREENBERG, “Chapter II: The
Arbitrator and the Arbitration Procedure, Law Applicable to Costs Claims in
International Arbitration: Why Does It Matter?” in Christian KLAUSEGGER, Peter KLEIN,
et al., eds., Austrian Yearbook on International Arbitration, 2015, p. 178.
143) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 178.
144) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 178.
145) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3097.
146) See CARTER, “A Kiss For Arbitration Costs Allocation”, cited in G. BORN, International
Commercial Arbitration (Kluwer Law International 2014) p. 3098, fn. 528.
147) See SMIT and ROBINSON, “Cost Awards in International Arbitration: Proposed
Guidelines for Promoting Time and Cost Efficiency”, cited in G. BORN, International
Commercial Arbitration (Kluwer Law International 2014) p. 3099, fn. 537.
148) See Manufacturer v. Buyer (ICC Case No. 8486), Final Award (1996) in ICCA Yearbook
Commercial Arbitration XXIV (1999) (henceforth Yearbook) p. 172.
149) See Supplier v. Buyer (ICC Case No. 7645), Interim Award (1995) in Yearbook XXVI (2001)
p. 152.
150) See J. LEW, L. MISTELIS and S. KRÖLL, Comparative International Commercial
Arbitration (Kluwer Law International 2003) pp. 654-655.
151) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 178.
152) See, e.g., Sect. 61(2) of the English Arbitration Act 1996; Sect. 1057(1) German Code of
Civil Procedure.
153) See, e.g., Art. 42(2) of the 2013 UNCITRAL Rules; Art. 40(1) of the 2012 Swiss Arbitration
Rules; Art. 28.4 of the 2014 LCIA Rules; Art. 46 of the 2011 Cairo Regional Centre for
International Commercial Arbitration (CRCICA) Rules; Art. 4(1) of the 2012 Permanent
Court of Arbitration (PCA) Arbitration Rules.
154) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
5.
155) Ibid.
156) See M. HODGSON and E. EVANS, “Chapter 17: Allocation of Costs in ICSID Arbitrations”
in Crina BALTAG, ed., ICSID Convention After 50 Years: Unsettled Issues (Kluwer Law
International 2016) p. 459.
157) See J. POWER, “Chapter V: Investment Arbitration – Determination of Costs in ICSID
Arbitration” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2010, p. 343.
158) See Telenor Mobile Communications v. Republic of Hungary (ICSID Case No.
ARB/04/15), 13 September 2006.
159) See ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of
Hungary (ICSID Case No. ARB/03/16), 2 October 2006.
160) See M. HODGSON and E. EVANS, “Chapter 17: Allocation of Costs in ICSID Arbitrations”
in Crina BALTAG, ed., ICSID Convention After 50 Years: Unsettled Issues (Kluwer Law
International 2016) p. 465.
161) See, e.g., PSEG Global Inc. and Konya Ilgin Elektrik Uretim? ve Ticaret Limited Sirketi v.
Republic of Turkey (ICSID Case No. ARB/02/5), 19 January 2007; See also Libananco
Holdings Co. Limited v. Republic of Turkey (ICSID Case No. ARB/06/8), 2 September
2011.
162) See Ch. SCHREUER et al., The ICSID Convention: A Commentary, Art. 61, cited in J.
POWER, “Chapter V: Investment Arbitration – Determination of Costs in ICSID
Arbitration” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2010, fn. 34.
163) See J. POWER, “Chapter V: Investment Arbitration – Determination of Costs in ICSID
Arbitration” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2010, p. 345.

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 164) See, e.g., J. GOTANDA, “Attorneys' Fees Agonistes: The Implications of Inconsistency in
the Awarding of Fees and Costs in International Arbitrations” in Miguel Ángel
FERNÁNDEZ-BÁLLESTEROS and David ARIAS, eds., Liber Amicorum Bernardo Cremades
(Wolters Kluwer España 2010) pp. 539-540; See also J. POWER, “Chapter V: Investment
Arbitration – Determination of Costs in ICSID Arbitration” in Christian KLAUSEGGER,
Peter KLEIN, et al., eds., Austrian Yearbook on International Arbitration 2010, p. 341.
165) See Waste Management, Inc. v. United Mexican States (“Number 2”) (ICSID Case No.
ARB(AF)/00/3), 30 April 2004.
166) See Proposals for Amendment of the ICSID Rules – Synopsis, Volume 1 (August 2018)
para. 26; See also Proposals for Amendment of the ICSID Rules – Consolidated Draft
Rules, Volume 2 (August 2018) p. 29.
167) See M. HODGSON and E. EVANS,, “Chapter 17: Allocation of Costs in ICSID Arbitrations”
in Crina BALTAG, ICSID Convention After 50 Years: Unsettled Issues (Kluwer Law
International 2016) p. 458.
168) See J. GOTANDA, “Attorneys' Fees Agonistes: The Implications of Inconsistency in the
Awarding of Fees and Costs in International Arbitrations” in Miguel Ángel FERNÁNDEZ-
BÁLLESTEROS and David Arias, eds., Liber Amicorum Bernardo Cremades (Wolters
Kluwer España, 2010) p. 545.
169) See, e.g., S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure,
Law Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 179.
170) Ibid.
171) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 180.
172) See Alasdair Ross Anderson et al v. Republic of Costa Rica (ICSID Case No.
ARB(AF)/07/3), 19 May 2010.
173) See Bayview Irrigation District et al. v. United Mexican States (ICSID Case No.
ARB(AF)/05/1), 19 June 2007.
174) See J. POWER, “Chapter V: Investment Arbitration – Determination of Costs in ICSID
Arbitration” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on
International Arbitration, 2010, p. 341; See also M. HODGSON and E. EVANS, “Chapter
17: Allocation of Costs in ICSID Arbitrations” in Crina BALTAG, ed., ICSID Convention
After 50 Years: Unsettled Issues (Kluwer Law International 2016) p. 464.
175) See M. HODGSON and E. EVANS, “Chapter 17: Allocation of Costs in ICSID Arbitrations”
in Crina BALTAG, ed., ICSID Convention After 50 Years: Unsettled Issues (Kluwer Law
International 2016) pp. 458-459.
176) See N. BLACKABY, et al., Redfern and Hunter on International Arbitration (Oxford
University Press 2015) p. 536.
177) See J. POWER and C. KONRAD, “Chapter IV: The Award – Costs in International
Arbitration - A Comparative Overview of Civil and Common Law Doctrines:
Determination of Costs” in Gerold ZEILER, Irene WELSER, et al., eds., Austrian
Arbitration Yearbook 2008, p. 402.
178) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 250; See also J. POWER, “Chapter V:
Investment Arbitration – Determination of Costs in ICSID Arbitration” in Christian
KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International Arbitration,
2010, p. 343.
179) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) pp. 250-251.
180) See J. POWER and C. KONRAD, “Chapter IV: The Award – Costs in International
Commercial Arbitration – A Comparative Overview of Civil and Common Law
Doctrines” in Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Arbitration
Yearbook 2007, pp. 266, 270 and 271.
181) Ibid., pp. 266 and 271.
182) See J. POWER and C. KONRAD, “Chapter IV: The Award – Costs in International
Arbitration – A Comparative Overview of Civil and Common Law Doctrines:
Determination of Costs” in Gerold ZEILER, Irene WELSER, et al., eds., Austrian
Arbitration Yearbook 2008, pp. 402 and 418.
183) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3097.
184) See, e.g., M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 277.
185) See, e.g., ibid.
186) See ibid.
187) Ibid; See also J. WAINCYMER, Procedure and Evidence in International Arbitration
(Kluwer Law International 2012) p. 1237.
188) See J. WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 1261.
189) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3087.
190) Ibid.

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 191) See G. BORN, International Commercial Arbitration (Kluwer Law International 2014) p.
3088.
192) Ibid.
193) See G. HUNTLEY, P. TYLOR, S. BRADSTOCK, eds., At What Cost? A Lovells Multi
Jurisdictional Guide to Litigation Costs (2010) p. 4
194) Ibid.
195) Ibid.
196) See J. LEW, L. MISTELIS, and S. KRÖLL, Comparative International Commercial
Arbitration (Kluwer Law International 2003) p. 655.
197) See W. MELIS, “National Report Austria” (2018) in ICCA International Handbook on
Commercial Arbitration (Kluwer Law International) (henceforth Handbook), p. 32.
198) See O. SPIERMANN, “National Report Denmark” (2009) in Handbook, p. 27.
199) See V.V. VEEDER and R. H. DIWAN, “National Report England” (2018) in Handbook, pp.
59-60.
200) See G. MÖLLER, “National Report Finland” (2018) in Handbook.
201) See Y. DERAINS and L. KIFFER, “National Report France” (2018) in Handbook, p. 66.
202) See S.M. KRÖLL, “National Report Germany” (2018) in Handbook, p. 50.
203) See I. VASSARDANIS, “National Report Greece” (2018) in Handbook, p. 46.
204) See P. BERNARDINI, “National Report Italy” (2007) in Handbook, p. 43.
205) See G.J. MEIJER and M.R.P. PAULSSON, “National Report The Netherlands” (2018) in
Handbook, pp. 52-53.
206) See D.M. VICENTE, “National Report Portugal” (2018) in Handbook.
207) See B.R. KARABELNIKOV, “National Report Russian Federation” (2018) in Handbook, p.
59.
208) See B. CREMADES and D. CAIRNS, “National Report Spain” (2018) in Handbook, 2018, p.
26
209) See P.M. PATOCCHI, “National Report Switzerland” (2018) in Handbook, 2018, p. 69.
210) See C.M. AMIRFAR, N.L. REID, et al., “National Report The United States of America”
(2018) in Handbook, pp. 65-66.
211) Ibid.
212) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
46.
213) See K. HAFEZ, “National Report Egypt” (2013) in Handbook, p. 31.
214) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
46.
215) See A. OUERFELLI, “National Report Tunisia” (2009) in Handbook, p. 54.
216) See M.T. BIRSEL, A.YESILIRMAK, et al., “National Report Turkey” (2011) in Handbook, p.
30.
217) See J.-B. ZEGERS, “National Report for Saudi Arabia” (2018) in Handbook, p. 43.
218) Ibid.
219) See S.TANNOUS, S. LORD HILL, et al., “National Report United Arab Emirates” (2018) in
Handbook, pp. 94-99.
220) See M. PRYLES, “National Report Australia” (2018) in Handbook, p. 42.
221) See N. KAPLAN and R. MORGAN, “National Report Hong Kong” (2018) in Handbook, pp.
91-92.
222) See E. TORGBOR, “National Report Kenya” (2018) in Handbook, pp. 43-44.
223) See T. ABRAHAM, “National Report Malaysia” (2018) in Handbook, p. 38.
224) See F. ADEKOYA, “National Report Nigeria” (2018) in Handbook, p. 23.
225) See M. KHAN, “National Report Pakistan” (2012) in Handbook, p. 31.
226) See M. HWANG, L. BOO, et al., “National Report Singapore” (2019) in Handbook, p. 41.
227) See G.S. TAWIL and F. CAMPOLIETI, “National Report Argentina” (2018) in Handbook, p.
35.
228) See F.GONZALEZ? DE COSSI?O, “National Report Mexico” (2018) in Handbook, p. 32.
229) See F.C. SALAVERRY, “National Report Peru” (2018) in Handbook, p. 28.
230) See E.Z. JARAMILLO, “National Report Colombia” (2018) in Handbook.
231) See M.F. ZERR, “National Report Costa Rica” (2018) in Handbook, pp. 56-57.
232) See Andre?s JANA L., “National Report Chile” (2018) in Handbook, 2018 p. 49.
233) See C.N. NETTO, “National Report Brazil” (2018) in Handbook, pp. 27-28.
234) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
46.
235) Ibid.
236) Ibid., p. 47.
237) Ibid.
238) Ibid.
239) See “ICC Commission Report: Decisions on Costs in International Arbitration” (2015) p.
44-46.
240) Ibid.
241) Ibid.
242) Ibid.
243) Ibid.
244) Ibid.
245) Ibid.
246) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 253.

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 247) See E. LITH, Conference speech of 13 February 2014, cited in S. GREENBERG, “Chapter
II: The Arbitrator and the Arbitration Procedure, Law Applicable to Costs Claims in
International Arbitration: Why Does It Matter?” in Christian KLAUSEGGER, Peter KLEIN,
et al., eds., Austrian Yearbook on International Arbitration, 2015, p. 177.
248) See S. GREENBERG, “Chapter II: The Arbitrator and the Arbitration Procedure, Law
Applicable to Costs Claims in International Arbitration: Why Does It Matter?” in
Christian KLAUSEGGER, Peter KLEIN, et al., eds., Austrian Yearbook on International
Arbitration, 2015, p. 176.
249) See M. BÜHLER, “Awarding Costs in International Commercial Arbitration: An
Overview”, 22 ASA Bull. (2004, issue 2) p. 249.
250) See for example, the “ICC Commission Report: Techniques for Controlling Time and
Costs in Arbitration”, second ed. The Report suggested some techniques to control
costs. Amongst these techniques are: (i) the arbitral tribunal taking into account the
extent to which each party has conducted the arbitration in an expeditious and cost-
effective manner; (ii) the importance of carefully drafting arbitration agreements in
simple and clear terms; (iii) encouraging parties to use expedited or fast-track
procedures and most arbitral institutions have issued expedited procedural
provisions or rules; (iv) appointing experienced and available counsel as well as
arbitrators with strong case management skills; and (v) limiting the parties' written
submissions, minimizing the number of witness, experts and hearings and limiting
direct examination of witness, rounds of witness statements, and experts' reports.
See also, the most recent “ICC Commission Report: Decisions on Costs in International
Arbitration” (2015), which provides a useful overview of awarding costs in different
jurisdictions and elaborates on the positive impact of using the techniques for
controlling time and costs. This most recent report further underlines the importance
of discussing at the outset of the arbitral proceedings or during the proceedings
different costs-related issues.

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 27
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 KluwerArbitration

Document information
A Thought-Experiment Regarding Access to Justice in
Publication International Arbitration
Evolution and Adaptation: Victoria Shannon Sahani
The Future of International (*)
Arbitration
I Introduction
Topics One reason for the public outcry against third-party funding is the widespread perception
that third -party funding is unbalancing our notions of party-driven dispute resolution
Investment Arbitration processes and even-handed tribunals. (1) In the aspirational vision of idyllic dispute
resolution, an arbitrator or judge oversees the proper administration of the proverbial
“scales of justice” in an orderly manner and “balances” out party power differentials calmly
Bibliographic reference through procedural evenhandedness. Yet, third-party funding indisputably puts a gold-
weighted thumb on the scale in favor of funded parties, particularly since funded cases
Victoria Shannon Sahani, 'A already tend to be calculable winners on the merits, and since third-party funders seeking
Thought-Experiment a profit generally do not fund cases that are demonstrably likely to lose on the merits. (2)
Regarding Access to Justice P 504
in International Arbitration', P 505
in Jean Engelmayer Kalicki Thus, we are left with the promising potential for winners to be more likely to win with
and Mohamed Abdel Raouf third-party funding, and the alarming realization that not all parties are offered this same
(eds), Evolution and chance to win. For example, traditional for-profit third-party funders only fund cases from
Adaptation: The Future of which they can make a profit; thus, many merit-based winners whose claims are too
International Arbitration, expensive to pursue relative to their claim value are turned down. Second, it is likely that
ICCA Congress Series, Volume longshot- winners – cases too risky even for a third-party funder that are, for example,
20 (© Kluwer Law rightfully arguing for a change in the law or relying on creative theories that require mental
International; International and verbal jujitsu to convince the decision-maker (i.e., the stuff of Hollywood films about
Council for Commercial courageous lawyers and citizens fighting against insurmountable odds) – are less likely to
Arbitration/Kluwer Law be funded as well. Third, defendant-winners may be less likely to be funded unless those
International 2019) pp. 504 - defendants already have hefty funds at their disposal through which to pay the funder
519 either a periodic premium or are willing to pay the funder from their own pockets (rather
than from the proceeds of an award) upon winning the case. (3) Fourth, non-financial
winners – parties seeking non-financial remedies – are not likely to be funded unless they
are willing to pay the funder from their own pockets, since there will be no monetary
judgment upon winning the case. Fifth, political-winners are not likely to be funded, as
many funders choose not to engage in funding of controversial positions and parties, which
may be viewed as courageous or cowardly, depending on the type of party or issue at stake
in the case.
The foregoing examples collectively engender a larger, fundamental question: If funders
are picking primarily winners – and more specifically winners that suit their business
model – then what does real access to justice in international arbitration look like in an
era of third-party funding? Would real access to justice need to involve third-party funders
funding impecunious innocent respondents, or expensive long-shot claimants, or righteous
injunctions with no monetary recovery, or unprofitable cases that espouse some worthy yet
controversial position?
P 505 Much has been written about access to justice in international arbitration. (4) This Article
P 506 contributes to the conversation by presenting one theoretical framework to assess the
level of access to justice that currently exists in international arbitration and determine
pathways to increasing access to justice. This Article proposes a working definition of
access to justice in international arbitration and then presents a simple thought
experiment to assess which parties currently have access to justice in international
arbitration and which parties may lack such access. This Article concludes by suggesting
some next steps regarding how to increase access to justice in international arbitration.

II Assumptions Made
First, what is access to justice? Access to justice could be defined in many ways depending
on the context. For this Article, simple working definitions are appropriate. This Article
defines “justice” as the assumption that the system of international arbitration and
international arbitrators, viewed as a whole, reliably and regularly decides cases in a fair
and enforceable manner that upholds due process of the law for all parties involved
(leaving aside the idiosyncratic errors or biases of individual arbitrators). Of course, this is
a seemingly rosy assumption that may be challenged by those critical of the international
arbitration system. Nevertheless, for the purposes of this thought experiment, such an
assumption is necessary – like a mathematical constant, if you will – to examine access
from a financial perspective.
In addition, it is important to note that the definition of “justice” used in this Article does

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 not address the merits of a particular claim or defense. In other words, this Article assumes
that losers have just as much right as winners to bring their claims or marshal their
defenses in international arbitration and, therefore, losers deserve as much procedural
justice as winners do, even though the merits of their substantive positions may be shaky.
Again, such an assumption could be challenged, but this Article adopts this assumption as
necessary to the conclusions of this thought experiment, discussed further below.
This Article also assumes that “access” relates to the financial ability to proceed forward in
arbitration. Thus, “access” in this context does not address non-financial barriers to
arbitration, such as jurisdictional requirements, defective arbitration clauses, non-
participating parties, substantive arbitrability, the availability of class or mass arbitration,
or any similar non-financial barrier. In sum, this Article assumes that the phrase “access to
justice” simply means having or acquiring the financial resources needed to bring your
claim or muster your defense in international arbitration.
In applying this definition, there are an endless number of ways in which a party could
P 506 have or acquire financial resources for pursing a claim in arbitration or defending against
P 507 it. For example, many parties self-finance their claims or defenses. Parties may also
acquire liability insurance or political risk insurance, which may include paying the costs
of arbitration. Subsidiaries may be able to tap into the resources of their parent
corporations. States may use their internal legal teams or tap into their treasuries to pay
external law firms. A client may hire an attorney or law firm on a contingent or conditional
fee basis, if allowed in the relevant jurisdiction. And then there's third-party funding. This
Article adopts the ICCA-Queen Mary Task Force on Third-Party Funding definition of “third-
party funding” in Chapter 3: Definitions, which reads as follows:
“The term ‘third-party funding’ refers to an agreement by an entity that is not a
party to the dispute to provide a party, an affiliate of that party or a law firm
representing that party,
(a) funds or other material support in order to finance part or all of the cost of
the proceedings, either individually or as part of a specific range of cases,
and
(b) such support or financing is either provided in exchange for remuneration
or reimbursement that is wholly or partially dependent on the outcome of
the dispute, or provided through a grant or in return for a premium
payment.” (5)
Given the plethora of financing options, this Article must draw an arbitrary dividing line in
the sand for the purpose of assessing access to justice. On one side of that line, the party
definitely has access to justice and, on the other side, the party could potentially lack
access to justice for the purpose of this thought experiment. It is important to note that
this is not a line between the “haves” and the “have nots”. Instead, this is a line between
those who most certainly have access to justice and those whose access to justice is
predicated on the outcome of the decision-making process of a financier not present at
the time the dispute arises. Thus, for the purpose of this thought experiment, the line will
be defined as whether the party's dispute financing is based on a pre-existing financial
relationship with the financier prior to the incident that led to the claim in the arbitration.
Of course, this line could be defined by other characteristics of a party or its case, but
since this Article focuses on financial access to justice, the choice to draw the line
according to the status of the source of a party's funding seems most appropriate.
To illustrate how this line functions, the simplest example is that a party with the financial
resources to self-finance arbitration has a preexisting relationship with itself (the
financier) before the claim arose; thus, that party has access to justice, according to this
definition. Similarly, a subsidiary has a pre-existing relationship with a parent corporation
prior to the claim in arbitration. If the parent corporation has the ability and willingness to
provide financial support for a viable claim or defense, then the subsidiary has access to
justice. Furthermore, if a party acquires liability insurance or political risk insurance at the
outset of a contract or prior to making a foreign direct investment in a host state, and if
such insurance covers the costs of arbitration, then the party has access to justice. On the
P 507 other side of the line, an attorney or law firm will not enter into a contingent or
P 508 conditional fee arrangement with a client until after the incident that gives rise to the
claim has taken place. Thus, if the party needs such contingent or conditional fee
arrangement in order to pursue arbitration, then the party is in danger of not having access
to justice if it is unable to obtain such an arrangement. Similarly, third-party funding – as
traditionally envisioned – is tied to the existence of events that give rise to an arbitration
claim.
It is important to note that, since the definition of “access to justice” articulated above
involves engaging the machinery of the international arbitration process, this Article
assumes that types of outside funding not tied to the existence of a dispute are more in
the realm of corporate finance transactions and are not contemplated within this Article's
definition of “access to justice”. The assumption here is that if a party has the wherewithal
to enter into a corporate finance transaction independent of any pending disputes, then it
also likely has access to adequate resources to pursue a claim or defend itself in
international arbitration; therefore, it has access to justice. Furthermore, any insurance

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 agreement entered into after the incident that gives rise to the claim has taken place,
which is often termed “after-the-event insurance”, is categorized on the same side of the
line as third-party funding and contingent or conditional fee arrangements.
This line in the sand is crucial, because the “access” in “access to justice” is an indicator of
possibility, not certainty. In other words, having “access to justice” means that a party
could financially pursue arbitration even if it chooses not to do so or is unable to do so for
other non-financial reasons. For example, if a subsidiary could bring a viable claim with
the help of the parent corporation, but chooses not to do so for business reasons, the
subsidiary has access to justice, according to the definition in this Article. In addition, if
the subsidiary could bring the claim with the help of the parent corporation, but the
parent corporation believes that the claim is not viable enough to bring, then the
subsidiary has access to justice, according to the definition in this Article. Furthermore, if a
party is the respondent with sufficient financial resources to self-finance and nevertheless
refuses to participate in the arbitration (thinking that the claim is bogus, for example),
then the party has access to justice, according to the definition in this Article.
On the other hand, if a party is the respondent and does not have sufficient financial
resources to self-finance while wanting to participate in the arbitration, then whether such
a respondent has access to justice depends on the type of financier that could finance the
party's defense. If the respondent can obtain a financier through a preexisting financial
relationship, such as a parent corporation or a pre-existing insurance agreement, then the
respondent has access to justice. If the respondent's financial relationship with the
financier arises after the incident that led to the claim in the arbitration – such as a
contingent or conditional fee arrangement with a law firm, after-the-event insurance or
traditional third-party funding – then the respondent may have no access to justice if it is
unable to create such a financial relationship.
This highlights a crucial point about access to justice, however it may be defined. Any
proper assessment of “access to justice” must examine the situation of parties that have no
choice in the matter: respondents. Respondents in all types of arbitration have no choice
regarding whether the arbitration will bind them, regardless of whether they are financially
P 508 able to participate in the arbitration or not. Thus, respondents must have access to justice
P 509 – defined in this Article as having or acquiring the financial resources needed to muster
their defenses in international arbitration – in order for the system to be considered “just”
at all. (6)
There is also a cost component to access to justice, namely, whether the financier's
willingness to pay the costs of arbitration is predicated on some relationship between the
costs of arbitration and the magnitude of the claim. Some types of financiers – such as self-
financiers, parent corporations, and liability insurance – will pay the costs of arbitration
regardless of the amount of the claim or the type of defense. Other types of financiers –
such as third-party funders or after-the-event insurers – might only agree to pay the costs
of arbitration if the costs are some order of magnitude less than the amount of the claim,
or if the party provides the financier with some other alternative form of remuneration.
Attorneys on contingent or conditional fees are likely somewhere in the middle. While the
amount of the attorney's fees may not be directly tied to the costs of the arbitration, the
attorney may turn down a case that might be too expensive relative to the amount the
attorney could expect to be paid if the party wins the case, especially since most
jurisdictions have a legislative cap on attorney contingent or conditional fees. (7) In light of
this, the cost of arbitration is a crucial component to consider when determining whether a
party had adequate access to justice.
To further complicate the matter of costs, it is nearly impossible to calculate in advance
precisely how much a case will cost. The only exception may be that certain types of
financiers, such as third-party funders or law firms working on a contingent or conditional
fee, may include in their contracts provisions capping the amount that they will spend on
arbitration costs. In addition, there are different fee provisions under the various arbitral
rules – whether calculated on an hourly or daily rate or based on the amount in dispute –
and for ad hoc arbitration the basis for the fees is even more variable. Moreover, there are
certain types of claims that may require more extensive resources – such as class
arbitration – or that may require the services of an emergency arbitrator – such as an
injunction. The costs of such types of proceedings may be highly variable and not at all
connected to the economic value of the result. Furthermore, some types of claims have no
damage award attached to them, such as injunctive or declarative relief, in which case the
costs will always mathematically outweigh the dollars recoverable from the claim, even if
the claim is otherwise worthy and winnable. Finally, there is the question of timing and
P 509 settlement. If all other parameters are equal, a case that settles early usually results in
P 510 cheaper costs than a case that goes all the way to an award, which in turn results in
cheaper costs than a case that leads to enforcement or set-aside proceedings in a national
court.
In sum, a case may be wildly expensive or may settle cheaply. One cannot predict in
advance exactly which of these scenarios will happen in a particular case. Considering the
high variability in cost structures and amounts, the thought experiment in this Article
makes a simple assumption about costs. It assumes that the costs for a hypothetical party
to an arbitration are reasonable and proportional for the type of case and type of claim or
defense at issue, even though many cases may be extraordinarily expensive or surprisingly

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 inexpensive. This assumption regarding costs is necessary for there to be any generalizable
conclusions to be drawn from this thought experiment regarding access to justice.
There are a few less controversial assumptions in this thought experiment as well. This
Article addresses only two types of international arbitration: commercial and investment
arbitration. This Article does not address state-to-state arbitration, which may involve, for
example, boundary or trade disputes. In addition, this Article addresses only single parties
of three types: a corporation, a state, or an individual. A state- owned entity is categorized
as a corporation for the purpose of this Article. (8) Multi-party actions – such as class, mass,
or representative actions – are not contemplated. Furthermore, this Article categorizes the
relief requested by a claimant as either damages or non-financial relief, such as an
injunction, specific performance, or declarative relief. For respondents, the relief
requested (that is, the respondents “claim”) is characterized as “no liability” (namely,
asking the tribunal to decide that the defendant is not liable for the injury the claimant
alleges) in order to consider respondents and claimants together in this study. There may
be other hybrid, unusual or less common types of relief that parties may request, but the
aforementioned categories encompass the vast majority of types of claims or defenses
brought in international arbitration.
Finally, since it is virtually impossible to predict with certainty the outcome of a case, this
study addresses only two possibilities with respect to outcome – likely winner or likely
loser – keeping in mind, however, that for some cases a party may be just as likely to win or
lose. The reason that this study addresses only those two possibilities is that we know that
all parties, including those who are self-financing, engage in some sort of analysis
regarding the likelihood of winning the case when deciding whether or how to proceed.
Most parties or their legal counsel have at least some expectation regarding whether the
party is more likely to win or more likely to lose the case, and funders analyze this question
and draw their conclusions often before the arbitration has even commenced. Moreover,
some financiers enter the case at some point in the middle of the proceedings or finance
enforcement proceedings at the end of the case, and those financiers will have a different
viewpoint regarding the likelihood of winning than the financier who considers the case at
P 510 the outset. Thus, the categories “likely winner” and “likely loser” are rough and inexact but
P 511 help draw another necessary line in the sand, similar to this Article's arbitrary dividing
line in the sand for the purpose of assessing access to justice, as articulated above.

III Results of the Thought Experiment

This Article now presents a thought experiment based on the aforementioned assumptions
to assess what types of international arbitration parties are in danger of not having access
to justice. This thought experiment begins by excluding parties that definitely have access
to justice. From the foregoing assumptions, any party that has a preexisting financial
relationship with the financier prior to the incident that led to the claim in the arbitration
has access to justice. This means that any party that has the guaranteed ability to self-
finance or to obtain funding from a parent corporation or preexisting insurance contract
(liability insurance or before-the-event insurance) has access to justice. This is true
regardless of whether the party is more likely to win or lose, regardless of the type of claim,
and regardless of whether the party is a claimant or respondent. This is also true if the
party chooses not to pursue the claim or defense, despite having the financial resources to
do so. In contrast, a party in danger of lacking access to justice must enter into a new
financial relationship after the incident that gives rise to the claim. This means that the
thought experiment will focus on avenues for financial support for arbitration that are
available only after the incident that gives rise to the claim has happened. These avenues
include contingent or conditional fee agreements with attorneys, after-the-event insurance
agreements, bank loans, and traditional third-party funding arrangements.
The second phase of the thought experiment narrows down the categories of international
arbitration parties that need dispute financing by separating those likely to win from those
likely to lose. Most avenues for dispute financing that are available after the incident that
gives rise to the claim are tied to the likelihood of winning. Attorneys and law firms will
generally only enter into a contingent or conditional fee agreement if they believe the case
is a likely winner. Similarly, after-the-event insurers and third-party funders will generally
only enter into an arrangement in which they expect to make money, which is usually tied
to the party winning the case. There are some structures for third-party funding or after-
the-event insurance (often, but not exclusively, on the defense side) in which the financier
receives some remuneration even if the party loses the case. In most situations, however,
financiers that enter into an agreement with a party after the dispute has arisen want to
fund likely winners on the merits rather than likely losers, if such a characteristic can be
gleaned at the outset. Thus, in contrast to the situation described in the prior paragraph in
which the party is virtually guaranteed access to justice, a party with no preexisting
financial relationship to the financier, and who is also likely to lose its claim or defense,
has almost no access to justice. The word “almost” is used because there may be rare
instances of financiers willing to back a case with a small chance of winning (sometimes
called a “long shot”), (9) but doing so on a regular basis would likely not be lucrative for
P 511 such financiers. Thus, parties likely to lose are likely to remain largely unfunded unless a
P 512 preexisting financier is available. Therefore, such parties are likely to lack access to
justice, according to the framework presented in this thought experiment.

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 This lack of access to justice for likely losers can be viewed in two different ways. On the
one hand, one could argue that claimants who have a high likelihood of losing should not
be able to bring their claims, perhaps (for example) because those claims might be
frivolous. Similarly, one could argue that respondents who have a high likelihood of losing
should not need to muster a zealous defense, perhaps because they truly did injure the
claimant and the magnitude of that injury is equal to the relief that the claimant alleges.
On the other hand, one could argue that both claimants and respondents may have a high
likelihood of losing not because the claim or defense is invalid or frivolous, but rather due
to a defect in the law applied to the case, or the party's lack of access to evidence to
submit to the tribunal (for example, if the opposing party is in possession of the majority of
the key evidence), or the party's (perhaps less expensive) legal counsel being
inexperienced in international arbitration. In addition, even losers deserve the
opportunity to zealously advocate for reducing the magnitude of their losses by arguing in
favor of a set-off claim, a partial award, a lower cost award to the winner, or a lower
interest rate on the damages (if applicable).
Nevertheless, since winning and losing on a spectrum is a matter of nuance (and perhaps
even a philosophical query to some extent), this study focuses purely on winners or losers
on the merits only. The result is that likely losers on the merits that need dispute financing
typically do not obtain such financing and, therefore, lack access to justice. This is our first
access to justice problem that this thought experiment has uncovered: How can we provide
access to justice for “unfunded losers”?
If we remove the foregoing parties with preexisting access to funding and remove the
unfunded losers, we are left with what our introduction calls “unfunded winners”: claims or
defenses that are likely to win on the merits if the party is able to obtain dispute financing.
At this point it is useful to divide our “unfunded winners” according to the type of
arbitration: commercial or investment arbitration. This is because types of parties and
types of claims are treated differently depending on the type of arbitration. Beginning with
commercial arbitration, the parties are all fungible, meaning that any party can be on any
side and bring any claim. Jurisdictionally, since commercial arbitration arises from a
contract, corporations, individuals and states can all serve as claimants or respondents. In
addition, respondents in commercial arbitration can bring counterclaims or set-off claims,
which gives them the ability to simultaneously serve as claimants while also serving as
respondents. In light of this, the type of party is irrelevant to determining whether access
to justice is available to unfunded winners in commercial arbitration.
Instead, one must examine the type of claim in order to assess access to justice for
“unfunded winners” in international commercial arbitration. Damages claims are
understandably attractive to dispute financiers, because there will be a pot of money to
share if the party wins. Non-financial claims and “no liability” claims (defenses) are less
attractive and may be completely unattractive because such claims do not automatically
create a pot of money to share, even though such claims may be worthy on the merits.
Dispute financiers that arrive on the scene after the dispute has arisen are typically
P 512 looking for a cash profit. This is where the access to justice problem arises in commercial
P 513 arbitration. The one exception is what one may call “not-for-profit” funders, which are
funders that take an interest in the specific merits outcome of the case for non-financial
reasons and do not expect to make a profit. (10) However, “not-for-profit” funders are not
general market players in this space; they typically fund cases on a one-off, case-by-case
basis and cannot be counted on to categorically fund all the cases regarding a certain
industry, country, treaty or legal issue. Thus, “not-for -profit” funders cannot provide a
solution that is generalizable to arbitration as a whole and, therefore, cannot solve the
problem of access to justice in commercial arbitration. This brings us to our second access
to justice problem that this thought experiment has uncovered: How can we provide access
to justice for “unfunded winners” with non-damages claims or defenses?
Turning to investment arbitration, the picture becomes more complicated. “Unfunded
winners” in investment arbitration must first be divided by party. Due to jurisdictional
constraints, corporations or individuals are always claimants in investment arbitration and
states are always respondents in investment arbitration. (11) Furthermore, jurisdictional
constraints restrict the types of claims that can be brought. The treaty must specifically
name the substantive rights that claimants may vindicate in investment arbitration. In
vindicating those rights, the claimant may request damages or non-financial relief, such as
restitution in kind (12) or specific performance, but only if such remedies are allowed by
the treaty.
Traditional investment treaties do not provide for rights of the respondent state, (13) while
P 513 some investment treaties negotiated in modern times do contain rights of respondent
P 514 states and corresponding obligations of the individual or corporate investor. (14) Under
traditional investment treaties, the respondent state has no rights under which to bring a
counterclaim, so the only “claim” a respondent state could have is a claim of “no liability”,
which translates as its defense as defined above. Under more modern investment treaties,
respondent states may have the jurisdictional ability to bring substantive counterclaims
and the corresponding rights within the treaty that may be vindicated in investment
arbitration. (15) Nevertheless, the right to bring a counterclaim is necessarily predicted on
the claimant bringing the original claim first. Thus, it is exceedingly rare to see a host state
bring an initial claim (rather than a counterclaim) against an investor under a treaty. Such

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 a scenario would most certainly be possible under a contract, as discussed above.
Therefore, in the context of pure treaty arbitration under traditional investment treaties,
the host state appears to be perpetually stuck in the respondent role with almost no
jurisdictional or substantive access to counterclaims. This means that the respondent
always has a “no liability” claim but almost never will have any other type of claim under a
traditional investment treaty.
In contrast, the individual or corporate investor has the ability to bring both damages
claims and non-financial claims in investment treaty arbitration, and, if the respondent
state were able to overcome a jurisdictional challenge to a counterclaim, then the investor
would also have a “no liability” claim vis-à-vis that counterclaim. This means that the
individual or corporate investor has the ability to subsidize the cost of bringing the non-
financial claims through the damages claims, meaning that the marginal cost of bringing
two (or three) claims instead of one is significantly reduced. In fact, most investors bring at
least one damages claim even if they intend to raise non-financial claims as well. Thus, the
potential recovery on the damages claim could be enough to cover the costs of the
additional non-financial claims such that a dispute financier would agree to finance the
representation. In contrast, a respondent state that is denied the ability to bring a
damages claim or counterclaim through dispute financing is denied the ability to
subsidize its “no liability” claim or other non-financial claim (such as a request for an
injunction mandating that an investor stop polluting the environment in the host state). As
mentioned above, not-for-profit dispute financiers may be willing to step into the breach
for some respondents, (16) but they will not do so systematically, regularly or predictably
and, therefore, do not present a viable solution to this problem.
P 514
P 515
Since both claimants and respondents in investment arbitration may have both damages
claims and non-financial claims, the problem is not the type of claim, but rather the type
of party. Unsurprisingly, respondents in investment arbitration generally are not attractive
targets for investment by for- profit dispute financiers. (17) This brings us to our third and
final access to justice problem that this thought experiment has uncovered: How can we
provide access to justice for respondents in investment arbitration? The term “respondents”
is appropriate instead of “respondent states”, because, although exceedingly rare, a few
treaties permit a host state to initiate a claim against an investor. (18)

IV Suggestions for Increasing Access to Justice in International

Arbitration
The thought experiment above has raised the following question: How can we provide
access to justice for three types of parties in international arbitration: unfunded losers,
unfunded winners with non-damages claims or defenses, and respondents in investment
arbitration? This Article concludes with a few ideas regarding how to address this question
and thereby improve access to justice in international arbitration.
P 515 The first step is for the international arbitration community to decide whether the
P 516 international concept of procedural due process requires that parties in these three
categories have adequate access to dispute financing. This is more of a philosophical
question than an empirical one, and thus, this question is largely beyond the scope of this
brief intervention. The short answer, from this Author's point of view, is that the right to
adequate resources for loss mitigation – i.e., a party's right to argue for a tribunal to reduce
the amount of the party's loss – is a right that the international arbitration community
should recognize as part of the international concept of procedural due process. Arguing in
favor of loss reduction may take the form of pursing a claim that is likely to lose, requesting
an injunction or other non-monetary relief, arguing for paying less costs despite losing on
the merits, or presenting a viable defense. This Article will assume that the international
arbitration community would answer the question in the affirmative in order to proceed to
the next step in the analysis, although compelling arguments could also be made on the
opposing side. (19)
Assuming that these three categories of parties have a right to adequate financing for their
claims or defenses, the next question is how to pay for this. This Article presents three
categories of possible solutions. The first category of potential solutions involves donations
of time or money. For example, perhaps third-party funders, after -the-event insurers, and
law firms should engage in pro bono funding for a subset set of worthy claims or defenses
that may be long-shot winners, which are seemingly worthy but likely to lose, or non-
damages claims. One could include in this category worthy investment claims against
judgment -proof sovereigns, meaning that the claimant investor would likely win the case
but may be unlikely to be able to collect the award from the respondent. In the latter case,
due to the push for transparency in investment arbitration, an unpaid award could
perhaps have symbolic, political or public value that would make the award worthwhile for
non-monetary reasons.
Another paradigm to consider is that the attorney Bar in some countries asks attorneys to
donate a small percentage of their annual hours (e.g., fifty hours on average in the United
States) (20) to pro bono efforts or for attorneys to donate money to the pro bono efforts of
other attorneys, in lieu of performing the work directly. Similarly, perhaps law firms should
take on some international arbitration cases pro bono, without any expectation of

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 reimbursement, and third-party funders or after-the-event insurers should donate some
small percentage of their portfolio funds toward pro bono efforts. Arbitrators could agree
P 516 to hear some cases on a pro bono basis by not charging fees or expenses to the parties. In
P 517 addition, a defense fund for needy respondents could be established, perhaps even
from the funds donated pro bono by third-party funders, law firms, and after-the-event
insurers. (21) Finally, crowdfunding by multiple individual donors – which already exists –
may provide a potential solution in this context. (22)
The second category of potential solutions involves changes in the law or arbitration rules.
For example, arbitral institutions could adjust their fee scales to give indigent parties a
discount on the fees. Alternatively, arbitral institutions could adopt a rule that a party
against whom an injunction is granted must pay the costs of the party awarded the
injunction. This latter solution would allow law firms to take on injunction requests on a
contingent or conditional basis on the theory that their fees will be repaid if the party is
granted the injunction. This solution has the drawback, however, that it would only help
parties likely to have their injunctions granted.
Another more controversial idea, which is also less likely to be implemented, is the
renegotiation of investment treaties to allow for claims by host states against investors as
well as counterclaims by respondents. This one is much harder to implement, since many
countries no longer have the political will to ratify a renegotiated treaty, no matter how
problematic the existing treaty may be. Nevertheless, countries whose investment treaties
have expired, who are engaged in renegotiating their treaties for other reasons, or who are
entering into new treaties could consider including provisions to allow for host state
claims. Most notably, the recent European Court of Justice decision in Slowakische Republik
v. Achmea BV may signal that all the investment treaties in Europe may soon need to be
renegotiated, at least in part. (23) This is one provision that could be included in those
renegotiated treaties or in any EU-wide investment treaty that may be negotiated in the
future.
Finally, a third category of solutions involves financiers modifying their criteria when
P 517 deciding which cases to fund. For example, a third-party funder might modify its
P 518 algorithms and decision-making processes to include other ideals as factors to weigh in
determining whether to fund a case in order to increase access to justice in international
arbitration. One of those ideals could be ensuring that respondent states have access to
justice by having access to third-party funding. Notably, respondent states can fall into all
five categories of unfunded winners mentioned in the introduction to this Article.
Respondent states can be longshot winners, defendant winners, non-financial winners, and
political winners all at the same time, depending on the facts and circumstances of the
dispute. Respondent states – particularly ones that have viable counterclaims – can also
be merit-based winners whose claims are too expensive to pursue relative to their claim
value when offset by the cost to defend against the investor's original claim.
Furthermore, third-party funders have a much more dubious reputation in investment
arbitration, when compared to commercial arbitration. Gallons of ink have been spent
arguing against allowing third-party funding in investment arbitration for a variety of
reasons. (24) If third-party funders financed some respondent states in investment
arbitration, then perhaps the participation of third-party funders in investment treaty
cases would be viewed as more balanced, perhaps even viewed positively. In addition,
investment arbitration, as a whole, may be viewed as more legitimate if respondent states
have more regular access to third -party funding. This Author would even go so far as to
assert that, if third-party funders in international arbitration choose to fund only one
category from the three categories of parties mentioned above in order to increase access
to justice, then respondent states in investment arbitration are a prime category with
which to begin.
To address a broader question, the solutions presented in this Article depart from the
poverty paradigm that is often used to argue that dispute financiers should modify their
choices regarding which cases to fund to promote access to justice. (25) For example, since
so few respondent states are currently being funded, to this Author's knowledge, both poor
and wealthy respondent states alike are equally denied third-party funding from most for-
profit funders. Instead, this Article presents an argument that other worthy aspects of the
case itself may be the true foundation of “access to justice” that funders should espouse
and support financially, such as upholding the health and safety laws of a country, (26)
defending against abusive investment practices, ensuring the stability of a country's legal
P 518 system, stopping damaging environmental practices of investors, clarifying the meaning of
P 519 ambiguous treaty language, and so on. This Article argues that those are worthy ideals
worth pursuing and financing regardless of the wealth or poverty of the respondent nation
or the potential for profit (or lack thereof).

V Conclusion
The thought experiment presented in this Article intends to provoke discussion and deep
thought about the legitimacy crisis in international arbitration and investment arbitration
as viewed through the lens of financial access to justice. The assumptions made herein may
seem rudimentary and the solutions presented may seem idealistic, but this is merely a
starting point for a global discussion. This Author invites those readers who have far greater
empirical skills to confer with those who have the data – the arbitral institutions and the

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 financiers – to devise a way to measure empirically the availability of access to justice or
lack of access to justice in international arbitration. If such research occurs, then targeted
solutions could be developed that may be more viable to implement than those solutions
presented herein.
P 519

References
*) Victoria Shannon Sahani: Tenured Associate Professor of Law at Arizona State
University's Sandra Day O'Connor College of Law; co-author of Third-Party Funding in
International Arbitration (with Lisa Bench NIEUWVELD) (2nd ed., Wolters Kluwer, 2017);
Member of the ICCA-Queen Mary Task Force on Third-Party Funding, the Executive
Council of the American Society of International Law (ASIL), and the Academic Council
of the Institute for Transnational Arbitration (ITA); former Deputy Director of Arbitration
and ADR in North America in New York, ICC International Court of Arbitration;
Bachelor's and law degrees, Harvard University; licensed to practice law in New York
and the District of Columbia.
1) See, e.g., Chris HAMBY, Secrets of a Global Super Court: A BuzzFeed News Investigation,
BuzzFeed.com, (28 Aug. – 12 Oct. 2016) <www.buzzfeed.com/globalsupercourt> (last
accessed 2 Feb. 2019) (a six-article series); Rebecca LOWE, “Speculate and Arbitrate to
Accumulate”, IBA Global Insight (Apr/May 2013); Pia EBERHARDT, “A Response to the
Critics of ‘Profiting from Injustice’”, Kluwer Arbitration Blog, (2 Jan. 2013),
<http://arbitrationblog.kluwerarbitra tion.com/2013/01/02/a-response-to-the-critics-
of-profiting-from...> (last accessed 2 Feb. 2019); Transnational Institute and Corporate
Europe Observatory, Profiting from Injustice (Brussels/Amsterdam, Nov. 2012), available
at <https://corporateeurope.org/sites/de fault/files/publications/profiting-from-
injustice.pdf> (last accessed 23 May 2018).
2) But see Kate BROWN DE VEJAR and Chloe BALDWIN, “The Economics of Access: Systemic
Imbalances in ISDS”, this volume, p. 520 at p. 541 (“Certainly, third-party funders have
no incentive to back a losing claim, and they generally have skilled teams of lawyers
who assess the claim before determining whether to invest. But studying the form
guide doesn't mean that the punter will pick the winning horse. The fact that the third-
party funder has studied what is known about the case at a certain point (usually
before anything is known of the respondent State's position) and is financially
incentivized to bet on a winner does not mean that because the funder decides to
invest, the case is bulletproof, or even that it is likely to end in a result favorable to
the investor. It also does not mean that a fundamentally unmeritorious claim, which
should never have been brought, will not receive third-party funding.”) (parentheses in
original).
3) There may be at least one notable exception. Narghis Torres, Co-Founder and CEO of
LexFinance (<www.lex-finance.com>), publicly stated that his firm regularly finances
respondent states in investment arbitration at an event titled “Third-Party Funding in
Investor-State Dispute Settlement” hosted by Columbia Law School on 17 October 2017.
This lends credence to the solution presented in Sect. IV of this Article, below.
4) See e.g., Ylli DAUTAJ and Bruno GUSTAFSSON, “Access to Justice: Rebalancing the Third-
Party Funding Equilibrium in Investment Treaty Arbitration” (18 Nov. 2017),
<http://arbitration blog.kluwerarbitration.com/2017/11/18/access-justice-
rebalancing-third-party-fund...> (last accessed 2 Feb. 2019); Jaroslav KUDRNA,
“Arbitration and Right of Access to Justice: Tips for a Successful Marriage”,
Transnational Notes Blog (22 Feb. 2013)
<https://blogs.law.nyu.edu/transnational/2013/02/arbitration-and-right-of-access-to-
justice-tips-for-...> (last accessed 2 Feb. 2019); Petra BUTLER and Campbell HERBERT,
“Access to Justice vs Access to Justice for Small and Medium-Sized Enterprises: The
Case for a Bilateral Arbitration Treaty”, 26 New Zealand Universities Law Review (Dec.
2014) p. 186; Brooks W. DALY and Sarah MELIKIAN, “Access to Justice in Dispute
Resolution” in Krista Nadakavukaren SCHEFER, ed., Poverty and the International
Economic Legal System: Duties to the World's Poor (Cambridge University Press 2013)
pp. 211-224; Francesco FRANCIONI, “Access to Justice, Denial of Justice and
International Investment Law”, 20 European Journal of International Law (1 Aug. 2009,
issue 3) pp. 729-747 <https://doi.org/10.1093/ejil/chp057> (last accessed 2 Feb. 2019).
5) Chapter 3: Definitions, p. 50, The ICCA Reports No. 4: ICCA-Queen Mary University of
London Task Force Report on Third-Party Funding in International Arbitration
(International Council for Commercial Arbitration, 2018) (numbering and spacing in
original), <www.arbitration-icca.org/publications/Third-Party-Funding-Report.html>
(last accessed 2 Feb. 2019).

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 6) This same argument could potentially be applied in a domestic criminal prosecution
context. In that context, the equivalent to a respondent state winner would be an
innocent criminal defendant, for whom funding is non-existent, since all funding is
currently limited to civil litigation in all the jurisdictions in which this Author found the
existence or regulation of third-party funding (over sixty countries). See generally Lisa
Bench NIEUWVELD and Victoria Shannon SAHANI, Third-Party Funding in International
Arbitration, 2nd. ed. (Wolters Kluwer 2017). Presenting and analyzing this undoubtedly
controversial argument in favour of allowing third-party funding in criminal defence
cases is beyond the scope of this Article.
7) See generally Lisa Bench NIEUWVELD and Victoria Shannon SAHANI, Third-Party
Funding in International Arbitration, 2nd. ed. (Wolters Kluwer 2017) (citing contingent or
conditional fee caps in the Canada, China, New Zealand, South Africa, the United
Kingdom and the United States). There are also likely many other countries that cap
contingent or conditional fees, but which were not included in the aforementioned
book due to the lack of information available from those countries regarding the
availability of third-party funding.
8) For reasons beyond the scope of this Article, the Author takes the view that states and
state-owned entities that are parties in a contractually-based international
commercial arbitration are in a fundamentally different position than respondent
states sued in investment treaty arbitration. For example, one key difference is that
contractual rights are bilateral whereas rights under classic investment treaties are
unilateral in favor of investors and against states.
9) See e.g. K. BROWN DE VEJAR and C. BALDWIN, supra fn. 2, at p. 541.
10) See Victoria Shannon SAHANI, “Revealing Not-for-Profit Third-Party Funders in
Investment Arbitration”, Oxford University Press Investment Claims Blog (1 Mar. 2017),
<http://oxia.ouplaw.com/page/third-party-funders> (last accessed 2 Feb. 2019).
11) For arguments in favour of granting states jurisdiction to bring claims in investment
arbitration, see, e.g., Victoria SHANNON, “The Structural Challenge of Investment
Arbitration Viewed Through the Lens of Third-Party Funding”, Oxford University Press
Investment Claims Blog (9 Jun. 2015) <http://oxia.ouplaw.com/page/491/the-
structural-challenge-of-investment-arbitration-viewed-through-th...> (last accessed 2
Feb. 2019); Gustavo LABORDE, “The Case for Host State Claims in Investment
Arbitration”, 1 Journal of International Dispute Settlement (1 February 2010, issue 1) pp.
97-122, <https://doi.org/10.1093/jnlids/idp008> (last accessed 2 Feb. 2019).
12) See, e.g., Michael E. SCHNEIDER, “Non-Monetary Relief in International Arbitration:
Principles and Arbitration Practice” in Performance as a Remedy, ASA Special Series no.
30 (Juris 2011); Brooks E. ALLEN, “The Use of Non-Pecuniary Remedies in WTO Dispute
Settlement: Lessons for Arbitral Practitioners” in Performance as a Remedy, ASA Special
Series no. 30 (Juris 2011); Christoph SCHREUER, “Non-Pecuniary Remedies in ICSID
Arbitration”, 20 Arbitration International (2004, no. 4) pp. 325-332.
13) For a basic explanation of jurisdiction in investment treaty arbitration, See, e.g.,
Christoph SCHREUER, “Jurisdiction and Applicable Law in Investment Treaty
Arbitration”, 1 McGill Journal of Dispute Resolution (MJDR) (2014, issue 1) (republished
in Transnational Dispute Management (2015, no. 6), available at <www.transnational-
dispute-management.com> (last accessed 2 Feb. 2019)).
14) See, e.g., Tarcisio GAZZINI, “The 2016 Morocco–Nigeria BIT: An Important Contribution to
the Reform of Investment Treaties” (26 Sep. 2017), <www.iisd.org/itn/2017/09/26/the-
2016-morocco-nigeria-bit-an-important-contribution-to-the-reform-of-...> (last
accessed 2 Feb. 2019) (describing the innovations in this treaty, including putting
obligations on investors to comply with the laws of the host state and providing a state
the opportunity to sue an investor in the courts of its home country for violations of the
treaty obligations). While this treaty does not allow for a state to bring an investment
arbitration claim against an investor, the treaty does provide a judicial route through
which the state may be compensated for any wrongs the investor commits under the
treaty. In addition, the treaty is silent regarding whether states may bring
counterclaims against investors in investment treaty arbitration, which may open the
door to jurisdiction over such claims. The effects of these provisions will be tested if a
case is eventually commenced under the treaty.
15) For some examples of how tribunals have responded in cases in which host states have
tried to bring counterclaims under traditional investment treaties, see Jean KALICKI,
“Can States Assert Counterclaims Against Investors in BIT Proceedings?”, Kluwer
Arbitration Blog (16 Jan. 2012),
<http://arbitrationblog.kluwerarbitration.com/2012/01/16/can-states-assert-
counterclaims-against-inve...> (last accessed 2 Feb. 2018).

9
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 16) See Victoria Shannon SAHANI, Mick SMITH and Christiane DENIGER, “Third-Party
Financing in Investment Arbitration” in Christina BEHARRY, ed., Contemporary and
Emerging Issues on the Law of Damages and Valuation in International Investment
Arbitration (Brill Nijhoff 2018) p. 49 (“In addition, not-for-profit funding may be a viable
option for respondents in international arbitration – particularly respondent States in
investment arbitration – since a financial return on investment would not normally be
required.”). For example, in Philip Morris v. Uruguay, Uruguay's defence was funded by
a not-for- profit funder called the Campaign for Tobacco-Free Kids, and the Anti-
Tobacco Litigation Fund (a Bloomberg Foundation and Gates Foundation
collaboration) is funding respondent states facing similar challenges. See
<www.bloomberg.org/press/releases/bloomberg-philanthropies-bill-melinda-gates-
foundation-launch-anti-...> (last accessed 2 Feb. 2019). These are both not-for-profit
funders, however, which invites the question, should only not-for-profit funders fund
respondent states? This Article argues for answering this question in the negative, but
cogent arguments could be made on the other side. For example, in the political
campaign finance arena, arguments have been raised about the impropriety of
corporate influence over elections and governmental functions through lobbying and
financial contributions; one could argue that for-profit third-party funders funding
states generally could yield similar negative effects. This Article avoids this question
by choosing respondent states (not claimant states) as the paradigm. Respondent
states, by definition, do not commence arbitrations and, therefore, theoretically there
can be no corporate influence on the respondent state with respect to stirring up the
arbitration itself. But some have argued that third-party funders may themselves fall
within the definition of “investor” within a treaty and, thus, the same investor-host
state problems that exist in the foreign direct investment system could thereby infect
third-party funding, if funders begin to fund respondent states regularly. See, e.g.,
Duarté G. HENRIQUES, “Third-Party Funding: A Protected Investment?”, Spain
Arbitration Review (2017, no. 30).
17) There is potentially one dispute financier that would finance a respondent state's “no
liability” claim (i.e. its defence), but one dispute financier is not enough to solve a
systemic, structural problem. See description of LexFinance, supra fn. 3.
18) See supra fn. 14 (describing the 2016 Morocco-Nigeria BIT which allows host state
claims against investors in national courts and, arguably, may allow host state
counterclaims in an investment arbitration initiated by the investor under this treaty).
19) For example, in Essar v. Norscot [2016] EWHC 2361 (Comm), the High Court upheld an
ICC tribunal's ruling requiring the respondent to pay the claimant's cost of third-party
funding because the court found that the respondent so damaged the claimant's
financial position as to require the claimant to seek third-party funding in the first
place. For a description of the Essar case, see, e.g., Maximilian SZYMANSKI, “Recovery
of Third Party Funding Ordered by ICC Tribunal and Confirmed by the English High
Court – An Under-Theorised Area of the Law”, Kluwer Arbitration Blog (8 Oct. 2016)
<http://arbitrationblog.kluwerarbitration.com/2016/10/08/recovery-of-third-party-
funding-ordered-by-i...> (last accessed 2 Feb. 2019).
20) See American Bar Association, Model Rules of Professional Conduct, Rule 6.1 (“Every
lawyer has a professional responsibility to provide legal services to those unable to
pay. A lawyer should aspire to render at least (50) hours of pro bono publico legal
services per year…. In addition, a lawyer should voluntarily contribute financial
support to organizations that provide legal services to persons of limited means.”)
(parentheses in original).
21) For an example of a proposal for funding states in WTO dispute settlement, see, e.g.,
Mauritius NAGELMUELLER, “Guest Post: Dispute Finance for Sovereigns in WTO Disputes
– Access To Justice for Developing Countries”, International Economic Law and Policy
Blog (12 Sep. 2017) <http://worldtradelaw.typepad.com/ielpblog/2017/09/dispute-
finance-for-sovereigns-in-wto-disputes-acc...> (last accessed 2 Feb. 2019) (proposing
that for-profit dispute financiers should provide financing to developing states in WTO
dispute settlement proceedings).
22) See, e.g., Manuel GOMEZ, “Crowdfunded Justice: On the Potential Benefits and
Challenges of Crowdfunding as a Litigation Financing Tool”, 49 U.S.F. L. Rev. (2015) p.
307; Ronen PERRY, “Crowdfunding Civil Justice”, 59 B.C. L. Rev. (2018) p. 1357.
23) Slowakische Republik v. Achmea BV, Case C-284/16, Decision of the Court of Justice of
the European Union, (6 Mar. 2018). For a description of the decision and its impact,
See, e.g., Court of Justice of the European Union, Press Release: No. 26/18 – The
arbitration clause in the Agreement between the Netherlands and Slovakia on the
protection of investments is not compatible with EU law (6 Mar. 2018)
<https://curia.europa.eu/jcms/upload/docs/application/pdf/2018-
03/cp180026en.pdf> (last accessed 2 Feb. 2019); Reuters, “EU Court Rules Against
Tribunals Settling Intra-EU Disputes” (6 Mar. 2018), <www.reuters.com/article/us-eu-
court-arbitration/eu-court-rules-against-tribunals-settling-intra-eu-d...> (last
accessed 2 Feb. 2019); Center for International Environmental Law, Press Release: New
European Court of Justice (ECJ) ruling could signal end of intra-EU investor-state dispute
settlement (6 Mar. 2018), <www.ciel.org/news/new-european-court-justice-ecj-ruling-
signal-end-intra-eu-investor-state-dispute-s...> (last accessed 2 Feb. 2019).
24) See supra fn. 1.

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 25) See, e.g., United Nations Office of the High Representative for the Least Developed
Countries, Landlocked Developing Countries and Small Island Developing States
(UNOHRLLS) and the International Development Law Organization (IDLO), Investment
Support Programme for the Least Developed Countries (ISP/LDCs): Programme
Document, p. 5 and fn. 11 (6 Sep. 2017), available at
<https://res.cloudinary.com/lbresearch/image/upload/v1506335575/isp_ldcs_progra
mme_document_6_septemb...> (last accessed 2 Feb. 2019) (proposing a system for
providing support to poor states for, among other endeavours, “[f]oreign investment-
related dispute settlement between the Client and a foreign entity, including
arbitration or any other alternative dispute resolution proceeding” and “if the
applicable rules to the dispute allow, the ISP/LDCS may also seek to identify and field
the Client's party-appointed arbitrator”).
26) See supra fn. 16 for an example of a non-profit funder supporting a state's laws
regarding packaging of tobacco products for public health and safety reasons.

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 KluwerArbitration

Document information
The Economics of Access: Systemic Imbalances in ISDS
Publication Kate Brown de Vejar; Chloe Baldwin
Evolution and Adaptation: (*)
The Future of International (**)
Arbitration
I Introduction
Topics Investor-State dispute settlement (“ISDS”) in the form of investment arbitration has been
subject to significant criticism and increased scrutiny in recent years. Proposals for reform
Investment Arbitration have been widely discussed within the international arbitration community. A number of
States have altered their treaty practice in an attempt to give effect to some of these
reforms in their future treaties. But there is also now a clear appetite for more sweeping,
Bibliographic reference immediate, multilateral reform. A message is being delivered by States that “we created
this system, and since our calls for reform have largely fallen on deaf ears, we will step in
Kate Brown de Vejar and and make changes”.
Chloe Baldwin, 'The
Economics of Access: This message is manifest in two ongoing multilateral initiatives. The first is the current
Systemic Imbalances in effort to update the International Centre for Settlement of Investment Disputes (ICSID)
ISDS', in Jean Engelmayer rules and regulations, which began in October 2016 with ICSID inviting member States to
Kalicki and Mohamed Abdel suggest topics that merit consideration. The second is the work of the United Nations
Raouf (eds), Evolution and Commission on International Trade Law (UNCITRAL) Working Group III on ISDS Reform.
Adaptation: The Future of ICSID's consultation process resulted in a list of sixteen topics for potential ICSID rule
International Arbitration,
ICCA Congress Series, Volume P 520 amendment. (1) Of these, topic nine in particular relates to the economics of access to
20 (© Kluwer Law P 521 investment arbitration, including (i) exploring a possible presumption in favor of
allocating costs to the prevailing party, (ii) considering a possible provision on security for
International; International costs.
Council for Commercial
Arbitration/Kluwer Law Similar areas of concern were identified at the 27 November – 1 December 2017 meeting of
International 2019) pp. 520 - UNCITRAL Working Group III on ISDS Reform. (2) Of the procedural issues discussed during
557 the meeting, the issue of recovery of costs by States received the most attention. The
meeting room was largely united that the practice of allocation of costs in proportion to
success of claims, rather than each party bearing its own costs, was to be encouraged.
There was a strong feeling that a State which successfully defends a claim should be able
to recover the cost of its defense. In a similar vein, the need to review the issue of security
for costs, and to ensure that there are assets from which a State would be able to recover
its costs, was widely recognized. Third-party funding was another issue of general concern,
both in terms of its impact on the number and type of claims brought, and regarding the
need for increased transparency in this area. States continued to voice their concerns
regarding the impact and lack of regulation of third-party funding in investment
arbitration at the April 2018 meeting of UNCITRAL Working Group III. (3)
These concerns, which go to the economics of access to investment arbitration, are the
focus of this paper. We first discuss the importance of ensuring that costs orders in
investment arbitration are made regularly, and reflect the relative success of the parties'
claims (taking into account the quantum claimed) and defenses. We then examine the
need to revise the burden of proof and standard applied by investment arbitration
tribunals when determining whether to grant an application for security for costs. Next, we
look at some of the economic asymmetries and other distortions due to third-party funding
of investment arbitrations. We end with a list of initiatives to address these issues.

II Allocation of Costs in ISDS

P 521 At the 27 November – 1 December 2017 meeting of UNCITRAL Working Group III on ISDS
P 522 Reform, the allocation of costs by investment arbitration tribunals was highlighted as
an area of real concern. (4) While there is no doubt that investment arbitration tribunals
have the power and discretion to shift costs onto the losing party, or to apportion costs
between the parties, (5) the concern raised was that this does not happen consistently,
often leaving a respondent State to foot the bill of its own successful defense. As the report
of the meeting records:
“It was explained that arbitral tribunals in ISDS had historically followed the
default rule under public international law and in inter-State cases that each
party would bear its own costs. It was pointed out that the respondent State
might find itself in the position of not being able to recover a substantial part or
any of its costs in defending an unsuccessful, frivolous or bad faith claim by
investors. In addition, it was stated that in the absence of allocation of costs,
there was no incentive for the parties to limit their arguments and submissions.”
(6)

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 These concerns are justified by empirical evidence. Susan Franck's research on costs
awards in investment treaty arbitrations, published in 2011 and surveying 102 treaty
awards (publicly available before 1 June 2006), showed that the majority of investment
treaty awards followed the practice of each side being responsible for its own party costs
(the fees and expenses of legal counsel and any expert or factual witnesses) and for an
equal share in the tribunal costs (the fees and expenses of the tribunal and the
administering institution or appointing authority). (7) The study also revealed a concerning
lack of consistency in tribunals' approaches to cost allocation, including a lack of any
reliable relationship between cost shifting and the ultimate outcome of the case. (8)
Awards “typically lacked citation to legal authority and provided minimal rationale, and
the justifications for cost decisions exhibited broad variation”. (9)
In their December 2016 article discussing the lack of reasoning for the cost award against
claimants in the Philip Morris v. Uruguay case, Kenneth Reisenfeld and Joshua Robb mused:
“It is possible that there was an unspoken rationale. The case was a
controversial one, and some (including Uruguay's counsel) accused Philip Morris
of using the arbitration process, and the expense it entailed, as a way to
discourage relatively poor countries (not limited to Uruguay) from enacting anti
-tobacco measures. The tribunal may have shifted costs to Philip Morris in part
P 522 to send a message both to companies considering adopting such a strategy and
P 523 to critics who pointed to the case as an example of the abuses of investor-
state dispute settlement. But whether justified or not, if that was the tribunal's
justification, it would have been better to say so. Article 48 of the ICSID
Convention, after all, requires that an award state the reasons on which it is
based, and Article 52(1)(e) permits annulment when a tribunal fails to do so.”
(10)
The authors agree with these musings. In particular, in cases where costs are shifted
because of the tribunal's concerns regarding the abusive behavior of a party, such as an
investor's ulterior motive for bringing a claim, these reasons should be articulated so that
they may act as an effective deterrent to such tactics going forward.
Since the Franck study was published, the situation has evolved to some extent. In the
context of UNCITRAL Working Group III's discussion on costs in November-December 2017,
Meg Kinnear, the Secretary General of ICSID, reported that in approximately half of
recently issued ICSID awards, arbitral tribunals had ordered that the costs of the
arbitration should either be borne by the unsuccessful party or be apportioned between
the parties. Therefore, Ms. Kinnear noted, an emerging trend away from each party bearing
its own costs could be identified. (11)
This emerging ICSID trend is in line with the results of a study conducted by Matthew
Hodgson in 2013 (12) and updated in 2017. (13) The 2013 study revealed that, in cases
decided before 2006, investment arbitration tribunals adjusted costs in only 35% of cases,
whereas in cases decided between 2006 and 2012, investment arbitration tribunals made
some adjustment in the allocation of costs in 49% of cases. (14) The 2017 update to the
study showed that, since the end of 2012, there has been a significant increase in the
number of tribunals making adjusted costs orders, with 64% adjusting costs in some
manner. (15)
P 523
P 524
The 2013 Hodgson study noted a significant difference between UNCITRAL and ICSID
tribunals, with UNCITRAL tribunals making some form of adjustment to costs in 69% of
cases, while ICSID tribunals did so in just 36% of cases. This difference was attributed to
the importance of the guidance provided in the applicable institutional rules. (16) The
UNCITRAL Arbitration Rules state that the “costs of the arbitration shall in principle be
borne by the unsuccessful party or parties”, (17) whereas the ICSID Convention and
Arbitration Rules provide no such guidance or default rule. (18) The 2017 Hodgson study
update reveals, however, that since the beginning of 2013, 61% of ICSID tribunals issued an
adjusted costs order, bringing them closer to the rate exhibited by UNCITRAL tribunals,
which remained at 69%. (19)
The 2013 Hodgson study showed that, of those cases in which investment arbitration
tribunals elected to apportion costs, they did so in respect of both tribunal costs and party
costs 62% of the time. (20) This trend continued in cases decided after 2012. (21)
Both the 2013 Hodgson study and the 2017 update noted that the increasing trend of
allocating both tribunal and party costs in line with the outcome of the case did not
extend to annulment proceedings. (22) In both pre -2013 annulment decisions, and in
decisions between 2013 and 2017, 85% of ad hoc committees ordered parties to bear their
own party costs, and just 61% of ad hoc committees ordered the losing party to bear all of
the committee costs. (23)
A particularly concerning trend noted in the 2013 Hodgson study was the disparity of
treatment on costs between investors and States: successful claimants obtained an order
for costs in 53% of cases, whereas only 38% of successful respondents also received a
favorable costs award. (24) This result in pre-2013 awards certainly lends credibility to the
complaints of States that they are, too often, left with a pyrrhic victory: no liability or a
P 524
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 P 524 very low value payout, but a hefty legal bill. However, this disparity is greatly reduced in
P 525 more recent awards. In awards from 2013 onwards, successful claimants obtained an
adjusted costs award in 65% of cases, and successful respondents obtained an adjusted
costs award in 63% of cases. (25)
While the very recent trend is toward greater consistency in cost awards in investment
arbitrations, and less disparity of treatment between investors and States, the push by
States for multilateral and institutional reform in this regard is understandable. Any
disparity in the treatment of investors and States is unacceptable. First, allocation of costs
in line with the outcome of the case should be the norm. The factors taken into account by
investment arbitration tribunals when allocating costs should be discussed in awards, with
a view to developing consistent approaches and standards, which can then be used to
discourage investors from advancing frivolous claims, adopting a scorched earth approach
to their claims, and exaggerating the quantum of their alleged damages. The latter point is
important. Data shows that the cost of proceedings increases with the damages claimed by
the claimant. (26) Moreover, the tactic of “anchoring” the tribunal's discussion of damages
by initially advancing an unrealistically high number, in the hope of achieving a lower but
still excessive award of compensation, (27) is misleading, abusive, and can lead to
mistakes with disastrous consequences for States. (28) An effective way of discouraging this
practice is to include the amount of damages claimed versus any amount ultimately
awarded in the factors to be taken into account by investment arbitration tribunals when
allocating costs. Eastern Sugar v. Czech Republic provides an example. (29) In that case, the
tribunal ordered the investor, which had succeeded in establishing liability, to pay part of
the respondent State's share of tribunal costs on the basis that the investor had originally
claimed approximately € 109 million but was ultimately awarded only € 25 million, or
roughly 25 percent of the claimed amount. (30) Another example is Garanti Koza v.
Turkmenistan, where the claimant was awarded approximately five percent of the
compensation it sought, prompting the following remark on costs from the tribunal: “The
tribunal considers it appropriate to take the degree to which Garanti Koza prevailed into
consideration, along with the fact that it prevailed, in ruling on the Parties' competing
applications for costs.” (31)
There is a good case for formalizing what appears to be the dominant trend, and making
P 525 allocation of tribunal and party costs in line with the outcome of the case the default rule
P 526 in investment arbitration. It is a practice well known in many national jurisdictions, (32)
and is now common practice in commercial arbitration cases. (33) And, as highlighted
above, it is quickly becoming the dominant accepted approach in both UNCITRAL and
ICSID investment arbitrations. (34)
As a matter of policy, a default rule that costs should be allocated in line with the outcome
of the case creates incentives for desirable party behavior, such as admissions, settlement
opportunities, and efficient management of procedural issues, and it discourages wasteful
party behavior, including tactical delays, frivolous claims, and exaggerated damages. (35)
The likely costs of a proceeding, and how these costs may be allocated between the
parties by a tribunal, “are a part of the risk/reward assessment an investor makes before
commencing an investment treaty case”. (36) These factors are also relevant for the State
as it considers its settlement options. (37) The existence of a default rule on the allocation
of costs, and more thorough and detailed reasoning on costs in awards, will makes it easier
for a party to an investment arbitration to understand its exposure and act accordingly.
Although, in recent years, both UNCITRAL and ICSID investment arbitration tribunals have
shown a strong trend towards allocating costs in line with the outcome of the case, the
current statistics also show there is a way to go before true consistency and predictability
in costs awards is achieved. ICSID ad hoc committees should also adopt a stricter and
more consistent practice of allocating costs to the losing party in annulment proceedings.
(38) Three initiatives would help fast-track these initiatives. First, the authors would have
liked to see an amendment to the ICSID Arbitration Rules establishing a default rule
similar to Art. 42(1) of the 2010 UNCITRAL Rules, to the effect that the costs of the
arbitration (or the annulment proceeding) shall in principle be borne by the unsuccessful
party, but preserving the tribunal/ad hoc committee's discretion to apportion costs where
reasonable in the circumstances of a given case, in line with Art. 61(2) of the ICSID
P 526 Convention. (39) Based on the April 2018 public comments made by Meg Kinnear, the
P 527 Secretary General of ICSID, it appears that any forthcoming amendment to the ICSID
Arbitration Rules on costs will stop short of establishing such a default rule. Rather, the
only change currently envisioned is to provide ICSID arbitral tribunals and ad hoc
committees with additional criteria to be taken into account when considering any
allocation of costs, “including the outcome of the proceeding and conduct of the parties”.
(40) While in practice, ICSID tribunals seem to be adopting a loser-pays approach more
frequently, even absent an express default rule, the presence of a default position would
“be more likely to discourage speculative claims and dilatory tactics”, and “encourage
tribunals to provide more detailed reasoning when exercising their discretion to depart
from the default approach”. (41) Second, an option for States not content with the
proposed ICSID rule change would be to include language on the allocation of costs in their
treaty's ISDS provisions. (42) Third, parties to investment arbitrations and annulment
proceedings need to demand that costs be treated in a fully reasoned manner in the
award or decision, and investment arbitration tribunals and ad hoc committees need to
respond to this demand, specifically identifying in the award or decision the party

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 behavior which led to the allocation of costs in a particular manner. (43)

III Security for Costs in ISDS

Obtaining an order for the allocation of tribunal and party costs in line with the outcome of
the case is only half the battle. Obtaining payment of the costs award is another matter
altogether. It is also another area where there is significant imbalance between claimants
in investment arbitrations and respondent States.
States' concerns in this regard were reflected in the discussions of UNCITRAL Working
Group III on ISDS Reform in November-December 2017:
“A further area of concern mentioned related to difficulties faced by successful
respondent States in recovering costs from claimant investors. It was said that
investors might use shell companies, or might be impecunious, which left States
with no possibility of recovery. That was highlighted as another area of
imbalance as States had a permanent and financial standing, which investors
P 527 did not. It was said that that situation was aggravated by the fact that the
P 528 possibility of obtaining security for costs was not provided for under
investment treaties or in certain arbitration rules.” (44)
This concern was also reflected in the results of a survey by Judith Gill and Matthew
Hodgson published in September 2015. (45) That survey revealed “a common complaint
from states that they are not on a level playing field since investors are often ‘shell’
companies with neither the intention nor the means to make good on an adverse costs
decision”. (46) This places the parties in an asymmetric position. (47) The following
statistics from that survey are revealing:
– “In the investment treaty context at least, the suggestion that most awards are
complied with voluntarily is not well founded, at least so far as costs awards are
concerned. Only 52 per cent of costs awards in favor of claimants and 49 per cent in
favor of respondents were paid in full.” (48)
– “37 per cent of successful respondents were paid nothing at all, despite obtaining a
costs award in their favour, whereas only 19 per cent of successful claimants suffered
the same fate.” (49)
– “Even taking account of settlements reached (almost all of which involved only
partial payment), only 46 per cent of claimants paid (in full or part) on their own
initiative, although 71 per cent of respondents did so.” (50)
Anecdotal evidence also confirms the concerns of States that they are too often unable to
recover the cost of successfully defending an investment arbitration:
– In Kılıç v. Turkmenistan, the tribunal awarded the respondent State over US$ 1 million
in costs upon dismissal of the case for lack of jurisdiction, but the claimant refused to
pay. (51) Despite its failure to pay the costs award, the claimant still managed to find
funding for an annulment proceeding, which was also dismissed. The ad hoc
annulment committee ordered Kılıç to post security in the amount of the costs award
as a condition for stay of enforcement, (52) but no security was ever posted.
P 528
P 529
– In Erhas et al. v. Turkmenistan, a case discussed in Sect. IV(1) below in more detail, a
group of unrelated claimants all financed by the same third-party funder and
represented by its designated counsel attempted to bring a single arbitration
proceeding to collectively adjudicate their unrelated claims. The tribunal dismissed
the proceeding and issued a costs award, ordering the claimants to pay the
respondent State more than US$ 1 million in legal fees and expenses. (53) However,
the claimants and their funders have refused to pay any portion of the costs award.
The Gill and Hodgson survey reported the following incident:
– Counsel to another state complained that a subsidiary of one of the claimant
companies was transferred (in potentially fraudulent circumstances) during the
course of the proceeding and without disclosure to the tribunal. This ultimately
prevented enforcement of the costs award since the claimants were left without
substantial assets. (54)
The authors are also aware of an August 2016 UNCITRAL investment arbitration award
dismissing all US$ 573 million in claims against the Islamic Republic of Pakistan, and
ordering the claimants to pay to the respondent State £11 million in costs (out of an
apparent total of £12 million spent by the state in defending the claims). (55) According to
a 12 February 2018 report in connection with set-aside proceedings before the English
courts, that costs award remains unpaid to this day. (56)
These outcomes are manifestly unsatisfactory, and calls for reform are well founded. As
expressed by one respondent to the Gill and Hodgson survey, “increased availability of
security for costs is the ‘single change’ [I] would propose to the investment arbitration
regime precisely to discourage frivolous claims”. (57) In investment arbitrations, interim
orders which allow the respondent State to secure the amount representing its likely
arbitration costs are seldom granted. (58) The main argument against making security for

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 the respondent State's costs more frequently available is that it would create additional
barriers to the bringing of (meritorious) claims by injured investors. However, in an age
P 529 where third-party funding is readily available to claimants in investment arbitrations, the
P 530 weight of this argument is severely diminished. In fact, the prevalence of third-party
funding in investment arbitration exacerbates the asymmetry of funding and cost recovery
between claimants and States.
Claimants in investment arbitrations frequently turn to third-party funding because they
are impecunious and unable to afford the cost of bringing the arbitration themselves. This
is not uniformly the case, but it is certainly not unreasonable for a respondent State, faced
with a funded claim, to have serious concerns regarding the claimant's ability to pay an
adverse costs award. By definition, third-party funders are not parties to the arbitration
and are not subject to the tribunal's jurisdiction. Accordingly, unless their funding
agreement says otherwise, third-party funders are free to ignore any costs award rendered
against the claimant they fund. (59) Hence the asymmetry: the impecunious claimant
stands to benefit from a favorable award, but is judgment- proof insofar as an adverse
costs award is concerned because it has few or no assets; the third-party funder stands to
benefit from a favorable award, but is beyond the tribunal's jurisdiction to order payment
of the other side's costs, and may be shielded from an adverse costs award against the
claimant by the terms of the financing agreement. For the claimant and its funder, it's all
upside, and no downside. By contrast, in this scenario, the respondent State must fund its
own defense and has no possibility to recover the cost of its defense in the event of a
favorable outcome and award of costs.
This asymmetry can have a direct effect on the manner in which a claimant presents its
case, the incentive being to run every conceivable argument irrespective of merit and
inflate the quantum claimed to impossible heights, because there are no cost
consequences for such behavior. (60) These behaviors directly increase the cost of the
respondent State's defense, exacerbating the problem. (61)
P 530
P 531
Another problem is that a third-party funder may decide to withdraw its funding at any
time, leaving the claimant with no means to continue financing the case and the
respondent State with no recourse to recover its costs. Most funding agreements contain
provisions regarding discontinuance of the funding. (62) Such provisions “expose the
opposing party to costs risks (i.e. the risk of being unable to collect costs from a defaulting
entity no longer supported by [third-party funding]) in the event the funder should decide
to withdraw funding because the claim appears to have weakened over time”. (63) It is also
well known that “some [funders] have no intention to finance the proceeding and do not
even have money, they just hope to reach a settlement as quickly as possible and, if this
does not occur, they abandon the client”. (64) The result is that the respondent State is left
high and dry.
These are not theoretical problems. The Bozbey v. Turkmenistan case is an example. There,
the claimant postponed a hearing on jurisdiction and merits at the last minute after being
unable to fund the litigation, despite having previously been supported by a third-party
funder. (65) The case was suspended for over a year, presumably while the claimant tried
to find alternative funding sources, and was eventually terminated by order of the tribunal,
nearly three years after it had commenced. (66) The reader can guess whether the
respondent State was ever able to recover the cost of its defense.
Valle Verde v. Venezuela provides another example. (67) That ICSID case was twice stayed in
P 531 2013-2014 for non-payment of the required advances. (68) In May 2015, the Secretary-
P 532 General of ICSID moved that the tribunal discontinue the proceeding for lack of
payment. (69) That prompted the claimant to pay the required advances, but in June 2015,
claimant's counsel withdrew. (70) In September 2015, the claimant again resurfaced,
represented by new counsel, and filed another application requesting that Venezuela front
some of the cost of bringing the case. The tribunal denied that request in January 2016,
stating that “Valle Verde always knew about the possibility of having to cover Venezuela's
share and therefore cannot claim a breach of its procedural rights once this possibility
materialized”. (71) In September 2017, the proceedings were again stayed for non-payment
of the required advances, and the case remains stayed as of the date of the writing of this
article. (72) This kind of stop- start behavior by a claimant is frustrating and costly for the
respondent State, which is deprived of any legal certainly regarding the status of the case,
and nonetheless has to keep its defense team in place to respond if and when the
proceeding restarts, all with zero chance of recovering the cost of its defense if the
proceeding is (finally) discontinued, or if the State prevails.
Again, increased availability of security for costs for respondent States is the obvious
solution. (73)
It seems ridiculous that there is still any debate as to whether investment arbitration
tribunals have the power to order security for costs. Even when there is no express
P 532 reference to this power in the applicable arbitration rules, (74) the power to order security
P 533 for costs falls clearly under the tribunal's general powers to grant interim relief to
protect a party's legitimate interest in ensuring that at least part of the cost of its defense
will be recoverable. (75)

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 The ICSID tribunal in RSM v. Saint Lucia reasoned:
“[S]ecurity for costs can be ordered based on Article 47 ICSID Convention and
ICSID Arbitration Rule 39. The fact that ordering security for costs is not
expressly provided for in those provisions does not exclude the Tribunal's
jurisdiction to issue such measure.” (76)
In the UNCITRAL context, Georgios Petrochilos explains that a tribunal's power to order
security for costs is clearly encompassed in Art. 26(2)(c) of the 2010 UNCITRAL Rules, which
refers to orders requiring a party to “preserv[e] assets out of which a subsequent award
may be satisfied”. (77) Investment arbitration tribunals constituted under the 1976
UNCITRAL Rules adopted a similar approach, also relying on Art. 26. (78)
Nonetheless, and for obvious reasons, claimants in ICSID proceedings continue to argue
that the absence of an express provision on security for costs in the ICSID Convention and
P 533 Arbitration Rules means that no power to make such orders exists. To put this (non)issue to
P 534 rest, and as discussed by Meg Kinnear at the ICCA Congress in Sydney in April 2018, ICISD
proposes to amend its Arbitration Rules to include a new provision on security for costs
immediately after the current Rule 39 on provisional measures. This new provision will
specifically confirm the (pre-existing) power of ICSID tribunals to issue orders for security
for costs.
Closely related to this is the issue of the burden of proof and the standard to be applied by
investment tribunals when considering an application for security for costs. Tribunals in
ICSID proceedings have frequently required a State to show exceptional circumstances,
such as an element of abuse of process, to justify the making of an order for security for
costs. (79) One of the justifications for this high standard is that orders for security for costs
create additional barriers to claims, and that it would be unfair for a respondent State to
be able to prevent an impecunious claimant from bringing a claim in circumstances where
the claimant's impecuniousness was caused by the respondent State in the first place. The
purpose of this article is not to engage in a debate on the access-to-justice issue, but
rather to point out that this concern falls away when the claim is funded by a third party.
For practical purposes, the funding for the security ordered will presumably be provided
by the third-party funder, as a cost of the arbitration. Indeed, there are good reasons why
this should be a requirement for international arbitrations funded by third-party funders
where the claimant is unlikely to be in a position to satisfy an adverse costs award. As
articulated by one ICC tribunal:
“If a party has become manifestly insolvent and therefore is likely relying on
funds from third parties in order to finance its own costs of the arbitration, the
right to have access to arbitral justice can only be granted under the condition
that those third parties are also ready and willing to secure the other party's
reasonable costs to be incurred.” (80)
P 534
P 535
Other tribunals and commentators share this view. (81) And if the third-party funder has
done its homework and believes that the claim has a good chance of success, then there
can be no real objection to fronting the security necessary for the claim to proceed. Selvyn
Seidel of third -party funder, Fulbrook Management, has been quoted as saying,
“[p]ersonally I like to assume an obligation to pay adverse costs – because, if I believe in
the case, I don't think there are going to be adverse costs”. (82)
The ICCA-Queen Mary Task Force Report on Third-Party Funding in International Arbitration
(ICCA-QM TPF Report), (83) launched at the ICCA Congress in Sydney in April 2018, has
recommended certain principles to be applied by arbitral tribunals in awarding security
for costs, including that “applications for security for costs in international arbitration
should be determined irrespective of any funding arrangement, and on the basis of, among
P 535 other things, impecuniousness”, and that “the burden should be on the moving party, and it
P 536 is suggested that no party should have to defend a motion for security unless and until
the moving party makes a prima facie showing of impecuniousness. If no such showing is
made, then the motion should be denied outright.” (84) With respect, these
recommendations do not respond to the growing asymmetries between investors and
States in connection with third-party funded investment arbitrations. They are also
unworkable in practice.
As a practical matter, the presence of a third -party funder may be the first, and perhaps
the only indication that a claimant may be impecunious. While some claimants may have
some publicly available financial information, this is extremely rare. For public
companies, some financial information may be available at the group, or holding company
level, but obtaining any information as to the assets or financial standing of the precise
entity which is bringing the claim can be virtually impossible. The claimant may well be a
special purpose vehicle which was set up for tax purposes, or to try to take advantage of
certain treaty protections, but it may have little or no assets itself. For claimants who are
private companies or individuals, finding any financial information at all, let alone
accurate information, is even more difficult. The most likely scenario is that a respondent
State becomes aware of the existence of a third-party funder, but is unable to find any
publicly available information regarding the financial standing of the claimant. In these

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 circumstances, putting the burden on the respondent State to make a prima facie showing
of impecuniousness of the claimant, before the claimant needs to defend the motion, is
illogical and unjust. It is the claimant which holds the relevant information.
The tool one would normally use when confronted with this type of information imbalance,
in relation to jurisdictional or substantive issues in an investment arbitration, would be to
request disclosures or document discovery. There is no good reason why a similar
approach could not be used in relation to the issue of impecuniousness of the claimant.
Once a respondent State becomes aware of circumstances suggesting that the claimant
may be impecunious (including the fact that its claim is being funded by a third party, but
also perhaps other circumstances, such as failure to pay an advance on costs, or an SEC
disclosure) but not necessarily rising to the level of a prima facie showing, the respondent
should disclose such circumstances to the tribunal and be permitted to request that the
claimant provide information regarding its financial position and, in particular, for the
claimant to make a showing that it has the financial wherewithal to cover an adverse costs
order. Should the claimant fail to make such a showing, the tribunal must weigh the
competing interests of access to justice versus the respondent's right to recover the costs
of a successful defense. Where the claim is third-party funded, the scales tip markedly in
favor of ordering security for costs.
ICSID Additional Facility case Luis García Armas v. Venezuela, (85) and UNCITRAL (PCA) case
Manuel García Armas and others v. Venezuela, (86) provide an example of how this
P 536 approach can work in practice. The same tribunal sits in both of these pending cases. (87)
P 537 Following an application for US$ 5 million in security for costs by the respondent State
based on “strong indications that the family had already or would become insolvent”, (88)
the claimants were first required to submit a redacted version of their funding agreement,
with the full agreement being submitted in camera to the tribunal to review whether the
redactions were appropriate. In the context of that in camera review, the tribunal found
that respondent was indeed entitled to see the entirety of the document, as the funding
agreement contained (otherwise redacted) language that showed that the funder would
not cover any adverse costs order. The tribunal then proceeded, at the respondent's
request, to order the claimants to show not only that they had sufficient assets, but also
that they had sufficient revenue streams, to cover any adverse costs order. (89) The
respondent State's application for security for costs is pending, but the tribunal's
approach will ensure that it has access to all of the necessary information to determine
whether an order for security for costs is appropriate and just in the circumstances of the
case, and in June 2018, the tribunal ordered claimants to post a US$ 1.5 million bond as
security, while declining to order respondent to pay any part of the advance on the
tribunal's costs and fees. (90)
In this context, it is important to remark that a mere showing by the claimant that its third-
party funder has agreed to pay any adverse costs award at the end of the proceeding is not
sufficient to protect the respondent State's interests. First, the respondent State is not a
party to that agreement and cannot enforce its terms. Second, the third-party funder is not
subject to the jurisdiction of the arbitral tribunal which is, in any event, functus officio after
the issuance of the final award and no longer in a position to coerce compliance through
its jurisdiction over the claimant. Third, there is still the risk that the third-party funder
will walk away from the funding agreement during the proceeding, rendering its promise to
pay any adverse costs order of zero utility. Rather, if a third-party funder has agreed to pay
any adverse costs award, then it should have no problem putting up a guarantee at the
outset of the proceeding, or at the point when the issue of the claimant's impecuniousness
otherwise arises.
A capable tribunal will manage the process of enquiring into the claimant's financial
standing as well as its funding arrangements in an efficient manner to minimize delays. Any
small delay will in any event be justified given the importance of protecting the interest of
a respondent State in being able to enforce a favorable costs award. Moreover, what is at
P 537 stake is much more than an unpaid costs award. Concrete measures must be taken to
P 538 address the asymmetries in funding and cost recovery as between investors and States
in investment arbitration, which have been a key contributing factor to the diminished
confidence of States in ISDS as a system.
During the public comment period on the Draft Report of the ICCA-Queen Mary Task Force
on Third- Party Funding in International Arbitration, (91) one proposal to address this
imbalance was “the adoption of a presumption that security for costs would be posted in
every case, and a parallel presumption that the costs of security (i.e., the cost of funding,
the cost of ATE insurance premiums, or the cost for a bank guarantee) would be shifted at
the end of the case, along with other costs”. (92) As the ICCA-QM TPF Report notes, “[u]nder
this proposal, each party would be made financially whole at the conclusion of the case – if
the state prevails it would be sure to recover on any costs award, and if the investor
prevails it would recover not only its legal costs, but also costs associated with security”.
(93) Both parties would also arguably benefit by the reduction in, or elimination of, the
time and costs associated with applying for, or resisting, an order for security for costs. (94)
As noted in the ICCA-QM TPF Report, this proposal enjoyed (at least tentative) support from
both funders and counsel who routinely represent States. (95)
In the search for a balanced approach, the rules on security for costs in jurisdictions with
significant experience with third-party funding in domestic litigation are instructive. In the

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 United Kingdom, for example, the Civil Procedure Rules allow courts to order security for
costs to be provided by third parties who fund litigation on a commercial basis. (96)
Addressing the issue of security for costs, the High Court has stated that the test was not
whether the circumstances were “exceptional”, but whether they were “just”. (97)
Traditionally, the English courts have limited the amount of a security for costs order
against a third-party funder to the upper limit of the fund's contribution to funding the
litigation. (98) However, a more recent decision makes it clear that the English courts have
started taking a broader approach in exercising their discretion in relation to security for
costs, scrutinizing the financial standing and resources of both claimants and their third-
P 538 party funders, and awarding security for costs in excess of the funder's contribution
P 539 where the interests of justice so require. (99) Likewise, in Australia, if the litigation is
funded by a third-party funder, the court will generally order security for costs, considering
that the third-party funder intends to benefit from any recovery. (100) Australian courts
have general powers to make costs orders against parties and non-parties alike, (101) and
courts can order costs against a third-party funder in circumstances where they have an
interest in the subject of the litigation. (102) In 2016, for example, the Court of Appeal of the
Supreme Court of Victoria went beyond the terms of the order for security for costs and
upheld a non-party costs order against a third-party funder, where the amount ordered by
way of security for costs was insufficient to cover the defendant's actual costs. (103) Like
their English equivalents, the Australian courts scrutinize the funding agreement, and the
capacity of both claimants and third-party funders to meet the costs, (104) and have
focused on whether the “interests of justice” require orders for security of costs, and costs
orders, rather than on whether or not “exceptional circumstances” exist.
The experience of these national jurisdictions with a history of dealing with funded
litigation provides meaningful guidance as to the right balance to be struck when assessing
security for costs applications in funded arbitrations. Requiring a respondent State to
make a showing of “exceptional circumstances”, such as abuse of process, is unreasonable
and means that orders of security for costs have become the unicorns of investment
arbitration. Everyone has heard of them, and apparently they are beautiful creatures, but
no one has actually seen one. Investment arbitration tribunals should instead be striving
to achieve just outcomes, having scrutinized the funding agreement, and the capacity of
both claimants and their funders to meet any adverse costs order. Since they do not have
P 539 jurisdiction to make adverse costs orders directly against third-party funders at the end of
P 540 a case in the event that the claimant cannot pay, investment tribunals must make more
frequent use of early orders for security for costs, which can then be advanced by the
funder at a point in the proceeding when it is incentivized to do so. In short, third-party
funders who stand to benefit from the outcome of a case by funding an impecunious
claimant should also assume the risk of an adverse costs award.

IV Third-Party Funding in Investment Arbitration

At the April 2018 meeting of UNCITRAL Working Group III in New York, States continued to
voice concerns regarding third-party funding in investment arbitration. (105) The report
from that meeting records:
“89. Regarding the practice of third-party funding, information was provided
indicating that the practice was increasing in ISDS. Serious concerns were
expressed in that regard. It was said that such practice raised ethical issues,
and might have negative impact on the procedure. It was further pointed out
that third-party funders might gain excessive control or influence over the
arbitration process, which could lead to frivolous claims and discouragement of
settlements.
(….)
92. The following possible solutions were suggested for further consideration: (i)
prohibiting third-party funding entirely in ISDS cases; (ii) regulating third-party
funding, for example, by introducing mechanisms to ensure transparency in the
arrangements (which could also assist in ensuring the impartiality of the
arbitrators).” (106)
The ICCA-QM TPF Report also observes that “particularly in the international investment
context, there were arguments to prohibit third-party funding because of its asserted
consequences for the real and perceived legitimacy of investment arbitration”. (107) The
draft of that same report noted that the arguments surrounding third-party funding draw
significantly on anecdotal evidence, and “are often premised on factual assumptions, for
which empirical information regarding third-party funding specifically is not generally
available”. (108) Steinitz and Field observe that, despite the importance of the litigation
funding industry and the robust academic debate surrounding the benefits and risks
associated with it, there is a “complete absence of information about or discussion of
litigation finance contracting”. (109) That is, there is very little publicly known about the
actual terms of litigation financing, despite the fact that it is precisely these terms which
give rise to the benefits and risks that we all sit around discussing. In short, “[l]itigation
finance is an opaque industry”. (110)
P 540
P 541

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 This article likewise relies on anecdotal evidence, drawing on real experiences which serve
to highlight the distortive effects of third-party funding in investment arbitration, including
its tendency to: (1) lead to speculative funding of cases lacking in merit; (2) incentivize the
accumulation and coordination of claims by funders in the manner of a plaintiffs' attorney;
(3) amplify the quantum claimed by investors; (4) alter the parties' normal settlement
incentives; and (5) accord third-party funders disconcerting influence in the appointment
of arbitrators, to the detriment of arbitrators' independent exercise of judgment.

1 Speculative Funding of Cases Lacking in Merit

The US Chamber of Commerce has characterized third-party litigation funding as a “clear
and present danger to the impartial and efficient administration of civil justice in the
United States”. (111) In 2012, the Chamber made a proposal to regulate third-party
litigation funding, in which it stated that litigation funding could be expected to increase
the volume of abusive litigation, undermine the control of plaintiffs and lawyers over
litigation, deter plaintiffs from settling and thus prolonging litigation, compromise the
professional independence of attorneys, and more generally corrupt the attorney-client
relationship. (112)
In response to the concern that third-party funding in ISDS will result in an increase in non-
meritorious claims, the third-party funding industry has provided a number of responses
and statistics, many of which were picked up in the ICCA-QM TPF Report. First, there is the
claim that third-party funders are sufficiently detached, and skilled, to make an
independent, realistic assessment of the merits and value of a case. In the abstract, this
argument is not unreasonable. Certainly, third-party funders have no incentive to back a
losing claim, and they generally have skilled teams of lawyers who assess the claim before
determining whether to invest. But studying the form guide doesn't mean that the punter
will pick the winning horse. The fact that the third-party funder has studied what is known
about the case at a certain point (usually before anything is known of the respondent
State's position) and is financially incentivized to bet on a winner does not mean that
because the funder decides to invest, the case is bulletproof, or even that it is likely to end
in a result favorable to the investor. It also does not mean that a fundamentally
unmeritorious claim, which should never have been brought, will not receive third-party
funding.
In this context, the authors of the ICCA-QM TPF Report apparently draw comfort from the
following: “Leading funders report an average review-acceptance rate of 10-1, meaning that
for every 10 cases they reviewed, they only agreed to fund one case.” (113)
P 541 With respect, even if true, such a statistic is meaningless in qualitative terms. It tells us
P 542 precisely nothing about the quality of that one-in-ten claim which receives funding; only
that, for any number of reasons, the third-party funder determined that it was better than
nine other options.
The fact is that investing in a claim at the outset of a case, when so little is known about
the asset, is highly speculative. Steinitz and Field draw a parallel between venture capital
and litigation finance. They note that the two endeavors “have a similar risk profile: they
invest in high-risk assets with the hope that, even if many of their investments fail, a
handful will be wildly successful.” (114) The same commentators observe that “[v]enture
capitalists and litigation funders have similar (mid-length) investment timelines; they
represent pools of investors' capital; and their profitability is measured across a portfolio
of investments, not a single investment”. (115) The comparison is apt, and the argument
that there is no basis for any concern that third-party funders will ever back unmeritorious
claims is terribly flawed. A funder may well back a claim which has a lower percentage
chance of success (based on a very early assessment of the case), or which relies on a novel
legal argument, or which has a high chance of failing on jurisdiction but good chances on
the merits, provided the potential upside is sufficient, and provided the gamble fits into
the risk profile of the funder's claim portfolio.
The authors' and their firm's own experience of third-party funding in investment
arbitration underscores the point: third-party funders are willing to fund investment
arbitrations which, from the outset, range from significantly to highly speculative when the
potential upside is sufficient. This experience stems inter alia from a series of claims
brought by Turkish investors against Turkmenistan under the Turkey-Turkmenistan bilateral
investment treaty (BIT), all of which arose out of the construction industry.
The first of these cases was Kılıç v. Turkmenistan, which was registered before ICSID on 19
January 2010. (116) In its Decision on Art. VII.2 of the Turkey-Turkmenistan BIT dated 7 May
2012, the tribunal unanimously found that that provision requires an investor:
“to submit its dispute to the courts of the Contracting Party with which a dispute
has arisen, and must not have received a final award within one year from the
date of submission of its case to the local courts, before it can institute
arbitration proceedings in one of the fora in the manner permitted by Article
VII.2”. (117)
Then, in its 2 July 2013 award, the Kılıç tribunal ruled: (i) that the requirement to comply
with Art. VII.2 of the BIT, and to have prior recourse to the Turkmen courts, constitutes a
precondition to the existence of the Tribunal's jurisdiction, and (ii) that the claimant's

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 failure to give effect to that requirement meant that the Tribunal did not have jurisdiction
over the dispute. The claimant's claims were dismissed in their entirety for lack of
P 542 jurisdiction, and the claimant was ordered to pay to the respondent State 50 percent of its
P 543 reasonable legal costs and disbursements plus 75 percent of the costs incurred by the
tribunal and ICSID following the Decision of 7 May 2012. (118) Arbitrator William W. Park
issued a separate opinion in which he found that the claimant's failure to fulfill the
requirement to submit the dispute to the local courts was a procedural flaw that went to
the ripeness, or admissibility, of the claimant's claims, not to jurisdiction. (119) Under both
approaches, the result was that, unless a Turkish claimant's claims against Turkmenistan
had first been submitted to Turkmen courts and no final award had been received within
one year from the date of submission, then the ICSID tribunal could not hear those claims
under Art. VII.2 of the Turkey-Turkmenistan BIT.
On 20 December 2010, another case brought by a Turkish claimant against Turkmenistan
under the Turkey-Turkmenistan BIT was registered before ICSID, İçkale v. Turkmenistan.
(120) There, the respondent State's objections to jurisdiction on the basis of Art. VII.2 of the
Turkey-Turkmenistan BIT were not bifurcated. In its award dated 8 March 2016, the İçkale
tribunal decided by majority that the requirement to have prior recourse to the Turkmen
courts in Art. VII.2 of the BIT was a procedural requirement that related to the admissibility
of the claim rather than the tribunal's jurisdiction. (121) The majority also ruled that since a
number of aspects of the dispute had been the subject of litigation before the Turkmen
courts (e.g., for the application of delay penalties and termination of abandoned
contracts), “it would be inappropriate … to require that the Claimant subsequently
commence further court proceedings under the relevant Contracts seeking relief
thereunder and/or under the Treaty, given that the Contracts at issue had already been
terminated by Turkmen courts”. (122) Arbitrator Philippe Sands issued a Partially
Dissenting Opinion on both points, finding (i) that the requirement for prior recourse to
national courts went to the tribunal's jurisdiction, not merely to admissibility of the claims,
and (ii) that in any event, the Turkmen court proceedings which had been brought did not
fulfill the requirement for prior recourse to national courts: those proceedings had not
been brought by the claimant, they involved certain breach of contract claims but did not
concern any allegation of a violation of the BIT, and importantly, “six of the thirteen
contracts appear never to have been raised before any national court in Turkmenistan, not
for breach of contract or any other cause of action”. (123)
P 543
P 544
Despite their divergent views on Art. VII.2 of the Turkey-Turkmenistan BIT, all three
members of the İçkale tribunal found that the claimant was not entitled to import the fair
and equitable treatment, full protection and security, non-discrimination, and umbrella
clause protections from other investment treaties concluded by Turkmenistan with third
States on the basis of the most-favored-nation (MFN) clause in Art. II.2 of the BIT. (124) That
meant that all of the claimant's claims, except for expropriation, were dismissed. The
İçkale tribunal went on to find by majority that there had been no expropriation. (125)
Thus, all of the claimant's claims were dismissed in their entirety for lack of merit, and the
claimant was ordered to pay the respondent State more than US$ 1.7 million in costs. (126)
In parallel with the İçkale case, a third case was brought by a Turkish claimant and its main
shareholder against Turkmenistan under the Turkey-Turkmenistan BIT. This case,
Muhammet Çap & Sehil v. Turkmenistan, was registered at ICSID on 26 March 2012. (127) It
emerged that a third -party funder was funding the claim. At the time funding was
obtained for the Sehil claim:
– the Kılıç tribunal had not yet rendered its Decision on Art. VII.2 of the Turkey-
Turkmenistan BIT which found that the local court requirement was a mandatory
provision and ordered the claimant to pay costs;
– the Kılıç tribunal had not yet issued its Award dismissing the claimant's claims in
their entirety for lack of jurisdiction and ordering the claimant to pay costs; and
– the İçkale tribunal had not yet issued its unanimous award finding that no
substantive provisions could be imported into the Turkey-Turkmenistan BIT via the
MFN clause, with the majority dismissing all of the claimant's claims and awarding
costs to the respondent.
Nonetheless, these must have been issues which were examined by the funder's legal team
prior to agreeing to fund the Sehil claim. The existence of the dissenting opinions of
Professor Park in Kılıç and Professor Sands in İçkale of course show that different
arbitrators were capable of having different views on, for example, the
jurisdiction/admissibility issue. But that does not change the fact that, from its inception,
the Sehil claim faced very significant legal hurdles, which were obvious from the plain
language of the BIT in question, before anything was known about the respondent State's
defenses on the merits or any proper exploration of the facts had been undertaken. And
yet, the Sehil claim was apparently that one-in-ten case which received funding.
P 544
P 545
Erhas & others v. Turkmenistan, also brought under the Turkey-Turkmenistan BIT, (128) is
another example. In this UNCITRAL case, twenty-two separate Turkish claimants sought to
bring – in a single class action-type proceeding – eleven distinct claims against

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 Turkmenistan, involving at least thirty-one different projects spanning a period of
approximately twenty years and ranging across numerous industries, including a water
bottling business, various factories, and a multitude of different construction projects.
Indeed, the only common link between the claims was that a single third-party funder was
funding them. As one commentator described it, FTI Consulting and Global Arbitration and
Litigation Services essentially “convinced half a dozen Turkish companies … to rely on its
alleged financing to initiate arbitration against Turkmenistan”. (129) Turkmenistan
objected that it did not consent to such a joint arbitration claim, but ultimately agreed to
appoint an arbitrator following agreement with the claimants that the tribunal would
address Turkmenistan's preliminary objection at the outset of the case. In its 8 June 2015
award, the Erhas tribunal declined jurisdiction over the jointly submitted case, finding
“‘that consent to arbitration in a treaty based context does not imply the acceptance to
the joint adjudication of entirely unrelated claims made by unrelated claimants in the
context of different and unrelated investments’”. (130) The claims in this case were, in the
tribunal's words, “‘entirely unrelated’”. (131) The majority ordered the claimants to pay the
costs of the proceedings and a reasonable portion of the respondent's legal fees and
expenses. (132) Viewed under any lens, the Erhas & others claim was a highly speculative
one. And yet, it received third-party funding.
The notion that third-party funders finance only meritorious claims, which too many in the
international arbitration community seem to have swallowed, is patently naïve. (133) The
ICCA-QM TPF Report comments on the existence, and rising prominence, of portfolio
investment strategies by third-party funders, noting that a funder “may well provide funds
for twenty or more cases at a time, each of them with different chances of success and
different amounts at stake”. (134) The Report acknowledges that this diversification of risk
“may make initial assessment of risk less essential” and that, as a consequence, a funder's
assessment of these cases may in practice be less rigorous than in individually selected
P 545 cases. (135) On this issue, the Report concludes that, “[t]o the extent portfolio funding
P 546 becomes more prevalent, it may require reconsideration of issues relating to how cases
are assessed for funding”. (136) It would seem, however, that the actual practices of funders
are far more advanced along those lines than the ICCA-QM TPF Report contemplates. The
following statement from Burford Capital's Annual Report from 2010 (eight years ago in a
fast-moving industry) speaks for itself:
“Not every investment will meet or exceed expectations. The model we use is
very similar to that employed in venture capital, where poor results are
expected from some investments and are balanced against high returns from
other investments, in an effort to achieve desirable portfolio-wide returns….
[W]e regularly expect to have investments that disappoint, just as we regularly
expect surprises to the upside as well…. If we shy away from risk for fear of loss,
as some litigation investors do, we will not maximise the potential performance
of this portfolio.” (137)
As the co-founder of third-party funder Calunius Capital puts it, “[t]he perception that you
need strong merits is wrong – there's a price for everything”. (138)
During the preparation of this article and in the context of the authors' consultation with
other law firms with significant experience representing States in investment arbitration,
one lawyer commented:
“Often, the funder is taking a flyer on a case that may have only a 40 percent
chance of success, or worse. If you talk to funders (which I have), they will
confide that they'll take a case on a coin flip chance (or worse). So the funding is
not an access to justice issue, it's more like a patent troll issue. The funder is
taking fairly worthless claims and then pumping them up into economic
blackmail.”
The fact is that the right price and terms of the funding agreement can make a weak case
P 546 worth funding. (139) In addition, there are new products being developed by funders to
P 547 further diversify their risk. Selvyn Seidel of Fulbrook Management explains:
“There are other products we're considering…. Anything from derivatives, where
we fund a single motion rather than the entire case, to a basket of five or six
cases put together as a mini-portfolio to give some security through
diversification. There is even the possibility – heaven forbid – that we could
fund a case and then resell it to third parties, a bit like credit default swaps.”
(140)
This is no longer just a possibility. An arbitration practitioner with experience advising
both established funds, and some investment banks which are now moving into the funding
space, confirmed to the authors:
“In the process of syndicating the debts attributable to funding, the level of
scrutiny and due diligence by the hedge funds to which the funding is being
syndicated is almost non-existent. They are acquiring such debt on trust, based
on a combination of who the first reviewing law firm was for the funder and a
ravenous desire to acquire risk.”

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 The same lawyer compared this practice to the sub-prime market “where debt was
wrapped and rated with little awareness of the underlying asset”. His concern is the
scenario where this debt becomes “a significant ‘prop’ for the arbitration market which
might ultimately undermine its integrity”.
In short, the fear that third-party funding will lead to more, and more speculative, claims is
founded. The U.S. Chamber Institute for Legal Reform has recognized that third-party
litigation funding can be “expected to increase the volume of abusive litigation” as funders
“hedge any ‘investment’ against their entire portfolio of cases”. (141) The risk which is
supposed to moderate the bringing of frivolous claims is being diversified away to the
point where there is no longer any sense of responsibility for the cost of bringing the claim,
or the manner in which the case is run, or the costs incurred by the other party. The
claimant, having started the claim, passes the risk to a funder, and “[i]f the money doesn't
come, the claimant has nothing to lose, but the defendant (a government) has still been
forced to pay top-tier firms for their services”. (142)
P 547
P 548
2 Accumulation of Claims in the Manner of a Plaintiffs' Attorney
Even given all of the arguments above, one could still ask, what would make a third-party
funder fund a case such as Erhas & others v. Turkmenistan?
The authors can imagine two possible answers. The first is relatively simple. In the
tradition of plaintiffs' attorneys in the United States, collecting numerous claims means
bargaining power and cost savings. A respondent State faced with the possible cost of
defending eleven separate investor-State arbitrations brought by twenty-two different
claimants relating to at least thirty-one different projects may indeed be inclined to
settle. The effect of third-party funding on settlement incentives is discussed in more
detail below. But there is no doubt that the more claims a single funder can collect against
one respondent State, the more pressure it can bring to bear on that State, and the higher
the likelihood of negotiating a quick settlement and a financially favorable outcome for
the fund. This is yet another reason why the notion that third-party funders are financially
incentivized to fund only meritorious claims rings hollow. Third-party funders are
financially incentivized to reach early settlements where possible. (143) And what better
way to increase the odds of early settlement than to accumulate as many claims as
possible against the same respondent State? (144) The individual merits of each case are
immediately of less importance: quantity, not quality.
The second reason is more complex, and even more concerning. Corporate Europe
P 548 Observatory reports that “[i]n their quest for selling more services, some litigation funders
P 549 are also exploring ‘less passive business-models’, providing for more influence on the
management and strategies of arbitrations”. (145) This includes managing and strategizing
across multiple cases against the same respondent State. The authors have seen entire
paragraphs from a claimant's memorial in one confidential investor-State proceeding
appear word-for-word in a second investor-State case, brought by a different claimant,
represented by a different law firm. This occurrence raised a few eyebrows, and inspired
the questions: could the same third-party funder be behind both claims? Is that how the
information was shared? Some letter-writing and an application for security for costs later
and, indeed, the existence of a third -party funder was revealed. Putting aside any breach
of confidentiality concerns, States need to understand that funders also coordinate
multiple claims against a single respondent State to maximize the possibility of favorable
outcomes across the claims, seeking out potential claimants with similar grievances
(perhaps affected by the same State measure), and then deciding which claim in the series
should proceed first as the most likely to generate a favorable “precedent” on which the
other claimants, with perhaps lower initial probabilities of success, can then rely.
This cross -case coordination is unlikely to stop at cases against a single respondent State.
If it is not already happening, Maya Steinitz predicts that financiers will likely “invest in
rule change”, selecting a claim to fund not because of its individual risk profile, but
because it provides an opportunity to advance certain arguments or procedural changes
which, if successful, will set a favorable precedent, leaving a lasting mark on the whole
investment arbitration system and maximizing the future value of funders' portfolios. (146)
One can indeed imagine this having been a consideration in the decision to fund the Erhas
case. Imagine if the claimants had been successful in their petition to bring multiple,
unrelated claims against a single respondent State in a single proceeding. For the fund,
imagine the value of the accumulated claims (increased potential upside) and the cost
savings (decreased investment) associated with bringing them all in one proceeding. In an
ad hoc system with no precedent and no appeal structure, where arbitrators are free to
render decisions on points of law in accordance with their own views, (147) and so,
therefore, the choice of arbitrator can dictate the outcome of the case, no one can say that
a finding on jurisdiction favorable to the Erhas claimants was an impossibility. For the
fund, such a gamble on a very slim chance of success may indeed have been worthwhile.
A question in the minds of the authors is whether any of this can have been within the
contemplation of the contracting States when they included ISDS provisions in their BITs.
Could they have imagined that a very large portion of the benefit of the rights being
P 549 accorded to the other State's investors would ultimately inure to a category of venture
P 550

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 P 550 capitalists of undisclosed nationality? Did the contracting States contemplate and
consent to a system of ISDS where highly speculative claims would be brought against
them, funded by third-party funders trying either to pressure a settlement or even to
engineer legal outcomes which will favor their investment portfolios going forward? (148) It
is not the purpose of this paper to discuss the jurisdictional implications for an investor's
claim against a State when that claim is sold, or control over that claim is sold. (149) The
broader issue is whether this phenomenon is changing the economics of access to
investment arbitration in a way which is beyond what was originally contemplated by the
States that designed it in the first place, and what can be done to manage these changes.

3 Amplified Quantum Claimed by Investors

The distortive effect of “anchoring” by claimants is not a new complaint.
It should come as no surprise that claimants in any legal system tend to begin their cases
with exaggerated claims of compensation, whether it be a personal injury claim of millions
of dollars for a coffee spill or a multibillion-dollar expropriation claim. The technique is
known as “anchoring”. The exaggerated claim is made in the hope that a less exaggerated
but still indefensible amount will seem reasonable by comparison. In a mature legal
system with professional judges, there are checks and balances to curb abuse, but in the
world of ISDS, the risk of abuse is much higher. That is especially true in cases requiring
complex valuations of businesses, often involving natural resources, which are typically at
issue in investor-state arbitration. (150)
The practice of claiming a phenomenally high and unsupported quantum of damages in
the hope of achieving an award of a lower, but still unsupported, amount is as old as
dispute resolution itself, although certainly it has taken on a new significance in this age of
mega-claims. (151) Anchoring is another area where the participation of third-party funders
generates a perceptible negative impact.
Whatever a third-party funder's own internal estimates of reasonable recovery in a given
investment arbitration might be, in the proceeding itself, a funder's only incentive is to
inflate the damages claimed to the highest amount possible for the purpose of anchoring
the damages discussion in the arbitration and achieving the best possible, if still
unreasonably high, economic result. This is not a theoretical risk – it occurs. Moreover,
there are currently no checks on, or consequences for, funders and claimants which engage
in this practice. As discussed above, security for costs orders are rare, and if it turns out
that the claim was exaggerated and the claimant is awarded significantly less, no one bats
an eye.
P 550
P 551
In one recent investor-State case, evidence on the record revealed that, prior to the
involvement of a third-party funder, the investor had valued its own losses as a result of
the State's actions at approximately US$155 million. This amount was stated in the context
of negotiations when legal action was already contemplated (suggesting that the investor
had already received legal advice), and can reasonably be understood as representing the
upper end of the investor's expected recovery. Moreover, there were no circumstances that
would suggest that the investor was not sophisticated, or had not done sufficient work at
that stage to come to a realistic estimation of its own losses.
Less than a year later, the investor entered into a third-party funding agreement and, in
the months that followed, commenced an ICSID arbitration. In its request for arbitration,
the investor claimed US$ 300 million, double the upper end of the investor's own expected
recovery just eighteen months before. Nothing else had happened in the interim to
increase the investor's alleged damage, just the signing of the third-party funding
agreement. Now, if the terms of that funding agreement provided that the funder would
receive 50 percent of any damages ultimately awarded, it makes perfect sense to try to
increase the quantum claimed, by any means possible, so that 50 percent of the award will
in fact fully compensate the investor for its alleged, real damage. After all, there is
currently absolutely no reason not to do so. As discussed above, that needs to change.

4 Alteration of the Parties' Normal Settlement Incentives

The ICCA-QM TPF Report highlights a concern regarding the “extent to which the funder will
take over control of the arbitration and the claimant's decision-making process (e.g.,
whether, when and at what level to settle the claim)”. (152) Many funding agreements
require the approval of the funder before the funded claimant can settle the dispute.
Some funding agreements permit a claimant to settle without the funder's agreement, but
only if the settlement offer is above a certain amount. The terms of a funding agreement
may also reduce the claimant's percentage share of any recovery in the event of a
settlement below a certain amount. These types of terms in a funding agreement can have
a significant impact on the possibility for a State to settle a funded claim.
For example, even if it appeared reasonable to prevent or discourage settlement below a
certain sum (or floor) when the third-party funder first evaluated a dispute, no matter how
sophisticated the funder's review was, it occurred before anything was known of the
respondent State's position, before significant development of the facts of the case, before
document production, and before the hearing. As a case progresses and more is known, the

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 prospects of a financial outcome above that floor can diminish. Imagine a respondent
State's frustration upon learning from a claimant that, given how the case has proceeded,
it would be happy to accept an offer of US$ x, but it cannot because of the terms of its
third-party funding agreement.
The terms of a third-party funding agreement also often fail to take into account other
incentives to settle. Where a claimant might otherwise settle a case, for example for non-
economic reasons such as resuming business in the host country or obtaining injunctive
relief, a third-party funder may be solely focused on financial gain.
P 551
P 552
As Steinitz and Field observe:
“A funder's objective is to maximize profits for the benefit of its investors. The
funder also has a relationship with the plaintiff. These competing loyalties have
a concrete consequence: in some scenarios, a funder may have objectives
extrinsic to the claim, leading it to push for outcomes for its own benefit that
disadvantage the plaintiff.” (153)
Indeed, some have argued that third-party funding results in a “Bermuda Triangle” of
divergent interests, often between the claimant, the counsel representing the claimant,
and the third-party funders. (154)
Third-party funding not only affects a claimant's settlement incentives. Respondent States
are less inclined even to enter into settlement negotiations when they know that a claim is
funded by a third-party funder. No respondent State wants to get a reputation as a
“settler”. That will only incentivize more claims funded by funders against that State in the
hope of a quick and painless settlement (a fast and lucrative return on the funder's
investment). Rather, in this age of third-party funded investment arbitrations, a State has a
strong incentive to generate a reputation as a “fighter”, ensuring that obtaining any money
from the State will be expensive, time-consuming, and difficult.
Respondent States also have a legitimate concern that the fruits of any settlement of what
may be a meritorious claim should not go into the pocket of a fund which may then turn
around and use that money to fund another suit against the same State (since the State is
now known as a “settler”). Thus, settling even meritorious claims becomes more
complicated when a third-party funder is involved.
Systematic disclosure of the existence and identity of a third -party funder in an
investment arbitration is essential so that a respondent State can know who the real
parties in interest are, with whom it is really negotiating, whether the funder is funding
other claims against it, and whether it can impose conditions on any settlement of a claim
which protect it from the ignominy of having its own money used to fund future claims
against it.

5 Funders' Influence in Arbitrators' Decision-Making

The risk of potential conflicts of interest between a particular third-party funder and a
given arbitrator is discussed at length elsewhere, (155) and there is an emerging consensus
in favor of mandatory, systematic disclosure of the existence and identity of a third-party
P 552 funder in any international arbitration claim as a potential solution. (156) This consensus is
P 553 also reflected in the text of a number of recent treaties. (157) However, this solution
does not address the risk of more general, systemic influence of third-party funders in
arbitrators' decision-making.
One aspect of the third-party funders/arbitrators conflict discussion which has received
less attention is the risk that, because arbitrators are aware of the role that third-party
funders play in their appointment, or because they also have practices as counsel and
have economic relationships with the funders that fund their clients' claims, they will be
influenced to issue decisions favorable to the third-party funding industry, or influenced to
not issue decisions viewed as unfavorable to the industry.
We discussed above the incentive for third-party funders to fund claims, not (or not solely)
on the basis of the potential for economic return, but also in the hope of establishing
procedural or substantive precedents tending to maximize the potential for future
economic gain from the fund's investment portfolio. Is there a danger that arbitrators,
conscious of the influence of third-party funders in the business of international
arbitration, will be inclined to favor the interests of the third-party funding industry in
their decisions?
In Sehil v. Turkmenistan, the tribunal ordered the claimants to disclose “whether their
claims in this arbitration are being funded by a third -party/parties, and, if so, the names
and details of the third-party funder(s) and the terms of that funding” (emphasis added).
P 553 (158) The tribunal stated that it was “sympathetic to Respondent's concern that if it is
P 554 successful in this arbitration and a costs order is made in its favour, Claimants will be
unable to meet these costs and the third-party funder will have disappeared as it is not a
party to this arbitration”. (159) When the claimants refused to disclose the funding
agreement, the Sehil tribunal warned that it may draw adverse inferences. (160) In short,
the Sehil tribunal determined that the terms of the funding agreement were relevant to the

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 issue of security for costs and therefore ordered their disclosure. The terms of a funding
agreement may also be of fundamental relevance to the issue of true ownership of a claim
and jurisdiction. (161) Given that third-party funders have worked hard to maintain the
confidentiality of the terms of their funding arrangements, one wonders how many
arbitrators will be willing to order the disclosure of such agreements when necessary to
properly consider a security for costs application or to ascertain whether a claimant
remains the actual owner of the claim in dispute, and how many may, with one eye on their
future income stream, decline to do so.
Arbitrator Gavan Griffith's opinion in RSM v. Saint Lucia was critical of the activities of
third-party funders in investment arbitration, whom he characterized as “a new industry of
mercantile adventurers”. (162) He considered that third-party funding would normally
provide the “exceptional circumstances” required to grant security for costs since
otherwise the funder would enjoy the upside of the case but not assume the corresponding
risk (a “gambler's Nirvana”). (163) This led the claimant in that case to propose his
disqualification, (164) and “drew a sharp response, especially from litigation financiers”.
(165)
The institution of safeguards to insulate arbitrators in investment arbitrations from the
influence of individual third-party funders, and from the third -party funding industry in
general, is long overdue. The only real solution to this, and indeed other conflicts of
interest which are the direct and natural result of arbitrators also acting as counsel, is
simply to ban the practice of “double-hatting”. Lawyers who act as counsel should be
prohibited from being appointed as arbitrators in investment arbitrations, or as ad-hoc
committee members. Arbitrators and ad hoc committee members must also disclose as a
matter of course any other relationship they may have with third-party funders, whether as
a board member or an advisor, or in any other capacity. A consensus is growing, at least
among States, that the practice of double-hatting should be prohibited in investment
arbitration.
P 554 In March 2018, and in the context of their ongoing review and implementation of the
P 555 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), New
Zealand, Canada and Chile issued a Joint Declaration on Investor State Dispute Settlement.
The Joint Declaration provides in relevant part:
“Intend to promote transparent conduct rules on the ethical responsibilities of
arbitrators in ISDS procedures, including conflict of interest rules that prevent
arbitrators from acting, for the duration of their appointment, as counsel or
party appointed expert or witness in other proceedings….” (166)
In May 2018, the Netherlands published a new draft model bilateral investment treaty, Art.
20.5 of which provides in relevant part:
“Members of the Tribunal shall not act as legal counsel or shall not have acted
as legal counsel for the last five years in investment disputes under this or any
other international agreement.” (167)
In April 2018, Meg Kinnear stated that ICSID would not – at this stage – be including a
prohibition on the practice of double-hatting in its forthcoming rules amendment. (168)
The authors view this as a lost opportunity for ICSID to lead the way in protecting
investment arbitration as an institution from a practice that has severely damaged its
reputation and credibility. States are encouraged to voice their views on this issue to
ICSID, as well as in the context of their ongoing UNCITRAL WGIII discussions, and to adopt
language in their treaties preventing the practice of double-hatting in ISDS.

V Suggested Ways Forward

The above discussion highlights a number of areas where reform, regulation, and changes
in States' treaty practice are required to correct systemic imbalances in investment
arbitration. These imbalances include States bearing the economic burden of defending
unmeritorious claims with little or no possibility of costs recovery, the funding of claims
P 555 based on factors distinct from the underlying merits of the claim, the exponential inflation
P 556 of the quantum claimed, the alteration of incentives to settle, and a concern that
arbitrators may be influenced by economic incentives generated by the participation of
third-party funders in the investment arbitration industry.
The following is a list of initiatives, current and future, aimed at addressing these
imbalances for further consideration and debate:
– ICSID's current proposed rule amendment does not contemplate a default rule to the
effect that the costs of the arbitration (both tribunal costs and party costs), or the
annulment proceeding, shall in principle be borne by the unsuccessful party. The
authors submit that such a default rule could be instituted in a manner consistent
with Art. 61(2) of the ICSID Convention provided it is accompanied by language
preserving the tribunal/ad hoc committee's discretion to apportion costs where
reasonable in the circumstances of a given case.
– States should also include this type of default rule in their treaty's ISDS provisions.
– Parties to investment arbitrations and annulment proceedings should demand that

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 costs be treated in a fully reasoned manner in the award or decision; investment
arbitration tribunals and ad hoc committees need to meet this demand, specifically
identifying in the award or decision the party behavior which led to the allocation of
costs in a certain manner.
– The amount of quantum claimed by an investor, versus any amount ultimately
awarded to it, should be a factor to be taken into account by investment tribunals
when allocating costs, to discourage inflated damages claims.
– The current proposed amendments to the ICSID Arbitration Rules contemplate the
addition of an article confirming the power of ICSID tribunals to issue orders for
security for costs.
– The burden of proof applicable to, and standard for issuing, orders for security for
costs in investment arbitrations need to change to reflect the reality of the
availability of third-party funding in the market, the unavailability of accurate
information regarding claimants' financial standing, and the asymmetries this
creates.
• Burden of proof: Once a respondent State becomes aware of circumstances
suggesting that the claimant may be impecunious (including the fact that its
claim is being funded by a third party, but also perhaps other circumstances,
such as failure to pay an advance on costs, or an SEC disclosure) but not
necessarily rising to the level of a prima facie showing, the respondent should
disclose such circumstance to the tribunal and be permitted to request that the
claimant provide information regarding its financial position, and in particular
make a showing that it has the financial wherewithal to cover an adverse costs
order. Should the claimant fail to make such a showing, the tribunal must weigh
the competing interests of access to justice versus the respondent's right to
recover the costs of a successful defense. Where the claim is third-party funded,
the scales tip markedly in favor of ordering security for costs.
• Standard: Investment tribunals should ensure that they have sufficient
information regarding the relevant terms of a funding agreement, and the
financial capacity of both the claimant and its funder, to be able to judge when
the “interests of justice” (not “exceptional circumstances”) require an order for
P 556 security for costs to protect the respondent State from the risk of an unpaid cost
P 557 award. Funders will factor such security into the cost of funding the dispute,
removing the access-to-justice concern from funded cases.
– Claimants in investment arbitrations should be required to disclose the existence of
any third-party funding, and the identity of the funder, as a matter of course, at the
earliest possible moment (including at the time of the notice of dispute or the
request for arbitration, or as soon as a third-party funder becomes involved). This
requirement should be incorporated into the ICSID Rules amendment procedure and
the discussions of UNCITRAL Working Group III on ISDS Reform. States should include
a similar requirement in their treaty's ISDS provisions.
– There should be mandatory, systematic, early disclosure of the existence and
identity of third-party funders in all investment arbitrations, to ensure that:
• the respondent State in a given case knows who the real parties in interest are
in the dispute, with whom it is really negotiating, whether the funder is funding
other claims against it, and whether it can impose conditions on any settlement
of a claim which protect it from the ignominy of having its own money used to
fund future claims against it; and
• tactical behavior and coordination of multiple cases by third-party funders
against different respondent States can be detected and monitored.
– There should be mandatory disclosure by arbitrators and ad hoc committee
members of any relationship they may have with third-party funders (board member,
advisor, or in any other capacity).
– In line with the growing consensus among States, lawyers who act as counsel or party-
appointed experts in arbitrations, or who act as advisors or board members to third-
party funders of arbitration proceedings, should be prohibited from being appointed
as arbitrators in investment arbitrations, or as ad hoc committee members. This
prohibition should form part of the current effort to amend the ICSID Arbitration
Rules, as well as States' individual treaty practice, and the ongoing discussion
regarding ISDS Reform taking place in UNCITRAL WGIII.
P 557

References
*) Kate Brown de Vejar: Partner at DLA Piper LLP in New York and Mexico City.
**) Chloe Baldwin: International Associate in the Washington DC office of Steptoe &
Johnson LLP.

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 1) ICSID, “The ICSID Rules Amendment Process, Potential Areas for Amendment”,
available at
<https://icsid.worldbank.org/en/Documents/about/List%20of%20Topics%20for%20P
otential%20ICSID%20Rule%2...> (last accessed 20 June 2018). The ICSID Secretariat is
currently preparing background papers on each of these sixteen topics, which are
expected to be available in or around August 2018. At the Annual Meeting of the
American Society of International Law in April 2018, the Secretary General of ICSID
provided some indication as to the areas which ICSID considered were ripe for
reform. See “Kinnear sheds light on ICSID rules amendment”, Global Arbitration
Review (6 April 2018) available at
<https://globalarbitrationreview.com/article/1167749/kinnear-sheds-light-on-icsid-
rules-amendment> (last accessed 20 June 2018).
2) The author, Kate Brown de Vejar, attended the session as an observer on behalf of the
International Law Institute (see <www.ili.org> (last accessed 13 February 2018)). The
official UNCITRAL report of Working Group III's deliberations on ISDS Reform at its
34th Session in Vienna, prepared by the Secretariat, is publicly available. See
“Report of Working Group III (Investor-State Dispute Settlement Reform) on the work
of its thirty-fourth session” (Vienna, 27 November – 1 December 2017), UN Doc.
A/CN.9/930, available at
<http://www.uncitral.org/pdf/english/workinggroups/wg_3/WGIII-34th-
session/930_for_the_website.pdf> (last accessed 19 February 2018) (henceforth
UNCITRAL WGIII ISDS Reform 34th Session Report). Sound recordings of the session are
also publicly available at <http://www.uncitral.org/uncitral/audio/meetings.jsp>
(last accessed 19 February 2018).
3) See “Report of Working Group III (Investor-State Dispute Settlement Reform) on the
work of its thirty-fifth session” (New York, 23-27 April 2018), UN Doc. A/CN.9/935,
available at <http://www.uncitral.org/pdf/english/commissionsessions/51st-
session/a-cn9-935_-_clean_ submitted_ADV...> (last accessed 15 June 2018)
(henceforth UNCITRAL WGIII ISDS Reform 35th Session Report), paras. 89-92. Sound
recordings of the session are also publicly available at
<http://www.uncitral.org/uncitral/audio/meetings.jsp> (last accessed 15 June 2018).
4) UNCITRAL WGIII ISDS Reform 34th Session Report, paras. 46-48.
5) In the context of UNCITRAL Working Group III's discussions, “Article 42 of the UNCITRAL
Arbitration Rules (2010, as revised in 2013) was given as an example of a rule
providing for allocation of costs among the parties.” UNCITRAL WGIII ISDS Reform 34th
Session Report, para. 47. See also Art. 61(2) of the ICSID Convention and ICSID
Arbitration Rule 47(1)(j) (granting tribunals the power to decide how costs of the
arbitration are allocated among the parties).
6) UNCITRAL WGIII ISDS Reform 34th Session Report, para. 46.
7) Susan D. FRANCK, “Rationalizing Costs in International Treaty Arbitration”, 88 Wash. U.
L.R. (2011, no. 4) p. 769 at pp. 777, 809.
8) Ibid., pp. 777-778, 820-821, 826-827, 841.
9) Ibid., p. 769.
10) See Kenneth REISENFELD and Joshua ROBBINS, “The Achilles' Heel of Investor-State
Arbitration Awards”, Law360 (6 December 2016) available at
<https://www.bakerlaw.com/webfiles/Litigation/2016/Articles/12-07-2016-Law360-
Robbins-Reisenfeld.pdf> (last accessed 22 February 2018).
11) UNCITRAL WGIII ISDS Reform 34th Session Report, para. 47.
12) The study involved a review of some 221 cases in which an award or decision was
publicly available on 31 December 2012. After making other adjustments (including
removing decisions reserving costs to a later stage of proceedings), the final data
pool was 176 cases. For the results of the study, see Matthew HODGSON, “Counting the
Costs of Investment Treaty Arbitration”, Global Arb. Rev. (24 March 2014) available at
<https://globalarbitrationreview.com/article/1033259/counting-the-costs-of-
investment-treaty-arbitrat...> (last accessed 22 February 2018).
13) Matthew HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”,
Global Arb. Rev. (14 December 2017) available at
<https://globalarbitrationreview.com/article/1151755/damages-and-costs-in-
investment-treaty-arbitrati...> (last accessed 23 February 2018). This update to the
2013 Hodgson study interpreted data from an additional 140 awards, which were
publicly available as of 31 May 2017, including a number of awards that were handed
down before the cut-off date of the first survey, 31 December 2012, but which only
became public more recently). When combined with the 2013 study, the final data
pool consisted of 324 awards and 52 decisions on annulment.
14) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above.
15) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
16) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above.
17) 2010 UNCITRAL Rules, Art. 42(1). The 1976 UNCITRAL Rules contained a similar rule, but
its scope is limited to tribunal costs. 1976 UNCITRAL Rules, Art. 40(1).

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 18) Art. 61(2) of the ICSID Convention leaves broad discretion to the tribunal to “assess the
expenses incurred by the parties in connection with the proceedings” and “decide
how and by whom those expenses, the fees and expenses of the members of the
Tribunal and the charges for the use of the facilities of the Centre shall be paid”, with
no indication of the factors a tribunal may take into account in reaching its decision.
Rule 47(1)(j) simply states that the award shall contain “any decision of the Tribunal
regarding the cost of the proceeding”.
19) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
20) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above. This
is consistent with the Franck study, which also found that where tribunals shifted
tribunal costs, they also tended to shift party costs. S. FRANCK, “Rationalizing Costs in
Investment Treaty Arbitration”, fn. 7 above, pp. 778, 833.
21) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
22) Ibid.
23) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above; M.
HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
24) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above.
25) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
26) S. FRANCK, “Rationalizing Costs in Investment Treaty Arbitration”, fn. 7 above, pp. 835-
836, Chart 1. See also M. HODGSON, “Damages and Costs in Investment Treaty
Arbitration Revisited”, fn. 13 above.
27) For further discussion of this phenomenon in the context of third-party funding of
ISDS case, see Sect. IV.3 below.
28) George KAHALE III, “Rethinking ISDS”, Transnat'l Disp. Mgmt (2018, no. 5) p. 1 at pp. 18-
19.
29) Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004), Partial Award (27
March 2007); and Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004),
Final Award (12 April 2007).
30) Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004), Partial Award (27
March 2007) paras. 368 and 380; and Eastern Sugar B.V. v. The Czech Republic (SCC
Case No. 088/2004), Final Award (12 April 2007) para. 6.
31) Garanti Koza LLP v. Turkmenistan (ICSID Case No. ARB/11/20), Award (19 December
2016) paras. 450-451.
32) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above (“It is
usual for a losing party to make at least some contribution to the costs of the winner
in the national courts of many jurisdictions, including England & Wales, France,
Germany, Hong Kong, Italy, the Netherlands, Poland, Russia, Singapore, Spain and
Thailand.”).
33) Ibid. (“According to a 2012 study by Queen Mary, University of London, this approach is
common in commercial arbitration, being adopted in around one half of cases, with a
further 30 per cent of cases seeing some apportionment of costs, leaving just 20 per
cent of cases where costs were not adjusted.”).
34) William Nagel v. The Czech Republic (SCC Case No. 049/2002), Final Award (9
September 2003) paras. 337-338; Kılıç Ĭnşaat Ĭthalat Ĭhracat Sanayi ve Ticaret Anonim
Şirketi v. Turkmenistan (ICSID Case No. ARB/10/1), Award (2 July 2013) paras. 9.2.5, 9.2.9;
İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24), Award (8
March 2016) para. 409; Transglobal Green Energy, LLC and Transglobal Green Panama,
S.A. v. Republic of Panama (ICSID Case No. ARB/13/28), Award (2 June 2016), para. 130;
Windstream Energy LLC v. Government of Canada (PCA Case No. 2013-22), Award (27
September 2016), para. 514.
35) S. FRANCK, “Rationalizing Costs in Investment Treaty Arbitration”, fn. 7 above, pp. 795-
797.
36) M. HODGSON, “Counting the Costs of Investment Treaty Arbitration”, fn. 12 above.
37) Ibid.
38) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.
39) M. HODGSON, “Costs in Investment Treaty Arbitration: The Case for Reform”, 11
Transnat'l Disp. Mgmt. (2014, no. 1) p. 1 at p. 9. Expressly preserving the tribunal/ad
hoc committee's discretion to apportion costs would keep the default rule in line with
the discretion to allocate costs embodied in Art. 61(2) of the ICSID Convention.
40) See “Kinnear sheds light on ICSID rules amendment”, Global Arbitration Review (6
April 2018), available at
<https://globalarbitrationreview.com/article/1167749/kinnear-sheds-light-on-icsid-
rules-amendment> (last accessed 15 June 2018).
41) M. HODGSON, “Damages and Costs in Investment Treaty Arbitration Revisited”, fn. 13
above.

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 42) A number of modern investment agreements have already adopted this approach.
See the Comprehensive Economic and Trade Agreement (CETA) between Canada and
the European Union and its Member States, provisionally entered into force 21
September 2017, Art. 8.39(5), and the EU-Singapore Free Trade Agreement, authentic
text as of May 2015, Art. 9.26(1).
43) S. FRANCK, “Rationalizing Costs in Investment Treaty Arbitration”, fn. 7 above, pp. 795-
796.
44) UNCITRAL WGIII ISDS Reform 34th Session Report, para. 49.
45) Judith GILL and Matthew HODGSON, “Costs Awards – Who Pays?”, Global Arb. Rev. (15
September 2015), available at
<https://globalarbitrationreview.com/article/1034757/costs-awards-%E2%80%93-
who-pays> (last accessed 22 February 2018).
46) Ibid.
47) Ibid.
48) Ibid.
49) Ibid.
50) Ibid.
51) Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan (ICSID Case
No. ARB/10/1), Award (2 July 2013) para. 10.1.1(d).
52) Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan (ICSID Case
No. ARB/10/1), Decision on Applicant's Request for Continuation of Stay of
Enforcement of the Award (5 June 2014) paras. 42, 47.
53) “Turkmenistan Sees Off Group Claim”, Global Arbitration Review (24 June 2015),
available at <https://globalarbitrationreview.com/article/1034557/turkmenistan-
sees-off-group-claim> (last accessed 22 February 2018).
54) J. GILL and M. HODGSON, “Costs Awards – Who Pays?”, fn. 45 above.
55) Jarrod HEPBURN, “Fortier-Chaired UNCITRAL Tribunal Dismisses BIT Claim by Former
Iraqi Government Minister Against Pakistan”, Investment Arb. Rep. (4 September
2016), available at <https://www.iareporter.com/articles/fortier-chaired-uncitral-
tribunal-dismisses-bit-claim-by-former-...> (last accessed 22 February 2018).
56) Jarrod HEPBURN, “English Court Orders Security for Costs Against Claimants in Set-
Aside Proceedings Funded by Burford Capital, But Declines Security over Still-Unpaid
Adverse Costs Order in Underlying Arbitration” Investment Arb. Rep. (12 February
2018), available at <https://www.iareporter.com/articles/english-court-orders-
security-for-costs-against-claimants-in-set...> (last accessed 15 February 2018).
57) J. GILL and M. HODGSON, “Costs Awards – Who Pays?”, fn. 45 above.
58) Gary B. BORN, International Commercial Arbitration, 2nd edn. (Kluwer Law
International 2014) p. 2496. Costs include legal costs, tribunal's fees and other
administrative or miscellaneous costs.
59) Aren GOLDSMITH and Lorenzo MELCHIONDA, “Third Party Funding in International
Arbitration: Everything You Ever Wanted to Know (But Were Afraid to Ask) – Part 2”,
2012 Int'l Bus. L.J. (2012, no. 2) p. 221 at p. 223 (“In theory, a respondent who is unable
to satisfy an award of costs might attempt to act against the funder itself. However,
under existing practices, which would generally qualify the funder as a non-party to
the proceeding, it would likely be difficult, if not impossible, to obtain an arbitral
award for costs against the source of TPF.”); Edouard BERTRAND, “The Brave New
World of Arbitration: Third-Party Funding”, 29 ASA Bull. (2011, no. 3) p. 607 at p. 613
(“[A]n arbitral tribunal could never issue an award binding on the TPF funder in
respect of the arbitration costs, because the TPF funder is not a party to the
arbitration proceedings, and as such not a party to the arbitral proceedings.”). See
also X v. Y and Z (ICC Case), Procedural Order (3 August 2012), reproduced in Philippe
PINSOLLE, “Third Party Funding and Security for Costs”, 2 Cahiers de L'Arbitrage (2013)
p. 399 at para. 40 (“The third party funding mechanism at hand makes it possible for
the Funder to secure a comfortable share of the proceeds for itself in case the
litigation is successful while (i) taking no risk whatsoever with regard to the costs that
may have to be paid to the other party as a consequence of an unsuccessful litigation
and (ii) retaining the possibility to walk out at any time by simply [‘]pulling the plug’
on [the Claimant] should it appear … that the case is going less well for the Claimant
than had been anticipated.”).
60) A. GOLDSMITH and L. MELCHIONDA, “Third Party Funding in International Arbitration:
Everything You Ever Wanted to Know (But Were Afraid to Ask) – Part 2”, fn. 59 above, p.
223 (“[C]laimants will be incentivised to generate and externalise excessive costs.”).
61) See S. FRANCK, “Rationalizing Costs in Investment Treaty Arbitration”, fn. 7 above, pp.
835-836 and Chart 1. See also Maxi SCHERER, Aren GOLDSMITH and Camille FLÉCHET,
“Third Party Funding of International Arbitration Proceedings – A View From Europe:
Part 2: The Legal Debate”, 2012(6) Int'l Bus. L.J. (2012) p. 649 at p. 651 (“[A] claimant
with greater financial resources will have access to a larger number of experts and
witnesses and their legal fees will be higher than those of a claimant with more
limited resources. Accordingly, the costs of the respondent, who as a result will be
likely to rely on more experts and witnesses, will also increase.”).

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 62) The report of a roundtable attended by several third-party funders states that “[a]ll of
the funders include clauses relating to the termination of the funding relationship in
their contract”. One of the funders also indicated that grounds for termination include
“material changes in circumstances”. Maxi SCHERER, Aren GOLDSMITH and Camille
FLÉCHET, “Third Party Funding in International Arbitration in Europe: Part 1: Funders'
Perspectives”, Int'l Bus. L.J. (2012, no. 2) p. 207 at p. 218.
63) Aren GOLDSMITH and Lorenzo MELCHIONDA, “Third Party Funding in International
Arbitration: Everything You Ever Wanted To Know (But Were Afraid To Ask)”, 2012 Int'l
Bus. L.J. (2012) p. 53 at p. 59.
64) Olivia DUFOUR, “Prêts pour le Third Party Funding?” Lettre des Juristes d'Affaires
(September-October 2013, no. 1) p. 8 at p. 9 (quoting H.G. Gharavi; authors'
translation).
65) “Turkmenistan Faces BIT Claim After Human Rights Ruling”, Global Arb. Rev. (24 April
2013), available at
<https://globalarbitrationreview.com/article/1032280/turkmenistan-faces-bit-claim-
after-human-rights-...> (last accessed 22 February 2018).
66) Luke Eric PETERSON, “Central Asia Round-Up: Updates on Four UNCITRAL Investment
Treaty Arbitrations in the ‘Stans’”, Investment Arb. Rep. (11 March 2014), available at
<https://www.iareporter.com/articles/central-asia-round-up-updates-on-four-
uncitral-investment-treaty...> (last accessed 22 February 2018).
67) Valle Verde Sociedad Financiera S.L. v. Bolivarian Republic of Venezuela (ICSID Case No.
ARB/12/18).
68) ICSID Case Details, Valle Verde Sociedad Financiera S.L. v. Bolivarian Republic of
Venezuela (ICSID Case No. ARB/12/18), available at
<https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/12/18>
(last accessed 12 March 2018).
69) Ibid.
70) Jack NEWSHAM, “ICSID Won't Make Venezuela Put Up Costs in Bank Row”, Law360 (8
February 2016), available at <https://www.law360.com/articles/756357/icsid-won-t-
make-venezuela-put-up-costs-in-bank-row> (last accessed 12 March 2018).
71) Ibid.
72) ICSID Case Details, Valle Verde Sociedad Financiera S.L. v. Bolivarian Republic of
Venezuela (ICSID Case No. ARB/12/18), available at
<https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/12/18>
(last accessed 12 March 2018).
73) Jeffrey WAINCYMER, Procedure and Evidence in International Arbitration (Kluwer Law
International 2012) p. 644 (stating that ordering security for costs is justified “where
the claiming party is impecunious and is being funded by a related entity who will
benefit if the claims succeed but be beyond exposure if they are lost”.); Ph. PINSOLLE,
“Third Party Funding and Security for Costs”, fn. 59 above (“The fact that this [third-
party funding] agreement may exclude the payment of arbitration costs in case of
failure, as it appears to be most often the case, places the respondent against a
claimant who, by definition, now has the means to move forward with his arbitration
without really taking any risk regarding its outcome precisely because of his
insolvency. It seems to us that this asymmetrical situation, when it is clearly
established, justifies by itself granting security for costs. Indeed, absent such a
guarantee, the claimant will be in a position, in case of failure, to hide behind his
impecuniosity to refuse to pay costs, despite the fact that he was able to advance his
claim thanks to the funds of the third party. The claimant would thus benefit from the
best of both worlds, which does not seem like a desirable situation.”).
74) Compare with London Court of International Arbitration, Arbitration Rules (2014), Art.
25, available at <http://www.lcia.org/dispute_resolution_services/lcia-arbitration-
rules-2014.aspx#Article25> (last accessed 15 February 2018); Singapore International
Arbitration Centre, Arbitration Rules (2016), Rule 27, available at
<http://www.siac.org.sg/our-rules/rules/siac-rules-2016#siac_rule27> (last accessed
15 February 2018).
75) Julian D.M. LEW, Loukas A. MISTELIS, and Stefan Michael KROLL, Comparative
International Commercial Arbitration (Kluwer Law International 2003) pp. 600-601
(“The respondent against whom the proceedings were brought has an interest in
ensuring that at least part of the fees incurred will be recoverable. To this end several
arbitration rules contain provisions empowering the tribunal to grant security for
costs…. However, even where no such express provisions exist, tribunals can grant
such orders under their general power to grant interim relief.”); Nicolas ULMER, “The
Cost Conundrum”, 26 Arb. Int'l (2010, no. 2) p. 221 at p. 230 (“[I]t is widely accepted that
the ordering of security for costs is within the power of arbitrators to order interim
measures”); RSM Production Corporation et al. v. Government of Grenada (ICSID Case
No. ARB/10/6), Tribunal's Decision on Respondent's Application for Security for Costs
(14 October 2010) para. 5.16; Commerce Group Corp & San Sebastian Gold Mines, Inc v.
Republic of El Salvador (ICSID Case No. ARB/09/17), Decision on El Salvador's
Application for Security for Costs (20 September 2012) para. 45 (finding that the ad
hoc committee's power to safeguard the integrity of the proceeding included the
power to order security for costs).

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 76) RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on
Saint Lucia's Request for Security for Costs (13 August 2014) para. 54. See also
Lighthouse Corporation Ptd Ltd and Lighthouse Corporation Ltd, IBC v. Democratic
Republic of Timor-Leste (ICSID Case No. ARB/15/2), Procedural Order No. 2 (13 February
2016) para. 53 (“The Tribunal's power to grant security for costs as a provisional
measure is undisputed. This power stems from Article 47 of the ICSID Convention and
ICSID Arbitration Rule 39.”).
77) Georgios PETROCHILOS, “Interim Measures Under the Revised UNCITRAL Arbitration
Rules”, 28 ASA Bull. (2010, no. 4) p. 878 at p. 885.
78) See Guaracachi America, Inc. and Rurelec Plc v. The Plurinational State of Bolivia (PCA
Case No. 2011-17), Procedural Order No. 14 (11 March 2013) para. 6 (“[I]nvestment treaty
tribunals clearly hold the power to grant provisional measures…. Article 26 of the
[1976] UNCITRAL Rules expressly envisages this possibility.”); South American Silver
Limited (Bermuda) v. The Plurinational State of Bolivia (PCA Case No. 2013-15),
Procedural Order No. 10 (11 January 2016) paras. 50, 52 (“The Tribunal considers that a
request for security for costs should be encompassed in the category of interim or
provisional measures, provided for in Art. 26 of the UNCITRAL Rules…. [S]everal
decisions of arbitral tribunals in investment arbitrations, both under the ICSID Rules
as well as the UNCITRAL Rules, confirm that arbitral tribunals are empowered to order
security for costs.”).
79) Jean E. KALICKI, “Security for Costs in International Arbitration”, 3 Transnat'l Disp.
Mgmt. (2006, no. 5) p. 1 at p. 1. See, e.g., Phoenix Action, Ltd. v. Czech Republic (ICSID
Case No. ARB/06/5), Decision on Provisional Measures (6 April 2007) para. 32; Plama
Consortium Limited v. Republic of Bulgaria (ICSID Case No. ARB/03/24), Order (6
September 2005) para. 38; Saipem S.p.A v. The People's Republic of Bangladesh (ICSID
Case No. ARB/05/7), Decision on Jurisdiction and Recommendation on Provisional
Measures (21 March 2007) para. 175; Occidental Petroleum Corporation and Occidental
Exploration and Production Company v. The Republic of Ecuador (ICSID Case No.
ARB/06/11), Decision on Provisional Measures (17 August 2007) para. 59; RSM
Production Corporation et al. v. Government of Grenada (ICSID Case No. ARB/10/6),
Tribunal's Decision on Respondent's Application for Security for Costs (14 October
2010) para. 5.17; Commerce Group Corp & San Sebastian Gold Mines Inc v. Republic of El
Salvador (ICSID Case No. ARB/09/17), Decision on El Salvador's Application for
Security for Costs (20 September 2012) para. 44; RSM Production Corporation v. Saint
Lucia (ICSID Case No. ARB/12/10), Decision on Saint Lucia's Request for Security for
Costs (13 August 2014) para. 75; Lighthouse Corporation Ptd Ltd and Lighthouse
Corporation Ltd, IBC v. Democratic Republic of Timor-Leste (ICSID Case No. ARB/15/2),
Procedural Order No. 2 (13 February 2016) para. 59.
80) X. S.A.R.L., Lebanon v. Y. AG, Germany (ICC Case), Procedural Order No. 3 (4 July 2008)
para. 21 in 28 ASA Bull. (2010, no. 1) p. 37.
81) Ph. PINSOLLE, “Third Party Funding and Security for Costs”, fn. 59 above, p. 399 at
paras. 40, 43, reproducing X. v. Y and Z (ICC Case), Procedural Order (3 August 2012)
(ordering security for costs after observing that the claimant's third-party funding
arrangement “makes it possible for the Funder to secure a comfortable share of the
proceeds for itself in case the litigation is successful while (i) taking no risk
whatsoever with regard to the costs that may have to be paid to the other party as a
consequence of an unsuccessful litigation and (ii) retaining the possibility to walk out
at any time by simply [‘]pulling the plug’ on [the Claimant] should it appear … that
the case is going less well for the Claimant than had been anticipated.”); Swiss Entity
v. Dutch Entity (HKZ Case No. 415), Award (20 November 2001) in 20ASA Bull. (2002, no.
3) pp. 467-468, 471-472 (The respondent had applied for security for costs on the
ground that the claimant was “not able to pay the costs of the proceedings and that it
is therefore forced to obtain funds from external sources”. The tribunal granted the
request, stating that “it is most likely that if Respondent were to prevail in this
arbitration, a future cost award in its favor could not be satisfied by Claimant”.);
Jarrod HEPBURN, “ICC Costs Award in Favor of Bulgaria Is Upheld, as Domestic Court
Rejects Claimant's Allegation of Tribunal Bias Against Third-Party-Funded Claimant”,
Investment Arb. Rep. (19 October 2015) available at <https://www.ia
reporter.com/articles/icc-costs-award-in-favor-of-bulgaria-is-upheld-as-domestic-
cour...> (last accessed 15 February 2018) (“Noting that [the claimant] Chematur's
arbitral claim was funded by a third party, the tribunal had ordered Chematur to post
a bank guarantee for $750,000.”); M. SCHERER, A. GOLDSMITH and C. FLÉCHET, “Third
Party Funding in International Arbitration in Europe: Part 1 – Funders' Perspectives”,
fn. 62 above, p. 215; Mick SMITH and Antonio WESOLOWSKI, “Mechanics of Third-Party
Funding Agreements: A Funder's Perspective” in Lisa Bench NIEUWVELD and Victoria
SHANNON, Third-Party Funding in International Arbitration, 2nd ed. (Kluwer Law
International 2012) p. 19 at n. 16 (“It is also common for a third-party funder to be
asked to provide additional capital either by way of provision for a future adverse
cost orders, or for security for costs.”); Jasminka KALAJDZIC, Peter CASHMAN, and Alana
LONGMOORE, “Justice for Profit: A Comparative Analysis of Australian, Canadian and
U.S. Third Party Litigation Funding”, 61 Am. J. Comp. L. (2013, no. 1) p. 93 at p. 100 (“The
[funding] agreement will often provide that the funder will … pay any amount
required to be provided by way of security for costs.”).

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 82) Alison ROSS, “The Dynamics of Third-Party Funding”, Global Arb. Rev. (7 March 2012),
available at <https://globalarbitrationreview.com/article/1031171/the-dynamics-of-
third-party-funding-in-full> (last accessed 22 February 2018).
83) ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration,
“ICCA-Queen Mary Task Force Report on Third-Party Funding in International
Arbitration”, The ICCA Rep. No. 4 (April 2008) (henceforth ICCA-QM TPF Report).
84) Ibid. pp. 180-181.
85) Luis García Armas v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/16/1).
86) Manuel García Armas, Pedro García Armas, Sebastián García Armas, Domingo García
Armas, Manuel García Piñero, Margaret García Piñero, Alicia García González, Domingo
García Cámara and Carmen García Cámara v. Bolivarian Republic of Venezuela (PCA
Case No. 2016-08).
87) Tom JONES, “BIT Panel Orders Funded Claimants to Prove Solvency”, Global Arb. Rev.
(12 July 2017) available at
<https://globalarbitrationreview.com/print_article/gar/article/1144330/bit-panel-
orders-funded-claima...> (last accessed 12 March 2018).
88) Ibid.
89) Ibid. See also ICSID Case Details, Luis García Armas v. Bolivarian Republic of Venezuela
(ICSID Case No. ARB(AF)/16/1), available at
<https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?
CaseNo=ARB(AF)/16/1> (last accessed 12 March 2018); PCA Case View, Manuel García
Armas, Pedro García Armas, Sebastián García Armas, Domingo García Armas, Manuel
García Piñero, Margaret García Piñero, Alicia García González, Domingo García Cámara
and Carmen García Cámara v. Bolivarian Republic of Venezuela (PCA Case No. 2016-08),
available at <https://www.pcacases.com/web/view/135> (last accessed 12 March
2018).
90) Tom JONES, “Funded BIT Claimants Ordered To Pay Security”, Global Arb. Rev. (6
August 2018) available at
<https://globalarbitrationreview.com/article/1172646/funded-bit-claimants-
ordered-to-pay-security> (last accessed 19 December 2018).
91) ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, “Draft
Report for Public Discussion of the ICCA-Queen Mary Task Force on Third-Party
Funding in International Arbitration” (1 September 2017) (henceforth ICCA-QM Draft
TPF Report).
92) ICCA-QM TPF Report, pp. 224-225.
93) Ibid.
94) Ibid., p. 225.
95) Ibid.
96) United Kingdom, Civil Procedure Rules 1998 (No. 3132 (L. 17) (as amended as of 1
October 2017)), Rule 25.14.
97) The RBS Rights Issue Litigation [2017] EWHC 1217 (Ch).
98) In Arkin v. Borchard Lines, Ltd. No. 2, the English Court of Appeal found the third-party
funder liable for all costs up to the amount of its contribution to the litigation. Arkin v.
Borchard Lines, Ltd. No. 2 [2005] EWCA Civ. 655, paras. 37-45. See also Carolyn B. LAMM
and Eckhard R. HELLBECK, “Third-Party Funding in Investor-State Arbitration:
Introduction and Overview” in Bernardo M. CREMADES and Antonio DIMOLITSA, eds.,
Dossier X: Third-Party Funding in International Arbitration (ICC Institute of World
Business Law 2013) p. 101 at pp. 111-112 (describing Arkin v. Borchard Lines, Ltd. No. 2,
stating that “[t]he underlying rationale was that justice would be better served by
allowing a right to recover from the professional funder whose intervention had
permitted the continuation of a claim that had ultimately been found to lack merit”.).
99) Sandra Bailey & Others v. GlaxoSmithKline UK Limited [2017] EWHC 3195 (QB). In this
case, the High Court ordered security for costs against the third-party funder in the
amount of £1.75 million, when the third-party funder had provided only £1.2 million of
funding toward the litigation in return for a share in the proceeds of any recovery. The
case is notable in that it went beyond the cap established Arkin v. Borchard Lines, Ltd.
No. 2, and opened the door to increased orders for security for costs and,
consequently, increased liability for third-party funders.
100) Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744.
101) See, e.g., Uniform Civil Procedure Rules 2005 (NSW), Rule 42.21(1A); Uniform Civil
Procedure Rules 1999 (Qld), Rule 672. These statutes provide non-exhaustive lists of
matters to which the Court may have regard in exercising its discretion whether to
order security for costs.
102) Knight v. FP Special Assets Ltd [1992] HCA 28.
103) Ryan Carter and Esplanade Holdings Pty Ltd v. Caason Investments Pty Ltd & Ors [2016]
VSCA 236.

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 104) For example, in Domino's Pizza Enterprises Limited v. Precision Tracking Pty Ltd (No. 2)
[2017] FCA 211, the funded party opposed a security for costs order being made on the
grounds that there was no risk that any costs order would not be satisfied owing to the
combined effect of the litigation funding indemnity, an adverse costs insurance
policy and proposed undertakings by Precision Tracking Pty Ltd to notify the parties
of any relevant change of funding circumstances. However, the court upheld the
application for security for costs, concluding that (1) Precision Tracking Pty Ltd did not
itself have the capacity to meet an adverse costs order, (2) the funding agreement
limited the indemnity to a counterclaim in the proceeding, and (3) the adverse costs
insurance was taken out for the primary claim. Additionally, the funder had an
absolute discretion to terminate its funding arrangements with Precision Tracking Pty
Ltd at any time, including the adverse costs indemnity and the adverse costs
insurance.
105) UNCITRAL WGIII ISDS Reform 35th Session Report, paras. 89-92.
106) Ibid.
107) ICCA-QM TPF Report, p. 5.
108) ICCA-QM Draft TPF Report, p. 157.
109) Maya STEINITZ and Abigail C. FIELD, “A Model Litigation Funding Contract”, 99 Iowa L.
Rev. (2014, no. 2) p. 711 at p. 718.
110) Ibid. p. 719.
111) John H. BEISNER and Gary A. RUBIN, U.S. Chamber Institute for Legal Reform,
“Stopping the Sale on Lawsuits: A Proposal to Regulate Third-Party Investments in
Litigation” (2012) available at
<http://www.instituteforlegalreform.com/uploads/sites/1/TPLF_Solutions.pdf> (last
accessed 15 February 2018) p. 1.
112) Ibid. pp. 1-2.
113) ICCA-QM TPF Report, p. 71.
114) M. STEINITZ and A.C. FIELD, “A Model Litigation Funding Contract”, fn. 109 above, p. 723.
115) Ibid.
116) Kılıç Ĭnşaat Ĭthalat Ĭhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan (ICSID Case
No. ARB/10/1), Decision on Article VII.2 of the Turkey-Turkmenistan Bilateral
Investment Treaty (7 May 2012) para. 1.2.
117) Ibid., para. 11.1(c).
118) Kılıç Ĭnşaat Ĭthalat Ĭhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan (ICSID Case
No. ARB/10/1), Award (2 July 2013) para. 10.1.1. See Luke Eric PETERSON, “Claimant's
Failure to Pursue Local Remedies for 12 Months Derails $300 Million Claim Against
Turkmenistan; Use of Local Courts Not Proven to Be Futile”, Investment Arb. Rep. (5
July 2013) available at <https://www.iareporter.com/articles/claimants-failure-to-
pursue-local-remedies-for-12-months-derails...> (last accessed 15 February 2018).
119) Kılıç Ĭnşaat Ĭthalat Ĭhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan (ICSID Case
No. ARB/10/1), Separate Opinion of Professor William W. Park (20 May 2013).
120) İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24).
121) İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24), Award (8
March 2016) para. 247.
122) Ibid., paras. 262-263.
123) Ibid., Partially Dissenting Opinion of Professor Philippe Sands QC (10 February 2016)
paras. 14-15.
124) İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24), Award (8
March 2016) para. 332.
125) Ibid., paras. 350-355.
126) Ibid. para. 411(d)(e).
127) Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti v. Turkmenistan (ICSID Case
No. ARB/12/6), Decision on Respondent's Objection to Jurisdiction Under Article VII(2)
of the Turkey-Turkmenistan Bilateral Investment Treaty (13 February 2015) para. 11.
128) See generally Luke Eric PETERSON, “An UNCITRAL Tribunal Declines Jurisdiction over a
Joint Treaty Claim Brought Against Turkmenistan by a Series of Unrelated Claimants”,
Investment Arb. Rep. (23 June 2015) available at
<https://www.iareporter.com/articles/an-uncitral-tribunal-declines-jurisdiction-
over-a-joint-treaty-c...> (last accessed 15 February 2018).
129) Hamid G. GHARAVI, “Le Financement par un Tiers dans l'Arbitrage d'Investissement”,
2017 Belgian Rev. Arb. (2017, no. 1) p. 67 at para. 18 (authors' translation).
130) L.E. PETERSON, “An UNCITRAL Tribunal Declines Jurisdiction over a Joint Treaty Claim
Brought Against Turkmenistan by a Series of Unrelated Claimants”, fn. 128 above.
131) Ibid.
132) Ibid.
133) See Miriam K. HARWOOD, Simon N. BATIFORT and Christina TRAHANAS, “Third-Party
Funding: Security for Costs and Other Key Issues” in Barton LEGUM, ed., The Investment
Treaty Arbitration Review, 2nd edn. (Law Business Research 2017) p. 103 at pp. 108-109.
134) ICCA-QM TPF Report, p. 73.
135) Ibid. p.73.
136) Ibid.
137) Burford Capital 2010 Annual Report, available at
<http://www.burfordcapital.com/investors/financial-reports-and-presentations/>
(last accessed February 17, 2018) p. 5.

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 138) Pia EBERHARDT, et al., Corporate Europe Observatory and the Transnational Institute,
“Profiting from Injustice: How Law Firms, Arbitrators and Financiers Are Fuelling on
Investment Arbitration Boom” (November 2012) available at
<https://corporateeurope.org/sites/default/files/publications/profiting-from-
injustice.pdf> (last accessed 22 February 2018) p. 59 (quoting Mick Smith, Co-Founder
of Calunius Capital).
139) Ibid. See also “Recent Developments in Investor–State Dispute Settlement (ISDS)”,
UNCTAD, IIA Issues Note No. 1, 2013, UN Doc. UNCTAD/WEB/DIAE/PCB/2013/3 (May
2013) n. 172 (“TPF companies, who build a ‘portfolio’ of claims, have an economic
incentive to put money even into weak cases that have at least some chance of a high
monetary award.”) p. 25 (“[T]here are serious policy reasons against TPF of IIA claims –
for example, it may increase the filing of questionable claims. From a respondent
State's perspective, such frivolous claims, even if most of them fail, can take
significant resources and may cause reputational damage.”); John BEISNER, Jessica
MILLER, and Gary RUBIN, U.S. Chamber Institute for Legal Reform, “Selling Lawsuits,
Buying Trouble: Third-Party Litigation Funding in the United States” (October 2009)
available at
<http://www.instituteforlegalreform.com/uploads/sites/1/thirdpartylitigationfinanci
ng.pdf> (last accessed 22 February 2018) pp. 5-6 (“[A]lthough providing non-recourse
loans to fund litigation is inherently risky, it does not follow that litigation-finance
companies will only finance claims that are likely to succeed. These companies – like
all sophisticated investors – will base their funding decisions on the present value of
their expected return, of which the likelihood of a lawsuit's success is only one
component. The other component is the potential amount of recovery…. Moreover,
third-party funding companies are able to mitigate their downside risk in two ways:
they can spread the risk of any particular case over their entire portfolio of cases, and
they can spread the risk among their investors.”).
140) A. ROSS, “The Dynamics of Third-Party Funding”, fn. 82 above, p. 15.
141) John H. BEISNER and Gary A. RUBIN, U.S. Chamber Institute for Legal Reform,
“Stopping the Sale on Lawsuits: a Proposal to Regulate Third Party Investments in
Litigation” (October 2012) available at
<http://www.instituteforlegalreform.com/uploads/sites/1/TPLF_Solutions.pdf> (last
accessed 15 February 2018) p. 1.
142) P. EBERHARDT et al., Corporate Europe Observatory and the Transnational Institute,
“Profiting From Injustice”, fn. 138 above, available at
<https://corporateeurope.org/sites/default/files/publications/profiting-from-
injustice.pdf> p. 58 (quoting John Jones of risk insuring company Aon).
143) Maya STEINITZ, “Whose Claim Is This Anyway? Third-Party Litigation Funding”, 8
Transnat'l Disp. Mgmt. (2011, no. 4) p. 1268 at p. 1313 (Noting that funders “have an
incentive to settle early for a relatively low, but certain, recovery rather than incur
the costs of going to trial and risking no or lesser recovery” and that this incentive is
only exacerbated by the portfolio approach to investing.).
144) A number of States have already had, and continue to have, to weather this type of
pressure. Luke Eric PETERSON, “Solar Investors File Arbitration Against Czech
Republic; Intra-EU BITs and Energy Charter Treaty at Center of Dispute”, Investment
Arb. Rep. (15 May 2013) available at <http://www.iareporter.com/articles/solar-
investors-file-arbitration-against-czech-republic-intra-eu-...> (last accessed 15
February 2018) (indicating that a bloc of at least ten investors brought claims against
the Czech Republic under a number of treaties, including the Energy Charter Treaty
and Czech bilateral investment treaties with the Netherlands, Germany, Cyprus,
Luxembourg, and the United Kingdom); Abaclat and Others v. The Argentine Republic
(ICSID Case No. ARB/07/5), Decision on Jurisdiction and Admissibility (4 August 2011)
para. 1 (noting that, at the time of the initiation of the arbitration, the total number of
claimants exceeded 180,000), para. 696 (finding that the consent of Argentina to
jurisdiction “includes claims presented by multiple Claimants in a single
proceeding”); “Spanish Arbitrator to Hear Abaclat Mass Claim”, Global Arb. Rev. (23
January 2012), available at
<https://globalarbitrationreview.com/article/1030917/spanish-arbitrator-to-hear-
abaclat-mass-claim> (last accessed 21 February 2018) (reporting on Abaclat v.
Argentina, noting that it was “the first mass claim in ICSID's history”); and Bernardus
Henricus Funnekotter and Others v. Republic of Zimbabwe (ICSID Case No. ARB/05/6),
Award (22 April 2009) para. 3 (indicating the claimants as being thirteen Dutch farmers
bringing a consolidated claim).
145) P. EBERHARDT et al., Corporate Europe Observatory and the Transnational Institute,
“Profiting From Injustice”, fn. 138 above,
<https://corporateeurope.org/sites/default/files/publications/profiting-from-
injustice.pdf>, p. 59 (citing Luke Eric PETERSON, “Republic of Georgia Agrees to Pay
1/3rd of ICSID Award; Litigation Funders Eyes Recovery After Bumpy Ride”, Investment
Arb. Rep. (31 December 2011), available at
<http://www.iareporter.com/articles/20111231_6> (last accessed 22 February 2018)).
146) M. STEINITZ, “Whose Claim Is This Anyway? Third-Party Litigation Funding”, fn. 143
above, p.1312.
147) See generally G. KAHALE, “Rethinking ISDS”, fn. 28 above, pp. 12-13.

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 148) The ICCA-QM Draft TPF Report does refer to concerns by critics that speculative
portfolio claims may “expand the bases for liability for States beyond the originally
intended meanings in investment and trade agreements”, but these concerns are
somewhat glossed over. ICCA-QM Draft TPF Report, pp. 159-161. The issue is not
addressed in the final ICCA-QM TPF Report.
149) For further discussion on this point, see M.K. HARWOOD, S.N. BATIFORT and C.
TRAHANAS, “Third-Party Funding: Security for Costs and Other Key Issues”, fn. 133
above, pp. 114-116.
150) G. KAHALE, “Rethinking ISDS”, fn. 28 above, p. 18 (internal citations omitted). See also
Lucy REED, “The 2013 Hong Kong International Arbitration Centre Kaplan Lecture –
Arbitral Decision-Making: Art, Science or Sport?”, 30 J. Int'l Arb. (2013, no. 2) p. 85 at
pp. 89-90.
151) G. KAHALE, “Rethinking ISDS”, fn. 28 above, pp. 18-20.
152) ICCA-QM TPF Report, p. 28.
153) M. STEINITZ and A.C. FIELD, “A Model Litigation Funding Contract”, fn. 109 above p. 722.
154) C.B. LAMM and E.R. HELLBECK, “Third-Party Funding in Investor-State Arbitration
Introduction and Overview”, fn. 98 above, p. 107.
155) ICCA-QM TPF Report, pp. 81-115; M.K. HARWOOD, S.N. BATIFORT and C. TRAHANAS,
“Third-Party Funding: Security for Costs and Other Key Issues”, fn. 133 above, pp. 98-99.
156) See IBA Guidelines on Conflicts of Interest in International Arbitration, adopted on 23
October 2014, Guidelines 6(b) and 7(a) and Explanations to General Standards 6(b)
and 7(a) (providing that a party shall disclose, “on its own initiative at the earliest
opportunity”, “any relationship, direct or indirect, … between the arbitrator and any
person or entity with a direct economic interest in … the award”, and recognizing that
a third-party funder has a “direct economic interest” in the award); Catherine A.
ROGERS, Ethics in International Arbitration (Oxford University Press 2014) para. 5.79
(“[F]or arbitrators to assess the potential for conflicts and make necessary
disclosures, third-party funders' participation in particular international arbitration
cases will necessarily have to be disclosed”); Burcu OSMANOGLU, “Third-Party Funding
in International Commercial Arbitration and Arbitrator Conflict of Interest”, 32 J. Int'l
Arb. (2015, no. 3) p. 325 at pp. 339-340 (“[A]n obligation on the parties to disclose the
presence of third-party funders in the arbitration proceedings is vital and would
closely relate to the obligation of the arbitrators to disclose any relationship that
they have with third-party funders that may imperil the arbitral tribunal's
independence and impartiality.”); Catherine KESSEDJIAN, “Good Governance of Third
Party Funding”, Columbia FDI Perspectives No. 130 (15 September 2014), pp. 1-2
(“Some of the best practices for arbitral tribunals confronted with third party
financing could include the following: Financing by third parties must be disclosed for
arbitration proceedings to be conducted appropriately.”); Commision Financement
de Procés par les Tiers, Club des Juristes, “Financement du Procès par les Tiers” (June
2014) p. 59 (“It is undeniable that the presence of a third-party funder in the arbitral
proceeding may generate potential conflicts of interest. In this sense, the current
situation that does not require anyone to disclose anything cannot persist.”) (authors'
translation); William STONE, “Third Party Funding in International Arbitration: A Case
for Mandatory Disclosure?”, 2015 Asian Disp. Rev. (2015, no. 2) p. 62 at p. 68 (“Absent
disclosure of a funding relationship within the arbitration, the independence of an
arbitrator cannot be assured.”).
157) EU-Vietnam Free Trade Agreement, agreed text as of January 2016, Chapter 8: Trade in
Services, Investment and E-Commerce, Chapter 2, Sect. 3, Art. 11.1; CETA, Art. 8.26;
European Commission, Draft of Chapter II (Investment) of the Transatlantic Trade and
Investment Partnership, released on 12 November 2015, Sect. 3, Art. 8.
158) Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan (ICSID Case
No. ARB/12/6), Procedural Order No. 3 (12 June 2015) para. 8.
159) Ibid. para. 12.
160) See Hamid G. GHARAVI, “Le financement par un tiers dans l'arbitrage d'investissement”,
fn. 129 above, p. 67 at para. 36.
161) M.K. HARWOOD, S.N. BATIFORT and C. TRAHANAS, “Third-Party Funding: Security for
Costs and Other Key Issues”, fn. 133 above, pp. 108-113.
162) RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on
Saint Lucia's Request for Security for Costs, Assenting Opinion of Mr. Gavan Griffith QC
(13 August 2014) para. 14.
163) Ibid., paras. 13, 16.
164) RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on
Claimant's Proposal for Disqualification of Dr. Gavan Griffith QC (23 October 2014)
paras. 39-42.
165) J. GILL and M. HODGSON, “Costs Awards – Who Pays?”, fn. 45 above.
166) New Zealand Ministry of Foreign Affairs and Trade, “Joint Declaration on Investor State
Dispute Settlement”, available at <https://www.mfat.govt.nz/assets/CPTPP/CPTPP-
Joint-Declaration-ISDS-Final.pdf> (last visited 20 June 2018).

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 167) See “Radical Proposals in Draft Netherlands Model BIT”, Global Arbitration Review (16
May 2018), available at
<https://globalarbitrationreview.com/article/1169654/radical-proposals-in-draft-
netherlands-model-bit> (last visited 20 June 2018). The text of the new Netherlands
draft Model BIT is available in English at
<https://globalarbitrationreview.com/digital_ assets/820bcdd9-08b5-4bb5-a81e-
d69e6c6735ce/Draft-Model...> (last visited 20 June 2018). Notably, Art. 20.1 of the new
Netherlands draft model BIT also provides that all arbitrators shall be appointed by
the arbitral institution, thus eliminating the party-appointment system.
168) See “Kinnear Sheds Light on ICSID Rules Amendment”, Global Arbitration Review (6
April 2018) available at
<https://globalarbitrationreview.com/article/1167749/kinnear-sheds-light-on-icsid-
rules-amendment> (last accessed 20 June 2018).

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 27
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
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 KluwerArbitration

Document information
The Pandora’s Box of Third-Party Funding: Some Practical
Publication Suggestions for Arbitrators in Light of Recent
Evolution and Adaptation: Developments
The Future of International John Beechey
Arbitration
(*)

Topics I Overview of Recent Developments in Third-Party Funding

Investment Arbitration As more of the leading arbitral centres amend their legislation and lift restrictions upon
the activities of third-party funders, international commercial and investor-State
arbitration have become a rich and developing seam of business and revenues for the
Bibliographic reference funders. There is no doubt that many of the entities, which are now active as funders are
themselves well-funded, well-run and sophisticated operations. Their decision-making
John Beechey, 'The Pandora’s processes are based upon a careful and independent assessment of the potential for a
Box of Third-Party Funding: level of recovery sufficient to justify the investment, but, and it is an important proviso,
Some Practical Suggestions taking a view of each case in the context of their portfolios of investments as a whole.
for Arbitrators in Light of For all that third-party funding has been described by Lord Neuberger, the recently retired
Recent Developments', in President of the UK Supreme Court, as “the life-blood of the judicial system”, the
Jean Engelmayer Kalicki and perception remains that this is an industry operating in the shadows, just as pressure is
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: P 558 increasing at all levels, not least among lawmakers, for transparency in the arbitral
The Future of International P 559 process. (1) And it is true, too, that not every funder espouses the high standards of due
diligence, management of the relationship with the funded party and its advisers and
Arbitration, ICCA Congress professionalism associated with the market leaders. (2) This is all grist to the mill in the
Series, Volume 20 (© Kluwer increasingly politicized debate surrounding international arbitration generally and
Law International; investment arbitration in particular.
International Council for
Commercial Third-party funding is well established in the United States, the United Kingdom and
Arbitration/Kluwer Law Australia. It is gaining ground in Canada. In New Zealand, the maintenance and champerty
International 2019) pp. 558 - rules remain on the statute book but the courts are said to be cautiously permissive of
586 third-party funding arrangements. Ireland, however, remains a “no go” area. The old
maintenance and champerty rules remain in place, as they did in Singapore and Hong
Kong, too – until 2017.
These latter changes in two of the most prominent arbitration venues in Asia are of some
significance, not least because they have been implemented at a time when the role of
third-party funders is a matter of open debate and calls for regulation of the industry are
strident in some political and business circles. It is not unreasonable to suppose that the
legislators in these sophisticated jurisdictions would have fashioned their approach to
third-party funding with an eye to the issues, which have attracted considerable attention
internationally.
There are some noteworthy differences of approach between that adopted in Hong Kong
and that in Singapore, which merit further comment, but it is striking that in both
jurisdictions, the emphasis is on disclosure rather than regulation – at least for the time
being.

1 Singapore
On 10 January 2017, the Singapore Parliament passed the Civil Law (Amendment) Act (Bill
No. 38/2016) which entered into force on 1 March 2017 (the Act), (3) together with the Civil
Law (Third-Party Funding) Regulations 2017 (the Regulations). (4)
P 559 The Act abolishes civil liability for the torts of maintenance and champerty (5) and allows
P 560 third-party funding contracts, but it is not a blanket relaxation. (6) Third-party funding
arrangements are permitted only in the context of international arbitration proceedings (7)
and then subject to the proviso that they are made by eligible parties – that is to say: “a
person who carries on the business of funding all or part of the costs of dispute resolution
proceedings to which the person is not a party” (8) and who, in addition to carrying on that
business in Singapore or elsewhere: “… has a paid-up share capital of not less than $5
million or the equivalent amount in foreign currency or not less than $5 million or the
equivalent amount in foreign currency in managed assets”. (9)
Other than within the ambit of international arbitration, however, third-party funding
arrangements are still likely to fall foul of public policy considerations and to be deemed
unenforceable on these grounds in Singapore. (10) The amendment does not “affect any
rule of that law as to the cases in which a contract is to be treated as contrary to public
policy or otherwise illegal”. (11)
The Act forms part of a legislative “package” completed by the entry into force on 1 March

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 2017 of the amendments to the Legal Profession Act (Chapter 161) (the LPA) (12) and to the
Legal Profession (Professional Conduct) Rules 2015 (the Singapore Professional Conduct
Rules), which set out principles and standards of professional practice, etiquette and
conduct to which lawyers are required to adhere. (13)
Sect. 107 of the LPA precludes solicitors from holding any interest of any party in any suit,
action or other contentious proceeding and from acting on a contingency or success fee
basis. (14) But the provision has been amended such that a solicitor may: (i) introduce or
P 560 refer a third-party funder to the solicitor's client, provided he or she does so without
P 561 receiving compensation; (ii) advise on or draft a third-party funding contract for the
solicitor's client or negotiate the contract on the client's behalf; and (iii) act on behalf of
the client in any dispute arising out of the third-party funding agreement.
The amendments to the Singapore Professional Conduct Rules deal principally with two
issues that apply to Singapore legal practitioners, namely: (i) a duty to disclose the
existence of any third-party funding; and (ii) a financial interest prohibition.
As to the former, the new Sect. 49A of the Singapore Professional Conduct Rules requires
legal practitioners to disclose to the court or the tribunal and to any other party involved
in the proceedings: (i) the existence of any third-party funding contract related to the costs
of those proceedings; and (ii) the identity and address of any funder. Disclosure must be
made at the date the proceedings commence and, in any case, as soon as practicable after
the third-party funding contract is entered into. In practice, this obligation may create
some “inequalities” between Singapore legal practitioners and those qualified in other
jurisdictions, where a similar disclosure obligation does not exist. (15)
So far as the prohibition against financial interest (and other interests) on the part of a
Singaporean practitioner in a third-party funder is concerned, Sect. 49B of the Singapore
Professional Conduct Rules proscribes any shareholding or other ownership interest in a
third-party funder, whether direct or indirect: “(a) which the legal practitioner or law
practice has introduced or referred to a client of the legal practitioner or law practice in
relation to dispute resolution proceedings; or (b) which has a third-party funding contract
with a client of the legal practitioner or law practice”.
In addition:
– the Law Society of Singapore has issued a Guidance Note on Third-Party Funding
(which entered into force on 25 April 2017). It sets out best practices for lawyers who
refer, advise or act for clients which obtain third -party funding. The Note
supplements the above-mentioned legislative amendments; (16)
– the Singapore International Arbitration Centre (SIAC) published the SIAC Investment
P 561 Arbitration Rules (1 January 2017). They contain specific provisions directed towards
P 562 third-party funding. (17) SIAC has also produced its Practice Note PN-01/17 on
Arbitrator Conduct in Cases Involving External Funding (on 31 March 2017); (18) and
– on 18 May 2017, the Singapore Institute of Arbitrators (SIArb) published the SIArb
Guidelines for Third-Party Funders, which aim to promote best practices among third-
party funders providing funding to parties in Singapore-seated international
arbitrations. (19)

2 Hong Kong
Amendments to the Arbitration Ordinance (Cap. 609) followed from the approval on 14 June
2017 of the Arbitration and Mediation Legislation (Third-Party Funding) (Amendment)
Ordinance Order No. 6 of 2017. The effect of these amendments is that the common law tort
and offence of champerty and maintenance no longer applies to third-party funding of
arbitration (including related court proceedings, emergency arbitrations and mediations)
and mediation, both in respect of proceedings in Hong Kong and of work undertaken in
Hong Kong relating to arbitrations and mediations outside Hong Kong. (20) On 23 June 2017,
this legislation was (partially) enacted. (21) The Amendment Ordinance defines third-party
funding as follows:
“Third-party funding of arbitration is the provision of arbitration funding for an
arbitration—
(a) under a funding agreement;
(b) to a funded party;
(c) by a third-party funder; and
P 562
P 563
(d) in return for the third-party funder receiving a financial benefit only if the
arbitration is successful within the meaning of the funding agreement.”
(22)
Whilst the funding agreement must be in writing and made after the effective date of the
legislation, the funding may take the form of monetary or other financial assistance in
respect of costs.
Notably, the obligation to disclose any such arrangements to every other party in the
arbitration and to the tribunal to the extent of disclosing that such an arrangement exists;

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 who the funder is; and the fact that a funding agreement has come to an end other than
upon the conclusion of the proceedings is the subject of a specific carveout from the
statutory confidentiality obligations concerning arbitral proceedings, which are a
particular feature of Hong Kong law. (23)
In contrast to the narrow definition of a funder adopted in Singapore, the Hong Kong
legislation extends to “any person who is a party to a funding agreement … and who does
not have an interest recognized by law in the arbitration other than under the funding
agreement”, including lawyers and law firms. But consistent with the longstanding
prohibition in Hong Kong against the application by lawyers of conditional or contingency
fees, (24) they are not permitted to fund an arbitration in which they are acting as counsel
to one of the parties. (25)
There is not as yet a formal regulatory code governing the activities of third-party funders
in Hong Kong, although there is a proposal that such a code should be issued and the
Justice Secretary has the power to appoint an “advisory body” to draw it up and to monitor
compliance. Sect. 98Q of the new enactment sets out a variety of practices and standards
that might be thought appropriate, including capital adequacy requirements,
confidentiality, conflicts of interest, disclosure, the extent to which the funder is in control
of the proceedings and the bases upon which the funding agreement might be terminated.
None of these proposals contemplates direct sanction in the event of non-compliance, but
a failure to conform may be referred to a court or arbitral tribunal and be taken into
account. (26)

3 United Kingdom
Regulation of third-party funders remains a topical issue in the United Kingdom. On 24
P 563 January 2017, responding to three written parliamentary questions asked by Lord Hodgson
P 564 of Astley Abbots, (27) Lord Keen of Elie, for the UK government, stated that:
“The Government does not believe that the case has been made out for moving
away from voluntary regulation, as agreed by Parliament during the passage of
the Legal Aid, Sentencing and Punishment of Offenders Act 2012. The market for
third party litigation funding, remains at a relatively early stage in its
development in this jurisdiction and we are not aware of specific concerns
about the activities of litigation funders. The Government has not therefore
undertaken a formal assessment of the effectiveness of the voluntary code of
conduct or the membership of the Association of Litigation Funders. The last
Government gave Parliament an assurance that it will keep third party litigation
funding under review and this Government is ready to investigate matters
further should the need arise.”
In essence, the UK Government confirmed that it saw no immediate need to enact any
legislation regulating third-party litigation funding in light of the fact that the present
voluntary framework – i.e. the Code of Conduct for Litigation Funders (28) – had not created
“specific concerns”.

4 Republic of Ireland
On 23 May 2017, in its ruling in Persona Digital Telephony Limited & Sigma Wireless Networks
Limited v. The Minister for Public Enterprise, Ireland and the Attorney General, (29) the Irish
Supreme Court, with specific reference to the doctrines of champerty and maintenance,
held that third-party funding is unlawful as a matter of Irish law in the context of litigation
proceedings. (30) Persona Digital was the “first case to come before the Court which raises
the issue of the potential use of a third-party professional funding agreement to support a
party in legal proceedings”. (31)
P 564
P 565 In her Judgment, Chief Justice Denham observed:
“The Court was asked not to be seduced into changing the law in the interests of
what the Court may perceive to be just. It may be said that in light of modern
issues, such as Ireland being an international trading State, issues arising on
international arbitrations, and in the Commercial Court, it might well be
appropriate to have a modern law on champerty and the third-party funding of
litigation. However, this is a complex multifaceted issue, more suited to a full
legislative analysis. This is re-enforced by the retention of the old statutes by
the Act of 2007 [Statute Law Revision Act 2007], and by the work of the LRC [Law
Reform Commission].” (32)
This judgment is in line with Irish law under which “maintenance and champerty are
offences which evidence a public policy”. (33) However, there are many legal practitioners
and lawmakers in Ireland, who recognize that if the country wishes to play a significant role
in the new, evolving third-party funding market, it will be necessary to develop a new law,
which will allow third-party funding at least in international arbitration proceedings,
following the recent examples of both Singapore and Hong Kong.

5 France

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 At about the same time as the legislative changes described above were being
promulgated in Singapore, a Working Group of the Paris Bar published its Report. (34)
Recourse to third-party funding is less common in the European civil law jurisdictions than
in the leading common law jurisdictions, although it is growing in France, where the market
is less mature than it is in Germany, but considerably more developed than it is in Italy,
Spain and Switzerland, for example. It is noteworthy that, in line with the demand for
disclosure of funding arrangements seen elsewhere in this string of recent developments,
the Paris Bar Report emphasized the need for early and full disclosure of any third-party
funding arrangements. That was a matter which it regarded as being of paramount
importance.

6 People's Republic of China

On 1 October 2017, the Investment Arbitration Rules of the China International Economic
and Trade Arbitration Commission (CIETAC Investment Rules) entered into force. (35) The
P 565 CIETAC Investment Rules expressly allow recourse to third-party funding. As is the case in
P 566 Singapore, the CIETAC Rules place considerable weight upon full and early disclosure of
funding arrangements rather than regulation as the principal safeguard against abuse. Art.
27 requires a funded party to disclose, in writing and without delay, to any other party, the
arbitral tribunal and the CIETAC Commission: (i) the existence and the nature of the
funding arrangement; and (ii) the name and the address of the third-party funder. The
arbitral tribunal has the power to compel disclosure of such information and, when ruling
on costs of the arbitration, it may take into consideration the existence of a funding
agreement and a party's compliance with its disclosure obligations.

7 United Arab Emirates

On 14 March 2017, the Dubai International Financial Centre (DIFC) Courts (36) adopted the
Practice Direction No. 2 on Third-Party Funding in the DIFC Courts (37) (DIFC Direction). The
DIFC Direction “sets out requirements to be observed by ‘Funded Parties’ in respect of their
relationships, interactions and contracts with ‘Funders’ concerning legal ‘Proceedings’ in
the DIFC Courts” where proceedings are commenced on or after the cited date.
Some of the most relevant features of the DIFC Direction are the following:
– disclosure that a funding agreement is in place. A funded party entering into a
litigation funding agreement in respect of disputes filed in the DIFC Courts is required
to provide every party to the relevant dispute with details of the identity of the
funder, but it is not compelled to disclose a copy, or any part, of the litigation
funding agreement “unless the Court orders otherwise”; (38)
– the DIFC Courts may take account of the fact that a party is funded when making
determinations on applications for security for costs, but the fact that a party is
funded shall not by itself be determinative in making decisions on applications for
security for costs; (39)
– the DIFC Courts have the “jurisdiction to make costs orders against third parties,
including Funders, where the Court deems it appropriate, given the circumstances of
the case”. (40)

8 Investment Treaties
P 566 On 21 September 2017, the EU-Canada Free Trade Agreement (CETA) entered into force. (41)
P 567 The CETA is remarkable for its acknowledgement that recourse to third-party funding is
not an anomaly in current investor-state arbitration and, in fact, it makes express
provision for it. Art. 8.1 defines third-party funding as:
“any funding provided by a natural or legal person who is not a disputing party
but who enters into an agreement with a disputing party in order to finance part
or all of the cost of the proceedings either through a donation or grant, or in
return for remuneration dependent on the outcome of the dispute”.
It will be appreciated that this definition includes not-for-profit funders (“through a
donation or grant”).
Provisions mirroring those in the CETA have been adopted in the Free Trade Agreement
entered into between the EU and Vietnam. (42)
Once again, disclosure of third-party funding is a primary consideration. Art. 8.26 of CETA
requires disclosure by the funded party of the name and the address of the funder:
“at the time of the submission of a claim, or, if the financing agreement is
concluded or the donation or grant is made after the submission of a claim,
without delay as soon as the agreement is concluded or the donation or grant is
made”.

9 ICCA-Queen Mary Task Force Report on Third-Party Funding in International

Arbitration
On 17 April 2018, the Task Force on Third -Party Funding in International Arbitration,

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 established by the International Council for Commercial Arbitration (ICCA) along with
Queen Mary College at the University of London, (43) published the ICCA-Queen Mary Task
P 567 Force Report on Third-Party Funding in International Arbitration (“ICCA-QM Report”). (44)
P 568 The Report reflects upon the latest developments in the field. (45) It acknowledges that
there were arguments in the international investment context to prohibit third-party
funding because of its asserted consequences for the real and perceived legitimacy of
investment arbitration. (46)

II Third-Party Funding: The Polemic

It is as well that the further development of a burgeoning third-party funding market
should be the focus of review by lawmakers, professional bodies and regulators, and
academics and institutions such as ICCA at this time. There is ample scope for change, but
there is also a need to put this debate into a proper perspective.
These matters are under critical review well beyond the confines of the international
arbitration community. Third-party funding seems to be one of those “red button” issues
about which lawmakers, NGOs and other opinion formers have a lot to say, much of it,
regrettably, based on little more than hearsay and reheated anecdote rather than fact.
Moreover, the timing is unfortunate in that the third-party funding issue has been caught
up in what has become a politicized debate about the standing of arbitration generally,
perhaps most potently and, thus far, with the most significant consequences, in the context
of both investor-state arbitration within the EU and of the putative negotiation of bilateral
investment treaties to which the EU will be a party. (47)
There is room for legitimate concern that whatever agenda it is which drives the debate
about ISDS in the European Parliament and the Commission, it takes precious little
account of what is actually being done to address and to resolve the issues which have
been identified – or to allow any credit for the changes that have been, and will be, made.
The EU institutions have turned their backs on the investor-state arbitration model
embodied in the International Centre for Settlement of Investment Disputes (ICSID) and
they are seemingly determined to impose a “Multilateral Investment Court” in the
constitution of the membership of which only the EU and the State with which it is
contracting will have a say. (48)
P 568 Sentiment is as hostile across the Atlantic. Quite apart from Senator Elizabeth Warren's
P 569 now notorious op-ed in the Washington Post, in which she saw fit to lambast investor-
state tribunals as “rigged pseudo courts”, (49) the US Chamber of Commerce has not
restrained itself either, describing third-party litigation funding as a “clear and present
danger to the impartial and efficient administration of civil justice in the United States”.
(50)
But it would be wrong to dismiss all of the criticism as mere “noise”. There is a great deal in
the old adage that not only must justice be done, it must be seen to be done. (51) Third-
party funding is just one part of what is seen to be a much larger problem. The new
disclosure requirements are a significant step in the right direction to address at least one
area of concern. It remains to be seen whether voluntary codes of conduct will be sufficient
– or even if they are, whether they will be seen to be sufficient. If they are seen to be
toothless, as in at least one case, it is suggested they are, (52) pressure for a system of
statutory regulation will inevitably build.
This is the battleground onto which the arbitrator, like or not, has strayed. While it might
not be the lightning rod, there is no doubt that the conduct of arbitrators in cases involving
third-party funders will be subject to rigorous scrutiny.
P 569
P 570

III Practical Issues Arising for Arbitrators from the Involvement of a

Third-Party Funder in International Arbitration
1 Impartiality and Independence of Arbitrators
In principle, the existence of a funding agreement should have no bearing upon the
progress and merits of the underlying arbitration (53) (although it may impact upon the
tactics of the funded party). It could have (or could be perceived to have) a bearing upon
P 570 the independence and the impartiality of an arbitrator, however, (54) and any relationship
P 571 which links the arbitrator to the third-party funder is to be disclosed. (55) The classic
example is the situation in which a lawyer acts as counsel in a funded case (maintaining
regular contacts with, and being paid by, the funder) and is subsequently approached to
serve as an arbitrator in another case in which the claimant receives its litigation funding
from the same funder.
The ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the
ICC Rules of Arbitration provides that: “Relationships between arbitrators, as well as
relationships with any entity having a direct economic interest in the dispute or an
obligation to indemnify a party for the award, should also be considered in the
circumstances of each case.” (56)
It is common practice that, before appointment or confirmation, a prospective arbitrator

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 signs a truthful and complete statement of acceptance of appointment to confirm his or
her impartiality, independence (and availability) and to disclose the existence of any
conflict(s) of interest. Failure to make such disclosure creates an appearance of bias and
may itself be a ground for disqualification. In fact, the rules of the principal arbitral
institutions require a prospective arbitrator to disclose not only circumstances, which go to
any actual conflict or relationship with a party or its advisors, but also any circumstances
likely to give rise to doubts as to the arbitrator's independence and/or impartiality. (57)
The clear preponderance of opinion now is that the involvement of a funder with whom an
arbitrator has a connection is a relevant circumstance to be disclosed by the arbitrator at
the time of her/his appointment (or during the course of the arbitral proceedings).
That connection may be “direct” – as will be the case, if the arbitrator is a member of a law
firm with which the third-party funder has a business relationship or if the arbitrator, in
performing her/his ongoing duty reasonably to check for any potential conflict of interest,
(58) discovers that a funder with which the arbitrator or the arbitrator's firm has an
economic link is involved in the pending arbitration.
P 571
P 572
It might also be “indirect”; the arbitrator may become aware of a potential conflict with a
third-party funder in light of a disclosure by one of the parties. (59)
When an arbitrator has knowledge of the involvement of a third-party funder, then the
arbitrator will be expected to evaluate whether that participation gives rise to a
disclosure and if so, to make the requisite disclosure promptly to the parties (and to any
administering arbitral institution).
But that begs a question. While the eminent Spanish arbitrator, Bernardo M. Cremades,
suggests, that: “… the participation of third-party financiers in arbitration without the
corresponding disclosure to the other party and arbitral tribunal could imply a breach of
the procedural good faith with which the parties should conduct themselves”, (60) is there,
in fact, a binding obligation on a party (or the funder itself) to volunteer such a disclosure?
The answer is that in some jurisdictions there is an obligation on the part of the funded
party to disclose, and in some, there is not. And if there is no such disclosure, how can an
arbitrator be responsible for a failure to make a disclosure, which could (and should) have
been made, had he or she been in possession of the facts?
In the current environment, it may be that in the absence of any required disclosure (or
voluntary disclosure) by a funded party, a prudent arbitrator, who believes that there are
indications of the involvement of a funder (for example, a disinclination to contemplate
what seem to be sensible opportunities to explore settlement options or a sudden and
significant change in the strategy of a party) should raise the question. But that is not as
easy to do in practice as it is to articulate the proposition in theory. First, the arbitrator
may have misread the signals. Second, the funded party may be aggrieved that by being
P 572 “bounced” into a disclosure other than at a time of its choosing, the arbitrator's actions
P 573 have set it up for an application for security for costs. Either way, if the stakes are high
(or the parties are playing “hardball”), any such enquiry, however well-intentioned, might
be interpreted as a deliberate move by the arbitrator to prejudice the interests of the
funded party contrary to the arbitrator's obligation to be even-handed as between the
parties.

2 Arbitral Tribunal Powers to Order Disclosure of Third-Party Funding

a Commercial arbitration
In its Report on Decisions on Costs in International Arbitration, the ICC Commission on
Arbitration and ADR proposed that: “Where a tribunal has reason to believe that third-
party funding exists, and such funding is likely to impact on the non-funded party's ability
to recover costs if successful, the tribunal might consider ordering disclosure of such
funding information as is necessary to ascertain that the process remains effective and fair
for both parties.” (61)
At the present time, no commercial arbitration rules provide for the mandatory disclosure
of information pertaining to a third-party financing, nor do they vest in an arbitral tribunal
the power to order that kind of disclosure.
It must be questionable whether that position is sustainable, not least given developments
in the face of demands for change in investment arbitration, and whether the tentative
proposal adumbrated in the ICC Commission Report to the effect that a tribunal “might
consider” ordering disclosure is sufficient.
It is sometimes argued that many parties which initiate international arbitration
proceedings do so on the back of borrowed funds rather than deploying their own
resources. If third-party funding agreements had to be disclosed, so the argument runs,
why should other financing agreements be any more inviolate from disclosure?
The answer is that there is a world of a difference between the use by a party to a dispute
of funds borrowed from a bank or raised in the market and the source of which has no
direct interest in the outcome of a particular court case or arbitration and that of a third-
party funder, which has determined to support the action, having considered the specific

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 merits of that case, and which invests specifically in that case with a view to a return. That
involvement gives rise, not least, to questions as to the extent to which the funded party's
strategy is to be determined by the funder; as to any “claim inflation” built in an attempt
to secure a recovery in the event of a win sufficient to meet the funder's “cut” as well as the
real loss suffered by the funded party; and as to the readiness of the funder to stand
behind any adverse costs order in the event that expectations of success were not met.
P 573 It is acknowledged, after all, that funders do not support every case in the confident belief
P 574 that it has a certain or very high prospect of success. As Kate Brown de Vejar and Chloe
Baldwin point out in their paper for this Congress, (62) a decade ago, one leading funder
described its business model as:
“‘similar to that employed in venture capital, where poor results are expected
from some investments and are balanced against high returns from other
investments in an effort to achieve desirable portfolio wide returns…’”.
These are all matters, which go to the arbitrator's obligation to ensure an even-handed
procedure as between the parties and in all cases – as it is put in Art. 22(4) of the ICC Rules
of Arbitration – to:
“act fairly and impartially and ensure that each party has a reasonable
opportunity to present its case”.
Quite apart from the obvious issues of conflict, these matters likewise militate in favour of
requiring a funded party to make disclosure of the funder's participation at the earliest
possible juncture and to leave beyond doubt the tribunal's ability to make enquiries about
the terms of the funding arrangements to the extent that they might properly be said to
have a bearing upon the conduct of the proceedings.
b Investment arbitration
Pursuant to the 2017 SIAC Investment Arbitration Rules, an arbitral tribunal has the power
to: “order the disclosure of the existence of a Party's third-party funding arrangement
and/or the identity of the third-party funder and, where appropriate, details of the third-
party funder's interest in the outcome of the proceedings, and/or whether or not the third-
party funder has committed to undertake adverse costs liability”. (63)
Similarly, the CIETAC Investment Rules give an arbitral tribunal the power to order
disclosure of information relevant to the funding contract. (64) To date, there are no
equivalent provisions in any other set of institutional rules on international investment
arbitration, although the issue of third-party funding has been identified as a matter for
consideration in the review of the ICSID Rules now underway.
It is hardly surprising that in the absence of a clear and consistent rules framework across
the institutions, there should be little evidence of a consistent approach among arbitral
tribunals as their power to confirm the existence of a third-party funding agreement and, if
one is found to exist, to order disclosure of the terms of the agreement. These decisions
have generally arisen in the context of an enquiry by the respondent State as to the
likelihood that a funder would stand behind any adverse costs order that might be made
against the funded party or in the context of an application for security for costs.
P 574
P 575
In the Permanent Court of Arbitration (PCA) case South American Silver Limited (Bermuda) v.
The Plurinational State of Bolivia, the arbitral tribunal ordered the disclosure of the name
of the third-party funder, but it rejected Bolivia's request for disclosure of the terms of the
funding agreement. (65)
The arbitral tribunal observed that:
“If the existence of these third parties alone, without considering other factors,
becomes determinative on granting or rejecting a request for security for costs,
respondents could request and obtain the security on a systematic basis,
increasing the risk of blocking potentially legitimate claims.” (66)
That decision might be thought problematic in that it rejected the proposition that the
mere presence of a funder should be determinative of the grant or rejection of an
application for security, yet the Tribunal did not permit access to the funding agreement
which might well have shed light on the “other factors” to which it attached importance.
(67)
In contrast, in Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, the
ICSID arbitral tribunal: “decided that Claimants should disclose whether their claims in
this arbitration are being funded by a third-party/parties, and, if so, the names and details
of the third-party funder(s) and the terms of that funding”. (68)
In another ICSID case, Eskosol S.p.A. in liquidazione v. Italian Republic, the respondent –
relying on the Muhammet Çap case – submitted a disclosure application. It contended
that:
“in order to protect its rights Italy needs to know whether the Claimant is

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 funded by a third party and whether such third party would be financially sound
as well as committed to execute a cost award adopted by the Tribunal against
Eskosol”.
Eskosol confirmed that it had required external funding to have access to justice and that,
in light of the existence of an ATE insurance, the commercial soundness of the third-party
P 575 funder was immaterial. The arbitral tribunal agreed. It denied Italy's disclosure
P 576 application:
“It is now clear that the funder has made arrangements to support any cost
award against Eskosol up to the amount of €1 million. It is neither necessary nor
urgent at this point to investigate whether the funder would be in a position to
arrange (or willing to arrange) insurance coverage or other security for a
potentially higher amount of costs.” (69)
ICSID arbitral tribunals to date have demonstrated a tendency to adopt a prudent and
conservative approach to disclosure beyond the fact that funding is in place and the
identity of the funder, as confirmed by the ICCA-QM Report:
“In most cases when disclosure has been ordered, the arbitral tribunal orders
disclosure of the identity of the third-party funder, but only rarely disclosure of
the terms of the funding arrangement and usually not for reasons related to
arbitrator conflicts.” (70)
It remains to be seen whether in the course of its rules revision, ICSID will amend the rules
in such a way to accommodate a more expansive approach to disclosure of the nature of
the funding arrangements in circumstances in which a tribunal determines that it would be
appropriate to call for their production. (71)

3 Third-Party Funding and Arbitral Institutions

Since the arbitral institutions (for these purposes, that term includes the United Nations
Commission on International Trade Law (UNCITRAL)) are the principal source of procedural
rules applied in international arbitration, they have the potential substantially to
influence the evolution of the role of third-party funding. (72)
P 576
P 577 Procedures and rules may be implemented to:
– oblige any party to disclose to the arbitral institution and to the other party or
parties if it is funded and, if so, to reveal the identity of the funder(s); (73)
– empower an arbitral tribunal to require confirmation of the existence, or to order the
disclosure, of a third-party funding agreement; and
– oblige an arbitrator to declare to the arbitral institution, to the parties and, if the
case, to the other arbitrators the existence of a potential conflict of interest. (74)
The Hong Kong International Arbitration Center (HKIAC) is moving in this direction. In fact,
this institution has established the HKIAC Rules Revision Committee to evaluate any
possible amendments to the 2013 HKIAC's Administered Arbitration Rule to take account of
the relaxation of the third-party funding rules in Hong Kong. (75)
So far as the disclosure of third-party funding agreements is concerned, the HKIAC Rules
Revision Committee proposed the introduction of a new Art. 44 which provides as follows:
“44.1 If a funding agreement is made, the funded party shall give written notice to all other
parties, the arbitral tribunal and HKIAC of:
(a) the fact that a funding agreement has been made; and
(b) the name of the third-party funder.
44.2 The notice referred to in Article 44.1 must be given:
(a) in respect of a funding agreement made on or before the arbitration
commences in the Notice of Arbitration or Answer (as applicable); or
(b) in respect of a funding agreement made after the arbitration commences,
within 15 days after the funding agreement is made.
44.3 If a funding agreement ends (other than because of the end of the arbitration), the
funded party shall give written notice to all other parties, the arbitral tribunal and
HKIAC of:
(a) the fact that the funding agreement has ended; and
(b) the date the funding agreement ended.
P 577
P 578
44.4 The notice referred to in Article 44.3 must be given within 15 days after the funding
agreement ends.” (76)
It is to be noted, too, that the HKIAC Rules Revision Committee is proposing to amend the
confidentiality provision in the Rules such as to allow any party to publish, disclose or
communicate any information pertaining to the relevant arbitration (including the award
and any emergency decision) “to a person for the purposes of having, or seeking, third

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 party funding of arbitration from the person”. (77)
Another encouraging signal is the ICSID paper on the Rules Amendment Process, published
on 15 May 2017 and aimed at updating the ICSID rules and regulations. The paper identifies
sixteen topics which are to be examined in the next stage of the ICSID review. Third-party
funding is one of them and the rationale for approaching this issue is described in these
terms:
“… views on third-party funding vary among jurisdictions, with some States
expressly allowing such funding and others prohibiting it. The key issue
identified for procedural reform is whether there should be disclosure of third-
party funding for the purposes of conflict checking and/or for the purposes of
security for costs.” (78)
In light of ever-increasing pressure on the arbitral institutions to make good their stated
commitment to greater transparency in their practices and procedures, it seems
inevitable that express provision will need to be made to address some of the particular
issues to which third-party funding gives rise. Those issues go beyond mere disclosure of
the existence of a funding agreement and/or disclosure of its terms and obligations upon
arbitrators of conflict disclosure that arise as a result. While it would be wrong (and
impractical) to place the burden of policing the involvement of third-party funders in
international arbitration entirely upon the shoulders of the institutions, they are well
placed to monitor developments and to draw up proposals for future guidelines (or, should
it be necessary, regulation) dealing with such matters as the extent of third-party funder
intervention in the arbitral process. One such area is the vexed question of where the real
control over a case lies when a funder is involved.

4 Control of the Case

Generally speaking, the third-party funder is not party to the arbitration, but it has a clear
P 578 economic interest in the outcome of the dispute. (79) Quite apart from seeking to influence
P 579 the tactics to be deployed once the case is underway, as to which, there is little to be
done in terms of rules prescription, since the funding entity is not a party, the funder may
seek to influence the constitution of the tribunal by dictating the nomination or
appointment of a particular arbitrator. It is not axiomatic that such influence will be
exercised improperly; a party which is inexperienced in proceedings of this kind may
welcome such guidance and if exercised responsibly, it may actually benefit the conduct
of the proceedings. But it does demonstrate the need for frank and prompt disclosure of
the involvement of the funder and for full disclosure by both the funder and an arbitrator
of any relevant connection between them.

5 Costs Decisions in Light of the Existence of Third-Party Funding

a Commercial arbitration; Recovery of third-party funding costs
On 15 September 2016, the Commercial Court of England and Wales refused to set aside an
award in which an arbitrator in an ICC arbitration seated in London awarded third-party
funding costs to the successful party. (80) The Court further affirmed that the costs of
litigation funding may be included in the expression “other costs of parties” provided
under Sect. 59(1)(c) of the English Arbitration Act 1996. (81)
HHJ Waksman QC held that:
“… litigation funding costs fall[s] within the arbitrator's general costs discretion.
… As a matter of justice, it would seem very odd and certainly unfortunate if the
arbitrator was not entitled under s.59(1) (c) to include the costs of obtaining
third party funding as part of ‘other costs’ where they were so directly and
P 579 immediately caused by the losing party. … In my judgment, therefore, I
P 580 unhesitatingly conclude that the arbitrator's interpretation of ‘other costs’
was correct, in that it extended in principle to the costs of obtaining third party
legal funding. Whether then to Award it is a matter of discretion.” (82) (Emphasis
added.)
While there is a perception that Essar is an important precedent for the recovery of third-
party funding costs, it is to be borne in mind that there were exceptional circumstances in
that case which were spelled out in the award by the arbitrator (a distinguished former
English High Court Judge) and which led him to conclude that, in the proper exercise of his
discretion, an award of third-party funding costs in that case was appropriate. It is not yet
clear to what extent Essar will be a precedent to be applied as a matter of general
principle in third-party funding cases; much may turn upon the facts of the case in
question (as it did in Essar).
b Security for costs in funded commercial arbitration cases
The ICC Commission on Arbitration and ADR considered that security for costs: “may be
appropriate to protect the non-funded party and put both parties on an equal footing in
respect of any recovery of costs”. (83) However, Professor Stavros Brekoulakis has drawn
attention to the following risk:

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 “If the existence of [TPF] alone, without considering other factors, becomes
determinative on granting or rejecting a request for security for costs,
respondents could request and obtain the security on a systematic basis,
increasing the risk of blocking potentially legitimate claims.” (84)
In this respect, the Chartered Institute of Arbitrators (CIArb) provides the following
guidance:
“When security for costs is sought from a beneficiary of a claim, the arbitrators
should consider whether the claiming party is a nominal claimant pursuing a
claim for the benefit of another party, who does have funds, and who has a
commercial interest in the outcome of the arbitration. Before determining
whether to grant security for costs in such circumstances, arbitrators should also
consider any additional factors including, inter alia, accepted business risk,
P 580 who actually controls the proceedings, whether the person or entity who stands
P 581 to benefit if the claimant wins will seek to escape liability and avoid paying
any adverse costs, and any other relevant factors applicable to the dispute at
hand.” (85)
On 9 February 2018, the Commercial Court in London handed down a decision in Progas
Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The Islamic
Republic of Pakistan, (86) which considered two applications for security for costs arising
out of an arbitration in which a third-party funder had been involved. The extent to which
the Court considered that the involvement of the funder was relevant to its review (and the
weight to be given to any commitment to meet an adverse costs order) is clear on the face
of the judgment and instructive as to the approach to be adopted. Pakistan had obtained
an award of its arbitration costs, plus interest. The first application was made under Sect.
70(6) of the English Arbitration Act 1996, (87) in respect of the claimants' challenge to the
arbitral award under Sect. 68 of the English Arbitration Act 1996. The second was for a
payment into court, under Sect. 70(7) of the English Arbitration Act 1996, (88) of the costs
(together with interest on those costs) awarded to Pakistan in the challenged award. In the
arbitration proceedings, the claimants had received funding from a subsidiary of Burford
Capital Ltd.
With reference to the first application, the Court ordered the claimants to “provide
security for costs in the sum of £ 400,000, either by paying that sum into Court or by
providing an appropriate bank or other guarantee to the Defendant”. In reaching this
P 581 decision, the Court took into consideration two letters of the funder in which it stated that
P 582 “it would ensure payment of any future adverse costs order made against the Claimants
as part of these s. 68 proceedings up to the maximum amount of £ 482,029.19”.
The Court took the view that these letters were nothing to the point:
“… the letters from Burford do not constitute a contractual commitment to
anybody (whether the Claimants or the Defendant) to meet any adverse costs
order awarded in the Defendant's favour. It follows that the letters are not
legally enforceable by the Defendant (or the Claimants for that matter) and I do
not, therefore, see how … the Defendant could obtain a ‘simple order’ from the
Court requiring Burford to pay in accordance with the terms of the letters. Nor, I
observe, do the Burford letters take the form of undertakings to the Court to
meet the Defendant's costs. Even if they were, … that would not entitle the
Defendant to an order requiring Burford to pay its costs. The remedy for breach
of an undertaking to the Court is committal, and that is not the same thing as
obtaining payment of one's costs.” (89)
On the second application, it is to be noted that it was:
“the first occasion when an application under section 70(7) of the English
Arbitration Act 1996 has been made where … it is brought against a party funded
by a professional third party funder who has not paid an adverse costs order by
an arbitral tribunal, and is seeking (through the party which it is funding) to seek
to re-run the arbitration which that party has lost, in circumstances where there
was no ability on the part of the other party to seek an order against the funder
in the underlying arbitration”. (90)
The Court rejected Pakistan's second application, because it found no evidence of
dissipation of assets by the claimants. (91) It made clear that, for the purposes of Sect.
70(7) of the English Arbitration Act 1996, the involvement of a third-party funder is
irrelevant:
“I consider that the authorities dealing with section 70(7) have identified an
approach which should be regarded as applying whether the case involves
commercial funding or not. … I struggle to see why, as a matter of principle,
there should be any special or different position where third party funders are
involved … ‘the jurisdiction conferred on the court by section 70 should not be
P 582 used a means of assisting a party to enforce an award which has been made in
P 583 its favour’. This seems to me to be a principle which is as appropriate in a

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 case where there is litigation funding as in a case where there is not.” (92)
c Investment arbitration
The long prevailing convention in investor-state arbitration has been that, save in
exceptional circumstances, the parties shall bear their own legal costs. Historically, it was
also more likely than not that an application for security for costs brought by a respondent
State would receive an unsympathetic hearing on the basis that if it was alleged that an
investor was impecunious, the answer might lie in the actions of the State which had
brought about that state of affairs and an order for security against an impecunious
claimant might stifle the making of a meritorious claim by the investor.
There is an increasing propensity on the part of ICSID tribunals to move towards costs
orders which reflect the outcome of the case, such that a State may find itself looking to an
investor for recovery of what may be a substantial award of costs.
As the Minutes of the discussions of the UNCITRAL Working Group III on ISDS Reform record:
“A further area of concern mentioned related to difficulties faced by successful
respondent States in recovering costs from claimant investors. It was said that
investors might use shell companies, or might be impecunious, which left States
with no possibility of recovery. That was highlighted as another area of
imbalance as States had a permanent and financial standing, which investors
did not. It was said that that situation was aggravated by the fact that the
possibility of obtaining security for costs was not provided for under investment
treaties or under certain arbitration rules.” (93)
The trend towards a shift in the costs burden is likely to increase the number of security for
costs applications. The advent of third-party funding has also shifted the balance, but not
necessarily to the advantage of a successful State party seeking recovery of costs from the
funded party. There is no assurance for the State party that the presence of the funder in
itself is a guarantee of payment of any award of costs against the funded party – or indeed
that the case will run to a conclusion if the funder, for whatever reason, decides to cease
funding. (94)
P 583
P 584
What is an investment arbitration tribunal, faced with an application for security against a
funded claimant, to do? First, while, as the UNCITRAL Working Group point out, it is right
that there is not (yet) an express power to order security for costs in the ICSID Rules, there
is little room for doubt that an ICSID tribunal may make such an order. (95) The same is
true of investment tribunals operating under the UNCITRAL Rules. (96) In such a case, it
might be argued that the focus of attention should be on the terms upon which funding is
provided to the impecunious claimant rather than upon the parlous financial standing of
the investor itself. Even if the funding agreement is disclosed and it appears to commit the
funder to meet an adverse costs order, a tribunal might conclude that since the State party
would not have any contractual standing under the funding agreement to enforce that
commitment, the proper order would be to require security to be put up in any event to
ensure that there were readily accessible funds, should, ultimately, an order for costs be
made in favour of the respondent State party.
That said, the position remains that, to date, and with the exception of the RSM Production
Corporation v. Saint Lucia case, (97) no ICSID tribunal has granted a request for security for
costs. (98)
Investment arbitration tribunals have determined that the mere involvement of a third-
party funder is not, in itself, a sufficient ground to justify an order for security for costs. As
the Tribunal in EuroGas v. Slovak Republic pointed out, third-party funding is not now
uncommon in investor-state arbitration and the mere fact that there is a combination of
an impecunious claimant and third-party funding is not of itself grounds to order security
for costs:

P 584 “The Tribunal is of the view that financial difficulties and third-party funding –
P 585 which has become a common practice – do not necessarily constitute per se
exceptional circumstances justifying that the Respondent be granted an order
of security for costs.” (99)
In the PCA case Guaracachi America, Inc. and Rurelec PLC v. the Plurinational State of
Bolivia, the tribunal held that:
“Respondent has not shown a sufficient causal link such that the Tribunal can
infer from the mere existence of third-party funding that the Claimants will not
be able to pay an eventual award of costs rendered against them regardless of
whether the funder is liable for costs or not.” (100)
In practice, it is fair to say that investor-State arbitral tribunals faced with an application
for an order for security for costs tend to be very cautious. While the general approach to
the making of costs orders may have changed, it remains the case that the exceptional
circumstances test remains the criterion by which applications for security for costs are

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 measured and only in the event of truly exceptional circumstances (similar to those in RSM
v. Saint Lucia) will a tribunal order security for costs.
The ICCA-QM Report proposes as Principle No. D.1 of Chapter 6 on security for costs that:
“An application for security for costs should, in the first instance, be determined on the
basis of the applicable test, without regard to the existence of any funding arrangement.”
(101)
With reference to the need to disclose the funding agreement to the arbitral tribunal – if
the funded party is found to be impecunious – the ICCA- QM Report proposes two options:
(1) a limited disclosure of the “provisions that are strictly necessary to assess the extent to
which the funder may cover (or not) an adverse costs order”; and (2) allowing “the funded
party, its counsel or even the funder to provide the tribunal with a witness statement or
affidavit stating its identity and whether under the third funding party agreements it can
be held liable for adverse costs”. (102)
There may be a “third way” which could reduce any potential objections based on
P 585 confidentiality (option 1) and on the “quality” of any such affidavit (option 2): the
P 586 appointment of an independent expert who – on the basis of a specific mandate agreed
on between the parties – would be entitled to examine the funding agreement in its
entirety and who would produce a report which would only be disclosed in full to the
arbitral tribunal.
All that may be so, but why if, as appears to be the case, tribunals increasingly seek to
award and apportion costs on the basis of the outcome of the arbitration rather than adopt
the current conventional approach of letting the costs lie where they fall should a state
that has successfully defended a case at great expense against a funded impecunious
investor not be able to avail itself of a measure of the protection from exposure to costs
that the impecunious investor itself sought to enjoy? And why should a funder, which
backed the case in the expectation of a share of the winnings be allowed to walk away
without any liability from any adverse costs award made against the party which it had
funded?
In these changed circumstances, it may be appropriate for a tribunal not to focus simply
on the impecuniosity of the investor and to ensure that it has a chance to bring an
ostensibly meritorious claim to trial, but to consider whether the justice of the case calls
for the costs of the State to be covered in the event that it were to prevail. If that is right,
then RSM v. St Lucia may not be a lone outrider for very much longer.

IV Conclusion
An arbitral tribunal faced with a party which it knows to be the recipient of third-party
funding is in a position to consider issues of conflict disclosure and to embark upon the
arbitration with that factor in mind. It will likely never be clear to a tribunal to what extent
a funded party's approach to the arbitration is driven by the funder (any more than it
might expect to be privy to a self-funded party's tactical considerations). If the party and
its funder are “ad idem” from the outset that does not matter. But a tribunal with
knowledge of a funder's involvement may be in a position to warn of consequences, not
least in costs, if it perceives that tactics have been adopted by the funded party, the
purpose of which is deliberately to derail, prolong or otherwise prejudice the efficient and
effective prosecution of the arbitration and which would not otherwise be adopted by the
funded party but for its ability to look to the funder for financial cover. That is a fine
exercise in judgment, but it is one that may be undertaken on an informed basis.
A tribunal, which is kept in the dark about any such involvement labours under a very
considerable disadvantage. Given the current (febrile) state of the debate about
transparency in arbitration generally and the still present and palpable distrust about the
role of third-party funding in particular, any measure which might assist to dispel the
notion that some form of “black art” is in play, which operates, not least, to the detriment
of State parties, should surely be adopted. Seen in this light, an obligation on the part of a
funded party to make disclosure at the outset of the fact that it is funded and by whom
ought to become the rule rather than the exception.
P 586

References
*) John Beechey, CBE: Based in Hong Kong and London, active in commercial and
investor-state arbitrations, serving as chairman, party-appointed arbitrator, or sole
arbitrator in both “ad hoc” (including UNCITRAL) and institutional arbitrations under
the rules of all major arbitral institutions. Former President of the International Court
of Arbitration of the ICC (2009-2015); founding partner of the international arbitration
practice of Clifford Chance LLP; ICCA Governing Board Member. The author has been
assisted in the preparation of this paper by Avv. Niccolo LANDI of Studio Legale Landi,
Milan.

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 1) “It was observed that third-party funding had become a significant concern, in that it
created a systemic imbalance and did not ensure a level playing field. It was added
that issues of third-party funding related not just to costs, but also had an impact on
other issues, such as conflicts of interest, collection and enforcement of costs
awards.” UNCITRAL Report of Working Group III (Investor-State Dispute Settlement
Reform) on the work of its thirty-fourth session (Vienna, 27 November – 1 December
2017), para. 62; “… TPF can give rise to a host of important and complex ethical and
procedural issues in international arbitration. These issues include the nature and
degree of influence of funders in the management of the dispute, issues of jurisdiction
and admissibility (i.e. who owns the claim?), issues of transparency and disclosure of
the funding arrangements, issues of attorney-client privilege, issues of conflicts of
interest for tribunals, and issues of allocations of costs and security for costs”: Stavros
BREKOULAKIS, “The Impact of Third Party Funding on Allocation for Costs and Security
for Costs Applications: The ICCA-Queen Mary Task Force Report”, Kluwer Arbitration
Blog, 18 February 2016, available at <http://arbitrationblog.kluwer
arbitration.com/2016/02/18/the-impact-of-third-party-funding-on-alloca...> (last
accessed 4 March 2018).
2) See the salutary case of Excalibur Ventures LLC v. Texas Keystone Inc and Ors (Rev 2)
[2014] EWHC 3436.
3) The Act is available at <https://sso.agc.gov.sg/Bills-Supp/38-
2016/Published/20161107?DocDate=20161107> (last accessed 4 March 2018).
4) The Regulations are available at <https://sso.agc.gov.sg/SL-Supp/S68-
2017/Published/20170224?DocDate=20170224> (last accessed 4 March 2018).
5) Sect. 5A(1) of the Act: “It is declared that no person is, under the law of Singapore,
liable in tort for any conduct on account of its being maintenance or champerty as
known to the common law.”
6) Sect. 5B(10) of the Act gives the following definition of a “third-party funding contract”:
“… a contract or agreement by a party or potential party to dispute resolution
proceedings with a Third-Party Funder for the funding of all or part of the costs of the
proceedings in return for a share or other interest in the proceeds or potential
proceeds of the proceedings to which the party or potential party may become
entitled”.
7) Sect. 3 of the Regulations 2017.
8) Sect. 5B(10) of the Act.
9) Sect. 4 of the Regulations 2017. Matthew Secomb and Adam Wallin point out that the
definition of third-party funder and the criteria to be met in Singapore “seem to
exclude respondent-side funding and non-commercial funders (such as pro bono
funders, most individual persons, and businesses not principally engaged in
funding)”. Matthew SECOMB and Adam WALLIN, “Chapter 13, Singapore” in Leslie
PERRIN, ed., Third Party Litigation Funding Law Review (Law Business Research 2017) p.
127.
10) See Matthew SECOMB and Adam WALLIN, fn. 9, p. 126: “Singapore law now permits
third party funding in international arbitration (and related proceedings) if the
funder meets certain qualifying criteria. Outside the international arbitration context,
however, funding is generally prohibited on public policy grounds.”
11) Sect. 5A(2) of the Act.
12) The LPA is available at <https://sso.agc.gov.sg/Act/LPA1966> (last accessed 4 March
2018).
13) The Legal Profession (Professional Conduct) (Amendment) Rules 2017 are available at
<https://statutes.agc.gov.sg/SL-Supp/S69-2017/Published/20170224?
DocDate=20170224> (last accessed 4 March 2018).
14) Sect. 107 of the LPA is available at <https://sso.agc.gov.sg/Act/LPA1966?
ProvIds=P1VIII-#pr107-> (last accessed 4 March 2018).
15) See Matthew SECOMB and Adam WALLIN, fn. 9, p. 132.
16) The Law Society of Singapore's Guidance Note on Third-Party Funding is available at
<www.lawsociety.org.sg/For-Lawyers/Running-Your-Practice/Guidance-on-
Professional-and-Practice-Issues> (last accessed 4 March 2018). Sect. 4 of the Note
gives the following definition of third-party funding: “Third-party funding involves a
commercial funder agreeing to pay some or all of the claimant's legal fees and
expenses.” On the lawyer's duty to disclose the existence of the third-party funder,
the Note gives the following practical guidance: “You should consider informing your
client at the start of your retainer that you have a professional duty to disclose
whether your client is engaging third-party funding. It is good practice to check with
your client at the start of the retainer on whether he/she intends to engage or is
already engaged in third-party funding.”
17) The SIAC Investment Arbitration Rules are available at <www.siac.org.sg/our-
rules/rules/siac-ia-rules-2017> (last accessed 4 March 2018); see Arts. 24(l), 33.1 and
35.
18) The Practice Note PN-01/17 on Arbitrator Conduct in Cases Involving External Funding
is available at
<www.siac.org.sg/images/stories/articles/rules/Third%20Party%20Funding%20Practic
e%20Note%2031%20March...> (last accessed 4 March 2018).

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 19) See Sect. 1.1 of the SIArb Guidelines for Third-Party Funders, available at
<https://www.siarb.org.sg/index.php/resources/third-party-funding> (last accessed
12 February 2019). Here, third-party funding is defined as follows: “Third party funding
arises when a third party … provides financial support to enable a party … to pursue
or defend an arbitration or related court or mediation proceedings. Such financial
support is provided in exchange for an economic interest in any favourable award or
outcome that may ensue.”
20) See Melody CHAN, “Chapter 8, Hong Kong” in Leslie PERRIN, ed., Third Party Litigation
Funding Law Review (Law Business Research 2017) p. 79: “Hong Kong had a long-
standing general ban (with limited exceptions) on third party funding in litigation,
arbitration and mediation.”
21) See Caroline KENNY QC, “Third Party Funding of International Arbitrations”, CIArb
News, 1 November 2017, available at <https://www.ciarb.org/news/ciarb-news/news-
detail/features/2017/11/01/third-party-funding-of-interna...> (last accessed 4 March
2018). Sect. 98K, Division 3 of the Amendment Ordinance states that: “The common law
offences of maintenance (including the common law offence of champerty) and of
being a common barrator do not apply in relation to third party funding of
arbitration.”; and Sect. 98L, Division 3 of the Amendment Ordinance states that: “The
tort of maintenance (including the tort of champerty) does not apply in relation to
third party funding of arbitration.”
22) See Sect. 98G, Part 10A Arbitration Ordinance.
23) Idem, Sect. 98S.
24) Although such arrangements fall within the general definition of “third party funding”.
25) Idem, Sect. 98NA.
26) Idem, Sect. 98S(b).
27) Written question – HL4213, available at
<https://www.parliament.uk/business/publications/written-questions-answers-
statements/written-questio...> (last accessed 4 March 2018): “To ask Her Majesty's
Government whether, in the light of the rapid expansion of third party litigation, they
plan to introduce statutory regulation of funders”; written question – HL4214,
available at <https://www.parliament.uk/business/publications/written-questions-
answers-statements/written-questio...> (last accessed 4 March 2018): “To ask Her
Majesty's Government whether it is the case that fewer than half the number of UK
based firms, and no overseas based firms, have joined the Association of Litigation
Funders; and what assessment they have made of the effectiveness of the voluntary
code of conduct drafted by the Association”; written question – HL4216, available at
<https://www.parliament.uk/business/publications/written-questions-answers-
statements/written-questio...> (last accessed 4 March 2018): “To ask Her Majesty's
Government whether they plan to introduce regulations to ensure that third party
litigation funders are subject to the same statutory duties and obligations as apply to
law firms operating in the same field.”
28) The Code of Conduct for Litigation Funders is available at
<http://associationoflitigationfunders.com/code-of-conduct/> (last accessed 4 March
2018).
29) Persona Digital Telephony Limited & Sigma Wireless Networks Limited v. The Minister for
Public Enterprise, Ireland and the Attorney General [2017] IESC 27.
30) Persona Digital Telephony Limited, see fn. 29. At para. 54(ix), Chief Justice Denham
stated: “I do consider that third party funding to support a plaintiff (where none of the
exceptions apply) is unlawful by reason of the rules on champerty.”
31) Persona Digital Telephony Limited, see fn. 29, para. 7.
32) Persona Digital Telephony Limited, see fn. 29, para. 54(vi).
33) Persona Digital Telephony Limited, see fn. 29, para. 26.
34) “Le financement de l'arbitrage par les tiers (“Third-party Funding”)”: 23 November 2016
(available at <http://bit.ly/2rQG3SY> (last accessed 9 April 2018) and Resolution 21
February 2017.
35) The CIETAC Investment Rules are available in Chinese at
<www.yidaiyilu.gov.cn/wcm.files/upload/CMSydylgw/201709/201709260955044.pdf>
(last accessed 4 March 2018). See also the Explanatory Note Regarding the CIETAC
Investment Arbitration Rules (26 September 2017), available in Chinese at
<www.yidaiyilu.gov.cn/zchj/zcfg/29165.htm> (last accessed 4 March 2018).
36) Available at <http://www.difccourts.ae/> (last accessed 4 March 2018).
37) Available at <http://www.difccourts.ae/2017/03/14/practice-direction-no-2-2017-
third-party-funding-difc-courts/> (last accessed 4 March 2018).
38) Sub-sect. (4) of the DIFC Direction.
39) Sub-sect. (8) of the DIFC Direction.
40) Sub-sect. (9) of the DIFC Direction.
41) CETA is available at <http://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm>
(last accessed 4 March 2018).

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 42) An almost identical definition, which includes not-for-profit funders appears in
Chapter 8, Chapter II, Sect. 3, Art. 2 of the Free Trade Agreement between the
European Union and the Socialist Republic of Vietnam, available at
<http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437> (last accessed 4 March
2018): “‘Third Party funding’ means any funding provided by a natural or juridical
person who is not a party to the dispute but who enters into an agreement with a
disputing party in order to finance part or all of the cost of the proceedings in return
for a remuneration dependent on the outcome of the dispute or in the form of a
donation or grant.” For a case in which a not-for-profit funder was involved, see Philip
Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal
Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7).
43) The ICCA-Queen Mary Task Force is co-chaired by William W. “Rusty” PARK, Stravros
BREKOULAKIS and Catherine A. ROGERS and its work was coordinated by Lise BOSMAN
and Lisa BINGHAM.
44) The ICCA-QM Report is available at <www.arbitration-
icca.org/projects/Third_Party_Funding.html> (last accessed 1 May 2018).
45) Idem, p. 13: “The Task Force hopes that parties, counsel, and arbitrators may
reference or invoke the Principles and analysis in the Report to address issues that
arise in the course of an arbitration, in entering into a funding agreement, and in
continued discussions and debates regarding third-party funding. The Report may
also be useful for national courts in reviewing international arbitral awards or in
satellite litigation, and for regulatory bodies and arbitral institutions that seek to
address issues relating to third-party funding in international arbitration.”
46) Idem, p. 5.
47) See the EU Commission Decision (EU) 2015/1470, 30 March 2015, on State aid SA.38517
(2014/C) (ex 2014/NN) implemented by Romania – Arbitral award Micula v. Romania
of 11 December 2013, available at <https://eur-lex.europa.eu/legal-content/EN/TXT/?
uri=CELEX%3A32015D1470> (last accessed 9 April 2018) and the Judgment of the
European Court of Justice in Slovak Republic v Achmea BV (Case 284/16, Judgment of 6
March 2018, available at <http://curia.europa.eu/juris/documents.jsf?num=C-
284/16#>, last accessed 9 April 2018).
48) European Council Press Release 20 March 2018: “Multilateral investment court:
Council gives mandate to the Commission to open negotiations”, available at
<www.consilium.europa.eu/en/press/press-releases/2018/03/20/multilateral-
investment-court-council-giv...>, last accessed 9 April 2018.
49) Senator Elizabeth WARREN: “The Trans Pacific Partnership Clause Everyone Should
Oppose”, Washington Post, 25 February 2015, available at
<www.washingtonpost.com/opinions/kill-the-dispute-settlement-language-in-the-
trans-pacific-partnershi...> (last accessed 9 April 2018).
50) John H. BEISNER and Gary A. RUBIN, U.S. Chamber Institute for Legal Reform, Stopping
the Sale on Lawsuits: A Proposal to Regulate Third-Party Investments in Litigation (2012)
available at <www.instituteforlegalreform.com/uploads/sites/1/TPLF_Solutions.pdf>
(last accessed 9 April 2018).
51) R v. Sussex Justices, Ex parte McCarthy [1924] 1 KB 256, [1923] All ER Rep 233.
52) The Code of Conduct for Litigation Funders has been strongly criticized by the U.S.
Chamber Institute for Legal Reform:
“… this self-regulation mechanism has no ‘teeth’ even for those that chose
to join. The ALF [Association of Litigation Funders] is an independent body
owned and directed by the member Funders. Adherence to the ALF Code is
policed by the ALF. The maximum penalty the ALF has empowered itself to
impose is a £500 fine, alongside possible exclusion from the association at
the discretion of the organisation's board. However, even if a Funder were
to violate every one of the principles of the ALF Code and eventually be
excluded from the ALF, this would have no bearing at all on the Funder's
ability to continue funding cases. In light of the above, it cannot be said
that the ALF Code has led to any meaningful oversight of, or even
monitoring of, the activities of an industry with assets under management
of in excess of £1.5 billion”
(U .S. Chamber Institute for Legal Reform, Before the Flood – An Outline of Oversight
Options for Third Party Litigation Funding in England & Wales (April 2016) p. 3,
<www.instituteforlegalreform.com/research/before-the-flood-an-outline-of-
oversight-options-for-third-...> (last accessed 4 March 2018).
53) See Oxus Gold v. The Republic of Uzbekistan, UNCITRAL Case, Final Award, 17 December
2015, para. 127: “It is undisputed that Claimant is being assisted by a third-party
funder in this arbitration proceeding. The Arbitral Tribunal has mentioned this fact in
its Procedural Order Nos. 6 and 7. However, this fact has no impact on this arbitration
proceeding.”

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 54) Pursuant to General Standard 1 of the IBA Guidelines on Conflict of Interest in
International Arbitration (2014), available at
<https://www.ibanet.org/Publications/publications_IBA_ guides_and_
free_materials.aspx> (last accessed 9 April 2018): “Every arbitrator shall be impartial
and independent of the parties at the time of accepting an appointment to serve and
shall remain so until the final award has been rendered or the proceedings have
otherwise finally terminated.” On the impartiality and independence obligation of
the arbitrator, see, for example, Art. 5.3 of the London Court of International
Arbitration (LCIA) Arbitration Rules 2014; Art. 11.1 of the International Chamber of
Commerce (ICC) Rules of Arbitration (2017); and Art. 18.1 of the 2017 Arbitration Rules
of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). Aren
GOLDSMITH and Lorenzo MELCHIONDA, “Third Party Funding in International
Arbitration: Everything You Ever Wanted to Know (But Were Afraid to Ask): Part 2”, Int'l
Bus. L.J. 53 (2012) p. 225, point out that:
“Arbitrators (or the law firms with which they are affiliated) may perform a
number of professional services on behalf of funders, including
representing funders for purposes of due diligence or as counsel retained
at the request of the funder to conduct an unrelated claim…. Similarly,
arbitrators may serve on advisory committees commonly established by
funders or hold financial interests in funders (including common shares).”
James Egerton VERNON, “Taming the ‘Mercantile Adventures’: Third Party
Funding and Investment Arbitration – A Report from the 14th Annual ITA-
ASIL Conference”, available at
<http://arbitrationblog.kluwerarbitration.com/2017/04/21/taming-the-
mercantile-adventur ers-third-par...> (last accessed 4 March 2018),
identifies the following potential conflicts between an arbitrator and a
third-party funder: “… where the arbitrator is a member of the investment
advisory panel of a funder; where he or she serves as a consultant to the
funder; where the same arbitrator is regularly appointed in cases financed
by a particular funder; or where the arbitrator has acted as counsel or an
expert in other proceedings financed by the same funder”.

55) Pursuant to Art. 3 of the Administrative Resolution 18/2016, Recommendations

regarding the existence of third-party funding in arbitrations administered by CAM-
CCBC, published by the Center for Arbitration and Mediation of the Chamber of
Commerce Brazil-Canada (CAM-CCBC) on 20 July 2016 and available at
<https://ccbc.org.br/Materia/2890/resolucao-administrativa-182016/en-US> (last
accessed 4 March 2018): “The presence of a third-party funder can raise reasonable
doubt as to the impartiality or independence of the arbitrators, due to possible past
or current relationship between the arbitrator and the third-party funder.”
56) Para. 24 of the ICC Note to Parties and Arbitral Tribunals on the Conduct of the
Arbitration Under the ICC Rules of Arbitration, 30 October 2017, available at
<https://cdn.iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-
arbitral-tribunals-on...> (last accessed 4 March 2018). See the new Sect. 49A of the
Singapore Professional Conduct Rules, Sect. I.1 above.
57) See, for instance: Art. 16.3 of the Vienna International Arbitral Centre (VIAC) Rules of
Arbitration and Mediation (2018); Art. 31.1 of the CIETAC Arbitration Rules (2015); Art. 18
of the Arbitration Rule of the Chamber of Arbitration of Milan (2010). See also General
Standard 3 of the IBA Guidelines on Conflicts of Interest in International Arbitration
(2014), fn. 54.
58) General Standard 7(d) of the IBA Guidelines on Conflicts of Interest in International
Arbitration (2014) fn. 54, provides that: “An arbitrator is under a duty to make
reasonable enquires to identify any conflict of interest, as well as any facts or
circumstances that may reasonably give rise to doubts as to his or her impartiality or
independence. Failure to disclose a conflict is not excused by lack of knowledge, if
the arbitrator does not perform such reasonable enquires.” In the Explanation to
General Standard 7, it is stated that: “In order to satisfy their duty of disclosure under
the Guidelines, arbitrators are required to investigate any relevant information that is
reasonably available to them.” See also ICCA-QM Report, fn. 44, p. 112. See, too,
Compañía de Aguas del Aconquija S.A. & Vivendi Universal v. Argentine Republic (ICSID
Case No. ARB/97/3) Decision on Application for Annulment (10 August 2010) paras. 204-
205, 222.

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 59) General Standard 7(a) of the IBA Guidelines on Conflicts of Interest in International
Arbitration (2014), fn. 54, requires that:
“A party shall inform an arbitrator, the Arbitral Tribunal, the other parties
and the arbitration institution or other appointing authority (if any) of any
relationship, direct or indirect, between the arbitrator and the party (or
another company of the same group of companies, or an individual having
a controlling influence on the party in the arbitration), or between the
arbitrator and any person or entity with a direct economic interest in, or a
duty to indemnify a party for, the award to be rendered in the arbitration.
The party shall do so on its own initiative at the earliest opportunity”.
Art. 4 of the Recommendations regarding the existence of third-party
funding in arbitrations administered by CAM-CCBC, fn. 55, states that: “In
order to avoid potential conflicts of interest, CAM-CCBC recommends the
parties to report the existence of third-party funding to CAM-CCBC at the
earliest opportunity. The complete qualification of the funder should be
included in this communication.”
60) Bernardo M. CREMADES, “Third Party Funding in International Arbitration”, available
at <https://www.cremades.com/en/publications/78/third-party-funding-in-
international-arbitration.aspx> (last accessed 4 March 2018).
61) ICC Commission Report, “Decisions on Costs in International Arbitration”, 2015, para.
89, available at <https://cdn.iccwbo.org/content/uploads/sites/3/2015/12/Decisions-
on-Costs-in-International-Arbitrati...> (last accessed 4 March 2018). Footnote 44 of this
ICC Report gives the following definition of a third-party funder: “A third-party funder
is an independent party that provides some or all of the funding for the costs of a
party to the proceedings (usually the claimant), most commonly in return for an uplift
or success fee if successful.”
62) “The Economics of Access: Systemic Imbalances in ISDS”, this volume, p. 520-557,
citing the 2010 Annual Report of Burford Capital (fn. 137).
63) Art. 24(l) of the SIAC Investment Arbitration Rules, fn. 17.
64) CIETAC Investment Rules, fn. 35.
65) South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia (PCA Case
No. 2013-15), Procedural Order No. 10 (11 January 2016) paras. 79-80 and 84. See also,
in this vein, EuroGas Inc. and Belmont Resources v. Slovak Republic (ICSID Case No.
ARB/14/14).
66) South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, fn. 65,
para. 77.
67) It is to be emphasized, however, that that tribunal accepted that it had the power to
grant an order for security for costs pursuant to Art. 26 of the 1976 UNCITRAL Rules.
68) Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan (ICSID Case
No. ARB/12/6), Procedural Order No. 3 (12 June 2015) paras. 8-9 and 13. See also S&T
Oil Equipment & Machinery Ltd v. Romania (ICSID Case No. ARB/07/13), Order to
Discontinue Proceedings (16 July 2010) and S&T Oil Equipment & Machinery Ltd, et al v.
Juridica Investment Limited, et al, 456 Fed. Appx. 418, 2012 WL (5 January 2012) p. 2842,
where a dispute arose on the termination of the funding agreement and it was
litigated in the US Courts which ordered the disclosure of the funding agreement.
69) Eskosol S.p.A. in liquidazione v. Italian Republic (ICSID Case No. ARB/15/50), Procedural
Order No. 3, Decision on Respondent's Request for Provisional Measures (12 April 2017)
para. 40 et seq.
70) ICCA-QM Report, fn. 44, p. 106.
71) See, further, Sect. III.3 hereof.
72) Jennifer A. TRUSZ, “Full Disclosure? Conflict of Interest Arising from Third-Party
Funding in International Commercial Arbitration”, 101 Geo L.J. (2013) 1649, available at
<https://george townlawjournal.org/articles/111/full-disclosure-conflicts-of/pdf> (last
accessed 4 March 2018) pp. 1673-1676, suggests that:
“The arbitral institutions should adopt rules to require disclosure of third-
party funding in arbitration because the proliferation of funding in both
domestic litigation and in international arbitration creates too great of a
potential for conflicts of interest …. Upon notice by a party of a funding
relationship, the arbitral institution shall conduct an automatic conflicts
check. Because the arbitrators are required automatically to disclose
information pertaining to third-party funding upon prospective
appointment, the institution will have all information necessary to
complete the check.”
73) At the start of the arbitration, this disclosure could be made a requirement for the
validity and completeness of the request for arbitration. Jennifer A. TRUSZ, “Full
Disclosure? Conflict of Interest Arising from Third-Party Funding in International
Commercial Arbitration”, fn. 72, p. 1675, considers that: “The arbitral rules should
therefore be altered to require a party to disclose the fact that it is being financed by
a third party. This duty should apply to both the claimant and the respondent in
arbitration”. See Sub-sect (4) of the DIFC Direction, fn. 37; and, Art. 27 of the CIETAC
Investment Rules fn. 35.

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 74) To obtain this information, it will be sufficient to amend the form of the statement of
acceptance, availability, impartiality and independence to be signed by the
arbitrator by adding a reference to the third-party funder disclosed by the funded
party in the request for arbitration. See Principle A.2, Chapter 4, of the ICCA-QM
Report, fn. 44, p. 81: “Arbitrators and arbitral institutions have the authority to
expressly request that the parties and their representatives disclose whether they are
receiving support from a third-party funder and, if so, the identity of the funder.”
75) The 2013 HKIAC's Administered Arbitration Rules are available at
<https://www.hkiac.org/arbitration/rules-practice-notes/administered-arbitration-
rules/hkiac-administ...> (last accessed 9 April 2018).
76) See the Proposed Amended HKIAC Administered Arbitration Rules, available at
<https://www.hkiac.org/sites/default/files/ck_filebrowser/Proposed%20Amendment
s%20to%20th%20e%202013%...> (last accessed 4 March 2018).
77) Art. 45.3(e) the Proposed Amended HKIAC Administered Arbitration Rules, fn. 76.
78) The ICSID Rules Amendment Process is available at
<https://icsid.worldbank.org/en/Documents/about/ICSID%20Rules%20Amendment%
20Process-ENG.pdf> (last accessed 4 March 2018).
79) Pursuant to General Standard 6(b) of the IBA Guidelines on Conflicts of Interest in
International Arbitration (2014), fn. 54: “If one of the parties is a legal entity, any legal
or physical person having a controlling influence on the legal entity, or a direct
economic interest in, or a duty to indemnify a party for, the award to be rendered in
the arbitration, may be considered to bear the identity of such party.” Explanation to
General Standard 6(b), clarifies that: “Third-party funders … in relation to the dispute
may have a direct economic interest in the award, and as such may be considered to
be the equivalent of the party.” Stavros BREKOULAKIS, “The Impact of Third Party
Funding on Allocation for Costs and Security for Costs Applications: The ICCA-Queen
Mary Task Force Report”, fn. 1, points out that: “The TPF is not typically a party to the
arbitration agreement, and has no involvement in the underlying dispute between
the two parties in an arbitration. While funders may be involved in the proceedings,
this cannot readily be interpreted as consent to arbitrate.”
80) Essar Oilfields Services Limited v. Norscot Rig Management PVT Limited, [2016] EWHC
2361 (Comm). See the critical remarks on this decision of Duarte Gorjão HENRIQUES,
“The Essar v. Norscot Case: A Final Argument for the ‘Full-Disclosure-Wingers’ of TPF in
International Arbitration”, available at
<http://arbitrationblog.kluwerarbitration.com/2016/10/15/the-essar-v-norscot-case-
a-final-argument-fo...> (last accessed 4 March 2018).
81) Under the English Arbitration Act 1996, the costs of the arbitration which can be
awarded consist of the fees and expenses of the arbitrators and any arbitral
institution concerned, plus the legal or “other costs” of the parties. The Act is
available at <https://www.legislation.gov.uk/ukpga/%201996/23/contents> (last
accessed 4 March 2018).
82) Essar Oilfields Services Limited v. Norscot Rig Management PVT Limited, fn. 80, paras.
68, 69 and 70.
83) Para. 90 of the 2015 ICC Commission Report, fn. 61. Under the arbitration rules of the
major arbitral institutions, the arbitral tribunal has the power to order interim or
conservatory measures, including security for costs: see, for example, Art. 28 of the ICC
Rules of Arbitration (2017); Art. 25 of the LCIA Arbitration Rules 2014; Art. 24 of the
International Centre for Dispute Resolution (ICDR) Arbitration Rules (2014).
84) Stavros BREKOULAKIS, “The Impact of Third-Party Funding on Allocation for Costs and
Security for Costs Applications: The ICCA-Queen Mary Task Force Report”, fn. 1.
85) CIArb Applications for Security for Costs, available at
<http://www.ciarb.org/docs/default-source/ciarbdocuments/guidance-and-
ethics/practice-guidelines-prot...> (last accessed 4 March 2018).
86) Progas Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The
Islamic Republic of Pakistan [2018] EWHC 209 (Comm).
87) Sect. 70(6) of the English Arbitration Act 1996:
“The court may order the applicant or appellant to provide security for the
costs of the application or appeal, and may direct that the application or
appeal be dismissed if the order is not complied with. The power to order
security for costs shall not be exercised on the ground that the applicant
or appellant is—
(a) an individual ordinarily resident outside the United Kingdom, or
(b) a corporation or association incorporated or formed under the law of
a country outside the United Kingdom, or whose central management
and control is exercised outside the United Kingdom.”
88) Sect. 70(7) of the English Arbitration Act 1996:
“The court may order that any money payable under the award shall be
brought into court or otherwise secured pending the determination of the
application or appeal, and may direct that the application or appeal be
dismissed if the order is not complied with.”

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 89) Progas Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The
Islamic Republic of Pakistan, fn. 86, para. 35.
90) Progas Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The
Islamic Republic of Pakistan, fn. 86, para. 69.
91) Progas Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The
Islamic Republic of Pakistan, fn. 86, para. 65.
92) Progas Energy Ltd, Progas Holding Ltd and Sheffield Engineering Company Ltd v. The
Islamic Republic of Pakistan, fn. 86, para. 78; see also para. 79:
“In my view, to adopt an approach to section 70(7) which would, in effect,
make up for the absence of such equivalents by permitting the Court to
require that security in respect of costs awarded by arbitrators made
against parties to arbitration proceedings should be provided by dint of
the fact that those parties are in receipt of funding from commercial
funders, would involve an illegitimate use of the power to be found in
section 70(7).”
93) UNCITRAL WGIII ISDS Reform 34th Session Report, para. 49, available at
<www.uncitral.org/uncitral/en/commission/working_groups/3Investor_State.html>
(last accessed 9 April 2018).
94) Farouk Bozbey v. Turkmenistan, UNCITRAL Case, available at
<https://www.italaw.com/cases/2465> (last accessed 8 April 2018).
95) See RSM Production Corporation v. St Lucia (ICSID Case No. ARB/12/10), Decision on St.
Lucia's Request for Security for Costs (13 August 2014) para. 54 and Lighthouse
Corporation Pty Ltd and Lighthouse Corporation Ltd., IBC v. Democratic Republic of
Timor-Leste (ICSID Case No. ARB/15/2), Procedural Order No. 2 (13 February 2016).
96) See South American Silver (fn. 65) and Guaracachi America, Inc. and Rurelec Plc v. The
Plurinational State of Bolivia (PCA Case No. 2011-17), Procedural Order No. 14 (11 March
2013) para. 6.
97) RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on
Saint Lucia's Request for Security for Costs (13 August 2014) (fn. 95).
98) See, for example, Transglobal Green Energy, LLC and Transglobal Green Energy de
Panama, S.A. v. Republic of Panama (ICSID Case No. ARB/13/28), Decision on the
Respondent's Request for Provisional Measures Relating to Security for Costs (21
January 2016); Rafat Ali Rivzi v. Republic of Indonesia (ICSID Case No. ARB/11/13), Award
on Jurisdiction (16 July 2013) para. 23; Commerce Group Corp. & San Sebastian Gold
Mines, Inc. v. Republic of El Salvador (ICSID Case No. ARB/09/17), Decision on El
Salvador's Application for Security for Costs (20 September 2012) para. 45; Burimi
S.R.L. and Eagle Games SH.A. v. Republic of Albania (ICSID Case No. ARB/11/18),
Procedural Order No. 2 (3 May 2012) para. 41; Rachel S. Grynberg, Stephen M. Grynberg,
Miriam Z. Grynberg and RSM Production Corporation v. Grenada (ICSID Case No.
ARB/10/6), Decision on Respondent's Application for Security for Costs (14 October
2010) para. 5.20; Saba Fakes v. Republic of Turkey (ICSID Case No. ARB/07/20), Award
(14 July 2010) para. 13.
99) EuroGas v. Slovak Republic, fn. 65, Procedural Order No. 3, 23 June 2015, para. 123.
100) Guaracachi v. Bolivia (PCA Case No. 2011-17), Procedural Order No. 14 (11 March 2013)
paras. 6-7 (fn. 96).
101) ICCA-QM Report, fn. 44, p. 145. Jennifer A. TRUSZ, “Full Disclosure? Conflict of Interest
Arising from Third-Party Funding in International Commercial Arbitration”, fn. 72, p.
1677, suggests that:
“The arbitral tribunal shall not be permitted to consider the existence of a
third-party funding relationship itself in any decision regarding costs or
security for costs. Third-party funders may be more willing to disclose their
relationships with parties involved in litigation if rules are in place to
ensure that tribunals will not use the relationships against them. Thus,
institutions should expressly provide that the tribunal may not consider
third-party funding in any decisions on costs or security for costs.”
102) ICCA-QM Report, fn. 44, p. 181.

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 KluwerArbitration

Document information
Arbitration Clauses and Disputes from the Central
Publication European Perspective: Blurring the Public-Private Divide
Evolution and Adaptation: Jaroslav Kudrna; Marie Talašová
The Future of International (*)
Arbitration
(**)

Topics I Introduction
Investment Arbitration From the state's perspective, traditional separation between private commercial
arbitration and public investment arbitration (1) is less relevant than one might think.
Commercial and investment arbitrations both include private and public parties and often
arise from similar economic transactions and state measures. Furthermore, important
Bibliographic reference public interest implications and tax payer money are usually at stake in commercial as
Jaroslav Kudrna and Marie well as investment arbitrations.
Talašová, 'Arbitration Arbitrations involving Central European states offer excellent case studies of the
Clauses and Disputes from ramifications that commercial and investment arbitrations can bring. After regaining their
the Central European freedom after the fall of the communist regimes in 1989, Central European states were
Perspective: Blurring the thrilled to move from a planned economy into a market-based economy. This gave rise to a
Public-Private Divide', in multitude of state privatization processes. Former state-owned enterprises were sold to
Jean Engelmayer Kalicki and foreign buyers usually through a privatization agency or ministry. During negotiations,
Mohamed Abdel Raouf (eds), buyers from capital exporting countries often required the inclusion of arbitration clauses
Evolution and Adaptation: in privatization contracts. In the early 1990s, foreign buyers' home states negotiated
The Future of International bilateral investment treaties (BITs) – which also included arbitration clauses – with former
Arbitration, ICCA Congress communist countries to protect these new investments.
Series, Volume 20 (© Kluwer P 591
Law International; P 592
International Council for Central European states, eager to attract foreign investment, accepted arbitration clauses
Commercial in both privatization contracts and BITs. As we will see, privatization gave rise to both
Arbitration/Kluwer Law commercial and investment arbitrations. Exploring arbitration clauses in privatization and
International 2019) pp. 591 - investment contracts and related commercial and investment disputes is the main goal of
606 the present article.
We will begin by discussing arbitration clauses in public-private contracts entered into by
public entities with private foreign investors (II). The authors plunged into the Czech
Republic's archives to dig out privatization contracts and look into dispute resolution
mechanisms. The need for foreign investment, however, is not limited to the privatization
process in the 1990s. It remains necessary for the development of natural resources,
research and development, and other sectors. The authors thus also explore current
practices used when signing memoranda of understanding and investment contracts with
foreign investors in three Central European countries (Czech Republic, Slovakia and
Poland).
Next, the authors will discuss public-private arbitration disputes (III). The focus will be on
both commercial arbitrations arising out of public-private contracts and investment
arbitrations. Legitimate state concerns for the public interest are present in both types of
proceedings; therefore, referring to the public-private divide does not make much sense
from a public interest perspective. The authors will also address how a state can deal with
public interest concerns. Finally, this section will briefly explore the impact of public-
private arbitrations on the public's opinion of arbitration in the three Central European
countries.

II Arbitration Clauses in Public-Private Contracts with Foreign Investors

Foreign investors usually require including an arbitration clause in their contracts with
public entities. This phenomenon was evident in older privatization contracts (1). The
practice of including arbitration clauses also arises in current conclusions of memoranda
of understanding and investment contracts with foreign investors (2). By comparing the
practices from the 1990s with the current ones, the authors identify relevant changes in
trends (3).

1 Arbitration Clauses in Privatization Contracts

Privatization was a significant undertaking for all former communist countries. In the Czech
Republic, the process of privatization started at the beginning of 1990s and continued into
the 2000s.
Privatization had several forms. The most prominent, called “big privatization”, (2)
P 592 involved the transfer of property managed by state enterprises. In the Czech Republic, it

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 P 593 was conducted by the newly created National Property Fund (3) and the Ministry of
National Property Administration and Privatization (Privatization Ministry). The largest
wave of big privatization, which will be our focus here, commenced in 1991 and ended with
the dissolution of the Privatization Ministry in 1995. (4)
The process of privatization usually started with a project prepared by the state enterprise
at stake. The Privatization Ministry (or sometimes the Government) then issued a
privatization decision. (5) Assets were subsequently transferred to the National Property
Fund, which negotiated purchase agreements with private buyers.
Privatization was conducted through public tender or direct sale. (6) The new buyers were
foreign entities in over 150 privatization projects. In almost all projects, privatization was
conducted through direct sale.
The authors were able to locate and review 126 privatization agreements concluded with
foreign buyers. Most of them (102) contained an arbitration clause. The arbitration clauses
greatly differed in their sophistication and content.
All arbitration clauses, except for two, (7) designated arbitration rules. The most popular
arbitration rules were the UNCITRAL Arbitration Rules, which figured in 71 clauses, followed
by the ICC Arbitration Rules (16 clauses), the Arbitration Rules of the Vienna International
Arbitral Centre (VIAC) (5 clauses), the Rules of the Arbitration Court attached to the Czech
Chamber of Commerce and the Agricultural Chamber of the Czech Republic (8) (4 clauses)
and the International Arbitration Rules of Zurich Chamber of Commerce (2 clauses).
Six arbitration clauses only chose an arbitral institution. Meanwhile, all clauses that chose
the UNCITRAL Arbitration Rules did not select an arbitral institution to administer the
proceedings. Only one arbitration clause explicitly chose both rules and an administrating
institution. (9)
Most of the arbitration clauses (84) selected the number of arbitrators and the place and
the language of the arbitration. A majority of clauses (86) opted for three arbitrators. Most
clauses designated Prague as the seat of arbitration (50), followed by Vienna (19), Zurich
P 593 (8), Geneva (4), London (2), Paris (2), Munich (1), Amsterdam (1) and Brno (1). Thirteen
P 594 clauses did not select the seat of arbitration. The most often selected foreign seat was
Vienna. Historically, Vienna played a role as the seat of arbitrations between parties from
Western and Eastern Europe, which might explain its popularity as the seat in the early
1990s. After Vienna comes Geneva and Zurich. This is not surprising because Switzerland is
well known for its neutrality and as an arbitration-friendly jurisdiction.
Arbitrations were to be mostly held in English (79 clauses). In some marginal cases, the
language of the proceedings was German (7 clauses) or both German and Czech (3). Czech
alone was selected in just 2 clauses.
The most popular combination of elements, found in 42 arbitration clauses, was arbitration
in English according to the UNCITRAL Arbitration Rules, with an arbitral tribunal consisting
of three arbitrators and seated in Prague.
The majority of the privatization contracts (97) chose Czech (Czechoslovakian) law as the
governing law. (10) Austrian law was selected in 4 contracts, German law in 3 and English
law in 1. Most of these contracts were concluded in 1991 or 1992.
The majority of the arbitration clauses were brief and clear. However, one clause, for
example, chose two sets of arbitration rules, stated that the tribunal was to be composed
of two arbitrators and made the seat of the tribunal dependent on the seat of the
claimant. (11)
In Slovakia, privatization contracts with an ICC arbitration clause were standard
procedure. The particularity of the privatization agreements was that they usually
included stabilization clauses protecting investors against future discrimination through
taxation and regulation.

2 Arbitration Clauses in Memoranda of Understanding and Investment Contracts

The need for foreign direct investment is ongoing in Central European countries and was
not limited to the privatization processes in the 1990s. It is therefore useful to explore
current practices of memoranda of understanding (MoU) and investment contracts with
foreign investors in the Czech Republic, Slovakia and Poland.
In the Czech Republic, there is a recent practice of signing MoU with foreign investors. The
Czech Republic prefers to treat them as non-binding documents and includes specific
language to that effect. If possible, the Czech Republic avoids the term MoU altogether and
calls these documents “declarations” to highlight their non-binding nature. The State also
likes to specify that the MoU or declarations cannot be enforced in judicial proceedings or
investment arbitration under any bilateral or multilateral investment treaties. The State
P 594 also includes language that the particular MoU does not limit the Government's right to
P 595 regulate. The Czech Republic makes this effort to mitigate future disputes and avoid a
public opinion backlash. The generally non-binding MoU can contain specifically listed
binding provisions such as those related to confidentiality. In those cases, the Czech
Republic agreed in the past to an ICC arbitration seated in Paris, which is a well-
established arbitration venue acceptable to foreign investors. This is in contrast to the

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 MoU investment contracts, which include specific obligations on behalf of the State and
are thus approved by the Government. MoU or declarations are often signed at a lower
level, for example by ministers or CzechInvest (an agency responsible for investment and
business development).
In Slovakia, investment contracts with an ICC arbitration clause are standard procedure.
They do not usually include stabilization clauses; rather, they only promise that an investor
will be informed about future changes in legislation. Investment contracts are approved at
the Government level.
In Poland, there is also a practice of concluding MoU with foreign investors. They are civil
law contracts rather than administrative ones. The State aims at having Polish law as the
governing law and having any disputes resolved by Polish courts. If an investor desires
arbitration, there is a preference for the arbitration seat in Warsaw with a Polish arbitral
institution (Lewiatan or National Chamber of Commerce (KIG)). Concerning international
institutions, the usual choice is the ICC or an ad hoc arbitration under the UNCITRAL
Arbitration Rules. The Stockholm Chamber of Commerce (SCC) Arbitration Rules are not
accepted because of their emergency arbitration provisions.

3 Overview of the State Practices

An overview of state practices during the privatization processes in the 1990s and the
current negotiations of public-private contracts with foreign investors reveals that
commercial arbitration was a preferred choice for foreign investors during privatization
processes in the 1990s and still today in the Czech Republic, Slovakia and Poland. The
states in most cases agree to arbitrate future disputes.
A detailed review of archived Czech privatization contracts shows that there was a clear
preference for ad hoc arbitrations under the UNCITRAL Arbitration Rules. This is in contrast
with the current practice where parties seem to prefer an administered arbitration in
commercial disputes. The use of the ICC Arbitration Rules is much more common than in
the 1990s.
During the privatization, the Czech Republic was able to negotiate the seat of arbitration in
Prague in slightly over half of the clauses (42 cases compared to 28 cases where the seat
was abroad). The state has a legitimate interest to have the arbitration seated in its
territory and thus subject it to its arbitration law and control of local courts to the extent
P 595 permitted by the law. From the point of view of investors, the Czech 1994 Arbitration Act
P 596 (12) was not based on the UNCITRAL Model Law and contains some particularities (e.g.,
arbitrators cannot issue interim measures). (13) Foreign investors have a natural interest to
have potential proceedings in a well-recognized arbitration seat to avoid any potential
interventions by the courts of the host state, which is their counter-party (directly or
indirectly through another public entity). From the reviewed contracts, the foreign
investors were able to have the seat of arbitration abroad in less than a third of the cases.
Choosing the governing law of the host state in the vast majority of cases is not surprising
as the transaction concerns a business activity in its territory. The choice of English as the
language of the proceedings is also non-controversial.

III Central European States' Experience with Public-Private Arbitrations

Central European states have rich experience with investment and commercial arbitration.
The subject of this section will be the experience of the Czech Republic (1), Slovakia (2) and
Poland (3) with public-private arbitrations as well as the public opinion of arbitration in
these countries. Concerning the last point, investment arbitration has only recently
received larger publicity in the EU countries because of its inclusion in the Transatlantic
Trade and Investment Partnership (TTIP). Because of public pressure, the European
Commission decided to reform investment arbitration provisions in the trade agreement
with Canada (CETA) and other trade agreements, which have been recently negotiated. For
the future, the European Commission has an aspiration to establish a multilateral
permanent investment court.

1 Czech Republic
P 596 The Czech Republic's results in investment arbitrations are as follows: 16 wins, (14) 3 losses
P 597 (15) and 3 settlements. (16) Four cases were discontinued by investors. (17) The Czech
Republic currently has 11 pending cases, (18) of which 6 involve renewable energy sources.
The older cases concerned media, banking, construction, etc. As a matter of policy, the
Czech Republic publishes its past investment arbitration cases as there is important
public interest involved. (19)
The first two investment treaty cases against the Czech Republic initiated by R. Lauder and
CME in 1999 and 2000, respectively, are among the most controversial. There were two
parallel investment arbitrations based on the same set of facts but with completely
opposite results.
A Dutch company, CME, in cooperation with Czech company CET 21, operated the first Czech
private TV station TV NOVA from 1993. In 1999, there was a split between the two partners,
which ended with the Czech company CET 21, the holder of the license, terminating its

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 cooperation with CME. The actions of the Media Council played a major role.
Both the ultimate beneficiary owner American billionaire R. Lauder and the company CME,
which he controlled, initiated separate arbitration proceedings against the Czech
Republic, which refused consolidation.
The tribunal in the Lauder case (R. Briner, L. Cutler, B. Klein) ruled that Mr. Lauder's harm
was caused by private company CET 21. (20) Therefore, the tribunal rejected Lauder's
claims for damages against the Czech Republic on 3 September 2001. (21)
On 13 September 2001, only ten days later, the majority in the CME case (W. Kühn, S.
Schwebel) ruled that the Media Council, in its activities as market regulator, weakened the
P 597 legal security and stability of CME's investment. (22) In addition, it ruled that in the course
P 598 of the dispute between CME and CET 21 it clearly supported Czech company CET 21. (23)
As a result, CME's investment was indirectly expropriated. (24) The majority awarded the
claimant US$ 335 million. (25)
This controversial loss launched an avalanche of other investment claims. As a result, the
Czech Republic ended 2016 with 34 cases, making it the number one most frequent
respondent state in EU and third most frequent respondent state worldwide after
Argentina and Venezuela, respectively. (26)
Based on this experience of parallel arbitrations with inconsistent results, the Czech
Republic insists on prohibiting similar parallel proceedings brought by both the investor
company and its shareholders in its revised BITs. (27)
The next case initiated against the Czech Republic in 2001 is connected to the privatization
of the banking sector. One of the banks being privatized was Investiční a poštovní banka
(IPB), one of the four largest banks in the Czech Republic. In 1998, after two years of
negotiations, the Japanese bank Nomura concluded a share purchase agreement with the
National Property Fund through which it acquired 36 percent of shares of the IPB. The same
year, Nomura transferred the majority of the purchased shares to its Dutch subsidiary
Saluka; the rest of the shares were transferred in February 2000. IPB had long had financial
problems, which culminated on 16 June 2000, when IPB was put into forced administration
by the Czech Central Bank. IPB's enterprise was then sold on 19 June 2000 for CZK 1 to
another large Czech bank, Československá obchodní banka (CSOB), with substantial state
guarantees for future non-performing loans.
The circumstances of the sale to CSOB led to an investment arbitration between Saluka
and the Czech Republic initiated in 2001; Saluka sought CZK 40 billion in damages. In
response, the Czech Republic initiated in 2002 an ad hoc commercial arbitration seated in
Zurich against Nomura for breach of the privatization contract and sought damages
P 598 amounting to CZK 263 billion. (28) In 2006, the Czech Republic lost the investment treaty
P 599 case against Saluka. (29) However, before the tribunal issued a subsequent decision on
damages, the State settled all the pending investment and commercial arbitrations with
Nomura and Saluka for about US$ 175 million. (30)
Based on the state guarantees, CSOB then sued the Czech Republic in an ICC Arbitration
seated in Vienna and in 2010 won CZK 1.6 billion in damages. (31) In 2016, CSOB won CZK 300
million against the Czech Central Bank, in an ICC arbitration seated in Prague, which was
also connected with IPB's take over. (32)
From other cases, one can note that the company Diag Human, with which the Czech
Republic has a long-running commercial arbitration dispute, has just started investment
arbitration proceedings against the Czech Republic. (33)
Overall, investment arbitrations against the Czech Republic raise two major issues. First,
the Czech Republic is often sued by its own nationals who invested in the Czech Republic
through foreign companies set up for that purpose. For example, the Czech Republic is
currently being sued by a former senator in the AMF Aircraftleasing Meier & Fischer case
concerning bankruptcy proceedings (34) and by a current senator in the WCV Capital
Ventures Cyprus case concerning gambling regulations. (35) Investment arbitration thus
creates an uneven playing field where sophisticated domestic investors with necessary
resources can act as foreign investors. Coming back to Professor Weil, it is reasonable to
consider that states did not create foreign investment protection for their own nationals.
(36) Despite that, tribunals keep interpreting BITs in a way that disregards states'
fundamental rationale behind the creation of the BITs. The Czech Republic tries to
remediate that in its new and revised BITs by requiring substantial business activity of the
investor in its home state. (37)
P 599
P 600
Second, despite rare losses, the Czech Republic has already paid almost US$ 100 million
for legal services (38) and was only awarded costs in very few cases. In some of these cases,
the claimants have yet to fulfill the order to pay the costs and the Czech Republic has thus
been pursuing enforcement proceedings abroad for which it is incurring further legal costs.
In some of those cases, the Czech Republic specifically asked for security for costs because
it had serious reasons to believe that claimants would not pay its costs. However, given the
extraordinarily high threshold for granting security for costs, (39) its requests have always
been refused by the tribunals. More and more cases against the Czech Republic are third-
party funded. The fact that third-party funders are not automatically obliged to cover

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 adverse cost orders creates an imbalance in the system; the security for costs standard
seems broken. The Czech Republic is trying to remediate this situation in its new and
revised BITs by expressly giving tribunals the power to order security for costs and by
lowering the threshold for granting them. (40)
Czech investors have initiated a few investment arbitrations in the past. Notably ČEZ, the
biggest electricity producer in the Czech Republic, has initiated two investment
arbitrations. The first arbitration against Albania (41) was settled in 2014. (42) The second
arbitration was commenced against Bulgaria in 2016 (43) and is still pending. Bulgaria is
also currently facing a claim from another Czech power company, ENERGO-PRO. (44)
Outside the energy sector, ČSOB defeated Slovakia in an earlier arbitration in 2004. (45)
Concerning public opinion on arbitration in the Czech Republic, investment arbitration
received a negative image in 2003 when the Czech Republic lost its case against CME and
had to pay a huge damages award. This negative public image has not changed since.
P 600
P 601
2 Slovakia
Slovakia has won 6 investment arbitrations, (46) lost 2 (47) and settled 2. (48) Another 2
cases were discontinued (49) and 2 cases are currently pending. (50) Investments
concerned different sectors (insurance, banking) and industries (steel, mining industry, gas,
etc.). Slovakia has the same approach as the Czech Republic in respect to transparency
and publishes its arbitral awards. (51)
The key case for Slovakia was CSOB v. Slovakia. CSOB, a Czech commercial bank, started an
ICSID arbitration against Slovakia for breach of the so-called Consolidation Agreement and
sought US$ 1.4 billion in damages. The Czech Republic, Slovakia and CSOB concluded this
agreement in 1993 to prepare CSOB's privatization. Under this agreement, Slovakia
guaranteed payment for losses from non-performing loans.
The agreement included a reference to the Czech Republic-Slovakia BIT, which was
actually never ratified. Nevertheless, the tribunal concluded that “by referring to the BIT,
the parties intended to incorporate Art. 8 [concerning the dispute resolution mechanism]
of the BIT by reference into the Consolidation Agreement, in order to provide for
international arbitration as their chosen dispute-settlement method”. (52)
After finding that it had jurisdiction, the tribunal decided that Slovakia breached the
Consolidation Agreement by failing to cover the losses for the non- performing loans. It
awarded CSOB SKK 24.8 billion (about US$ 782 million) as compensation and US$ 10 million
in arbitration costs. (53)
The amount awarded in compensation would be equivalent to each of the 5.4 million
Slovak citizens paying about US$ 145, in a context in which the average monthly salary in
Slovakia was about US$ 500 in 2004. (54) It would be the same as if the United States was
ordered to pay about US$ 290 billion in damages.
P 601
P 602
Another interesting arbitration involving Slovakia is a case brought by Dutch insurer
Achmea. The investor argued that the nationalization of the health system led to indirect
expropriation of its health insurance business in Slovakia. The tribunal first found
jurisdiction and then ordered Slovakia to pay € 22 million. (55)
Slovakia challenged the award before German courts, as the seat of the arbitration was in
Frankfurt. The Federal Supreme Court sent the Court of Justice of the European Union (CJEU)
three preliminary questions concerning the compatibility of the Slovakia-Netherlands BIT
with EU law. In the opinion of Advocate General M. Wathelet, the Slovakia-Netherlands BIT
is in compliance with the EU legal order. (56) Contrary to this opinion, the CJEU decided in
March 2018 that the BIT was not compatible with the EU law. (57) The European Commission
also separately started an infringement procedure against Slovakia for the non-
compatibility of its intra-EU BITs with EU law and requested their termination. (58)
Slovak investors have initiated one case so far. A Slovak bank sued Greece over the
changes to its government bonds. The tribunal, however, declined jurisdiction. (59)
In Slovakia, the public has had a neutral perception of arbitration in recent years.
However, arbitration has recently attracted a lot of negative publicity when it became
public that a lawyer was to be awarded a success fee of € 77 million after a victory of a
state-owned company, which he represented in a commercial arbitration against
Slovenské elektrárne, owned by Italian company Enel. (60) After the two-year
representation, the success fee felt excessive to the public. The State was able to
renegotiate the legal fees and decrease the total amount to € 17.6 million. (61) The legal
fees have not yet been paid as there is a related ongoing criminal investigation.

3 Poland
Since its first investment arbitration in 1994, Poland has won 9 cases, (62) lost another 5
P 602 (63) and settled 4. (64) One case was discontinued. (65) It currently has 4 pending
P 603 investment treaty cases in which investors claim about € 2 billion. (66) Activities of

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 claimants span across various sectors (telecommunication, agriculture, banking, real-
estate, energy and insurance) and industries (food, paper, metal, etc.).
Poland does not publish information about its investment arbitration proceedings or
subsequent arbitral awards. (67) Attempts have been made under the Access to
Information Act to change this practice. The Supreme Administrative Court of Poland
decided in 2016 that “an arbitral award rendered against Poland is public information
which should be disclosed to the public under the Access to Information Act”. (68) The
same court similarly decided that “a settlement reached before an investment arbitral
tribunal is public information” (69) as well. These decisions of the Polish courts are
sensible.
Poland is also in the process of revisiting its foreign investment policy. In early 2017, the
Prime Minister appointed an inter-ministerial group for the legal and international aspects
of the investment policy of Poland. One mentioned justification for that was that:
“Polish investors do not benefit from the protection granted by BITs, but Poland
is sued by foreign investors. According to the information from the State
Treasury Solicitors' Office, despite the fact that 98% of cases against Poland are
won (cases settled are considered to be won as well), Poland bears the costs of
arbitral proceedings.” (70)
P 603
P 604
This shows the common concern among Central European states that despite winning the
cases they still bear substantial costs of legal proceedings as their legal costs are rarely
granted.
In 2017, Poland unilaterally terminated its BIT with Portugal. It also requested to terminate
the BIT with the Czech Republic. Poland will likely terminate all 23 intra-EU BIT. (71) It
argues that they are against EU Law.
Polish investors initiated 7 investment arbitrations from which they lost 3, (72)
discontinued 1 (73) and 3 cases are pending. (74)
There is negative perception of arbitration in Poland. When terminating the Poland-
Portugal BIT, the Polish Government justified its decision by stating that “it should be
expected that [termination of the Poland-Portugal BIT] will be positively received due to
the public criticism of intra-EU BITs and international investment arbitration in Poland”.
(75) Arbitration is considered an expensive and lengthy dispute resolution method.

IV Conclusion
In conclusion, the Czech figures studied in regard to Central European states' experience
with arbitration clauses show that foreign buyers had a strong negotiation position during
the drafting period of the privatization contracts. The fact that the National Property Fund
concluded over 150 privatization contracts that varied greatly in their content and
complexity, yet pertained to fundamentally similar transactions, suggests that the
differences can be attributed to the requests of the counterparties. Moreover, in the
majority of cases (102 from 126 reviewed contracts), the Czech Republic gave up its own
courts as the dispute resolution mechanism and opted for a less favorable method for the
state. In 38 instances, the seat of arbitration was outside of the Czech Republic (in contrast,
the seat was in Prague in 50 cases). In all but one of the cases, the Czech Republic agreed
to hold proceedings in English.
P 604 This situation offers a parallel with the circumstances surrounding the conclusion of
P 605 bilateral investment treaties in the first half of the 1990s. The Czech Republic also
agreed to conditions that were favorable to its capital exporting partners, including
investment arbitration as the dispute resolution mechanism, which caused serious issues
down the road. To illustrate, 20 out of the 23 investment arbitration cases concluded with
an award or a settlement were based on BITs signed before the end of the year 1995. (76)
Both the pressure and weaker position of the Czech Republic during the negotiation of
privatization contracts and BITs brought negative consequences for states.
Given the great business opportunities offered by privatization, (77) there is a question of
whether the Czech Republic could have enjoyed a stronger contractual position and
avoided agreeing to commercial arbitration taking place abroad and investment
arbitration.
Concerning disputes that arose out of the public-private contracts and BITs, we can find
important public interest implications in both of them, particularly with regard to the lack
of transparency. Both investment arbitration with Saluka and commercial arbitration with
Nomura were kept outside of the public's sight, even though the claims were for more than
CZK 300 billion. The settlement reached in 2006 was kept confidential until 2011. There is
still a veil of secrecy around commercial arbitrations with CSOB. Although these are
technically commercial arbitrations, given that they arise from state guarantees and the
amounts at stake are substantial, the usual confidentiality cherished in business-to-
business disputes should not be applied to the same extent in public-private disputes.
There is a trend to improve transparency in investment arbitration. (78) These efforts are

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 currently pending at the EU level. The EU accession to the United Nations Convention on
Transparency in Treaty-based Investor-State Arbitration (the Mauritius Convention on
Transparency) requires unanimous support of the EU member states and this issue is
awaiting decision of the EU Council. And given that this is an area of the shared
competence, the EU member states cannot arguably adhere to the Mauritius Convention
on their own without breaching the EU law. Nevertheless, nine member states have already
at least signed the Mauritius Convention. (79)
However, there is no similar effort to improve transparency in public-private commercial
arbitrations.
P 605
P 606
Because of the lack of transparency, commercial and investment arbitrations in some
cases can hide the consequences of “bad” political decisions and deny the public the
opportunity to hold politicians politically accountable for their past decisions.
In regards to transparency and the public interest perspective, the public- private divide
in commercial and investment arbitrations between public and private parties does not
make sense and is unjustified.
P 606

References
*) Marie Talašová: Director at the International Arbitration and Investment Protection
Unit at the Ministry of Finance of the Czech Republic.
**) Jaroslav Kudrna: Legal Adviser at the International Arbitration and Investment
Protection Unit at the Ministry of Finance of the Czech Republic.
The authors prepared this article in their personal capacity. The views expressed are
those of the authors alone and do not necessarily represent the views of the Ministry of
Finance or the Government of the Czech Republic. The authors would like to thank their
colleague Katka Heroutová for her research assistance.
1) Stavros BREKOULAKIS, “The Protection of the Public Interest in Public Private
Arbitrations”, Kluwer Arbitration Blog (8 May 2017) at
<http://arbitrationblog.kluwerarbitration.com/2017/05/08/the-protection-of-the-
public-interest-in-pub...> (last accessed 12 February 2018) (“In international
arbitration, as in other fields of law, the divide between private and public –
commercial arbitration and public international (including investment) arbitration –
traditionally has been the generally, if uncritically, accepted belief.”).
2) Stanislav PLÍVA, “Privatizace” in Dušan HENDRYCH, et al., Právnický slovník (C.H. Beck
2009) [online version]. The term privatization in the Czech context also covered
restitution and transfer of so called “operation units”, i.e. property that was necessary
for the function of state and regional bodies. Ibid.
3) Act No. 171/1991, Coll., on the Competence of State Organs in the Matter of Transfer of
Property to Other Person (entered into force on 24 May 1991).
4) This does not mean that there were no privatizations after 1995. For example, the
privatization of banking sector mainly occurred between 1998 and 2002.
5) Id. Sect. 2(4).
6) Sometimes direct sales occurred through transformation from a state enterprise to a
joint-stock company or transformation from a state joint-stock company to a private
joint-stock company.
7) The first arbitration clause stated in the relevant part that “[the dispute] will be
resolved in binding arbitral proceedings according to procedural rules” without
specifying any arbitral institution or arbitration rules. The second clause stated that
“[p]arties shall subject themselves to an arbitral award issued by three arbitrators”
and then designated the way to appoint them.
8) The arbitration clauses referred to the Arbitration Court attached to the Czechoslovak
Chamber of Commerce and Industry, which was the name of this arbitral institution
before 1 January 1995.
9) The clause stated: “All disputes, controversies or claims between the Parties arising
out of or connected with this Agreement, or the breach, termination or validity thereof
…, shall be finally settled by an arbitration … administered by the International
Chamber of Commerce … in accordance with its Rules of Conciliation and
Arbitration….”
10) In seven instances, the contracts stated that they were governed by the Czech
commercial code and “other laws in force”.

7
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 11) The clause read: “All legal disputes arising out of legal relationships governed by the
contract or its annexes, and disputes regarding its validity, legal force, interpretation,
cancellation or termination of this contract, will be decided solely by arbitrators
appointed in accordance with the rules of arbitration of the Chamber of Commerce in
Vienna and the Czechoslovakia's Commercial and Industrial Chamber in Prague. The
tribunal shall be composed of two judges. The seat of the tribunal will be the seat of
the claimant. The tribunal will rule pursuant to the laws of Czechoslovakia. The
language of the arbitration will be German.”
12) Act No. 216/1994 on Arbitral Proceedings and on Execution of Arbitral Awards (1994) at
<https://is.muni.cz/el/1422/jaro2008/SOC026/um/216-1994_EN.pdf> (last accessed 16
February 2018). Arbitration clauses concluded before 1 January 1995 were governed by
the Act No. 98/1963 Sb. on arbitration proceedings in international business and
enforcement of arbitration awards (1963).
13) Jaroslav KUDRNA, “Arbitration – Country Guides: Czech Republic”, International Bar
Association, Arbitration Committee (April 2015) at
<https://www.ibanet.org/Article/New Detail.aspx?ArticleUid=a646cf32-0ad8-4666-
876b-c3d045028e64> (last accessed 12 February 2018).
14) A11Y Ltd v. Czech Republic (ICSID), Award (29 June 2018); Antaris Solar, Michal Göde v.
Czech Republic (UNCITRAL), Final Award (2 May 2018); Anglia Auto Accessories Limited v.
Czech Republic II (UNCITRAL), Final Award (10 March 2017); I. P. Busta a J. P. Busta v.
Czech Republic (UNCITRAL), Final Award (10 March 2017); WNC Factoring LTD v. Czech
Republic (UNCITRAL), Final Award (22 February 2017); ECE v. Czech Republic (UNCITRAL),
Final Award (19 September 2013); Jürgen Wirtgen, Stefan Wirtgen, JSW Solar (zwei) GmbH
& Co.KG v. Czech Republic (UNCITRAL), Final Award (27 June 2013); InterTrade v. Czech
Republic (UNCITRAL), Final Award (28 May 2012); Vöcklinghaus v. Czech Republic
(UNCITRAL), Final Award (19 September 2011); Binder v. Czech Republic (UNCITRAL), Final
Award (15 July 2011); Frontier Petroleum Services v. Czech Republic (UNCITRAL), Final
Award (12 November 2010); European Media Ventures v. Czech Republic (UNCITRAL), Final
Award (8 July 2009); Invesmart v. Czech Republic (UNCITRAL), Final Award (26 June 2009);
Phoenix v. Czech Republic (ICSID), Final Award (15 April 2009); Nagel v. Czech Republic
(UNCITRAL), Final Award (9 September 2003); Lauder v. Czech Republic (UNCITRAL), Final
Award (3 September 2001).
15) CME v. Czech Republic (UNCITRAL), Final Award (14 March 2003); Eastern Sugar v. Czech
Republic (UNCITRAL), Final Award (12 April 2007); Pren Nreka v. Czech Republic
(UNCITRAL), Final Award (22 July 2008).
16) K+ Venture Partners v. Czech Republic (UNCITRAL), Final Award (21 December 2006);
Mittal v. Czech Republic (UNCITRAL), Final Award (6 May 2009); Saluka v. Czech Republic
(UNCITRAL), Final Award (17 March 2006).
17) Anglia and Busta v. Czech Republic I (UNCITRAL); Forminster v. Czech Republic
(UNCITRAL), Final Award (15 December 2014); Nepolsky v. Czech Republic (UNCITRAL),
Final Award (5 February 2010); Konsortium Oeconomicus v. Czech Republic (UNCITRAL),
Final Award (22 February 2012).
18) Alcor Holdings v. Czech Republic (UNCITRAL); Voltaic Network v. Czech Republic
(UNCITRAL); Photovoltaik Knopf Betriebs v. Czech Republic (UNCITRAL); I.C.W. Europe
Investments v. Czech Republic (UNCITRAL); WA Investments – Europa Nova v. Czech
Republic (UNCITRAL); Natland Investment Group N.V., Natland Group Limited, G.I.H.G.
Limited, Radiance Energy Holding S.à.r.l. v. Czech Republic (UNCITRAL); WCV Capital
Ventures Cyprus Limited, Channel Crossings Limited v. Czech Republic (UNCITRAL); A.M.F.
Aircraftleasing Meier & Fischer GmbH & Co. KG v. Czech Republic (UNCITRAL); Pawlowski
AG a Projekt Sever s.r.o. v. Czech Republic (ICSID); Diag Human and Josef Šťáva v. Czech
Republic (ad hoc); Fynerdale Holdings B.V. v. Czech Republic (UNCITRAL).
19) See the Ministry of Finance of the Czech Republic's website at
<https://www.mfcr.cz/cs/zahranicni-sektor/ochrana-financnich-
zajmu/arbitraze/prehled-arbitraznich-spo...> (last accessed 31 January 2018).
20) Ronald S. Lauder v. Czech Republic (UNCITRAL), Final Award (3 September 2001), para.
235.
21) Id., p. 74.
22) CME Czech Republic B.V. v. Czech Republic (UNCITRAL), Final Award (14 March 2003),
paras. 592, 600-601.
23) Id., para. 602.
24) Id., para. 609.
25) Id., para. 624.
26) UNCTAD, “World Investment Report 2017” (2017) p. 115, at
<https://unctad.org/en/PublicationsLibrary/wir2017_en.pdf> (last accessed 31 January
2018).

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 27) Czech Republic Model BIT (2016), Art. 8(7) (“If an investment is held: /a/ by an investor
of one Contracting Party in the territory of the other Contracting Party through a person
of a third State or of the other Contracting Party; or /b/ by an investor, who is a legal
person of one Contracting Party, in the territory of the other Contracting Party and such
an investor is directly or indirectly owned or controlled by a person of a third State or
of the other Contracting Party, the investor of a Contracting Party may not initiate or
continue proceedings under this Article if the person of a third State or the person of
the other Contracting Party submits or has submitted a claim with respect to the same
measure or series of measures under any agreement between the other Contracting
Party and the third State. The arbitral tribunal shall terminate the arbitral
proceedings, if the dispute settlement procedure initiated by the person of a third
State or a person of the other Contracting Party, is decided on the merits.”).
28) Česká informační agentura, “Arbitráž: 263 mld.Kč - ČR může žalovat Nomuru a Saluku”
(7 September 2004) at <www.kurzy.cz/zpravy/98084-arbitraz-263-mld-kc-cr-muze-
zalovat-nomuru-a-saluku/> (last accessed 16 February 2018).
29) Saluka Investments B.V. v. Czech Republic (UNCITRAL), Partial Award (17 March 2006).
30) Settlement Agreement between Nomura Holdings, Inc., Nomura International plc,
Nomura Principal Investment plc, Saluka Investments B.V. and the Czech Republic (30
November 2006).
31) CSOB v. Czech Republic (ICC Ref. No. 15019/JHN/GZ), Award (20 December 2010).
32) Euro, “ČNB prohrála stamilionovou arbitráž s ČSOB” (25 January 2017) at
<www.euro.cz/byznys/cnb-prohrala-stamilionovou-arbitraz-s-csob-1326129> (last
accessed 15 February 2018).
33) Diag Human and Josef Šťáva v. Czech Republic (not yet specified). See Tom JONES,
“Czech blood plasma saga leads to treaty claim”, Global Arbitration Review (12
February 2018) at <https://globalarbitrationreview.com/article/1158723/czech-blood-
plasma-saga-leads-to-treaty-claim> (last accessed 14 February 2018).
34) Novinky.cz, “Kauza Fischerových boeingů se vrací. Podnikatel požaduje po Česku
miliardy” (6 December 2016) at <www.novinky.cz/ekonomika/422776-kauza-
fischerovych-boeingu-se-vraci-podnika tel-pozaduje-po-cesku-mi...> (last accessed 15
February 2018).
35) Lidové noviny, “Konec tanečků. Senátor Valenta žaluje stát s právníky, kteří už Česko
porazili” (25 September 2015) at <https://byznys.lidovky.cz/konec-tanecku-senator-
valenta-utoci-na-stat-s-pravniky-kteri-uz-cesko-pora...> (last accessed 15 February
2018).
36) Tokios Tokelés v. Ukraine (ICSID Case No. ARB/02/18), Dissenting Opinion (Chairman
Prosper Weil) (29 April 2004) para. 5 (“From this it appears that the ICSID arbitration
mechanism is meant for international investment disputes, that is to say, for disputes
between States and foreign investors. It is because of their international character,
and with a view to stimulating private international investment, that these disputes
may be settled, if the parties so desire, by an international judicial body. The ICSID
mechanism is not meant for investment disputes between States and their own
nationals.”).
37) Czech Republic Model BIT (2016), Art. 1(3b) (“The term ‘legal person’ shall mean, with
respect to either Contracting Party, any entity incorporated or constituted in
accordance with, and recognized as legal person by its laws, having the permanent
seat and conducting substantial business activities within the territory of that
Contracting Parties.”).
38) See the Ministry of Finance of the Czech Republic's website at
<http://www.mfcr.cz/cs/zahranicni-sektor/ochrana-financnich-
zajmu/arbitraze/prehled-nakladu-za-pravni...> (last accessed 31 January 2018).
39) See, e.g., RSM Production Corporation v. Saint Lucia (ICSID Case No. ARB/12/10),
Decision on Saint Lucia's Request for Security for Costs (13 August 2014).
40) Czech Republic Model BIT (2016), Art. 8(13) (“The arbitral tribunal may order security
for costs at a proposal of the Contracting Party which is the party to the dispute. The
arbitral tribunal shall especially consider ordering security for costs when there is a
reason to believe: /a/ that the investor will be unable to pay, if ordered to do so, a
reasonable part of attorney fees and other costs to the Contracting Party which is the
party to the dispute; or /b/ that the investor has divested assets to avoid the
consequences of the arbitral proceedings. Should the investor fail to pay the security
for costs ordered by the arbitral tribunal, the arbitral tribunal shall terminate the
arbitral proceedings.”).
41) ČEZ, a.s. v. Republic of Albania (UNCITRAL).
42) ČEZ Group, “Agreement with Albania Confirmed: Parties Fulfilled All Conditions
Precedent; ČEZ to Obtain Nearly CZK 3 bn” (16 October 2014), at <www.cez.cz/en/cez-
group/media/press-releases/4877.html> (last accessed 26 January 2018).
43) ČEZ, a.s. v. Republic of Bulgaria (ICSID Case No. ARB/16/24).
44) ENERGO-PRO a.s. v. Republic of Bulgaria (ICSID Case No. ARB/15/19).
45) Československa obchodní banka, a.s. v. Slovak Republic (ICSID Case No. ARB/97/4),
Award (29 December 2004).

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 46) Achmea v. Slovak Republic II (UNCITRAL), Award (20 May 2014); EURAM Bank v. Slovak
Republic (UNCITRAL), Award (20 August 2014); Alps Finance v. Slovak Republic
(UNCITRAL), Award (5 March 2011); Austrian Airlines v. Slovak Republic (UNCITRAL),
Award (9 October 2009); HICEE v. Slovak Republic (UNCITRAL), Award (17 October 2011);
Oostergetel v. Slovak Republic (UNCITRAL), Award (23 April 2012). The information is
based on UNCTAD, Slovakia – as respondent State, at
<https://investmentpolicyhub.unctad.org/ISDS/CountryCases/191?party Role=2> (last
accessed 26 January 2018).
47) Achmea v. Slovak Republic I (UNCITRAL), Award (7 December 2012); CSOB v. Slovak
Republic (UNCITRAL), Award (29 December 2004).
48) Slovak Gas v. Slovak Republic (UNCITRAL), Award (19 March 2013); SPP v. Slovakia (not
known).
49) Mensik v. Slovakia (ICSID Case No. ARB/06/9); U.S. Steel v. Slovakia (UNCITRAL, PCA
Case No. 2013-6).
50) Muszynianka v. Slovak Republic (UNCITRAL); EuroGas v. Slovak Republic (UNCITRAL).
51) See the Ministry of Finance of the Slovak Republic's website at
<www.finance.gov.sk/Default.aspx?CatID=11173> (last accessed 15 February 2018).
52) Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic (ICSID Case No. ARB/97/4),
Decision on Objections to Jurisdiction (24 May 1999), para. 55.
53) Id., para. 374.
54) Ako-investovat.sk, “Vývoj priemernej nominálnej mesačnej mzdy v SR” at <http://ako-
investovat.sk/grafy/makroekonomika/10/vyvoj-priemernej-nominalnej-mesacnej-
mzdy-v-sr> (last accessed 31 January 2018).
55) Achmea B.V. v. Slovak Republic (UNCITRAL, PCA Case No. 2008-13) (formerly Eureko B.V.
v. Slovak Republic), Award (7 December 2012).
56) Advocate General's Opinion in Case C-284/16, Slovak Republic v. Achmea BV (19 Sept.
2017) at <eur-lex.europa.eu/legal-content/EN/TXT/HTML/?
uri=CELEX:62016CC0284&from=EN> (last accessed 26 January 2018).
57) Court of Justice of the European Union, C-284/16, Slovakia v. Achmea BV (6 March 2018).
58) European Commission, “Commission asks Member States to terminate their intra-EU
bilateral investment treaties” (18 Jun. 2015) at <europa.eu/rapid/press-release_IP-15-
5198_en.htm> (last accessed 26 January 2018).
59) Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case No. ARB/13/8),
Award (9 April 2015).
60) Nový Čas, “Megaškandál v spore o Gabčíkovo: Advokát má od štátu dostať šokujúcu
odmenu 77 miliónov eur!” (28 September 2017) at
<www.cas.sk/clanok/599803/megaskandal-v-spore-o-gabcikovo-advokat-ma-od-statu-
dostat-sokujucu-odmenu-...> (last accessed 31 January 2018).
61) Trend, “Bžán si už vystavil faktúru na nechutnú odmenu, na analýzu o platnosti zmluvy
nečakal”, (30 October 2017) at <www.etrend.sk/ekonomika/advokat-bzan-si-uz-
vystavil-fakturu-na-12-5-miliona-eur.html> (last accessed 31 January 2018).
62) Almås v. Poland (UNCITRAL), Award (27 June 2016); Seventhsun and others v. Poland
(UNCITRAL), Award (4 January 2016); Enkev Beheer v. Poland (UNCITRAL), Award (13 June
2014); Ryan and others v. Poland (UNCITRAL), Award (24 November 2015); Minnotte and
Lewis v. Poland (UNCITRAL), Award (16 May 2014); Mercuria Energy v. Poland (UNCITRAL),
Award (December 2011); TRACO v. Poland (UNCITRAL), Award (5 September 2012);
Nordzucker v. Poland (UNCITRAL), Award (23 November 2009); Saar Papier v. Poland (II)
(UNCITRAL), Award (7 June 2001).
63) Flemingo DutyFree v. Poland (UNCITRAL), Award (12 August 2016); Horthel and others v.
Poland (UNCITRAL), Award (2017); Servier v. Poland (UNCITRAL), Award (14 February
2012); Cargill v. Poland (UNCITRAL), Award (29 February 2008); Saar Papier v. Poland (I)
(UNCITRAL), Award (16 October 1995).
64) Vivendi v. Poland (UNCITRAL), Settlement Agreement (April 2011); Eureko v. Poland
(UNCITRAL), Award (19 August 2005); Ameritech v. Poland (UNCITRAL); France Telecom v.
Poland (UNCITRAL).
65) East Cement v. Poland (UNCITRAL), Partial Award (26 August 2011).
66) Lumina Copper v. Poland; Griffin Group v. Poland; PL Holdings v. Poland; Juvel and Bithell
v. Poland. See UNCTAD, Poland – as respondent State, at
<https://investmentpolicyhub.unctad.org/ISDS/Country Cases/168?partyRole=2> (last
visited 26 January 2018).
67) Marcin ORECKI, “Bye-Bye BITs? Poland Reviews Its Investment Policy”, Kluwer
Arbitration Blog (31 January 2017) at
<http://arbitrationblog.kluwerarbitration.com/2017/01/31/bye-bye-bits-poland-
reviews-investment-polic...> (last accessed 26 January 2018).
68) Id. citing Supreme Administrative Court of Poland, Judgment of 28 April 2016, Case No. I
OSK 2456/14.
69) Id. citing Supreme Administrative Court of Poland, Judgment of 28 April 2016, Case No. I
OSK 2706/14.
70) Marcin ORECKI, “Bye-Bye BITs? Poland Reviews Its Investment Policy”, Kluwer
Arbitration Blog (31 Jan. 2017) at
<http://arbitrationblog.kluwerarbitration.com/2017/01/31/bye-bye-bits-poland-
reviews-investment-polic...> (last visited 26 January 2018).

10
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 71) Marcin ORECKI, “Let the Show Begin: Poland Has Commenced the Process of BITs'
Termination”, Kluwer Arbitration Blog (8 August 2017) at <http://arbitrationblog.kluwer
arbitration.com/2017/08/08/let-show-begin-poland-commenced-process-bit...> (last
accessed 26 January 2018).
72) Cementownia “Nowa Huta” S.A. v. Republic of Turkey (I) (ICSID Case No. ARB(AF)/06/2);
Europe Cement Investment and Trade S.A. v. Republic of Turkey (ICSID Case No.
ARB(AF)/07/2); Robert Aleksandrowicz and Tomasz Częścik v. Cyprus (SCC).
73) Cementownia “Nowa Huta” S.A. and Polska Energetyka Holding S.A. v. Republic of Turkey
(II) (UNCITRAL).
74) Zbigniew Piotr Grot, Grot Cimarron LLC, I.C.S. Laguardia SRL and Laguardia USA LLC v.
Republic of Moldova (ICSID Case No. ARB/16/8); Yosef Maiman, Merhav (MNF), Merhav-
Ampal Group, Merhav-Ampal Energy Holdings v. Arab Republic of Egypt (PCA Case No.
2012/26); Spółdzielnia Pracy Muszynianka v. Slovak Republic (UNCITRAL).
75) Marcin ORECKI, “Let the Show Begin: Poland Has Commenced the Process of BITs'
Termination”, Kluwer Arbitration Blog (8 August 2017) at <http://arbitrationblog.kluwer
arbitration.com/2017/08/08/let-show-begin-poland-commenced-process-bit...> (last
accessed 26 January 2018).
76) Six of the cases were based on the Czech Republic - Netherlands BIT (1991), 6 on the
Czech Republic-Germany BIT (1990), 4 on the Czech Republic - United Kingdom BIT
(1990), and 1 on the Belgium-Luxembourg Economic Union-Czech Republic BIT (1989),
the Canada-Czech Republic BIT (1990), the Czech Republic-Switzerland BIT (1990) and
the Czech Republic-United States of America BIT (1991).
77) Privatization offered an entry to a whole new market with no established competition.
The access to this developing market could have been gained through a favorable
purchase price.
78) See, e.g., UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration
(effective from 1 April 2014) (“Transparency Rules”) (These rules do not apply to
disputes arising out of treaties concluded prior to 1 April 2014, unless the contracting
state parties to the treaty or disputing parties agree to their application); United
Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2014)
(The Convention is an instrument by which contracting parties to investment treaties
concluded before 1 April 2014 can consent to apply the UNCITRAL Transparency Rules).
79) These member states are Belgium, Finland, France, Germany, Italy, Luxembourg,
Netherlands, Sweden and the United Kingdom. See
<https://treaties.un.org/pages/ViewDetails.aspx?src=IND&mtdsg_no=XXII-
3&chapter=22&lang=en> (last accessed 20 April 2018).

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 KluwerArbitration

Document information
Challenges for Counsel in the Representation of States and
Publication State-Owned Entities in International Arbitration: A
Evolution and Adaptation: Practitioner’s Perspective
The Future of International Paolo Di Rosa
Arbitration
(*)

Topics I Introduction
Investment Arbitration Counsel to sovereign States – in-house State counsel, international counsel, and external
local counsel – confront myriad challenges during the course of an international
arbitration, many of which are generally not faced in the representation of private sector
Bibliographic reference parties. This paper addresses a few of those challenges, not just in the representation of
States but also that of State- owned entities or instrumentalities (collectively, SOEs).
Paolo Di Rosa, 'Challenges The experience of representing an SOE can vary significantly depending on the nature and
for Counsel in the corporate structure of the entity, and the degree of control or involvement of the State in
Representation of States and the entity's operations and decision-making. In some instances, an SOE is run virtually like
State-Owned Entities in a private sector company; in those cases, representation of the SOE can be largely similar
International Arbitration: A to that of a private corporation. In other instances, however, Government officials are
Practitioner’s Perspective', heavily involved in the management of the SOE, which can render the experience for
in Jean Engelmayer Kalicki counsel akin to that of representing a State in an investment arbitration.
and Mohamed Abdel Raouf
(eds), Evolution and Although there is a sliding range between the two extremes posited above, we center our
Adaptation: The Future of attention herein on the representation of (i) States in investment arbitrations, and (ii) SOEs
International Arbitration, in commercial arbitrations in instances in which State officials have a determinative
ICCA Congress Series, Volume degree of operational and managerial input with respect to the SOE. For convenience,
20 (© Kluwer Law where the considerations for both are similar, States and SOEs are referred jointly herein
International; International simply as “the State”.
Council for Commercial P 607
Arbitration/Kluwer Law P 608
International 2019) pp. 607 - Sect. II below discusses the impact on counsel of the State's ability and willingness to
618 assume control of the dispute early on, and to manage timing issues correctly; for those
States that choose to hire specialized counsel for international arbitrations, the timing of
the retention of such external counsel is a critical factor. Considering that investment
disputes often concern concession contracts on natural resources, infrastructure and
public utilities (which can involve a significant public interest dimension, and/or State
measures that may have a public purpose), Sect. III below discusses the challenges that
the State and its counsel may confront in a highly visible and political case, and the
potential impact on the defense of media coverage and political dynamics. Sect. IV refers
to challenges that often arise for counsel to the State with respect to evidentiary issues,
including documentary evidence, fact witnesses, and experts. Sect. V discusses the factors
that are relevant for a State in deciding on possible settlement of a dispute, and on
whether or not to seek annulment or set-aside of an adverse arbitral award, and the
potential impact of those factors on counsel's work. Finally, Sect. VI articulates some
conclusions.

II The Importance of Timing Issues in the Representation of States

For States that choose to engage specialized external counsel for international
arbitrations, one of the principal mistakes can be to delay the retention of the specialized
counsel until a point at which prejudice is caused to the State's legal position. Such delay
can be deleterious, for example, when the specialized counsel is retained after the
relevant arbitral proceeding has already begun, and especially once the arbitral tribunal
has already been constituted, and the relevant procedural deadlines (e.g., for written
submissions) are already running. In such circumstances, the challenges to external
counsel are multiplied and magnified. Counsel no longer have the opportunity to advise
the State on pre-arbitration strategy, including how best to position itself for an eventual
arbitration in the event that the parties are unable to reach an amicable solution. Perhaps
more importantly, in that scenario, counsel's ability to handle various tasks necessary for a
successful defense become constrained – in some instances, critically so.
Simply put, time is the most valuable asset that the State has in an arbitration: time to
understand the dispute and its underlying facts; to identify the relevant players within the
Government; to assess relevant inter-agency dynamics; to obtain and deploy necessary
resources; to organize the defense team; to obtain and assess relevant evidence; to
develop a defense strategy; to identify and commit fact witnesses; to identify and engage
expert witnesses; to handle political and media issues – in sum, time to properly manage
the case and mount a solid defense.

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 1 The State's Procedure for Selecting Specialized or External Counsel
Joining a case after the relevant proceeding has already commenced presents significant
challenges for the international specialized counsel in at least three critical respects. First,
the arbitral tribunal may have been constituted in a way that is not ideal from the State's
P 608 perspective, in terms of an adequate balance in the composition of the tribunal. Naturally,
P 609 a tribunal with a less favorable composition can adversely affect the outcome of the
arbitration. The situation is even worse if the State has outright forfeited its right to select
a party-appointed arbitrator.
Failing to select a party-appointed arbitrator is one of the worst mistakes a State can
make in an international arbitration, as the option to do so (where available) is one of the
critical rights that a State enjoys. When the State is deciding on an arbitrator, it is not only
selecting a person who would be more likely to side with the State (or at least sympathetic
to the State's interests), but also – and perhaps more importantly – a person whose
opinion would be likely to carry weight, respect and authority with other tribunal
members. Specialized counsel typically conduct a due diligence exercise with respect to
potential candidates for arbitrator, evaluating the candidates' respective experience,
knowledge, and past records of decisions and awards, for the purpose of identifying to the
extent possible each candidates' views on key aspects of the dispute at issue, as well as
assessing potential conflicts of interest. The substantive research on the candidates can
also involve a review of their publications and speeches, and intelligence-gathering
pursuant to informal consultations with colleagues of the arbitration community.
Research about potential arbitrators and identification of the best choices for the State is
a task for which specialized counsel is best positioned (due to past exposure to many of
the candidates, whether in an arbitral, institutional or academic context), as a result of
which engaging such counsel only after the arbitral tribunal has been constituted can
ultimately – and unbeknownst to the State – play a critical role in the outcome of the
arbitration. When the result of an arbitration ends up being adverse, it is impossible to
ascertain what (if anything) might have yielded a different outcome; yet most
knowledgeable and well-informed observers would agree that the composition of the
tribunal can indeed be determinative.
Counsel's role can be important in the selection not only of the party-appointed arbitrator,
but also of the tribunal chair. For example, it is often in the State's best interest to
negotiate with the investor on the identity of the tribunal chair, and yet sometimes States
are reluctant to engage with the opposing side on that issue. Instead, State officials often
prefer to just allow the selection of the Chair to be made by the appointing arbitral
authority or institution, for fear of subsequent criticism if the result of the arbitration is
adverse to the State, and it is learned by critics that the opposing side had some influence
on the identity of the Chair (or worse still, that the person had been proposed affirmatively
by the opponent and accepted by the State's defense team).
The phenomenon of a protracted process for the selection of specialized counsel is
understandable from the State's perspective, as in many instances there are significant
budgetary, bureaucratic, and even political or ideological issues at play. Sometimes the
relevant State officials face cumbersome procurement rules that they must observe before
being able to hire international or specialized lawyers. However, considering the negative
impact that a delayed selection of specialized counsel can have on the defense of the
State, certain useful actions can be taken even in anticipation of a dispute.
Public bidding and procurement rules are designed to guarantee transparency and due
process. The problem for selection of specialized counsel is that in various jurisdictions, if
those rules are applied they may extend the duration of the selection process beyond
what would be prudent to optimize the State's defense in the arbitration. For example, in
P 609 ICSID cases, even before the request for arbitration (“RFA”) is registered by ICSID, the State
P 610 can assess the potential jurisdictional objections and merits of the case to determine
whether it should explore an amicable solution. Having specialized counsel involved from
an early stage in that process can be useful to explore an amicable resolution without
causing prejudice to the State's legal position in an eventual arbitration. Counsel's
involvement can also be useful for potentially important pre-arbitration tasks in cases that
seem unlikely to settle. For example, before the ICSID Secretariat registers an RFA
pursuant to Art. 36 of the ICSID Convention, the State may consider opposing registration of
the RFA by the Centre if, on the basis of the information provided by the investor, the
dispute is “manifestly outside the jurisdiction of the Centre”.
A protracted public bidding process for the selection of specialized counsel can end up
depriving the State of the advice of such counsel in the early stages of the dispute, which
can be critical to the outcome thereof, not only in connection with the factors mentioned
above (settlement negotiations, and a preliminary assessment of the case), but also with
the assessment of potential candidates for party-appointed arbitrator and tribunal chair.
Therefore, it is ideal for the State to implement some other mechanism (alternative to
public bidding) for the selection of external counsel.
Some States use a closed bidding process in which they invite a number of pre-selected
potential counsel with a proven track record in the defense of States, and apply clearly
identified criteria that are based on factors such as the counsel candidates' past
experience and success rate in investment arbitration, in disputes involving the relevant

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 subject matter, and in the relevant geographic region, among other factors. Ultimately, the
selection – even if not conducted pursuant to a public bidding – should still be
competitive, transparent, and consistent with due process. In general, the basic procedure
to select specialized counsel should be developed before a particular dispute crystallizes
into an arbitration, thereby enabling the State and the agency leading the defense (“lead
State agency”) to apply an already established procedure once a notice of arbitration or
RFA is presented.
With respect to the specific criteria to use for the bidding process, different States employ
different mechanisms and formulae. So long as the process is reasonably expedited, the
differences need not affect the State's interests adversely. That said, some criteria can be
limiting or can generate unfavorable dynamics. For example, some States have a list of
preferred providers that they first invite to bid, and then select the lowest-priced bid.
Other States have other mechanisms to filter the bidders' technical qualifications, but
then ultimately also select the lowest-price bid. This system does not always redound to
the State's benefit (although naturally it helps with their short term budgetary situation).
The reason that it can ultimately prove detrimental is because (a) at any given time, it is
likely that at least one of the bidding firms – including respectable international firms –
will have an incentive (for any of a number of possible reasons) to submit a “suicidal” bid;
and (b) naturally a law firm will, on average, devote to the case a level of resources that is
approximately commensurate with the allocated budget. The latter has to do with law firm
economics, with which many State officials are not familiar.
To illustrate with an example, let us posit a case in which a State allocates a figure of US$ 1
million for legal fees for an international arbitration. That is of course a sizable sum of
P 610 money in absolute terms. A State official might be tempted therefore to think: “We are
P 611 giving this law firm a million US dollars, so surely they can organize themselves in a way
that they can make that work for them financially.” The problem with this reasoning is
simply that most international firms focus at a managerial level not on the total amount
that is contractually due or paid, but rather on the degree of correspondence between the
amount paid (however high in absolute terms) and the value in dollars of the total hours
worked, based on each time-keeper's hourly billing rate. Accordingly, if a given team
devoted a specified number of hours to the case, and such hours correspond to US$ 1.5
million based on the relevant hourly rates and the number of hours worked, from a
financial perspective the law firm's management may view that scenario by reference to
the opportunity cost. In other words, it may perceive the case primarily as one that
generated a “loss” of US$ 500,000 rather than US$ 1 million in income for the firm – the
idea being that if that same team had devoted those extra hours to a different client, the
firm might have received the additional US$ 500,000 for the time spent by the team. Some
could argue about the range of profitability of the matter (which depends on different
factors), but the bottom line is that from an internal perspective, law firm partners have a
strong institutional incentive to allocate to a matter a level of personnel and hours that
will fit the available budget (or at least that does not exceed that level by too much). That
is just the reality of law firm economics, and anyone who argues otherwise is either naive or
disingenuous, as no law firm partner who consistently asks his or her management for
significant write-offs is likely to remain at that law firm for very long.
In any event, the adequacy of the resources that a State allocates to a given case can
relate to the complexity of the case and to the level of resources that the opponent
dedicates to its representation. If the opposing side in the arbitration is willing and able to
devote significant resources to prosecute the case aggressively, such opponent will have
an advantage over a State defense team that devotes fewer resources to the matter. No
matter how skilled and experienced, a lawyer is ultimately just that: a lawyer, not a
magician.
Many (or most) States conduct bidding contests to select external counsel for their defense
or representation in international arbitrations. While that is helpful for purposes of
transparency and the avoidance of irregularities in the hiring process, it can be harmful to
the State's interests if the bidding requirements and mechanism are excessively
cumbersome or time-consuming. For example, in some instances the bidding requirements
are so extensive or onerous as to generate a disincentive for firms to even submit a bid in
the first place. In other instances, States impose a bond requirement that can be viewed as
prohibitively expensive, or not worth the risk of non-recoupment. It is best for the State to
impose the least cumbersome and expensive bidding requirements possible, while still
maintaining adequate transparency and competitiveness. Doing so can often be difficult in
States where the regular government contracting rules and regulations apply to the
selection of international counsel, as such norms often contain requirements that are not
especially relevant to the context of hiring of counsel for international arbitrations, and
can act as a deterrent for some firms from participating in the contest to begin with. For
example, some States' procurement rules require the bidder to provide background
information (e.g., bar good standing certificates, criminal background checks, academic
P 611 diplomas), not just for the bidding firm's individual proposed team members (which can in
P 612 itself be onerous), but for all partners of the bidding firm (which can be a non-starter for
an international firm with hundreds of partners).
Other times the procurement rules require a multi-stage evaluation process that can be
very time-consuming, lasting many months or even up to a year or more. This might not be

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 problematic in government matters that are not especially time-sensitive, but can be
downright devastating to the State's interests in an arbitral proceeding that lasts only two
years (or even less, in the case of many commercial arbitrations). In some instances, for
example, the proceeding is already in the briefing stage, which as explained above can
pose significant practical, logistical, and ultimately substantive problems for the selected
firm, because crafting and implementing a defense strategy can be very time-consuming. It
is best therefore to maximize the amount of time available to the defense team to do its
work.
To avoid these various difficulties, many States find a way to exempt the selection of
external counsel in international arbitrations from the normal procurement rules, and
instead grant at least some measure of discretion to the relevant government Ministry,
agency or commission. Such discretion typically does not confer unbridled authority to
handpick firms or lawyers (which in some instances and States could lend itself to
irregularities), but rather to conduct a more streamlined process – imposing only those
requirements that are relevant to the specific context; establishing a shorter overall
timeline for completion of the selection process; and granting some latitude to select the
bidder that seems best-suited for the case at hand.
A factor that is obviously relevant in any bidding contest conducted by a State to hire legal
and advisory services is the cost of such services. While the price for legal representation
must be considered (since public funds will be used for the purpose), allowing such factor
to be the decisive factor in the choice of specialized counsel can be costly in the final
outcome of the arbitration for at least two reasons. First, should price of representation
drive the State's choice of specialized counsel, less experienced practitioners with a less
effective track record might end up representing the State. Second, even if experienced
practitioners are willing to submit a hyper-competitive economic proposal, the truth is
that prices of specialized legal representation are often driven below what is financially
healthy to provide adequate service. The implication for a given law firm of undertaking
the representation of a State for suicidally low fees is either that such firm will have to
have to subsidize the case (by devoting resources to it that will go unremunerated), or that
the services provided will be more limited in nature than they would have been otherwise
(for example, by means of the use of a lean team). In such circumstances, the breadth and
depth of the State's defense could be impacted negatively.
Considering (1) the interests at stake, which often involve the public good and actions that
may be justified by reference to a public purpose rationale, and (2) the funds spent by
multinationals and other private sector companies to finance their own cases, the State
should consider that its defense team comprising specialized international counsel should
be competitive vis-à-vis opposing counsel. As international arbitration has evolved and
international tribunals have moved closer to awarding costs and legal fees against the
losing party, and especially when the State is at risk of losing hundreds of millions or even
P 612 billions of dollars if the arbitration yields an adverse outcome, there are additional
P 613 incentives for the State to allocate the necessary resources to enable the State's legal
team to play on a level field with its adversaries.

2 The Lead State Agency and Coordination of the State's Defense

Engaging specialized counsel when the proceeding is already underway necessarily means
that counsel for the State will face the daunting challenge of attempting to get up to speed
on the case and to help put together an adequate defense in a limited period of time. As
noted, time is usually the defense team's best friend in an international arbitration –
especially in investment arbitrations. Several examples (aside from the one described
above of a protracted bidding process) illustrate how a slow response time by the State
can negatively affect its position in an arbitration. For example, there are often several
different agencies or State institutions that are involved in the arbitration, and it usually
takes some time for them to achieve an adequate degree of coordination. In some States it
is even a legal requirement to establish a formal inter-agency body or commission, and
doing so can be quite time-consuming if it is not a standing body. Also, the lead State
agency will not necessarily be the agency that was involved in the facts underlying the
dispute. Moreover, the agency responsible for funding the defense may be a third agency,
which may also want to have a say in how the defense is conducted. All of this can end up
being complex and time-consuming – and meanwhile the clock can be running in the
arbitration.
As with the more efficient but still transparent and due process-based procedure
suggested above for the selection of specialized counsel, establishing at an early stage the
responsibilities of the different Government agencies that will be involved in an
arbitration allows the State to handle in a more timely, efficient and effective manner the
challenges presented by an arbitration. That in turn redounds to the benefit of the State's
external counsel, whose task is enormously facilitated by not having to spend time on such
matters at a juncture at which there are multiple competing demands on counsel's time.
Different States confer the lead agency role on different agencies: some on the trade or
foreign trade ministry, some on the office of the general prosecutor, others on the ministry
of foreign affairs, or the ministry of justice, and still others simply on the agency that has
the main substantive connection to the dispute. This is a purely domestic and
administrative decision, which should make sense from an organizational perspective

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 taking into account the relevant legal and institutional considerations, as well as the
human capital that would be most knowledgeable and experienced to represent the State
or manage the case, and to provide support to international specialized counsel.
Experience in international disputes is also generally a plus in the choice of the lead State
agency.
However, adequate coordination transcends the mere establishment of an inter-agency
body, or deciding which agency should be the lead State agency. It is also critical to
establish administrative procedures to enable adequate cooperation by those agencies
that are most knowledgeable about the facts underlying the dispute, such as for instance
the tax authorities, the ministry of environment, the ministry of mining, or even a province
P 613 or municipality. Pre-existing regulations that mandate full cooperation with the lead
P 614 agency by the agency or agencies that allegedly breached the relevant contract or
treaty could be instrumental during the course of the arbitration, in particular during the
document production phase, and when counsel to the State are in the process of
identifying and preparing witnesses. In addition to coordinating the management of the
case with specialized international counsel, and coordinating the State's activities during
the arbitration with those agencies involved in the facts and contested measures of the
case, efficient procedures should also be in place to ensure prompt and sufficient funding
of the costs of the arbitration. In various jurisdictions, the treasury or ministry of finance is
in charge of providing the funds for the arbitration. In many of those States, if the funds are
not budgeted in advance, the lead State agency may not have the wherewithal to hire
specialized international counsel, local counsel, expert witnesses, translators, and other
professionals, or to pay the administrative fees of the arbitral institution or the arbitrators
for their work. Provisioning sufficient funds for the State's defense team for an
international arbitration – either before a dispute arises, or as soon as the State learns
that a request for arbitration is likely to be filed – can be critical to the success of external
counsel in carrying out its mission.

III Political and Media Issues

Particularly in investment arbitrations, which are generally more visible and can affect the
public in a more significant – or at least more tangible – way, the handling of political and
media issues by the State and its defense team can be especially important, and also can
have a significant impact on the external counsel team. On a purely domestic and political
level, Government officials may be keen on legitimizing certain decisions by invoking
public purpose considerations, for example in connection with the termination of utility
contracts with concessionaires on the basis of a deficient record in providing water,
electricity, gas, or other services. Thus, when a public official or publicly elected figure
speaks, while the domestic audience may welcome the words as a reflection of the
official's intention to advance the public interest (e.g., by protecting the environment,
providing water and energy, and promoting education, amongst many others), the
consequences can be negative in the context of the arbitration. State officials are often
tempted to launch very public attacks on certain foreign investors, based on political or
populist considerations.
The problem with that is that in the realm of public international law and investment
arbitration, the words of the State matter. This is why a sophisticated defense strategy
must also include guidelines and principles concerning the handling by Government
officials of political and media issues relating to the dispute. In general, prudence and
restraint should guide State officials in their statements to the media about the case. In
some instances, the media strategy of the investor is so vocal and aggressive, or the
interests at issue are so visible or are made so visible by other interested parties (e.g.,
NGOs), that silence by the State is not an option. In those instances, the State, in
consultation with specialized international counsel, should first determine the clear and
simple message that State officials wish to convey to the public (e.g., that the State acted
to protect the environment by issuing non-discriminatory measures that conformed with
existing laws and regulations). Second, all statements by the State concerning the case
P 614 should preferably be handled by a single spokesperson, instead of having several public
P 615 officials opining publicly about the case. And third, any potential new statement by the
State should first be discussed with the specialized international counsel, in order to
assess the potential effect of such a statement on the arbitration. These guidelines are not
especially complex, but, they require discipline and coordination between and amongst
the lead State agency, other State actors involved in the case, and the specialized
international counsel.

IV Practical Evidence-Related Challenges for Counsel in the Defense of

States in International Arbitration
1 Documentary Evidence
It takes some time to collect the documents relevant to the State's defense in an
arbitration, as such documents may be spread amongst different State entities or different
offices within the same entity. Moreover, the adequacy of the evidence-gathering efforts by
the State and its counsel will depend on the degree of file-keeping hygiene of the relevant
State entity or entities, which can vary widely from State to State, from administration to

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 administration, from agency to agency, and from individual to individual. Moreover, the
relevant documentation often has been archived in a byzantine way, and can take some
time to track down. In other instances, the relevant agency may have moved to a different
location or merged into a different agency; that too can result in significant difficulties in
obtaining documents. And of course, the older the vintage of the documents, the more
difficult it is to track them down. All of this impacts on the State's ability to collect
evidence for its defense, as well as to comply with its obligation as a disputing party in an
arbitration to produce – in the context of the document production process – the relevant
and material documents requested by the investor. That process takes time, in addition to
political will and bureaucratic wherewithal.
The question is what can the State and counsel for the State do if – as occurs in many (if not
most) countries – the information and document repository system is not ideal. To begin
with, the consequence of not producing certain documents that the tribunal concludes
exist or should exist could be that the tribunal draws adverse inferences against the State.
Such inferences, however, are neither automatic nor regularly reached by tribunals. Given
the imperfect document-keeping systems that States often have, or the lack of any system
at all, tribunals normally will want to ascertain the following:
(1) that the State engaged in good-faith efforts for the turnover of documents whose
production the tribunal specifically ordered, or that the State agreed to produce;
(2) that any documents that are not produced by the State are in fact not in its
possession; and
(3) the reason(s) why relevant documents were not produced.
P 615 Notably, if the opposing party complains to the tribunal that the State has failed to
P 616 produce certain documents in its possession or is otherwise not cooperating during the
document production phase, the information that the tribunal will need to assess how to
respond to that complaint is in itself part of the narrative that the State should develop,
for the purpose of demonstrating that despite diligent and reasonable efforts to find the
relevant documents, it was unable to produce some of them.
For this purpose, from the time that the State is aware of the obligation to produce certain
documents, the State should – under the specialized counsel's guidance – keep a historical
log of all actions taken by State officials to identify and provide documents responsive to
the investor's request for documents. In addition, if there are reasons – no matter how
absurd they might sound at the beginning – that could explain why certain important
documents were not kept, efforts to document and prove such situations should be made.
For example, certain documents may not be in the possession of the State because the
Ministry now in charge of the documents is new, or because certain documents were lost in
a move or a fire, or because at the time there was no formal record-keeping policy for
documents.
Whatever the reason may be, it would be important to provide supporting evidence that
the circumstance in fact occurred and prevented the State from maintaining the relevant
documents in its possession.
The first instance in which the party obligated to produce certain documents has to
explain why certain documents are not being provided, is to the opposing party. If the
opposing party perceives that the other side has undertaken diligent efforts to produce
documents, the issue may not even get to the tribunal. If the opponent elevates a request
for production of documents for decision by the tribunal, the suggested log and adequate
documentation of the State's efforts to produce the relevant documents could provide
sufficient confidence to the tribunal that the State was acting in good faith, and that
adverse inferences against the State are not warranted.

2 Fact Witnesses
Often the State's principal witnesses will be officials who have already left the government
and may be difficult to track down, and/or who may be reluctant to participate in the case,
or too busy to do so. Potential witnesses who are former State officials may have no
incentive to serve as a witness, and in some cases may even have a disincentive to do so
(e.g., if the administration that is currently in place is from an opposite political party).
There are several factors that can hamper the procurement of key witnesses to testify in an
arbitration. At the beginning, there may be preconceptions by incumbent Government
officials about the likely unwillingness of former officials to testify, and even prejudices
that they may hold about such officials, or about officials from different agencies, or about
officials from a different political party. Any such preconceptions must be overcome if a
potential fact witness is fundamental to the State's position in the case. On the other hand,
presenting too many fact witnesses in an arbitral proceeding can be costly, inefficient, and
potentially unnecessary. If the same facts can be established through documentary
evidence, the testimony of a given fact witness might not be necessary.
P 616 For a witness whose participation is indeed considered necessary – either to testify
P 617 affirmatively as to certain facts (especially ones that lack documentary support), or to
contradict alleged evidence submitted by the opposing side, and that cannot otherwise be
contradicted with documentary evidence – it is instrumental to coordinate with the lead

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 State agency and the Government agencies that are knowledgeable about the facts of the
case. Those State agencies and their officials generally are in a position to assess the
reputation, credibility, strengths and weaknesses of potential witnesses, and therefore can
constitute an important source of information for counsel to the State, both during witness
selection and hearing preparation processes.
Commitment by State officials to the State's defense is of course an asset. However, it is
incumbent upon specialized counsel to explain to the sovereign client why relying on a
large number of witnesses may be unnecessary or even counterproductive; why a
particular witness could present credibility risks before the tribunal; and ultimately why
the selection of witnesses advised by specialized counsel makes sense in light of the
narrative that the State is presenting to the tribunal.

3 Expert Witnesses
The hiring of expert witnesses to testify in the arbitral proceeding is often a critical
component of the defense, but it can take States significant time to identify and hire
relevant experts (especially since often for experts, too, local procurement rules require
bidding contests).
The process for hiring expert witnesses (such as damages experts, or other subject-specific
experts) should follow transparent but also efficient and dynamic rules. Depending on
communication and/or linguistic skills, an expert may or may not possess the ability to
easily communicate his or her views to the tribunal. A challenge that counsel to the State
often face is that State officials may have their own views of who should act as an expert,
and tend to prefer local experts. Yet, specialized counsel should be able to guide the State
officials in assessing what experts are necessary to optimize the chances of success in the
arbitration.

V The Politics of Settlement, and of Annulment or Set-Aside

Although it often makes sense from a commercial or financial perspective for a State or
SOE to settle a dispute, Government officials and managers of SOEs sometimes lack the
wherewithal – political, bureaucratic, and sometimes even legal – to do so, even in
circumstances in which they readily admit that settlement is warranted. This phenomenon
is attributable to the fact that settling can be a thankless task for those who will be viewed
as responsible for the decision, since whatever payment is made out to the opposing party
will be subject to second-guessing (by members of the press, political opponents, civil
society groups, etc.). In many instances it is simply too difficult for the State or SOE
voluntarily to pay out a sizable sum to a litigation adversary when there is still some legal
recourse or remedy available, and it is possible to continue battling in a legal proceeding
(arbitral or judicial). In some circumstances, settling can envelop the relevant officials or
SOE managers in a cloud of suspicion of corruption – even in instances where such
P 617 individuals are acting entirely in good faith and in advancement of the State's best
P 618 interests. This dynamic often generates a powerful disincentive for Government or SOE
officials to settle disputes, even where it would be highly advisable to do so. In some
States, there can even be a requirement for the Government to exhaust legal remedies
before settling, which removes any discretion and forces the State to continue litigating to
the bitter end. The foregoing can place counsel in the uncomfortable position of litigating
to conclusion a dispute that either will likely end in defeat or that makes absolutely no
commercial sense to pursue further (for example, where the amount in dispute is
proportionately so low in relation to the cost of litigating as to not make it worth the
expense and effort, or when an adverse award has been received but the amount of
damages granted to the opponent is low enough that seeking annulment makes no
financial sense at all (although in such instances, the State might decide that it wishes to
pursue annulment as a matter of principle). There is no simple or straightforward solution
to the foregoing conundrums, but they do present dynamics of which external counsel need
to be mindful, and which need to be handled with the requisite sensitivity to the pressures
faced by the responsible officials or managers.

VI Conclusions
The work of external counsel on behalf of States, and in some instances, on behalf of state-
owned entities or instrumentalities, can present particular challenges that generally do
not arise in the representation of private sector entities. Such challenges can relate to a
multiplicity of factors, including bureaucratic and political considerations by the
Government; budgetary limitations, and other factors. These elements can hinder the work
of the defense team, complicate the State's legal position, and ultimately render more
difficult the achievement of a positive outcome in the international arbitration. In this
paper we have focused on some of the unique challenges of this nature, and explored some
of their practical implications for external counsel and the State itself.
P 618

References

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 *) Paolo Di Rosa: Partner and International Arbitration Practice Group Chair, Arnold &
Porter. The author has devoted most of his twenty-six-year legal career to the
representation of sovereign States in public international law, international arbitration,
and litigation matters. The author wishes to acknowledge the contribution to this paper
of former Arnold & Porter associate (and former official of Ministry of Foreign Trade of
the Republic of Colombia) José Antonio Rivas.

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 9
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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Protecting the Legitimacy of the Arbitral Process:
Publication Jurisdictional and Procedural Challenges in Public-Private
Evolution and Adaptation: Disputes
The Future of International Reza Mohtashami
Arbitration
(*)

Topics I Introduction
Investment Arbitration There has been an inexorable trend towards ever-greater interaction between public and
private sectors over the last century, and in particular over the last fifty years. (1) This is
partly as a result of the privatization programmes implemented by developed economies
Bibliographic reference during this period which have brought ever greater reliance on the private sector to
perform public functions across a variety of economic sectors, ranging from operating
Reza Mohtashami, airports to collecting municipal waste. In parallel, the process of globalization and the
'Protecting the Legitimacy of opening of emerging market economies to foreign investors have led to an increase in
the Arbitral Process: private foreign investment, which is no longer confined to the traditional North-South
Jurisdictional and investment flows, but now includes capital from Asia and the Middle East being invested
Procedural Challenges in across the globe. (2)
Public-Private Disputes', in These developments have led to a substantial increase in the number of public-private
Jean Engelmayer Kalicki and disputes, whether arising under contracts, many of which provide for international
Mohamed Abdel Raouf (eds), arbitration as the means to resolve disputes rather than reserving such matters for the
Evolution and Adaptation:
The Future of International P 619 national courts, (3) or claims brought by foreign investors under investment protection
Arbitration, ICCA Congress P 620 agreements alleging breaches by host states of their international law obligations. For
example, of the 810 cases filed with the International Court of Arbitration of the
Series, Volume 20 (© Kluwer International Chamber of Commerce (“the ICC”) in 2017, 15 percent involved states or state-
Law International; entities; (4) whereas the number of investment treaty arbitrations has increased
International Council for exponentially, with the number of cases filed in 2015 and 2016 standing at 77 (a record
Commercial high) and 69, respectively. (5) The Permanent Court of Arbitration (PCA), moreover, has
Arbitration/Kluwer Law reported a new record in the number of public-private arbitrations that it administers
International 2019) pp. 619 - involving a state or other public entity: 152 cases in 2017. (6)
638
The expansion of public-private arbitration, and the adoption of an essentially private
dispute resolution mechanism to resolve disputes which may involve matters of public
interest, has generated significant recent debate about the nature and conduct of such
arbitrations and the possible need for procedural reform, especially in the investment-
arbitration arena. Such discussion mainly has focused on concerns to safeguard the public
interest and ensure the legitimacy of the process in light of the state's participation in the
arbitration and the acknowledgement that the impact of the outcome of the arbitral
process may not be confined to the litigating parties. (7) There has been much less focus,
however, about protecting the integrity of the proceedings and ensuring a level playing
field in circumstances where the involvement of a state party adds a dimension to the
arbitration that is generally unknown in purely private disputes; or where the private party
(or the arbitral tribunal itself) falls in some way within the scope of the state's coercive
reach such that a multitude of tools can be brought to bear by way of national courts, law
enforcement agencies, tax authorities and other municipal institutions; or even where
instances of civil conflict or revolutionary movements call into question the standing of the
government to represent the state in an arbitration, and thus potentially undermine the
enforceability of an ensuing award. This is the focus of the present paper: to examine a
number of jurisdictional and procedural challenges that apply uniquely in the context of
public-private arbitrations, and which have the potential to undermine the legitimacy of
the arbitral process.

II Standing to Represent a State in International Proceedings in times

of Civil Conflict
It is a claimant's prerogative to designate the respondent to a lawsuit. In the context of an
arbitration commenced under a contractual arbitration agreement, this should be a
P 620 straightforward matter, even in circumstances where the responding party is a state or an
P 621 emanation of the state. (8) Similarly, when commencing an arbitration pursuant to an
investment protection treaty, it is a routine matter to notify the concerned ministries of
the central government of the respondent state, in addition to the office of the head of
state or government. Matters are less clear-cut when the state in question is in civil
conflict, or amidst a revolutionary movement, or where there are competing political
factions claiming legitimacy to represent the state. Leaving aside questions of the state's
substantive liability under international law, and whether, for example, the state may be
liable for the actions of a revolutionary movement, (9) there is an initial hurdle to

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 overcome: establishing the standing of the government to represent the state as
respondent in the arbitration. This is an issue that affects the legitimacy of the arbitral
proceeding and may be critical to the eventual enforcement of an award against the state.
No claimant wishes to complete an arbitration after several years of effort and cost,
receive a favourable award, only then to be told that the award is unenforceable against
the state because the respondent was not properly represented in the arbitration and did
not have the opportunity to present a defence. This issue has regained urgency in light of
the political turmoil and civil conflict that a number of Middle Eastern and North African
states have undergone and continue to experience following the so-called “Arab Spring”
revolutionary movements.
One way in which claimants can avoid these potential complications would be to wait for
the political situation in the respondent state to stabilize and until a new government has
established itself, and won international recognition, before initiating an arbitration. This
is sound advice, but not always practicable in light of pressing commercial pressures or
applicable limitation periods. (10) Alternatively, and if waiting until the political situation
has settled is not an option, there may be a non-appearance by the respondent state. If
the regime is still focused on the more pressing issues of restoring public order and
establishing its authority, its representatives may not appear in the arbitration, and the
tribunal may proceed on the basis of default. (11) There is however a third possibility,
P 621 namely that a government representative appears in the arbitration but that the
P 622 effectiveness of the government somehow comes under challenge during the
proceedings. (12) Such challenge may come either in the form of an intervention in the
arbitration from a competing political faction or regime claiming legitimacy to represent
the state, or even may be raised by the claimant in seeking comfort as to the
enforceability of an eventual award.
In such circumstances, an arbitral tribunal may be faced with the task of determining the
legitimacy of the regime in question, as of the date of the arbitration, for the purposes of
establishing the respondent's standing; and, then, also be required to determine the
effectiveness of the regime, including an examination of the extent and nature of control of
the state's territory by the regime, as part of determining whether the acts of the regime
may be attributed to the state under international law. As discussed below, these two
analyses involve different considerations.

1 Attribution of State Responsibility for the Acts of de facto Governments

The state is the only subject of international law to which responsibility can be attributed,
and the attribution of conduct to the state is based on criteria determined by
international law. State obligations, moreover, survive a change in government. It follows
that internal political changes within a given state generally do not impact that state's
international law obligations incurred prior to the change. (13)
In the regular course of events, a state is responsible for the acts of its de jure
governments, which have been formally recognized by other states. Where the peaceful life
of a nation is interrupted, however, the foregoing rule no longer provides a helpful
guidepost, as revolutions or the rise of insurrectionary movements may result in the
establishment of parallel governing structures that may become regarded as de facto
governments. A general de facto government is one that controls the entire territory of the
state (for example, following a successful revolution) and displaces the pre-existing
government. Upon taking control of the state, such a de facto government takes over the
levers of power and assumes responsibility as the actual government of the country. In so
doing, the de facto government assumes the role of the prior de jure government and, thus,
also assumes the responsibility of representing the state in international affairs;
accordingly, its actions become binding on the state under international law. (14) In the
case of a successful revolutionary movement, this means that the state is liable from the
beginning of the revolution, on the theory that the revolution represented ab initio a
changing national will crystallizing in the final successful result. Thus, the government
created through a successful revolution becomes liable for all services rendered to the
revolution; and the unlawful acts of successful revolutionists render the government
equally liable. (15) The position under international law in relation to a general de facto
P 622 government is now codified in Art. 10 of the International Law Commission's Draft
P 623 Articles on State Responsibility (the ILC Articles). (16) By contrast an unsuccessful
revolutionary movement remains merely an insurrection for which the state does not hold
any responsibility. (17) As it is difficult, however, to predict whether a revolutionary
movement will succeed, it is suggested that its international acts will be subject to a
suspensive condition; unless and until the movement emerges as a government, its actions
are not likely to bind the state. (18) Accordingly, an investor that chooses to do business
with insurgents assumes the risks of its enterprise.
The position is less clear-cut in relation to a local de facto government, which exercises
effective control over a part of the state's territory, but not the entire nation. The capacity
of a local de facto government to create international obligations for the state is subject to
a more complex analysis and depends upon the geographic, substantive and temporal
limitations that constrain the effectiveness of such governments. (19) The position may be
summarized as follows:

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 “The temporary de facto government may legislate on all matters of local
concern, and in so far as such legislation is not hostile to the subsequent de jure
government which displaces it, its laws will be upheld. A military occupant as a
general rule may not vary or suspend laws affecting property and private
personal relations or those which regulate the moral interests of the
community. If he does, his acts in so doing cease to have legal effect when the
occupation ceases.” (20)
International tribunals have held that the collection of taxes and customs duties within the
territory and during the occupancy of a local de facto government relieves those tax-
payers from a subsequent second payment upon the same goods to a succeeding de jure
P 623 government. (21) In the Guastini case the Umpire held, for example, that annual licence
P 624 fees that were paid by an Italian merchant to the revolutionary movement that
controlled the town of El Pilar in Venezuela before it was defeated bound the successor
government. (22)
Although international tribunals have considered the grant of international recognition as
part of their analysis in determining the status of a revolutionary movement, and whether
such movement qualifies as a de facto government, international recognition has not been
a determinative factor. Thus, for example, the Umpire in the Tinoco Claims held the non-
recognition by Great Britain and its allies of a general interim government in Costa Rica as
being neither determinative of the question of whether the administration constituted a
de facto government nor as serving to estop a claim by Great Britain against the
subsequent government of Costa Rica on behalf of its citizens. (23) Notwithstanding the
absence of international recognition of the Tinoco government, the Umpire upheld the
validity of a concession awarded to a British company by the deposed Tinoco regime,
notwithstanding legislation by the new government invalidating contracts entered into by
the previous regime. (24) In sum, an unrecognized local de facto government can bind the
state under international law.

2 A Government's Standing Before International Tribunals

While the historical jurisprudence has focused on examining the binding nature of acts
undertaken by de facto governments (whether general or local in their geographic scope)
under international law, there has been less focus on the related – but distinct – issue of a
government's standing to represent the state in relation to an international claim. This
issue has been considered more recently before three different international courts and
tribunals, where those panels have relied on the regime's international recognition –
rather than examining the nature and extent of control of the regime over the nation's
territory – as the means to resolve the question of whether a political faction claiming to
be the legitimate government of a state is entitled to represent that state.
In the matter of Cyprus v. Turkey, (25) before the European Commission of Human Rights
(the Commission), Cyprus, represented by the Greek Cypriot administration, had
commenced a claim against Turkey arising out of the alleged violations by Turkey of the
European Convention of Human Rights against Cypriot citizens during its occupation of part
P 624 of the island of Cyprus. Turkey objected to the admissibility of Cyprus's claim and argued
P 625 that the Greek Cypriot government was not entitled to represent the State of Cyprus.
Turkey argued, moreover, that there were in fact two administrations – one Greek Cypriot
and one Turkish Cypriot – and therefore neither administration could represent the state of
Cyprus as a whole. The Commission dismissed Turkey's objection:
“The Commission observes then that the applicant Government have been, and
continue to be, recognised internationally as the Government of the Republic of
Cyprus and that their representation and acts are accepted accordingly in a
number of contexts of diplomatic and treaty relations and of the working of
international organisations. In this respect the Commission refers to the
practice mentioned in its previous decision and to more recent international
practice both in the Council of Europe and in the United Nations.” (26)
The criterion of international recognition also proved to be determinative for the
International Centre for Settlement of investment Disputes (ICSID) tribunal in the case of
BUCG v. Yemen, (27) a case that was commenced in 2014 by the Chinese claimant against
the Republic of Yemen under an applicable investment protection treaty. The Yemeni
state was represented in the case by international counsel and was participating in the
proceedings notwithstanding the civil war in Yemen. During the proceedings, the Minister
of Legal Affairs of the so-called Sana'a Government or Revolutionary Leadership in Yemen
wrote to the tribunal to terminate the power of attorney of Yemen's international counsel
pending instruction of new counsel. This intervention was denounced shortly thereafter by
the Minister of Legal Affairs of the so-called Hadi Government, who denounced the
authority of the Sana'a Government to represent Yemen and claimed that, as a matter of
Yemeni law, she solely was authorized to oversee any international proceedings initiated
by or against Yemen and to instruct international counsel. The tribunal was faced,
therefore, with competing claims from two opposing regimes, each of whom claimed
legitimacy in representing Yemen in the arbitration. After inviting both factions to make
submissions in support of their respective standing to represent the state, the tribunal
upheld the authority of the Hadi Government. In so doing, the tribunal focused exclusively

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 on the international recognition of the Hadi Government as the legitimate government of
Yemen, without any consideration of the effectiveness of that government, which, at the
time, had lost control over much of Yemeni territory: (28)
“The Tribunal notes that as recently as 23 September 2016 the UN General
Assembly invited President Hadi to address it as the internationally recognized
representative of the Republic of Yemen, which followed the ‘affirmation’ by the
UN Security Council by Resolution No 2216 (dated 14 April 2015) of the
P 625 ‘legitimacy of the President of Yemen, Abdo Rabbo Mansour Hadi’. Although a
P 626 lot has happened on the ground in the last year, …, the legal status of the
Hadi government appears to be unchanged. The Tribunal has carefully
considered the opposing submissions of … and the material submitted to
illustrate the state of hostilities existing in the Republic of Yemen, that the
‘Revolutionary Leadership’ controls the capital, Sana'a, in which the subject
airport is located, and that the government of the ‘resigned’ President Hadi is
no longer in control. Nevertheless the Tribunal has not been presented with any
evidence that the international community recognizes a change of government.”
(29)
A second international arbitral tribunal reached a similar conclusion when confronted with
the competing claims of the Hadi Government and the Sana'a Government to represent the
interests of Yemen in the case of Sabafon v. Yemen, an arbitration commenced under
Yemen's investment law pursuant to the Rules on International Commercial Arbitration of
the United Nations Commission on International Trade Law (UNCITRAL). (30) In this case,
the tribunal made it clear at the outset that it was not called upon to recognize or
legitimize one government rather than the other, and defined its task as determining which
government had standing to represent the state in the arbitration proceedings. In so doing,
the tribunal was able largely to sidestep considerations of the practice of states and the
international community when it comes to recognition of governments; although it did
conclude that neither government exercised effective control over the entire territory of
Yemen.
The tribunal instead addressed the issue of standing both from the perspective of
domestic law and international law, and reached the same result under both scenarios. If
Yemeni law were to apply, the tribunal held that the Hadi Government was the legitimate
government of Yemen following a review of the Yemeni Constitution and administrative law
provisions. Under its analysis of international law, the tribunal noted that “the Hadi
Government has consistently been recognized by the international community and by third
States as the de jure government of Yemen. At the same time, the Houthis have
consistently been condemned for consolidating their de facto power over the capital
Sana'a and surrounding provinces.” (31) It concluded its analysis as follows:
“[T]here can be no question that the Houthis exercise effective control over the
entire territory of Yemen. Accordingly, the Tribunal finds that the facts on the
ground do not support the application of the effective control doctrine, or, in
other terms, the facts on the ground are not sufficient to disregard the
recognition by the international community of the Hadi Government.
The Tribunal therefore concludes that the Hadi Government is the legitimate
P 626 government both as a matter of Yemeni law and international law. The Tribunal
P 627 is bound to take note of this state of affairs and to draw the necessary
conclusions for the present case.” (32)
The reference to international recognition as a means to determine the standing of a
regime to represent the state in an international proceeding departs from the practice
under international law in relation to determining the attribution to the state of acts
committed by a governing regime. In the latter analysis, as discussed above, the
international recognition (or lack thereof) of a de facto government or revolutionary
movement has not been a determining factor.
The substantial reliance on the criterion of international recognition to determine
challenges to the standing of a government to represent the state also departs from the
practice of national courts when confronted with a similar scenario. For example, in
England, the degree of international recognition of an alleged government is only one
relevant factor in assessing whether it exists as the government of a state. The English
courts instead undertake a multifaceted analysis and consider the following four factors in
deciding whether a government exists as the government of a state:
“(a) whether it is the constitutional government of the state; (b) the degree,
nature and stability of administrative control, if any, that it of itself exercises
over the territory of the state; (c) whether Her Majesty's Government has any
dealings with it and if so what is the nature of those dealings; and (d) in
marginal cases, the extent of international recognition that it has as the
government of the state”. (33)
This is a more complex analysis that considers not only the effectiveness of the
government, but also its legality and constitutional status under the applicable municipal

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 law. It is, arguably, a more stringent test than that applied by international courts and
tribunals to determine the issue of standing and may arrive at a different result.
In commencing an international claim against a state that is experiencing civil unrest, a
claimant should ensure – as best as it can – that the respondent state is represented by
the internationally recognized government, even if the subject of the claims raised in the
arbitration relate to the acts undertaken by a de facto government or insurrectionary
movement with control over the whole or part of the state's territory.

III Failure by a State to Participate in the Arbitration

The problem of the defaulting respondent is common to all forms of arbitration,
irrespective of whether the respondent is a state or not. On the one hand, a respondent in
arbitration cannot be permitted to defeat its own consent to arbitration by refusing to
participate. On the other hand, where the respondent has not taken active part, the
arbitral tribunal (and the subsequent enforcing national court) must ensure that basic
P 627 norms of due process have been observed. The arbitral tribunal's vigilance in this regard
P 628 will likely be heightened in the context of arbitrations against states (whether in the
context of a commercial or investment arbitration). Where an award may potentially bind
not just a single commercial entity but an entire nation, there may be additional concerns
in deciding a case without a presentation of opposing factual accounts, or a full scale
adversarial test of the claimant's legal arguments. (34) In light of these concerns, default
by a respondent state can lead to significant disruption and delay, as arbitrators seek
repeatedly to draw the defaulting respondent into the proceeding, request that claimants
provide additional information as necessary to amplify the evidentiary record, or
themselves undertake a factual investigation and engage in legal research.
This enhanced inquisitorial role is reflected in the procedural rules that govern ICSID
arbitrations. Art. 45 of the ICSID Convention provides that “failure of a party to appear or to
present his case shall not be deemed an admission of the other party's assertions”. Art. 42
of the ICSID Arbitration Rules, moreover, sets out a specific procedure for circumstances of
a defaulting respondent, such that the tribunal “shall examine the jurisdiction of the
Centre and its own competence in the dispute” and, as regards the substance of the claims
raised, “decide whether the submissions made are well-founded in fact and in law”. Thus,
although the ICSID system does not permit an absent respondent to prevent the case from
being heard, it does not sanction the tribunal to accept the claimant's case at face value.
The award in LETCO v. Liberia (35) describes the role of an ICSID tribunal faced with a
defaulting state respondent:
“Nevertheless the failure of the Government of Liberia to take part in the
present arbitral proceedings does not entitle the claimant to an award in its
favour as a matter of right. The onus is still upon the claimant to establish the
claim which it has put forward in its Request for Arbitration and other
documents.
(….)
In this way, the onus of testing the assertions made by the party appearing
shifts onto the Tribunal itself. As it is put in the notes to Rule 42:
‘After the Tribunal has, on the expiration of the period of grace, resumed
consideration of the Request, the proceeding is no longer fully contentious in
the sense that expression is used in national civil procedures; the initiative is
shifted to the Tribunal as far as the substantiation of the submissions is
concerned. The Tribunal must now proprio motu examine:
…
(b) the substantive merit of the assertions made by both parties in order to
satisfy itself whether their submissions are well founded in fact and law. To this
end, it may call on the active party for observations, evidence or explanations.’
It is this procedure which was followed by the Tribunal in the present
P 628 arbitration. The Tribunal did not take for granted the assertions of law and fact
P 629 made by the claimant. On the contrary, it submitted them to careful
examination: and its award is made on the basis of that examination.” (36)
The procedure under ICSID may be contrasted with the position in commercial arbitration,
where no provision similar to Art. 42 of the ICSID Arbitration Rules is found among the rules
of the major international arbitral institutions. In ICC arbitration, for example, Art. 6(8) of
the rules provides that ‘if any of the parties refuses or fails to take part in the arbitration or
any stage thereof, the arbitration shall proceed notwithstanding such refusal or failure’.
(37) It has been argued that, in this sense, commercial arbitration adopts the burden of
proof as recognized in many domestic legal systems. (38) Where one party has raised a
fact, and provided sufficient evidence to prove that fact prima facie, the burden of proof
shifts to the opposing side. If the fact remains uncontroverted by the opposing party, it is
accepted by the decision-maker as established, without need for further independent
corroboration. While this may be so in relation to a private commercial dispute, arbitral
practice suggests that tribunals play an enhanced inquisitorial role when faced with a

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 defaulting respondent state, irrespective of the applicable arbitration rules. For example,
the arbitrators in the Libyan oil cases of the 1970s were disturbed by Libya's absence from
the proceedings and undertook to fill in for the respondent state in critically reviewing the
claimant's case. Judge Lagergren, the sole arbitrator in the BP v. Libya (39) ad hoc
arbitration described his role in the following terms:
“The facts deemed relevant and taken as established by the Tribunal have been
gathered from evidence produced by the Claimant alone. With respect to
certain facts the Tribunal has sought and received from the Claimant the
submission of additional documentary evidence and explanations. The Tribunal
deeply regrets the absence of further elucidation on the part of the
Respondent.
With respect to the analysis of the facts and their legal implications the
Tribunal has had the benefit of argument presented by the Claimant alone.
However, the Tribunal has felt both entitled and compelled to undertake an
independent examination of the legal issues deemed relevant by it, and to
engage in considerable legal research going beyond the confines of the
materials relied upon by the Claimant. The conclusions in the Award therefore
are based on a broader consideration of the issues than permitted by format of
the Claimant's argument in support of its claims. Thus, the Tribunal to the
greatest extent possible has endeavoured to eliminate any adverse effects for
the Respondent of its decision not to appear as a party in the proceedings.” (40)
P 629
P 630
In the more recent case of Bogdanov v. Moldova, (41) where the respondent state also
failed to participate, the Stockholm Chamber of Commerce (SCC) tribunal made a similar
observation about the broad scope of enquiry granted to the tribunal in relation to
considering legal arguments that may not have been raised by the claimant:
“[T]he Arbitral tribunal is not limited to the arguments made by the parties, as
long as the Arbitral Tribunal limits its evaluation to the facts as presented by
the parties, it remains free, within the borders of the applicable law
(particularly as long as it remains within the frame of legal sources mentioned
in the proceeding), to give the legal qualifications and determine the legal
consequences that it deems appropriate, even if they are not pleaded by the
parties.” (42)
Indeed, it has been argued that the principle of iura novit curia (namely, that the tribunal
knows the law and that it must apply the law ex officio) should be applied systematically
in investment treaty arbitrations, precisely because of the participation of states and the
public interest at stake. (43) In circumstances where the sovereign powers of the state are
being scrutinized by an arbitral tribunal, it has been suggested that the tribunal should not
take the risk of relying on under-researched and incomplete legal arguments presented by
the parties.
If the public interest justification is accepted as a legitimate basis for unshackling the
tribunal from relying solely on legal arguments raised by the parties in investment
arbitration, then such practice should logically apply to all public-private arbitrations
where the public interest is at stake and the award has broader implications than the
mere parties to the dispute. This is especially so in the event of a defaulting respondent
state, where arbitral tribunals appear reluctant to accept the claimant's case at face value
without analysis of the substantive merit of the claimant's arguments in order to be
satisfied of the claimant's case on the facts and the law.
P 630
P 631

IV Repudiation of the Arbitration Agreement by a State based on its

Internal Law
It is not normally improper for a respondent to contest the jurisdiction of an arbitral
tribunal. Arbitration can only proceed with the consent of all parties, and it is not unusual
for claimants to overreach in launching a case. In this context, jurisdictional objections are
only natural. At the same time, such objections have become ubiquitous in arbitration
against states. This is especially so in the context of investor-state arbitration where it is
almost unheard of that a state would simply accept jurisdiction, such that states maintain,
often as a matter of course, the same jurisdictional objections notwithstanding their
repeated rejection in prior cases. (44) In the context of commercial arbitration, states
seeking to evade arbitration to which they have agreed frequently raise provisions of their
internal law that purport to prohibit the state from entering into an arbitration agreement
with a private party, notwithstanding the fact that such jurisdictional pleas have been
rejected consistently by arbitral tribunals. Indeed, a number of arbitral tribunals and
commentators have acknowledged the existence of a substantive rule of “the common law
of arbitration” to the effect that international arbitrators should reject a state's invoking its
own law to contest the validity of its consent to an arbitration agreement. (45)
Arbitral tribunals have explained the origins of this substantive rule by invoking arguments

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 of good faith or on the basis of international (or transnational) public policy or both. The
tribunal in ICC Case No. 1939 first elaborated the rule as follows:
“International public policy would be strongly opposed to the idea that a public
entity, when dealing with foreign parties, could openly, knowingly, and willingly,
enter into an arbitration agreement, on which its co-contractor would rely, only
to claim subsequently, whether during the arbitral proceedings or on
enforcement of the award, that its own undertaking was void.” (46)
A number of awards have considered the invocation by the Iranian state or state entities of
Art. 139 of the Iranian Constitution, which makes the submission to arbitration of disputes
concerning state property conditional upon the approval of the Council of Ministers and
notification to Parliament. Such jurisdictional pleas have been consistently rejected. In
P 631 Framatome v. Atomic Energy Organization of Iran, the arbitral tribunal explained the basis
P 632 for its decision as follows:
“It is superfluous to add that there is a general principle, which today is
universally recognized in relations between states as well as in international
relations between private entities (whether the principle be considered a rule
of international public policy, an international trade usage, or a principle
recognized by public international law, international arbitration law or lex
mercatoria), whereby the Iranian state would in any event – even if it had
intended to do so, which is not the case – be prohibited from reneging on an
arbitration agreement entered into by itself or, previously, by a public entity
such as AEOI.” (47)
Finally, while the tribunal in Benteler v. Belgium based its decision that the arbitration
agreement in question was valid upon an interpretation of the 1961 European Convention
on International Commercial Arbitration, it found support for its decision in the existence
of a substantive rule of the “common law of arbitration” by reference to both international
public policy and the doctrine of good faith:
“A third formula, very widely used by international commercial arbitrators,
consists in considering the prohibition on arbitration as being contrary to
international public order….
Without going that far, one can also conceive that the international arbitrator
should dismiss the argument based on this prohibition when the circumstances
of the case are such that the state would act contra factum proprium in raising
it.” (48)
It has been suggested that the application of this substantive rule should not be absolute
in all circumstances, and that arbitral tribunals should be less ready to reject
jurisdictional pleas invoking the state's domestic law without a closer examination of the
specific circumstances at play. (49) It is argued, for example, that the principle of good
faith would require the state to disclose to its private contracting party at the time of
negotiating their contract that a domestic law prevented the state from submitting
disputes to arbitration. If the state failed to do so, only a private party who was unaware
that the state with which it was contracting was acting in bad faith would be entitled to
invoke good faith to resist the jurisdictional challenge raised by the state. Conversely, if
the private contractor knew that the state was acting in bad faith and, rather than
confronting the state during the contract negotiation stage, accepted the risk of executing
a contractual arbitration agreement, then the contractor has waived its right to rely on
arguments of good faith. (50) Similarly, it is suggested that there should not be a blanket
P 632 application of international public policy to dismiss such jurisdictional challenges by
P 633 states in circumstances where the private contractor knew or should have known –
through its contractual due diligence, which foreign investors now routinely conduct with
the assistance of knowledgeable legal advisers – that the state was not permitted to
submit disputes to arbitration. (51)
While it is suggested that basic justice militates against an unconditional protection of
private contractors and application of a regime of unqualified liability in the event that
the state seeks to elude the arbitration agreement, there is scant evidence that legislators
and/or arbitrators are willing to undertake such a nuanced approach. Thus, not only have a
number of national arbitration statutes adopted an unqualified approach to liability when
arbitrators are confronted with a jurisdictional plea raised by the state invoking its
internal law, (52) but the raising of such pleas and their endorsement by the domestic
courts of the state have been held by arbitral tribunals to constitute a violation of the fair
and equitable treatment obligation of states owed to foreign investors pursuant to
investment protection treaties. (53)

V A State's Interference with the Arbitration Process through the

Exercise of its Police Powers
The final part of this paper considers three instances where the state's exercise of its
police powers have undermined, or at least threatened to undermine, whether
deliberately or not, the integrity of the arbitration proceedings and prejudiced the private

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 party's claim against the state. Faced with the state's coercive reach against the claimant,
its witnesses and counsel (and even the arbitrators themselves), arbitrators have adopted
a multitude of ways to maintain a level playing field in the arbitration and to safeguard
the equality of arms between the public and private litigants, while recognizing a state's
legitimate exercise of its police powers.
In Libananco v. Turkey, (54) an ICSID tribunal was confronted with an application, which the
tribunal described as akin to a request for summary judgment, in the face of evidence that
the Turkish public prosecutor had intercepted the email communications of the claimant
and its arbitration counsel. It was alleged that Turkey had obtained access to nearly 2,000
P 633 privileged and/or confidential communications between the claimant's counsel and their
P 634 clients, contacts and potential witnesses in Turkey. The claimant argued that the
respondent's “conduct towards the claimant, counsel and its witnesses had made it
impossible – indeed unsafe – to continue the prosecution of this case in its present form”.
(55) While the claimant had initially requested the tribunal to exclude the respondent from
the rest of the proceedings, its position was later refined, with the claimant instead
maintaining that the tribunal should determine the contested issues of jurisdiction and the
merits of the claimant's claim on the basis of the evidence before it without receiving any
further evidence from either party. (56)
Turkey acknowledged that the interception of the claimant's communications by the
Turkish police had taken place as part of an investigation ordered by the public
prosecutor, but the respondent argued that the investigation was not directed at the
claimant's arbitration claim or its counsel, but rather was concerned with an alleged bank
fraud. The respondent argued that it possessed “an undeniable entitlement to conduct
investigation into crime, particularly serious crime, within its jurisdiction”, (57) , which
could not be halted merely because an ICSID claim was pending. Moreover, while
admitting that the claimant's counsel had been placed “on a comprehensive list of those
[email addresses] thought to have been used for communication with a particular suspect”,
Turkey informed the tribunal that this did not reflect any desire to review attorney- client
communications, much less any plan to pass those communications to Turkey's arbitration
counsel. In reinforcement of this last point, Turkey's counsel gave personal assurances that
they had neither been offered nor seen such materials. In sum, Turkey argued that “no
actual prejudice” was caused to the claimant, and the matter should rest there. (58)
The tribunal made clear that it took this situation with utmost seriousness, finding that it
struck at principles which lie at the heart of the ICSID arbitral process, including the
principles of “basic procedural fairness, respect for confidentiality and legal privilege (and
indeed immunities accorded to parties, their counsel, and witnesses under Articles 21 and
22 of the ICSID Convention); the right of parties both to seek advice and to advance their
respective cases freely and without interference”. (59) The tribunal described its duty to
ensure a level playing field as follows:
“Nor does the Tribunal doubt for a moment that, like any other international
tribunal, it must be regarded as endowed with inherent powers required to
preserve the integrity of its own process – even if the remedies open to it are
necessarily different from those that might be available to a domestic court of
law in an ICSID Member State. The Tribunal would express the principle as
being that parties have an obligation to arbitrate fairly and in good faith and
that an arbitral tribunal has the inherent jurisdiction to ensure that this
obligation is complied with; this principle applies in all arbitration, including
investment arbitration and to all parties, including States (even in the exercise
of their sovereign powers).” (60)
P 634
P 635
The tribunal, nevertheless, declined to grant the relief sought by the claimant and
accepted the state's assurances that no privileged information had been misused. It then
set out a series of orders to ensure that this remained the case. In so doing, while the
tribunal accepted that a “sovereign state does indeed have a right and duty to pursue the
commission of serious crime, and that that right and duty cannot be affected by the
existence of an ICSID arbitration against it”, the tribunal rejected the state's comment that
“the prosecutors' understanding, interest and patience for this offshore international
arbitration … are understandably limited”. (61) Indeed, the tribunal warned Turkey that,
going forward, its duty to investigate crime could not be exercised without regard to other
rights and duties and a criminal investigation could not baulk an ICSID arbitration. In
issuing orders in relation to the future conduct of the arbitration, the tribunal forewarned
the respondent state that if it turned out that the respondent has used, in any way,
privileged or confidential information obtained during the surveillance, “severe prejudice
may apply” and the tribunal may consider other remedies “apart from the exclusion of
improperly obtained evidence or information”. (62)
Faced with challenging circumstances, the Libananco tribunal adopted a pragmatic
approach in seeking to balance, on the one hand, the state's prerogative to exercise its
police powers in a legitimate manner to combat crime notwithstanding the state's
engagement in an international arbitration, with, on the other hand, the concern to ensure
a level playing field is maintained between the litigants. In so doing, the tribunal affirmed
its inherent powers to take the steps necessary to ensure the integrity of the proceedings –

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 without spelling out what this may mean in practice – and set out a standard of conduct
against which the parties would be assessed based on their duty to litigate fairly and in
good faith. In this regard, and without expressly acknowledging it, the Libananco tribunal
followed the reasoning previously adopted by the NAFTA tribunal in Methanex v. US, (63)
where the claimant was alleged to have used private detectives to search through the
garbage of a third party in an effort to find documents in support of its claim against the
United States. The tribunal found that the company's evidence-gathering methods had
involved trespassing and other illegal conduct and, thus, excluded the documents from the
arbitration. In the process, the tribunal made the following observations about the
standards of conducted expected of the parties:
“The Disputing Parties each owed in this arbitration a general duty to the other
and to the Tribunal to conduct themselves in good faith during these arbitration
proceedings and to respect the equality of arms between them, the principles
of ‘equal treatment’ and procedural fairness also required by Article 15(1) of the
UNCITRAL Rules. As a general principle, therefore, just as it would be wrong for
the USA to ex hypothesi misuse its intelligence assets to spy on [the claimant]
(and its witnesses) and to introduce into evidence the resulting materials into
this arbitration, so too would it be wrong for [the claimant] to introduce
evidential materials obtained by [the claimant] unlawfully.” (64)
P 635
P 636
Here again, the tribunal affirmed the parties' duty to respect the equality of arms and
expressly curtailed the prospect of a state's resort to its police powers in a manner that
perverted the principle of equal treatment and the obligation to litigate fairly and in good
faith.
A more recent example of a state seeking to rely on documents procured through the
exercise of its coercive powers arose in the contractual arbitration brought by Pearl
Petroleum against the Kurdistan Regional Government of Iraq (the KRG). (65) In this case,
the vehicle of one of the claimants' officers, also a witness in the arbitration, was
intercepted at gunpoint while travelling to the airport in Erbil, the capital of the Kurdistan
Region of Iraq. After having established his identity, the armed assailants confiscated the
portable computer and mobile telephone of the claimants' witness and fled, without
taking any other valuable items. The stolen computer contained an extensive record of
confidential information relating to the dispute, including privileged communications with
the claimants' arbitration counsel. Shortly thereafter, documents from the stolen computer
began to be submitted in the arbitration by the respondent in support of its case,
notwithstanding warnings from the claimants that using stolen documents would be a
serious breach of professional duty by the KRG's counsel. In response, the respondent's
counsel explained that the KRG was carrying out a criminal investigation of the claimants
and their employees involving matters of national security and that “the KRG had obtained
documents within the Kurdistan Region that are related to the Claimants' operations in the
Kurdistan Region, pursuant to this investigation and in the exercise of the Kurdistan
Region's security and policy powers”. The respondent's counsel further explained that the
KRG had provided counsel with documents in its possession and had confirmed that they
were acquired lawfully. Further, that a third-party screening procedure was put in place to
ensure that the KRG's counsel did not receive legally privileged documents or information.
The practical effect of this screening procedure was the drip-feed submission by the KRG in
the arbitration of the claimants' internal documents in redacted form in support of the
KRG's case. Leaving aside whether the documents had been obtained by the KRG through a
lawful investigation or legal process (a matter which was contested), the conduct of the
KRG and its counsel undermined the integrity of the arbitration and raised two questions of
broader application. First, whether material obtained by the state in the context of a
criminal investigation may be legitimately deployed in an international arbitration
involving an unrelated commercial dispute; and, secondly, what are the obligations of the
state's arbitration counsel to investigate the provenance of such material before they are
deployed in the arbitration beyond accepting at face value the assurances of their client
that they were lawfully obtained. While each case must be considered on its facts, the
standards enunciated by the Libananco and Methanex tribunals as regards assessing the
conduct of the parties against their duties of arbitrating fairly and in good faith establish a
sound framework to consider the first question: a state may not misuse its police powers to
obtain materials and to introduce the resulting materials in the arbitration. Exclusion of
such material from the evidentiary record is necessary to preserve the equality of arms
P 636
P 637
between the public and private parties. The position is less clear-cut with respect to
the second question, because of the relative paucity of sanctions that an international
arbitral tribunal may bring to bear against counsel who have fallen short in their conduct.
Notwithstanding recent efforts to empower arbitral tribunals to address matters of
deficient conduct by counsel, (66) the knowing or uncritical use of ill-gotten materials in an
arbitration may well lead to complaints being raised before the relevant professional bar
associations, which are, arguably, more appropriate forums for assessing whether counsel's
conduct falls short of the requisite ethical standards. (67)
Finally, while arbitral tribunals possess a variety of tools at their disposal to restrain the
misuse of a state party's police powers at the expense of the opposing party in the

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 arbitration, the tribunal's task becomes more complicated when the arbitrators
themselves are the target of the state's coercive measures. The most brazen example of a
state party's interference with the integrity of an arbitral tribunal arose in the Himpurna
case. (68) In advance of a final hearing that was due to be held at The Hague (in defiance of
injunctions issued by the Indonesian courts enjoining the arbitration subject to a penalty of
US$ 1 million per day), the arbitrator appointed by the Indonesian state (Professor H.
Priyatna Abdurrasyid) was intercepted upon his arrival at Schiphol airport in the
Netherlands, prevented from participating at the arbitration hearing, and told that he
would be accompanied back to Jakarta. (69) While Indonesia succeeded in ensuring that
the evidentiary hearing would not proceed in the absence of Professor Priyatna, the
arbitral tribunal nonetheless continued the case in truncated form and proceeded to
complete its mandate and issue a final award. (70) The tribunal found support in
international law for its decision to continue as a truncated tribunal:
“Although the Republic of Indonesia's readiness to sabotage these proceedings
gave rise to an extraordinary event, the Arbitral Tribunal has not found it
necessary to innovate in order to ensure the fulfilment of its mandate under the
Terms of Appointment. The weight of well-established international authority
makes clear that an arbitral tribunal has not only the right, but the obligation,
to proceed when, without legal excuse, one of its members fails to act,
withdraws or – although not the case here – even purports to resign.
(….)
P 637
P 638
The Republic of Indonesia should not benefit from Professor Priyatna's absence.
Finding that there is no valid excuse for it, the Arbitral Tribunal proceeds to
fulfil its mandate and render this Final Award.” (71)
Preventing an arbitrator from participating in the proceedings is certainly the most
remarkable measure to which a state can resort – especially when it involves coerced
repatriation. While such measures are certainly shocking and liable to be extremely
disruptive, as the Himpurna case demonstrates, international arbitral tribunals have the
necessary powers at their disposal to complete their mandate while maintaining the
equality of arms between the parties and protecting the legitimacy of the arbitral process.
P 638

References
*) Reza Mohtashami QC: Partner at Three Crowns LLP. The views expressed herein are
solely those of the author. The author acknowledges the invaluable research assistance
of Nicolas Zisis in preparing this paper.
1) Stavros BREKOULAKIS and Margaret DEVANEY, “Public-Private Arbitration and the
Public Interest Under English Law”, 80 M.L.R. (2017) p. 22.
2) Although much of this foreign investment is state-led and invested by state-owned
enterprises and sovereign wealth funds from emerging market economies such as
China, Qatar and Saudi Arabia: see Reza MOHTASHAMI and Farouk EL-HOSSENY, “State-
Owned Enterprises as Claimants before ICSID: Is the Broches Test on the Ebb?”, 3 BCDR
Int. Arb. Rev. (2016) p. 371 at p. 374.
3) Guido TAWIL, “On the Internationalization of Administrative Contracts, Arbitration and
the Calvo Doctrine” in Arbitration Advocacy in Changing Times, ICCA Congress Series no.
15 (Kluwer 2010) p. 325.
4) ICC press release dated 8 March 2018, available at <https://iccwbo.org/media-
wall/news-speeches/icc-announces-2017-figures-confirming-global-reach-leadi...>
(last accessed 30 May 2018).
5) According to UNCTAD, as of August 2017, the total number of reported treaty-based
arbitrations stood at 817:
<http://investmentpolicyhub.unctad.org/Upload/Documents/diaepcb2017d7_en.pdf>
(last accessed 30 May 2018).
6) PCA press release dated 27 March 2018, available at <https://pca-
cpa.org/en/news/permanent-court-of-arbitration-publishes-2017-annual-report/>
(last accessed 30 May 2018).
7) Stephan SCHILL, “Crafting the International Economic Order: The Public Function of
Investment Treaty Arbitration and Its Significance for the Role of the Arbitrator”, 23
Leiden J. Int. Law (2010) p. 401 at p. 403.
8) To be sure, complications may arise in the context of attempts to extend the
arbitration agreement to non-signatories, or where there is a dispute as to whether a
state or state-entity has acceded to an arbitration agreement: see, for example, the
well-known Pyramids case (ICC Case No. 3493), ICCA Yearbook Commercial Arbitration IX
(1984) (henceforth Yearbook) p. 111.

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 9) For a discussion of the international law rules on attribution in the context of states
experiencing civil conflict, see Meriam AL-RASHID, Ulyana BARDYN and Levon
GOLENDUKHIN, “Investment Claims Amid Civil Unrest: Questions of Attribution and
Responsibility”, 3 BCDR Int. Arb. Rev. (2016) p. 181; and Danielle MORRIS,
“Revolutionary Movements and De Facto Governments: Implications of the ‘Arab
Spring’ for International Investors”, 28 Arb. Int. (2012) p. 721.
10) See, for example, the number of claims commenced against the Libyan Arab Republic
since 2011 following the overthrow of the Gaddafi regime notwithstanding the
continued civil conflict: <www.iareporter.com/articles/libya-round-up-state-reports-
success-in-icc-arbitration-with-scandal-pla...> (last accessed 30 May 2018).
11) See, for example, Gamesa Eolica S.L. Unipersonal v. The Syrian Arab Republic (PCA Case
No. 2012-11), Award (5 February 2014), where the case was commenced after the start of
the civil war in Syria and the proceedings continued without the substantive
participation of the respondent.
12) D. MORRIS, “Revolutionary Movements and De Facto Governments”, fn. 9 above, p. 751.
13) James CRAWFORD, The International Law Commission's Draft Articles on State
Responsibility, Introduction, Text and Commentaries (Cambridge 2002) p. 117, Art. 10,
cmt. 5.
14) Ibid., p. 115, Art. 9, cmt. 4 (“A general de facto government … is itself an apparatus of the
state, replacing that which existed previously. The conduct of the organs of such a
government is covered by article 4 …”).
15) Edwin BORCHARD, “International Pecuniary Claims Against Mexico”, 26 Yale L.J. (1917) p.
339 at p. 340.
16) J. CRAWFORD, Draft Articles on State Responsibility, fn. 13 above, p. 116, Art. 10(1) (“The
conduct of an insurrectional movement which becomes the new government of a State
shall be considered an act of that State under international law.”)
17) Although in relation to unsuccessful revolutionary movements, see the ILC Articles, Art.
9, which provides that the state is responsible for the conduct of a group of persons
that in fact exercise “elements of governmental authority in the absence or default of
the official authorities and in circumstances such as to call for the exercise of those
elements of authority”.
18) M. AL-RASHID, U. BARDYN and L. GOLENDUKHIN, “Investment Claims Amid Civil Unrest”,
fn. 9 above, p. 187.
19) D. MORRIS, “Revolutionary Movements and De Facto Governments”, fn. 9 above, p. 729.
20) E. BORCHARD, “International Pecuniary Claims Against Mexico”, fn. 15 above, p. 344.
21) Arbitral tribunals have distinguished between acts that are impersonal (i.e., that have
the characteristics of ordinary governmental functions, for example, the payment of
taxes and licence fees) and acts of a personal character, which provide support to a
particular individual or group. An example of the latter was considered by the Umpire
in the Tinoco Claims, which arose following the removal of the Tinoco regime which had
governed Costa Rica. In that case, the Royal Bank of Canada asserted a claim against
the government of Costa Rica to recover a loan to its predecessor, the Tinoco
government. The Umpire considered the substance of the transaction and rejected the
claim after having concluded that the Bank had known that the funds at issue were to
be used for Tinoco's personal affairs (Aguilar-Amory and Royal Bank of Canada claims
(Great Britainv. Costa Rica), 1 R.I.A.A. (1923) p. 369).
22) Guastini Case (Italian-Venezuelan Commission), 10 R.I.A.A. (1903) p. 561 at p. 580 (“Money
paid, therefore to the de facto authorities in the shape of public dues must be
considered lawfully paid, and receipts given by them regarded as sufficient to
discharge the obligations to which they relate. Any other view would compel the
taxpayer to determine at his own peril the validity of the acts of those exercising
public functions in a regular manner.”) See also the Hopkins Case (U.S. v. Mexico), 4
R.I.A.A. (1926) p. 41, where the Umpire held that postal money orders issued by the
Huerta administration in Mexico to the US claimant had to be recognized by Mexico's
succeeding government.
23) Tinoco Claims (Great Britain v. Costa Rica), 1 R.I.A.A. (1923) p. 371 at p. 383.
24) Ibid., p. 381 (“Such non recognition for any reason, however, cannot outweigh the
evidence disclosed by this record before me as to the de facto character of Tinoco's
government, according to the standard set by international law.”).
25) Cyprus v. Turkey (Application No. 8007/77 of 1978), Decision of 10 July 1978.
26) Ibid., at para. 8.
27) Beijing Urban Construction Group Co Ltd v. Republic of Yemen (ICSID Case No.
ARB/14/30).
28) In the absence of international recognition, the principal argument raised by the
Sana'a Government concerned its control of Sana'a, Yemen's capital city, and the
machinery of central government located therein, and the lack of effectiveness of the
Hadi Government, which was described as a government in exile based in
neighbouring Saudi Arabia.
29) Beijing Urban Construction Group Co Ltd v. Republic of Yemen (ICSID Case No.
ARB/14/30), Procedural Order No. 2 (8 November 2016) paras. 5 and 6.
30) Yemen Company for Mobile Telephony-Sabafon v. The Government of the Republic of
Yemen (PCA Case No. 2010-03).
31) Yemen Company for Mobile Telephony-Sabafon v. The Government of the Republic of
Yemen (PCA Case No. 2010-03), Procedural Order No. 11 (2 May 2018) para. 80.
32) Ibid., paras. 88 and 89.

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 33) Republic of Somalia v. Woodhouse Drake & Carey (Suisse) S.A. and Others, [1993] 1 Q.B.
54, at p. 68. See also Sierra Leone Telecommunications Co. Ltd. v. Barclays Bank plc.,
[1998] CLC 501.
34) Noah RUBINS, “Particularities when Dealing with State Entities” in Günther HORVATH
and Stephan WILSKE, eds., Guerrilla Tactics in International Arbitration (Kluwer 2013) p.
69.
35) Liberian Eastern Timber Corporation v. Republic of Liberia (ICSID Case No. ARB/83/2),
Award (31 March 1986).
36) Ibid., paras. 44-47.
37) Although Art. 22.1(iii) of the LCIA Arbitration Rules does empower the arbitral tribunal
to “conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or
expedient, including whether and to what extent the Arbitral Tribunal should itself
take the initiative in identifying relevant issues and ascertaining relevant facts and the
laws…”.
38) N. RUBINS, “Guerrilla Tactics”, fn. 34 above, p. 74.
39) BP Exploration Co (Libya) Ltd v. Government of the Libyan Arab Republic, Award (10
October 1973), 53 I.L.R. (1979) p. 297.
40) Ibid., paras. 21 and 22.
41) Iurii Bogdanov and Others v. Republic of Moldova (SCC Case No. 93/2004), Award (22
September 2005).
42) Ibid., para. 4.2.2.2. The cited passage sits uneasily, however, with the award's
observations about the tribunal's independent analysis, at para. 3.2.2: “The Arbitral
Tribunal did not engage in fact finding or legal investigations on behalf of the
Respondent to compensate the latter's lack of assistance: it simply evaluated the facts
and legal arguments as presented by the Claimant in order to satisfy itself of their
soundness.”
43) See, for example, S. SCHILL, “Crafting the International Economic Order”, fn. 7 above, p.
422. (“Decision-makers exercising public functions, in particular when reviewing the
legality of host state conduct, need to ensure, in view of the systemic impact of their
decision, the correct and consistent application of the governing international law.…
Consequently, arbitrators in investment treaty cases cannot rely solely on the
presentation of the parties with respect to issues of the applicable international law,
as is customary in commercial arbitration, and decide on that basis which arguments
they consider more convincing. Instead, arbitrators in investment treaty cases, in
applying and interpreting international investment treaties, should engage in
independent legal research into the issues involved, comprising the recognized
sources of international law, including customary law, treaty law, general principles,
decisions by national and international courts and tribunals, and the writings of the
most qualified publicists of international law.”)
44) The motivation for doing so is presumably to increase the length and complexity of the
proceedings.
45) Among the many commentaries on this issue, see Jan PAULSSON, “May a State Invoke
Its Internal Law to Repudiate Consent to International Commercial Arbitration?
Reflections on the Benteler v.Belgium Preliminary Award”, 2 Arb. Int. (1986) p. 90; and
Pierre LALIVE, “Transnational (or Truly International) Public Policy and International
Arbitration”, in Comparative Arbitration Practice and Public Policy, ICCA Congress Series
no. 3 (1986) p. 258.
46) Italian company v. African state-owned entity (ICC Case No. 1939), Award, cited by Yves
DERAINS, “Le statut des usages du commerce international devant les jurisdictions
arbitrales”, 1973 Rev. Arb. p. 122 at p. 145.
47) Framatome S.A. v. Atomic Energy Organization of Iran (ICC Case No. 3896), Award (30
April 1982), 111 J.D.I. (1984) p. 58. See also Elf Acquitaine Iran v. NIOC, Award (14 January
1982) Yearbook XI (1986) p. 97.
48) Benteler v. Belgium, Award (18 November 1993), 1989 Rev. Arb. p. 39.
49) Eduardo SILVA ROMERO, “Some Remarks on the Contribution of ICC Arbitrators to the
Development of International Commercial Arbitration Involving States and State
Entities” in Andrea CARLEVARIS, ed., International Arbitration Under Review, Essays in
Honour of John Beechey (ICC 2015) p. 401.
50) Ibid., p. 405.
51) Ibid., p. 407.
52) Art. 177(2) of the Swiss Private International Law Act is a good example of such a
statute: “A state, or an enterprise held by, or an organization controlled by a state,
which is party to an arbitration agreement, cannot invoke its own law in order to
contest its capacity to arbitrate or the arbitrability of a dispute covered by the
arbitration agreement.”
53) See, for example, France Telecom Mobile International, S.A. and FTML S.A.L. v. the
Lebanese Republic, Award (31 January 2005) paras. 71-78. In this case, Lebanon had
argued that an ICC arbitration agreement contained in the contract between the
Lebanese government and FTML for the construction and operation of a mobile
telephony network was null and void as a matter of Lebanese law, as was subsequently
affirmed by the Lebanese Conseil d'Etat. The arbitral tribunal subsequently held that
the state's revocation of the ICC arbitration agreement constituted a breach of
Lebanon's obligation under the France-Lebanon bilateral investment treaty to accord
French investors fair and equitable treatment.

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 54) Libananco Holdings Co. v. Turkey (ICSID Case No. ARB/06/8), Decision on Preliminary
Issues (23 June 2008).
55) Ibid., para. 43.
56) Ibid., para. 73.
57) Ibid., para. 75.
58) Ibid., para. 76.
59) Ibid., para. 78.
60) Ibid., para. 78.
61) Ibid., para. 79
62) Ibid., para. 80.
63) Methanex Corporation v. United States, Final Award on Jurisdiction and Merits (3 August
2005).
64) Ibid., part II, para. 54.
65) Pearl Petroleum Company Limited and others v. The Regional Government of the
Kurdistan (LCIA Case No. 132527).
66) See, for example, Art. 18.6 of the 2014 LCIA Arbitration Rules that empowers the
tribunal to sanction the parties' legal representatives if their conduct falls short of the
standards set forth in the General Guidelines for the Parties' Legal Representatives.
Also, the remedies for misconduct available to arbitral tribunals under Arts. 26 and 27
of the IBA Guidelines on Party Representation in International Arbitration (2013),
whenever the Guidelines have been adopted by the parties.
67) See, Bernard HANOTIAU, “Misdeeds, Wrongful Conduct and Illegality in Arbitral
Proceedings” in International Commercial Arbitration: Important Contemporary
Questions, ICCA Congress Series no. 11 (2002) p. 261 at p. 287.
68) Himpurna California Energy Ltd. v. Republic of Indonesia, Interim Award (26 September
1999), Yearbook XXV (2000) p. 109.
69) Ibid., paras. 95 to 99, which include three eyewitness accounts of Professor Priyatna at
Schiphol airport being escorted back to Jakarta by Indonesian agents.
70) Himpurna California Energy Ltd. v. Republic of Indonesia, Final Award (16 October 1999),
Yearbook XXV (2000) p. 186.
71) Ibid., paras. 43 and 68. The tribunal relied upon the extensive writings of Judge
Stephen Schwebel on the topic of truncated tribunals and drew upon past examples
from international arbitral practice, including the practice of the Iran-U.S. Claims
Tribunal, in support of its decision to continue in truncated form:
“Withdrawal of an arbitrator from an international arbitral tribunal which is
not authorised or approved by the tribunal is a wrong under customary
international law and the general principles of law recognised and applied
in the practice of international arbitration. It generally will constitute a
violation of the treaty or contract constituting the tribunal, if not in terms
then because the intention of the parties normally cannot be deemed to
have authorised such withdrawal.”

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 14
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 KluwerArbitration

Document information
Public-Private Arbitrations: The Substantive Issues of
Publication Arbitrability, Mandatory Rules and Public Policy –The Latin
Evolution and Adaptation: American Experience
The Future of International Gilberto Giusti
Arbitration
(*)

Bibliographic reference I Historical Background – Latin American Nationalism in the Twentieth

Gilberto Giusti, 'Public- Century
Private Arbitrations: The The centrality of the state both in role and in concept was the prevailing component of
Substantive Issues of politics in most Latin American countries until the mid-1980s. In the political arena, state
Arbitrability, Mandatory paternalism and its consequent entrenched government bureaucracy have tremendously
Rules and Public Policy –The encumbered all aspects of private enterprise in Latin America over most part of the
Latin American Experience', twentieth century. In the legal scenario, legislation was usually embedded with
in Jean Engelmayer Kalicki nationalism and protectionism.
and Mohamed Abdel Raouf
(eds), Evolution and As a result, the economic relationship between the state and the private sector practically
Adaptation: The Future of boiled down to instruments in which the state played a supreme contract role with most of
International Arbitration, its rights labelled inalienable or not at the parties' free disposition (direitos indisponíveis)
ICCA Congress Series, Volume and therefore not subject to any dispute resolution method other than the respective
20 (© Kluwer Law national court system.
International; International With respect to state investment disputes, investors were defenceless against the
Council for Commercial expropriation of their investments by the governments of host countries, as there were no
Arbitration/Kluwer Law effective channels or mechanisms available to recover what they had lost. In some cases, if
International 2019) pp. 639 - an investor had political influence, it could exert pressure on the expropriating state to
650 recover such investment, or at least some of it to mitigate losses. In other events, the
investor resorted to its own state for diplomatic negotiations with the expropriating state
and potential recovery of investments. Nonetheless, this solution could eventually lead to
diplomatic conflicts, and the investor not always obtaining the protection expected from
its state against the expropriating act of another state.
P 639 The alternative was to look to the Judiciary for investment protection. But this course of
P 640 action faced even higher obstacles. When resorting to the courts of any state involved,
the neutrality of jurisdiction would surely come to the fore, the more so if the courts sitting
in the place of investment were chosen. In either case, the courts would be subject to
political pressure, which would escalate in a direct relation to the values at issue.
On the other hand, if the courts of a (neutral) third state were chosen, an unbiased decision
could indeed be obtained, but it would hardly be enforced by the defeated party of its
own free will. In other words, this decision would figure as a moral victory only; its
enforcement would once again be subject to the goodwill of the courts in the country of the
defeated party, where the concepts of public interest and national sovereignty could be
broadly interpreted by local courts.
As to resolution of commercial disputes arising out of a contractual relationship between
public and private parties, uncertainty also prevailed. Irrespective of the nature of the
contract at hand, the long-lasting concept of public interest would normally be invoked to
set aside any dispute resolution method other than the jurisdiction of the courts of the
domicile of the relevant public contracting party. In Brazil, for example, notwithstanding
the enactment of the Arbitration Act in 1996, it took almost ten years for case law to
consolidate the understanding that the state and its related entities can (in some cases
they should, as seen below) indeed submit their contractual disputes with private
individuals and corporations to arbitration.
These were all reminiscences of the Calvo Doctrine, a body of international rules that
rejected international investment arbitration, as well as of the deeply rooted concept of
national sovereignty and the supremacy of the state.

II Significant Changes Starting in the Early 1990s

As global capitalism developed, most Latin American countries realized that they would
not properly benefit from the intensification of the international flow of capital without
opening up their economies and modernizing their legal systems. Consequently, changes in
the state, the society and the economy have occurred over the past three decades in the
region in order to develop a set of new perspectives on Latin American politics and
economics.
This important move to internationalism included the promotion of policies to encourage
the entry and participation of foreign investment in the relevant host sates, the adoption

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 of a set of rules to foster public-private contracts and related dispute resolution methods.

1 Investment-Related Disputes – The Washington Convention

In the late 1980s and early 1990s, many Latin American countries finally ratified the
Convention on the Settlement of Investment Disputes between States and Nationals of
P 640 Other States, also known as “the Washington Convention”, as proposed by the World Bank
P 641 in March 1965 and effective as from 14 October 1966:
State Signature Deposit of Entry into Force
Ratification
Argentina 21 May 1991 19 Oct 1994 18 Nov 1994
Chile 25 Jan 1991 24 Sep 1991 24 Oct 1991
Costa Rica 29 Sep 1981 27 Apr 1993 May 27, 1993
Dominican Republic 20 Mar 2000
El Salvador 09 Jun 1982 06 May 1984 05 Apr 1984
Guatemala 09 Nov 1995 Jan 21, 2003 20 Feb 2003
Guyana 03 Jul 1969 11 Jul 1969 10 Aug 1969
Haiti 30 Jan 1985 27 Oct 2009 26 Nov 2009
Honduras 28 May 1986 14 Feb 1989 16 Mar 1989
Mexico 11 Jan 2018
Nicaragua 04 Feb 1994 20 Mar 1995 19 Apr 1995
Panama 22 Nov 1995 Apr 08, 1996 08 May 1996
Paraguay 27 Jul 1981 07 Jan 1983 06 Feb 1983
Peru 04 Sep 1991 09 Aug 1993 08 Sep 1993
The adhesion of most Latin American countries to the Washington Convention and the
respective World Bank's International Centre for Settlement of Investment Disputes (ICSID)
three decades ago was enthusiastically celebrated in the international economic and legal
communities. In practice, however, it ended up showing that such massive adhesion was a
result of concerns by some Latin American states that hostility toward ICSID could hamper
access to World Bank credit, rather than a genuine will to adopt and accept that dispute
resolution system.
This may explain why Brazil did not follow this trend of adhesion to the ICSID and remains
as the only major economy in Latin America that has never signed the Washington
Convention. (1)
The Argentine Crisis of 2001 following the end of the peso's fixed exchange rate to the US
dollar led to a large number of claims by international investors before the ICSID. Some
controversial decisions by arbitration panels and the constant and sometimes virulent
challenges to the course of the respective proceedings raised by Argentine authorities
reignited for some time the protectionist wave in Latin America based on the traditional
doctrine of national sovereignty and public interest.
The first Latin American country to denounce the Washington Convention was Bolivia in
November 2007, followed by Ecuador in 2009 and Venezuela in 2013. Since then, there have
been rumours that Argentina would also withdraw from the Convention, which has never
materialized. Conversely, Mexico has very recently (January 2018) subscribed to the ICSID
Convention and initiated the process for deposit of the respective instrument of
ratification.
P 641
P 642
Moreover, the apparent displeasure with ICSID in some Latin American countries has not
significantly affected the number of investment disputes involving at least South American
countries, as shown below: (2)

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 P 642
P 643

As can be seen, although the number of ICSID ongoing cases involving a South American
country has decreased a little from 2009 to 2017 under a worldwide percentage
perspective (second chart), the actual number of newly registered cases has indeed
increased from four in 2009 to eleven in 2017 (first chart).

2 Public-Private Arbitration
While the discussion about adhesion to the Washington Convention was going on, and
irrespective of its outcome, most Latin American countries realized that fostering public-
private contractual instruments was also important (and actually indispensable in those
countries that did not adhere to ICSID, such as Brazil) as a means of transforming the state
in such a manner that it would be capable of adjusting to the new demands of the
contemporary world. This proved particularly true in view of the privatization wave that
spread over Latin America in the early 1990s.
Privatization occurred in different levels and even for different priorities in Latin America,
depending on the relevant political and ideological streams prevailing at the time. Fiscal
benefits have been a driving force, for instance, in Argentina when privatization was first
launched. In Central America, the purpose of “social investment” has been emphasized to
P 643 justify privatization. Mexico has valued privatization as part of the government's drive
P 644 toward modernization and economic structural reform. In Brazil, political expediency
and the need to reduce the deficit played important roles in the government's
privatization programme.
In common, all countries realized that the entrenched culture of statism – which was
aggravated over the decades through large-scale nationalizations and the creation of
parastatal enterprises impregnated with inefficient bureaucracies – was leading to the
degeneration of the state apparatus itself. The consequences were (a) domestically, the
rapid aggravation of the social and economic inequity between the rich and the poor; and
(b) internationally, the risk of Latin America staying behind in the global distribution of
wealth.
To correct (3) this course of events and related consequences, the regulation on public
contracts as well as the concept of public-private partnership (PPP) were both reviewed
and/or implemented in many Latin American countries since 1990 by means of
modernization of local legislations.

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 At this point, it is important to emphasize that most Latin American countries are civil law
jurisdictions in which a distinction may exist between public contracts such as concessions
(where the private party provides a service directly to the public and takes end-user risk)
and public-private partnerships (where the private party delivers a service to a public
party against a fee).
For the purpose of this paper, whose main objective is to address current issues related to
public-private arbitration, reference will be made – as applicable – to public contracts
and/or to PPPs to define all types of instruments to which, as contract parties, on one side,
government entities, autarchies, public foundations, state-owned companies and/or
mixed-capital corporations stand, and, on the other side, individuals and/or corporations
outside of the public sector stand.
The legal framework for public contracts and PPPs has steadily developed In Latin America
over the past thirty years. Chile and Colombia have more than twenty-five years of
experience and frameworks are extremely well developed. In Brazil, for example, the
following legislation came into effect within this period: Public Procurement and Contract
Law (1993), Concessions of Public Services Law (1995), Public-Private Partnerships Law
(2004), among others. More recently, Argentina, Costa Rica and Nicaragua have also
developed new legal frameworks for PPPs.
At the same time, many legal systems in Latin America have welcomed more efficient
means of solving disputes, either by revising their judicial systems in order to make court
proceedings more reliable and expeditious, or – and mainly – by introducing out-of-court
proceedings such as arbitration.
In this sense, various countries have adopted arbitration laws based, in substantial part,
on the Model Law on International Commercial Arbitration of the United Nations
Commission on International Trade Law (the UNCITRAL Model Law), thus leading to legal
convergence across the region. In addition, practically all Latin American countries have
ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
also known as 1958 the New York Convention.
P 644
P 645
The statistics of the International Chamber of Commerce (ICC) confirm that Latin America is
currently one of the most active regions with respect to arbitrations. In 2016, the ICC
Statistics show that:
– 339 parties from Latin America participated in ICC cases, out of 966 new ICC cases in
2016 (35.09%);
– as to the nationality of the Latin American parties, 123 were Brazilian (the fifth-most
worldwide), 107 Mexican, 28 Peruvian, 13 Colombian, 13 Chilean, 12 Costa Rican and 11
Panamanian; and
– numerous Latin American arbitrators were confirmed by the ICC in 2016: 200
Brazilian, 32 Mexican and 17 Argentinian, among others.
Of the 966 new cases filed with the ICC in 2016, 106 (11.0%) had a state or a state entity as
one or more of the parties. (4) For the purposes of comparison, in 2006, 590 cases were
filed before the ICC (5) , 62 of which (10.05%) involved a state or a parastatal entity: (6)

P 645
P 646
As can be seen, although in terms of percentage of the total number of new cases there has
been no significant increase between 2006 (10.05%) and 2016 (11.0%), the actual number of
newly registered cases involving at least one state entity has increased from 62 to 106
(58.5%) in the same period. There is no indication as to how many of these 106 public-
private arbitrations would involve a least one party from Latin America, but it is
reasonable to infer that approximately the same 35.09% would apply, i.e., around 37
public-private arbitrations from Latin America.

III The Substantive Issues that Persist in Public-Private Arbitrations:

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 Arbitrability, Mandatory Rules and Public Policy
Based on the foregoing, it is fair to say that Latin America has successfully moved from a
rigid regime of statism and protectionism to a friendlier environment for international
arbitration. This is a remarkable move if one considers that only thirty years ago there was
no regulatory framework that accepted arbitration – even on a domestic level – as an
effective and enforceable dispute resolution system.
When it comes to disputes involving public entities, however, special attention by the
contracting parties should be given to the issues of arbitrability, mandatory rules and
public policy.

1 Arbitrability
As mentioned above, resolution of disputes arising out of a contractual relationship
between public and private parties in Latin America was invariably affected by
uncertainty in view of the absolute supremacy of state's interests over private interests.
Considering the reminiscences of the Calvo Doctrine referred to above, it is easy to
understand that many scholars and judges in Latin America were reluctant – even under
the newly enacted Arbitration Acts – to accept that the state and public entities could be
subject to an out-of-court arbitration panel sometimes seating outside of the relevant
country.
In the absence of a clear definition of or at least a consolidated case law on (i) those who
were free to enter into an arbitration agreement and be bound by it (subjective
arbitrability), and of (ii) the matters at the parties' disposition that could be decided by
arbitration (objective arbitrability), uncertainty about public-private arbitration remained
present in the legal system of some Latin American countries for quite a long time.
In Brazil, in the early 2000s, the COPEL v. Araucaria case put the credibility of arbitration to
a test that caught the attention of the international legal community. UEG-Araucaria, the
Brazilian subsidiary of a US company, initiated an ICC arbitration in Paris against COPEL, a
Brazilian state-controlled power company in a dispute arising out of a turnkey contract for
a power plant in Brazil. A series of first-instance and appellate-instance decisions ordered
the stay of the arbitration proceedings under the argument that – irrespective of the fact
that the parties had indeed agreed to refer their controversies to arbitration and that the
dispute between the parties was of an economic nature – the dispute was not arbitrable
because “it involved public interests”.
P 646
P 647
The COPEL case was settled before a final decision was granted but the disruption it
caused in the arbitral legal community only ceased in 2005 when the Brazilian Superior
Court of Justice ruled on the AES Uruguaiana v. CEEE case. AES Uruguaiana was a private
power company, CEEE was a mixed-economy company controlled by the state of Rio
Grande do Sul, and the dispute related to a contract for the construction and operation of
a 600MW gas-fired power plant. As in the COPEL case, the first-instance court ruled that the
dispute could not be submitted to arbitration because it concerned a state-controlled
entity whose assets were affected by “public finality” and therefore could not be disposed
of. Furthermore, the appellate-instance court refused to recognize the negative effect of
the arbitration agreement and invoked the principle of universal access to justice as set
forth in the Brazilian Constitution (7) to conclude that the presence of an arbitration clause
in the contract could not prevent a dispute from being heard by state courts.
In 2005, the Brazilian Superior Court of Justice overturned the AES Uruguaiana v.CEEE
previous decisions and ruled that public entities (such as CEEE, a mixed-economy
corporation controlled by the State of Rio Grande do Sul) are capable of entering into
arbitration agreements and later on should be subject to the competent arbitration
proceedings as long as the dispute relates to secondary public interests (i.e., those
concerning financial and economic aspects only). It was expressly decided that:
“Contract is valid when signed by the mixed capital companies exploiting
economic activity such as production or commercialization of goods or services
(Federal Constitution, Article 173, Sect. 1) and stipulating arbitration as the
means to solve any disputes arising from the adjustment.” (8)
The issue of arbitrability of rights and obligations arising from public contracts is so
sensitive in civil law jurisdictions that were influenced by the Napoleonic Code that the
Brazilian legislator deemed it appropriate to make the law clearer on this. In 2015, some of
the dispositions of the Brazilian Arbitration Law (enacted in 1996) were amended and
paras. 1 and 2 were added to Art. 1 of the Law:
“Article 1. Those who are capable of entering into contracts may make use of
arbitration to resolve conflicts regarding freely transferable property rights.
Paragraph 1. Direct and indirect public administration may use arbitration to
resolve conflicts regarding transferable public property rights.
Paragraph 2. The competent authority or direct public administration entity
that enters into arbitration agreements is the same entity that enters into

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 agreements or transactions”
P 647
P 648
Besides the main arbitration acts adopted by most Latin American countries, the principle
of the arbitrability of disputes involving state entities is reaffirmed in the specific
legislation on PPPs and other public contracts. (9)

2 Mandatory Rules
One of the most crucial questions in international arbitration is whether relevant
mandatory rules that are foreign to the parties' designated applicable law of the contract
can or should be applied by the arbitral tribunal. Generally, mandatory rules protect the
social and economic interests of a society.
As a rule, arbitrators should respect to the greatest possible extent the general principle of
party autonomy as to the law chosen by the parties to govern the relevant contractual
obligations, as well as the arbitration procedural rules. Application of mandatory rules
foreign to the freely elected set of rules should be accepted by the arbitrators mainly with
a view to guaranteeing future enforcement of the award, especially in the jurisdiction that
contemplates said rules. The most commonly cited mandatory rules are competition law,
securities regulation, public service regulations and currency control.
This approach is valid for disputes arising out of contracts to which all parties are private,
as well as for those involving public and private parties. As far as public-private
arbitration is concerned, however, arbitrators should take special caution in applying
mandatory rules that derive from a legal system outside of the chosen law of the contract.
If the mandatory rules applied by the arbitrators derive from the legal system of the state
party, the result of the arbitration may be considered oppressive to the private party. In
case the mandatory rules derive from the legal system of the private party, the state party
may question the result of the arbitration because it violated the more strict will that is
proper to public entities. When deciding whether to apply relevant mandatory rules in this
scenario, arbitrators should therefore be particularly mindful of the award's enforceability.
Mandatory rules of relevant national legal systems that may be applied by the arbitrators
are of a substantive nature, i.e., a substantive law that will guide the tribunal's decision on
the merits. The laws that regulate and support the procedural aspects of the arbitration
(lex arbitri) are usually the laws of the seat of arbitration, which is freely chosen by the
parties.
Some of the recent Latin American legislations on public-private contracts, however, have
prescribed the place where any arbitral tribunal should seat, as well as the language in
which the arbitration should be conducted, which in principle collides with the free will
principle.
This is the case, for example, of Art. 11, item III, of the Brazilian PPP Law of 2004, which
provides that any arbitration relating to a PPP contract (both domestic and international)
P 648 must be conducted in Brazil and in the Portuguese language. This extravagant legal
P 649 provision has not been scrutinized by any local or foreign court or arbitration panel yet,
and therefore it remains uncertain whether it will be regarded as a mandatory rule to
which the parties and the arbitrators should be bound.
In any event, this legal provision makes recourse to arbitration in disputes related to PPPs
unattractive and once again reveals that nationalism and protectionism have not been
completely extirpated from the Latin American legal scenario yet.

3 Public Policy
The broad concept of public policy, together with the concept of national sovereignty, has
supported the nationalistic and protectionist position taken by Latin American countries
until the last quarter of the twentieth century, as seen above. Since then, both concepts
have been adapted to reflect the opening-up of most jurisdictions in the region to
international methods of resolution of disputes.
The public policy exception to recognition and enforcement of foreign arbitral awards (10)
is currently interpreted more narrowly by most Latin American states, if compared with the
region's legal scenario thirty years ago, when a mere inconsistency with local substantive
laws could easily bar enforcement of a foreign award.
It should be emphasized, however, that enforcement of a foreign arbitral award in Latin
America may be subject to a previous recognition process at the competent court of the
country where enforcement is sought. Although this recognition process in most cases is
limited to the analysis of formal requirements, it may cause a significant delay in the
enforcement itself, thus frustrating the party interested in an expeditious solution.
In Brazil, the recognition process prior to actual enforcement is required by the Federal
Constitution. The process of recognition of a foreign award is carried out before the
Superior Court of Justice and aims at transforming said award into an enforceable decision
within the Brazilian territory, i.e., equivalent to any judgment rendered in Brazil.
The defendant cannot raise merits-based defences or any other defences related to the

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 scope of the foreign award. Through the process for recognition of the foreign award, the
Superior Court of Justice will solely analyze the compliance of formal requirements under
Brazilian law, as well as whether the foreign award is in accordance with national
sovereignty, public policy and the dignity of the human person.
Despite the lack of currently available reliable statistics, it is well known in the region
(through articles, reports, conferences) that in most Latin American countries courts have
been constantly refusing opposition to enforcement on grounds of public policy. In the vast
majority of the cases, recognition is granted and subsequent enforcement is allowed
provided that it is evidenced that the local defendant has been duly served process and
given full opportunity to present its case before the arbitrators, thus conforming with
public policy.
P 649
P 650

IV Conclusion
The environment for public-private partnerships and other contractual instruments
between state/parastatal entities and the private sector in Latin America is expected to
continue developing as countries still need major improvements in infrastructure to
sustain economic growth and social progress in the years to come.
Several countries in the region have developed new legal frameworks with a view to
facilitating the entering of public-private contracts with special attention to arbitration as
the most efficient method of solving disputes arising therefrom. Considering that this is
still a brand new reality in the region, where until recently the state centralized practically
all economic activity and all disputes were resolved before local courts only, it is an
exciting and challenging experience for legal professionals to follow closely what is going
on in this part of the world.

Bibliography
Lawrence S. GRAHAM
The State and Policy Outcomes in Latin America (Praeger 1990)
Luiz Carlos Bresser PEREIRA and Peter SPINK
Reforming the State: Managerial Public Administration in Latin America (Lynne Rienner
Publishers 1999)
Mariana Hernández CRESPO
“Securing Investment: Innovative Business Strategies for Conflict Management in Latin
America” in Arnold INGEN -HOUSZ, ed., ADR in Business: Practice and Issues Across Countries
and Cultures, Vol. 2 (Kluwer 2011)
F. M. MANIRUZZAMAN
“International Arbitration and Mandatory Public Law Rules in the Context of State
Contracts: An Overview”, 7 Journal of International Arbitration (1990, no. 3) pp. 53-64
United Nations Department of Economic and Social Affairs Division for Public Economics
and Public Administration
“Privatization in Latin America in the Early 1990s” (NY, 1999)
<https://publicadministration.un.org/publications/content/PDFs/E-
Library%20Archives/1999%20Privatizat...>
P 650

References
*) Gilberto Giusti: Partner, Pinheiro Neto Advogados in São Paulo, Brazil.
1) Mexico has subscribed to the ICSID Convention in January 2018 and initiated the
process for deposit of the respective instrument of ratification.
2) The classification of the geographic distribution since 2009 is available at:
<https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx>.
3) The author does not express any political and/or ideological opinion, but rather
provides just an objective overview of historical facts.
4) 2016 ICC Dispute Resolution Statistics. “Some 11% of cases filed in 2016 involved states
or parties under state ownership (parastatals). The majority of the 123 state and
parastatal parties in these filings came from countries with state-led economies, as
reflected in the regional distribution shown below.” Available at:
<http://library.iccwbo.org/dr-bulletins.htm?AUTH=7677fd17-4350-&Timeframe=>.
5) The statistics considers not only ongoing arbitral proceedings, but all the Requests for
Arbitrations submitted during a 1 year period.

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 6) 2006 ICC Dispute Resolution Statistics. Available at:
<http://library.iccwbo.org/content/dr/STATISTICAL_REPORTS/SR_0023.htm?
l1=Bulletins&l2=ICC+Internation...>.
7) Brazilian Federal Constitution, Art. 5, Sect. XXXV – “The law shall not exclude any injury
or threat to a right from the consideration of the Judicial Power.”
8) Brazilian Superior Court of Justice, Second Chamber, Special Appeal No. 612.439/RS,
Reporting Justice João Otávio de Noronha, ruled on 25 October.
9) In Brazil, Article 23-A of Law No. 8.987 of 1995 (Concessions Law), Article 11, III, of Law No.
11.079 of 2004 (the PPP Law).
10) The New York Convention, Article V(2)(b).

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 9
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 KluwerArbitration

Document information
The Contribution of Non-State Actors to the Development
Publication of Transparency Regimes in Investment Treaty Arbitration
Evolution and Adaptation: Chester Brown
The Future of International (*)
Arbitration
I Introduction
Topics The purpose of this chapter is to consider the contribution of non- State actors to the
development of the transparency regimes in investment treaty arbitration. It is convenient
Investment Arbitration to begin by recalling the proceedings of the first meeting of the United Nations
Commission on International Trade Law (UNCITRAL) Working Group III from 27 November – 1
December 2017, at which Working Group III decided in a rather pointed way that its work on
Bibliographic reference the reform of investor-State dispute settlement would be “government-led with high-level
input from all governments”. (1) This mantra was understood as a form of rebuff by States
Chester Brown, 'The to the involvement by non-State actors (including private practitioners) in UNCITRAL's work
Contribution of Non-State on previous topics in Working Group II, such as the revision of the UNCITRAL Arbitration
Actors to the Development of Rules, the drafting of the UNCITRAL Rules on Transparency in Treaty-based Investor-State
Transparency Regimes in Arbitration (the Transparency Rules), (2) and the negotiation of the United Nations
Investment Treaty Convention on Transparency in Treaty-based Investor-State Arbitration (the Mauritius
Arbitration', in Jean Convention). (3) In this regard, the mantra that the work of Working Group III will be
Engelmayer Kalicki and “government-led” may be interpreted as an effort by States to ensure that they would be in
Mohamed Abdel Raouf (eds), control of UNCITRAL's work, and this (along with other issues) made for a rather provocative
Evolution and Adaptation:
The Future of International P 653 opening to Working Group III's session. (4) It may be overdramatizing the goings-on at the
P 654 UNCITRAL to say that this represented a “line in the sand” moment in investment treaty
Arbitration, ICCA Congress arbitration, where States said “no more”. But the issues now being discussed in Working
Series, Volume 20 (© Kluwer Group III are arguably of greater significance to States than some of the previous topics in
Law International; Working Group II (such as the revision of the UNCITRAL Model Law, which occupied
International Council for UNCITRAL's Working Group II between 1999-2006; (5) the revision of the UNCITRAL
Commercial Arbitration Rules, which was considered by Working Group II between 2006-2010; (6) and
Arbitration/Kluwer Law the Enforcement of Settlement Agreements, which was on Working Group II's agenda from
International 2019) pp. 653 - 2015-2018). (7)
668
But this episode highlighted the questions: who is it, and who should it be, that contributes
to the work of UNCITRAL, and the reform agendas of other bodies which operate in the field
of investment treaty arbitration, and set rules and standards which become mandatory or
represent best practice? Should it be States, or should it be non-State actors, or should it
be both, as it has been in the past? And how does this reflect on the past work of
UNCITRAL's Working Groups, in particular Working Group II; are States right to be concerned
(if indeed they are concerned) about how that work has progressed and been developed?
In particular, what influence have non-State actors had in UNCITRAL's work, particularly on
the development of rules on transparency in investment treaty arbitration?
This all has to be prefaced with the obvious point that there are various types of non-State
actors which have contributed to the work of UNCITRAL's Working Groups II and III. There
are inter-governmental organizations which are involved in revisions to and the reform of
investor-State dispute settlement procedures, such as the International Centre for
Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration (PCA). (8)
There are also professional non-governmental organizations (NGOs), such as the
P 654 International Bar Association (IBA) and the International Chamber of Commerce (ICC). (9)
P 655 And there are also NGOs which form part of what is loosely known as “civil society”, such
as the International Institute for Sustainable Development (IISD), and the Centre for
International Environmental Law (CIEL). (10)
Against this background, this chapter examines the contribution made by these various
non-State actors, particularly the NGOs, to developments in the field of confidentiality and
transparency in international arbitration. This is an area where there have been many
developments in the past ten or fifteen years, which culminated with the adoption of the
Transparency Rules, and the Mauritius Convention. And it is an area where States have not
necessarily led the way and consistently spoken with one voice. What is evident is that
NGOs and civil society have made a significant contribution, which can be described as
having come in three areas of activity. First, non-State actors have contributed to the
development of the rules on transparency through their petitions to tribunals to be
granted amicus curiae status. Secondly, non-State actors have contributed to transparency
as advocates for change to the procedural rules that apply in investment arbitration
proceedings. And thirdly, they have contributed to transparency through their publishing
activities.

II Contribution of Non-State Actors

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 1 Petitions for Amicus Curiae Status
Beginning with the first of these contributions, non-State actors have made an important
contribution to the development of the rules on confidentiality and transparency as
petitioners for amicus curiae status. They have done so in cases brought under the
UNCITRAL Rules, and in cases under the Convention on the Settlement of Investment
Disputes between States and Nationals of Other States (the ICSID Convention), at a time
when neither set of arbitral rules contained any relevant provisions on transparency. And
the petitions of non-State actors arguably led arbitral tribunals to interpret their
procedural powers broadly enough to allow them into proceedings in appropriate
circumstances.
There are various cases which are well known, but it is convenient to begin with Methanex
Corporation v. United States, (11) which concerned a Californian government measure which
prohibited the use of MTBE, a gasoline additive, for which one of the main ingredients was
methanol, one of Methanex's products. In this case, there were applications for amicus
curiae status by the IISD and the Earth Justice Legal Defense Fund, on behalf of
Communities for a Better Environment, the Bluewater Network, and CIEL. (12)
P 655
P 656
As is well known, the Methanex tribunal decided that it had the power under the UNCITRAL
Rules to accept amicus curiae submissions. This tribunal, which was (then) composed of VV
Veeder QC (chair), William Rowley QC, and Warren Christopher, began by noting that its
mandate was to decide a substantive dispute between the claimant and respondent, and
that it had no jurisdiction over any third parties. (13) But it considered that its receipt of
written submissions from a person other than the Disputing Parties was not equivalent to
adding that person as a party to the arbitration. (14) It considered that allowing a third
person to make an amicus submission could fall within its procedural powers over the
conduct of the arbitration, within the general scope of Art. 15(1) of the UNCITRAL Arbitration
Rules (1976). (15) It also observed that this had been accepted by the Iran-US Claims
Tribunal, and the authoritative guide to the exercise of the Iran-US Claim Tribunal's
discretion under Art. 15(1), as well as at least one award “demonstrate[d] that the receipt of
written submissions from a non-party third person [did] not necessarily offend the
philosophy of international arbitration involving States and non-State parties”. (16) The
tribunal also referred to the practice of World Trade Organization (WTO) panels, which had
accepted amicus briefs. (17) The Methanex tribunal noted the claimant's position that the
acceptance of amicus curiae briefs would add to the burden on the parties in having to
respond to them, but the tribunal considered that it would be able to devise procedures to
manage that risk, and it did not consider that there was any immediate risk of unfair or
unequal treatment for either of the disputing parties. (18) The tribunal then considered
relevant provisions of the North American Free Trade Agreement (NAFTA) and the UNCITRAL
Rules of Arbitration, and noted that there was “no provision in Chapter 11 [of NAFTA] that
expressly prohibit[ed] the acceptance of amicus submissions, but likewise nothing that
expressly encourage[d] them”. (19) As for the UNCITRAL Rules, the tribunal observed that
Art. 25(4) required that the hearings be held in camera; this was not relevant to the
tribunal's power to accept amicus curiae submissions, but it was relevant to the
petitioners' request “to attend hearings and to receive copies of all submissions and
materials adduced before the Tribunal”. (20) The tribunal accepted that this was
consistent with the duty of privacy in international arbitration, but did not agree that this
P 656 also conferred a duty of confidentiality (noting, inter alia, the judgment of the High Court of
P 657 Australia in Esso v. Plowman). (21) The tribunal ultimately concluded that:
“by Article 15(1) of the UNCITRAL Arbitration Rules it has the power to accept
amicus submissions (in writing) from each of the Petitioners, to be copied
simultaneously to the legal representatives of the Disputing Parties, Canada
and Mexico. In coming to this conclusion, the Tribunal has not relied on the fact
that amicus submissions feature in the domestic procedures of the courts in
two, but not three, NAFTA Parties. The Tribunal also concludes that it has no
power to accept the Petitioners' requests to receive materials generated within
the arbitration or to attend oral hearings of the arbitration. Such materials may
however be derived from the public domain or disclosed into the public
domain within the terms of the Consent Order regarding Disclosure and
Confidentiality, or otherwise lawfully; but that is a quite separate matter
outwith the scope of this decision.” (22)
The Methanex tribunal did not immediately decide whether it should exercise its
discretion to accept such amicus submissions; it left that for a later decision. (23) It is
significant that it supported its approach by reference to the public interest that was at
stake in this NAFTA arbitration, in a passage that has been frequently quoted:
“There is an undoubtedly public interest in this arbitration. The substantive
issues extend far beyond those raised by the usual transnational arbitration
between commercial parties. This is not merely because one of the Disputing
Parties is a State: there are of course disputes involving States which are of no
greater general public importance than a dispute between private persons. The
public interest in this arbitration arises from its subject-matter, as powerfully

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 suggested in the Petitions. There is also a broader argument, as suggested by
the Respondent and Canada: the Chapter 11 arbitral process could benefit from
being perceived as more open or transparent; or conversely be harmed if seen
as unduly secretive. In this regard, the Tribunal's willingness to receive amicus
submissions might support the process in general and this arbitration in
particular; whereas a blanket refusal could do positive harm.” (24)
More than two years later, in January 2003, the IISD and Earth Justice Defense Fund filed
further petitions to be admitted as amicus curiae in the proceedings. (25) And on 7 October
2003, the NAFTA Free Trade Commission regularized the procedure for making applications
for amicus status; the relevant considerations in granting amicus curiae status were the
extent to which “the non-disputing party submission would assist the tribunal in the
P 657 determination of a factual or legal issue related to the arbitration by bringing a
P 658 perspective, particular knowledge or insight that is different from that of the disputing
parties”; the extent to which “the non-disputing party submission would address matters
within the scope of the dispute”; whether “the non-disputing party [had] a significant
interest in the arbitration”; and whether there was “a public interest in the arbitration”.
(26) Having considered the NAFTA Free Trade Commission's statement on non-disputing
party participation, the disputing parties in Methanex reached agreement on the
applicable procedure for admission of amicus curiae briefs, which was communicated to
the tribunal. (27)
The Free Trade Commission's list of matters to be taken into account in exercising
discretion as to whether to accept amicus curiae submissions is interesting, because it is
largely consistent with the conditions that were suggested as relevant by the IISD in its
Final Submission in Support of its Application for Amicus Curiae Status in the Methanex
case of 16 October 2000. In that final submission (which was authored by Professor Don
McRae and Howard Mann), the IISD argued that the test should consist of asking (i) whether
the petitioner could demonstrate that it had an interest in the issue; (28) (ii) whether the
petitioner's submissions would be useful to the tribunal (considering whether the
petitioner's submissions would add anything to those of the parties); (29) and (iii) whether
there was a broader public interest in the dispute. (30)
The two amicus curiae submissions were ultimately considered by the Methanex tribunal.
(31) It is unclear as to how influential they were on the outcome, given that both
submissions were essentially supportive of the United States' position, and the United
States successfully defended the Californian measure. (32)
The Methanex tribunal was not the first international court or tribunal to find that it had
the power to accept amicus submissions, even though the power was not made express; as
noted above, the Methanex tribunal referred to previous practice of WTO panels and the
Iran-US Claims Tribunal. But it was a significant decision, as it arguably laid the path for
subsequent developments.
The next case was United Parcel Services, Inc v. Canada, (33) in which the arbitration
proceeded largely in parallel with Methanex. This was a claim in which the American
package delivery company United Parcel Services, Inc (UPS) argued that Canada's
provision of public funds to Canada Post and the subsidization of its package delivery and
courier business breached obligations under Chapter 11 of NAFTA. In this case, various
applications for amicus status were made, including by the Canadian Council of Postal
Workers, the Council of Canadians (both of which were sympathetic to Canada's position),
and the Chamber of Commerce of the United States which was supportive of UPS's claim).
P 658 The first two of these entities petitioned the tribunal for the right to be made parties to
P 659 the proceedings, and in the alternative they sought standing to intervene in the
proceedings, with full rights of audience. (34) They argued that they both had an interest in
the broader public policy implications of this dispute, as they “not only implicate the full
array of Canada Post services, but many other public service sectors as well”. (35) The UPS
tribunal, which was chaired by Sir Kenneth Keith, who sat with Dean Ronald Cass and Yves
Fortier CC QC, accepted that it had the power within Art. 15(1) of the UNCITRAL Rules to
accept amicus curiae briefs, and held that it was “part of its power to conduct the
arbitration in such manner as it considers appropriate”, (36) although it added that “the
receiving of such submissions from a third person is not equivalent to making that person a
party to the arbitration”. (37) In deciding that the parties had permission to file amicus
briefs, (38) the UPS tribunal accepted the relevant criteria identified by the petitioners,
most particularly the Canadian Council of Postal Workers, which had referred to the
important public character of the issues in dispute, to the petitioners' own real interests in
the case, and the ability of the petitioners to “provide assistance beyond that provided by
the parties”. (39) So in this case, the non-State actor played an important role in shaping
the test accepted by the UPS tribunal as relevant.
The next case is Aguas del Tunari v. Bolivia, which is the first of the cases involving an
amicus petition that was brought under the ICSID Convention. The tribunal consisted of
Professor David Caron, Henri Alvarez QC, and José Luis Alberro-Semerena. In this case, a
petition was submitted by CIEL and the Earth Justice Legal Defense Fund on behalf of eight
NGOs. (40) These interveners sought an extensive range of orders, including (i) standing to
participate as parties in the arbitration, including “all rights of participation accorded to
other parties in the claim”, (41) and in the alternative, (ii) the right to participate as amicus
curiae and make submissions on the procedure of the arbitration, the issues of jurisdiction

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 and merits; (iii) public disclosure of documents; (iv) open hearings; (v) a site visit by the
tribunal to Cochabamba, with public hearings; (vi) a right to respond to any comments of
the parties to the petition; and (vii) a right to amend the petition as further details
P 659 became known to the petitioners. (42) But this case had a different outcome from
P 660 Methanex and UPS; the ICSID tribunal wrote to the petitioners, denying their requests.
(43) The tribunal found that the requests were beyond the power or authority of the
tribunal to grant, and held that the BIT and the ICSID Convention “place[d] the control of
the issues raised with the parties, not with the Tribunal”. (44) So in the context of NGOs
seeking to intervene in investment cases, this was a firm rebuff.
The next case was Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal
SA v. Argentine Republic. (45) In this case, various NGOs (including, again, CIEL) tried again,
and applied for access to the hearings, for permission to make submissions as amicus
curiae, and to allow them timely access to all the documents of the case. (46) This claim
was subject to the pre-2006 ICSID Rules, which did not make provision for non-disputing
party submissions, as has been seen in the Aguas del Tunari case. The petitioners referred
to and relied on the decisions of the UNCITRAL tribunals in Methanex and UPS, and this
tribunal (chaired by Professor Jeswald Salacuse, and including also Professor Gabrielle
Kaufmann-Kohler, and Professor Pedro Nikken) decided the issue differently from the ICSID
tribunal in Aguas del Tunari. In its Order of 19 May 2005, the tribunal denied the petitioners
access to the hearing, (47) but it held that Art. 44 of the ICSID Convention gave it the power
to accept amicus curiae submissions. (48) It went on to consider the relevant conditions for
exercise of the power, which were “(a) the appropriateness of the subject-matter of the
case”, i.e., whether it was of broader public interest; “(b) the suitability of a given non-
party to act as amicus in that case”, which would require considerations of expertise,
experience and independence, and whether the submission would assist the tribunal; and
“(c) the procedure by which the amicus submission would be made and considered”, which
must safeguard due process and equal treatment of the parties. (49) These same factors
were also applied by the identically composed tribunal in the other (later) Suez case, Suez,
Sociedad General de Aguas de Barcelona SA, and InterAgios Servicios SA v. Argentine
Republic. (50)
In applying the first of these factors, the Suez tribunal found that
“19. … [T]he present case potentially involves matters of public interest. This case will
consider the legality under international law, not domestic private law, of various
actions and measures taken by governments. The international responsibility of a
state, the Argentine Republic, is also at stake, as opposed to the liability of a
P 660 corporation arising out of private law. While these factors are certainly matters of
P 661 public interest, they are present in virtually all cases of investment treaty
arbitration under ICSID jurisdiction. The factor that gives this case particular public
interest is that the investment dispute centers around the water distribution and
sewage systems of a large metropolitan area, the city of Buenos Aires and
surrounding municipalities. Those systems provide basic public services to millions
of people and as a result may raise a variety of complex public and international law
questions, including human rights considerations. Any decision rendered in this case,
whether in favor of the Claimants or the Respondent, has the potential to affect the
operation of those systems and thereby the public they serve.
20. These factors lead the Tribunal to conclude that this case does involve matters of
public interest of such a nature that have traditionally led courts and other tribunals
to receive amicus submissions from suitable nonparties. This case is not simply a
contract dispute between private parties where nonparties attempting to intervene
as friends of the court might be seen as officious intermeddlers.” (51)
The Suez tribunal also recognized the broader benefits to the system of investment
arbitration of greater transparency:
“The acceptance of amicus submissions would have the additional desirable
consequence of increasing the transparency of investor-state arbitration. Public
acceptance of the legitimacy of international arbitral processes, particularly
when they involve states and matters of public interest, is strengthened by
increased openness and increased knowledge as to how these processes
function. … Through the participation of appropriate representatives of civil
society in appropriate cases, the public will gain increased understanding of
ICSID processes.” (52)
As for the second factor (the suitability of specific non-parties to act as amicus curiae), the
Suez tribunal considered that the following information about the petitioner was relevant:
(a) the identity and background of the petitioner, (b) the nature of the petitioner's interest
in the case, (c) whether the petitioner had received any form of support from one of the
parties, or from any person connected with the parties in the case. (53) And as for the third
factor (the appropriate procedure governing the submission of amicus briefs), the Suez
tribunal deferred its decision on the appropriate procedure, noting that it would address
this issue if it “decided to grant leave to a particular non-disputing party”. (54)
The Suez tribunal had the chance to consider its own procedure when, on 1 December 2006,
P 661 the various petitioners filed an application for amicus curiae standing. In its Decision of 21
P 662

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 P 662
February 2007, the Suez tribunal noted that, in the intervening period since its Order of
19 May 2005, ICSID had amended its rules and introduced an express provision in ICSID
Rule 37(2) dealing with amicus submissions, with effect from 10 April 2006; however, the
revised ICSID Rules were not applicable to the case. (55) The new Rule 37(2) permitted the
tribunal to “allow a person or entity that is not a party to the dispute … to file a written
submission with the Tribunal regarding a matter within the scope of the dispute”. In
determining whether to allow such a submission, the Tribunal would “consider, among
other things”, the extent to which:
“(a) the non- disputing party submission would assist the Tribunal in the determination of
a factual or legal issue related to the proceeding by bringing a perspective,
particular knowledge or insight that is different from that of the disputing parties;
(b) the non-disputing party submission would address a matter within the scope of the
dispute;
(c) the non-disputing party has a significant interest in the proceeding.” (56)
Rule 37(2) also requires that the tribunal “ensure that the non-disputing party submission
does not disrupt the proceeding or unduly burden or unfairly prejudice either party, and
that both parties are given an opportunity to present their observations on the non-
disputing party submission.” (57)
Although Rule 37(2) was not formally applicable to the Suez case, the Suez tribunal
considered that the relevant considerations contained in Rule 37(2) were consistent with
the factors that it had identified in its earlier order, and granted the five petitioners
permission to file a joint amicus brief. (58)
The next case to consider is Biwater Gauff (Tanzania) Ltd v. Tanzania. (59) This tribunal,
which was composed of Bernard Hanotiau, Gary Born, and Toby Landau QC, considered a
claim by a British investor which had a contract to provide water and sewerage services in
Tanzania, and which alleged that its investment had been expropriated. A petition to
intervene as amicus curiae was submitted by the IISD and CIEL, as well as by three
Tanzania-based NGOs. (60) Although this arbitration was commenced in 2005, the
petitioners' application was considered under the revised ICSID Rules, which (as noted
P 662 above) were amended in April 2006 to expressly cater for amicus curiae submissions.
P 663 The tribunal granted the petitioners an opportunity to file a written submission under
ICSID Arbitration Rule 37(2). (61) The amici duly submitted amicus curiae briefs, which
addressed “broad policy issues concerning sustainable development, environment, human
rights and governmental policy”. (62) And the amici appear to have been influential; the
Biwater tribunal noted that: “[T]he Arbitral Tribunal has found the Amici's observations
useful. Their submissions have informed the analysis of claims set out below, and where
relevant, specific points arising from the Amici's submissions are returned to in that
context.” (63)
One such issue concerned the content of the fair and equitable treatment (FET) standard,
on which the tribunal observed that, in deciding to apply the general standard which was
articulated by the Waste Management (No. 2) tribunal, it had taken account of the amici's
submission, particularly on the relevance of taking into account the responsibility of
foreign investors in terms of “prior due diligence and subsequent conduct”, and on the
limits of legitimate expectations, where an investor takes on risks in entering a particular
investment environment. (64) And so to the extent that the Biwater tribunal adopted a
balanced approach to the FET standard, which takes into account all of the facts and
circumstances of the case, including as relevant the investor's conduct, the amici in
Biwater have arguably contributed to the development of this substantive standard of
protection.
In Electrabel v. Hungary, another arbitration in which the tribunal was chaired by VV
Veeder QC, issues of European law arose. In its Procedural Order No. 5 (18 August 2009), the
tribunal ordered that the European Commission would be granted permission under ICSID
Arbitration Rule 37(2) to file a written submission as a non-disputing party. As the tribunal
explained:
“[T]he Tribunal notes that while the European Commission is an expert
commentator on European Community law and could accordingly assist the
Tribunal by addressing several legal issues, the scope of its legal opinion should
in principle be directed to addressing the following issues: (a) European
Community Law and its connection with the Energy Charter Treaty; (b)
Community Law and the State Aid investigation concerning the Power Purchase
Agreements signed by Hungary; and (c) the Effect of Community Decisions on the
European Union's Members States, particularly Hungary.” (65)
In its award, the tribunal placed on record “its thanks and appreciation to the European
P 663 Commission for its Submission, as regard both applicable law and jurisdiction. It is a
P 664 lengthy, scholarly and important document for these arbitration proceedings; and only
part of it is cited in this Decision.” (66) And the tribunal lamented that the European
Commission had not played a more active role in the arbitration proceedings:
“[I]t is unfortunate that the European Commission could not play a more active
role as a non -disputing party in this arbitration, given that (as was rightly

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 emphasised in the European Commission's Submission), the European Union is
a Contracting Party to the ECT in which it played from the outset a leading role;
and, moreover, that the European Commission's perspective on this case is not
the same as the Respondent's and still less that of the Claimant. In short, the
European Commission has much more than ‘a significant interest’ in these
arbitration proceedings. Unlike the two Parties, the Commission has made a
jurisdictional objection based on EU law as the law applicable to the Parties'
arbitration agreement.” (67)
Although there are multiple other cases which could be mentioned, one case in which an
amicus curiae submission arguably had an impact is Philip Morris Brands SARL v. Uruguay.
(68) In this case, the World Health Organization (WHO) and the Secretariat of the
Framework Convention on Tobacco Control (FCTC) sought and were granted permission to
submit an amicus brief under ICISD Arbitration Rule 37(2), and the Pan American Health
Organization (PAHO) was also granted permission to file an amicus brief. (69) Another
application for amicus curiae status was received from the “Avaaz Foundation”, but this
application was rejected by the tribunal, on the basis that it would not bring any new
perspective to bear on the dispute. (70) The “Inter-American Association of Intellectual
Property” also filed a request, but this too was rejected, on the basis of the close
relationship between that organization and the claimants. (71)
In this case, the amicus curiae briefs were clearly taken seriously by the tribunal and were
extensively relied on. If you review the footnotes of the Philip Morris award, you will find
that the WHO amicus brief and the PAHO amicus brief are referred to at least twenty-one
times in the footnotes of the section containing the tribunal's findings. It is obviously not
possible to tell if the amicus briefs had any material effect on the decision; clearly
Uruguay was represented by excellent counsel and had submitted its own expert evidence,
so perhaps the relevant information would have found its way before the tribunal even
without the amicus briefs. But it is still quite remarkable that the tribunal saw fit to appear
to place such weight on the amicus briefs in making its factual determinations.
P 664
P 665
2 Changes to Arbitral Rules
The second contribution that has been made by non-State actors is that they have
advocated for and changes to the Rules of Arbitration – both the ICSID Arbitration Rules
and the UNCITRAL Rules.
The revision of the ICSID Rules in 2006 saw the introduction of the two transparency
measures, and this followed the few ICSID cases where petitions for amicus curiae status
had been made to ICSID tribunals – Aguas del Tunari and the two Suez tribunals, with
inconsistent results. As Aurelia Antonietti has explained:
“[t]raditionally, hearings are conducted behind closed doors and are held by
the tribunal in presence of the parties, their agents, counsel, advocates, witness
and experts. Former ICSID Arbitration Rule 32(2) specified that the tribunal
would decide, with the consent of the parties, which other persons may attend
the hearings.” (72)
Rule 32(2) was ultimately amended such that, “unless either party objects”, the tribunal,
after consultation with the Secretary-General, may allow non-parties “to attend or observe
all or part of the hearings, subject to appropriate logistical arrangements”. (73) The change
brought about by this provision is not all that dramatic, since it remains open to either
party to object, and the hearing remains closed.
By far the greater development was the inclusion of Rule 37(2). As Antonietti explained:
“[T]he Discussion Paper suggested in 2004 that ICSID tribunals may accept and
consider written submissions from a non-disputing party after consulting both
parties to the proceeding as far as possible. It appears that certain
governments had a strong preference that the consent of both parties be made
a condition for a tribunal allowing such submissions. However, the adopted
amendment of Arbitration Rule 37 leaves the decision to the tribunal, and only
provides for consultation with the parties. One could think that if a party refuses
to make itself available for such consultations, the tribunal could go ahead with
its decision.” (74)
And of course ICSID is currently considering further amendments to its Rules. (75) In the
public consultation process, non-State actors have made various submissions, in which a
number of proposals relating to confidentiality and transparency have been made. (76)
P 665
P 666
Turning to the UNCITRAL Rules, it is well known that during UNCITRAL Working Group II's
work on the revision of the UNCITRAL Rules of Arbitration, a proposal was made to the
Working Group that transparency provisions should be included. As Working Group II
reported:

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 “65. In order to take account of the public interest aspects of investor -State
arbitrations, a proposal was made to amend a limited number of provisions of
the UNCITRAL Arbitration Rules. In that connection, the delegation that referred
to the Milan Club of Arbitrators also referred to two non-governmental
organizations (the Center for International Environmental Law (CIEL) and the
International Institute for Sustainable Development (IISD)) and the Working
Group had no objection to hearing their proposal. The Working Group did not
discuss the contents of that proposal and decided to reproduce the substance
of the statement by the two non-governmental organizations in annex III to this
report.” (77)
In its submission to Working Group II, IISD and CIEL sought “a very limited number of
additions to the UNCITRAL Arbitration Rules in order to take account of the important
public interest aspects of investor-State arbitrations”. (78) They claimed that their
amendments would “leav[e] untouched the Rules' application to other types of
arbitrations and avoiding undue delay, disruption or cost”. (79) There were only four
provisions which were proposed to be inserted or amended. These concerned the
publication of the notice of arbitration and information concerning the constitution of the
tribunal; (80) the publication of all documents in an investor-State claim (subject to
redaction of confidential information); (81) the participation of amicus curiae by filing
written submissions; (82) holding open hearings in investor-State cases, (83) and the
publication of awards. (84)
However, the Working Group decided not to take up this suggestion of considering the
inclusion of transparency measures in the UNCITRAL Rules of 2010. It decided that:
“to embark at this stage on the preparation of Rules governing transparency and
P 666 possibly other issues since the complex negotiation would delay the current
P 667 work of revising the Rules. There was an expectation that the revised Rules
would be available to users of commercial arbitration as soon as feasible.” (85)
As is of course well known, Working Group II took up the issue of transparency and its work –
with the active contribution of non-State actors – this led to the adoption of the UNCITRAL
Transparency Rules and the Mauritius Convention, the details of which have been well
traversed elsewhere. (86) This is not to say that States did not play their role in the
development of the transparency provisions. For instance, the Government of Canada
submitted a paper in support of transparency measures in the UNCITRAL Rules, which was
influential. (87) But non-State actors played an important role in putting this onto the
agenda in the first place, and for tenaciously ensuring that it led to a successful outcome.

3 Publishers of Information Concerning Investment Treaty Arbitration

The third and final way that non-State actors have played an important role in developing
the rules on transparency is through carrying out investigative reports and publishing
information on investment treaty arbitration. Today we all think of Global Arbitration
Review (GAR), which is a very useful publication, but before there was GAR there was the
Investment Treaty News (ITN) service, which was published by Luke Peterson at the IISD,
and then Luke Peterson started “Investment Arbitration Reporter”. These newsletters
reveal information about cases which is not just useful for a policy agenda, but also for
lawyers as a tool to find relevant decisions and awards, so that they can develop
arguments based on materials which are otherwise hard to find. It might therefore be said
that they have indirectly led to the development of the jurisprudence in this field.

III Concluding Remarks

In closing, I return to where I began, which is the activities of UNCITRAL's Working Group III
and its project of examining whether reform is necessary to the ISDS system. In spite of the
mantra that Working Group III's work is to be “government-led”, it is hoped that the States
in Working Group III will recognize that a rather large contribution has been made by non-
P 667 State actors to the development of transparency rules in investment arbitration, and that
P 668 a similar contribution can be expected from many stakeholders in the question of ISDS
Reform. Indeed, the delegations of many States include private practitioners; they are
often the members of the delegation with most expertise, so it is likely that the ISDS
Reform project will benefit from the input of a broad range of participants. It is trite to say
it, but the reform of the ISDS system is not only important for States; it is important for all
stakeholders, and non-State actors have an important role to play in this project.
P 668

References
*) Chester Brown: Professor of International Law and International Arbitration, University
of Sydney Law School; Barrister, 7 Wentworth Selborne Chambers, Sydney; and
Overseas Associate, Essex Court Chambers, London.

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 1) Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of
Its Thirty-Fourth Session Vienna, 27 November – 1 December 2017, UN Doc. No.
A/CN.9/930, para. 6.
2) UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective
as of 1 April 2014), available at <www.uncitral.org> (Transparency Rules).
3) United Nations Convention on Transparency in Treaty-based Investor-State
Arbitration, opened for signature 17 March 2015, UNTS Registration No. 54749 (entered
into force 18 October 2017) available at <www.uncitral.org> (Mauritius Convention).
4) See, e.g., Luke PETERSON, “UNCITRAL Meetings on ISDS Reform Get Off to a Bumpy
Start, as Delegations Can't Come to a Consensus on Who Should Chair Sensitive Process
– Entailing a Rare Vote”, IA Reporter (9 December 2017) at <www.iareporter.com> (last
accessed 18 October 2018).
5) See, e.g., Report of the Working Group on Arbitration and Conciliation on the Work of Its
Forty-Fourth Session, (New York, 23-27 January 2006), paras. 1-2 (UN Doc. No. A/CN.9/592
(27 February 2006)).
6) See, e.g., Report of Working Group II (Arbitration and Conciliation) on the Work of Its
Fifty-Second Session (New York, 1-5 February 2010), paras. 1-3 (UN Doc. No. A/CN.9/688
(19 February 2010)).
7) See, e.g., Report of Working Group II (Dispute Settlement) on the Work of Its Sixty-
Eighth Session (New York, 5-9 February 2018), paras. 1-4 (UN Doc. No. A/CN.9/934 (19
February 2018)).
8) See, e.g., Report of Working Group III (Investor-State Dispute Settlement Reform) on
the Work of Its Thirty-Fifth Session (New York, 23-27 April 2018), paras. 7(a)-(b) (UN Doc.
No. A/CN.9/935 (14 May 2018)), noting that the PCA and ICSID attended the Working
Group's session.
9) See, e.g., Report of Working Group III (Investor-State Dispute Settlement Reform) on
the Work of Its Thirty-Fifth Session (New York, 23-27 April 2018), para. 7(c) (UN Doc. No.
A/CN.9/935 (14 May 2018)).
10) See, e.g., Report of Working Group III (Investor-State Dispute Settlement Reform) on
the Work of Its Thirty-Fifth Session (New York, 23-27 April 2018), para. 7(c) (UN Doc. No.
A/CN.9/935 (14 May 2018)).
11) Methanex Corporation v. United States (Decision of the Tribunal on Petitions from Third
Persons to Intervene as “Amicus Curiae” of 15 January 2001).
12) Methanex Corporation v. United States (Petition of IISD to the Arbitral Tribunal of 25
August 2000), Methanex Corporation v. United States (IISD's Final Submissions to the
Arbitral Tribunal of 16 October 2000); Methanex Corporation v. United States (Amended
Petition of Communities for a Better Environment, the Bluewater Network of Earth
Island Institute, and CIEL, to Appear Jointly as Amicus Curiae of 13 October 2000).
13) Methanex Corporation v. United States (Decision of the Tribunal on Petitions from Third
Persons to Intervene as “Amicus Curiae” of 15 January 2001) para. 29.
14) Ibid., para. 30.
15) Ibid., para. 31.
16) Ibid., para. 32, referring inter alia to Iran v. United States (Case A/15), Award No. 63,
reprinted in 2 Iran-United States Claims Tribunal Reports 40, 42.
17) Ibid., para. 33, referring to United States – Imposition of Countervailing Duties on Certain
Hot-Rolled Lead and Bismuth Carbon Steel Products Originated in the United Kingdom,
WT/DS138/ABR (7 June 2000) para. 39.
18) Ibid., paras. 35-37.
19) Ibid., paras. 38-39.
20) Ibid., para. 41.
21) Ibid., paras. 43-45, referring to Esso v. Plowman (1995) 183 CLR 10.
22) Ibid., para. 47.
23) Ibid., para. 48.
24) Ibid., para. 49; see, e.g., Biwater Gauff (Tanzania) Ltd v. Tanzania (ICSID Case No.
ARB/05/22), Procedural Order No. 5 of 2 February 2007, para. 51; see also Philip Morris
Brands SARL v. Uruguay (ICSID Case No. ARB/10/7), Procedural Order No. 3 of 17
February 2015, para. 26.
25) Joint Motions to the Tribunal Regarding the Petitions for Amicus Curiae Standing of the
IISD, Communities for a Better Environment, Bluewater Network, and the Centre for
International Environmental Law (31 January 2003).
26) Statement of the Free Trade Commission on Non-Disputing Party Participation (7
October 2003).
27) Letter to the Tribunal dated 31 October 2003 Recording the Parties' Agreement on
Amicus Curiae Participation.
28) IISD, “Petitioner's Final Submissions Regarding the Petition of the IISD to the Arbitral
Tribunal for Amicus Curiae Status” (16 October 2000) para. 33.
29) Ibid., para. 33.
30) Ibid., para. 38.
31) Methanex v. United States (Award of 3 August 2005), Part II, Chapter C, paras. 26-29.
32) Ibid., Part VI.
33) UPS v. Canada (Decision of the Tribunal on Petitions for Intervention and Participation
as Amicus Curiae of 17 October 2001).
34) Petition of the Canadian Union of Postal Workers and the Council of Canadians (8
November 2000).

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 35) UPS v. Canada (Decision of the Tribunal on Petitions for Intervention and Participation
as Amicus Curiae of 17 October 2001), para. 3(ii).
36) Ibid., para. 61.
37) Ibid., paras. 60-63.
38) Ibid., paras. 60-63.
39) Ibid., para. 70.
40) These included the “Coalition for the Defence of Water and Life”, “Friends of the Earth
Netherlands”, and various concerned individuals (including a priest – Father Luis
Sanchez) and a congressman (Congressman Jorge Alvarado): see Petition of the La
Coordinadora para la Defensa del Agua y Vida, Oscar Olivera, La Federación
Departamental Cochabambina de Organizaciones Regantes, Omar Fernandez, SEMAPA
Sur, Father Luis Sánchez, Congressman Jorge Alvarado, and of Friends of the Earth-
Netherlands to the ICSID tribunal in Aguas del Tunari v. Bolivia (29 August 2002).
41) Ibid., para. 3.
42) Ibid., para. 3.
43) Letter from the Aguas del Tunari v. Bolivia tribunal to Earth Justice (29 January 2003).
44) Aguas del Tunari v. Bolivia (ICSID Case No. ARB/ 02/3), Decision on Jurisdiction of 21
October 2005) para. 17.
45) Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine
Republic (ICSID Case No. ARB/03/19), Order in Response to a Petition for Transparency
and Participation as Amicus Curiae of 19 May 2005.
46) Ibid., para. 1.
47) Ibid., paras. 6-7.
48) Ibid., para. 16.
49) Ibid., para. 17.
50) Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios SA v.
Argentine Republic (ICSID Case No. ARB/03/17), Order in Response to a Petition for
Participation as Amicus Curiae of 17 March 2006, para. 17.
51) Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine
Republic (ICSID Case No. ARB/03/19), Order in Response to a Petition for Transparency
and Participation as Amicus Curiae of 19 May 2005, paras. 19-20.
52) Ibid., para. 22.
53) Ibid., para. 25.
54) Ibid., para. 29.
55) Suez Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine
Republic (ICSID Case No. ARB/03/19), Order in Response to a Petition by Five Non-
Governmental Organizations for Permission to Make an Amicus Curiae Submission of 21
February 2007, paras. 14-15.
56) ICSID Rules of Arbitration (2006), Rule 37(2), reproduced in Suez Sociedad General de
Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine Republic (ICSID Case No.
ARB/03/19), Order in Response to a Petition by Five Non-Governmental Organizations
for Permission to Make an Amicus Curiae Submission of 21 February 2007, para. 14.
57) ICSID Rules of Arbitration (2006), Rule 37(2).
58) However, it did not allow them access to documents or to attend the hearing: Suez
Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine
Republic (ICSID Case No. ARB/03/19), Order in Response to a Petition by Five Non-
Governmental Organizations for Permission to Make an Amicus Curiae Submission of 21
February 2007, para. 27.
59) Biwater Gauff (Tanzania) Ltd v. Tanzania (ICSID Case No. ARB/05/22), Award of 24 July
2008.
60) Petition for Amicus Curiae Status of 27 November 2006.
61) Biwater Gauff (Tanzania) Ltd v. Tanzania (ICSID Case No. ARB/05/22), Award of 24 July
2008, para. 62.
62) Ibid., para. 366.
63) Ibid., para. 392.
64) Ibid., para. 601.
65) Electrabel SA v. Hungary (ICSID Case No. ARB/07/19), Procedural Order No. 5 of 18
August 2009, para. 24.
66) Ibid., para. 4.91.
67) Ibid., para. 4.92.
68) Philip Morris Brands SARL v. Uruguay (ICSID Case No. ARB/10/7), Award of 8 July 2016.
69) Ibid., paras. 35-48.
70) Ibid., paras. 49-52.
71) Ibid., paras. 53-55.
72) Aurelia ANTONIETTI, “2006 Amendments to the ICSID Rules and Regulations and the
Additional Facility Rules”, 21 ICSID Review – Foreign Investment Law Journal (2006) p.
427.
73) ICSID Rules (2006), Rule 32(2).
74) A. ANTONIETTI, above fn. 72.
75) E.g., “Proposals for Amendment of the ICSID Rules – Synopsis” (2 August 2018), available
at <www.worldbank.org/icsid> (last accessed 18 October 2018); see also “States Discuss
Proposed Rule Amendments” (28 September 2018), available at
<www.worldbank.org/icsid> (last accessed 18 October 2018).

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 76) “Proposals for Amendment of the ICSID Rules – Synopsis” (2 August 2018) paras. 43-49,
available at <www.worldbank.org/icsid> (last accessed 18 October 2018); see also
Columbia Centre on Sustainable Investment, “Illustrative Suggestions for Amendments
to the ICSID Arbitration Rules” (31 March 2017) available at <www.worldbank.org/icsid>
(last accessed 18 October 2018).
77) UNCITRAL Working Group II, Report of the Working Group on Its 48th Session (4-8
February 2008, New York), UN Doc. No. A/CN.9/646 (29 February 2008) para. 65.
78) Ibid., Annex III.
79) Ibid., Annex III.
80) Ibid., Annex III, proposed amendment to Art. 3(5).
81) Ibid., Annex III, proposed amendment to Art. 15(3).
82) Ibid., Annex III, proposed amendment to Art. 15(4).
83) Ibid., Annex III, proposed amendment to Art. 25(4): “(4) Except in an arbitration brought
by an investor against a State under the terms of a treaty, hearings shall be held in
camera unless the parties agree otherwise ….”(Emphasis added.)
84) Ibid., Annex III, proposed amendment to Art. 32(5): “Except in an arbitration brought by
an investor against a State under the terms of a treaty, the award may be made public
only with the consent of both parties.” (Emphasis added.)
85) Ibid., para. 68.
86) See especially Esme SHIRLOW, “The Dawn of a New Era? The UNCITRAL Rules and UN
Convention on Transparency in Treaty-based Investor-State Arbitration”, 31 ICSID
Review – Foreign Investment Law Journal (2016) p. 622; Jansen CALAMITA, “The Changing
Landscape of Transparency in Investor-State Arbitration: The UNCITRAL Transparency
Rules and Mauritius Convention”, Austrian Yearbook on International Arbitration (2016)
p. 271; and Esme SHIRLOW, “Three Manifestations of Transparency in International
Investment Law: A Story of Sources, Stakeholders, and Structures”, 8 Goettingen Journal
of International Law (2017) p. 73, pp. 85-89.
87) Revision of the UNCITRAL Rules, Observations of the Government of Canada, UN Doc
A/CN.9/662 (12 June 2008).

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 KluwerArbitration

Document information
The ISDS Trinity and Early State Practice in Investor-State
Publication Arbitration
Evolution and Adaptation: Patrick Pearsall
The Future of International (*)
Arbitration
I Introduction
Topics Third-party participation in investor-State arbitration is now nearly universally possible.
Institutions, states, arbitrators, and most practitioners have accepted the concept of third-
Investment Arbitration party participation with exceptional speed. The number of third-party submissions has
grown steadily since 2001 and the renewed public attention to the investor-State dispute
system (ISDS) will almost certainly result in even more submissions in the years to come.
Bibliographic reference (1) As the breadth of these submissions increases, so too has the sophistication of the
practice.
Patrick Pearsall, 'The ISDS
Trinity and Early State P 669 Many have written on this topic. (2) Much of the discussion centers on how best to calibrate
Practice in Investor-State P 670 third-party participation within a system that is meant to depoliticize and provide
Arbitration', in Jean efficient adjudication. (3) Within these debates, and indeed within the evolution of third-
Engelmayer Kalicki and party participation in general, states have a unique role to play. (4) The role of the state as
Mohamed Abdel Raouf (eds), it relates to third-party participation is sometimes divergent and sometimes inconsistent
Evolution and Adaptation: – but it is always important. Indeed, from the perspective of other systemic actors, the role
The Future of International of the state is always primary. And the role of the state is no more crucial than at the early
Arbitration, ICCA Congress design stages of a procedural innovation.
Series, Volume 20 (© Kluwer States are the “ISDS Trinity” sitting at the center of the investor-State dispute system: they
Law International; are the lawgivers (through their treaty- and rule-making function); they are the protectors
International Council for of investment (through their establishment of transnational obligations and a
Commercial depoliticized system for efficient adjudication of disputes); and they are the respondents
Arbitration/Kluwer Law (through their offers to arbitrate in international investment treaties and subsequent
International 2019) pp. 669 - participation in the arbitral process).
690
States' stewardship of the system, especially on matters of transparency, is not without its
difficulties. Some observers suggest that states have been slow or unsophisticated in
P 670 responding to criticisms of “secrecy”, resulting in a “democracy deficit” and an almost
P 671 perpetual crisis of legitimacy. (5) Just how third-party participation fits into these
challenges, and whether third-party participation is properly understood as a component
of “transparency” at all, is itself up for debate. (6)
The focus of this short paper, however, is not to engage with this debate. Nor will the paper
dwell on the development of the practice generally or discuss how one might properly
account for third-party participation without negatively impacting the integrity of the
proceedings. (7) To be sure, we should continue to have these discussions and I am
confident they will continue long beyond this ICCA Congress.
Instead, my modest aim is to: (1) consider how the tripartite role of the state helps us
understand its behavior within the investor-State dispute system, (2) examine how the first
cases to deal with third-party participation provide an example of how the system can
evolve, and (3) present a few brief observations on how states react to innovation within
this framework. In short, to better anticipate how the system will evolve one should
recognize the different interests that a state must balance when making a decision at a
moment of innovation (or reform). How to understand these moments of innovation is very
much at the center of this Congress, including on issues related to third-party participation
and its future within investor-State arbitration.

II The “ISDS Trinity”: The Tripartite Role of the State in the Investor-
State Dispute System
States are unique in the investor-State dispute system. As a class of participants, states
occupy three distinct yet interconnected roles within the framework. What I call the ISDS
Trinity can be understood as shorthand for the state's systemic role as (1) lawgiver, (2)
P 671 protector, and (3) respondent. Each role has different attendant interests and thus each
P 672 state necessarily calibrates the emphasis it puts on these three roles in its own
parochial way based on its perceived needs. By definition states are different from one
another. (8) Thus, while every state must take account of its role within the ISDS Trinity, no
state is likely to fulfill its role identically to any other. In perfect balance, a visual
depiction of the ISDS Trinity might look like this:

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 For any given state the ISDS Trinity is not static and almost never in balance. Indeed, a
state's posture within the ISDS Trinity shifts internally depending on the dominant role it is
playing. For example, a state may privilege certain interests when it is sitting as a lawgiver
(e.g., at the negotiating table of a bilateral investment treaty (BIT) or at a United Nations
Commission on International Trade Law (UNCITRAL) Working Group it may prioritize
international norms) and other interests when it is a respondent in an active investor-State
arbitration (e.g., sovereignty). These shifts in emphasis do not necessarily mean that the
state is acting solely in its own self-interest or without care to its other roles within the
system (i.e., the other points of the Trinity). The state must understand the interests
underpinning each of the roles it plays within the ISDS Trinity at every systemic decision-
point. When lawgiver, it must also be mindful of its role as respondent and protector. When
respondent, it must be mindful of its role as lawgiver and protector, etc. Viewed in relation
to the ISDS Trinity, one can observe state action on the “evolution” of investor-State
arbitration in a new light.
One could apply the Trinity framework to any number of moments when a state must make
a decision within the investor-State dispute system. For illustrative purposes, and in part
because it is the topic of our panel, I focus on the innovation of third-party participation
within the system.
P 672
P 673
Role in Trinity Application of Interest
The state as lawgiver As lawgiver the state has a broad interest in
transparency, legitimacy, the rule of law,
and the consistency and correctness of
trans-substantive principles of treaty
interpretation. States have obligations
primarily to other states when acting as
lawgiver.
The state as respondent As respondent the state has a broad
interest in protecting its regulatory power
and general public welfare measures. This
interest manifests with a specific concern of
acceptance of process by local
constituencies. States have obligations
primarily to investors, other states, and
their domestic population when acting as
respondent.
The state as protector As the protector of its nationals who also
invest abroad, the state has a broad
interest in the depoliticization of disputes
and in the efficiency of a neutral dispute
resolution system. States have obligations
primarily to domestic constituencies when
acting as protector.

III The Punctuated Evolution of Third-Party Participation: METHANEX,

UPS, AGUAS DEL TUNARI, and VIVENDI
Professor Chester Brown, in his article entitled “The Contribution of Non-State Actors to the
Development of Transparency Regimes in Investment Treaty Arbitration”, contained in this
volume, does an excellent job placing third-party participation's origins in context. (9) I
won't endeavor to walk the same ground here, but some basic framing of the evolution of
third-party participation is important for my purposes as well. Evolution, the theme of this
ICCA Congress, provides an evocative vocabulary for this undertaking. Indeed while the
evolution of third-party participation in investor-State arbitration is reasonably well
P 673 documented, recounting a few key moments of punctuation is helpful. (10) Third-party
P 674 participation did not evolve gradually – it burst upon the scene and found a home
within the system almost immediately. Looking selectively at some of these formative

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 moments and how states responded at the time nicely demonstrates two additional ideas
of the paper: (1) states were reactive – not proactive or innovative – as third-party
participation evolved; and (2) once the concept of third- party participation evolved to a
point of viability, states were exceptionally quick to tear down the systemic barriers to its
growth in nearly every forum. In many ways, as the primary actors within the system, states'
quick reaction to these innovations became more important than the innovation itself.
The debt to commercial arbitration for many of the procedures found in investor-State
arbitration is well known. (11) Also well known are the differences between commercial
arbitration and investor-State arbitration on fundamental concepts of privity,
confidentiality, and party autonomy. (12) At first, the design of the investment arbitration
system left almost no room for third parties to participate in the process. Just under two
decades ago the participation of third parties in investor-State arbitrations was non-
existent. But as the world becomes smaller and information becomes more available to
the historically disenfranchised, “newness” has a way of entering an otherwise homogenous
discourse. (13) In what context such moments occur, and when, often informs how the
system's dominant actors react.

1 Methanex Corporation v. United States

Newness arrived within investor-State arbitration early in this century in the form of a
request for participation by a third party who was not involved in the underlying dispute.
On 25 August 2000, at the height of the global cosmopolitan effort to bring human rights
norms within the international legal paradigm, (14) for the first time, a third party
P 674 requested permission to participate in an investor-State arbitration as an “amicus curiae”.
P 675 (15) Under the sage direction of Professor Donald McRea and Howard Mann, a Canadian
NGO called the “The International Institute for Sustainable Development” (IISD) asked the
Methanex Corporation v. United State of America NAFTA Chapter 11 tribunal (V.V. Veeder,
Warren Christopher, and J. William Rowley) for “permission to submit an Amicus Curiae brief
to the Tribunal on critical legal issues of public concern in the arbitration[.]” (16)
The application was concise, spare, and persuasive. In explaining why they should be
permitted to file, the petitioners anticipated much of the substantive criteria that would
later govern such motions, noting that “[t]he legal issues raised in this case are of immense
public importance”, that the ruling “will have a critical practical impact on environmental
and other public welfare law-making at the federal, state and provincial levels throughout
the NAFTA region”, and that the subject under consideration “are matters of public interest
distinct from the commercial issues that arbitration processes normally handle”. (17)
The true innovation of the request, however, was the legal basis on which it argued for the
tribunal's authority to permit third-party participation. Arguing that the UNCITRAL
Arbitration Rules allow “broad discretion and flexibility in the conduct of the arbitral
proceedings” and relying on Art. 15(1), the petitioner asserted that nothing “prohibits the
Tribunal from granting the amicus status requested here”. (18) Everyone, including the
petitioner, recognized that this request was something completely new. (19)
P 675
P 676
Within just a few days, on 31 August 2000, the Claimant filed in opposition to the petition of
the IISD, citing the importance of confidentiality to the proceedings and noting that Art.
15(1) of the UNCITRAL Arbitration Rules is addressed toward procedural matters and not
matters such as third-party participation which it argued are more substantive rather than
procedural. (20) Just a few days later, on 6 September 2000, a second petition was received
by the tribunal by yet another third party seeking leave to file in the arbitration, this time
by a coalition of United States–based NGOs (Communities for a Better Environment, the
Blue Water Network of Earth Island Institute, and the Center For International Law). (21) The
coalition sought leave to present arguments about how best to balance property rights and
the government's authority to implement environmental regulations – a kind of precursor
to the “right to regulate” concerns that dominate the debate today.
On the same day, 6 September 2000, the Methanex tribunal held a procedural conference
and set a briefing schedule for third -party participation. The tribunal decided to permit
applications up to a deadline of 13 October 2000, later extended to 16 October 2000, and
specifically allowed for the NAFTA Parties to submit views on these questions soon
thereafter.
IISD responded to the Claimant's objection a few weeks later and elaborated on its
argument in support of its petition, including by highlighting the “troubling” failure of the
recently issued Metalclad Award (22) to make “any reference to the environmental and
sustainable development goals” recognized in the NAFTA – a perspective it promised to
provide if accepted as participants. (23)
The stage was now set for the NAFTA Parties to make their views known. It was the first time
in any investor-State arbitration where a state was to address the issue of third-party
participation. It was clearly a pivotal moment. All three NAFTA Parties submitted views: the
P 676 United States (in this case in its express role as a Disputing Party) on 27 October 2000, (24)
P 677 and both Mexico and Canada (as non-disputing Parties pursuant to a request by the
tribunal and the express authority granted by NAFTA Art. 1128) on 10 November 2000. (25)
When it comes to the NAFTA Parties and interpretation of NAFTA Chapter 11, commonality

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 in views is typically the norm. Nothing prohibits a NAFTA Party, including the Disputing
Party, from speaking with another NAFTA Party on questions of treaty interpretation. Often
this is done in advance of a NAFTA Art. 1128 submission (also called a non-disputing Party
submission) and helps ensure that whenever possible the NAFTA Parties are speaking with
one voice – a common view provides guidance to investors and tribunals alike. In the
autumn of 2000, however, the three states each had a unique and divergent view on the
question of third-party participation.
That the NAFTA Parties did not have a consensus view is, upon reflection, not necessarily
surprising. States are different and have different views. Difference is a core principle of
the Westphalian notion of sovereignty. From another perspective, perhaps it should have
been expected that the NAFTA Parties would adopt different positions – they were, after
all, representing somewhat divergent interests in the arbitration. Mexico and Canada, as
non-disputing Parties, were firmly in their role as “lawgivers” – by considering the
petition's implications for future arbitrations' legitimacy, for example – and as “protectors
of outward investment” – by considering how the introduction of third-party submissions
would impact their efforts to attract foreign investment, or in Canada's case impact their
investors' rights under the treaty. The United States, on the other hand, was obliged to not
only take those viewpoints into account, but also to take a position first and foremost as
“respondent” – that is, the party whose immediate and concrete interests were the subject
of the dispute. In that capacity, the United States had to keep an eye toward preserving
both its own regulatory authority vis-à -vis investors and its responsibility for the public
welfare of its constituents (i.e., its own citizens).
The United States supported “Petitioners' requests to make written amicus submissions”,
arguing that under “the rules governing this arbitration, the Tribunal may properly consider
petitions for leave to make amicus submissions and allow such submissions in instances it
deems appropriate”. The United States submitted that Methanex's position amounted to
treating the UNCITRAL Arbitration Rules and the NAFTA as analogous to “an arbitration
between private parties brought under the arbitration clause of a commercial agreement”.
(26) That position, it argued, was without merit. (27) In particular, reasoned the United
States, the tribunal's exercise of discretion was especially appropriate “where, as here, the
arbitration is against a sovereign State and also implicates substantial public interests”.
P 677 (28) The case, it explained, was “a dispute brought by a private party against a State that
P 678 (1) challenges sovereign acts under international law pursuant to a trilateral trade
agreement, and (2) implicates substantial public interests such as public health and the
environment”. (29)
Throughout its response, however, the United States clearly also kept its roles as “lawgiver”
and “protector of investment” front-of-mind. In making its conclusions, the United States
argued that an investor-State arbitration has a “fundamentally different nature than a
typical international commercial dispute” and that the tribunal's decision on the merits
“may have a significant effect beyond the two parties to the dispute”. (30) Finally, the
United States found no difficulty in the application of the UNCITRAL Arbitration Rules and
the NAFTA as permitting the tribunal to exercise its discretion (31) and believed that such
discretion in favor of acceptance of third-party submissions was particularly apt “upon a
showing by a non-disputing party of knowledge or expertise, and upon a determination by
the Tribunal that the submission would be both relevant and helpful to the Tribunal – yet
would not prejudice the rights of the parties or interfere with the efficient advancement of
the proceedings” and that failure to do so may “reinforce the growing perception that
Chapter Eleven dispute resolution is an exclusionary and secretive process”. (32)
Mexico, which occupied a different role in the arbitration as a non-disputing Party, did not
agree with the United States. In its submission, Mexico drew a clear line within the NAFTA
itself. It noted that the definition of “disputing Parties” provided by application of Art. 1139
as “the disputing investor and the disputing Party”, that apart from non-disputing Parties
under Art. 1128, “no other person has a legal interest in the dispute, and therefore, Chapter
Eleven does not provide for the intervention of other persons”. (33) Moreover, because
NAFTA Parties must limit themselves to submissions on matters of treaty interpretation
only, Mexico pointed out that third parties would thus “have greater rights than the NAFTA
Parties themselves” and would “render Article 1128 meaningless, contrary to the principle
of effectiveness in international treaty interpretation, because the NAFTA Parties would
then be able to make submissions on questions on interpretation of the Agreement under
Article 1128, and file amicus briefs for other purposes”. (34)
Furthermore, Mexico raised a concern customary to any “lawgiver” – namely, the need to
P 678 protect the integrity of both its own legal system and its obligations under a multinational
P 679 agreement. Mexico pointed out that third-party participation is not provided for in civil
law jurisdictions and that the tribunal must be sensitive to the fact that the investor-State
dispute system provided for in the NAFTA draws “a careful balance between the
procedures of common law countries and those of civil law countries (such as Mexico)” and
that the “fact that a specific procedure or legal concept may exist in a Party's domestic law
cannot serve as grounds to transport it into the international plane”. (35) No doubt mindful
of the Methanex tribunal's common law background, Mexico cautioned:
“Even though in this arbitration both the disputing Party and the Party of the
disputing investor are common law countries, Mexico is concerned that
concepts or procedures that are alien to its legal tradition and which were not

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 agreed to as part of the NAFTA may be imported into NAFTA dispute settlement
proceedings, and set a precedent for future cases in which Mexico is involved as
the disputing Party.” (36)
Canada adopted a more cautious approach and sought to encourage consensus among the
NAFTA Parties. In its relatively short submission, Canada agreed with the United States that
although “only NAFTA Parties have the right to make submissions on questions of
interpretation of the NAFTA” and that a third party has no such right, but that it too was
“mindful” of “the public interest in these matters” and therefore “sympathetic to the
interests of the Petitioners”. Because nothing in the NAFTA or the UNCITRAL Arbitration
Rules expressly prohibited third-party participation, Canada was inclined to suggest that
“in this case, the Tribunal should accept the written submissions of the Petitioners”. (37)
Canada, however, expressly disclaimed the precedential value of its statement and stated
that it “is without prejudice to the position Canada may take in other NAFTA Chapter
Eleven cases”. (38)
Nevertheless, Canada recognized the “importance of ensuring uniformity and
predictability in the rules and procedures governing the settlement of investment-state
disputes” and that there “are numerous complex legal and technical issues raised by the
question of whether and how a NAFTA Chapter Eleven tribunal should receive submissions
from persons other than the disputing Parties or the non-disputing NAFTA Parties” and
therefore implored the “NAFTA partners to work together on the issue of amicus curiae
participation as a matter of urgency in order to provide guidance to Chapter Eleven
tribunals”. (39) In this respect, Canada can be seen as representing the “protector of
investment” viewpoint by calling for a predictable, uniform interpretation of the NAFTA
dispute resolution process – an important concern for investors – as well as the viewpoint
of “lawgiver” concerned about consistency and legitimacy of the system.
P 679 The tribunal's decision on this request in Methanex Corporation v. United States of America
P 680 was not only “new”, it was groundbreaking. Relying on Art. 15(1) of the UNCITRAL
Arbitration Rules, the tribunal reasoned that it had broad and discretionary powers on
questions of procedure and that it therefore “has the power to accept amicus submissions
(in writing) from each of the Petitioners, to be copied simultaneously to the legal
representatives of the Disputing Parties, Canada and Mexico”. (40)
The thoughtful and thorough decision of the unanimous tribunal directly replied to the
submissions by the NAFTA Parties. With respect to the role of third parties vis-à-vis non-
disputing Parties (i.e., the other NAFTA Parties both of whom had a right to participate
pursuant to NAFTA Art. 1128) and the concerns raised in each NAFTA Party's submissions, the
tribunal was categorical that in its view: “receipt of written submissions from a person
other than the Disputing Parties is not equivalent to adding that person as a party to the
arbitration” and therefore the “rights of the Disputing Parties in the arbitration and the
limited rights of a Non -Disputing Party under Article 1128 of NAFTA are not thereby
acquired by such a third person”. Focusing on the limited nature of third-party
participation, and in direct response to concerns raised by the NAFTA Parties, the tribunal
made it clear that the NAFTA Parties' “rights, both procedural and substantive, remain
juridically exactly the same before and after receipt of such submissions; and the third
person acquires no rights at all”. (41)
As for the difficulties in responding to third-party submissions, the tribunal noted that “[i]t
would always be the Tribunal's task, assisted by the Disputing Parties, to adopt procedures
whereby any burden in meeting written submissions from a Petitioner was mitigated or
extinguished”. (42) As a nod in that direction, and consistent with what the tribunal
understood as its authority under the UNCITRAL Arbitration Rules and the NAFTA, it limited
the scope of third-party participation to just written submissions, noting that “it has no
power to accept the Petitioners' requests to receive materials generated within the
arbitration or to attend oral hearings of the arbitration”. (43)
Finally, the tribunal addressed several points that were more systemic in nature. First, it
directly addressed Mexico's express concern that a decision to allow third- party
submissions would be privileging one legal tradition (namely, common law) over another.
“In coming to this conclusion,” the tribunal stressed, “[it] has not relied on the fact that
amicus submissions feature in the domestic procedures of the courts in two, but not three,
NAFTA Parties.” (44)
Second, it associated itself with the views of the United States and Canada that “the
Chapter 11 arbitral process could benefit from being perceived as more open or
transparent; or conversely harmed if seen as unduly secretive”. The tribunal thereby
aligned itself as a lawgiver and asserted that its “willingness to receive amicus submissions
might support the process in general and this arbitration in particular; whereas a blanket
refusal could do positive harm”. (45)
P 680
P 681
Third, and finally, the tribunal expressly limited (or at least purported to limit) the power
of its decision and stated that it “can set no legal precedent, in general or at all” and “has
no power to determine for other arbitration tribunals how to interpret Article 15(1)” and “in
a later arbitration, there may be other circumstances leading that tribunal to exercise its
discretion differently”. (46) Implicitly echoing Canada's call for consistency and placing its

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 totality of the circumstances- based approach directly to the NAFTA Parties, the tribunal
concluded with: “For each arbitration, the decision must be made by its tribunal in the
particular circumstances of that arbitration only.” (47)

2 United Parcel Service of America, Inc. v. Government of Canada

Another NAFTA tribunal was confronting the same questions on an overlapping time frame.
On 8 November 2000 – more than two months before the Methanex tribunal issued its
decision – another coalition submitted an application to the Chapter 11 tribunal in United
Parcel Service of America Inc. v. Government of Canada NAFTA (Dean Ronald A. Cass, L. Yves
Fortier, and Kenneth Keith). The application was brought on behalf of the Canadian Union
of Postal Workers (which represented approximately 46,000 operational employees of the
Canadian Postal Service) and the Council of Canadians (a non-partisan Canadian NGO)
requesting, inter alia, standing as Parties in the proceedings, or, in the alternative, “the
right to intervene in such proceedings in accordance with the principles of fundamental
justice”. (48)
In their application, the petitioners acknowledged “the relative novelty of [their]
application” and noted that “[w]hile the issue of third party intervention in arbitral
proceedings is not without precedent, it has very rarely arisen in the modern era of
international commercial arbitration”. (49) In explaining why they should either be
admitted standing as Parties to the proceedings, or the right to intervene in the
proceedings, the petitioners argued: (i) they had direct interests in the outcome of the
case; (ii) “this claim has broader public policy implications that are also of vital concern to
the Petitioners”; and (iii) the UNCITRAL process reserved “exclusively to those with
standing as Parties, certain matters that are of vital concern to the Petitioners. These
issues include the extent to which Canadian courts will maintain judicial oversight of these
proceedings, and the lack of transparency that traditionally characterizes such arbitral
processes.” (50) The petitioners further argued that the authority to grant third-party
standing was provided for by a number of international conventions, customs, and
jurisprudence including, for example, Art. 15(1) of the UNCITRAL Arbitration Rules. (51)
P 681
P 682
Without directly addressing the threshold question of its authority to consider third-party
applications, on 17 April 2001, the tribunal ordered the petitioners to file briefs in respect
of their petition by 14 May 2001, with the Parties replying on 28 May 2001. (52)
Consequently, on 10 May 2001, the Canadian Union of Postal Workers and the Council of
Canadians filed a second petition repeating their requests of 8 November 2000. (53)
All three NAFTA Parties submitted comments on the application: Canada (in its role as a
Disputing Party) on 28 May 2001; (54) and both Mexico and the United States (as non-
disputing Parties) on 11 June 2001. (55)
In its submission, Canada stated that it “supports greater openness in NAFTA Chapter
Eleven proceedings and appreciates the contribution that transparency brings to building
public confidence in the investor-state dispute settlement process”. (56) In this
submission, however, it went further than it had in Methanex, setting forth a legal argument
in affirmative support of acceptance, rather than expressing a mere inclination. Canada
argued that, whilst the tribunal had no explicit jurisdiction to add the petitioners as
Parties to the proceedings, it did have discretion, pursuant to Art. 15(1) of the UNCITRAL
Arbitration Rules, to receive written briefs from third parties. Canada further argued that,
in deciding whether to accept requests for intervention, the tribunal should consider
whether:
“(a) There is a public interest in the arbitration;
(b) The Petitioners have sufficient interest in the outcome of the arbitration;
(c) The Petitioner's submissions will assist in the determination of a factual or legal issue
related to the arbitration by bringing a perspective or particular knowledge that is
different from that of the disputing parties; and
(d) The Petitioners' submissions can be received without causing prejudice to the
disputing parties.” (57)
Mexico agreed with Canada's argument that the tribunal had no jurisdiction under the
P 682 NAFTA and the UNCITRAL Arbitration Rules to add the petitioners as additional disputing
P 683 Parties to the proceedings. (58) But, consistent with its arguments in Methanex, Mexico
disagreed with Canada's view on the tribunal's ability to allow third-parties to file written
submissions. Mexico argued that “the absence of express language in [the NAFTA] means
that the Tribunal cannot take it upon itself to authorize actions that the sovereign States
party to the Treaty did not authorize”. (59)
Conversely, the United States agreed with Canada's views that tribunals are not authorized
under the NAFTA to grant third parties standing in arbitral proceedings, but that “in
proceedings governed by the UNCITRAL Arbitration Rules, tribunals are authorized to
accept written submissions of such third parties as amici curiae”. (60) This view was again
consistent with the United States' arguments in Methanex.
On 17 October 2001, the tribunal issued its decision on the petition. The tribunal held that
it had the authority to permit third -party participation pursuant to Art. 15(1) of the

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 UNCITRAL Arbitration Rules, stating “[t]he Tribunal declares that it has power to accept
written amicus briefs from the Petitioners”. (61) The tribunal, however, deferred
consideration of receiving briefs until the merits stage of the arbitration following
consultation with the Parties.
On 20 October 2005, the tribunal received another application from the Canadian Union of
Postal Workers and the Council of Canadians for “standing to participate in these
proceedings”. (62)
In explaining why they should be permitted to file a submission, the petitioners relied on
some of the same substantive criteria that were relied upon by the petitioners in the
Methanex case. In particular, the petitioners argued:
“[t]here is also a considerable public interest in the subject matter of the
arbitration that arises from the potential of this claim to impugn the validity of
an important Canadian cultural program, and to expand the scope of investor-
state litigation in a manner that will encourage future claims assailing Canadian
policy and law as it relates to other public services, such as those relating to
health care and libraries.” (63)
The petitioners further argued that (i) their “submissions would assist the Tribunal in the
determination of factual and legal issues related to this arbitration and bring a
perspective, particular knowledge and insight that is different from that of the disputing
parties”; (ii) they “ha[d] a significant and direct interest in this arbitration”; and (iii) their
“views on several of the issues that arise in these proceedings are likely to be quite distinct
from those of Canada and Canada Post”. (64)
P 683
P 684
On the same day, the tribunal received an application from the US Chamber of Commerce,
a business federation representing “the interests of United States investors abroad”. (65)
The US Chamber of Commerce argued that the criteria tribunals should consider in
exercising their discretion to allow third-party participation were derived from decisions
in Methanex, Aguas Argentinas S.A. et al v. The Argentine Republic, and from the UPS
tribunal's 17 October 2001 decision discussed above. It argued that those decisions
established the following criteria: (i) will the submissions assist the tribunal in providing
perspective, knowledge, expertise, insight or material not provided by the parties? (ii) will
the submission address matters within the scope of the dispute? (iii) does the applicant
have a significant interest in the arbitration? and (iv) is there a public interest in the
subject matter of the arbitration? The petitioners further argued that such considerations
are to be balanced against the possibility of unduly burdening or unfairly prejudicing the
parties or the process. (66)
On 10 November 2005, Canada filed a response to the US Chamber of Commerce's
application in which it did not object to the filing of a submission.
Although no formal decision was issued with respect to the third-party applications, the
tribunal's eventual Award indicates in its report on the procedural history that it accorded
the US Chamber of Commerce amicus status. The Award further suggests that the
submission of the Canadian Union of Postal Workers and the Council of Canadians was also
accepted. (67)

3 The FTC Statement

In the midst of this rapidly changing environment, the NAFTA Parties took up Canada's call
from its submission in Methanex to seek consensus on third-party participation.
Throughout the next several months the NAFTA Parties, now acting primarily in their roles
as “lawgivers”, worked to develop a common approach for third-party participation. The
speed with which the NAFTA Parties acted is remarkable. Only two years after the tribunals'
decisions on third-party participation in Methanex and UPS, the three NAFTA Parties had
come to a compromise consensus position and, sitting as the authoritative Free Trade
Commission (FTC), (68) issued an official statement favoring the availability of third-party
participation. (69) Without question, the Methanex tribunal's decision that it had discretion
P 684 to permit third-party submissions and would exercise that discretion in favor of
P 685 acceptance was instrumental in the ultimate decision by the NAFTA Parties to issue the
FTC Statement. (70) The FTC Statement adopted much of the Methanex tribunal's approach
and read: “No provision of the North American Free Trade Agreement (“NAFTA”) limits a
Tribunal's discretion to accept written submissions from a person or entity that is a not a
disputing party….” (71) It further set out the considerations a tribunal should take into
account when determining whether to grant leave to file a third-party submission, which
included the extent to which:
“(a) the [third-]party submission would assist the Tribunal in the determination of a
factual or legal issue related to the arbitration by bringing a perspective, particular
knowledge or insight that is different from that of the disputing parties;
(b) the [third-]party submission would address matters within the scope of the dispute;
(c) the [third-] party has a significant interest in the arbitration; and
(d) there is a public interest in the subject-matter of the arbitration.” (72)

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 The FTC Statement offered further guidance to NAFTA Chapter 11 tribunals that in
exercising its discretion to allow third-party participation, the tribunal must ensure that
“(a) any [third] party submission avoids disrupting the proceedings; and (b) neither
disputing party is unduly burdened or unfairly prejudiced by such submissions”. (73) At the
2003 annual meeting of the FTC, at which the FTC Statement was issued, US Trade
Representative Robert B. Zoellick commented: “We are pleased that we have been able to
take further steps to enhance the public participation and understanding of the dispute
settlement process.” (74)

4 Aguas del Tunari S.A. v. Bolivia

Meanwhile, third-party participation was first considered by an ICSID tribunal in Aguas del
Tunari S.A. v. Bolivia (David D. Caron, José Luis Alberro-Semerena, Henri C. Alvarez). On 29
August 2002, various NGOs and individuals submitted a petition to intervene in the
arbitration as Parties, or, in the alternative, to participate as “amicus curiae”. (75) Like the
third parties in Methanex, the petitioners asserted that the tribunal's decision was “likely
to affect issues of broad public concern”, including water rights and the environment, and
that petitioners were uniquely situated to “represent the concerns of a broad sector of the
P 685 public in Bolivia and throughout the world”. (76) But the petitioners also invoked systemic
P 686 arguments directed at investor-State arbitrations writ large, claiming that
“fundamental fairness and the legitimacy of the Tribunal's award requires that the Tribunal
allow Petitioners to intervene in these proceedings”. (77) The petition included a detailed
list of specific requests, including the right to make submissions regarding procedures,
jurisdiction, arbitrability, and the merits; permission to attend hearings and make oral
presentations; and secure immediate access to the Parties' submissions. The petition
made additional requests in support of its appeal to transparency and legitimacy,
including public disclosure of the Parties' submissions, reports, and hearing transcripts;
making all hearings open to the public; and holding a public hearing in Cochabamba, the
city at the heart of the dispute, to develop the facts of the case. (78)
The petition's legal argument echoed the third-party petition in UPS, albeit in a different
legal framework – it claimed that the decision as to the petitioners' participation was a
procedural issue rather than a substantive one. Noting that the ICSID Convention was silent
on the question of their participation, the petitioners directed the tribunal to Art. 44,
which “explicitly allows [it] to decide on any question of procedure not covered by those
instruments or by a rule agreed by the parties”. (79) They further argued that the tribunal's
discretion could override any objection of the Parties in appropriate circumstances, such
as when the “character of claims … raises broad issues of public concern”. (80) And, citing
an “authoritative text” requiring that arbitrations avoid acting in a manner contrary to
public policy in the state where the arbitration is held, the petitioners argued that their
participation was acceptable because Bolivian public policy gives third parties the
opportunity to participate in disputes. (81)
The tribunal was no doubt aware of the Methanex and UPS rulings on third-party
participation, not least because petitioners had addressed both cases at length. (82)
Nonetheless, the tribunal proclaimed itself constrained in its authority under the ICSID
P 686 Convention and the Netherlands-Bolivia BIT. It did not engage in a comparison between its
P 687 own perceived authority and that vested to a NAFTA Chapter 11 tribunal operating under
the UNICTRAL Arbitration Rules. (83) Although it appears that neither Party filed formal
submissions responding to the petition, the tribunal noted that it had requested and
received the Parties' views, and the petition was discussed at the arbitration's First
Session on 9 December 2002. (84)
In a letter dated 29 January 2003, the tribunal unanimously concluded that the third
parties' request was beyond the power or authority of the tribunal. In its reasoning, the
tribunal commented that “[t]he interplay of the two treaties involved [i.e., the ICSID
Convention and the 1992 Netherlands-Bolivia BIT] and the consensual nature of arbitration
places the control of the issues … with the parties, not the Tribunal”. (85) It found that
without the Parties' consent, it could not grant to third parties permission to intervene in
the proceedings, and could not provide access to hearings or transcripts for either third
parties or the public. (86) It also commented that there was no present need to call
witnesses or seek third-party submissions. (87) The tribunal hastened to express its respect
for the petitioners, however, emphasizing that the “briefness of our reply should not be
taken as an indication that your request was viewed in other than a serious manner” and
noting that it appreciated the petitioners' concern with the matter's resolution. (88)

5 Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v.
Argentina
A few years after the Aguas decision, an ICSID tribunal came to the opposite conclusion. On
28 January 2005, the tribunal in Suez, Sociedad General de Aguas de Barcelona S.A., and
Vivendi Universal S.A. v. Argentina (Gabrielle Kaufmann-Kohler, Pedro Nikken and Jeswald
W. Salacuse), received an application from four Argentine-based NGOs and one
international NGO, inter alia, for permission to “present legal arguments as amicus curiae”.
(89)
The Claimants and Argentina both filed observations on the application. The Claimants
asked the tribunal to refuse the request, whilst Argentina “expressed its approval”. (90) The

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 Parties' observations are not publicly available, so we cannot evaluate how Argentina
balanced its tripartite roles as “lawgiver”, “protector of outward investment”, and
“respondent” in addressing the petition.
P 687
P 688
On 19 May 2005, the tribunal issued its decision on the application, commenting that
“[n]either the ICSID Convention nor the Arbitration Rules specifically authorize
or specifically prohibit the submission by nonparties of amicus curiae briefs or
other documents. Moreover, to the knowledge of the Tribunal, no previous
tribunal functioning under ICSID Rules has granted a nonparty to a dispute the
status of amicus curiae and accepted amicus curiae submissions.” (91)
The tribunal then proceeded to discuss each element of its decision in turn.
First, it considered whether it had the power to accept and consider submissions by third
parties. Relying on the “grant of residual power to the Tribunal to decide procedural
questions…” in Art. 44 of the ICSID Convention, the tribunal found that it did have power to
admit submissions from “suitable nonparties in appropriate cases”. (92) The tribunal
commented that “[t]he admission of an amicus curiae submission would fall within this
definition of procedural question since it can be viewed as a step in assisting the Tribunal
to achieve its fundamental task of arriving at a correct decision in this case”. (93)
Borrowing from the key turning point in the evolution of third-party participation in the
NAFTA context, the tribunal referenced the decision in Methanex, noting that it “supports
the conclusion of the present Tribunal with respect to its power to admit amicus
submissions in this case. The Methanex tribunal, interpreting Art. 15(1) of the UNCITRAL
Arbitration Rules, which is substantially similar to Art. 44 of the ICSID Convention,
concluded that the UNCITRAL Rules gave it power to accept amicus briefs.” (94)
The tribunal then went on to consider the conditions for the admission of third-party
submissions. Basing its conclusions on “a review of amicus practices in other jurisdictions
and fora”, the tribunal found that the power to accept third -party submissions should
depend on three basic criteria: “(a) the appropriateness of the subject matter of the case;
(b) the suitability of a given nonparty to act as amicus curiae in that case, and (c) the
procedure by which the amicus submission is made and considered”. (95) In relation to the
tribunal's second criterion, it further commented that it would only accept submissions
from “persons who establish to the Tribunal's satisfaction that they have the expertise,
experience, and independence to be of assistance in this case”. (96) The tribunal
commented that the application of these criteria “will enable it to balance the interests of
concerned nondisputant parties to be heard and at the same time protect the substantive
and procedural rights of the disputants to a fair, orderly, and expeditious arbitral process”.
(97)
P 688
P 689 In applying the three criteria set out above, the tribunal commented that:
“[t]he acceptance of amicus submissions would have the additional desirable
consequence of increasing the transparency of investor-state arbitration. Public
acceptance of the legitimacy of international arbitral processes, particularly
when they involve states and matters of public interest, is strengthened by
increased openness and increased knowledge as to how these processes
function. It is this imperative that has led to increased transparency in the
arbitral processes of the World Trade Organization and the North America Free
Trade Agreement. Through the participation of appropriate representatives of
civil society in appropriate cases, the public will gain increased understanding
of ICSID processes.” (98)
The tribunal concluded, however, that in order to make a decision as to whether the
petitioners should be allowed to file a written submission, further information was needed
in relation to, inter alia, their identity and backgrounds and interest in the case. (99)
Subsequently, on 1 December 2006, the petitioners filed a further petition. (100) Again,
both the Claimants and Argentina filed observations on the petition; again, those
observations are not publicly available.
The tribunal's ultimate Order, however, provides a high-level overview of the Parties'
responses in its recitation of the case's procedural history. The Claimants had asked the
tribunal to reject the petition for a number of reasons, including that: (i) the petitioners
offered no new factual elements to the arbitration and would only make inappropriate
legal arguments; (ii) none of the issues the petitioners proposed to raise concerned the
public interest in the dispute or fell within the subject matter of the dispute; and (iii) the
petition had been filed too late and was likely to cause disruption to the proceedings. On
the contrary, Argentina had submitted that it had no objection to the petition. The Order
provides no additional detail with respect to Argentina's submission. (101) Based on the
further information provided, on 12 February 2007, the tribunal granted the petitioners
permission to file a joint submission of no more than thirty pages. (102) The submission was
filed on 4 April 2007, subsequent to which it was transmitted to the Parties for their
observations. (103) It is not clear from the publicly available documents whether the
Parties did in fact file any observations on the submission. (104)
P 689

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 P 689
P 690

IV Conclusion
So why did third-party submissions, and by that I mean written amicus submissions,
became so evolutionarily preferred? My point of interest in recounting the above is to take
a quick look at state action at the moment of innovation. The advent of third-party
submissions did not evolve gradually – it burst upon the scene and found a home within
the system almost immediately. The example that I and several of my co-panelists discuss
in our papers is rightly the moment when the innovation of third-party submissions first
occurred. The NAFTA Parties quickly assessed the viability of the concept – I argue within
the framework of the Trinity as lawgiver, respondent, and protector – and accepted the
possibility of third-party submissions with unprecedented speed. The debates at the time
make clear that they found comfort that the divergent and sometimes conflicting interests
of the Trinity were in sufficient balance and that the concept of third-party submissions
vindicated several of the key interests of each role. Once brought in, the NAFTA Parties and
thereafter tribunals and institutions quickly tore down the obstacles to third-party
submissions.
We are now in a time of rising populism and resurgent nationalism. The question of ISDS
reform echoes within a larger conversation regarding global trade and investment. Many
governments are beginning to question whether foreign investment – and the
accompanying investor-State dispute system – is a transnational and cosmopolitan good.
These dynamics are likely to further complicate the debate currently underway at the
UNCITRAL Working Group III meetings and elsewhere in international investment
agreement negotiations.
Realignment of preferred trading partners will test the universality of transparency as
being in the public's interest and increased regional segmentation will test the cultural
bias of these norms. What quickly evolves is not always durable. Finally, the various efforts
underway to redesign aspects of the ISDS adjudicatory process may result in significant
changes to what is understood as transparency. It is an open question, for example,
whether states are more comfortable with secrecy within a “standing court” procedure
versus in an ad hoc tribunal process. What is clear to me at least is that all of these
challenges will be assessed by states that participate in the investor-State dispute system.
Whether knowingly or not, the states that participate in the investor -State dispute system
will test the various innovations to transparency in the years to come against the crucible
of their roles within the Trinity.
P 690

References
*) Patrick W. Pearsall: Partner, Chair of Public International Law, Jenner & Block LLP,
Washington D.C.
1) Sophie LAMB, et. al., “Recent Development in the Law and Practice of Amicus Briefs in
Investor-State Arbitration”, 5 Indian J. Arb. L. (2017, issue 2) p. 87, fn. 72 (noting that
“[t]he ratio of tribunal decisions on amicus applications to cases registered with ICSID
was approximately 1:6 in 2015 and 1:7 in 2016 (January to September). These ratios
stood at 1:31 in 2001 and 1:23 in 2006 (ICSID tribunals did not make any decisions on
amicus applications between 2002 and 2005).”).

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 2) There have been well over 120 articles on third-party participation in investor-State
arbitration published between 2001 and 2018. Some of the more recent and
comprehensive works include: A. SARAVANAN and Dr. S.R. SUBRAMANIAN, “The
Participation of Amicus Curiae in Investment Treaty Arbitration”, 5 Journal of Civil &
Legal Sciences (2016, no. 4); J. Christopher THOMAS, “Amicus Curiae in ICSID
Arbitration” in Meg KINNEAR et. al., eds., Building International Investment Law: The
First 50 Years of ICSID (Kluwer Law International 2015) pp. 685-698; Laurence BOISSON
De CHAZOURNE and Rukia BARUTI DAMES, “Transparency in Investor-State Arbitration:
An Incremental Approach”, 2 BCDR Int'l Arb. Rev. (2015, no. 1) pp. 59-76; Mariel DIMSEY,
“Article 4. Submission by a Third Person” in Dimitrij EULER, et. al., eds., Transparency
in International Investment Arbitration (Cambridge University Press 2015) pp. 128-195;
Chiara RAGNI, “The Role of Amicus Curiae in Investment Disputes” in Tullio TREVES et.
al., eds., Foreign Investment, International Law and Common Concerns (Routledge
2014); Paul COATES, “The UNCITRAL Rules on Transparency in Treaty-based Investor-
State Arbitration: Continuing the Evolution of Investment Treaty Arbitration”, 17 Int'l
Arb. L. Rev. (2014, no. 6); Lucas BASTIN, “Amici Curiae in Investor-State Arbitration:
Eight Recent Trends”, 30 Arb. Int'l (2014, no. 1) pp. 125-144; Maciej ZACHARIASIEWICZ,
“Amicus Curiae in International Investment Arbitration: Can it Enhance the
Transparency of Investment Dispute Resolution?”, 29 J. Int'l Arb. (2012, no. 2), pp. 205-
224; Katia Fach GÓMEZ, “Rethinking the Role of Amicus Curiae in International
Investment Arbitration: How to Draw the Line Favorably for the Public Interest”, 35
Fordham Int'l L. J. (2012, no. 2) pp. 510 -564; Eugenia LEVINE, “Amicus Curiae in
International Investment Arbitration: The Implications of an Increase in Third-Party
Participation”, 29 Berkley J. Int'l L. (2011); Noah RUBINS, “Investment Arbitration –
“Transparency” in Investment Arbitration: A Call to Cost-Benefit Analysis” in Christian
KLAUSEGGER, et. al., eds., Austrian Yearbook on International Arbitration 2010
(Manzsche Verlags- und Univeristätsbuchhandlung 2010) pp. 293-305; Stanimir A.
ALEXANDROV and Marinn CARLSON, “The Opportunity to Be Heard: Accommodating
Amicus Curiae Participation in Investment Treaty Arbitration” in Miguel Angel
FERNÁNDEZ-BALLESTER and David ARIAS, eds., Liber Amicorum Bernando Cremades (La
Ley 2010) pp. 49-64; Nigel BLACKABY and Caroline RICHARD, “Amicus Curiae: A
Panacea for Legitimacy in Investment Arbitration?” in Michael WAIBEL, et. al., eds.,
The Backlash Against Investment Arbitration (Kluwer Law International 2010), pp. 253-
274; Karl-Heinz BÖCKSTIEGEL, “Transparency and Third-Party Participation in
Investment Arbitration” in Rainer HOFMANN and Christian J. TAMS, eds., The
International Convention on the Settlement of ICSID Disputes (ICSID):Taking Stock after
40 years (Nomos 2007) pp. 209-212.
3) See e.g., Noah RUBINS, “Investment Arbitration – Opening the Investment Arbitration
Process: At What Cost, for What Benefit?” in Christian KLAUSEGGER, et. al., eds.,
Austrian Arbitration Yearbook 2009 (Manzsche Verlags- und Univeristätsbuchhandlung
2009) pp. 483-492; Charles BROWER and Stephan SCHILL, “Is Arbitration a Threat or a
Boon to the Legitimacy of International Investment Law?”, 9 Chi. J. Int'l L. (2009, no. 2)
p. 471.
4) The role of the “state” in investment arbitration has long been the subject of many
excellent works of scholarship. Without necessarily aligning myself with the views
expressed therein one way or another, perhaps one of the best discussions of the
many roles of the state in investment treaty practice is Anthea ROBERTS, “Power and
Persuasion in Investment Treaty Interpretation: The Dual Role of States”, 104 Am. J.
Int'l L. (2010, no. 2) pp. 179-225.
5) Anthony DEPALMA, “NAFTA's Powerful Little Secret; Obscure Tribunals Settle Disputes,
but Go Too Far, Critics Say”, New York Times, A1 (11 March 2001) (“Their meetings are
secret. Their members are generally unknown. The decisions they reach need not be
fully disclosed. Yet the way a small group of international tribunals handles disputes
between investors and foreign governments has led to national laws being revoked,
justice systems questioned and environmental regulations challenged. And it is all in
the name of protecting the rights of foreign investors under the North American Free
Trade Agreement.”). This now famous passage put the transparency debate front and
center, literally, within the United States. See also Barnali CHOUDHURY, “Recapturing
Public Power: Is Investment Arbitration's Engagement of the Public Interest
Contributing to the Democratic Deficit?” 41 Vand. J. Transnat'l L. (2008) p. 775 (quoted
from same in N. BLACKABY and C. RICHARD, “Amicus Curiae: A Panacea for Legitimacy
in Investment Arbitration?”, fn. 71, “[o]ne method of reducing the democratic deficit is
to enhance public debate and participation in the investment arbitration process
such that the public feel as though they have a meaningful say in the arbitral tribunal
outcomes”.); OECD, Transparency and Third Party Participation in Investor State Dispute
Resolution (2005) para. 1, noting that “confidential in camera proceedings has come
under increased scrutiny and criticisms”.
6) See N. BLACKABY and C. RICHARD, “Amicus Curiae: A Panacea for Legitimacy in
Investment Arbitration?”, fn. 2 above (citing at fn. 7, Thomas N. HALE and Anne-Marie
SLAUGHTER, “Transparency: Possibility and Limitations”, 30 Fletcher Forum of World
Affairs (2006) pp. 153, 163 as describing “the term transparency as an ‘egregiously
overused and poorly understood buzzword’”.); M. ZACHARIASIEWICZ, “Amicus Curiae in
International Arbitration: Can It Enhance the Transparency of Investment Dispute
Resolution?”, fn. 2 above.

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 7) State action in the formative years of third-party participation circumscribed this
inquiry within the text of various arbitration rules and international treaties
themselves. Contrast this, for example, with the more reticent action by states
concerning security for costs or so-called “double hatting” by arbitrators.
8) Ian BROWNLIE, Principles of Public International Law,5th ed. (Oxford University Press
1998) pp. 83-85.
9) Chester BROWN, this volume, pp. 653-668.
10) S. J.GOULD, Punctuated Equilibrium (Belknap Press 2007).
11) Karl-Heinz BÖCKSTIEGEL, “Commercial and Investment Arbitration: How Different Are
They Today?: The Lalive Lecture 2012”, 28 Arb. Int'l (2012, no. 4) pp. 577-590.
12) Jan PAULSSON, “Arbitration Without Privity”, 10 ICSID Rev. – Foreign Investment L. J.
(1995, no. 2) pp. 232-257.
13) Homi K. BHABHA, “How Newness Enters the World: Postmodern space, postcolonial
times and the trials of cultural translation” in Homi K. BHABHA, The Location of Culture
(Routledge 1994).
14) F. FUKUYAMA, The End of History and the Last Man (Perennial, New York 2002); cf.
Costas DOUZINAS, The End of Human Rights: Critical Legal Thought at the Turn of the
Century (Hart Publishing 2000).
15) The term “amius curiae” was used by the petitioners in the Methanex Chapter 11
dispute and has been used by many scholars, practitioners, applicants, and tribunals
since. Use of this term is unsurprising because it is the term used for similar
submissions in common law jurisdictions. The NAFTA Parties themselves at first
adopted the term “amicus curiae” when providing their views in the Methanex
arbitration. Thereafter in their FTC Statement, discussed below, the NAFTA Parties
referred to these submissions as “non-disputing party submissions”, with a lower-case
letter “p” perhaps in an attempt to bring this new practice more clearly within the
terminology of the NAFTA itself in NAFTA Art. 1128. That choice by the NAFTA Parties
has become confusing to some in relation to the terminology of NAFTA Art. 1128, which
concerns “non-disputing Party,” with a capital “p” and refers to submissions on
matters of treaty interpretation by the other NAFTA Parties. NAFTA Parties, however,
need not seek special leave from the tribunal to submit their views. The status of a
non-NAFTA Party that seeks to provide a submission is therefore different and the
nuance of a lower-case letter has occasionally been overlooked. Arbitral rules have
also used various formulations as the practice developed. Indeed the United States
has at times returned to calling these submissions “amicus curiae” submissions in its
public statements relating to its more recent ISDS provisions. To make matters even
more complicated, recent multilateral treaties and efforts to harmonize the practice
have used the term “third-party” submissions. In this regard, the use of that term by
the UNCITRAL Rules on Transparency is particularly noteworthy. It may yet take a few
years to coalesce around terminology. The ICSID Rules amendment process, currently
under way during the writing of this paper, is proceeding in the shadow of the
UNCITRAL Rules on Transparency, which uses the term “third-party”. What terminology
the ICSID Rules use will have a significant impact on whether we begin to coalesce
around the term “third-party” or continue to have multiple terms across various
institutions and treaties. All things being equal, in accord with the UNCITRAL Rules on
Transparency, I find the term “third-party” to be more precise than “amicus curiae”
and less confusing than “non-disputing party” and have opted to use that term
throughout.
16) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petition to the Arbitral Tribunal by the International Institute for Sustainable
Development (“IISD”) (25 August 2000) para. 1.1. Methanex Corp., a major producer of
methanol, brought this suit in response to California's ban on MTBE, a chemical
compound used to treat unleaded gasoline. Methanol is a key component of MTBE.
Methanex claimed that the California ban violated multiple provisions of the NAFTA
and was tantamount to an expropriation of its investment.
17) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petition to the Arbitral Tribunal by the International Institute for Sustainable
Development (25 August 2000) paras. 3.1-3.3.
18) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petition to the Arbitral Tribunal by the International Institute for Sustainable
Development (25 August 2000) paras. 4.1-4.3.
19) The petitioner acknowledged that it is “not aware of any previous cases under the
UNCITRAL process where third parties have petitioned the Tribunal to submit an
amicus brief” and that “this issue is a matter of first impression for this Tribunal”.
Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petition to the Arbitral Tribunal by the International Institute for Sustainable
Development (25 August 2000) para. 4.3.
20) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Submissions of Claimant Respecting Petition of the International Institute for
Sustainable Development (31 August 2000).
21) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petition to the Arbitral Tribunal by Communities for a Better Environment, The Blue
Water Network of Earth Island Institute, and the Center For International Law (5
September 2000); see also id. (13 October 2000).

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 22) Metalclad Corporation v. The United Mexican States (ICSID Case No. ARB(AF)/97/1),
Award (30 August 2000).
23) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Petitioner's Final Submissions Regarding the Petition of the International Institute for
Sustainable Development to the Arbitral Tribunal for Amicus Curiae States (16
October 2000) paras. 10-18.
24) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Statement of Respondent United States of America Regarding Petition for Amicus
Curiae Status (27 October 2000).
25) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Mexico's Submission in Response to Application for Amicus Standing (10 November
2000); and Submission of the Government of Canada (10 November 2000).
26) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Statement of Respondent United States of America Regarding Petition for Amicus
Curiae Status (27 October 2000) pp. 1-3.
27) Id., pp. 2-3.
28) Id., p. 2.
29) Id., pp. 2-3.
30) Id., pp. 4-5.
31) The United States recognized the tension between third-party participation and non-
disputing Party submissions as provided for in NAFTA Chapter 11 and sought to clarify
lest there be any confusion. Toward that end the United States noted that “Article
1128 does limit the Tribunal's discretion in one sense: it grants non-disputing State
Parties a right to make submissions to tribunals on questions of interpretation of the
NAFTA. It therefore removes any discretion the Tribunal might otherwise have had to
decline to accept such a submission. Article 1128's grant of a right to non-disputing
State Parties to make certain submissions, however, does not speak to whether the
Tribunal may exercise its discretion to accept, as a matter of permission, submissions
by other non-parties as a general matter.” See Id., p. 11. (Emphasis in original.)
32) Id., pp. 14-15.
33) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Mexico's Submission in Response to Application for Amicus Standing (10 November
2000) paras. 1-2.
34) Id., para. 7.
35) Id., para. 13.
36) Id., para. 14.
37) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Submission of the Government of Canada (10 November 2000) para. 3.
38) Id.
39) Id., para. 4.
40) Methanex Corporation v. United States of America, NAFTA Ch. 11/UNCITRAL Arbitration,
Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae”
(15 January 2001) para. 47.
41) Id., para. 30.
42) Id., para. 37.
43) Id., para. 47.
44) Id.
45) Id., para. 49.
46) Id., para. 51.
47) Id.
48) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Submissions of the Canadian Union of Postal Workers and the Council of
Canadians (8 November 2000) paras. 1-15. United Parcel Service of America Inc., a
delivery company, brought this claim against the Government of Canada in
connection with alleged unfair advantages accorded by Canada to Canada Post in its
direct competition with UPS Canada.
49) Id., para. 23.
50) Id., paras. 24-60.
51) Id., paras. 61-89.
52) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Procedural Decision No. 2 (17 April 2001).
53) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Petition to the Arbitral Tribunal Canadian Union of Postal Workers and of
the Council of Canadians (10 May 2001).
54) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Canada's Submission on Canadian Union of Postal Workers and the
Council of Canadians Petition for Intervention (28 May 2001).
55) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, First Mexican 1128 Submission (11 June 2001); and First US 1128
Submission (11 June 2001).
56) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Canada's Submission on Canadian Union of Postal Workers and the
Council of Canadians Petition for Intervention (28 May 2001) para. 6.
57) Id., paras. 9-58.

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 58) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, First Mexican 1128 Submission (11 June 2001) para. 6.
59) Id., para. 7.
60) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, First US 1128 Submission (11 June 2001) para. 3.
61) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Decision of the Tribunal on Petitions for Intervention and Participation as
Amici Curiae (17 October 2001) paras. 59-68 and 73.
62) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Application for Amicus Status by the Canadian Union of Postal Workers
and the Council of Canadians (20 October 2005).
63) Id., para. 22.
64) Id., paras. 20-21 and 23.
65) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Application for Amicus Status by the US Chamber of Commerce (20
October 2005) para. 3.
66) Id., paras. 7-8.
67) United Parcel Service of America Inc. v. Government of Canada, NAFTA Ch. 11/UNCITRAL
Arbitration, Award on the Merits (24 May 2007) para. 3.
68) NAFTA Art. 2001(2); Gabrielle KAUFMANN-KOHLER, “Interpretive Powers of the Free
Trade Commission and the Rule of Law” in Emmanuel GAILLARD, ed., Fifteen Years of
NAFTA Chapter 11 Arbitrations (Juris 2011).
69) Statement of the Free Trade Commission on non-disputing party participation (7
October 2003).
70) It was not until 2004, however, following the issuance of the NAFTA Free Trade
Commission's Statement on non-disputing party participation in 2003 that the
Methanex tribunal admitted the briefs.
71) Statement of the Free Trade Commission on non-disputing party participation (7
October 2003) para. 1.
72) Id., para. 6.
73) Id., para. 7.
74) Richard MILLS and Ricardo REYES, “NAFTA Commission Announces New Transparency
Measures” (7 October 2003), available at
<https://ustr.gov/archive/Document_Library/PressReleases/2003/October/NAFTA_Co
mmission_Announces_New_...> (last accessed 23 February 2018).
75) Aguas del Tunari, S.A. v. Republic Of Bolivia (ICSID Case No. Arb/02/3), Petition (29
August 2002). The dispute concerned claims related to a concession contract to
provide water and sewage services to the City of Cochabamba. The following
collectively brought a petition to intervene: (1) La Coordinadora Para La Defensa Del
Agua Y Vida (self-described as “a coalition of community organizations, labor groups,
human rights organizations, farmers associations, students and other broad-based
networks of civil society in the region of Cochabamba, Bolivia”); (2) La Federación
Departamental Cochabambina De Organizaciones Regantes (self-described as
representing “thousands of small-scale producer families”); (3) SEMAPA Sur (self-
described as a “grassroots organization dedicated to bringing water to the
neighborhoods in the southern part of Cochabamba”); (4) Friends Of The Earth-
Netherlands (self-described as a “Dutch environmental association with 30,000
members, working at the local, national and international level for ecologically
sustainable development”); and (5) four associated individuals: Oscar Olivera, Omar
Fernandez, Father Luis Sánchez, and Congressman Jorge Alvarado. Id., paras. 5-17.
76) Id., para. 2.
77) Id.; see also paras. 23, 29-34.
78) Id., para. 3.
79) Id., para. 37.
80) Id., para. 40.
81) Id., paras. 38, 41.
82) Id., paras. 33, 40, 43-44, 51-52, 59-62.
83) Aguas del Tunari S.A. v. Bolivia (ICSID Case No. ARB/02/3), Letter from the President of
the Tribunal (29 January 2003) para. 3.
84) Id., para. 2.
85) Id., para. 3.
86) Id., para. 3.
87) Id., para. 5.
88) Id., para. 6.
89) Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v.
Argentina (ICSID Case No. ARB/03/19), Order in Response to a Petition for
Transparency and Participation as Amicus Curiae (19 May 2005) para. 1. Four investors
(two French, one Spanish and one English) brought this claim in connection with
concessions entered into by the Claimants and the Argentine government for water
distribution and waste water treatment services in Buenos Aires and the surrounding
municipalities, and actions taken by the Argentine Republic in relation to those
concessions.
90) Id., para. 8.
91) Id., para 9.

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 92) Id., paras. 10-16.
93) Id., para. 11.
94) Id., para. 14.
95) Id., para 17.
96) Id., para 24.
97) Id., para 17.
98) Id., para 22.
99) Id., paras. 25-27 and 33b.
100) Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v.
Argentina (ICSID Case No. ARB/03/19), Order in Response to a Petition by Five Non-
governmental Organizations for Permission to Make an Amicus Curiae Submission (12
February 2007) para. 7.
101) Id., paras. 8-10.
102) Id., para. 27.
103) Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v.
Argentina (ICSID Case No. ARB/03/19), Decision on Liability (30 July 2010) paras. 18 and
256.
104) Another case against Argentina being decided in parallel was Suez, Sociedad General
de Aguas de Barcelona S.A., and InterAgua Servicios Integrales del Agua S.A. v.
Argentina (ICSID Case No. ARB/03/17). The tribunal in this case also received a
petition from third parties to participate in the proceedings. The tribunal similarly
concluded that the third parties had provided insufficient information to enable it to
determine whether or not they were suitable to act as amicus curiae and, therefore,
requested that further information be filed. See Suez, Sociedad General de Aguas de
Barcelona S.A., and InterAgua Servicios Integrales del Agua S.A. v. Argentina (ICSID Case
No. ARB/03/17), Order in Response to a Petition for Participation as Amicus Curiae, 17
March 2006, paras. 24-26 and 29-34. The third parties did not, however, file the further
information requested by the tribunal.

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 KluwerArbitration

Document information
Transparency in International Investor-State Arbitration:
Publication Commendable in Theory, Complicated in Practice
Evolution and Adaptation: Stanimir A. Alexandrov; Patrick Childress
The Future of International (*)
Arbitration
(**)

Topics Over the past decade or so, a consensus has emerged among advocates, arbitrators,
governments, academics, and civil society, that increasing transparency in international
Investment Arbitration investor-State arbitration is a laudable goal. Yet, despite this broad agreement, fully
transparent arbitral proceedings remain the exception rather than the rule. This
commentary explores this disconnect, focusing on why transparency is commendable in
Bibliographic reference theory, but challenging to implement in practice.
Stanimir A. Alexandrov and Before proceeding further, a brief discussion of what it means for an arbitration to be
Patrick Childress, “transparent” is in order. For the purposes of this commentary, a “transparent” arbitration
'Transparency in is one in which all written briefing is public, oral hearings are live streamed on the
International Investor-State internet, and third-party participation via amicus curiae submissions is available. The
Arbitration: Commendable in benefits of this level of transparency are discussed in Sect. I, the practical challenges that
Theory, Complicated in transparency creates are discussed in Sect. II, and Sect. III contains brief concluding
Practice', in Jean Engelmayer remarks.
Kalicki and Mohamed Abdel
Raouf (eds), Evolution and I Transparency in Theory: An Answer to Critics of Investor-State
Adaptation: The Future of Arbitration?
International Arbitration,
ICCA Congress Series, Volume One of the central benefits of increasing transparency in investor-State arbitration is that
20 (© Kluwer Law open proceedings blunt many of the core criticisms of the investment arbitration system.
International; International Investor-State arbitration has come under fire from many sides in the past several years,
Council for Commercial including from non-governmental organizations (NGOs), politicians, and even certain
Arbitration/Kluwer Law governments. The criticisms vary in substance and volume, but, as a general matter, they
International 2019) pp. 691 - fall into three main categories: (i) arbitration is unnecessarily secretive; (ii) arbitration is
698 skewed in favor of corporations; and (iii) arbitration shuns public involvement, even though
public funds and important issues of public policy are at stake. Enhanced transparency
can address all three concerns.
P 691
P 692
1 Secrecy
With respect to secrecy, critics disparage investor-State tribunals for operating behind
closed doors, shielded from public scrutiny and accountability. A recent book criticizing
investor-State arbitration coined the pejorative term “shadow courts” to describe
investment treaty tribunals. (1) This criticism is not without foundation. However, it is a
simple critique to address. Publishing written pleadings, opening hearings to the public,
and permitting amicus submissions are obvious, direct, and effective ways to allay
concerns regarding secrecy. Making these three practices widespread would strip critics of
the “secrecy” talking point, without altering the substance of the investor-State dispute
settlement system. This is a clear benefit of increased transparency.

2 Corporate Skew
Over the past few years, detractors of arbitration have raised a second criticism, the so-
called “corporate skew” in arbitration, more frequently. In fact, it is often the central
argument upon which opponents of investor-State arbitration rely. The following statement
from the prominent US-based NGO Public Citizen sums up the position well:
“At the heart of today's ‘trade’ agreements like NAFTA are provisions that grant
multinational corporations shocking new rights and powers that make it easier
to outsource jobs and attack the environmental and heath laws on which we all
rely.
Individual foreign corporations are empowered to sue governments before a
panel of three corporate lawyers to demand unlimited compensation from
taxpayers if they think a law or government action violates their new rights.
(….)
Not only do corporations get a special system of ‘justice’ outside our courts, but
it's totally rigged in their favor. One day a corporate lawyer can sit on an ISDS
tribunal deciding cases and the next day they can attack our laws on behalf of a
corporation.” (2)

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 Inflammatory statements of this nature make good headlines and attract attention, but the
data does not back them up. In 2017, the United Nations Conference on Trade and
Development (UNCTAD) released statistics regarding the outcomes of all of the investor-
State arbitrations concluded between 1987 and 2016. (3) UNCTAD found that only 27% of
P 692 those cases ended with an award favoring a foreign investor, while tribunals found in favor
P 693 of the State 36% of the time. (4) In a further 2% of cases, the tribunal found a treaty
breach but awarded no damages, in 10% of cases there was a discontinuance, and the
remaining 25% of cases settled. (5)
These statistics, which demonstrate that States are more successful in investment disputes
than investors, would seem to undercut the “corporate skew” argument entirely. Critics
point out that States never actually “win” anything in investor-State cases – the best they
can hope for is to “not lose”. (6) That is a fair point, but it does not change the fact that the
UNCTAD statistics show that States prevail (or at least do not lose) more than investors do.
Indeed, one would expect the UNCTAD statistics to tell a very different story if a systemic
and pervasive corporate bias in the system existed. But despite all this, critics of investor-
State arbitration remain unconvinced.
If statistics will not sway arbitration's detractors, perhaps transparency will. Pulling back
the curtain and allowing the public – including opponents of investor-State arbitration – to
observe all phases of these proceedings, would likely allay concerns regarding a pro-
corporate bias. Critics of the system characterize international arbitrators as corporate
shills, but if they actually observed a hearing, they likely would come away with a starkly
different view. Indeed, arbitrators receive appointments based on their reputations as
substantive experts and fair-minded adjudicators. Observing tribunals in action would
reassure critics that investor-State arbitration proceedings are professional, serious, and
even-handed affairs. One would expect – or at least hope – that this exposure (in
combination with clear statistical data) would be sufficient to convince critics that their
concerns regarding a pro-corporate bias are unfounded.

3 Lack of Public Involvement

A third criticism of investor-State arbitration is that these proceedings exclude important
public voices (NGOs, civic groups, local populations, etc.) even though investment
arbitrations often have serious consequences for the public in the respondent State.
Enhanced transparency – principally in the form of increased amicus curiae submissions –
can go a long way to addressing this concern. Amicus submissions allow the public to weigh
in on issues of public concern that are relevant to the tribunal. For instance, if an
arbitration involves the revocation of an oil production license due to groundwater
contamination, the tribunal hearing the case might benefit from amicus submissions from
local civic groups, environmental NGOs, etc.
Arbitral tribunals have recognized that the use of amicus submissions is a positive
development. For instance, the Methanex v. United States tribunal recognized noted that:
“there is an undoubtedly public interest in this arbitration. The substantive
issues extend far beyond those raised by the usual transnational arbitration
between commercial parties. This is not merely because one of the Disputing
Parties is a State: there are of course disputes involving States which are of no
P 693 greater general public interest than a dispute between private persons. The
P 694 public interest in this arbitration arises from its subject-matter, as
powerfully suggested in the Petitions. There is also a broader argument, as
suggested by the Respondents and Canada: the … arbitral process could benefit
from being perceived as more open or transparent; or conversely be harmed if
seen as unduly secretive. In this regard, the Tribunal's willingness to receive
amicus submissions might support the process in general and this arbitration in
particular, whereas a blanket refusal could do positive harm.” (7)
In short, the Methanex tribunal held that amicus submissions were appropriate given the
public interests at issue in that specific case, and desirable generally because
transparency increases the legitimacy of the investment arbitration system.
In the more recent Bear Creek v. Peru arbitration, the tribunal accepted an amicus
submission from the Association of Human Rights and the Environment – Puno (DHUMA).
DHUMA is an NGO based in southern Peru, which focuses on the protection of indigenous
rights and the environment. (8) The Bear Creek case related to a mining concession in
southern Peru, which generated intense, widespread protests from nearby indigenous
communities that feared that the mine would cause environmental damage. DHUMA was
an ideal vehicle to voice the concerns of the local indigenous populations.
The Bear Creek tribunal accepted DHUMA's amicus submission, noting that: “DHUMA's local
knowledge of the facts may add a new perspective that differs from that of the Parties,” (9)
and that “DHUMA has information and experience specific to the background and
development of the Santa Ana Project which may contribute a new perspective.” (10)
In addition to making a detailed written submission, DHUMA representatives also
attended the hearing (wearing traditional indigenous dress), which enhanced the sense of
inclusiveness and legitimacy of the proceedings. The Bear Creek tribunal cited DHUMA's
brief in its final award, at one point quoting three entire paragraphs of the amicus

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 submission. (11) In a separate opinion, one of the arbitrators noted that:
“DHUMA assisted the Tribunal by bringing a perspective, particular knowledge
P 694 or insight that is different from that of the disputing parties. Its participation in
P 695 these proceedings was helpful and polite at all times, and added to
perceptions of the legitimacy of ICSID proceedings of this kind.” (12)
In sum, DHUMA's involvement increased transparency, assisted the tribunal, and added an
important perspective that would have been absent otherwise.
Amicus submissions from individuals or entities based in the respondent State deserve
particular consideration from tribunals. Taxpayer money from citizens of the respondent
State – sometimes many millions or billions of dollars – is at stake in these arbitrations.
Given that their money is on the line, those taxpayers deserve to be involved in the
process if and when it makes sense to do so. This is not to suggest that tribunals should
accept all amicus submissions from citizens of respondent States, but these applications
do deserve particular attention.
For the reasons set out above, increased transparency is a goal that all stakeholders –
States, claimants, counsel, arbitrators, civil society, etc. – should champion. However, as
discussed in the section below, enhancing transparency can generate practical challenges
that tribunals must handle with care.

II Transparency in Practice: Public Participation Presents Complex

Challenges
Given the clear benefits of transparency, the lack of transparency in international
arbitration proceedings is striking. An analysis of the adoption of the Mauritius Convention
on Transparency brings this issue into clear focus. The Mauritius Convention obliges
contracting parties to consent to broad transparency measures in future investor-State
arbitrations, including publishing written submissions, holding public hearings, and
permitting amicus submissions. (13) Thus far, just 22 of the world's 193 countries (about 11
percent) have signed the Mauritius Convention, and of those, a mere three (Canada,
Switzerland, and Mauritius) have ratified the treaty. (14) The scarce adoption of the
Mauritius Convention leaves one to ponder the question: if transparency is so sensible in
theory, why are States reluctant to agree to it in practice? At least three factors are at play:
(i) the hesitancy of States to publicize disputes where State conduct is under attack; (ii)
confidentiality concerns; and (iii) increased costs connected to third-party involvement.
P 695
P 696
1 Reputational Concerns
A central reason that States may not be eager to include transparency provisions in their
investment treaties is a reluctance to publicize arbitrations that focus on States' alleged
mistreatment of foreign investors. States sign investment treaties hoping to improve their
reputations as stable destinations for foreign investment. A highly public investment
arbitration in which the State is accused of serious malfeasance (illegal expropriation,
unfair and inequitable treatment, etc.) can erase that reputational boost entirely. The
issue of reputational risk has become particularly salient in the past few years, as States
have increased their use of corruption allegations in defending against investment claims.
Fighting jurisdiction by arguing corruption can be an effective litigation strategy, but
corruption reflects poorly on the investor and the State. After all, for every corrupt investor
paying for access, there must also be a corrupt government official accepting the bribe.
For these reasons, if a State's goal is to maximize foreign investment, one could argue that
the best strategy would be to sign investment treaties liberally, but demand that those
treaties limit transparency as much as possible. If a State can keep its treaties public, but
its treaty disputes private, it can reap the reputational benefits of signing investment
treaties while limiting the downside risks of fighting embarrassing treaty claims in public.
Yet, this cannot be the right strategy. If States subject themselves to broad transparency
requirements, their desire to avoid bad press and protect their reputations may make
them more open to negotiation and settlement. In this way, transparency could encourage
States to avoid arbitration altogether, which generally is a positive outcome for all parties
involved. Further, transparency would greatly contribute to increased accountability by
States and enhance the opportunities for public discussion of a State's conduct and
policies. Thus, in the long run, transparency will impose on States – at various levels – more
discipline in regulating investors' conduct in a fair and reasonable manner.

2 Confidentiality
Increased transparency also raises the specter of confidentiality concerns. Arbitral parties
worry that as proceedings become more transparent, the risk of sensitive information in
written submissions and oral testimony becoming public increases. This concern is
justified, but tribunals have the tools necessary to manage confidentiality issues
effectively in the context of both written submissions and oral testimony.
With respect to written submissions, in most cases, a simple confidentiality order with

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 specific guidance on redactions is sufficient. Confidentiality orders have become
commonplace in investor-State practice, and parties and counsel generally are
comfortable with these agreements and the protections they afford. The process of
redacting confidential information can be time-consuming and costly for the parties
(especially if parties object to the opposing party's redactions), but this seems a small
price to pay given the overall benefits of transparency.
Another challenge for arbitrators is protecting confidential information during oral
P 696 testimony being streamed online in real time. Tribunals should, of course, order that the
P 697 cameras be turned off whenever confidential information is discussed, but this sounds
easier in theory than it is in practice. It can be difficult to predict when precisely
confidential material will come up during testimony, and turning the cameras on and off
repeatedly can waste time and interrupt the flow of a witness examination. To minimize
these downsides, tribunals should ask counsel to notify the tribunal before beginning a
series of questions regarding a topic likely to involve confidential information. Tribunals
can then turn off the cameras for that entire line of questioning, rather than switching them
on and off repeatedly. For instance, if counsel notifies the tribunal that it plans to ask a
quantum expert about a company's sensitive financial information, the tribunal can order
the cameras be turned off for that series of questions. Sensitive information involving
States' secrets can be dealt with in a similar fashion.
In sum, although increased transparency does indeed raise confidentiality concerns, these
issues typically are manageable, particularly if experienced counsel and skilled
arbitrators are handling the case.

3 Amicus Submissions: Costs and Procedural Issues

A third concern regarding increased transparency is that involving more parties – in
particular through amicus submissions – will increase costs and cause procedural delays.
These are serious issues, which tribunals must confront and address proactively. In quite a
few cases, tribunals receive applications to intervene from several, if not many, NGOs and
other organizations. These applications prompt an array of submissions from the parties,
including:
– Written comments on each application to participate as amicus curiae;
– Potentially responsive comments by each applicant to participate as amicus curiae,
and further comments by the parties;
– Extensive submissions by each party on the substance of each amicus brief,
potentially responsive comments by the amici, and further comments by the parties;
– Written arguments related to whether the arbitral record should include certain
documents attached or related to the amicus brief(s); and
– Various other correspondence and in-person discussions at the hearing regarding the
extent of the amici's participation and the content of every amicus brief.
Those submissions increase costs for the parties, who pay higher fees to counsel and to the
tribunal for the time spent preparing and considering amicus-related arguments and
issues. In addition, the time devoted to discussing amicus applications and amicus briefs
can extend the proceeding and can even be disruptive, if, for example, a hearing must be
rescheduled.
Therefore, tribunals must be careful to manage amicus submissions in order to limit costs.
Tribunal can do so in at least three ways.
First, tribunals should be selective. At first glance, allowing multiple amici and considering
as many perspectives as possible might seem like an attractive option. Tribunals should
resist this impulse given the significant burden amicus submissions impose on the parties.
Tribunals should only accept amicus submissions from third parties with a unique and
valuable perspective to add.
P 697
P 698
Second, tribunals should consider imposing page limits on the parties' submissions
regarding amicus submissions.
Third, tribunals should exercise caution when considering whether to allow representatives
of the amici to participate in the hearing.
Each of these practices will reduce costs, minimize the disruptions, and help the parties
and the tribunal maintain focus on the parties' main briefing. In short, once again, proper
management by the tribunal can limit the downsides of increasing transparency through
amicus participation.

III Concluding Thoughts

Stakeholders are nearly unanimous in their belief that investor-State arbitration should be
a more open and transparent process. Increasing transparency enhances the legitimacy of
the system, and blunts many of the core criticisms of investor-State arbitration. However,
additional transparency in the arbitral process presents practical challenges, including
increased costs and confidentiality concerns. Tribunals can and should take steps to limit

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 these downsides. If managed properly, the benefits of transparency appear to outweigh
the potential problems.
Investor-State arbitrations typically involve important issues of public policy and many
millions – if not billions – of public, taxpayer dollars. Given the strong public interests at
play, making investor-State arbitration proceedings as open and transparent as possible is
a worthy goal.
P 698

References
*) Stanimir A. Alexandrov: Founding partner of Stanimir A. Alexandrov PLLC; ICCA
Governing Board Member.
**) Patrick Childress: Associate at Sidley Austin LLP.
1) Haley Sweetland EDWARDS, Shadow Courts: The Tribunals that Rule Global Trade
(Columbia Global Reports 2016).
2) Public Citizen, “Investor-State Dispute Settlement (ISDS): Extraordinary Corporate
Power in ‘Trade’ Deals”, at: < www.citizen.org/our-work/globalization-and-
trade/investor-state-system> (last accessed 8 March 2018).
3) UNCTAD “World Investment Report 2017, Investment and the Digital Economy”, at p. 117.
4) UNCTAD “World Investment Report 2017, Investment and the Digital Economy”, at p. 117.
5) UNCTAD “World Investment Report 2017, Investment and the Digital Economy”, at p. 117.
6) Howard MANN, “ISDS: Who Wins More, Investors or States?” at: <www.iisd.org/itn/wp-
content/uploads/2015/06/itn-breaking-news-june-2015-isds-who-wins-more-
investors...> (last accessed 9 March 2018).
7) Methanex Corporation v. United States of America, Decision of the Tribunal on Petitions
from Third Persons to Intervene as Amici Curiae (15 January 2001) at para. 49.
8) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Amicus
Curiae Brief submitted by the Association of Human Rights and the Environment –
Puno, 9 May 2016.
9) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21),
Procedural Order No. 6 (21 July 2016) para. 40.
10) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21),
Procedural Order No. 6 (21 July 2016) para. 44.
11) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Award (30
November 2017) para. 218.
12) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Partial
Dissenting Opinion of Professor Philippe Sands, QC (30 November 2017) para. 36
(internal quotations omitted).
13) See United Nations Convention on Transparency in Treaty-based Investor-State
Arbitration (New York, 2014).
14) UNCTAD, “Status: United Nations Convention on Transparency in Treaty-based Investor-
State Arbitration (New York, 2014),”
<www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency_Conventi
on_status.html> (accessed on 8 March 2018).

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 KluwerArbitration

Document information
What Has Been the “Spillover” Effect of the Transparency
Publication Debate on Commercial Arbitrations?
Evolution and Adaptation: Constantine Partasides
The Future of International (*)
Arbitration
I Introduction
Topics Transparency is a modern “buzzword” that is sweeping like a growing tidal wave through
investor-state dispute resolution. (1) Public issues should be addressed, so the argument
Investment Arbitration goes, in a public process. “If the institution of arbitration has no “hidden agendas”, then
open your doors”, has been the challenge, and our world of arbitration has started to
respond positively.
Bibliographic reference But surely commercial arbitration is different? Surely, disputes arising under contracts
Constantine Partasides, deserve to be resolved with the confidentiality that has always been implicit in the
'What Has Been the process? Or is contractual arbitration now, too, at risk from “spillover” from the wave of
“Spillover” Effect of the transparency sweeping through its more public form? This paper addresses that last
Transparency Debate on question by asking two further questions: Is the more private world of contract arbitration
Commercial Arbitrations?', in safe from the prying eyes of the world? More fundamentally, should it be?
Jean Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), II The Tidal Wave of Transparency Sweeping over Investor-State
Evolution and Adaptation: Arbitration?
The Future of International
Arbitration, ICCA Congress The wave of transparency sweeping through investor -state arbitration is impossible to
Series, Volume 20 (© Kluwer deny. A crescendo of criticism from civil society, or at least the many interest groups who
Law International; claim to speak for it, has proven irresistible, and has led to the following widely (and
International Council for rightly) heralded rule changes over the last decade.
Commercial P 699
Arbitration/Kluwer Law P 700
International 2019) pp. 699 - In 2006, the Arbitration Rules of the International Centre for Settlement of Investment
705 Disputes (ICSID) were changed to allow for open hearings, submissions by third parties and
publication of “excerpts of the legal reasoning of the Tribunal”. (2) In 2010, the Arbitration
Rules of the United Nations Commission on International Trade Law (UNCITRAL) were
changed to allow for the publication of awards with the consent of the parties. (3) In 2014,
the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration were
promulgated (the UNCITRAL Transparency Rules) in relation to treaties concluded after 1
April 2014, providing for automatic publication of all submissions, orders, hearing
transcripts and awards. In October of 2017, and momentously, the Mauritius Convention on
Transparency in Treaty-based Investor-State Arbitration entered into force, applying the
UNCITRAL Transparency Rules to all treaty-based arbitrations where both the host state
and investor's home state are parties thereto. And in addition to all of these significant
changes, various individual arbitral institutions have amended their rules in ways that will
allow greater transparency when their rules are used specifically for investor-state
arbitration. (4)
In a legal field better known for incremental reform, this truly constitutes a veritable
regulatory tsunami. So is this wave likely to spill over into contractual arbitration?

III Spillover into the World of Contractual Arbitration?

One simple answer is no. Contract arbitration is quite different from its more public treaty
form, and each of the major transparency initiatives referred to above has often been
accompanied by a clear recognition of that difference.
Thus, the UNCITRAL Report of the Working Group on Arbitration and Conciliation on the
work of its forty-eighth session (4-8 February 2008) made a clear demarcation between
investor-state and so-called “purely private arbitration” as follows: “General agreement
was expressed by the Working Group regarding the desirability of dealing with
transparency in investor-State arbitration, which differed from purely private arbitration,
where confidentiality was an essential feature.” (5) (Emphasis added.)
In the same vein, the UNCITRAL 2016 “Notes on Organizing Arbitral Proceedings” explicitly
recognize that: “ the specific characteristics of investor-State arbitration arising under an
investment treaty have prompted the development of transparency regimes for such
arbitrations.” (6) (Emphasis added.)
P 700
P 701
Similarly, the recent transparency amendments made by the Stockholm Chamber of
Commerce (SCC) and the Singapore International Arbitration Centre (SIAC) are stated only

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 to apply to treaty-based investor-state arbitration. (7)
And Australia has very deliberately adopted different standards of transparency for
investor-state and commercial arbitration. It has sought to include transparency
provisions for investor-state arbitration in all of its recent trade deals (including with
China, Chile, Korea and the ASEAN and TPP agreements). But in parallel, Australia made
legislative amendments in October 2015 that replaced its confidentiality “opt-in” system
with an “opt-out” system (i.e. confidential unless you agree otherwise) for contractual
arbitrations. (8)
But will the well-recognized distinction between treaty-based and contract-based
arbitration fully insulate the latter from this surge in transparency? As our process attracts
widespread public attention as never before, will such distinctions always be respected?
And should they be?

IV Examining the Distinction between Treaty-Based and Contract-Based

Arbitration?
There are reasons not to be confident that the distinction will always hold firm. The public
versus private distinction between treaty and contract arbitration can be over-stated.
Commercial arbitrations can often involve state entities and, as such, can have just as
much of an impact on a state's public policy and finances as investor state arbitration. By
way of example, the ICC reports that around 10 percent of its caseload involves a state
entity, and we can be sure that only a fraction of these are treaty-based investor-state
cases. (9)
In this way and others, there can be significant public interest in a contractual arbitration
in the same way as a treaty arbitration. So it surely follows that calls for greater arbitral
transparency will not always stop at the door of contractual arbitration. Let us consider a
handful of prominent examples.
Probably the most notorious recent example is L'affaire Tapie. Bernard Tapie was a high
profile French businessman, football club owner and television celebrity who had owned
Adidas AG. On becoming a government minister in 1992, he entered into a deal with Crédit
Lyonnais, to repay his debts to the bank by transferring his equity in Adidas AG. The same
ownership interest in Adidas AG was subsequently sold on by Crédit Lyonnais at a much
higher price. When Crédit Lyonnais then fell into bankruptcy, and its liabilities were
assumed by the Consortium de Realisation on behalf of the French Government, Mr. Tapie
chose to make a claim against the Government for the alleged undervaluation of his
P 701 shareholding. Following various proceedings before the French courts, which Mr. Tapie
P 702 largely lost, the French Government agreed to refer the ongoing dispute to arbitration.
That later decision to refer the dispute to arbitration was taken by the government of
Nicolas Sarkozy, to whom Mr Tapie had made political donations. (10)
In those confidential arbitral proceedings, and despite the earlier judicial decisions that
had gone against him, Mr Tapie was awarded € 403 million. The award was not challenged
within the period prescribed by French law, but certain confidential information was
leaked to the press indicating that the arbitration may have been tainted by fraud, in
particular a “fraudulent collaboration” between Mr Tapie, his counsel and one of the
arbitrators. President Sarkozy's government was then accused of referring the dispute
involving a political donor to confidential arbitration so as to increase Mr Tapie's chances
of winning, and a criminal investigation was subsequently launched, ultimately resulting in
a number of convictions and the award being annulled.
“L'affaire Tapie” demonstrates how keen the public interest can be in a so-called private
(i.e. non-treaty based) arbitration. Moreover, the confidential nature of the arbitration,
coupled with later fortuitous revelations of criminal activity, have left many in France
scandalized that a legal determination of this nature could be rendered against a state-
controlled entity behind closed doors.
Similar public interest can exist in commercial arbitrations that do not feature the same
political dimension. In the recent case of Microsoft Mobile v. Sony Europe, (11) Microsoft
brought a tortious claim in England for alleged anti-competitive “cartel conduct” by Sony
and others in relation to the sale of lithium ion batteries, an essential component in
smartphones.
Microsoft's allegations of “cartel conduct” were far-reaching, and encompassed alleged
price-fixing, market allocation and bid-rigging in the EU, Brazil, China, India, Japan and
elsewhere.
On Sony's application for a stay in favour of arbitration pursuant to Sect. 9 of the
Arbitration Act 1996, the English High Court held that Microsoft's claim against Sony should
be heard by an arbitral tribunal, rather than by the English courts, pursuant to an
arbitration agreement contained within the product purchase agreement that those
parties had entered into.
As a consequence, many third parties who undoubtedly have a direct interest in that
commercial arbitration – including other members of the alleged “cartel” against whom
Microsoft may have an action, and other entities who may have been unlawfully
overcharged when purchasing batteries from Sony – will have access to little or no

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 information about it. More broadly, the public at large may ultimately be kept in the dark
as to whether or not they were victims of anti-competitive practices that generally inflated
smart-phone prices for consumers.
So there are commercial arbitrations in which the same “public interest” argument can be
made in favour of transparency as for treaty arbitration. The word “commercial” alone is,
P 702 therefore, unlikely to insulate contractual arbitration entirely from the wave of
P 703 transparency, and perhaps rightly so. This in turn raises the following question: how can
we protect confidentiality where it is appropriate and valuable in commercial arbitration,
while balancing it with competing demands to make the process less opaque? And one of
those competing demands arises from the generally growing public interest in the system
of arbitration as a whole. For arbitration is no longer what it was when many of us began
our careers; a rarefied procedural exoticism for a relatively small number of users that
chose the jurisdictional exception, rather than the norm. Arbitration has now become the
mainstream; in the words of Jonathan Mance LJ (as he then was) that now date back more
than a decade: “Arbitration is an important feature of international, commercial and
financial life, and there is legitimate interest in its operation and practice.” (12)
What does this new reality mean for the place of privacy and confidentiality in the modern
process of arbitration more generally?
Perhaps a first answer to this question is that systemic concerns must surely be
subordinated to the choices made by the parties to an individual arbitration. For
arbitration is surely their process, and party autonomy is surely the single principle in
commercial arbitration that prevails over all others. Such an argument appears to this
author to be unassailable. But further reflection perhaps yields a further answer, which is
not inconsistent with this first answer, and it is this: the further step of “systemic secrecy”,
regardless of party intention, is now perhaps more difficult to justify in the modern world.
And so I turn to the implied duty of confidentiality that still prevails in some jurisdictions.
In truth, the number of jurisdictions that recognize such an implied duty is diminishing.
Sweden has not recognized an implied duty since the turn of the new millennium. The year
was 2000, the case was Bulbank, and the court was the Swedish Supreme Court, (13) which
rejected the existence of an implied duty of confidentiality on the basis that, unlike
privacy, there was no international consensus regarding the place of confidentiality in
arbitration. And it is difficult to contradict that conclusion when one surveys the law of
many different jurisdictions.
A similar position has long existed in the United States, where the US Federal Arbitration
Act is silent on confidentiality, and US courts have been reluctant to recognize any implied
duty to fill the legislative gap. (14) In United States v. Panhandle E.Corp., the federal
government sought to have Panhandle, a US company, produce documents from an ICC
arbitration between Panhandle's subsidiary and Sonatrach, the Algerian state oil company.
Refusing to infer any implied duty of confidentiality, the Delaware District Court refused a
protective order to prevent such disclosure. (15)
P 703
P 704
Continental Europe is not so very different. In Switzerland, arbitrators are bound by an
implicit duty of confidentiality with respect to the proceedings, but this does not apply to
the parties themselves or to third parties involved in the arbitration. It is, therefore, for the
parties to provide for confidentiality in their agreement with third parties or to agree on
the general confidentiality of the arbitration, either expressly or by reference to
arbitration rules containing confidentiality obligations. In Germany, Austria and Bulgaria,
commentators and courts are divided as to whether a duty of confidentiality may be
implied into an arbitration agreement.
France, long considered a home of international arbitration, provides barely more comfort
for those looking for implied confidentiality. Following the implementation of Decree No.
2011-48 of 13 January 2011, there is no express obligation of confidentiality in international
arbitration (although there is in domestic arbitration). And for their part, the French courts
have been inconsistent as to the existence of a presumption of confidentiality in
international arbitration. (16)
That leaves England, and those jurisdictions that still take their lead from its common law.
For the duty of confidentiality in England still does rely on implication, in the absence of
any legislative provision in the English Arbitration Act of 1996.
The silence of the 1996 Act on the issue of confidentiality is not an indication of the lack of
importance its drafters attached to the subject. To the contrary, at the time the 1996 Act
was enacted, confidentiality was considered a major competitive advantage of arbitration.
The Departmental Advisory Committee recorded that “there is … no doubt whatever that
users of commercial arbitration in England place much importance” on privacy and
confidentiality “as essential features” of arbitration. (17) However, it was the difficulty of
reaching a statutory formulation, in the light of “the myriad exceptions” and qualifications
that would have to follow, that led the drafters to conclude that the courts should be left to
grapple with the issue “on a pragmatic case-by-case basis”. (18)
The first thoroughgoing judicial attempt to do so occurred in 1997 in Ali Shipping
Corporation v. Shipyard Trogir. (19) In that case, the defendant shipyard concluded six

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 shipbuilding contracts with six separate companies in common ownership. The claimant,
Ali Shipping, was one of the six purchasers, and it successfully obtained an award against
the yard. In separate arbitrations with the other purchasers the shipyard attempted to
P 704 deploy materials obtained in the Ali Shipping arbitration, including the award, written
P 705 submissions and transcripts. The Court of Appeal granted Ali Shipping an injunction
restraining the shipyard from using the documents for this purpose, finding that the
arbitration agreement contained an implied duty of confidentiality. The Court of Appeal
determined that the term upon which confidentiality rested was implied as a matter of
law, not as a matter of fact, and accordingly arose in the same way in every arbitration
regardless of the presumed intentions of the parties. (20)
This analytical approach was subsequently criticized by the Privy Council in Associated
Electric & Gas Insurance Services Ltd v. European Reinsurance Company of Zurich (Bermuda).
(21) For its part, the Privy Council found that it “runs the risk of failing to distinguish
between different kinds of confidentiality which attach to different kinds of documents or
to documents which have been obtained in different ways and elides privacy and
confidentiality”. (22) In the words of the Privy Council, “[g]eneralisations and the
formulation of detailed implied terms are not appropriate”. (23)
When the Court of Appeal was next called upon to consider such questions, in the 2008
case of Emmott v. Michael Wilson Partnership, (24) it took note of the Privy Council's
critique. (25) In Emmott, the Court of Appeal granted permission to disclose pleadings
generated in a London-seated arbitration to parties in overseas court proceedings, in
order to prevent the overseas courts from being misled. In the London arbitration, the
defendants had originally alleged fraud against the claimant, and the points of claim had
been disclosed to the overseas court. However, the allegations of fraud were abandoned in
the arbitration, and the claimant successfully applied for permission to disclose the
amended points of claim and skeleton argument generated in the arbitration in the
overseas court proceedings. In the light of the prior disclosures, the Court of Appeal held
that such further disclosure was necessary in the interests of justice. (26)
Delivering the leading judgment, Lawrence Collins LJ (as he then was) described the
implied agreement as “really a rule of substantive law masquerading as an implied term”.
(27) Nevertheless, the Court ultimately confirmed the existing position in the following
terms: (28)
“Documents in arbitration may, as I have said, be inherently confidential, as
where they contain trade secrets. But it is clear that what has emerged from the
P 705 recent authorities in England is that there is, separate from confidentiality in
P 706 that sense, an implied obligation (arising out of the nature of arbitration
itself) on both parties not to disclose or use for any other purpose any
documents prepared for and used in the arbitration, or disclosed or produced
in the course of the arbitration, or transcripts or notes of the evidence in the
arbitration or the award, and not to disclose in any other way what evidence has
been given by any witness in the arbitration, save with the consent of the other
party, or pursuant to an order or leave of the court…. The obligation is not
limited to documents which contain material which is confidential, such as
trade secrets. The obligation arises, not as a matter of business efficacy, but is
implied as a matter of law.” (Emphasis added.)
In so holding, the court recognized that the duty of confidentiality could not be implied in
the normal way, i.e. as a term that must have been intended by the parties because it is
necessary for their agreement (in this case, their arbitration agreement) to work. Instead,
as Lawrence Collins plainly recognized, it was imposed as a matter of law, regardless of
party intention or consent. In this age of ever -greater transparency, the question that will
increasingly be asked is whether such a presumption – for which perhaps read policy – is
truly apposite in the world in which we live today.
To address that question, let me recount the story of a small dinner I was invited to some
months ago. It was a dinner hosted by one of the many investigations firms that now
regularly advertise their services to law firms in international arbitration. Although I do not
say yes to many of those invitations, on this occasion I did decide to accept, because the
guest speaker was a former chief of England's Secret Intelligence Service, MI6, known as “C”
in the real “spy world”, or “M” for all those who are fans of Dame Judi Dench in the James
Bond films. And “C's” subject that evening was: “Survival in the Age of Populism”.
It was a fascinating talk, filled with interesting insights on a variety of pressing geopolitical
issues, which regrettably I cannot share, because we agreed at the very beginning of the
dinner that we would all be subject to the “Chatham House Rule”. But there is one thing “C”
said that I can share, because it involved no controversial view on non-public information,
and it is this: “The states, institutions, companies and individuals who will prosper in this
new age of populism are those that recognise what it demands.” Now that statement might
sound too obvious to be worth repeating. But is it? How many of us are actually in
determined denial about the transformations that recent political events have brought
upon our society? How many of us are proving slow to turn our minds to how we might have
to adjust to the implications of this new age?
So I do not think that the insight that “C” offered is so obvious. And I do think that it is

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 worth pondering in the context of the procedural institution of international arbitration.
Because there is one way in which this new age may impinge on our process. For we appear
to be moving: from an age in which transparency is valued as an end in itself, (which, as we
have seen, is imposing its own pressures on the confidentiality of the arbitral process); to
an age in which the absence of transparency or information is likely to be replaced by an
avalanche of misinformation, or “fake news”, to fill the void that the lack of transparency
leaves.
Considering that recent evolution in the context of the arbitral process leads to various
P 706 thoughts, such as: let us keep our process away from the prying eyes of those inclined to
P 707 senseless soundbites; the less publicity our process attracts, the better it will be able to
perform its justice function. But there is one question that keeps bubbling to the surface
from amongst these purists' thoughts, and it is this:
In an age in which an absence of information is often replaced by an abundance of
misinformation, is it acceptable – or even wise – for a process that now accounts
for such a significant proportion of commercial dispute resolution around the
world to be automatically confidential?
My answer to that question is that, over time, it will become less and less acceptable, and
less and less wise. This is not because some parties – possibly many parties – will not
continue to elect to make their processes confidential. Many will, and of course they
should always be able to. But the implied duty of confidentiality – again – goes much
further than this; it draws the curtain of confidentiality down over every arbitration, as a
matter of course, whether the parties have selected it or not. Such an implied duty is not
based on party consent, and its disappearance will not erode in any way parties' ability to
choose to make their arbitration confidential.
So I anticipate the implied duty of confidentiality will come under increasing pressure
where it still exists. And as that pressure on the implied duty mounts, so more jurisdictions
will perhaps move to deal with confidentiality expressly in their arbitration statutes,
either by providing an “opt-out” system (automatic confidentiality unless the parties agree
otherwise), or an “opt-in” (no confidentiality unless the parties choose to make it so).
We see examples of both approaches in different jurisdictions. By way of example, in its
2004 statute, Norway adopted an “opt-in” system, providing that “[t]he arbitral
proceedings and the arbitral award shall not be subject to a duty of confidentiality, unless
otherwise agreed by the parties in respect of each arbitration”. (29) Australia included a
similar provision in its 2010 amendments to the International Arbitration Act 1974.
Following these amendments, Sect. 22(3) of the Act provided that the Act's confidentiality
provisions would only apply “to arbitral proceedings commenced in reliance on an
arbitration agreement if the parties to the agreement agree (whether in the agreement or
otherwise in writing) that they will apply”. However, in December 2015, as mentioned
above, as part of certain “omnibus amendments” to civil justice legislation, Australia
reversed the “confidentiality opt-in” in the 2010 Amendment, so that the confidentiality
provisions will now apply unless the parties to the arbitration agreement opt out, i.e. agree
that they should not.
Both approaches are already out there. So let me end by gazing into a crystal ball, and
asking which of these two legislative approaches will likely predominate in the years to
come?
The arguments in favour of confidentiality in arbitration, which might be thought to auger
in favour of an “opt-out” system, are well known. Some – perhaps many – of our clients
prize it. For them arbitration is, above all, a means of resolving their particular commercial
disputes that rarely will be helped by unnecessary publicity. And such individual
commercial objectives must be prioritized; that is precisely why the potential for
confidentiality is such a virtue of our process.
P 707
P 708
But let us also recognize the costs of confidentiality, because they may be less obvious, but
they are no less real, for those same users of our process.
– “Cost No. 1”: The resulting paucity of information about what takes place in
arbitrations undoubtedly makes our process less predictable for all participants.
Various initiatives from within the arbitral community have sought somewhat to
address this growing user complaint, from greater transparency shown by some
institutions on how arbitrator challenges are decided, (30) to private initiatives such
as Professor Catherine Rodgers's Arbitrator Intelligence project. (31) But for now such
initiatives are perhaps more significant for evidencing the growing demand for more
information, than for fully satisfying that demand.
– “Cost No. 2”: That paucity of information also allows misinformation to flourish, as I've
noted, which in turn undermines the legitimacy of a process that those same users
depend upon. Already we are experiencing the backlash against investment
arbitration that finds its loudest voice in complaints about a lack of transparency.
And it would be naïve to presume that such complaints are not also polluting the
reputation of international arbitration more generally. Manifestly, they already are,
that is why the New York Times spoke in recent years of “arbitration everywhere

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 stacking the deck of justice” in relation to consumer arbitration. (32) (Emphasis
added.)That is why the Economist has even more recently bemoaned “the craze for
mandatory arbitration” in relation to employment arbitration. (33) (Emphasis added.)
These are not compliments, and here is a rather easy prediction to make: accusations
denigrating “shadowy, secretive, private courts” will not get any easier to rebut or
explain over time.
– And mixed in with all of this is “Cost No. 3”: the absence of the behavioural
advantages that will come with the scrutiny that public information will allow on the
performance of the participants in our process (arbitrators and counsel alike).
For these reasons, this author's view is that, as the premium of transparency increases ever
more in our modern world (together with the costs of non-transparency), so we might
expect – and perhaps should look for – the default setting in commercial arbitration to
shift increasingly to an “opt-in” system too.
Such an evolution to a default setting of greater transparency should be no concern at all
for those parties still interested in agreeing a duty of confidentiality expressly for their
arbitration. Indeed, the most powerful criticism that can be made of this prediction is that
it won't actually change very much at all, because most users will expressly choose to
make their process confidential.
But if that is so, then why oppose a change that will not change the practice at all for those
who don't want it to change, but will nevertheless help to reinforce the modern legitimacy
P 708
P 709
of our process. Because our process will no longer have to explain why it is
indiscriminately secret, as a matter of the system, whether the parties have expressed an
intention to have a confidential process or not.
So let me end by inviting us to turn our eyes beyond the present to the future. And let me
do so by asking another question: Can we imagine international arbitration's automatic,
indiscriminate, confidentiality remaining acceptable in our modern world in ten years', twenty
years' or thirty years' time?
If the answer to that last question just might be no, here's a further question: why wait to
make a change grudgingly in twenty or thirty years that may by then be considered to be
long overdue? Why not make the change before the criticisms from beyond our field begin
to mount?
General de Gaulle famously said that it was essential to be able to tell the difference
between a passing breeze and the winds of history — “entre les courants d'air et le vent de
l'Histoire”. Although the clamour for transparency may have seemed a seasonal gust in the
early years of the new millennium, it has not gone away, and seems destined to assume
historical importance.
P 709

References
*) Constantine Partasides QC: Founding partner of Three Crowns LLP; ICCA Governing Board
Member. The author acknowledges and thanks Richard Trinick, an associate in the
firm's London office, for his contribution to this paper.
1) The author is aware that his use of this metaphor is not original in the context of
commentary on confidentiality. See the description of the Australian High Court's 1995
decision in Esso v. Plowman as crashing “like a giant wave – a veritable Australian
tsunami – on the shores of jurisdictions around the world” in Yves FORTIER, “The
Occasionally Unwarranted Assumption of Confidentiality”, 15 Arb Int'l (1999) p. 131 at p.
134.
2) ICSID Rules 32(2), 37(2) and 48(4) respectively.
3) UNCITRAL Rules 2010, Art. 34(5).
4) See, for example, the SIAC 2017 Investment Arbitration Rules, which deem consent to
publication of certain information about a case, including redacted excerpts of the
reasoning of the Tribunal (Rule 38.2). See also the Stockholm Chamber of Commerce
(SCC) 2017 rules, which provide for submissions by third parties, but only in treaty-
based investor-state arbitration (Appendix III).
5) UNCITRAL Report of the Working Group on Arbitration and Conciliation on the work of
its forty-eighth session (4-8 February 2008) para. 57.
6) UNCITRAL “Notes on Organizing Arbitral Proceedings” (2016) para. 55.
7) See fn. 4 above.
8) See the amendments made to the International Arbitration Act 1974 (Cth) by the Civil
Law and Justice (Omnibus Amendments) Act 2015 (Cth).
9) See the ICC's 2016 Statistical Report (<https://iccwbo.org/media-wall/news-
speeches/full-2016-icc-dispute-resolution-statistics-published-co...>).
10) See “Tapie: the end of the affair”, published on globalarbitrationreview.com on 30 June
2016. See also “Tapie: the end of the end of the affair?”, published on
globalarbitrationreview.com on 20 May 2017.
11) Microsoft Mobile Oy (Ltd) v. Sony Europe Limited and Ors [2017] EWHC 374 (Ch).

6
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 12) Mance LJ in Department of Economics, Policy and Development of the City of Moscow v.
Bankers Trust [2005] QB 207 at para. 39.
13) Bulgarian Foreign Trade Ltd v. AI Trade Finance Inc., Case No. T 1881-99 (Swedish Sup. Ct.
27 October 2000).
14) See, for example, United States v. Panhandle E. Corp. (118 F.R.D. 346 (D. Del. 1988);
Contship Containerlines, Ltd. v. PPG Industries, Inc., 2003 WL 1948807 (S.D.N.Y. 2003). The
New York Civil Practice Law and Rules (CPLR) are also silent as to confidentiality.
15) United States v. Panhandle E. Corp. (118 F.R.D. 346 (D. Del. 1988) at 349-350; American
Cent. E. Tex. Gas Co. v. Union Pac. Res. Group, 2000 WL 33176064, at *1 (E.D. Tex. 27 July
2000); see also Caringal v. Karteria Shipping, Ltd., 2001 WL 874705, at 1 (E.D. La. 24 Jan.
2001) (ordering production of documents from a London arbitration).
16) See Paris Court of Appeal, 18 Feb 1986, 1986 Rev Arb 583; Paris Court of Appeal, 22 Jan.
2004, 2004 Rev Arb 647.
17) The Departmental Advisory Committee on Arbitration (DAC) Report on Arbitration Bill
1996, p. 12. The Report also approved the observation of Sir Patrick Neill QC (see, 12
Arbitration International (1996) p. 287) that it would be difficult to conceive of any
greater threat to the success of English arbitration than the removal of the general
principles of confidentiality and privacy.
18) DAC Report, p. 10.
19) Ali Shipping Corporation v. Shipyard Trogir [1997] EWCA Civ 3054; [1999] 1 WLR 314. For an
overview of English law on confidentiality in international arbitration see T. APLIN, L.
BENTLY et al, Gurry on Breach of Confidence, 2nd edn, (OUP 2012) Chapter 9L, Chapter 2.
20) Id., at 326. This approach has been followed in some other common law jurisdictions,
including Singapore (see Myanma Yaung Chi Oo Co Ltd v. Win Win Nu [2003] SGHC 124;
AAY v. AAZ [2011] 1 S.L.R. 1093); New Zealand (see Arbitration Act 1996, Sect. 14B); and
Hong Kong, where the common law duty of confidentiality has been incorporated as an
express duty in to the Hong Kong Arbitration Ordinance (see Cap 609 Sect. 18).
21) Associated Electric & Gas Insurance Services Ltd v. European Reinsurance Company of
Zurich (Bermuda) [2003] UKPC 11.
22) Id., para. 20.
23) Id.
24) Emmott v. Michael Wilson Partnership [2008] EWCA Civ 184.
25) Id., at 1381-1382.
26) The court also indicated that the issue of confidentiality, arising as between parties to
the arbitration, should have been determined by the arbitrator, and that had the
defendant applied for a stay this would probably have been granted. See id., at 1380.
27) Id., at 1380.
28) Id., at 1379-1380.
29) Act of 14 May 2004 No. 25 relating to Arbitration (The Arbitration Act), Chapter 1, Sect. 5.
30) See the LCIA's widely welcomed practice to publish sanitized versions of its reasoned
challenge decisions.
31) See <www.arbitratorintelligence.org/>.
32) See <www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-
stacking-the-deck-of-justice.htm...>.
33) See <www.economist.com/news/leaders/21735590-millions-american-employees-
have-no-recourse-courts-problem-...>.

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 KluwerArbitration

Document information
Prayers for Relief – The Focus for Organization
Publication Klaus Reichert
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introductory Question
What is the object or purpose of organizing arbitral proceedings? Unless the answer to this
question is clearly understood, and such understanding is shared between all counsel and
Bibliographic reference the tribunal, from the outset of a case, there is a real risk that the organization does not
Klaus Reichert, 'Prayers for actually achieve the fair, efficient and expeditious conduct of the arbitration.
Relief – The Focus for This paper proposes a short answer to that question. The object or purpose of arbitral
Organization', in Jean proceedings is the disposition by the tribunal of the parties' respective prayers for relief.
Engelmayer Kalicki and The tribunal does not resolve any and every difference of opinion, or disputed fact, or
Mohamed Abdel Raouf (eds), indeed slight, as its sole task (derived from the agreement to arbitrate) is to grant or
Evolution and Adaptation: withhold the prayers for relief. Every step in the organization of the case should be
The Future of International directed towards that task. (1) This paper will now develop support for the answer
Arbitration, ICCA Congress proposed to the introductory question with the following points in mind: (II) how are
Series, Volume 20 (© Kluwer disputes settled by arbitration; (III) what is the fundamentally important characteristic of
Law International; an award; and (IV) how comparisons with national litigation are apt to mislead.
International Council for
Commercial II How are Disputes Settled by Arbitration?
Arbitration/Kluwer Law
International 2019) pp. 715 - One starts with the basis and uncontroversial premise that an arbitration only exists
724 because of an agreement to resolve disputes by that procedure. Taking a typical example
of an arbitration agreement, namely the International Chamber of Commerce (ICC)
standard clause:

P 715 “All disputes arising out of or in connection with the present contract shall be
P 716 finally settled under the Rules of Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with the said
Rules.”
While much focus in the past has been on the introductory words to such clauses (all
disputes arising out of or in connection with…) debating on the scope of an agreement to
arbitrate with linguistic contortions on whether a dispute arises under or out of, those
debates are largely now over. Perhaps what may have been overlooked is what exactly is
meant by the words shall be finally settled. Those words are often skipped over as one
might readily assume that they speak for themselves. For present purposes they will be
looked at in a little more detail.
There is another basic premise which can readily be stated without much fear of
contradiction, namely, a dispute is settled by a remedy or relief being granted (or refused)
by the tribunal. While the innumerable legal systems and governing laws around the world
have a vast array of differing rules and approaches to contract interpretation (for
example), one commonly finds that each has remedies to resolve disputes. Legal systems
generally do not resolve disputes by having a general enquiry into what happened
between parties and thereafter coming up with a just solution. Rather, parties assert that
the material facts, by reference to applicable legal principles, give rise to certain
remedies.

III What is Fundamentally Important About an Award?

The answer is: the disposition of the claims made as set out at the end of the award. That is
what the parties are told to do, or not to do.
The importance of remedies for the purposes of arbitral proceedings is sitting in plain
(legal) sight. Three examples are now considered: (1) a reasoned award can be dispensed
with by agreement of the parties; (2) infra petita as a recourse against an award; and (3)
certain institutional rules and practice.

1 Reasons – Fundamental, or Dispensable

Consider the United Nations Commission on International Trade Law Model Law on
International Commercial Arbitration (the UNCITRAL Model Law) which provides as follows:
“Article 31. Form and contents of award
….
(2) The award shall state the reasons upon which it is based, unless the parties

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 have agreed that no reasons are to be given….”
In a similar vein, one sees in Sect. 52(4) of the English Arbitration Act 1996:
“The award shall contain the reasons for the award unless it is an agreed award
or the parties have agreed to dispense with reasons.”
P 716
P 717
Thus, parties are free to agree that reasons can be dispensed with – the articulation by a
tribunal of reasons, or grounds, is clearly not considered to be so crucial as to be rendered
sacrosanct. Of course it is most unusual for reasons to be dispensed with, but that is not
the point; the UNCITRAL Model Law and the English Arbitration Act both permit parties to
dispense with reasons. An award rendered under such circumstances is no less an award
than one with reasons because, critically, the operative part decides on the prayers for
relief advanced by each side. That operative part, deciding on the prayers for relief, brings
the dispute to an end.

2 Infra (or Ultra) Petita

Consider Art. 1485 of the French Code of Civil Procedure (CCP) which provides as follows (in
relevant part, translated):
“… once an award is made, the arbitral tribunal shall no longer be vested with
the power to rule on the claims adjudicated in that award. However, on
application of a party, the arbitral tribunal may interpret the award, rectify
clerical errors and omissions, or make an additional award where it failed to
rule on a claim. The arbitral tribunal shall rule after having heard the parties or
having given them the opportunity to be heard.”
Thus, Art. 1485 CCP provides that an arbitral tribunal can complete its award when it failed
to rule on a head of claim (“le tribunal arbitral peut interpréter la sentence … ou la
compléter lorsqu'il a omis de statuer sur un chef de demande”). It follows that not all
omissions give rise to a claim for infra petita. The omission must be related to a claim
(“chef de demande”), as opposed to a ground for relief put forward in support of a claim
(“moyen”). A claim is to be understood as a formal request, made by a party to the tribunal,
to give a ruling on a specific point. The claim(s) submitted by the parties form(s) the
subject matter of a dispute. Grounds, on the other hand, are the reasons forming the basis
of a claim.
In Switzerland, the Private International Law Act provides as follows:
“Article 190
….
(2) The award may only be annulled:
…
(c) if the arbitral tribunal's decision went beyond the claims submitted to it, or
failed to decide one of the items of the claim[.]”
Similarly with the UNCITRAL Model Law:
“Article 33
….
(3) Unless otherwise agreed by the parties, a party, with notice to the other
P 717 party, may request, within thirty days of receipt of the award, the arbitral
P 718 tribunal to make an additional award as to claims presented in the arbitral
proceedings but omitted from the award….”
In short summary: the chef de demande is the critical matter for disposition, not the moyen.

3 Certain Institutional Rules and Practice

First, consider the current ICC Rules (in relevant part):
“Article 23: Terms of Reference
(1) As soon as it has received the file from the Secretariat, the arbitral tribunal
shall draw up, on the basis of documents or in the presence of the parties and in
the light of their most recent submissions, a document defining its Terms of
Reference. This document shall include the following particulars:
…
(c) a summary of the parties' respective claims and of the relief sought by each
party, together with the amounts of any quantified claims and, to the extent
possible, an estimate of the monetary value of any other claims;

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 ….
(4) After the Terms of Reference have been signed or approved by the Court, no
party shall make new claims which fall outside the limits of the Terms of
Reference unless it has been authorized to do so by the arbitral tribunal, which
shall consider the nature of such new claims, the stage of the arbitration and
other relevant circumstances.”
Secondly, the current ICC Award Checklist provides as follows (in relevant part) for
tribunals to consider when preparing an award:
“7. Dispositive Section, Place of Arbitration, Date, Signature –
A. Award contains a dispositive section mentioning all orders (including the
decision on jurisdiction, if applicable) and nothing more.
B. Award deals with all of the issues and parties' claims (which should be
stated clearly and precisely somewhere in the award and compared to the
Terms of Reference), including the parties' most recent requests for relief,
and decides nothing more than those issues and claims (state clearly if
certain claims are reserved for one or more future awards).”
While the word “claims” and the phrase “requests for relief” appear to be two different
things, one might venture to suggest that these are simply interchangeable labels for the
same thing, namely, chef de demande and not moyen. One might consider the French
version of Art. 23(1)(c) and 23(4) respectively of the ICC Rules to illustrate this point:
“un exposé sommaire des prétentions [the claims] des parties et des décisions
sollicitées [prayers for relief] par chacune d'elles ainsi que le montant de toute
demande quantifiée et, dans la mesure du possible, une estimation de la valeur
pécuniaire de toute autre demand”
P 718
P 719
and
“Après la signature de l'acte de mission, ou son approbation par la Cour, les
parties ne peuvent former de nouvelles demandes [the exact language,
prétentions, used in Art. 23(1)(c) is not replicated, but rather the word demandes
is used] hors des limites de l'acte de mission, sauf autorisation du tribunal arbitral
qui tient compte de la nature de ces nouvelles demandes, de l'état d'avancement
de la procédure et de toutes autres circonstances pertinentes.” (Emphasis added.)
Indeed, in French legal thought (2) a claim is defined as:
“What is required from the judge or the arbitrator by one of the parties: the
result it wishes to obtain.”

4 Conclusion
It is tentatively suggested that the three foregoing points, namely the dispensable nature
of reasons, infra petita, and arbitral rules-cum -practice, demonstrate that the disposition
of the prayers for relief is the most significant part of any award. The oft-noted practice,
namely that the very first thing counsel does when receiving an award is go to the last
page, bears this out. While one might thereafter dwell on the reasoning, ultimately that
which is to be paid (or not), and enforced if necessary, is to be found on that key last page.
In less subtle terms, if one has to enforce and then execute an award as against the assets
of a respondent, the bailiff will not be looking at the reasons, but at the last page for the
amount of money ordered. Perhaps this is the starkest example of what arbitration is
ultimately all about, the satisfaction of an award; hence the importance of the prayers for
relief.

IV Is this not the Same as a National Court?

One might observe that all of this is fairly similar to the manner in which a national court
goes about its task in deciding the remedy to give to a party, and therefore one often
encounters parties approaching the formulation of claims or prayers for relief, and indeed
their “pleadings” or “submissions” or “statements” or “memorials” in a manner which
roughly corresponds to the domestic litigation rules in the jurisdiction where their lawyers
qualified. This national court influence also can carry through into the conception of
parties as to how arbitral proceedings evolve, when evidence is adduced, how it is
adduced, and when one makes arguments as to the consequences of such evidence.
Specifically, there are legal cultures where the trial (i.e., the evidential hearing) is more
important than any other aspect of the case, and that is the occasion when the evidence
comes out. Thereafter the court can fashion the legal remedy.
P 719
P 720
This is apt to mislead in the context of arbitration. A national court (subject of course to its
rules, laws, and inherent powers) has the full original or general jurisdiction accorded to a

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 state court. It can fashion remedies having heard evidence. It has a panoply of powers (e.g.,
in a constitutional context) which engage a public function. An arbitral tribunal has no such
wide-ranging constitutionally-backed powers, and its existence and function have a much
more limited lifespan with jurisdiction only insofar as is necessary to undertake its task.
Once the award is rendered, and any time period for corrections (and the like) is past, the
tribunal is functus officio.
An illustration of the general jurisdiction of a national court comes from the English Civil
Procedure Rules, Part 16(2)(5) (Part 16 sets the requirements of a statement of case in
municipal litigation): “The court may grant any remedy to which the claimant is entitled
even if that remedy is not specified in the claim form.”
One might readily ask where such a provision can be found in any set of arbitration rules,
or in any arbitration law. Which leads one to an observation made during the presentation
of these remarks during the ICCA Congress in Sydney, namely, what does further or other
relief actually mean in the context of international arbitration? One, of course, sees it in
virtually every request, answer, memorial, or submission, but what does it mean? Does it
mean anything? Or is it an unwarranted cross-over from municipal litigation?
The Carnelli case (3) is historically, and legally, engaging. The arbitration was based on the
Treaty of Peace between the United States and Italy involving a claim by a US national for
war damage done to her property in Salerno in 1943. The United States requested the
Commission to:
“(a) Decide that the claimant is entitled to receive from the Italian Republic, a sum
sufficient at the time of payment to make good the loss suffered, which sum is
estimated to be on September 28, 1943, 185,300 lire, subject to the necessary
adjustment for variation in value between 1943 and the final date of payment.
(b) Order that the costs of and incidental to this claim be borne by the Italian Republic.
(c) Give such further or other relief as may be just and equitable.”
The Commissioners (Scanlan and Sorrentino) dealt with the third request in the following
terms (the quotation is long but a rewarding read) at pp. 94-96:
“In the Brief submitted at the conclusion of the case, and the Commission desires
to emphasize the manner in which the request was raised for the first time in
this case, the Agent of the United States requests a determination by the
Commission that the giving of ‘such further or other relief as may be just and
equitable’ calls for the payment to the claimant by the Italian Government ‘of an
appropriate amount of interest’.
(….)
The request for interest contained in the Brief presented by the Agent of the
United States must fail because the Commission does not believe that the
P 720 question of interest on the claim is before it in the instant case; this is a
P 721 preliminary question to any consideration of the more general question of the
responsibility of the Italian Government for the payment of interest on the
claim.
Article 7 (a) of the Rules of Procedure of this Commission adopted and
promulgated in Rome on June 29, 1950, by the Representatives of the two
Governments provides that proceedings before the Commission shall be
initiated by the formal filing of a Petition signed by the Agent of the claiming
Government, and that the Petition must contain:
…
(iii) a clear and concise statement of the facts in the case; each material
allegation should be set forth in a separate paragraph in so far as
possible;
(iv) a clear and concise statement of the principles of law upon which the
dispute is based;
(v) a complete statement setting forth the purpose of the Petition and the
relief requested.
The fifth requisite of Article 7 of the Rules of Procedure is clear and unequivocal.
There must be contained in the Petition ‘a complete statement setting forth the
purpose of the Petition and the relief requested’.
The Petition presented by the Agent of the United States of America on behalf of
the claimant herein was deposited with the joint Secretariat on August 28, 1950,
about two months after the promulgation of the Rules of Procedure. The relief
requested in the Petition has been set out in full in the Statement of the Case,
supra. There is no direct or indirect reference to interest in the Petition. The
request for ‘such further or other relief as may be just and equitable’ contained
in the Petition is not a statement which sets forth that one of the purposes of
the Petition is the obtaining of interest on the claim or that one of the measures
of relief requested is the granting of interest as part of the award.

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 Inasmuch as the desire for clearly informing the Italian Government of the
nature of the case and the relief requested by the Government of the United
States was one of the reasons, if not the principal reason, for the requirement
laid down in Article 7 (a) of the Rules of Procedure, including the specific
requirement that the Petition shall contain a complete statement setting forth
the purposes of the Petition and the relief requested, the request for ‘such
further or other relief as may be just and equitable’ contained in the Petition
submitted in the instant case by no means achieves the purpose of informing the
Italian Government of a request for interest.
That the Italian Government did not infer from the request for ‘such further or
other relief as may be just and equitable’ that the Government of the United
States was making a request for interest appears clearly from the Answer and
the supplemental Answer submitted by the Agent of the Italian Government.
When the Agent of the United States for the first time raised the question of
interest in the Brief by specifically requesting that interest be allowed on the
claim, the Reply Brief of the Italian Government denies vigorously the
responsibility of the Italian Government for interests. If the Petition had included
P 721 a clear request for interest, it is probable that the same vigorous denial would
P 722 have been asserted by the Agent of the Italian Government in his Answer or
supplemental Answer to the Petition, and the issue would have been clearly
developed by the Agents of the two Governments prior to concluding the formal
submission of proof. In any event, the Agent of the Italian Government denied
the responsibility of his Government for the payment of interest as promptly as
he could after the Agent of the United States had informed him in the Brief that
interest was being requested.
The Agent of the United States at no time requested this Commission to permit
the amending of the Petition in this dispute in order to include an express
request for interest. It was not until July 16, 1951, that the Commission issued an
Order, as requested by the Agent of the United States, that formal submission of
proof had been concluded by the Agents of the two Governments. In that Order
a period of time was granted to the Agent of the United States to file a Brief in
support of his Petition.
Article 11 of the Rules of Procedure of the Commission, entitled ‘Briefs and Oral
Arguments’, makes it clear that Briefs and oral arguments were not intended to
include either amendments or additions to the Petitions, Answers, or any other
pleadings. The request for interest contained in the Brief in this case is an
addition to the request contained in the Petition and cannot be deemed to
have been submitted in accordance with the Rules of Procedure of the
Commission. It is, therefore, not a request which can be considered by the
Commission.
Although Article 18 of the Rules of Procedure reserves to the Commission the
right to deviate from these Rules in individual cases, the Commission is
satisfied that the Rules of Procedure are in conformity with justice and equity as
required by the express provision of Article 83, paragraph 3, of the Treaty of
Peace. Therefore, no reason is perceived in the instant case for any deviation
under Article 18 of the Rules from the requirements established in Article 7 (a) of
the Rules of Procedure, particularly since there is a lack of any evidence in the
record that a request for interest on the claim has ever been raised between the
two Governments either as a general question under Article 78 or in this specific
case at any time prior to the presentation of the Brief in this case by the Agent
of the United States of America.” (Emphasis added.)
In relatively short order, the conclusion can be drawn that a tribunal does not have general
authority to fashion the reliefs to which it feels a claimant is entitled based on the
evidence. Secondly, the expression “further or other relief” is meaningless in the
arbitration context, and does not rescue a party which should have included a prayer for
relief in respect of a claim it might well have made from the outset had the case been
thoroughly investigated. Indeed, one might wonder, based on the foregoing, whether the
equally oft-used phrase, “the right to amend or supplement these claims is reserved”, has
the meaning and effect to allow late-blooming prayers for relief such as that advanced by
the United States in the Carnelli case.
Recollecting that the tribunal's task is, essentially, to resolve the dispute in a binding
manner by the grant, or withholding of the prayers for relief sought by the parties. It does
not have the authority to give a party something it did not ask for, or decide something
P 722 which is not legally “alive” merely because it might have been argued at length. Take the
P 723 example of a claim for a debt amount against which four different defences are raised.
If one of the defences succeeds (e.g., the tribunal prioritizes one of the lines of defence for
disposition first by way of a partial final award), then the tribunal no longer has jurisdiction
over the claim as it has been finally determined. The claimant might well wish to have the
other three defences (e.g., if something important for a long-term relationship has arisen)
decided, but strictly speaking, the tribunal has no authority to do so as the claim which
was before it for decision is now legally “dead” or moot.

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 In England, for the purposes of Sect. 68(2)(d) of the Arbitration Act 1996 (4) Merkin and
Flannery note:
“… an ‘issue’ for the purposes of section 68(2)(d) is one that is of decisive effect
on the outcome, and not an incidental or peripheral matter, whose resolution is
largely immaterial to the overall result or that falls away in the light of other
holdings”. (5)
Thus, there is no duty under English law on the part of a tribunal to render an award on
defences (for example) which have become moot.

V Conclusion
If one bears in mind that one of the cornerstones of arbitral proceedings is due process,
and there is now an expectation that parties are not taken by surprise in any way
whatsoever, combining that expectation with the importance of the prayers for relief as set
out above, the conclusion one reaches is as follows. The organization of arbitral
proceedings must, from the very beginning, focus on what is essential for the disposition of
the prayers for relief advanced by the parties. It is essential for the efficient organization
of the case that parties must articulate as fully as is possible their prayers for relief at the
outset, and no later than the first memorial. Later additions (or “refinements” – a
comforting word which belies what is actually meant often in practice by wholesale
changes) only give rise to additional expense and investigations. Time must be taken at
the outset so that parties advance the prayers for relief they consider they need to make,
but also those which they consider that they can support.
On reflection of the wider topic developed during the ICCA Sydney Congress, the
P 723 conventional wisdom which attaches now to the organization of arbitral proceedings is that
P 724 all such organization is directed towards articulating everything in writing in advance of
any hearing. It is simply inconceivable that anyone now can be taken by surprise at a
hearing. If one considers all of the various guidelines, rules, and so on, the overriding
message is that the pre-hearing work, all written, is directed towards making sure that the
full case and all evidence is plainly laid out before one gets to a hearing. One does not
detect any appetite internationally for that to change so that trial by ambush would
become the norm. Thus, if that is a working assumption, namely that the organization of
arbitral proceedings should continue to have as its object the clear notification of
everything before a hearing, then it becomes all too obvious that the risk of overblown and
unmoored proceedings is heightened. If one has the key task of the tribunal in mind from
the outset, namely, the granting or withholding of the relief sought, then such risks can be
abated insofar as is practically possible. Parties must know this from the outset, and be
aware that they must bring forward their prayers for relief in full at the earliest
opportunity.
P 724

References
*) Klaus Reichert SC: Barrister at Brick Court Chambers, London; ICCA Governing Board
Member.
1) The topic discussed in this paper arises from a number of lectures given, first in
November 2017, as the Scholar-in-Residence at the Center for Transnational Litigation,
Arbitration, and Commercial Law at New York University School of Law, and then in
February 2018 at the International Arbitration Institute of the University of Miami.
2) P. GIRAUD, “La confomité de l'arbitre à sa mission”, sous la direction de Charles Jarrosson,
para. 158).”
3) Decision No. 5 of 4 March 1952 of the Italian-United States Conciliation Commission, Vol.
XIV, pp. 86-96, Recueil des Sentences Arbitrales.
4) “Sect. 68.
(1) A party to arbitral proceedings may (upon notice to the other parties
and to the tribunal) apply to the court challenging an award in the
proceedings on the ground of serious irregularity affecting the tribunal,
the proceedings or the award. …….
(2) Serious irregularity means an irregularity of one or more of the
following kinds which the court considers has caused or will cause
substantial injustice to the applicant—….
(d) failure by the tribunal to deal with all the issues that were put to it….”
5) R. MERKIN and L. FLANNERY, Arbitration Act 1996, 5 ed. (Informa Law from Routledge
2014) p. 313.

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 KluwerArbitration

Document information
What Is Conventional Wisdom in the Organization of
Publication Arbitral Proceedings?
Evolution and Adaptation: Nayla Comair-Obeid
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference 1 What is “Conventional Wisdom”?
Nayla Comair-Obeid, 'What The expression “conventional wisdom” results from an association of “convention” and
Is Conventional Wisdom in “wisdom”. Thus, while certain wisdoms can be unconventional, and conventions, far from
the Organization of Arbitral being always wise, “conventional wisdom” refers to those principles which are both
Proceedings?', in Jean conventional and wise. In other words, they ally the rooting power of traditions with the
Engelmayer Kalicki and insight that comes with wisdom.
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: John Kenneth Galbraith has defined “conventional wisdom” in the following way:
The Future of International
Arbitration, ICCA Congress “What is conventional wisdom? It will be convenient to have a name for the
Series, Volume 20 (© Kluwer ideas which are esteemed at any time for their acceptability, and it should be a
Law International; term that emphasizes this predictability. I shall refer to these ideas henceforth
International Council for as the conventional wisdom.”
Commercial
Arbitration/Kluwer Law Three elements in this definition deserve particular attention. In the words of John Kenneth
International 2019) pp. 725 - Galbraith, conventional wisdom refers to ideas which are “esteemed … for their
735 acceptability”, i.e. generally recognized as sound and as a vehicle of wisdom. The second
element of this definition has a time component. A conventional wisdom is not one which
is temporarily in vogue but rather one that has endured the test of time. Finally, because
the principles which can be categorized as “conventional wisdom” are generally accepted
and have remained steadfast across time, they are a source of reliability and
predictability.
P 725
P 726
2 Relevance of the Topic
Analyzing the meaning of conventional wisdom and identifying the principles which
constitute it require going back to the foundations of international arbitration, which is of
particular relevance at a moment when the role of arbitrators and counsel in international
arbitration is being called into question. Among the criticisms that international
arbitration faces are the increased time and costs of its proceedings and the quality of
arbitrators' decisions, (1) with criticisms against investor-State arbitration being
particularly acute. (2) In such a context, conventional wisdom bears an element of
acceptability as mentioned above and as such, if properly observed, should have an
ability to unite, to inspire trust of the end users and to strengthen a system which has been
a source of discontent.
However, does the fact that the principles identified as conventional wisdom are
recognized as “wise” mean that they represent the “right” principles to apply in any
circumstances? This is probably not the case, mainly for two reasons:
(1) First, the way arbitrators work has evolved over the years, not only due to the
technological innovations, but also as a result of an increased arbitration caseload
over the years. I therefore do believe that wisdom requires a constant adaptation of
arbitral procedures to the changing environment in which arbitrators operate.
(2) Second, the specificities of each case sometimes require a deviation from admitted
practice.
This paper will attempt to analyze the role of conventional wisdom in the promotion of
efficient arbitration proceedings. In doing so, the paper will identify a number of ideas and
principles which are generally accepted and ensure the good functioning of the arbitration
process (Sect. II). Next, the paper will question the element of acceptability and
predictability included in John Kenneth Galbraith's definition by analyzing how
conventional wisdom is influenced by perceptions (Sect. III). Finally, it will explore some
innovative techniques in international arbitration, focusing on the way they can contribute
to consolidating conventional wisdom and improving the practice of international
arbitration (Sect. IV).
P 726
P 727

II Conventional Wisdom as a Set of Generally Accepted Principles

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 A number of principles in international arbitration are generally recognized principles
which have been constantly applied throughout the times. The below is not intended to be
an exhaustive list of such principles but rather a description of some accepted wisdoms in
international arbitration and of where they can be found.

1 Some Commonly Accepted Wisdoms in International Arbitration

a Constitution of an arbitral tribunal: A preference for three arbitrators?
At the stage of the constitution of the arbitral tribunal, one idea which has been described
as a conventional wisdom relates to the preferability of having a three-member tribunal,
whenever the economics of a case can bear it. (3)
The first reason advanced in favour of this conventional wisdom is that having three
arbitrators improves the quality of the arbitral process and the award, since three
arbitrators allows for “true deliberation – the sharing of ideas, perspectives reasoning and
drafting”, (4) and a more thorough consideration of the issues from different points of view.
(5)
The second argument in support of appointing three arbitrators rather than only one is that
having the ability to nominate a co-arbitrator generally increases party confidence in the
arbitral process, since the parties “believe that there is at least one member of the
arbitral tribunal who will listen attentively and sympathetically to its case, understand its
position, and ensure that the party gets a fair hearing and that its views are considered
during the deliberations”. (6)
When arbitrators have the same ethical and professional values, as well as good knowledge
of the applicable law or, at least, an open and flexible approach to the application of a
foreign law, three-member tribunals' deliberations can be very fruitful, particularly in
complex procedures where the complementary approaches of three well-versed
individuals are most often beneficial to the decision-making process.
P 727
P 728
However, criticism against three-arbitrator tribunals has developed, underlining the
potential risks for excesses coming principally from party-appointed arbitrators such as:
co-arbitrators having ex parte communication with “his/her” party; resigning at a time
designed to disrupt the proceedings; making himself unavailable for deliberations;
encouraging the filing of challenges; secretly feeding information about deliberations to
“his/her” party; failing to deal with an award that needs only his signature before it can be
notified to the parties; secretly sending “his/her” party the draft of a forthcoming award;
taking months to draft a promised dissenting opinion; filing a dissenting opinion designed
to undermine the enforceability of the award. (7)
The risk of excesses with three-member tribunals is indeed not negligible but could
probably be attenuated if a proper system of sanctions was in place in cases of abuse. The
Chartered Institute of Arbitrators (the CIArb or the Institute), for example, has adopted its
own Code of Conduct for arbitrators who are also members of the Institute. Pursuant to Art.
15.2 of the Code of Conduct, the misconduct of an arbitrator may involve “a significant
breach of professional or ethical conduct which shall include the Code of Professional and
Ethical Conduct or other similar document published from time to time by the Institute”.
(8) Such mechanisms are still in their infancy though, and could be further developed to
ensure stricter observance of arbitrators' ethical duties.
b Conventional wisdom at the preliminary stages of the arbitral proceedings
The experiences I have encountered in the course of my career as an international
arbitrator have taught me that the initial stages of the arbitral proceedings are essential
for the conduct of the rest of the proceedings, as they constitute the key moment to set the
tone for the arbitration and to build the basis for efficient proceedings.
The procedural planning of an arbitration requires that the arbitral tribunal ascertain at a
very early stage of the arbitration the source of the dispute, the delimitation of factual and
legal issues, as well as how the parties contemplate the arbitral proceedings and
timetable. (9) Appendixes to the International Chamber of Commerce Arbitration Rules
(the ICC Rules) of 2012 and 2017 include a number of specific “Case Management
Techniques” which the arbitral tribunal is encouraged to consider in conjunction with the
“Case Management Conference” or “Preliminary Meeting”. (10)
The Preliminary Meeting is indeed key since it allows for a dialogue between the
arbitrator(s), and both counsel for the claimant and for the respondent. The presence of
the parties themselves at this stage is highly recommended, since it represents the best
occasion for the arbitrator(s) to explain to them how the arbitration proceedings work,
particularly when they are unfamiliar with such proceedings.
Further, the Preliminary Meeting allows the arbitrator(s) to ensure that the parties are
P 728 aware of other mechanisms available for the resolution of their dispute, and is in my
P 729 experience, the best occasion to encourage settlement. As such 11 percent of my cases
have been settled following the Preliminary Meeting, after the parties had acquired a full
understanding of the arbitral procedure, including the time and costs involved.

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 c Conventional wisdom in the conduct of the arbitration
The international arbitral process seeks to achieve a number of objectives which can be
described as conventional wisdoms. As put forward by Gary Born, some of the most
important characteristics of the arbitral procedure are procedural fairness, efficiency,
expertise and tailoring procedures to specific disputes and parties. (11)
With international arbitration disputes involving parties coming from different
jurisdictions, one of the fundamental objectives of international arbitration is indeed that
disputes will not be resolved in accordance with the procedures of any of the parties'
home jurisdictions, but rather with a neutral procedure during which both parties will be
treated fairly and equally.
It is also conventional wisdom that international arbitration proceedings should be
efficient and as expeditious as possible, with most arbitral institutions imposing
extendable limitations for the rendering of the arbitral award, the new trend being to
impose sanctions on arbitrators who are delayed in rendering their award.
Finally, the use of arbitral procedures that are flexible and tailored to the parties' specific
dispute and wishes is another well-known, essential feature of international arbitration.
The parties' ability to tailor the arbitration procedure to their own requirements, by
choosing where the arbitration is to be held, which language should be used, whether the
arbitrators require any qualification and expertise, is indeed an important advantage over
court proceedings for international business actors and investors.

2 Conventional Wisdom in the Organization of Arbitral Proceedings and the Role

of Arbitral Institutions
Efforts have been made by international organizations and arbitral institutions to codify
and regularize the organization of arbitral proceedings.
Produced by the United Nations Commission on International Trade Law (UNCITRAL), the
UNCITRAL Notes on Organizing Arbitral Proceedings (the UNCITRAL Notes) gather a number
of non-binding principles developed over the years of practice of international arbitration
around the world, and as such are a useful guide of principles applicable to the
management of arbitration cases. The UNCITRAL Notes are meant as a reference tool to be
used during the initial stages of an arbitration, aimed at producing a well-organized,
efficient arbitral proceeding by identifying issues for the tribunal and the parties to
address. (12)
As stated in the Introduction to the UNCITRAL Notes:
“Laws governing the arbitral procedure and arbitration rules that parties may
agree upon typically allow the arbitral tribunal broad discretion and flexibility
P 729 in the conduct of arbitral proceedings. This is useful in that it enables the
P 730 arbitral tribunal to take decisions on the organization of proceedings that
take into account the circumstances of the case, the expectations of the parties
and of the members of the arbitral tribunal, and the need for a just and cost-
efficient resolution of the dispute.” (13)
The UNCITRAL Notes provide for guidelines in relation to the adoption of procedural rules;
language, translation and costs; seat of the arbitration and location of the hearings;
administrative matters and appointment of a secretary; deposits for costs and arbitrators'
fees; timetable for written submissions, evidence, witness testimony and hearing; hearing
procedures; possible settlement issues; and issue definition.
Other institutions have produced useful guidance on the management of arbitration
proceedings. In addition to Appendix IV to the ICC Rules of 2012 and 2017 containing “Case
Management Techniques”, (14) the ICC Task Force on Controlling Time and Costs in
International Arbitration, for instance, provides for useful recommendations regarding
case management. The CIArb also has published a Guideline on “Managing Arbitrations and
Procedural Orders” which can be a useful source of conventional wisdom in the
management of arbitration cases. (15)

III Conventional Wisdom and Perceptions

Although the principles which constitute conventional wisdom aspire to a certain
universality and are theoretically “esteemed at any time for their acceptability”, the
practice of international arbitration shows that although there might be general consensus
as to the formulation of certain principles, the perception of the way such principles
should apply is likely to be influenced by the background of the party representatives or
arbitrators involved in a specific arbitration proceeding.

1 Perceptions Influenced by Legal Background

The legal tradition of an arbitrator or counsel often does influence the perception of the
best ways to conduct arbitral proceedings and to apply the substantive law.
As Pierre Tercier explained in a lecture at the American University Washington College of
Law, justice is not dispensed in the same way everywhere around the globe, meaning that

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 the preferred way of applying the law in one legal system can be inconceivable in another
legal system. This implies that arbitrators, facing the inherent diverse backgrounds of
P 730 parties and of their representatives in international arbitration, should be ready to
P 731 understand and apply rules with which they are not necessarily familiar. This also
implies that counsel should be ready to adapt to a different way of approaching the legal
proceedings from the other party's side. (16)
By way of example, while applying the principle of equality of arms is a conventional
wisdom recognized in both civil and common legal traditions, the application of this
principle by counsel in document production differs significantly between both traditions.
Thus, the common law adversarial approach requires the disclosure of both supportive and
adverse documents to a disputing party's case and ensures that “cards face up on the
table” to secure equality of arms. (17) By contrast, in the civil law inquisitorial approach,
document production is initiated by the disputing party and limited to the discharge of
each party's burden of proof. Therefore, each party has to make out its own case in reliance
on the evidence in its own possession, and document requests are only admissible in the
most exceptional circumstances. (18)

2 Perceptions Influenced by Cultural Background or Personal and Specific

Industry Experience
At the 2002 ICCA Congress, Shari Diamond, professor of law, whose research and interests
include the psychology of the decision-making process, described three main
psychological influences on an arbitrator's decision-making:
“decision-makers are influenced by their cultural backgrounds, their prior
experiences and their personal associations in formulating their understanding
of and judging the behaviour they must consider in reaching their decisions.”
(19)
While the legal tradition is essential in an arbitrator's or lawyer's perception of fairness,
due to a developed habit of applying rules in a certain way, the cultural or professional
background of arbitrators can also influence the decision-making process and their
perception of the best application of conventional wisdoms, e.g., their perception of a fair
procedure.
Justice Holmes explained how the legal culture in which an arbitrator is schooled can have
a significant impact not only on the procedures the arbitrator adopts but also on how he or
she interprets the legal principles applicable:
“The life of the law has not been logic: it has been experience. The felt
necessities of the time, the prevalent moral and political theories, intuitions of
public policy, avowed or unconscious, even the prejudices which judges share
P 731 with their fellow-men, have had a good deal more to do than the syllogism in
P 732 determining the rules by which men should be governed.” (20)
A number of studies have been conducted on the influence of arbitrators' industry
backgrounds on arbitration outcomes, including with a focus on the securities industry (21)
or the construction industry, (22) some of them concluding that a specific industry
experience indeed has an impact on the decisions arbitrators take. (23)
In light of the foregoing, ideas have been developed on how to minimize the impact of
cultural differences or of personal experience, in order to ensure a more harmonized
approach to the application of conventional wisdom. As explained by Edna Sussman:
“While arbitrators are often selected because of their backgrounds and
experience, arbitrators should take care to assess the case that is actually
presented before them, and to consciously endeavor to overcome any affinity
they might have for any of the parties as a result of their background. Counsel
should take care in the selection of arbitrators to appoint arbitrators
accustomed to assessing witnesses from different cultural backgrounds and who
have a reputation for independence and impartiality in their decision-making.”
(24)
A number of suggestions have been formulated to improve arbitral procedures and to
ensure the best application of and respect for the principle of due process. Having a
thorough review of the evidentiary record and a strong focus on the factual evidence
submitted by both parties, for instance, can help to avoid being influenced by internal
bias. (25)

IV Conventional Wisdom and Innovation

Innovative tools and platforms in international arbitration represent another way to
improve the arbitral process and to ensure respect for conventional wisdom.
P 732
P 733
1 Innovative Tools and Better Application of Conventional Principles in

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 International Arbitration
As described above, it is commonly accepted that arbitration proceedings should be
quick, efficient and predictable to ensure access to justice. This is also essential to make
sure that they maintain the advantages attributed to alternative means of dispute
resolution over national court proceedings which often suffer the consequences of an
overloaded schedule. (26) The development of innovative tools is even more necessary in
an ever-evolving society with an increasing need for speed and swift resolution of disputes.
Once a swift and cost-efficient method of resolving international disputes, international
arbitration is now often stalled by long and costly procedures. (27)
Yet, long and costly procedures can be avoided if the arbitration is organized and
managed effectively. A number of ideas have been developed over time to improve the
efficiency of the arbitral process.

2 Examples of Innovations
Below are examples of procedural innovations which can improve both time and cost
efficiency of the arbitral process.
a Procedural innovations
In a survey conducted by Queen Mary University London on “Improvements and
Innovations in International Arbitration”, (28) the procedural innovation perceived as most
effective at controlling time and cost in international arbitration was the requirement for
tribunals to commit to a schedule for deliberations and delivery of final awards. (29) Such
internal commitment of the arbitral tribunal is essential and can be achieved only if the
proceedings are efficiently organized, an efficiency which can be maximized when
arbitrators are fully knowledgeable of the details of the case when they attend the
evidentiary hearing.
b Innovative tools
Three qualitative analytical models have been identified by Iain Sheridan as models that
may contribute to the processes and outcomes in international arbitration, namely mind
P 733 map diagrams; simplified evidence charts and cause and effect diagrams. (30) These are
P 734 only examples of innovative software, among a myriad of tools which are being
developed and used to simplify and organize complex fact matrices and ideas.
i Mind map diagrams
Mind map diagrams summarize a case in a non -linear way, replicating how the human
brain often analyzes knowledge and problems. The essential elements of any mind map
are (1) a main topic represented with a central image; (2) important themes radiating from
the central image as branches; (3) branches comprised of a key image or key word printed
on an associated line to form a connected nodal structure, and (4) the incorporation of
color to clarify or emphasize connections. (31)
This tool allows for complex, voluminous facts to be summarized with links to other types
of documents, such as party requests and responses, as well as expert spreadsheets. (32)
ii Simplified evidence charts
Simplified evidence charts can set out with succinct clarity either side's arguments
alongside supporting evidence and accepted generalizations. Well-drafted simplified
evidence charts help counsel in preparing for and delivering their oral arguments and also
aid arbitrators' decision-making. (33)
iii Fishbone diagrams
Fishbone diagrams or cause and effect diagrams can help in brainstorming and in the
identification of possible causes of a problem and in sorting ideas into useful categories.
They are a visual way to look at cause and effect and as such can help clarify causation
matters in the most sophisticated cases. (34)
c Online platforms
Recourse to Online Dispute Resolution (ODR) through diverse online platforms can be key
to saving time and costs, particularly in situations where the parties are not based in the
same countries, and where the amount in dispute and nature of the dispute allows for such
procedure. (35)
By way of example, the European Commission has sponsored an innovative online platform
for ODR, “The ODR Platform” that can be used for any contractual dispute arising from
P 734 online purchases of goods or services where the trader and consumer are both based in the
P 735 European Union or Norway, Iceland, and Liechtenstein. The platform is designed as a
mechanism that is aimed to provide the speed and high quality required by the current
world business sector. (36)
The World Intellectual Property Organization (WIPO) Arbitration and Mediation Center is
also developing an online, internet-based system for administering disputes. Digital

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 communication tools will allow the parties to file requests by completing electronic forms
and to submit documents and exchange correspondence online through secure channels.
The parties, the neutrals and the Center will thus communicate electronically (in addition
to using any available audio and video facilities), reducing the need for other potentially
time-consuming and expensive means of communication and in-person meetings and
hearings. (37)

V Conclusion
The 2018 edition of the ICCA Congress has invited us to look to the future of international
arbitration and to think about how to build better arbitration proceedings, notably by
analyzing conventional wisdom in the organization of arbitral proceedings.
Essential in many different professions, the concept of “wisdom” has been extensively
analyzed by Greek philosophers in the fifth century B.C. and is central in the five virtues
described as follows by Aristotle in The Nicomachean Ethics:
(1) Science (episteme) allows to draw conclusions in a logical, demonstrable fashion,
from given facts and principles;
(2) Intelligence (nous) is the intuition of self-evident truths and can be referred to as
“common sense”;
(3) Theoretical wisdom (sophia) is a combination of science and intelligence;
(4) Prudence or practical wisdom (phronesis) involves not only the ability to decide how
to achieve a certain end, but also the ability to reflect upon and determine good
ends;
(5) Art (technē) is the ability to use one's skills to produce and create. (38)
As practitioners of international arbitration, and particularly as arbitrators, it is useful to
keep in mind the five virtues described by Aristotle more than two millennia ago.
Arbitrators indeed have to approach the decision-making process in a scientific fashion,
while using common sense, wisdom, prudence, and a sense of creation to reach just and
fair solutions.
According to Aristotle, we learn moral virtue primarily through habit and practice rather
than through reasoning or instruction. It is up to us, as members of the arbitration
community, to uphold these essential virtues by practicing them as habits, if we wish to
ensure the perennity of international arbitration in the years to come.
P 735

References
*) Nayla Comair-Obeid: Founding Partner of Obeid Law Firm and Professor of international
commercial arbitration at the Lebanese University; Past President of the Chartered
Institute of Arbitrators (CIArb) 2017 and CIArb Companion; author of Law of Business
Contracts in the Middle East and numerous other publications in Arabic, French and
English covering a range of legal fields.The author has an extensive career in litigation
and international arbitration. Her areas of expertise cover international business law,
Islamic Finance, and Middle Eastern legislations.
1) See, e.g., William W. PARK, “Arbitration and Fine Dining: Two Faces of Efficiency” in P.
SHAUGHNESSY and S. TUNG, eds., The Powers and Duties of an Arbitrator: Liber
Amicorum Pierre A. Karrer (Kluwer 2017) at p. 251; Steven SEIDENBERG, “International
Arbitration Loses Its Grip”, 96 A.B.A. Journal (2010) at p. 50; Peter YUEN and John
CHOONG, “Is Arbitration Value for Money? Assessing Some Common Complaints about
the Costs of International Arbitration”, 3 Asian Dispute Review (2008) at pp. 90-95; Leon
E. TRAKMAN and Hugh MONTGOMERY, “The ‘Judicialization’ of International
Commercial Arbitration: Pitfall or Virtue?”, 30 Leiden Journal of International Law (2017)
at p. 405; Jennifer KIRBY, “Efficiency in International Arbitration: Whose Duty Is It?”, 32
Journal of International Arbitration (2015, no. 6) at pp. 689-696.
2) Alison ROSS, “‘Game of Tribunals’ — Winter Is Coming, Warns Born”, Global Arbitration
Review (2016) available at <http://globalarbitrationreview.com/article/1067197/-
game-of-tribunals-%E2%80%93-winter-is-coming-war...> last accessed on 22 May 2018.
3) Jennifer KIRBY, “With Arbitrators, Less Can Be More: Why the Conventional Wisdom on
the Benefits of Having Three Arbitrators May Be Overrated”, 26 Journal of International
Arbitration (Kluwer Law International 2009, no. 3) p. 337 at p. 338.
4) Stephen JAGUSCH, “Starting Out as an Arbitrator: How to Get Appointments and What to
Do When You Receive Them”, 71 Arb. (2005) p. 329 at p. 335.
5) Julian D. M. LEW, Loukas A. MISTELIS and Stefan M. KROLL, Comparative International
Commercial Arbitration (Kluwer Law International 2003) at pp. 227-228; Jan PAULSSON,
“Ethics, Elitism, Eligibility”, 14 Journal of International Arbitration (1997) at p. 13; Wendy
MILES, “Practical Issues for Appointment of Arbitrators”, 20 International Arbitration
(2003) p. 219 at p. 226.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 6) See Jennifer KIRBY, fn. 3 above, at p. 342. In a survey conducted by Queen Mary
University London in 2012 on “Current and Preferred Practices in the Arbitral Process”,
a significant majority of interviewees further state that they prefer selection of the two
co-arbitrators in a three-member tribunal by each party unilaterally, for the following
reasons: (i) it gives the parties control over the constitution of the tribunal and inspires
confidence in the arbitral process, which consequently raises the legitimacy of the
final award; (ii) parties are better placed to know what skills and knowledge are
required for resolving the dispute; and (iii) many interviewees expressed some distrust
in arbitral institutions selecting arbitrators.
7) Jennifer KIRBY, fn. 3 above, at p. 344.
8) The Chartered Institute of Arbitrators Code of Professional and Ethical Conduct for
Members (2009).
9) Gary B. BORN, “Chapter 15: Procedures in International Arbitration” in International
Commercial Arbitration, 2nd edn. (Kluwer Law International 2014).
10) Appendix IV to the ICC Rules of 2012 and 2017.
11) Gary BORN, fn. 9 above, p. 2120.
12) Ibid. at 2235-2236.
13) UNCITRAL Notes on Organizing Arbitral Proceedings (New York, 2012) Introduction, para.
4.
14) See fn. 10 above.
15) CIArb Guideline on “Managing Arbitrations and Procedural Orders” (2015). Other
institutions have published guidelines for the organization of arbitral proceedings.
See, e.g., the Singapore International Arbitration Centre (SIAC) Practice Note for
Administered Cases (1 September 2013); the SIAC Practice Note for UNCITRAL Cases (2
January 2014); the London Court of International Arbitration (LCIA) Notes for Arbitrators
(26 October 2017); the International Bar Association (IBA) Rules on the Taking of
Evidence in International Arbitration (2010).
16) “Washington DC: Tercier on Harmonisation”, Global Arbitration Review (11 December
2015) available at <https://globalarbitrationreview.com/article/1035003/washington-
dc-tercier-on-harmonisation> last accessed on 22 May 2018.
17) Gordon BLANKE, “Document Production in International Arbitration: From Civil and
Common Law Dichotomy to Operational Synergies”, 83 Arbitration (2017, no. 4) p. 423 at
p. 424.
18) Ibid.
19) Shari DIAMOND, “Psychological Aspects of Dispute Resolution: Issue for International
Arbitration” in International Commercial Arbitration: Important Contemporary
Questions, ICCA Congress Series no. 11 (Kluwer Law International 2003) p. 336.
20) Oliver WENDELL HOLMES Jr., The Common Law (Dover Publishing 1991).
21) Stephen J. CHOI, Jill E. FISCH and A.C. PRITCHARD, “The Influence of Arbitrator
Background and Representation on Arbitration Outcomes”, Penn Law: Legal
Scholarship Repository (2014).
22) George OSSMAN III, Mehmet Emre BAYRAKTAR and Qingbin CU, “Consistency and
Reliability of Construction Arbitration Decisions: Empirical Study”, 26 Journal of
Management in Engineering (2010, no. 2).
23) See Stephen J. CHOI, Jill E. FISCH and A.C. PRITCHARD, fn. 21 above; see also Edna
SUSSMAN, “Chapter 3: Biases and Heuristics in Arbitrator Decision-Making: Reflections
on How to Counteract or Play to Them” in Tony COLE, ed., The Roles of Psychology in
International Arbitration, (Kluwer Law International 2017) p. 40 at pp. 45-74.
24) Edna SUSSMAN, fn. 23 above, at p. 65.
25) Edna Sussman advances that reviewing the evidentiary record before preparing the
award, and reviewing evidence in favor of what has preliminarily been assessed to be
the losing side can be a remedy to the expression of bias. Ibid. at pp. 67-68.
26) See e.g. Frank Sander's 1976 speech at the Pound Conference on “The Causes of Popular
Dissatisfaction with the Administration of Justice”, widely seen within the legal
academy as the birth of the Alternative Dispute Resolution (ADR) movement in the
United States and then worldwide. During this speech, Franck Sander explained that
ADR should help avoid case overload in courts, which slows down the judicial process.
27) See fn. 1 above.
28) Queen Mary University London Survey, “Improvements and Innovations in International
Arbitration” (2015).
29) Ibid. at p. 24.
30) Iain SHERIDAN, “Qualitative Analytical Models for Arbitration”, 33 Journal of
International Arbitration (2016, no. 2) pp. 171-184.
31) Page VITULLI and Rebecca M. GILES, “Mind Mapping: Making Connections with Images
and Colors”, 6 Delta State University Journal (2016, no. 2).
32) Iain SHERIDAN, “Dispute Resolution: Three Tools to Improve International Arbitration”,
IFLR1000 (12 October 2015).
33) Ibid.
34) Ibid.
35) Julio Cesar BETANCOURT and Elina ZLATANSKA, “Online Dispute Resolution (ODR): What
Is It and Is It the Way Forward?”, 79 International Journal of Arbitration, Mediation and
Dispute Management (2013, no. 3). See also Derrick YEOH, “Is Online Dispute Resolution
the Future of Alternative Dispute Resolution?”, Kluwer Arbitration Blog (29 March 2018).

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 36) See the website of the European Commission, “Online Dispute Resolution”, at
<https://ec.europa.eu/consumers/odr/main/?event=main.trader.register> last
accessed on 22 May 2018.
37) WIPO Arbitration and Mediation Center, at <www.wipo.int/amc/en/> last accessed on
22 May 2018.
38) ARISTOTLE, Nicomachean Ethics, Book VI.

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 9
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Revisiting Conventional Wisdom in the Organization of
Publication Arbitral Proceedings: Perspectives from Chinese Users and
Evolution and Adaptation: Institutions
The Future of International (*)
Arbitration
I Why is Revisiting Conventional Wisdom from the Perspective of Users
Bibliographic reference Needed?
'Revisiting Conventional It has always been a very difficult task to clearly define what the “conventional wisdom” is
Wisdom in the Organization when it comes to how arbitral proceedings are organized. But most practitioners in this
of Arbitral Proceedings: field of dispute resolution often have a general sense of how to run an arbitration case. For
Perspectives from Chinese example, in international arbitrations, most practitioners likely agree to refer to the
Users and Institutions', in United Nations Commission on International Trade Law (UNCITRAL) Notes on Organizing
Jean Engelmayer Kalicki and Arbitral Proceedings. However, is the conventional wisdom we are able to derive from
Mohamed Abdel Raouf (eds), current norms satisfactory in achieving the aims of the arbitral process?
Evolution and Adaptation: Before touching upon this question, we should first consider: What is the aim of the arbitral
The Future of International process? Some may propose that we are seeking to achieve an enforceable award and
Arbitration, ICCA Congress therefore we should look at the limitations as set out in the 1958 New York Convention.
Series, Volume 20 (© Kluwer Obviously, this is a perspective mainly from the arbitral tribunal. The disputing parties, or
Law International; arbitration users, are more likely concerned about the quality of the award, which at a
International Council for minimum means the substance of the award should be fair with the issues in dispute duly
Commercial heard and considered by the arbitral tribunal. In addition, the users usually would like to
Arbitration/Kluwer Law obtain the award in an efficient and cost-effective way. Considering these aims we find the
International 2019) pp. 736 - conventional wisdom may not always be satisfactory in achieving all aims. The common
743 complaints from the users are inefficiency and high cost of arbitration.
As we know, the contractual foundation of the arbitral process calls for the acceptance of
P 736 arbitration by every party to the contract. To shape arbitration as an attractive user-
P 737 orientated dispute resolution mechanism, we should revisit the conventional wisdom in
the organization of arbitral proceedings from the perspective of arbitration users rather
than merely from the perspective of arbitration practitioners. Traditionally, the main
attraction for users to insert arbitration clauses in their transnational contracts is the
international enforceability supported by the New York Convention. In the near future, this
key advantage of arbitration may be substantively diluted due to the possible
international enforceability of settlement agreements resulting from mediation and court
judgments. Working Group II UNCITRAL, for example, has finalized and submitted, for
approval at the UNCITRAL Conference 2018, an instrument to deal with the enforcement of
international commercial settlement agreements resulting from mediation. In addition,
the Hague Conference on Private International Law (HCCH), in 2016, proposed a draft text
on the Recognition and Enforcement of Foreign Judgments. It may not take long to see the
final draft. Against this background, the users' concern should be placed in a higher
position than before. Otherwise, if the international enforceability of both settlement
agreements and court judgments becomes a reality in the future, the original users of
arbitration may turn more to mediation or litigation.
Adopting a user-focused perspective on commercial arbitration also allows for more
diverse voices in the field of international arbitration. As a result of China's continuous
economic growth over the last three decades, more and more Chinese participate in
international arbitration. Moreover, with the implementation of the Belt and Road
Initiative, international cases involving Chinese parties are likely to increase significantly
in the future. Chinese users' expectations and attitudes toward arbitration, especially their
perception and understanding of the ways in which arbitral proceedings are organized, will
likely have considerable impact on the future landscape of international arbitration.

II What Measures are Employed by Chinese Arbitration Institutions to

Relieve the Concerns of Users on Time and Cost?
For this discussion, the “conventional wisdom” is considered to be an equivalent of the
“widely accepted norms” of international arbitration. However, to what extent can a norm
be regarded as “widely accepted”? We might need to consider the problem of
representation here. As a matter of fact, many so-called “widely” accepted norms were
primarily developed by practitioners mainly from a small group of countries with a strong
presence in the field of international arbitration. For the rest, including China, some of
these norms are not home-grown but rather foreign and therefore far from “widely
accepted”.
It is natural for a user to compare the norms of international arbitration with practices at
home. With their increasing involvement in international arbitration, Chinese users also

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 have a desire to revisit the “widely accepted norms”, particularly when they find that the
problems of time and cost caused by these norms may not be problems at all in China's
practice. Traditionally, Chinese users prefer institutional arbitration over ad hoc
arbitration. When it comes to the organization of arbitral proceedings, most professionals
P 737 think of the roles of counsel and arbitrators. However, in the context of institutional
P 738 arbitration, the arbitration institution could be more sensitive to the needs of the users
with different background and play a very important role to improve efficiency and to
control the costs of the arbitration.
In the next part, I will take the practice of the Beijing Arbitration Commission/ Beijing
International Arbitration Center (BAC) as an example to illustrate what kinds of measures
an institution may employ to relieve the concerns of the users on efficiency and cost.

1 Measures to Increase Efficiency

As the following figures show, the BAC has maintained a high caseload over the past 5
years. If we look at the cases concluded in each year, the time from the establishment of
the arbitral tribunal to the conclusion of the case ranges from 61 to 75 days on average for
the expedited procedure and from 126 to 150 days for the common procedure.
Year 2013 2014 2015 2016 2017
Total 1,627 2,041 2,944 3,012 3,550
caseload
Average 70 61 75 64 64
number of
days/ case
for expedited
procedure
Average 150 140 148 126 133
number of
days/case for
common
procedure
How does the BAC achieve this high level of efficiency? Measures employed by the BAC to
increase efficiency include the following:
(a) Limitation on arbitrators' caseloads: According to the BAC's Code of Ethics for
Arbitrators, an arbitrator is not allowed to accept a new appointment when there are
ten or more pending cases under his or her name. This requirement encourages
arbitrators to conclude their cases as efficiently as possible so they can accept more
new appointments.
(b) Availability requirement: If an arbitrator may not be available for a first hearing within
sixty days after the constitution of the tribunal, he or she is not allowed to accept the
appointment.
(c) Prompt delivery of the award: The presiding arbitrator is expected to provide the
draft award within thirty days from the last hearing or the last submission of the
parties, and the co-arbitrators are expected to provide comments within five days of
P 738 receiving the draft. An arbitrator with undue delays in more than three cases in the
P 739 arbitrator's history of arbitrating with the BAC will not be offered new
appointments from the arbitration institution for one year. Those with seriously
undue delays will be removed from the list of BAC arbitrators.
(d) Mobile access and notification: All cases are run using a state-of-the-art case-
management system which can automatically record every step of the proceedings.
Arbitrators are provided with mobile access to the system and can easily check the
procedural history and current status of each of their cases. When one arbitrator
uploads the draft award or any comments on the draft, the system will immediately
send a reminder text message to the other members of the tribunal.
(e) Electronic signing: When the award is finalized, arbitrators can sign it by using the
electronic signing system, which works even via mobile phone.

2 Measures to Reduce Costs

The BAC is devoted to providing dispute resolution services of an international caliber at
local fee standards. It seems to be an impossible mission. However, the BAC basically
accomplishes it by helping the disputing parties control costs.
(a) Distance filing: When filing a case, neither claimants nor their counsel, especially
those residing outside Beijing, are required to come to the BAC in person. The BAC
provides a free case-filing consultation service: a telephone call, fax or email will be
enough to obtain answers to their questions. The submission of documents can be
done by post or courier or through the online case filing system.
(b) Strict ad valorem charges: Unless otherwise agreed by the parties, the BAC charges an
arbitration fee calculated on the basis of the sum in dispute. This makes the
arbitration fee predictable. The fee charged by the BAC, which includes both its

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 administrative fee and the fee of the arbitrators, is lower than that of most
international arbitration institutions.
(c) Arbitrator intelligence: The BAC publishes comprehensive background for each
arbitrator listed on its website. Besides the usual information, the BAC provides
information on the number of past cases (i.e. how many times he or she has acted as
co-arbitrator, sole arbitrator or presiding arbitrator before the BAC and how many
cases are still pending). With the help of this transparent information on the listed
arbitrators, the disputing parties can make an informed decision – at nearly zero
research cost – regarding the appointment of the arbitrator in a specific case.
(d) Fee allocation: The BAC Arbitration Rules provide that when applying the Rules, the
arbitral tribunal, the parties and their representatives shall act in accordance with
the principles of good faith, collaboration and appropriate resolution of the dispute.
Where there exist any breaches of the Rules that cause delay in the arbitral
proceedings, the allocation of arbitration costs to the party at fault shall not be
limited by the principle of costs following the event.
(e) Facilities and recording services: The BAC offers hearing rooms and recording services
in Beijing at no additional charge.
(f) Use of Arb-Med: With the consent of the parties, arbitral tribunals tend to proactively
organize mediation after hearings; in practice, around 20 percent of the cases at the
BAC are concluded by mediation and hence substantially reduce the time and costs.
P 739
P 740
(g) Appraisals: The BAC maintains a list of highly-competent appraisal institutions for
construction disputes. For specialized matters related to project settlement or
quality, an arbitral tribunal may submit matters for appraisal to an appraisal
institution agreed upon by the parties or to the appraisal institution appointed by
the arbitral tribunal if it deems such appraisal to be necessary. Compared with
allowing each party to bring their own expert evidence, the introduction of a common
appraiser usually reduces the cost.
(h) Publishing select awards: The BAC has published select awards on certain areas of law,
such as company law, contributing to the development of law on frontier issues and
providing higher predictability for the parties.

III Where May the Chinese Conventional Wisdom and the Western
Conventional Wisdom Meet?
The “widely accepted” norms generally are regarded as reflecting best practices in the
field. However, if the time and cost to follow these norms cannot be justified by the
complexity of the case, the norms will seem to be mainly in the interest of arbitrators and
practitioners rather than the users of arbitration. Market forces will then push the
practitioners to adjust the norms. As such, many proposals have been raised in recent
years to address concerns on time and cost from arbitration users.
In China, arbitration is something transplanted from other countries. Bringing the
arbitration rules in line with international practice has long been a mainstream topic in
the field. However, if we look at all the proposals so far to improve the “widely accepted”
norms in international arbitration, we may find that some of the international norms that
China is trying to learn may be in the process of evolving towards the domestic norms that
China currently follows. Highlighting some differences between arbitration practices in
China and those elsewhere might be of help for us to understand where the Chinese
conventional wisdom and the Western conventional wisdom in the organization of arbitral
proceedings may meet in the future.

1 A Basic Mode Beyond the Differences Between Civil and Common Law
The continuous efforts in encouraging the internationalization of Chinese arbitration has
made it possible for foreign lawyers to argue arbitration cases in Beijing similarly to how
they do before tribunals in the other leading arbitration centers, such as Hong Kong,
Singapore, London and Paris. According to Global Arbitration Review's Guide to Regional
Arbitration 2018, the BAC's Rules are the most flexible of those offered in China in terms of
party autonomy, where they approach the international norm. You are very likely able to
arbitrate a dispute pretty much in any way you want, even “when it comes to the vexed
topic of which laws should apply”. (1)
P 740 It is not, however, safe to assume that all relevant procedural matters are the same or that
P 741 they are simply a complete transplantation of international norms. Although China is
seen as a civil law jurisdiction, this does not mean that Chinese arbitration proceedings
will necessarily always apply the core civil law principles, such as the inquisitorial
approach and a focus on documents, which are often referred to as some of the key
features of Chinese litigation practice. Rather, the BAC Arbitration Rules clearly state that,
in respect of any matters not expressly provided for in the Rules, the BAC may administer
and the arbitral tribunal may conduct the arbitration in such manner as they consider
appropriate to ensure the efficient and fair resolution of the dispute between the parties.
This does not mean that common law procedures will automatically be adopted by the
tribunal either. For users who prefer common law procedures, it is advisable to put in a

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 special agreement on the specific procedures that will make sure that common law
procedures or international arbitration practices are adopted in the Chinese arbitration.

2 Style of Pleading
There is a tendency for the tribunal in international arbitration to require the parties to
limit their submissions to a certain number of pages (as appropriate) and focus their
pleadings on the key issues. The style and approach to pleading in China is generally
shorter and more concise than equivalents in international arbitration outside China. A
party is expected to serve supporting witness statements along with its pleading and the
documentary evidence that supports its case. Unless as a matter of procedure already
agreed upon by the parties or decided upon by the arbitral tribunal, there is no specific
provision or limitation on the rounds of pleadings. However, the usual expectation in
practice is not only to set out the basics but actually also to include the content of a full
statement of the case/statement of defense in the request for arbitration/defense and the
answer.

3 Document Production
There are many complaints concerning the abuse of document production in international
arbitration. In China, if parties want specific document production, it is advisable for them
to agree to the use of the International Bar Association (IBA) Rules on the Taking of
Evidence in International Arbitration in advance in their arbitration agreement. If parties
do not specify a set of rules, the rules of evidence that arbitrators in Chinese arbitrations
will apply include the evidence rules from the Arbitration Law of the PRC and institutional
arbitration rules. Under these rules, there is no express power for a tribunal to make orders
for the specific production of documents. However, if a party submits an issue in a case
and can show that the relevant evidence is only in the possession of the other party, the
other party is expected to disclose the evidence. If it refuses to disclose the evidence
without any justifiable reason, and the evidence would have had an adverse impact on the
case of the party possessing the evidence, adverse inferences may be drawn from the
refusal to disclose.
P 741
P 742
4 Hearing
There are more and more tribunals in international arbitration who try to limit the
evidentiary hearing and rely more on documents. Normally, hearings in China last for only
a half day or one day, which is substantially shorter than the hearings before major
international arbitration institutions. This is largely a result of the fact that Chinese parties
in arbitrations seldom introduce witnesses in the proceedings if they believe that the
documentary evidence they have submitted will be sufficient to prove their claims.
However, more complex disputes can have oral hearings lasting several days or have
several hearings in non-consecutive days.
When there are several hearings over non-consecutive days, the first hearing actually plays
a role similar to that of the mid-arbitration “Case Review Conference”, an idea developed
by Neil Kaplan and later developed by Constantine Partasides and Scott Vesel that
advocates splitting an arbitration in two halves, with an in-person case review conference
mid-way through in which there is a “meaningful discussion” about the merits of the case,
allowing the arbitrators to streamline certain aspects and better define the document
disclosure and evidentiary process.
Unless otherwise agreed by the parties, the arbitral tribunal may adopt an inquisitorial or
adversarial approach in hearing the case, having regard to the circumstances of the case.
In practice, a tribunal will commonly adopt a combination of the inquisitorial and the
adversarial approach, which means the hearing will include the tribunal's investigation, on
its own initiative, concerning some issues aside from the parts driven by the parties.
Before closing the hearing but after consulting the disputing parties, the tribunal usually
will give directions for post-hearing procedures. Typically, the parties are expected to
submit additional evidence (if any) within the time specified by the tribunal. Then, the
parties are allowed to submit written comments on the new evidence within a certain
number of days from receipt of said evidence. Further, both parties may be directed to
submit post-hearing briefs within a specified time. It is important for the tribunal to limit
the post-hearing submissions to dealing with those matters that arose in the hearing itself,
in order to prevent opening up new issues or evidence. The post-hearing briefs should also
contain the parties' respective submissions on costs.

5 The Role of Case-Handling Secretary

Traditionally, Chinese arbitral institutions will assign to each individual case a case-
handling secretary who plays much more important roles than those of the case manager
in international arbitration. Usually the secretary will directly handle most logistical and
even procedural matters in arbitration, for instance, the service of documents and the
issuing of procedural notices, and allows arbitrators to focus on substantive issues. Some
experts in China advocate limiting the role of the case-handling secretary and encourage

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 the tribunal to assume more work. However, the growing practice, in international
arbitration, of introducing a secretary to the tribunal in recent years seems to justify the
Chinese practice of allowing a case-handling secretary to take on broader duties than
those of a case manager.
P 742
P 743
In conclusion, compared with the lawyer-driven and lengthy western conventional
practice, the Chinese conventional wisdom is to allow the arbitral tribunal and the
arbitration institution to play more active roles so that the arbitration proceeding can be
run in an efficient and cost-effective way and be tailored as appropriate for each dispute.
Although currently it is not clear yet where the Chinese conventional wisdom and the
Western conventional wisdom will meet, but they definitely will meet somewhere in the
future.
P 743

References
*) Fuyong Chen: Deputy Secretary-General, the Beijing Arbitration Commission/Beijing
International Arbitration Center; Vice-President, Asia Pacific Regional Arbitration Group
(APRAG). The author wishes to thank Weixia GU, Wei SUN, Ke HU, Arthur MA, Kaishen
HUANG, Xi ZHANG and Chenxi LIN for their constructive comments on earlier versions of
this article.
1) The Global Arbitration Review, Guide to Regional Arbitration 2018, available at
<https://globalarbitrationreview.com/benchmarking/guide-to-regional-arbitration-
volume-6-2018/1150107...> (last accessed 12 March 2018).

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 6
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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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laws. No part of this service or the information contained herein may be reproduced or transmitted in any form or by any means, or
used for advertising or promotional purposes, general distribution, creating new collective works, or for resale, without prior
written permission of the publisher.

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KluwerArbitration

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 KluwerArbitration

Document information
When Does the Use of an Arbitral Secretary Detract from
Publication the “Intuitu Personae” Principle?
Evolution and Adaptation: Funke Adekoya
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference It is accepted by all that since the appointment of an arbitrator is personal to the person
appointed – “intuitu personae”; the arbitrator is expected to be personally responsible for
Funke Adekoya, 'When Does the conduct of the arbitration and the issuance of the award. The arbitrator having been
the Use of an Arbitral selected based on his or her particular expertise or skills, the person is contractually
Secretary Detract from the required to conduct the proceedings without being in any way subject to any external
“Intuitu Personae” input. Any delegation of duties will be viewed as a dereliction or abdication of his or her
Principle?', in Jean functions.
Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), A typical arbitration requires that the arbitrator perform the following functions:
Evolution and Adaptation: (i) receive the parties' case materials and documents;
The Future of International
Arbitration, ICCA Congress (ii) receive and deal with correspondence from the parties;
Series, Volume 20 (© Kluwer (iii) organize and schedule meetings;
Law International; (iv) manage appointments;
International Council for (v) review and respond to routine or substantive applications;
Commercial
Arbitration/Kluwer Law (vi) take evidence at the hearing and review each side's case filings;
International 2019) pp. 744 - (vii) conduct necessary legal research;
755 (viii) draft and issue the award.
Each function above may involve a significant investment of time.
Over time, it has become increasingly common for the arbitral tribunal to seek external
support for some of these tasks by appointing an arbitral secretary. It is not clear when
arbitral secretaries were first used in ad hoc arbitral proceedings. However, there is a
decision of the Italian courts, (1) stating that using arbitral secretaries for legal analysis
was a delegation of the arbitral tribunal's adjudicative functions.
P 744
P 745
The conventional wisdom regarding the role of the arbitrator in organizing arbitral
proceedings would seem to be that the use of an arbitral secretary in providing purely
administrative support does not violate the “intuitu personae” principle. Legal analysis
provided by an arbitral secretary may however impinge upon the personal role of the
arbitrator.

II Notes, Guidelines and Regulations on the Role of the Arbitral

Secretary
In the last twenty years, various arbitral institutions have issued notes and guidelines
which seek to “regulate” the functions of the arbitral secretary. A review of the various
documents indicates an expansion of the role, from the conduct of purely administrative
tasks into areas that may indicate a shift in the extent of the application of the “intuitu
personae” principle
When parties appoint an arbitrator in institutional arbitration proceedings, depending on
the arbitral institution, it is possible that the institution will undertake some of the
administrative tasks involved in managing the arbitration. The parties, by selecting
institutional arbitration, have impliedly agreed that some part of what would otherwise
have been the arbitrator's responsibilities will be handled by a third party.
In International Chamber of Commerce (ICC) administered arbitrations, the first two of the
administrative duties outlined above, which the arbitrator in ad hoc proceedings would
have to deal with, are handled by the ICC Secretariat. (2)
In International Centre for Settlement of Investment Disputes (ICSID) arbitrations, the ICSID
Administrative and Financial Regulations provide that a secretary shall be appointed to
each ICSID tribunal. The Regulations state that the secretary of the tribunal shall “keep
summary minutes of hearings” and “perform other functions with respect to the proceeding
at the request of the … Tribunal … or at the direction of the [ICSID] Secretary-General”. (3)
In practice, the ICSID secretariat provides the arbitrators with a case team consisting of an
ICSID legal counsel, paralegal, legal assistant and hearing organizer. The legal counsel acts
as secretary to the arbitral tribunal. The ICSID Arbitration Rules clearly state that

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 secretaries cannot attend tribunal deliberations unless the tribunal consents: “Only
members of the Tribunal shall take part in its deliberations. No other person shall be
admitted unless the Tribunal decides otherwise.” (4)
This is similar to the administrative support the Permanent Court of Arbitration (PCA) can
provide in arbitrations administered by it, with a staff member being appointed as
registrar or administrative secretary for a case. The staff member will carry out
administrative tasks at the direction of the arbitral tribunal. (5)
P 745
P 746
The implication is that for some, if not most institutional arbitrations, the arbitrators
receive administrative support, leaving them free to deal with the substantive dispute
between the parties.
The extent to which an arbitral secretary (other than the arbitral institution itself)
participates in the arbitration proceedings depends on the institution, tribunal and
parties who have made the appointment. In some institutional arbitrations, the
institutional rules set out the roles of the arbitral secretaries. Although the ICC Secretariat
performs some of the functions of an arbitral secretary, its Rules do not provide for such an
appointment. By way of guidance, in 2017, the Secretariat of the ICC International Court of
Arbitration issued a Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration
Under the ICC Rules of Arbitration (the ICC Note). (6)
Sect. XVII of the ICC Note states the policy and practice of the ICC Court with respect to the
appointment, duties and remuneration of arbitral tribunal administrative secretaries or
other assistants in ICC administered tribunals. The ICC Note applies to the appointment of
an Administrative Secretary after 1 August 2012, the date of its previous two-page “Note on
the Appointment, Duties and Remuneration of Administrative Secretaries”.
Sect. XVII provides that should a tribunal in an ICC administered arbitration wish to
appoint a secretary, it must first submit the proposed secretary's curriculum vitae and a
declaration of independence and impartiality to the parties. The declaration contains “an
undertaking on the part of the Administrative Secretary to act in accordance with the
present Note and an undertaking on the part of the Arbitral Tribunal to ensure that this
obligation on the part of the Administrative Secretary shall be met”. (7)
Para. 150 of the ICC Note lists the “organisational and administrative tasks” that an
Administrative Secretary may perform as:
– transmitting documents and communications on behalf of the arbitral tribunal;
– organizing and maintaining the arbitral tribunal's file and locating documents;
– organizing hearings and meetings;
– attending hearings, meetings and deliberations; taking notes or minutes or keeping
time;
– conducting legal or similar research; and
– proof-reading and checking citations, dates and cross-references in procedural
orders and awards, as well as correcting typographical, grammatical or calculation
errors.
P 746
P 747
After listing these functions, para. 151 of the ICC Note then states that:
“Under no circumstances may the arbitral tribunal delegate decision- making
functions to an Administrative Secretary. Nor should the arbitral tribunal rely
on the Administrative Secretary to perform any essential duties of an
arbitrator.”
The ICC reinforces its support for the “intuitu personae” principle as para. 153 of its Note
which says that
“A request by an Arbitral Tribunal to an Administrative Secretary to prepare
written notes or memoranda shall in no circumstances release the Arbitral
Tribunal from its duty personally to review the file and/or to draft any decision
of the Arbitral Tribunal.”
Clearly, the position of the ICC is that “conducting legal or similar research” is not one of
the “essential duties” for which an arbitrator is appointed, and as such the delegation of
those duties to a third party does not detract from the “intuitu personae” principle.
Perhaps reinforcing the position that the arbitral secretary acts under the supervision of
the arbitral tribunal, the ICC Note states that an ICC tribunal cannot pass the fees of the
arbitral secretary on to the parties: the arbitrators must pay the secretary's fees from their
own fees. (8) However, the parties will pay all “justified reasonable expenses for hearings
and meetings”, (9) which may include expenses incurred by the arbitral secretary in
arranging hearings and meetings.
Other arbitral bodies have also walked a fine line between preserving the personal nature
of the arbitrator's appointment and expanding the scope of duties that an arbitral

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 secretary can perform. Some institutions attempt a list (though expressed to be non-
exhaustive) of what tasks an arbitral secretary can undertake.
Similar to the ICC, the Arbitration Rules of the London Court of International Arbitration
(LCIA) do not contain specific provisions on the role of the tribunal secretary. The LCIA,
however, in October 2017 updated its Notes to Arbitrators (the LCIA Notes), to include
guidance on the role of an arbitral secretary. Sect. 8 of the LCIA Notes opens with para. 68
which prescribes that “… an Arbitral Tribunal may obtain assistance from a tribunal
secretary in relation to an arbitration. However, in no circumstances may an Arbitral
Tribunal delegate its fundamental decision-making function.”
The LCIA goes further than the ICC however in demarcating the role of the arbitral secretary
from the appointment of the arbitrator being a personal one, which does not permit
delegation. While the ICC takes the view that an arbitral secretary conducting research
does not derogate from the personal responsibilities of the arbitrator, the LCIA goes even
further. For the LCIA, should the arbitrators so propose it as part of the secretary's tasks, an
P 747 arbitral secretary's participation in “substantive tasks, such as summarising submissions,
P 748 reviewing authorities, and preparing first drafts of awards, or sections of awards, and
procedural orders”, (10) is not part of the arbitral tribunal's “fundamental decision-making
function” as long as such tasks are “carried out in accordance with the Arbitral Tribunal's
specific instructions”.
Introducing the 2017 changes to the Notes for Arbitrators on its website, the LCIA states
that:
“One of the most contentious issues regarding tribunal secretaries regards the
tasks a tribunal secretary should be entitled to carry out. Previously, the LCIA
has dealt with this by providing a list of activities that the tribunal secretary
should limit themselves to. In light of the broad spectrum of opinions on this
matter, the Notes for Arbitrators still provide a list of tribunal secretary tasks,
but the list is now a list of tasks that tribunals “may wish to propose”. The list is
a starting point for the discussion between tribunals and parties – parties must
expressly consent to the tasks proposed, ensuring that all arbitrators and
parties are comfortable with the tribunal secretary's role at the outset.”
In its “Note on the Use of a Secretary”, (11) the Arbitration Institute of the Finland Chamber
of Commerce (FAI) also lists what an arbitral secretary can do. In addition to performing
routine administrative tasks, such as transmitting documents and communications on
behalf of the arbitral tribunal, organizing meetings and hearings, taking notes or minutes of
meetings, and recording witness testimonies at a hearing, the FAI Note states that an
arbitral secretary may undertake the following tasks:
“(i) proofreading and checking the accuracy of cross-references, citations, dates and
other figures in draft procedural orders and awards as well as correcting any clerical,
typographical or computational errors found in the drafts;
(ii) collecting case law or published commentaries on legal issues defined by the arbitral
tribunal, preparing summaries from case law and publications as well as producing
memoranda summarising the parties' respective submissions and the evidence
supporting those submissions, provided that the arbitral tribunal refrains from
relying solely on a secretary's work to the exclusion of its own review of the file and
legal authorities.” (12)
Maintaining the concept of the “intuitu persona” principle, it emphasizes that
“The mandate of an arbitrator is personal. By accepting appointment, an
arbitrator undertakes not to delegate the mandate to any other person,
including any tribunal-appointed secretary. An arbitrator may under no
circumstances rely on a secretary to perform any essential duties of an
arbitrator.”
P 748
P 749
It prescribes that the arbitral tribunal must however ensure that by performing these tasks,
the arbitral secretary does not assume any part of “the decision-making function of the
tribunal, or otherwise influence the tribunal's decisions in any manner”. (13)
The FAI Note also provides that the tribunal is responsible for the secretary's fee out of its
own fees. (14)
The table below shows how the two major arbitral institutions – the ICC and the LCIA –
regulate the arbitral secretary's role.
ICC LCIA

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 ICC LCIA
Appointment An appointment may be In making an appointment,
made at any time during the Tribunal must seek
proceedings; consent of parties;
Tribunal must seek consent A Party can object to
of parties; appointment, which shall be
binding on the tribunal
Parties can object to
appointment, which shall be
binding on the tribunal

Role Spells out the roles of the Makes this subject to

arbitral secretary consent of the parties;
however, the tribunal may
set out the extent, if any, to
which the tribunal secretary
carries out substantive tasks,
such as summarizing
submissions, reviewing
authorities, and preparing
first drafts of awards, or
sections of awards, and
procedural orders.
Remuneration Apart from reasonable Remuneration subject to
personal disbursements; agreement of parties
remuneration of the arbitral
secretary is to be paid by
the tribunal without cost to
parties
Qualification Does not make any provision Does not make any provision
Standards Same independence and
impartiality requirements as
those which apply to
arbitrators under the Rules.
P 749
P 750
Where the arbitrator is appointed in ad hoc proceedings, he or she does not have the
administrative guidance or support provided by an arbitral institution; it is the tribunal
that decides the remit of the roles of arbitral secretaries, either solely or after consultation
with the parties.
To fill that gap, the United Nations Commission on International Trade Law (UNICITRAL) has
promulgated guidance notes for ad hoc arbitrations. In 2016 UNCITRAL published its 2nd
Edition of its “Notes on Organizing Arbitral Proceedings”. (15) UNCITRAL's Notes are not
procedural rules; their purpose is to guide arbitrators in ad hoc proceedings through the
various issues that may arise in organizing arbitral proceedings.
UNCITRAL's Notes reiterate that as a general rule, arbitral secretaries provide
organizational support, although some arbitral tribunals may want the arbitral secretary to
provide more substantive support such as conducting legal research, preparing the recitals
or the procedural history portion of the award, or even preparing draft procedural
decisions.
In spite of this UNCITRAL, supports the generally agreed position “that secretaries are not
involved and do not participate in the decision-making of the arbitral tribunal…”. (16)

III The Case Law

So where are we today? As of 2014, in Sonatrach v. Statoil, Algeria's Sonatrach challenged
an ICC award in favour of Norwegian state oil company Statoil on the basis that the ICC
tribunal had improperly delegated authority to the secretary and impermissibly allowed
the secretary to participate in its deliberations. The evidence was that the arbitral
secretary had produced three notes on legal issues which the arbitral tribunal had refused
to release to the Claimant upon receiving the secretary's fee note, on the ground that a
release would breach the confidentiality of the tribunal's deliberations. However, the High
Court of Justice of England and Wales ultimately dismissed Sonatrach's application, noting
that “it is standard practice in ICC arbitrations for administrative secretaries to be used
and for them to produce notes to assist the tribunal” and going on to find that the
tribunal's reference was that the documents prepared by the arbitral secretary constituted
a part of the arbitral tribunal's deliberations, and not the secretary's personal
participation. (17) It would seem that the English High Court position is in line with the ICC
Note, such that the delegation of research duties to an arbitral secretary is not a
delegation of the personal functions which an arbitrator is expected to undertake. Perhaps
the position being taken is that the personal skills of the arbitral tribunal are the ability to

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 analyze the legal research conducted by others, and not the ability to personally
undertake the research function itself.
P 750
P 751
In Veteran Petroleum Limited (Cyprus) v. the Russian Federation (the Yukos set-aside case),
(18) Russia sought to set aside the arbitral award because (in addition to other grounds),
the time sheets obtained from the arbitral tribunal showed that the arbitral secretary
spent more time on the arbitration than the arbitrators. Russia's argument on this issue
was that the extensive time spent on the arbitral proceedings by the arbitral secretary
indicated a breach of the “intuitu personae” principle “goes to the essence of the arbitral
function”, which is that the arbitral tribunal had delegated to the arbitral secretary
primary responsibility “to review the evidence and arguments and to decide the case
personally, without delegation”. (19)
While the award was eventually set aside on other grounds, the award and entire
proceedings were at risk of being set aside because of how the arbitral secretary was used.
The “intuitu personae” principle was also the basis of the argument put forward in a 2015
Swiss case (20) where an award was challenged before the Swiss Supreme Court because
the sole arbitrator who was not a lawyer had appointed both a legal consultant and an
administrative secretary to assist him with the procedural issues.
The unsuccessful respondent's position was that the arbitral tribunal was improperly
constituted because while the arbitration agreement provided for a sole arbitrator, the
sole arbitrator did not decide the case personally but in conjunction with the legal
consultant and the arbitral secretary.
And in 2017, in P v. Q and ors, (21) the Claimant applied pursuant to Sect. 24(1)(d)(i) of the
English Arbitration Act 1996 to remove the Second and Third Defendants as arbitrators for
failing to properly conduct the arbitration proceedings. The overall complaint was that the
arbitral tribunal had improperly delegated its functions to the arbitral secretary. In
support of its case, the Claimant relied on an email which the tribunal chairman had
mistakenly sent to a paralegal at the Claimant's lawyer's offices, and which was intended
for the arbitral secretary. The Chairman's email attached the Claimant's lawyer's
application for an extension of time and the covering email and asked, “Your reaction to
this latest from [Claimant]?” The Claimant alleged as Ground 2 of its complaint that the
Chairman had breached his mandate as an arbitrator and his duty not to delegate by
seeking the views of a person who was neither a party to the arbitration nor a member of
the tribunal on substantial procedural issues (i.e. the Secretary).
The court however held that whilst the acts of the arbitral tribunal may be construed as a
failure to follow arbitral best practice, they did not amount to failing to properly conduct
proceedings within the meaning of Sect. 24(1)(d) of the Act. The judge said that
“Soliciting or receiving any views of any kind from a tribunal secretary on the
P 751 substance of decisions does not of itself demonstrate a failure to discharge the
P 752 arbitrator's personal duty to perform the decision- making function and
responsibility himself. That is especially so where, as in this case, the relevant
arbitrator is an experienced judge who is used to reaching independent
decisions which are not inappropriately influenced by suggestions made by
junior legal assistants.” (22)
The trial court was very likely swayed in reaching its decision by its review of the
guidelines on the use of arbitral secretaries issued by various arbitral institutions and
organizations including extensive reference to the Young ICCA Guide on Arbitral Secretaries,
noting that “It was compiled by authors with collective experience of acting as tribunal
secretary in over 90 arbitrations. They took account of a survey in 2012 sent to a cross
section of international arbitration practitioners, users and providers, and a second more
focussed survey of about 100 practitioners in 2013.” (23)
The judge also referred to the below quoted portions of a 2006 report by joint committees
of the New York City Bar Association (24) which stated that:
“‘The role of the arbitrator is characterised by its intuitu personae nature. The
appointment of a secretary may be reconciled with this fundamental principle
so long as the arbitral tribunal exercises both close supervision of and has
ultimate authority over the decision-making process.’ (p.586).
and
‘There is concern that a secretary permitted substantial involvement may
exercise undue influence over the arbitral tribunal and, as a result, affect the
disposition. This concern is best addressed by disclosure, transparency and
informed consent of the parties.’ (p. 591).” (25)
In all the cases reviewed, it was not the use of arbitral secretaries per se that was being
challenged, but the scope of their role. While there is consensus on using arbitral
secretaries for administrative and clerical roles, it is not the same for tasks that involve
legal analysis, case reviews and writing parts of the award. Some legal writers believe that

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 these tasks are integral to the decision-making function of the arbitral tribunal and as such
should not be delegated.
In the P v. Q and ors case, the court reconciled the personal nature of the arbitrator's
appointment with the expanding role currently being played by arbitral secretaries by
saying that:
“Care must be taken to ensure that the decision-making is indeed that of the
tribunal members alone. The safest way to ensure that that is the case is for the
P 752 secretary not to be tasked with anything which involves expressing a view on the
P 753 substantive merits of an application or issue. If he is so tasked, there may
arise a real danger of inappropriate influence over the decision-making process
by the tribunal, which affects the latter's ability to reach an entirely
independent minded judgment…. Best practice is therefore to avoid involving a
tribunal secretary in anything which could be characterised as expressing a
view on the substance of that which the tribunal is called upon to decide.” (26)

IV The Commentary
Most commentators agree that the use of arbitral secretaries enhances time and cost
efficiency in arbitral proceedings. They take care of the administrative and clerical
aspects of proceedings, thereby leaving the tribunal to deal with the substantive issues.
According to the Young ICCA Guide on Arbitral Secretaries, this is particularly so in complex
cases likely to involve voluminous submissions as well as considerable documentary
evidence. It is their use in conducting legal and other research, drafting preliminaries and
other parts of the award that raise concern.
There are no uniform standards, or consensus on who decides the roles of arbitral
secretaries. In fact, it is due to the absence of uniform standards that the Young ICCA Guide
on Arbitral Secretaries (27) attempts to codify existing best practices and provide guidance
in areas of controversy.
To what extent does the use of an arbitral secretary impact the intuitu personae principle
governing the appointment of an arbitrator? Disquiet has been expressed where arbitral
secretaries may be required to provide assistance such as:
– researching questions of law;
– researching discrete questions relating to factual evidence and witness testimony
– drafting the award or parts of the award.
The research functions are a significant input into the decision-making function of the
arbitrator. Also, there may be instances where the legal opinion or conclusions of an
arbitral secretary may not fully articulate the issues or salient points of a research, and an
arbitrator relying on those conclusions may be in jeopardy of reaching erroneous
conclusions. As a result, any party appointing an arbitrator may rightly be concerned about
the impact using a secretary may have on the quality of the arbitral process.
In spite of these concerns, the use of arbitral secretaries has become a permanent fixture
of the arbitral process. In 2012 and 2013 the Young ICCA Task Force conducted surveys into
the use of arbitral secretaries. (28) Results showed that the arbitral community is moving
P 753 towards an increased role for the secretary, with 68.8% of respondents in the 2012 Young
P 754 ICCA Survey (increasing to 85.7% of respondents in the following year's survey)
supporting the use of arbitral secretaries to conduct legal research and check referenced
legal authorities for the arbitral tribunal.
In the 2012 Survey, 60.2% of respondents indicated their approval (subject to subsequent
review and approval by the arbitral tribunal) of the drafting by the arbitral secretary of
procedural orders or similar documents such as terms of reference; with the figure rising to
71.4% of respondents in the 2013 Survey.
The 2015 edition of the Queen Mary International Arbitration Survey (29) asked respondents
which tasks they felt a tribunal secretary should perform. Ninety-three percent felt the
arbitral secretary could undertake organizational tasks, 81% supported communications
with the parties, while 75% felt it was permissible for tribunal secretaries to prepare drafts
of procedural orders and non-substantive parts of awards.
In spite of the overwhelming support for the use of arbitral secretaries, a vast majority of
the respondents do not consider it appropriate for tribunal secretaries to conduct
substantive or merits-related tasks.
The fact that many Notes and Guidelines propose that the fees for the arbitral secretary be
paid by the arbitrators (30) supports the position that the functions being performed by
the arbitral secretary are those of the arbitrators. That would mean that the intuitu
personae principle has been impacted by the appointment of arbitral secretaries. Another
view is that the concept of intuitu personae still remains in place, but its scope has been
eroded by the appointment of arbitral secretaries. Those Rules and Guidelines which
propose that an arbitral secretary should be able to conduct case and other legal research
for the arbitral panel, and draft procedural orders and the recitals in the award (subject to
the guidance and review of the arbitral tribunal) also state categorically that arbitral
secretaries should not participate in the “decision-making” functions of the arbitral

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 tribunal. It would seem that the intuitu personae principle is being redefined such that the
personal functions of the arbitrator are limited to the decision-making process.

V Conclusion
Perhaps, it is time to revisit conventional expectations of parties about the scope of an
arbitrator's functions vis-à-vis the intuitu persona principle. If wisdom is the correct
application of knowledge, then the results of the various surveys indicate that arbitral
secretaries working in a more than purely administrative role are the new conventional
wisdom.
If this reflects the true position, then the arbitration community needs to agree on
universally acceptable standards of regulation for arbitral secretaries, such that the
increased role of arbitral secretaries does not turn the arbitral secretary into the “fourth
arbitrator”, thus impugning the intuitu personae principle. This is in line with the results of
the 2015 edition of the Queen Mary International Arbitration Survey, in which 68% of the
respondents felt that the use of tribunal secretaries should be regulated in some way.
P 754
P 755
Such universally acceptable regulatory standards, perhaps coordinated through ICCA
or/and UNCITRAL may help bridge regulatory gaps. Any such international effort must
involve all the major arbitral institutions in order to ensure universal acceptance of the
final document. The present regime that comprises piecemeal guidance notes from some
institutions creates uncertainty and must be addressed. The Young ICCA Guide on Arbitral
Secretaries may be a good place to start.
P 755

References
*) Funke Adekoya, SAN: Senior Advocate of Nigeria;Head of Dispute Resolution and
Litigation, AELEX; ICCA Governing Board Member.
1) Reported in XVI ICCA Yearbook Commercial Arbitration (Kluwer Law International 1991)
p. 156.
2) Art. 5(2):- “The Secretariat may grant the respondent an extension of the time for
submitting the Answer….”; Art. 5(3): “The Answer shall be submitted to the Secretariat in
the number of copies specified by Article 3(1).”; Art. 5(4): “The Secretariat shall
communicate the Answer and the documents annexed thereto to all other parties.”
3) Regulation 25 of the Administrative and Financial Regulations.
4) Rule 15(2) of the ICSID Arbitration Rules.
5) <https://pca-cpa.org/en/services/arbitration-services/case-administration/>.
6) The Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the
ICC Rules of Arbitration was revised in January 2019. The numbering and quotations
referred to in this Article reflect the 2017 version (henceforth the ICC Note). The ICC
Note as revised in January 2019 is available at
<https://cdn.iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-
arbitral-tribunals-on...>.
7) Para. 147.
8) Para. 157.
9) Para. 155.
10) Para. 71.
11) <https://arbitration.fi/wp-content/uploads/sites/22/2016/07/note-on-the-use-of-a-
secretary.pdf>. Accessed on 13 January 2018
12) Art. 3.4 of the FAI Note.
13) Ibid.
14) Art. 4.2
15) <http://www.uncitral.org/pdf/english/texts/arbitration/arb-notes/arb-notes-2016-
e.pdf>. Accessed on 14 January 2018.
16) Para. 36 of the Notes.
17) Sonatrach v. Statoil [2014] EWHC 875 (Comm) (2 April 2014), paras. 46-50.
18) PCA Case No. AA 228, Final Award, 18 July 2014.
19) Brief of Russian Federation dated 28 Jan. 2015, para. 468 on p. 179.
20) Referred to in 9 Bundesgericht [BGer] [Federal Supreme Court] 21 May 2015,
4A_709/2014 (Switz.).
21) <https://www.judiciary.gov.uk/wp-content/uploads/2017/03/p-v-q-and-ors-2017-ewhc-
194-comm-20170209.pd...>. Accessed on 14 February 2018.
22) Para. 69 of the judgment.
23) Para. 56 of the judgment.
24) 17 The American Review of International Arbitration (2006, no. 4).
25) Para. 64 of the judgment.
26) Para. 68 of the judgment.
27) <www.arbitration-
icca.org/media/3/14235574857310/aa_arbitral_sec_guide_composite_10_feb_2015.pdf
>. Accessed on 17 February 2018.

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 28) Annex B and Annex C to the Young ICCA Guide.
29) <www.arbitration.qmul.ac.uk/docs/164761.pdf>. Accessed on 22 February 2018.
30) The ICC Note, the Finnish Chamber, SCC and Swiss Chambers Rules.

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 9
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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Building Better Arbitration Proceedings
Publication Patricia A. Bergin
Evolution and Adaptation: (*)
The Future of International
Arbitration It is a pleasure to have been invited to participate in the proceedings today. My task is to
discuss the procedural attractiveness of arbitration and litigation respectively and in
doing so to challenge some recent negative stereotyping of the litigious process. It is also
to discuss one particular significant lesson (and some others) that may be learned from the
Bibliographic reference procedures adopted in the Commercial List (1) of the Equity Division of the Supreme Court
Patricia A. Bergin, 'Building of New South Wales (the NSW Commercial Court). Finally, it is intended to make some short
Better Arbitration observations about the need to take up opportunities for the development of more
Proceedings', in Jean innovative commercial dispute resolution mechanisms.
Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), I Litigation and Arbitration
Evolution and Adaptation:
The Future of International In previous years it has been observed that the boost in the popularity of arbitration has
Arbitration, ICCA Congress been due in part to the perceived negative aspects of the litigious process. The complaints
Series, Volume 20 (© Kluwer about the litigious process have been described as “manifold” in the areas of “cost, time,
Law International; discovery” and “sluggish courts”. (2) In contrast it has been said that arbitration offers less
International Council for costly and simpler processes with the very attractive attribute of confidentiality. (3)
Commercial However, in recent times it has been observed that there is now “wide, deep and loud”
Arbitration/Kluwer Law dissatisfaction with the arbitral process including complaints that “costs are too high,
International 2019) pp. 759 - proceedings are too slow, arbitrator selection is too opaque, tribunals are too
768 homogenous, conflicts of interest and issue conflict are scandalous”. (4)
P 759
P 760
Commentators have entered both the litigious and arbitral arenas with predictions that
would alarm even the most hardened practitioners. The predictions are in part reliant
upon the proposition that the commercial community is turning its face away from the
courts in favour of arbitration. A recurring theme has been that the increase in arbitrations
is to the detriment of the vitality and proper development of commercial law.
Take for instance the prediction ten years ago by Peter L Murray, the Robert Braucher
Visiting Professor at Harvard Law School, that “public justice” in the United States of
America was in danger of erosion by the “privatization of justice”. (5) Professor Murray
referred to “the extraordinary growth of private dispute resolution modalities and the
development of an entrepreneurial industry of private dispute resolution service
providers”. (6)
Professor Murray identified four key characteristics of the civil justice system that are
comprehended by the concept of the “due process of the law” as: (1) the transparency of its
processes; (2) the insulation of the public decision makers from influence by the parties; (3)
the expectation that decisions are based on publicly known legal norms; and (4) the
oversight and control by the appellate structure. (7) These are not the characteristics of the
arbitral system which is a process pursuant to the private contractual choice of
commercial parties.
Although Professor Murray accepted that a large number of litigants still used the courts
and that there was a great deal of “pre-trial activity”, he suggested that what was
disappearing was the ultimate submission of civil disputes to public decision makers and
the resolution of disputes by court judgments with the consequential impact on the
development and vitality of the law with the potential loss of judicial precedent. (8)
Seven years later (in 2015), the (now former) Attorney-General of Singapore, the Honourable
V K Rajah SC went a little further in an article entitled “W(h)ither adversarial commercial
dispute resolution?” (9) (the Article) propounding the very provocative conclusions and
predictions that: (1) “commercial parties appear to have retreated from the courts;” (10) (2)
there has been a “freezing of the common law caused by the marked decline in court
litigation”; (11) (3) “something has to be done to arrest the alarming decline in litigation
before the courts”; (12) and (4) the “disdain for adversarial forums will have a seismic
impact on the landscape of transnational dispute resolution”. (13)
The significant statistics upon which these conclusions and predictions were based were
represented graphically in the Article as follows: (14)
P 760
P 761

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 The “Australian Courts” are represented by the line starting at 2001 suggesting that they are
in a far more parlous state than the English High Court and the High Court of Singapore.
The Article records that “in the five mainland states of Australia, for example, the amount
of civil litigation per capita from 2000-01 to 2012-13 declined by a sharp 46 per cent”; and
that in Singapore there was a general decline in the “number of civil originating processes
filed in the Supreme Court over the period 2003 to 2013”. (15) This is referred to as a “trend”
with the observation that there was a notable exception in the Commercial Court of
England and Wales which had seen an increase in its caseload over the past decade.
However, it was also reported that when one includes the “other branches of the English
High Court's Queens Bench Division” there was a similar trend of a 30 percent decline in
the number of “civil proceedings commenced in London” during the period. (16)
The statistics from which this graph was created for the High Court in England and the High
Court of Singapore were drawn respectively from the official statistics on the UK
Government website and the Supreme Court of Singapore Annual Reports for the relevant
years. (17)
P 761
P 762
However, the source of the statistics for the Australian courts is identified as an online
article at the http address adelaidehillslawyersonline.com.au. The Courts of Tasmania, the
Northern Territory and the Australian Capital Territory were excluded from the statistics
because it was concluded that “most of Australia's resident population can be found in the
five mainland states”. (18) The Article is about “commercial” dispute resolution. However,
the only statistics in the Article that are purely “commercial” are those referred to in the
Commercial Court of England and Wales that are not separately extracted. Accordingly, it
appears that the figures for all “civil” litigation – not purely commercial litigation – are
used as the basis for these provocative conclusions and predictions.
The figures in the online Adelaide Hills Lawyers paper (relied upon in the Article) are
drawn from figures provided to the Australian Productivity Commission which exclude
specialist courts, the various State tribunals and the High Court of Australia. There is an
inconsistent selection of court-types or case mixes. For instance, there are the single courts
of England and Singapore; whereas the figures for Australia are for general (as opposed to
purely commercial) litigation in courts at various levels including the Local Courts, County
and District Courts and Supreme Courts for five out of the six States and neither of the
Territories. (19) There is also an inconsistent baseline used for each of the countries with
the additional problem of the Australian figures having been based on a per capita basis,
rather than being linked to the litigious commercial community and the number of filings.
(20)
The official figures published by the busiest commercial court in Australia, the NSW
Commercial Court, extracted in the table below demonstrate a very different outcome to
that reported in the Article. (21)
P 762
P 763

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 While it can be seen that the there is some volatility in the numbers over the relevant
years, these figures do not support the contention that there has been a 46 percent decline
in commercial litigation in the relevant period.
The reality is that there is a great deal of confidence in the NSW Commercial Court and the
litigious process. Cases are well managed and resolved very expeditiously. If there is a
case that requires even speedier resolution than usual, the Court accommodates it. Where
questions arise in commercial arbitrations (international or otherwise) the Court also deals
with it in an expeditious fashion. Far from retreating from the Court, the commercial
community seems to choose the mechanism of litigation and arbitration as appropriate for
each case.
VK Rajah SC also referred to the torrent of criticism in recent years levelled at the cost and
delay in arbitrations and what was labelled as the “judicialization” of the international
commercial arbitration process with the suggestion that the arbitral process now “mimics
litigation in many respects”. (22) If that is so, then it is a shame that it has mimicked the
outmoded processes that have now been shed in the NSW Commercial Court. Mimicking
the processes of the NSW Commercial Court could only enhance the cost-efficiency of any
arbitral process.
In New South Wales, there is no evidence that commercial parties are retreating from the
courts or holding them in disdain; nor, thankfully, is there any evidence of the freezing of
the common law.
P 763
P 764
Further warnings about the stultification of the common law by reason of the increase in
arbitrations were issued in 2017 by the former Lord Chief Justice of England and Wales, the
Right Hon The Lord Thomas of Cwmgiedd. (23) In a rather unpopular move with arbitrators,
Lord Thomas advocated legislative amendment to make appeals in respect of arbitrations
more readily available so that the Commercial Court would have a better diet from which
to develop and keep the commercial law dynamic. (24) Lord Thomas also referred to the
proposal for the publication of anonymized awards to avoid the prospect of the
commercial law going “underground”. (25)
More recently steps have been taken to publish anonymized challenges to arbitration; (26)
and the Mauritius Convention on Transparency has been ratified in October 2017 in respect
of investor-state arbitration proceedings. (27) It has been reported that the move towards
greater transparency in treaty-based investor arbitration has been accompanied by “a
decline in emphasis on confidentiality among parties”. (28)
Although these concerns have been expressed about the vitality of the commercial law
being challenged by the popularity of the arbitration process, the only published figures of
purely commercial cases in the two leading Commercial Courts (29) suggest that the
operation of the commercial law in the courts is vibrant, flexible and trusted by the
commercial community.

II Lessons from the Court Process

V K Rajah SC's Article also included the claim that “court proceedings are notorious for
being onerous, slow and expensive” and that the “flag bearer” for this criticism is the
“formal discovery process”. Although there was reference in the Article to new
technological tools that have been endorsed by courts to facilitate more effective
discovery, (30) there was no mention of the most innovative and cost-efficient
P 764 development in this area introduced in March 2012 in the Supreme Court of NSW in
P 765 Practice Note SC Eq 11 Disclosure in the Equity Division (the Disclosure Practice Note). (31)

The issue of the crippling costs of discovery in commercial litigation in New South Wales
courts came to a head in 2007 when senior practitioners at law firms in Sydney informed
the Chief Justice of the Supreme Court (32) that the “usual flag fall” for discovery in
commercial cases was $2 million. (33) In this context the Chief Justice suggested that
“business lawyers” may be “bypassed” unless the legal services they delivered were seen

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 to be more cost-effective.
Debate continued for some years as to how these costs could be controlled. Options
including discovery by categories of documents (rather than general discovery), electronic
discovery and the capping of costs were considered and tried.
The process for the disclosure of documents by categories allowed the parties to draft
descriptions of classes of documents they regarded as relevant to the issues in dispute and
serve them on their opponents requiring disclosure within a specified timeframe. The
introduction of this process spawned a growth industry in interlocutory applications in
which the parties parsed and teased the categories drafted by their opponents contending
that they should not be required to search for or produce the documents in the categories
the subject of the challenge. This delayed the preparation of the evidence and increased
the costs of the litigation.
The introduction of the process of electronic discovery followed its adoption in the United
States of America. However rather than simply producing those documents that were
already stored electronically, the parties set about creating electronic databases of their
hard copy documents and then produced them electronically. This was an added cost at
the time which, once identified, was clarified in the Rules of Court. This did not cure the
problem of the very expensive flag fall for commercial litigation.
Whilst ever the step of discovery/disclosure was taken before the step of the filing of
evidence, it was not feasible to control the costs of discovery and thus the costs of
commercial litigation.
At the beginning of 2012 an informal pilot scheme was introduced into the NSW
Commercial Court in which the parties were required to serve their evidence prior to any
discovery being permitted. The reception from the profession was initially lukewarm but
improved over the ensuing weeks. In late March 2012 the Chief Justice (34) issued the
Disclosure Practice Note applicable to all cases in the Equity Division of the Court. It
provides relevantly:
“Disclosure
4. The Court will not make an order for disclosure of documents (disclosure)
until the parties to the proceedings have served their evidence, unless
there are exceptional circumstances necessitating disclosure.
P 765
P 766
5. There will be no order for disclosure in any proceedings in the Equity
Division unless it is necessary for the resolution of the real issues in
dispute in the proceedings.”
If at some stage there is to be an application for disclosure, the applicant has the onus of
establishing necessity. The Practice Note also provides that the Court may impose a limit
on the amount of recoverable costs in respect of disclosure.
This has resulted in a marked difference in the commercial litigation landscape in New
South Wales. It has resulted in the enhancement of the Court's capacity to control the
process of document disclosure, the speedier resolution of commercial cases and the
reduction of costs of commercial litigation.
Many arbitrators adopt the Memorials approach which has the Statement of Case and
Defence filed with witness statements and exhibits and first expert reports. It is after this
first round of evidence that the parties then embark upon the process of “disclosure” or
request for documents. This differs from the system under the Disclosure Practice Note
which requires all the evidence, both in chief and in reply, to be filed before an
application for disclosure will be entertained (unless it falls into the exceptional
circumstance category).
In the arbitration field there are recent reports of “growing frustration” with the way the
Redfern Schedule is used for complex and document-heavy cases. (35) The purpose of the
Redfern Schedule is to record the request for documents and the reasons for the requests,
the responses thereto and, where necessary, the tribunal's determination. It is reported to
have become a “cumbersome” process, with a disconnect between document requests and
the real issues in dispute. (36) Although some recommendations for reform, including the
use of horizontal rather than vertical cells and the filing of short submissions with the
Schedule have been made, it seems that the process is governing the debate rather than
the debate focusing on the need for an overhaul of the system. Once an order is made that
allows the creation and development of a Redfern Schedule with competing and numerous
requests and responses, the capacity to control the process and the costs of the process is
greatly diminished or even lost.
May I suggest that if Procedural Order No. 1 requires the parties to prepare their evidence
without discovery in line with the Disclosure Practice Note, the system will not be
cumbersome but will be far more cost efficient. It will move to a necessity-based
determination by the tribunal rather than the protracted inter partes processes
documented in a Redfern Schedule.
Another area from which lessons may be learned from the litigious process that leads to

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 the time-efficient and cost-effective determination of the real issues in dispute is close
case management with requirements for compliance with agreed or court-imposed
timetables. The majority of timetables are agreed by the parties in the knowledge that
they will be given a hearing date to suit the case preparation. On occasions the Court will
fix the trial date at an early stage of the process and then fix the timetable to
P 766 accommodate that date. The capacity of the parties to bring the case back before the NSW
P 767 Commercial Court List Judge at short notice also focuses the parties on achieving
compliance with the case preparation regime. There is a culture within the legal profession
that if there is to be slippage in the timetable, the parties agree on an adjustment to the
timetable and notify the Court immediately; or they relist the matter for argument about
those adjustments, particularly where a trial date may be in jeopardy.
It must be recognized that this system is made possible because there is a judge available
at all times (including out of hours for urgent applications) to manage the cases; and to
impose sanctions for non-compliance, costs or otherwise, where appropriate. It may not be
so easy to convene the arbitral tribunal to deal with these case management issues on an
urgent basis. Anecdotal evidence suggests that although the arbitral tribunal may favour
expeditious management, the parties (in private rather than institutional arbitrations) for
commercial or other reasons, may favour a more leisurely timetable. This is quite a
different setting to that of a court where public funds and resources have to be considered
in achieving cost efficient outcomes. It will all depend upon the particular case. However,
the inculcation of a culture of close case management will ensure that the real issues are
identified early and that the steps taken in the process focus the tribunal and the parties
on the determination of those real issues.

III Other Matters

Whilst I have respectfully disagreed with the Hon VK Rajah SC's statistical analysis and thus
the conclusions reached therefrom, the former Attorney-General's suggestions in relation
to the future growth of the hybrid processes of mediation-arbitration (med-arb) and/or
arbitration-mediation-arbitration (arb-med-arb), supported by the figures from the
Singapore International Arbitration Centre (SIAC) and the Singapore International
Mediation Centre (SIMC), are compelling. (37)
There are so many innovative ideas that are being promoted throughout the world for the
more effective and efficient additional mechanisms for dispute resolution.
Take for example, the establishment of the Singapore International Commercial Court
(SICC). That Court is one of a kind. (38) It is part of the Supreme Court of Singapore,
constituted by the Judges of the Supreme Court and fifteen International Judges drawn
from both common law and civil jurisdictions. (39) The SICC was established in January 2015
amidst some concern from the Singaporean and international arbitral community that it
might have an adverse impact on its work. This concern has now abated. The work of the
SICC is international commercial litigation. The work of the Singaporean and international
arbitral community is arbitration.
P 767 The idea for an international commercial court or tribunal in Australia was first promoted
P 768 in 2013, albeit as a “radical possibility” and a “lofty goal”, by the Honourable T.F.
Bathurst AC, the Chief Justice of the Supreme Court of NSW. (40) The Chief Justice expressed
the view that “such a system would have considerable advantages” and in an observation
now relevant to the SICC, the Chief Justice said: (41)
“An international commercial court, for use consensually by commercial parties,
and dealing with a limited range of matters involving international commercial
disputes, would not impinge on the judicial sovereignty of any state and could
well increase confidence in parties participating in international trade and
investment. It would also, in my view, play an important role in the
development of the law applicable to international commercial contracts and
cross-border disputes and to the promotion of convergence in commercial legal
systems in our region.”
Three years later, in April 2016, the then Chief Justice of the Supreme Court of Victoria, the
Honourable Marilyn Warren AC (42) suggested that “the opportunities offered by an
Australian international court are almost boundless”. (43) Boundless they may be, but
these opportunities are not being exploited.
Perhaps the task of bringing all the States and Territories together to create an Australian
International Commercial Court is not one that is attractive to the respective governments.
If that is so, you may think that this is certainly a missed opportunity.
P 768

References

5
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 *) The Honourable P.A. Bergin SC: Judge of the Supreme Court of NSW from 1999 to 2017;
serving as Commercial List Judge (2003 to 2009) and the Chief Judge in Equity (2009 to
2017); International Judge of the Singapore International Commercial Court since 2015.
1) Administered since 2009 by Hammerschlag J.
2) Daniel HOCHSTRASSER and Nadja JAISLI, “Commercial Litigation in State Courts – Why
Arbitration Is Not Always the Better Choice in Swiss Domestic Disputes”, Global
Arbitration Review (October 2015).
3) Chief Justice Sundaresh MENON, “International Commercial Courts: Towards a
Transnational System of Dispute Resolution”, Opening Lecture for the Dubai
International Financial Centre (DIFC) Courts Lecture Series 2015. para. 7.
4) Professor Lucy REED, “International Dispute Resolution Courts: Retreat or Advance?”,
John E.C. Brierley Memorial Lecture (11 September 2017).
5) Peter L. MURRAY, “Privatization of Civil Justice”, 91 Judicature (May-June 2008, no. 6) at
p. 272; and the fuller version of which is published in 15 Willamette Journal of
International Law and Dispute Resolution (2007, no. 2, Winter).
6) Ibid., at p. 272.
7) Ibid., at p. 272.
8) Ibid., at pp. 273-274.
9) 33 Arbitration International (2017, no. 1) p. 17.
10) Ibid., at p. 20.
11) Ibid., at p. 24.
12) Ibid., at p. 26.
13) Ibid., at p. 34
14) Ibid., at p. 19.
15) Ibid., at pp. 18-19.
16) Ibid., at p. 19.
17) Ibid., fns. 5 and 6.
18) Ibid., fn. 4 and Bernard O'BRIEN The Rise and Fall of Commercial Litigation in Australia
(2014).
19) This excludes all the Courts of that State and those Territories and approximately 4.8
percent of the Australian population from the per capita analysis.
20) 2003 for Singapore; 2002 for the UK; and 2000-2001 for Australia.
21) Statistical appendices of the Supreme Court of New South Wales Annual Reviews 2004
to 2015 and provisional statistical data for 2016 (published on the website of Supreme
Court of NSW).
22) 33 Arbitration International (2017, no. 1) at pp. 24-25.
23) The Jill Poole Memorial Lecture, “Keeping Commercial Law Up to Date”, Aston
University (8 March 2017); The National Judges College, Beijing Commercial Dispute
Resolution; Courts and Arbitration (6 April 2017).
24) The Jill Poole Memorial Lecture, “Keeping Commercial Law up to Date Aston University”
(8 March 2017) paras. 41-43; The National Judges College, Beijing Commercial Dispute
Resolution; Courts and Arbitration (6 April 2017) paras. 29-30.
25) A suggestion made by Sir Bernard Rix in the Jones Day Professorship in Commercial
Law Lecture, SMU, Singapore (12 March 2015) referred to by Lord Thomas in the Jill
Poole Memorial Lecture, “Keeping Commercial Law Up to Date”, Aston University (8
March 2017).
26) LCIA Challenge Decisions Database issued 12 February 2017.
27) Ratified by Mauritius, Canada and Switzerland. It was also signed by a number of other
countries, including Australia in July 2016, but is yet to be ratified by those nations.
28) Douglas THOMSON, “The Mauritius Convention; A New Era of Transparency”, GAR Review
(January 2018).
29) Commercial List of the Equity Division of the Supreme Court and the Commercial Court
in London.
30) Including endorsement of Technology Assisted Review (TAR) or Predictive Coding and
Rio Tinto PLC v. Vale SA No. 14 Civ 3042 (SDNY, 2 March 2015).
31) The Hon Justice P A BERGIN, “The New Regime of Practice in the Equity Division of the
Supreme Court of New South Wales”, 11 The Judicial Review (2014) p. 399.
32) At that time, the Honourable JJ Spigelman AC.
33) The Honourable JJ SPIGELMAN AC, “Access to Justice and Access to Lawyers”, 35th
Australian Legal Convention, Sydney (24 March 2007).
34) The Honourable TF BATHURST AC.
35) “Compendium of Arbitration Practice”, IBA Arb40 Subcommittee (October 2017) p. 6,
para. 1.2.
36) Ibid., p. 15, Chapter 4.1.
37) 33 Arbitration International (2017, no. 1) at p. 32.
38) Compared to the Global Market Court in Abu Dhabi; the Dubai International Financial
Centre Courts; and the recently established Astana International Finance Centre Court
in Kazakhstan.
39) The International Judges are presently drawn from Australia; Canada; France; Hong
Kong SAR; Japan; the United Kingdom; and the United States of America.
40) The Honourable T.F. BATHURST AC, The Importance of Developing Convergent
Commercial Law Systems in Core Values of an Effective Judiciary (2015 Academy
Publishing). A record of the Biennial Conference of Chief Justices of Asia and the Pacific
held in Singapore in 2013.
41) Ibid., at p. 192.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 42) Jointly with the Hon Justice Clyde Croft.
43) The Hon Marilyn WARREN AC and The Hon Justice Clyde CROFT, “An International
Commercial Court for Australia – Looking Beyond the New York Convention: Remarks at
the Commercial CPD Seminar Series, Melbourne”, available online at
<http://assets.justice.vic.gov.au/supreme/resources/2a7ead53-9ae9-4e26-9bad-
56ef25d7d34c/aninternatio...>.

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 KluwerArbitration

Document information
The Future of Arbitration – Identifying Processes That
Publication Could Usefully Be Adopted in International Commercial
Evolution and Adaptation: Arbitration
The Future of International Flip Petillion
Arbitration
(*)

Bibliographic reference In this article, we identify processes that were developed in dispute resolution rules and
practices of different alternative dispute resolution (ADR) institutions, as they could
Flip Petillion, 'The Future of usefully be adopted in international commercial arbitration. We first list the role and
Arbitration – Identifying mission of each institution we will refer to and briefly summarize the ADR proceedings that
Processes That Could we have experienced. We then list relevant processes of these proceedings in the order in
Usefully Be Adopted in which they may be useful in the chronological flow of (international) commercial
International Commercial arbitration proceedings.
Arbitration', in Jean
Engelmayer Kalicki and I Relevant Institutions and Proceedings
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: 1 American Arbitration Association (AAA) International Centre for Dispute
The Future of International
Arbitration, ICCA Congress Resolution (ICDR))
Series, Volume 20 (© Kluwer a Independent Review Processes (IRP)
Law International;
International Council for We have used the services of the International Centre for Dispute Resolution (ICDR), a
Commercial division of the American Arbitration Association (AAA), as international dispute resolution
Arbitration/Kluwer Law provider for Independent Review Processes (IRPs), which were introduced as an ICANN
International 2019) pp. 769 - P 769 accountability mechanism in 2002. (1) ICANN is the acronym for ‘Internet Corporation for
808 P 770 Assigned Names and Numbers’. It is a not-for-profit public-benefit corporation formed
in September 1998. (2) ICANN's primary mission is to coordinate, at the highest level, the
Internet's systems of unique identifiers globally, (3) and in particular to ensure the stable
and secure operation of the Internet's unique identifier systems, the Domain Name System
or DNS. (4)
ICANN sought to increase competition at the registry level (i.e., increase the number of
extensions such as .com or .gov), and posted a call for new top-level domain (TLD)
applications in 2000, 2004 and 2011.The IRP became operational after April 2004, when
ICANN elected ICDR as IRP provider. (5) As a result, applicants as of the 2004 TLD round had
the opportunity to challenge the decisions of the ICANN Board before an independent ICDR
Panel. All IRP Declarations rendered by the ICDR Panels, having acted in IRPs pursuant to
the Procedure set out by ICANN and the ICDR Rules for Expertise, are published on ICANN's
websites. Since the IRP inception, eighteen cases have been initiated and one case is still
pending. (6)
b Expert determination
We also know the ICDR as a provider of an Expert Determination procedure pursuant to
ICANN's 2011 new generic top-level domain (gTLD) program, which gave various categories
of third parties the opportunity to challenge the application for a particular gTLD via ADR
mechanisms. Such challenges (called “objections”) could be initiated with independent
Dispute Resolution Service Providers (DRSP) according to a pre-established set of rules. (7)
Under these rules, objections could be based on the following grounds:
– String Confusion: (8) The applied-for gTLD string is confusingly similar to an existing
TLD or to another applied-for gTLD string in the same round of applications. Objectors
could be existing TLD operators or gTLD applicants in the current round.
– Legal Rights: The applied-for gTLD string infringes the existing legal rights of the
objector. Objectors could be rights holders; in practice all were trademark holders.
– Community: There is substantial opposition to the gTLD application from a significant
portion of the community to which the gTLD string may be explicitly or implicitly
targeted. Objectors could be an established institution associated with a clearly
delineated community.
P 770
P 771
– Limited Public Interest: The applied-for gTLD string is contrary to generally accepted
legal norms of morality and public order that are recognized under principles of
international law such as racially abusive strings. (9)
The ground for objection dictates which DRSP was to manage the dispute process: String
Confusion Objections (SCOs) were managed by the ICDR.

1
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Parties were not prevented from taking a matter to court. However, decisions obtained
through the ADR mechanisms established within the framework of the new gTLD program
were likely to be quicker and easier to execute. All Expert Determinations rendered by the
ICDR Expert Panels, having acted in new gTLD related disputes pursuant to the New gTLD
Dispute Resolution Procedure set out by ICANN and the ICDR Supplementary Procedures
for String Confusion Objections, are published on ICANN's websites. ICDR has administered
sixty-seven cases. In March 2015, at the request of ICANN, the ICDR developed specific
review procedures to evaluate and finally review selected expert determinations that were
perceived inconsistent or unreasonable. (10)

2 International Chamber of Commerce (ICC)

a Commercial arbitration
In international commercial arbitrations, we have been working with the International
Chamber of Commerce's (ICC) International Court of Arbitration, which is the world's
leading arbitral institution.
b Expert determination
The ICC is also known as another provider of an Expert Determination procedure from
ICANN's 2011 new gTLD program (see I.1 above). ICC's International Centre for ADR managed
the Limited Public Interest Objections and the Community Objections. All Expert
Determinations rendered by the ICC Expert Panels, having acted in new gTLD-related
disputes pursuant to the New gTLD Dispute Resolution Procedure set out by ICANN and the
ICC Rules for Expertise, are published on ICANN's and ICC's website. The ICC has
administrated 127 cases.

3 World Intellectual Property Organization (WIPO)

a ADR
The Arbitration and Mediation Center of the World Intellectual Property Organization
P 771 (WIPO) is a neutral, international and non-profit dispute resolution provider that offers ADR
P 772 options. WIPO mediation, arbitration, expedited arbitration, and expert determination
enable private parties to settle their domestic or cross-border intellectual property and
technology disputes out of court. The WIPO Center is also the global leader in the provision
of domain name dispute resolution services under the WIPO-designed Uniform Domain
Name Dispute Resolution Policy (UDRP).
b Uniform Domain Name Dispute Resolution Policy (UDRP)
The Arbitration and Mediation Center of WIPO is the major DRSP in the Uniform Domain
Name Dispute Resolution Policy (UDRP), which has been adopted by ICANN (see I.1.a
above) and is incorporated by reference into the Registration Agreement between a
registrant of a domain name and a registrar. The UDRP dictates the terms and conditions in
relation to a dispute between the registrant and any party (complainant) over the
registration and use of an Internet domain name. The complainant must prove that:
(i) the domain name is identical or confusingly similar to a trademark or service mark in
which the complainant has rights; and
(ii) the registrant has no rights or legitimate interests in respect of the domain name;
and
(iii) the domain name has been registered and is being used in bad faith.
The UDRP decisions are published on WIPO's website. WIPO has administered near to
40,000 cases since 1999.
c Expert determination
WIPO was yet another provider of an Expert Determination procedure from ICANN's 2011
new gTLD program (see I.1.b above). In that program, WIPO managed the Legal Rights
Objections (LROs). Through the LRO, trademark owners and intergovernmental
organizations (IGO) could file a formal objection to a third party's application for a new
TLD. An independent panel of one or three neutral experts determined whether an
applicant's potential use of the disputed applied-for new TLD would cause impermissible
infringement of the objector's existing trademark, or IGO name or acronym. The resulting
expert determinations may be viewed at the WIPO Center's LRO webpages. WIPO has
administrated sixty-nine cases.

4 Forum
FORUM is another important DRSP in the UDRP adopted by ICANN (see I.1. above).
FORUM also handles Uniform Rapid Suspension (URS) procedures. The URS System
complements the UDRP by offering a cheaper and faster path to relief for rights holders
experiencing the most clear-cut cases of infringement by domain name registrants. Under
the URS procedure, rights holders may only claim the suspension of a domain name,
whereas under the UDRP, other remedies are available, such as the transfer or the

2
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 cancellation of the domain name.
The UDRP and URS decisions are published on FORUM's website. FORUM has administrated
almost 24,500 UDRP cases since 2000 and over 800 URS cases since 2013.
P 772
P 773
5 Czech Arbitration Court (CAC)
The Czech Arbitration Court (CAC) is the sole provider of ADR.EU, which is, along with WIPO,
one of the two ADR providers for .eu domain name disputes. ADR.EU also provides a UDRP
service for several generic top-level-domains.
The UDRP decisions are published on CAC's website. CAC has administrated over 800 cases
since 2009.

6 Nominet
Nominet is the biggest registry in the United Kingdom, responsible for the .uk, .cymru, and
.wales TLDs. Nominet provides a Dispute Resolution Service (DRS) as a fast and efficient
way to resolve .uk domain name disputes. The DRS Policy and the UDRP are different
systems. In some places they share very similar wording, but there are significant
differences and the citation of UDRP decisions in a dispute under the DRS Policy is rarely
considered helpful.
The DRS decisions are published on Nominet's website. Nominet has administrated about
8,000 cases since 2001.

7 Belgian Centre for Arbitration and Mediation (CEPANI)

a Commercial arbitration
CEPANI is the Belgian centre for arbitration and mediation. We have both used the centre
in our arbitrations as well as been invited by the centre to act as arbitrator in commercial
arbitrations.
b ADR
The centre is locally also well known as the provider of ADR to solve domain name disputes
in the .be domain.
The ADR decisions are published on the websites of CEPANI and DNS Belgium, the registry
managing the .be domain.

8 Stichting Internet Domeinregistratie Nederland (SIDN)

The Stichting Internet Domeinregistratie Nederland (SIDN) is the Dutch registry managing
the .nl domain. Similarly to Nominet in the UK and CEPANI in Belgium, SIDN provides its
own ADR for domain name disputes within the .nl domain. Its approach is more similar to
ICANN's UDRP compared to Nominet's or CEPANI's DRS, as SIDN exclusively relies on WIPO
for the provision of this service.
The ADR decisions are published on the websites of WIPO. WIPO has administrated over
400 .nl cases since 2008.

9 International Trademark Association (INTA)

P 773 The International Trademark Association (INTA) is a global association of brand owners and
P 774 professionals dedicated to supporting trademarks and related intellectual property
rights to foster consumer trust, economic growth, and innovation. It is not an ADR
institution. However, it has set up a Panel of Trademark Mediators and it collaborates with
the WIPO Center in the promotion of the use of ADR amongst potential users. It does this by
harnessing the international experience of the WIPO Center and the special expertise of
INTA's Panel of Trademark Mediators. This collaboration provides value to INTA members
by making available an administered mediation option at special rates. INTA expects that
this collaboration between two recognized organizations in this area will stimulate the use
of mediation by parties and thus reduce the negative impact of disputes in the productive
use of trademark rights.

II Pre-Arbitration Proceedings
Several specific industry associations and organizations encourage the use of different
forms of dispute resolution or provide rules that facilitate settlement opportunities, even
before any expert or panelist (11) is appointed. In this way, disputes are more rapidly
resolved without the need for lengthy or costly procedures. A few of these are listed below.

1 Pledge
a World Intellectual Property Organization (WIPO) Mediation Pledge for Intellectual
Property and Technology Disputes

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Being aware that parties to commercial disputes related to intellectual property (IP)
assets are increasingly concerned about the time and cost caused by such disputes, WIPO
has recently started to promote a pledge.
Without binding the parties, the WIPO Mediation Pledge for IP and Technology Disputes
promotes mediation as an alternative to court litigation in order to reduce the impact of
disputes in innovation and creative processes. By subscribing to the WIPO Mediation
Pledge, users of the Patent Cooperation Treaty (PCT), Madrid, and Hague systems, as well as
all other IP stakeholders can contribute to time- and cost-efficient resolution of IP and
technology disputes.
Companies, universities and R&D Centers, and law firms may sign the WIPO Mediation
Pledge. The form is available on WIPO's website. (12) While not formal signatories, other IP
stakeholders may expressly support the WIPO Mediation Pledge.
b International Trademark Association (INTA) Law Firm Pledge
The International Trademark Association (INTA) has also published a pledge form which is
meant to be signed by law firms. By executing the pledge, law firms recognize that for
P 774 many trademark disputes more effective methods of resolution exist apart from
P 775 traditional litigation or trademark office proceedings, and that these methods can
significantly reduce the costs and burdens of proceedings and result in business solutions
not available in court or trademark office tribunals.
Law firms subscribe to the following statements of policy on behalf of their firm: first,
appropriate lawyers in the firm are knowledgeable about ADR and familiar in particular
with the INTA Panel of Trademark Mediators as well as with the applicable guidelines and
rules; second, where appropriate, the responsible attorney will discuss with the client the
availability of ADR procedures so that the client can make an informed choice concerning
the resolution of the dispute.
c Appraisal
Signing the WIPO Mediation Pledge or the INTA Law Firm Pledge shows willingness to
consider mediation in intellectual property disputes. Broad adherence to the Pledge
promotes two shared goals; first, increased consideration of the inclusion of mediation
clauses in contracts, and second, increased consideration of using mediation in the
absence of such clauses (e.g., for non-contractual disputes).
The pledges create positive conditions for intellectual property dispute resolution, but the
pledges are not binding commitments and do not create legally enforceable rights or
obligations. Also, mediation may not be suitable for every dispute and, in any event, does
not limit a party's other dispute resolution options, including court litigation.

2 Recommended Cooperation
a The Internet Corporation for Assigned Names and Numbers (ICANN) Cooperative
Engagement Process
On 11 April 2013, the Internet Corporation for Assigned Names and Numbers (ICANN)
introduced the Cooperative Engagement Process (CEP). (13)
The CEP is a voluntary process that can be initiated before filing a Request for IRP. The IRP
is an arbitration process in which a panel is asked to determine whether ICANN acted
within the scope of its mission and whether it complied with its Articles of Incorporation
and Bylaws. (14) The CEP aims to resolve the contested issue and to determine if any issues
remain for the IRP, or whether the matter should be brought to the ICANN Board's
attention. Although the CEP is voluntary, parties are urged to enter into a period of
cooperative engagement. A party's decision not to participate in good faith in the
cooperative engagement, can have important cost implications in future proceedings: in
such cases, and provided ICANN prevails in the IRP, the IRP Panel is obliged to award
ICANN all reasonable fees and costs incurred by ICANN during the proceedings, including
legal fees. (15)
The CEP proceeds as follows: Within fifteen days of the posting of the minutes of an ICANN
P 775 Board meeting, a party may file a request for CEP. The requesting party should identify the
P 776 Board action(s) at issue, as well as the provisions of the ICANN Bylaws or Articles of
Incorporation that have allegedly been violated. The requesting party is also expected to
designate a single point of contact for the resolution of the issue. ICANN expects the CEP to
be between ICANN and the requesting party, without reference to outside counsel. (16)
However, nothing prevents a requesting party from designating outside counsel as the
single point of contact if it believes that this will help to advance the process.
Within three business days following the initiation of a CEP, ICANN will designate a single
executive to serve as the point of contact for the resolution of the issue and provide notice
of the designation to the requesting party. ICANN expects the requesting party and ICANN's
representative to confer (either by telephone or in person) within two business days of
ICANN providing notice of its designated representatives, in order to attempt to resolve
the issue, and to determine if any issues remain for the IRP or whether the matter should
be brought to the ICANN Board's attention. If, during the first conference, the

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 representatives are not able to resolve the issue or agree on a narrowing of issues, or a
reference to the ICANN Board, they will be expected to meet in person at a location
mutually agreed upon within seven calendar days of the initial conference. At this second
conference, the parties will attempt to reach a definitive agreement on the resolution of
the issue or on the narrowing of issues remaining for the IRP, or whether the matter should
be brought to the ICANN Board's attention. The time schedule and process may be
modified if both ICANN and the requesting party agree in writing. In practice, the time
schedule is often extended in view of the complexity of issues that can be raised within a
CEP. (17)
The CEP request suspends the deadline to file an IRP for a maximum of fourteen days,
unless parties agree on a longer suspension. (18) In practice, ICANN has consistently agreed
to longer suspensions in cases when the CEP has taken longer than initially expected.
ICANN is currently in the process of redefining the IRP Rules of Procedure and recent drafts
set no specific deadline to file an IRP. (19)
Within a CEP, all matters discussed during the cooperative engagement phase are to
remain confidential and are not to be subject to discovery or used as evidence for any
purpose within the IRP, and this without prejudice to either party.
b Appraisal
Participation in multiple CEPs has shown us that the CEP can be a useful mechanism for
P 776 instigating open and frank discussions with ICANN's General Counsel and his team.
P 777 Although a CEP may not result in a negotiated agreement in circumstances where
interests and positions are diametrically opposed between parties, it remains an excellent
process that can create goodwill between the parties and ensure the efficient handling of
further proceedings. The CEP also offers a unique opportunity for ICANN to obtain
advanced knowledge of the arguments that a party may be planning to raise as part of an
IRP. However, for a party that believes in its arguments, this is a small price to pay for the
increased efficiency a CEP can bring to the dispute resolution.

3 Mandatory Mediation
a Nominet
Nominet provides for a mandatory mediation period if the respondent, a holder of the
domain name in the .uk domain, responds to a filed complaint. Nominet's trained
mediators handle the mediation proceedings, which may last no longer than ten days. If no
acceptable solution is found, Nominet notifies the parties that a panelist will be
appointed subject to payment of a fee by the complainant.
To be enforceable, any settlement reached by the parties must be in writing or similar
electronic form.
Nominet ensures confidentiality. The panelist appointed in the DRS is informed whether or
not a mediation occurred, but he or she is not informed of the mediation discussions or the
reason why mediation was not successful and the parties failed to resolve the dispute.
b Stichting Internet Domeinregistratie Nederland (SIDN)
SIDN provides for a dispute resolution service before referring the case to WIPO for further
administration. Similar to Nominet's DRS, an automatic and free-of-charge mediation
period is initiated if the respondent files a response to the complaint. This mediation
period lasts for a maximum of thirty days but may be extended twice with the consent of
both parties, for periods of up to thirty days.
If the mediation is not successful, the complainant must pay the administration fee and
the panelist's fee to WIPO before the case is further handled.
c Facilitating a settlement
On 31 July 2015, ICANN updated its UDRP Rules, hereby impacting complaint filing
modalities and party settlement practices.
To facilitate settlements, parties may ask for the suspension of the proceedings to allow
them to discuss settlement options. When the ADR provider understands from the file that
the respondent may be willing to settle, the provider will generally invite the claimant to
ask for the suspension. If and when the parties reach a settlement, they complete a
Standard Settlement Form and return a signed copy to the ADR provider.
The Standard Settlement Form is not intended to be a copy of the settlement agreement.
It merely summarizes the essential terms of the parties' agreement. The ADR provider does
not disclose the completed Standard Settlement Form to any third party. But the form can
help third parties implement the agreement without the need for an order by a panel.
The complainant must subsequently confirm to the ADR provider that the settlement
agreement has been honoured before the proceedings can be terminated.
P 777
P 778
d Appraisal

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 Although mediation is not always offered as an option, the provision of a short period
enabling parties to consider mediation can be useful to resolve a dispute. The mandatory
mediation period may lead to a better understanding of the parties' respective interests
and position and clarify the parties' respective chances of success if they intend to
continue the proceedings. This will undoubtedly be the case in matters where the subject
matter of the dispute is well defined, which is very often the case in disputes involving
trademarks and domain names.
A form such as the Standard Settlement Form is a simple process allowing the ADR
provider to close proceedings while keeping the full settlement agreement confidential.

III Appointment Procedures

1 The Benefits of Specialist Knowledge
The attractiveness of ADR can be explained in part by the fact that proceedings are
handled faster and more efficiently by panelists who are specialized in the appropriate
area. For example, parties may succeed in that goal if they nominate and get appointed
panelists with sufficient specialist knowledge. It is one of the first things for parties and
appointing institutions to examine which person would be most suitable given the
economic sector or industry setting in which the dispute takes place and taken into
account the applicable law.
Arbitral institutions have become increasingly involved in the appointment of arbitrators.
These institutions have built up unique knowledge about arbitrator competencies, areas of
expertise and working methods. Even if it is true that some institutions tend to make
repeat appointments of the same individuals, new talent does seem to be given a fair
chance. And in our view, repeat appointments need not be a problem: better to appoint an
arbitrator more than once than to appoint a less qualified or less experienced individual
merely for the sake of diversity. (20)

2 The Pros and Cons of a Standing Panel

A way to structure appointment proceedings is the creation of standing panels. If organized
efficiently, these standing panels may expedite the appointment process and even
augment the parties' trust in single-member tribunals. In this section we discuss the
advantages and pitfalls of standing panels. In the next section, we will discuss the use of
single-member panels.
A standing panel can take different forms. At one side of the spectrum, one may find a
simple list or roster of panelists (mediators, experts, arbitrators) selected by an institution
and available for party consideration. The list may be exhaustive or not. At the other end
P 778 of the spectrum, the standing panel is composed of the panelists selected by an institution
P 779 to preside over all disputes that may arise over a certain development or period; and,
alternatively, the panel may be composed of panelists from which benches may be made
by the institution. (21)
a Policy arguments for and against standing panels
i Costs are foreseeable
When an institution selects a fixed panel of panelists, it may get a better view on the costs.
Either it can agree a fixed fee with the panelists when serving on the standing panel,
regardless of the number of expected disputes, or it can agree on the parameters that will
determine the fee in case disputes arise. As a result, no surprises can arise from a party's
nomination of an arbitrator who charges fees that are beyond the standard rate for similar
disputes. Alternatively, in situations where parties are allowed to nominate panelists who
are not listed, they may be appointed by the institution, but subject to the institution's
fees or parameters to determine the fees.
The downside may be that the panelists on the standing panel may require a fee for
keeping themselves available and free from conflicts to serve on the panel. In some,
usually smaller, standing panels, the panelists receive an annual stipend. That is for
instance the case with the Public Interest Commitment Dispute Resolution Procedure
(PICDRP) and IRP standing panels that ICANN has installed or plans to install (cf. infra). If
few or no disputes take place, the costs of maintaining a standing panel may largely
outweigh the normal costs for dispute resolution. Absent any disputes, there would be no
party to share the cost with. In cases where an administrative authority were to insist on
installing standing panels to handle disputes related to its decisions (like ICANN, cf. infra),
it is a cost that the authority would need to bear on its own.
ii Nomination of knowledgeable experts
When composing a standing panel, the institution selecting the arbitrators can apply
detailed criteria, organize a tender process, or even require prospective panelists to pass
specific tests. As their appointment does not take place in the context of an existing
dispute, timing is not of the essence and care can be taken in the selection process. Once
appointed, the institution can organize mandatory trainings for the arbitrators to ensure
that they keep on top of developments in the applicable regulatory framework.

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 The fact that the appointment of a standing panel happens outside the context of an
existing dispute also has negative effects. As it is impossible to predict the precise
subject-matter of future disputes, the standing panel may lack expected expertise.
iii Time saving
With a standing panel in place, the parties need not agree on an appointment procedure
and they can move directly to other procedural aspects and the merits of the case.
Without a standing panel, the appointment of an adequate panel can be a source of delay.
P 779 E.g., prospective arbitrators may be challenged, co-arbitrators may experience difficulties
P 780 in finding a mutually acceptable president, and parties may prefer to grant the co-
arbitrators a delay over having an arbitral institution or competent court select the
presiding arbitrator.
iv Predictability
A standing panel which is active for multiple years is likely to rule on similar cases over the
years. As a result, standing panels have the potential to develop coherent jurisprudence,
thereby building a more predictable environment.
What about independence and impartiality?
Proponents of standing panels will argue that party-appointed arbitrators are unable to
remain neutral because they are directly appointed by the disputing parties. (22) We tend
to disagree. (23)
It is true that parties will try to appoint an arbitrator with a maximum predisposition to
their case, but that should not affect a party-appointed arbitrator's neutrality. Members of
the arbitral tribunal are aware that party-appointed arbitrators may be selected for their
inclination to ascribe to the legal theories advanced by the party who appointed them. But
the balance is restored by the fact that adversaries are generally each allowed to
nominate an arbitrator. Of course, it may happen that a party appointed an arbitrator who
does not act as a neutral. The lack of neutrality will be quickly noticed by the other
arbitrators on the panel. The arbitrator who gives the impression of partisanship not only
damages his or her own reputation, the partisan arbitrator will generally have a hard time
convincing the other arbitrators on the tribunal of a biased opinion. Unless the party who
appointed that arbitrator clearly has the stronger case, the chairman can more easily
ignore the opinion and abandon the goal of reaching a unanimous decision.
For the parties, it is comforting to know that, by carefully selecting a prospective
arbitrator, they have an arbitrator on the panel who is likely to be receptive to the points
they will raise. It will reassure them that their position will be heard, even if not followed.
Depending on how a standing panel is organized, the balance might shift in the complete
opposite direction. For example, an administrative authority that provides for ADR
proceedings for disputes related to the authority's own decisions could not only choose the
institution that will administer the cases, but also impose a standing panel and even
select the members of the panel itself. In its selection it can ensure that only panelists who
are likely to follow its position are appointed. The situation where the administrative
authority is to become a party to disputes decided by (members of) the standing panel, is
P 780 obviously problematic. Parties in dispute with the authority will be subjected to
P 781 arbitration proceedings administered by a panel that may be more predisposed to the
position of the authorities. The balance that exists on a more conventional arbitration
panel is completely gone.
v What about party autonomy?
The parties' involvement in the appointment procedure contributes to the smooth and
transparent running of proceedings. If the parties are able to contribute to the
composition of the panel, they have greater confidence in the competence, independence
and impartiality of the panelists than when a panel is appointed with no or very little
involvement by the parties.
However, having to agree on an appointment procedure may make the proceedings less
antagonistic. But without this step in the process, parties may more quickly tackle the core
issues of the dispute and enter into the aspects that oppose them.
We are experiencing an evolution in the customs of arbitration. In an international context,
ADR practitioners increasingly meet new faces and some may not always be accustomed to
the collegial atmosphere that typically exists in the arbitration world. Aggressive litigation
techniques, which may be commonplace in certain jurisdictions or sectors, sometimes get
introduced in arbitration, making proceedings more adversarial. However, this observation
should not hinder those parties that are able to treat their opponent courteously from
agreeing on efficient appointment procedures, best suited for their case.
vi What about case-specific expertise?
If the ADR agreement only allows for the appointment of panelists who appear on the
standing panel, the standing panel must be sufficiently diverse to ensure adequate
appointments. The narrower a standing panel is, the less likely the members of the

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 standing panel have the necessary case-specific expertise. A major advantage of ad hoc
appointments, in contrast to a standing panel, is that the parties have more freedom in
finding the panelists that are best suited for the case.
b Practical examples of standing panels
i Standing panels for domain name disputes under the UDRP
Relatively soon after its formation, ICANN adopted the UDRP and Rules for UDRP in August
1999 and had the implementation documents approved in October 1999. The first UDRP
case was brought in December 1999, and for nearly two decades the UDRP has been a
tremendous success, providing an efficient tool for the online protection of trademarks.
Without naming it as such, the Rules for UDRP require that the approved dispute resolution
service providers install a standing panel. Panelists must be appointed by the provider
and each provider must maintain and publish a publicly available list of panellists and
their qualifications. (24) This requirement has not changed over time. (25)
P 781
P 782
The first approved UDRP provider, WIPO, takes pride in the fact that its panellists “come
from different regions of the world and are well reputed for their impartiality, sound
judgement and experience as decision-makers, as well as their substantive experience in
the areas of IP law, electronic commerce and the Internet”. (26) Panelists are not paid for
appearing on the standing panel. They are paid a fixed fee for the cases they handle. The
roster of panelists is sufficiently broad to make sure that WIPO can appoint a panelist who
is free from conflicts of interest. Before each appointment, the UDRP provider will check
with each prospective panelist whether there are any facts or circumstances, past or
present, or that could arise in the foreseeable future, that might call into question that
person's independence in the eyes of one or both of the parties in the administrative
proceeding.
Taking into consideration the envisioned procedural schedule in a case, UDRP providers
also check whether the prospective panelist is able to commit the time required to
discharge his or her duties responsibly and within the required deadlines. (27)
As the roster is sufficiently broad and the disputes sufficiently narrow, the standing panel
works well for UDRP. FORUM (28) and CAC (29) have adopted a similar approach and this
specific dispute resolution model was successfully copied for domain name disputes
relating to country code top-level domains (ccTLDs) such as .be (30) and .eu. (31)
ii Expert determination standing panels
WIPO also installed a standing panel to handle Legal Rights Objections (LRO) against new
gTLD applications. WIPO's roster comprised 107 panelists from 30 countries, with
corresponding linguistic and regional diversity as well as significant expertise in
trademark, e-commerce and Internet law. WIPO could build on the expertise it had
P 782 acquired by maintaining a UDRP standing panel, and it used its pool of UDRP panelists to
P 783 populate the LRO standing panel. Between them, these panelists had decided
approximately 11,500 out of a total of 20,000 WIPO panel decisions that had been rendered
until then under the WIPO-initiated UDRP. (32)
All LROs needed to be filed within a designated filing window. Once the filing window had
ended, all compliant objections were published at the same time, and the applicants
concerned were notified of the objection. If no response and response fee was filed before
the predetermined deadline, the LRO was automatically accepted. (33) Hence, expert
panelists were only appointed after an administratively-compliant response was received.
The LRO standing panel was sufficiently large to handle the LRO case load. Expert
determinations were rendered in sixty-three proceedings. The vast majority – fifty-four out
of the sixty-three proceedings – were handled by single-member expert panels. In total,
WIPO appointed 49 out of the 107 panelists to handle these cases. (34)
As WIPO knew the names of all counsel in LRO proceedings, it was able to avoid the
appointment of panelists who acted as counsel to any of the parties in LRO proceedings. In
our view, that was not strictly necessary. Nothing would prevent counsel from representing
parties in one case and acting as expert panelist in an unrelated case between different
parties, as is often the case in UDRP proceedings. In many jurisdictions, practicing counsel
are asked from time to time to sit as deputy judges. Many respected arbitrators combine
their work as arbitrator with their work as counsel. It is our personal conviction that the
combination of both occupations makes one a better arbitrator and counsel.
Nevertheless, we agree that, in the context of LRO proceedings, it was probably prudent
not to appoint panelists who also served as counsel in a different LRO. Although it must be
possible for a panelist to dissociate his or her expert opinion from his or her role as
counsel, the appointment of a LRO panelist who also serves as counsel in LRO proceedings
would almost certainly have given rise to criticism. WIPO's roster was populated with
enough competent experts to ensure that adequate panelists were appointed in every
case without having to call upon experts who also served as counsel in similar cases. The
easiest way to deal with criticism was by avoiding it. And to ensure that parties accepted
the expert determinations, it was wise to make sure they were spared from unnecessary

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 critique.
The mandate of LRO panels was sufficiently precise and narrow. LRO expert
determinations did not give rise to much controversy. We know of one expert
determination which was challenged in court and one which was challenged in an IRP. Both
challenges were quickly dismissed. (35)
P 783
P 784
To summarize, WIPO's standing panel worked well for LROs. WIPO had the advantage of
being able to rely on a large pool of experts who regularly handle comparable cases.
Other types of expert determinations in the context of new gTLD applications –
administered by either the ICC or ICDR – were much more controversial. But the
controversy did not focus much on the appointment of panelists; it can be attributed to
the fact that the panelists had to work within a completely new framework using untested
standards. (36)
In any event, the experience in the context of new gTLD applications shows that, with
careful preparation, standing panels can prove useful to handle a relatively large number
of similar disputes in a short timeframe.
iii Independent Review Process (IRP) standing panel
Ever since its Bylaws modification on 11 April 2013, ICANN has envisioned the installation of
a standing panel for handling IRPs, ICANN's external accountability mechanism to review
ICANN's actions and inactions for compliance with its Articles of Incorporation and Bylaws.
(37) However, to date, an IRP standing panel has never been in place.
ICANN reconfirmed its willingness to install such a standing panel and to work out more
detailed rules. But ICANN is still figuring out the process for selecting candidates almost
five years after it decided to work with a standing panel. In January 2018, ICANN's legal staff
informed the ICANN community as follows:
“[W]e've identified that not only do we need to jumpstart the community
conversation to identify the next steps but it's also really important for us to
gain an understanding of the full timeline of what the selection process is prior
to sending out the call for expressions of interest for people to serve as
panelists. We need to know and we need to be able to explain to them if it's
going to be a six-month process or a one year process for example. We also
need to understand and be able to explain to the applicant the level of
community involvement and the community access to information such as their
identities just for the fact of applying, et cetera.” (38)
For ICANN, the installation of a standing panel clearly is a slow process, and we do not
exclude that suitable candidates may have lost interest in serving on the IRP standing
panel by the inertness of the selection process. It is also unclear whether the IRP standing
P 784 panel will be regularly called upon to serve in IRPs. Until now, IRPs have always been
P 785 initiated in connection with ICANN's allocation of licenses to operate gTLDs. These
licenses have been allocated in different application rounds. If past experience helps to
predict the future, one might expect that, once installed, the IRP standing panel is not
likely to be a hive of activity until ICANN allocates new licenses for gTLDs. At this stage, it is
unclear when ICANN will organize a next round of gTLD applications or open a permanent
window for gTLD applications. Until then, there seems to be a high likelihood that few
cases will be brought to IRP. Maintaining a standing panel could place an unwanted
financial burden upon ICANN.
In 2016, when the ICANN community reviewed ICANN's accountability, it favoured the
institution of a standing panel for IRPs, (39) although ICANN had no actual experience with
the appointment of a standing panel or with dispute resolution by such panel. The choice
is surprising. It is not clear how the community would benefit from the institution of a
standing panel as opposed to relying on more liberal appointment methods, which have
worked well until now.
A possible explanation for the ICANN community's choice may be that the community
considered that the appointment of arbitrators created unnecessary delays and that
proceedings took too long. However, in our experience, delays in the appointment of IRP
panelists were mostly attributable to ICANN. ICANN, as the party involved in all IRPs, could
perhaps be expected to have a list of pre-selected individuals for nomination as co-
panelists. A prior list of interested panelists could certainly contribute to the efficiency in
establishing IRP panels in a timely fashion. But this goal can be achieved without the
institution of a standing panel.
We understand the benefits to ICANN of a standing panel, as it would be easier to guide a
small group of panelists who are supposed to serve for five years. ICANN's new Bylaws
provide that the members of the standing panel will receive training provided by ICANN on
the workings and management of the Internet's unique identifiers. (40) However, there is a
risk that panelists could be prejudiced by ICANN's interpretation of its obligations as a
result of this training. It is difficult to see how a standing panel, trained by one party to the
IRP proceedings, would improve ICANN's accountability, especially since the system of ad

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 hoc appointments has been shown to work and gives parties the opportunity to appoint a
balanced panel.
The absence of a standing panel has not been an impediment to the appointment of
appropriately qualified IRP panelists. In our view, there is no pressing need to limit the
pool of individuals who can serve as IRP panelists. Significant legal expertise is one of the
most important qualifications required of an IRP panelist – particularly in international
law, corporate governance, and regulatory and administrative processes – as is experience
in dispute resolution and arbitration. A strong understanding of the DNS is obviously a
prerequisite, but experience shows that open-minded panelists can quickly make up for an
P 785 initially limited knowledge of the DNS. It is much more important to have independent and
P 786 impartial panelists with an open mind than to have a DNS subject-matter expert who
may be involved with various ICANN stakeholder groups or advisory committees. (41)
In our view, the disadvantages largely outweigh the advantages of a standing panel for
IRPs.
iv Public Interest Commitment Dispute Resolution Procedure (PICDRP) standing panel
In December 2013, ICANN adopted a Public Interest Commitment Dispute Resolution
Procedure or PICDRP. The PICDRP is designed to offer some form of redress to the internet
community towards a gTLD registry who breaches specific contractual commitments that
must serve the public interest. The PICDRP intends that the parties self-resolve the issue. If
amicable settlement discussions fail, ICANN may analyze the situation or refer the issue to
a standing panel for independent evaluation. (42)
The PICDRP standing panel operates at ICANN's expense. (43) Each panel member is
compensated in the form of an annual stipend and a per matter fee for each service on a
panel. (44) The terms of standing panel members are supposed to be staggered for the
purpose of continuity and consistency. Initially, ICANN's plan was to have two of the
standing panel members serve for two years and a third member serve for one year.
Subsequent terms of new members and the renewal of terms would then be two years. With
agreement from ICANN, standing panel members would be allowed to renew for a
maximum of two terms. (45) However, the implementation of the staggered terms is yet
unclear. In 2014, three members were appointed on the standing panel. In 2015, four
members were added to the roster. All initially appointed members are still on the
standing panel today. (46)
So far, the members of the PICDRP standing panel did not have many opportunities to
ensure consistency in their evaluations, as only one complaint has been referred to the
panel. (47) In its evaluation report, the PICDRP panel took a narrow view on its mandate.
(48)
It remains to be seen whether new complaints will follow. The mandate of the PICDRP
panel might indeed be too specific for the panel to be called upon on a regular basis.
P 786 Unlike the UDRP, it is debatable whether the PICDRP responds to a real and pressing need.
P 787 The UDRP was introduced to deal with the issue of cybersquatting and misappropriation
of trademarks on the Internet, which posed a real threat to the protection of trademarks.
The PICDRP was introduced before practical problems had arisen.
The future will tell whether it will be worth maintaining a standing panel to handle these
complaints. If the current trend of scarce complaints under the PICDRP continues, it might
be worth abandoning the idea of a PICDRP standing panel or revisiting the panel's role.
c Lessons learned
Standing panels that receive repeat appointments can bring relevant expertise to a
dispute, allowing them to quickly grasp and efficiently solve the issue with specialized
knowledge. Experience shows that they work well when (i) their mandate is sufficiently
precise and narrow, and (ii) there is either a constant flux of new cases or when a relatively
large number of cases must be handled in a short timeframe. In our view, both
requirements must be fulfilled to make a standing panel a success.
Standing panels may be less appropriate when the contours of the dispute or of the
panel's mandate are less clear or less predictable. If a policy instrument can be applied to
a wide variety of disputes, the disputing parties may be better served with party autonomy
in the selection of arbitrators.
Finally, a standing panel should not be installed merely for the purpose of having such a
standing panel. If relatively few disputes are expected or if the number of expected
disputes is uncertain, the better option may be to have a list of pre-selected individuals
who might be interested in serving on a panel should the need arise.

3 Small Is Beautiful: The Use of Single-Member Panels

a Policy arguments for and against single-member panels
i Cost and time-efficient
The use of single-member panels can mean a significant reduction in costs and quicker
turnaround times. A panelist appointed as sole arbitrator does not need to concert with

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 co-panelists nor adapt himself to their agenda. Procedural orders can be issued without a
need to consult among panelists. Less time will be spent during deliberations, as there is
no need for seeking consensus or a majority among arbitrators.
ii Increased availability
An often heard complaint is that some arbitrators take on too many cases, serve on too
many panels and experience difficulties in issuing their decisions. Part of the problem is
that arbitrators are often requested to serve on three-member panels, whereas the case
could be handled more efficiently, and as proficiently, by a single-member panel. If panels
are less populated, arbitrators will obtain increased availability to serve on different
panels and to issue timely awards.
P 787
P 788
iii No compromise decisions
Most arbitration laws and institutional rules will provide that arbitral awards must be
decided by a majority. (49) Nevertheless, the vast majority of arbitral tribunals will try to
reach consensus before having to revert to a majority decision, often followed by a
dissenting opinion.
The need for compromise may not only delay decisions, it is also a source for criticism. The
consensus-driven dynamics in the decision-making of panels composed of more than one
arbitrator may indeed be one of the reasons for the importunate perception that arbitral
tribunals tend to “split the baby” when making decisions. (50) Many studies have been
made on the topic, and recent research confirms that there continues to be no real
evidence of arbitral tribunals “splitting the baby”. (51) Nevertheless, the myth continues to
exist. The fact that many awards in commercial arbitration remain confidential makes this
a difficult research topic. Nurturing this myth is the fact that many parties who are not
awarded the entirety of their claim have the impression that the decision is the result of a
compromise between arbitrators, whereas there may be judicious reasons to accept only
part of a claim.
This perception, which is often voiced loudly together with the misconception that party-
appointed arbitrators are partisan, sparks the distrust that exists with those who are less
P 788 familiar with the arbitration community and the ADR community more generally. By
P 789 favouring the appointment of single-member panels, greater trust can be built in
arbitral decision-making, especially if statistics show similar outcomes between the
decisions of single-member panels and those populated by three or more arbitrators.
iv No dissenting opinions
A related, but not less controversial, issue is the practice of dissenting opinions in
international arbitration. Proponents of this practice will argue that dissenting opinions
play an important role in the development of the law. They might also argue that a well-
reasoned and earnest dissent can help build confidence in the process by showing the
losing party that the case was thoroughly assessed and evaluated. (52) In our view, such
confidence should exist also without a dissent. It is not the task of a dissenting arbitrator
to build confidence in the process; that is the task of the entire panel.
Critics of dissenting opinions are skeptical about their contribution to the development of
the law. (53) They observe a relaxed attitude towards dissenting opinions (54) and raise
questions about the fact that virtually all dissenting opinions written by a co-arbitrator are
in favour of the party that nominated them. (55) Some critics see this as an illustration that
“too many co-arbitrators still have difficulties in being fully impartial”. (56) Of course, a
carefully selected party-appointed arbitrator is likely to be more predisposed to the legal
theories advanced by the party that nominated him or her. That does not mean that a
party-appointed arbitrator who drafts a dissenting opinion in favour of the party that
appointed him or her is not fully impartial. After all, the dissent will normally be its own
judge. A partisan or poorly reasoned dissenting opinion will harm its author. It will not
hinder the arbitral process.
A rampant increase in dissenting opinions that are partisan or that appear inspired mainly
by an arbitrator's desire to appease the party that appointed him or her, would undermine
the credibility of the practice of dissenting opinions and of arbitration in general. In our
view, the arbitration community should be extremely cautious about dissenting opinions,
as unbridled dissents are an attack to the legitimacy of the arbitral process.
P 789
P 790
A moratorium on the use of dissenting opinions by party-appointment arbitrators, as
advocated by Professor van den Berg (albeit in the context of investment arbitration), (57)
may be too drastic a measure to curtail the lenience towards dissents. But the arbitration
community should embrace initiatives to limit the number of dissenting opinions.
Having more cases decided by single-member panels will automatically result in fewer
dissenting opinions and avoid abuse of this practice. If there are fewer cases in which a
dissenting opinion is expressed, the dissenting voice is likely to be louder and more likely
to serve its role in the development of the law.

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 v Default option for default cases?
It occurs that arbitration agreements require the appointment of three arbitrators,
irrespective of the amount in dispute. Even when the respondent did not react to the
request for arbitration, the claimant may need to proceed with the appointment of a
three-member panel (via court proceedings or with the assistance of an arbitral
institution). The installation of a three-member panel in default cases will almost always
be an unnecessary financial burden and create unwanted delays.
Parties can easily avoid this situation by agreeing on a more streamlined appointment
procedure in case of default. However, practice shows that parties rarely provide for
alternative rules in case of default. Arbitral institutions can fill this gap by providing e.g.,
that, in case of default, a single arbitrator will be appointed unless the parties have
explicitly agreed that three or more arbitrators must also be appointed in case of default.
b Practical examples
i International Chamber of Commerce (ICC) expedited procedures
The ICC has taken a step towards having more cases decided by single-member panels
with the adoption of its Expedited Procedure Rules in 2017. According to these new rules,
the ICC Court of Arbitration may appoint a sole arbitrator in expedited arbitration
proceedings, notwithstanding any contrary provision of the arbitration agreement. (58)
Practice will show whether party autonomy will be limited effectively by the ICC Court of
Arbitration if parties expressed their agreement to have their dispute decided by a three-
member panel. In any event, the new rules clearly demonstrate the ICC's intention of
having more disputes decided by sole arbitrators.
The ICC seeks to have the expedited procedure apply to most cases that do not exceed
US$ 2,000,000. For agreements concluded after 1 March 2017, parties must explicitly opt
out of the Expedited Procedure Rules if they do not want these rules to apply to their
P 790 disputes below this threshold. For agreements concluded before that date, or for disputes
P 791 above the US$ 2,000,000 threshold, parties may opt in to the Expedited Procedure
Rules. Nevertheless, the ICC Court of Arbitration may determine that it is inappropriate in
the circumstances of the case to apply the Expedited Procedure Rules.
ii Uniform Domain Name Dispute Resolution Policy (UDRP) panels
Single-member panels are preferred in UDRP cases. The vast majority of domain name
disputes under the UDRP are decided by sole panelists. Nevertheless, either party may
elect to have the dispute decided by a three-member panel. (59) If claimants elect a
three-member panel, they must pay the fees for such panel in their entirety. If the
respondent elects a three-member panel, the applicable fees are shared equally between
parties. (60) Practice shows that parties rarely elect three-member panels. The additional
costs may be one reason. More importantly, a predictable body of case law has developed
over the years and single-member panels give a sufficient amount of legal certainty. The
success of the UDRP is even more remarkable as panel decisions are not binding and
parties may initiate “regular” court proceedings within a certain time frame.
c Outlook
The arbitration community has sought ways to appease critics and to build confidence in
appointment procedures. Examples include the joint identification of the presiding
arbitrator before making unilateral appointments, or the screened selection of party-
appointed arbitrators, meaning that the party-appointed arbitrators are contacted by the
arbitral institution and do not get to know which party nominated them. (61) It remains to
be seen whether these fairly recent and imaginative approaches will create greater trust in
ADR, since they also risk adding more complexity to the appointment procedure.
Having more cases decided by sole panelists may be a more efficient way to soothe
arbitration foes. The appointment of single-member panels is easily understood both
within and outside the arbitration community. The efficiencies resulting from smaller
arbitration panels are likely to get noticed outside the inner circle of arbitration
practitioners.

IV The Ex Officio Examination of Evidence

1 Policy Arguments For and Against Ex Officio Examination
The quest to uncover the truth is one of the most important aspects in administering
justice. Whenever a judge, panelist or arbitrator is asked to decide on a legal issue, he or
P 791 she will want to have the facts straight. Even when allegations are not contradicted, e.g., in
P 792 default proceedings, panels may want to see – and the applicable standard of proof
may require – convincing evidence. After all, it is the parties' job and the role of counsel to
convince a panel and to create what we call “substantiated credibility”. (62)
When the file is lacking evidentiary support for easily verifiable information, it may be
tempting for the panel members to perform its own research ex officio to assess the case
merits or to rely on facts they consider well known. The situation may be delicate when the
panel was selected precisely because of its expertise or experiential background in a

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 particular sector and its familiarity with the customs and practices in a particular field.
The parties may expect the panel to bring its experience to the deliberations. Without a
proper understanding of all relevant facts – that is including the ones that were not
presented – the legal truth risks being misconstrued. Panelists should be wary of importing
their own subjective appreciation of factual matters into the decision-making. A decision
that is influenced by the panel's own experiences rather than being based solely on the
facts presented to it, may give the impression that the panel was prejudiced.
A simple way to overcome the controversy could be to ignore one's own experiences and to
determine that a party failed to carry its burden of proof. But that approach might not
satisfy the parties and could intensify the dispute or make it more complex from a
procedural point of view. This “solution” might also not satisfy panelists, who are
committed to serving the parties in their attempt to resolve the dispute.
Seasoned arbitrators will often find ways to make the parties fill evidentiary gaps, while
observing due process rights and without creating any appearance of bias.
It is unlikely for arbitrators to ignore what came to their attention. If, through preliminary
research or otherwise, they have stumbled upon facts that may be relevant to the case,
they cannot simply disregard them. In this case, a procedural order notifying the parties
and inviting them to comment on evidence that was not presented by the parties will often
solve the issue with respect to the parties' due process rights and the principle of equality
of arms, which requires a contradictory debate. Requiring parties to comment may be
perceived as overly formalistic and frustrate the procedural economy, e.g., when
allegations are undisputed and the evidence to support the allegations is readily
accessible to the public, and not capable of being reasonably disputed.

2 Practical Examples
a Domain name disputes under UDRP
In domain name litigation under the UDRP, it has been accepted that a panel may
undertake limited factual research into matters of public record if it considers such
P 792 information useful to assess the case merits and reach a decision. (63) It would indeed
P 793 make the proceedings unduly complex if a UDRP panelist were to invite the parties to
comment each time he or she wants to verify the truthfulness of an allegation by
consulting, e.g., a dictionary or a trademark registration database.
An unwanted consequence of panelists making enquiries of their own is that some parties
seem to have become sloppy in presenting their case as they count on the professionalism
of the panelist to fill obvious gaps in the case file. The panelist loses time by retrieving
information that should have been presented by the parties. On the other hand, the
panelist would lose much more time if he or she were to issue a procedural order to allow
the parties to complete their file.
b Nominet
Some ADR centres try to avoid this situation by making clear that it is the parties'
responsibility to include within their submissions all evidence upon which they wish to
rely. (64) Nominet's DRS policy for .uk domain name disputes sets forth that, in the
ordinary course, its experts will not perform any research into a dispute or check the
parties' assertions. However, an expert may, at his or her entire discretion, check any
material which is generally available in the public domain. (65)

3 Appraisal
Parties are better served by a panel that is eager to understand all aspects of a case and
the details of a trade than by an insufficiently informed panel. One may expect that a
panel's curiosity and critical thinking will generally lead to better and fairer decisions. To
avoid a panel's own research and study – both in and outside the context of a dispute –
clouding the panel's judgment, transparency is key. If a panel's reasoning is likely to be
impacted by its own knowledge or research, it is imperative that the parties be informed
accordingly and, in some instances, even be invited to debate. While a panel may expect
parties to submit all evidence relevant to properly assess the case, limited and
transparent ex officio examination by the panel may be essential to fully establish the
legal truth.

V Efficiencies in Reason-Giving
1 Reasons Not to Give Reasons?
The reasons for giving reasons in judgments, administrative decisions and arbitral awards
are manifold. To give but one example, reason-giving is thought to improve the quality of
the decision. It concentrates the mind, thereby avoiding arbitrary decision-making. Or, as
the late Lord Justice Bingham put it:
“I cannot, I hope, be the only person who has sat down to write a judgment,
P 793 having formed the view that A must win, only to find in the course of
P 794 composition that there are no sustainable grounds for that conclusion and

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 P 794
that on any rational analysis B must succeed.” (66)
Lord Bingham is definitely not the only person who was courageous enough to reconsider
his initial position and to let his mind take precedence over his intuition. However, a
number of psychologists suggest that the reasoning process will often come down to post
hoc constructions that are made to justify one's intuitions. (67) At best, such post hoc
rationalizations are legally sound and correspond to the reasoning that would have
applied without being led by intuition. But, if the decision-maker's intuition was incorrect
and not reconsidered, parties can only hope that the outcome can be overturned. In this
respect, reason-giving can prove immensely useful for contestation purposes. A court or
tribunal's written reasoning may allow for a meaningful judicial review. Historically, the
possibility for such review and possible annulment was exactly the reason not to give
reasons. Courts in Ancient Rome and in premodern, continental Europe deemed it valuable
not to give reasons to avoid an appearance of uncertainty and to avoid criticism. (68)
Naturally, we do not advocate a return to the judicial practices and conflict-resolution
mechanisms of the pre-modern era. A corresponding lack of reasoning is a catalyst for
abuse and arbitrary decision-making. On the other hand, in specific situations, and in the
context of alternative dispute resolution in particular, one may question the desirability of
reason-giving and of extensive possibilities for judicial review. Considerations of efficiency
may prevail over the need for a detailed rationale. And, if applied with care, they may
further due process, rather than being an impediment to fairness.

2 Deference as a Reason Not to Give Reasons – The Example of Expert

Determinations
The speed and the possibility of calling upon subject-matter experts are often invoked as
benefits of alternative dispute resolution mechanisms. The deference which parties grant
to an expert may be a sufficient reason for them not to challenge his or her opinion. For
this reason, it is common to provide in contracts that expert determination is binding,
sometimes completed with the possibility to challenge it in court or before an arbitral
tribunal, if done before a certain deadline. (69) If the parties want to resolve their dispute
fast and if they can fall back on capable experts, it may be counterproductive to require
extensive reasoning.
P 794
P 795
Because the parties may still take recourse to more judicial forms of dispute resolution,
the absence of reasoning in the expert determination does not risk impeding their rights. If
the expert's opinion did not resolve the dispute, the parties may take the matter further to
court or arbitration. Should the expert's opinion be relevant to subsequent proceedings,
nothing would prevent the parties jointly asking the expert to explain his or her opinion
after it was issued if needed.
The rules on expert determinations of leading institutions provide that the experts must
give reasons for their findings, unless otherwise agreed by all of the parties. (70) The choice
for reason-giving as default option seems justified by the expectations of most parties. In
many cases, the authority of the expert alone will not give sufficient comfort to the parties.
Many organizations have become accustomed to more or less detailed reasoning in expert
opinions and they will often expect a statement of reasons, even in low-profile cases.
On average, the balance may have shifted too much in the direction of reason-giving,
meaning that too much time and effort is sometimes spent on details. The course of action
is usually chosen by the party initiating the proceedings. And, once proceedings have
started, it is often difficult for a party to convince its opponent that the dispute would be
better served in a different setting.
To avoid situations where the proceedings are too cumbersome for the purpose, it is
preferable that parties consider upfront what situations may give rise to a dispute and how
a particular type of dispute must be handled. This exercise will help prevent parties falling
back on full-fledged arbitration or litigation for relatively simple disputes. The need for
reasons may be best assessed on a case by case basis; the parameters for making such
decision are best agreed upfront. When assessing the parameters, one should be mindful,
however, about how the lack of reason-giving may be an impediment to the enforceability
of the third-party decision.

3 Standardization in Reason-Giving
Specialized institutions have thought of different ways to facilitate reason-giving. We
generally distinguish two models: (i) summary decisions and (ii) case preparation by staff.
a Summary decisions
Obvious cases can be decided more quickly and at a lesser cost. Some ADR institutions
offer summary decisions in “obvious” cases where the respondent defaulted, but the
practical organization of summary decisions differs.
Some institutions accept that a summary decision contains no reasons at all. Under
Nominet's DRS Policy, a mere statement that the claimant has shown his allegations to
reasonable satisfaction may suffice. (71) Some panelists complete this statement with

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 optional comments, listing the main reasons for their decision in bullet form.
P 795
P 796
CAC also offers “summary” decisions in default cases. However, it still requires that these
decisions contain reasons. (72) The panelist fee will be lower for a summary decision,
unless the panel determines that a normal fee is appropriate in view of the complexity of
the proceeding. In practice, there is hardly any difference between the summary decisions
of this institution and the decisions in complex cases or in cases where a defence was
presented. The bulk of the default cases are indeed clear-cut cases, for which the outcome
is quickly decided. However, requiring the decision to contain reasons similar to the
rationale in standard cases (i.e., cases where the respondent did not default) means that a
disproportionate amount of time is put into writing down the reasons for the decision. The
practical result is that the panelist will be paid less, even though the amount of work put
into a reasoned administrative decision in default cases is similar to the work put into a
decision where a response was submitted.
If the primary aim of summary decisions is to shorten the throughput time and to facilitate
the work of the panel, a more sensible option is to allow for decisions with no or limited
reasons. If the decision does not limit the parties' right to seek recourse in court, the
absence of reasoning only has a limited impact on the parties. (73) However, a
determination to allow no or only limited reasons cannot be made by the UDRP dispute
resolution providers, such as WIPO, CAC and FORUM, as it would require a change in the
Rules for UDRP for which ICANN is responsible.
Institutions will wish to maintain accurate decision-making. In our view, the single most
important action will be to appoint dutiful panelists, who remain on top of case law
developments. The institutions can assist in having panelists maintain and improve their
expertise by organizing regular training sessions, appointing deciders in both obvious
cases and more complex cases that require elaborate reasoning, etc. Other means of
improving the accuracy of decision-making are the indexing of decisions, the development
of checklists, the scrutiny of decisions and the publication of case law overviews (cf. infra).
b Case preparation by staff
Institutions can be of tremendous value in ensuring the efficient administration of cases,
P 796 e.g., by reviewing compliance with formal requirements, by helping parties remedy
P 797 deficiencies and by facilitating communication and notifications via online portals and
otherwise. Online case management systems, if administered well, can facilitate the
examination of exhibits and submissions. Text recognition software can make documents
searchable, thereby helping panelists analyze the case material.
Some institutions have gone a step further in their assistance to panelists. They have staff
prepare a memorandum for the panelist with references to case law that is deemed
relevant to the case and that provides arguments for both parties. Although these
memoranda may expedite the writing process and create more standardized decisions,
the practice also opens the door for criticism.
i Research and drafting assistance in judicial processes
Judicial assistants and law clerks have legal research and drafting functions in different
legal systems. Their involvement has often been instrumental in reducing judicial backlog.
In various jurisdictions, judicial assistants prepare bench memoranda to streamline
proceedings and to facilitate deliberations. In some jurisdictions, they take part in the
deliberations and make a first draft of judgements upon instruction of the judge. (74)
In complex arbitrations, arbitrators sometimes ask arbitral secretaries to perform targeted
factual or legal research and to collect their findings in a bench memorandum. If agreed
with the parties, and if the secretary is acting upon clear instructions of the arbitrator, that
practice is acceptable. However, it is much more controversial whether secretaries may
assist arbitrators in making draft awards. Recently, the alleged involvement of arbitral
secretaries in the drafting of substantive portions of arbitral awards gave rise to
controversy. (75) Distinguished authors advocated against allowing a secretary to draft
awards. (76)
How must one situate the preparation of bench memoranda by the ADR institution's staff
within this debate? ADR institutions may simply offer the bench memorandum, even if
unsolicited by the panelist. The panelist may be unable to interact with or give
instructions to the author of the bench memorandum. If a panelist were then to base the
decision largely on a bench memorandum prepared by the ADR institution's staff, the
effects of such memorandum would be similar to the contentious issue of having arbitral
secretaries draft substantive portions of arbitral awards.
P 797
P 798
ii Defining the roles of judicial assistants, arbitral secretaries and the ADR institution's staff
Judicial assistants and law clerks have not gone through the same selection process and
they are not always subject to the same ethical, deontological and disciplinary rules as
judges. Yet, their opinions may influence the judge's decision-making. That is not
problematic per se. Having judicial assistants perform targeted research and act as a

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 sounding board may actually improve the judge's reasoning. One may expect judges to
apply the highest ethical standards and professionalism. They should be able to identify
whether research is done properly or whether the proposed legal reasoning is sound. It is
essential that the judge remains in control and that the resulting judicial opinion is his or
her own. That may be even more important in common law systems, where the judicial
opinion may set a precedent and where judges have the ability to make law.
The roles of judicial assistants and law clerks are often formed by practice and may vary
not only between jurisdictions, but also depending on the working methods of the judges
they serve. Their adjudicative tasks and ethical rules are seldom codified. (77)
Nevertheless, their presence in the judicial corps is visible and their adjudicative tasks can
be derived from public job descriptions. Legislators can intervene relatively easily if they
observe abuse or consider that the role of judicial assistants must be modified.
The precise role of arbitral secretaries risks being less transparent. Arbitral secretaries are
often presented to the parties as fulfilling purely administrative tasks. The fees charged by
the arbitral secretary in the Yukos case suggests that the secretary did more than looking
after the smooth administration of the case. (78) That should not be a problem if openly
communicated to and agreed with the parties. (79) Parties should be able to challenge a
proposed secretary and to object if a secretary outsteps his or her original mandate.
Unless the absence of a secretary would frustrate the proceedings, parties should be able
to object to the use of secretaries altogether, preferably before the arbitral tribunal is
constituted. Otherwise, the parties might feel uncomfortable about objecting to the use of
arbitral secretaries when proposed by the tribunal.
The scope of institutional involvement in the conduct of arbitrations and ADR proceedings
differs from one institution to another. Similarly, the mandate of staff members within
those institutions may vary substantially between institutions. An institution's primary
mandate will be to ensure the smooth administration of the proceedings. Many ADR
institutions will perform administrative completeness checks and provide assistance in
the appointment of panelists. An increasing number of ADR institutions develops detailed
training programs for panelists and prospective panelists. However, when, in the context of
a dispute, institutions do not limit their involvement to administering the dispute from an
P 798 organizational point of view and when they participate in the substantive part of the
P 799 proceedings, transparency is key to increase, or preserve, the centre's legitimacy. When
parties are informed that an institution provides panels with bench memoranda, performs
scrutiny of the decisions, or is otherwise involved in substantive parts of the proceedings,
they may deliberately choose those institutions. However, that should be communicated
openly to the parties. It is also desirable that institutions and panelists follow clear
guidelines for creating casu quo considering bench memoranda.
iii Possible impact beyond the context of the dispute?
For many years, arbitration has been commonly understood as lacking a doctrine of
precedent. (80) That would mean that arbitrators have a lesser ability to make law than
judges have. Arbitral secretaries would then have fewer motives for pushing their policy
views than judicial staff. But the belief that arbitration is not precedent-setting must be
nuanced, as was cogently argued by Professor Kaufmann-Kohler. (81) In commercial
arbitration, there may indeed be no meaningful precedential value; in specific sectors,
there is a strong reliance on previous awards. At a lecture in 2006, Professor Kaufmann-
Kohler identified strong reliance on precedents in sports arbitration and a progressive
emergence of rules in investment arbitration. (82)
Also in domain name dispute resolution under the UDRP, there is a consistent application
of the rules and a strong body of case law that is largely followed. (83) With respect to
ICANN's accountability mechanisms, there is an expressed desire from ICANN to create
consistent jurisprudence and legal precedent. (84) Many IRP panels considered that IRP
decisions did not set binding precedent. Nevertheless, some IRP panels have blindly
adopted the reasoning made by previous panels. (85) It is still too early to tell how the rule
P 799 of precedent will develop under ICANN's accountability mechanisms, as relatively few
P 800 cases have been decided so far, the accountability framework seems in a constant flux,
and many unaltered rules have not been addressed in sufficient detail so far. (86)
The succinct overview above illustrates that arbitrators and panelists in ADR proceedings
in general have the ability to make law in an increasing number of fields, yielding their
effects globally. Therefore, the impact of an arbitral secretary pushing his or her agenda
could be similar, if not greater, than the impact of a judicial staff member assisting
panelists in their adjudicative duties.
iv Best practices for dealing with bench memoranda
The author of the bench memorandum must be equally as impartial and independent as
the arbitrator. If a bench memorandum is provided by an institution without the
arbitrator's involvement, the institution should have processes in place to guarantee the
author's independence and impartiality. Ideally, the arbitrator and the parties involved
are made aware of the background, qualifications and affiliations of the bench
memorandum's author. (87)
An appropriate way to consider bench memoranda prepared by staff or arbitral

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 secretaries would be for the arbitrators to perform a complete analysis of the case prior to
reading the bench memorandum. The bench memorandum could then either strengthen
the arbitrator's opinion or make the arbitrator reflect on, and potentially reconsider, his or
her initial assessment. The arbitrator should approach the bench memorandum in a
manner similar to his or her consultation of topical expert opinions or legal treatises.
In complex cases with voluminous submissions and evidence, a bench memorandum can
help structure the evidential record and facilitate the identification of key documents.
However, it is imperative that such a bench memorandum is made under clear and precise
instructions of the arbitrators involved. This type of bench memorandum should not be
prepared before the arbitrators have gone through the file and been able to identify the
issues that require factual research that can be handled more efficiently and cost-
effectively by arbitral secretaries. (88) One ought not to forget that the appointment of
arbitrators is intuitu personae. In no event may an arbitral tribunal delegate its decision-
making authority to a third party. An arbitrator cannot rely on a bench memorandum
without analyzing the underlying evidence and making his or her own impartial and
independent assessment of the case.
P 800
P 801

VI Scrutiny of Awards
1 International Chamber of Commerce (ICC)
a Scrutiny of arbitral awards
Scrutiny of arbitral awards is a distinctive feature of ICC arbitration. No arbitral award is
issued without the approval of the ICC Court of Arbitration (the Court).
The Court's scrutiny is a mandatory process from which the parties cannot derogate.
Despite the principle of party autonomy in international arbitration, the ICC may refuse to
administer proceedings if the parties' requests are at odds with this fundamental and
distinctive feature of ICC arbitration. In rare circumstances, the parties may de facto
circumvent the scrutiny process by agreeing that an award must not contain reasoning.
However, the Court will only occasionally approve unreasoned awards and will assess on a
case-by-case basis whether the requirement to give reasons can be dispensed with. (89)
The Court's scrutiny of awards is recognized as reducing the risk of arbitral awards being
set aside. (90) To the extent practicable, the Court considers the requirements of
mandatory law at the place of arbitration. (91) The scrutiny process involves the
assessment of formal, editorial, substantial and legal points. (92) The Court may require
changes as to form, but will only recommend changes as to substance. The Court's
suggestions do not affect the arbitral tribunal's liberty of decision. (93) In this respect, the
Court will not scrutinize the award to see whether the decisions are correct or not. (94)
Substantive comments are aimed at ensuring that all legal claims are dealt with or at
identifying weaknesses in the reasoning or inconsistencies. (95)
b Scrutiny of expert determinations
The scrutiny process is also applied when the ICC International Centre for ADR (the Centre)
administers expert proceedings. As is true for the Court, the Centre may require change as
to form, but will only recommend changes as to substance. (96)
P 801 Whereas the scrutiny of arbitral awards is a mandatory process, parties to expert
P 802 proceedings may jointly request that the expert report is issued without the Centre's
scrutiny. The Centre will consider whether the issuance of an unscrutinized report is
appropriate under the circumstances of the case. (97)

2 Nominet
Nominet does not check the decisions issued under its dispute resolution policy. It
provides for an independent six-member Expert Review Group (ERG) that is concerned
with quality control of the decisions. (98) Each fully reasoned draft decision is reviewed by
a member of the ERG before it is published. The ERG member reviews the draft decision
and provides feedback to the expert. However, the experts will remain responsible for the
decision and will not be required to make any changes to the draft decision that they do
not wish to make.
The aim of the ERG's review is to make sure that decisions are consistent with the
applicable policy and previous decisions, which strengthens legal predictability. (99)

3 Appraisal
The scrutiny of awards and administrative decisions undoubtedly contributes to the
quality of the decision-making. In the first place, the review by experienced members of
the arbitration community or an independent group of experts benefits the parties, as the
resulting decisions are likely to be more authoritative for having passed the scrutiny, and
therefore easier to enforce. But the experience of those who scrutinize the decisions also
benefits the arbitrators and experts who drafted the decision. The fresh pair of eyes and

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 the reviewer's outsider perspective will help the panelist understand whether his or her
reasoning is sufficiently clear and unambiguous. Comments and suggestions by the
reviewers will also help the panelist to make better decisions in the future, taking into
account previous observations. In that way, one may expect there to be fewer recurring
issues and that the scrutiny is further fine-tuned.
The ICC's scrutiny of expert reports and the review performed at the request of Nominet
shows that scrutiny processes need not necessarily be limited to more complex
arbitrations. They may also be useful in more narrow or targeted forms of dispute
resolution.
However, the purpose of the review seems different under the ICC rules compared to
Nominet's DRS Policy. Scrutiny under the latter rules aims at ensuring a consistent
application of a fixed set of applicable rules. In contrast, the ICC does not assess
consistency between different arbitral awards or expert reports. The cases administered
by the ICC are more diverse and are mostly confidential in nature. The purpose of the
proceedings is different and calls for a different kind of scrutiny. Arbitral awards are
scrutinized mainly to avoid the risk of their being set aside. The ICC scrutinizes expert
P 802 reports to ensure that the expert's message is conveyed clearly. The authors of these
P 803 reports may be experts in their field, but less accustomed to the drafting of reasoned
opinions in the context of resolving a dispute. Nevertheless, it is not to be excluded that
specific sectors will call for ADR mechanisms that are tailored to their needs and ask for
consistency checks within defined categories of decisions in order to obtain more
predictable ADR outcomes.

VII Advantages and Disadvantages of Appeal Mechanisms in Adr

The possibility of an appeal mechanism in commercial arbitration has always felt
unnatural to us. If the purpose of the appeal is simply to redo the proceedings and give the
parties another shot, than there is little merit in organizing an appeal. Why would the first
panel of arbitrators be less well positioned to render an award than the appeals panel?
One would expect that the parties, who (in most cases) have agreed upon the procedure for
appointing a panel, submitted the case to the best possible panel for deciding their case.
If the aim is to obtain, in an expedited fashion, an enforceable award which finally resolves
the dispute, parties are not served by allowing the award to be appealed.
The situation would be different if the power of the parties in the arbitrators' selection
process was curtailed. In many jurisdictions, limiting the power of one of the parties to the
benefit of another party will be considered unlawful for being contrary to the parties' right
to equal treatment. (100) But a party's autonomy in the appointment procedure may also
be limited without shifting the balance between parties. Disputes may be referred to
standing panels or appointments may be made by third parties and institutions. In these
circumstances, appeal mechanisms could be beneficial. This is even more the case if
awards are capable of setting legal precedent and influence future decisions. In such
situations, the litigants and potential future litigants may be served by an appeal
mechanism, where precedent-shaping awards can be reviewed by an en banc standing
panel or by specialist arbitrators.
Appeal mechanisms exist, inter alia, in sports arbitration with the Court of Arbitration for
Sport (101) and in administrative proceedings related to country-specific domain names.
(102) In country-specific domain name litigation, these appeal mechanisms have certainly
contributed to a more coherent body of law. Only a small fraction of the decisions is
appealed, but the appeal mechanism allows that the most controversial cases are given
extra scrutiny, usually by the most established authorities in the field.
P 803
P 804
Appeal mechanisms are less common in commercial arbitrations, but they are offered by
some institutions. (103) As long as there is no precedent rule in commercial arbitration and
when the party autonomy in selecting the panel is not curtailed, we see no added value in
organizing appeal procedures. Depending on the seat that is chosen, there may be a
possibility to submit questions of law to judicial review by the courts. (104) Organizing
appeals within the arbitral proceedings would only add another layer to the dispute,
increasing both time and expense of the proceedings.
In conclusion, when parties can autonomously decide upon the selection of an arbitral
tribunal, we see no value in appeal mechanisms. If, on the other hand, standing panels are
organized in specific sectors and there is a move towards stare decisis in a subset of
commercial arbitration, there are legitimate reasons for organizing appeals to have
controversial cases reviewed by a panel of experts. Otherwise, the possibility of setting
aside awards and of raising defences in enforcement proceedings should offer sufficient
protection against defective awards.

VIII Publication of Decisions and Case Law Overviews

The benefit of publishing case decisions is obvious. Third parties discover trends in case
law. It helps them to assess the chances of success in their own case. Arguments discussed
in decisions may help when drafting a new claim or a response. The publication enhances
both legitimate expectations and legal certainty.

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 Case law analysis and overviews add to the utility of the publication. Many jurisdictions
have a long tradition of these. Readers attach importance to them when they are prepared
by a recognized learned and distinct author. Some institutions have gone a step further
and prepared their own case law overviews and enhanced the accessibility of decisions by
linking them to a searchable interface. Below is an overview.

1 International Chamber of Commerce (ICC)

The ICC makes available a digital library for payment of a fee. The library contains key
awards, procedural decisions, doctrine and articles. The library is a useful tool for the
practitioner to acquire more insight in specific ADR mechanisms and to understand how
recurring issues have been dealt with in previous cases.

2 World Intellectual Property Organization's (WIPO) Jurisprudential Overview

Apart from the expert determinations released in the framework of the ICANN third round
of new gTLD applications, WIPO publishes all UDRP panel decisions on its website, together
with a regularly updated list of all pending UDRP cases. The Center also makes available a
P 804 Legal Index covering all WIPO UDRP panel decisions. The index is keyword-searchable on
P 805 topics covered in WIPO panel decisions. WIPO also provides a search tool that allows for
a search of cases by domain name, by name of the complainant and by name of the
respondent. Full text search is also available.
WIPO prepared a jurisprudential overview of the UDRP panel decisions. It published the
third version in 2017. The original and second editions of WIPO's Overview continue to be
accessible on WIPO's website for reference. As of early 2018, WIPO has processed 40,000
UDRP-based cases decided by nearly 500 experts covering some 65 nationalities and 21
languages and involving parties from over 175 countries.
Under the UDRP, decision-making authority rests exclusively with the appointed external
panels, based on the facts and circumstances of each case. While the UDRP does not
operate on a strict doctrine of binding precedent, it is important for the overall credibility
of the UDRP system that filing parties can reasonably anticipate the result of their case.
WIPO panels strive for consistency with prior decisions, often noting the existence of
similar facts and circumstances or identifying distinguishing factors. In so doing, WIPO
panels seek to ensure that the UDRP operates in a fair and predictable manner for all
stakeholders while also retaining sufficient flexibility to address evolving Internet and
domain name practices.
With this collective aim, WIPO's Overview summarizes consensus panel views on a range of
common and important substantive and procedural issues. Following a review of
thousands of WIPO panel decisions, the third edition includes express references to almost
1,000 representative decisions from over 265 WIPO panelists. The number of issues covered
in WIPO's Overview has significantly increased over the course of more than fifteen years to
reflect a range of incremental DNS and UDRP case evolutions.
While the overall purpose of the WIPO Jurisprudential Overview is to improve the
predictability of decisions, differences of opinion may still exist on some specific issues
and in certain outlier cases, all the more so where panelists and parties come from a
multitude of jurisdictions. Furthermore, neither the WIPO Jurisprudential Overview nor
prior UDRP decisions are strictly binding on panelists, who are expected to consider the
particular facts and circumstances of each individual proceeding in a manner they
consider fair. At the same time, panel findings tend to fall within the views summarized in
this WIPO Jurisprudential Overview. Finally, the WIPO Jurisprudential Overview cannot
serve as a substitution for each party's obligation to argue and establish their particular
case under the UDRP, and it remains the responsibility of each party to make its own
independent assessment of prior decisions relevant to its case.
The consensus views laid out in this WIPO Jurisprudential Overview have been welcomed
by UDRP panellists, inter alia, at WIPO's panelists meetings convened in Geneva through
2016. The contents reflect the meetings' constructive dialogue, as well as substantial
contribution and informal review from a number of the most experienced WIPO panelists.

3 Nominet
Nominet has so far prepared three Dispute Resolution Service – Experts' Overviews. The
last version was released in December 2016. The purpose of these overviews has remained
P 805 the same: to assist all participants or would-be participants in disputes under the DRS
P 806 Policy by explaining commonly raised issues and how experts, the members of
Nominet's panel of independent adjudicators, have dealt with those issues in past
decisions. It also draws attention to areas where experts' views differ.
Nominet strongly recommends participants in a dispute under the DRS Policy to review the
sections of the Overview relevant to their case, as well as the extensive range of other
explanatory material that Nominet publishes on its website.
Previous versions of the Overview have been frequently cited in expert decisions. Nominet
has received positive feedback from parties and practitioners, who value it as a useful
resource.

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 The third version includes additional material following the decisions and the expert
meetings which have occurred since the first and second version.
While there is no system of precedent under the DRS Policy, for the DRS Policy to be
effective there must be a measure of consistency in the decisions. The panel of experts
does its best in that regard, although there are a few areas where differing views prevail.
If anyone involved in a dispute under the DRS Policy proposes to rely upon the rationale of
any previous DRS decision, the more recent decisions (particularly at appeal level) are
more likely to represent current thinking.

4 Czech Arbitration Court (CAC)

CAC Requires panelists to categorize their decision in accordance with pre-defined
criteria. CAC publishes a regularly updated list of all pending UDRP cases. It also publishes
all UDRP panel decisions. The categorization of decisions facilitates searching for relevant
decisions.

5 Forum
Panelists are invited to categorize their decision on a voluntary basis and FORUM
publishes a searchable database of cases. Unlike the WIPO database which is searchable
on the basis of keywords, FORUM users must enter appropriate information in specific
fields to obtain results.

6 Outlook
As a growing number of ADR decisions and arbitral awards get published, an increasing
number of decisions refer to past determinations. Panelists are guided by the solutions
advanced by their peers and one can observe panelists promoting adjudicatory
consistency in specific sub-domains. When parties start adapting their behaviour as a
result of past decisions, this may result in legitimate expectations as well as opinio juris,
the belief that one's actions are carried out as a legal obligation. Case overviews may be
the testimony of the formation of a coherent set of norms and customary practices. In
specific sub-domains, the paradigm of ADR as a form of private and ad hoc dispute
resolution seems to have shifted towards a more public and normative form of resolving
disputes.
How will the world of international commercial arbitration respond to these
P 806 developments? Will a modern-day version of the lex mercatoria emerge beyond the
P 807 domain of cyberspace, where self-regulation gets an increasingly prominent place? Do
today's global customers of ADR favour tailored dispute resolution mechanisms and a
substantive international framework of commercial, antitrust, maritime, construction, and
contract law?

IX Conclusion: The Future of Arbitration

In this article, we have identified a number of trends and processes in the dispute
resolution rules and practices of the ICDR, ICC, WIPO and other alternative dispute
resolution institutions. Some of these processes and developments can prove useful in
international commercial arbitration generally. We think of the use of rosters of arbitrators
with specific expertise and that favour single-member panels, of increased transparency,
and of case law overviews.
We mainly see a specialization in dispute resolution approaches: specific procedures are
developed to address specific issues, creating efficiencies that may have gone astray in
modern-day arbitrations. At the same time, we notice encroaching judicialization of
modern-day arbitration. It is often perceived as a threat. (105) In our view, this evolution is
mainly due to parties and counsel, who are unfamiliar with the pragmatism that has been
characterizing arbitration, importing aggressive litigation techniques and guerrilla tactics
into the arbitration proceedings. The judicialization of arbitration is a logical consequence
and may even be a necessary defence to ensure arbitration's survival. It remains important
to discern public policy concerns that could threaten the legitimacy of arbitral
proceedings. If one is forced to choose between more efficient proceedings and an
enforceable award, the choice is quickly made.
International commerce requires increased efficiencies. For international commerce to
succeed in its quest for more efficient dispute resolution, two prerequisites should be met
in our view.
First, international commercial arbitration should embrace other forms of dispute
resolution by getting a deep understanding of new methods of dispute resolution and by
allowing these methods to narrow down the dispute before it is brought to arbitration.
Private initiatives for more efficient dispute resolution tailored to sector-specific needs
have resulted in the administration of justice becoming more fragmented and specialized.
Exemplifying this evolution are specialists in their field who jointly develop new standards
in multi-disciplinary teams and who become increasingly involved in enforcing those
standards through self-regulation. This is especially apparent in fields of new technologies
and cyberspace.

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 In response to this trend, more international business lawyers and in-house counsel should
familiarize themselves with these self-regulatory initiatives and introduce these into
dispute resolution formats. When negotiating deals, more attention should go to the rise of
possible disputes and the means of tackling the dispute early on in the conflict. Specific
P 807 problems may call for different solutions. Do parties really need to submit their dispute to
P 808 arbitration or can they resolve their dispute by submitting a targeted question to an
agreed-upon expert? If the source of the dispute can be identified early on in the process
and narrowed down to its core, a more tailored approach is feasible. Financial, accounting,
legal, commercial, administrative, technical or other issues can be evaluated in function of
sector-specific practices by calling upon appropriately qualified experts or targeted
dispute resolution policies before escalating issues to a more litigious setting. The
disputes that cannot be resolved accordingly may funnel through to arbitration. By
reserving arbitration for complex and multi-layered disputes, arbitration is capable of
building bridges between these different practices.
The second prerequisite stems from the expectation that arbitrations, under their present
format, are unlikely to become less judicial. The Model Law on International Commercial
Arbitration of the United Nations Commission on International Trade Law (UNCITRAL) has
been broadly adopted and an increasing number of jurisdictions require arbitral awards to
be reasoned. To realize efficiencies in reason-giving, there should be increased
transparency about recurring issues. Arbitration as a form of ad hoc dispute resolution may
become the exception. Arbitration customers should consider whether they want to
acknowledge the more judicial nature of arbitration and distil an international normative
framework out of this evolution. In the long run, that might make commercial arbitration
proceedings more predictable, and as a consequence, less judicially complex. And who
knows, one day we might drop the “A” in “ADR” here. (106)
P 808

References
*) Flip Petillion: Founder and partner of PETILLION, an independent law firm based in
Brussels with a focus on dispute resolution. The author is regularly invited to serve as
an arbitrator in complex international commercial arbitration proceedings
administered by leading arbitration institutions.
1) ICANN, Bylaws as adopted effective 15 December 2002 (the New Bylaws), 15 December
2002, <www.icann.org/resources/unthemed-pages/bylaws-2002-12-15-en>.
2) See California Secretary of State, Business information for entity number 2121683,
available on <http://kepler.sos.ca.gov/>.
3) ICANN, Articles of Incorporation, Art. 3; ICANN, Bylaws, Art. I(1).
4) ICANN, Bylaws, Art. I(1).
5) ICANN, Resolution 04.33 adopted at Special ICANN Board Meeting, 19 April 2004,
<www.icann.org/resources/board-material/resolutions-2004-04-19-en>.
6) For a critical assessment of IRP decisions, see Flip PETILLION and Jan JANSSEN,
Competing for the Internet: ICANN Gate – An Analysis and Plea for Judicial Review
Through Arbitration (2017 Wolters Kluwer) 478 p.
7) ICANN, New gTLD Applicant Guidebook 4 June 2012,
<https://newgtlds.icann.org/en/applicants/agb/guidebook-full-04jun12-en.pdf>,
Attachment to Module 3: New gTLD Dispute Resolution Procedure.
8) “String” refers to the sequence of letters that the gTLD is composed of.
9) For more information on ICANN's objection procedures, see Flip PETILLION and Jan
JANSSEN, “A Critical Assessment of Litigation in the New Domain Name Landscape”,
Computerrecht (2013, no. 5) pp. 259-263; Flip PETILLION and Jan JANSSEN, Competing
for the Internet: ICANN Gate – An Analysis and Plea for Judicial Review Through
Arbitration (Wolters Kluwer 2017) pp. 59-60, 126-128.
10) ICDR, Procedures for Final Review of Perceived Inconsistent or Unreasonable String
Confusion Objection Expert Determinations, 15 March 2015, available at <icdr.org>.
11) We have opted to use the word “panelist” over “panellist” as it is the format used by
ICANN and WIPO. We use “panellist” or “panel member” as general term and where
appropriate we use “mediator”, “expert” and “arbitrator”.
12) <https://www.wipo.int/amc/en/mediation/pledge.html>.
13) The CEP is established by Art. IV, Sect. 3, paras. 14, 16 and 17 of the ICANN Bylaws. The
actual operation of the CEP was posted in a note on ICANN's website, and is
considered to be incorporated into ICANN's Bylaws.
14) ICANN Bylaws, as amended on 22 July 2017, Art. 4(3).
15) ICANN Bylaws, as amended on 22 July 2017, Art. 4(3)(e).
16) ICANN, Cooperative Engagement Process – Requests for Independent Review, 11 April
2013, <https://www.icann.org/en/system/files/files/cep-11apr13-en.pdf>.
17) ICANN, Cooperative Engagement Process – Requests for Independent Review, 11 April
2013, <https://www.icann.org/en/system/files/files/cep-11apr13-en.pdf>.
18) ICANN, Cooperative Engagement Process – Requests for Independent Review, 11 April
2013, <https://www.icann.org/en/system/files/files/cep-11apr13-en.pdf>.

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 19) ICANN Bylaws, as amended on 22 July 2017, Art. 4(3)(n)(iv)(A); for a recent status, see
ICANN, Draft Report of IRP-IOT Following Public Comments on the Updated
Supplementary Procedures for the ICANN Independent Review Process, 20 February
2018, <https://community.icann.org/display/WEIA/WP-IOT+-
+IRP+Implementation+Oversight+Team?preview=/5964372...>.
20) For a detailed analysis on this subject, see Flip PETILLION “Choosing the Arbitrator” in
Fabienne BRISON, et al., eds., Liber Amicorum M. Flamée (Die Keure 2016) p. 381.
21) Charles PU Jr, “‘Wheel of Fortune’ or ‘Singled Out?’: How Rosters ‘Matchmake’
Mediators”, 3 Dispute Resolution Magazine (1997) pp. 10, 11.
22) See e.g., Hans SMIT, “The Pernicious Institution of the Party-Appointed Arbitrator”, 33
Columbia FDI Perspectives (2010) pp. 1, 2,
<http://ccsi.columbia.edu/files/2014/01/FDI_33.pdf>; Jan PAULSSON, “Moral Hazard
in International Dispute Resolution”, 25 ICSID Review – Foreign Investment Jaw Journal
(2010) pp. 339, 348.
23) We are not alone in our views; See, e.g., Charles N. BROWER, Charles B. ROSENBERG,
“The Death of the Two-Headed Nightingale: Why the Paulsson–Van den Berg
Presumption that Party-Appointed Arbitrators are Untrustworthy Is Wrongheaded”, 29
Arbitration International (1 March 2013, issue 1) pp. 7-44.
24) ICANN, Rules for Uniform Domain Name Dispute Resolution Policy, as approved by the
ICANN Board of Directors on 28 September 2013,
<www.icann.org/resources/pages/udrp-rules-2015-03-11-en>, para/ 6(a). For prior
versions of these rules, see ICANN, Rules for Uniform Domain Name Dispute Resolution
Policy, as approved by the ICANN Board of Directors on 30 October 2009,
<www.icann.org/resources/pages/rules-be-2012-02-25-en>; ICANN, Rules for Uniform
Domain Name Dispute Resolution Policy, as approved by ICANN on 24 October 1999,
<https://archive.icann.org/en/dndr/udrp/uniform-rules-24oct99-en.htm>.
25) ICANN, Rules for Uniform Domain Name Dispute Resolution Policy, as approved by the
ICANN Board of Directors on 28 September 2013,
<www.icann.org/resources/pages/udrp-rules-2015-03-11-en>, para. 6(a). For prior
versions of these rules, see ICANN, Rules for Uniform Domain Name Dispute Resolution
Policy, as approved by the ICANN Board of Directors on 30 October 2009,
<www.icann.org/resources/pages/rules-be-2012-02-25-en>; ICANN, Rules for Uniform
Domain Name Dispute Resolution Policy, as approved by ICANN on 24 October 1999,
<https://archive.icann.org/en/dndr/udrp/uniform-rules-24oct99-en.htm>.
26) WIPO, WIPO Domain Name Panelists, <www.wipo.int/amc/en/domains/panel.html>.
27) See e.g., WIPO, WIPO Domain Name Panelists,
<www.wipo.int/amc/en/domains/panel.html>.
28) The FORUM's Supplemental Rules to ICANN's Uniform Domain Name Dispute
Resolution Policy, para. 9; FORUM Arbitration and Mediator Qualifications, available
at <www.adrforum.com/Neutrals>.
29) CAC's UDRP Supplemental Rules of the Czech Arbitration Court, para. 6.
30) Rules for Domain Name Dispute Resolution of CEPANI, Art. 7.
31) ADR.eu-.eu Alternative Dispute Resolution Rules (the ADR Rules), para. 4(a).
32) WIPO, WIPO Arbitration and Mediation Center End Report on Legal Rights Objection
Procedure 2013, December 2013, available at
<www.wipo.int/export/sites/www/amc/en/docs/lroreport.pdf>, p. 9.
33) New gTLD Dispute Resolution Procedure, Art. 11(g).
34) WIPO, WIPO Arbitration and Mediation Center End Report on Legal Rights Objection
Procedure 2013, December 2013, available at
<www.wipo.int/export/sites/www/amc/en/docs/lroreport.pdf>, p. 9.
35) US District, Court Central District of California, Del Monte International GmbH v. Del
Monte Corporation, Order of Dismissal, CV 13-5912, 5 February 2014; ICDR Case No. 01-
14-0000-9604, Merck KGaA v. ICANN, Final Declaration of the Independent Review
Process Panel, 11 December 2015; For a critical assessment of the IRP involving Merck
KGaA, see Flip PETILLION and Jan JANSSEN, Competing for the Internet: ICANN Gate – An
Analysis and Plea for Judicial Review Through Arbitration (Wolters Kluwer 2017) pp. 243-
254.
36) Flip PETILLION and Jan JANSSEN, Competing for the Internet: ICANN Gate – An Analysis
and Plea for Judicial Review Through Arbitration (Wolters Kluwer 2017) p. 126.
37) ICANN, Bylaws as amended 11 April 2013, Art. IV(3).
38) ICANN, Transcription Independent Review Process Webinar, 17 January 2018,
<www.icann.org/en/system/files/files/transcript-establishment-irp-standing-panel-
process-webinar-17ja...>, p. 3.
39) CCWG-Accountability, Supplemental Final Proposal on Work Stream 1
Recommendations, 23 February 2016, <www.icann.org/en/system/files/files/ccwg-
accountability-supp-proposal-work-stream-1-recs-23feb16-en....>, p. 35.
40) ICANN, Bylaws as amended on 1 October 2016, Art. 4(3)(j)(i).
41) Flip PETILLION and Jan JANSSEN, Competing for the Internet: ICANN Gate – An Analysis
and Plea for Judicial Review Through Arbitration (Wolters Kluwer 2017) pp. 374-375.
42) ICANN, Public Interest Commitment Dispute Resolution Procedure, 19 December 2013.
43) ICANN, Public Interest Commitment Dispute Resolution Procedure, 19 December 2013,
Sect. 4(1).
44) ICANN, Call for Expressions of Interest: PICDRP Standing Panel, 2 December 2014.

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 45) ICANN, Announcement on Call for Expressions of Interest for PICDR Standing Panel
Members, 19 December 2014, <https://newgtlds.icann.org/en/announcements-and-
media/announcement-4-19dec13-en>.
46) For the current composition of the PICDRP standing panel, see
<www.icann.org/resources/pages/picdrp-2014-01-09-en>.
47) ICANN PICDRP, Adobe Systems Incorporated et al. v. Top Level Spectrum, Inc., d/b/a
Fegistry LLC et al., PIC Report VNE-236-30027, 14 March 2017, available at
<www.icann.org/uploads/compliance_notice/attachment/911/serad-to-westerdal-
16mar17.pdf>.
48) ICANN PICDRP, Adobe Systems Incorporated et al. v. Top Level Spectrum, Inc., d/b/a
Fegistry LLC et al., PIC Report VNE-236-30027, 14 March 2017, available at
<www.icann.org/uploads/compliance_notice/attachment/911/serad-to-westerdal-
16mar17.pdf>.
49) See e.g., UNCITRAL Model Law (2006), Art. 29; UNCITRAL Arbitration Rules (2013), Art.
33; ICC Rules of Arbitration (2017), Art. 32; LCIA Arbitration Rules (2014), Art. 26(5);
Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce
(2017), Art. 41; SIAC Rules 2016, Art. 32(7).
50) See Ana Carolina WEBER, Carmine A. PASCUZZO S., Guilherme de SIQUEIRA PASTORE,
Ricardo DALMASO MARQUES, “Challenging the ‘Splitting the Baby’ Myth in
International Arbitration”, 31 Journal of International Arbitration (Kluwer Law
International 2014, issue 6) pp. 719-734.
51) John FISHER, Sarah JOHNSON and Matthew FRITZSCHE, PwC International Arbitration
damages research, 2017 update, <www.pwc.co.uk/forensic-services/assets/pwc-
international-arbitration-damages-research-2017.pdf>, p. 3; Soia MENTSCHIKOFF,
“Commercial Arbitration”, LXI Colum.L.Rev. (May 1961) p. 846; J. Kirkland GRANT,
Securities Arbitration for Brokers, Attorneys and Investors (Greenwood Publishing
Group 1994); Carl F. INGWALSON, Jr., “Dispelling Arbitration Myths”, Utah State Bar 2011
Summer Convention, San Diego, California; James R. DEYE and Lesly L.BRITTON,
“Arbitration by the American Arbitration Association”, 70 N.D. L. Rev. (1994) pp. 287-
288; Stephanie E. KEER, Richard W. NAIMARK, “Arbitrators Do Not ‘Split the Baby’ –
Empirical Evidence from International Business Arbitration”, 18 J. Int'l Arb. (2001, issue
5) p. 573; Christopher R. Drahozal, “Arbitration by the Numbers: The State of Empirical
Research on International Commercial Arbitration”, 22 Arb. Int'l (2006, no. 2) p. 304;
“Splitting the Baby: A New AAA Study” (9 Mar. 2007); Christopher DRAHOZAL, “Busting
Arbitration Myths”, 56 U. Kan. L. Rev. (April 2008, no. 3) pp. 673-674; Douglas SHONTZ,
Fred KIPPERMAN, Vanessa SOMA, Business-to-Business Arbitration in the United States
– Perceptions of Corporate Counsel, Report of RAND Institute for Civil Justice (2011),
available at <www.rand.org/pubs/technical_reports/TR781.html>, pp. 12-13; AAA/ICDR
Awards Do Not Split the Baby – Countering Counsel Perception in Commercial B2B
Arbitration Cases (2016), available at <https://ss-
usa.s3.amazonaws.com/c/2345/media/578e637693d2c/2016_Split_the_Baby_WhitePa
per.pdf>.
52) R. MOSK and T. GINSBURG, “Dissenting Opinions in International Arbitration” in M.
TUPAMÄKI, ed., Liber Amicorum Bengt Broms (1999).
53) See Albert Jan VAN DEN BERG, “Dissenting Opinions by Party-Appointed Arbitrators in
Investment Arbitration” in M. ARSANJANI, et al., eds., Looking to the Future: Essays on
International Law in Honor of W. Michael Reisman (Brill 2010).
54) See Alan REFERN, “Dissenting Opinions in International Commercial Arbitration: The
Good, the Bad and the Ugly”, 20 Arb. Int'l. (2004, issue 3) pp. 223, 242.
55) See Albert Jan VAN DEN BERG, “Dissenting Opinions by Party-Appointed Arbitrators in
Investment Arbitration” in M. ARSANJANI, et al., eds., Looking to the Future: Essays on
International Law in Honor of W. Michael Reisman; Yves DERAINS, “The Deliberations of
the Arbitral Tribunal – “Retour au délibéré arbitral” in Markus WIRTH ed., The
Resolution of the Dispute – From the Hearing to the Award: ASA Special Series No. 29
(2007) p. 17; Albert Jan VAN DEN BERG, “Charles Brower's Problem with 100 per cent—
Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration”, 31
Arbitration International (1 September 2015) pp. 381-391.
56) Yves DERAINS, “The Deliberations of the Arbitral Tribunal – ‘Retour au délibéré
arbitral’” in Markus WIRTH, ed., The Resolution of the Dispute – From the Hearing to the
Award: ASA Special Series No. 29 (2007) p. 17
57) Albert Jan VAN DEN BERG, “Dissenting Opinions by Party-Appointed Arbitrators in
Investment Arbitration” in M. ARSANJANI, et al., eds., Looking to the Future: Essays on
International Law in Honor of W. Michael Reisman; Albert Jan VAN DEN BERG, “Charles
Brower's Problem with 100 per cent—Dissenting Opinions by Party-Appointed
Arbitrators in Investment Arbitration, 31 Arbitration International (1 September 2015)
pp. 381-391
58) ICC Arbitration Rules (2017), Appendix VI, Art. 2(1).
59) ICANN, Rules for Uniform Domain Name Dispute Resolution Policy, as approved by the
ICANN Board of Directors on 28 September 2013,
<www.icann.org/resources/pages/udrp-rules-2015-03-11-en>, para. 6.
60) ICANN, Rules for Uniform Domain Name Dispute Resolution Policy, as approved by the
ICANN Board of Directors on 28 September 2013,
<www.icann.org/resources/pages/udrp-rules-2015-03-11-en>, para. 6.

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 61) For a practical example of the screened selection method, see 2014 CPR Rules for
Administered Arbitration of International Disputes, Rule 5.4.
62) We have lectured about this concept at the Fourth Annual Juris Conference on
Damages in International Arbitration in Vienna in 2015 and were invited to elaborate
on it at the Annual Arbitration Conference of the ICC United Kingdom in London in
2016.
63) WIPO, WIPO Overview of WIPO Panel Views on Selected UDRP Questions, Third Edition
(WIPO Jurisprudential Overview 3.0) (2017)
<www.wipo.int/amc/en/domains/search/overview3.0/>, Sect. 4.8.
64) See e.g., NOMINET, Dispute Resolution Service – Experts' Overview, Foreword to
Version 3 by Nick Gardner, Chair of the Panel of Experts, December 2016.
65) NOMINET, Dispute Resolution Service Policy, applicable as of 1 October 2016, Sect.
18(1).
66) Rt Hon. Lord Justice BINGHAM, “The Differences Between a Judgment and a Reasoned
Award”, 16 The Arbitrator (May 1997, no. 1).
67) See Mathilde COHEN, “When Judges Have Reasons Not to Give Reasons: A Comparative
Law Approach”, 72 Wash. & Lee L. Rev. (2015, Issue 2),
<http://scholarlycommons.law.wlu.edu/wlulr/vol72/iss2/3>, p. 483, at p. 518 and
references there.
68) See Mathilde COHEN, “When Judges Have Reasons Not to Give Reasons: A Comparative
Law Approach”, 72 Wash. & Lee L. Rev. (2015, Issue 2) p. 483,
<http://scholarlycommons.law.wlu.edu/wlulr/vol72/iss2/3,486-487> and references
there.
69) Queen Mary University of London, School of International Arbitration, Pinsent
MASONS, Pre-empting and Resolving Technology, Media and Telecoms Disputes –
International Dispute Resolution Survey,
<www.arbitration.qmul.ac.uk/docs/189659.pdf>.
70) See ICC Rules for the Administration of Expert Proceedings (1 February 2015), Art. 8(1);
WIPO Expert Determination Rules (Effective from 1 January 2016), Art. 17(c)(iii).
71) Under Nominet's Dispute Resolution Service Policy for abusive registrations of
domain names in the.uk domain, plaintiffs have the option to apply for a summary
decision if the respondent did not submit a response. The request will be granted if
the appointed expert considers that (i) the complainant has shown that he or she has
rights in respect of a name which is identical or similar to the domain name and the
domain name is an abusive registration, and (ii) no other factors apply which would
make a summary decision unconscionable in all the circumstances (Nominet's DRS
Policy, Sect. 12).
72) The Czech Arbitration Court offers dispute resolution at a reduced fee for UDRP cases
in which the respondent defaulted, unless the panel determines that an additional
fee is appropriate in view of the complexity of the proceeding (CAC's UDRP
Supplemental Rules of the Czech Arbitration Court applicable for proceedings where
the complaint is submitted on or after 31 July 2015, Annex A). However, the rules for
UDRP require that the decisions provide the reasons on which they are based (Rules
for Uniform Domain Name Dispute Resolution Policy, as approved by the ICANN Board
of Directors on 28 September 2013, Sect. 15(d)).
73) Without reasoning, it might be more difficult for the prevailing party to maintain that
the decision must be upheld. If the plaintiff was given the choice to opt for a
summary decision, the difficulties that may result from the absence of reasons can be
attributed to the plaintiff's choice.
74) For a critical review of different judicial assistant models, see Nina HOLVAST, “The
Power of the Judicial Assistant/Law Clerk: Looking Behind the Scenes at Courts in the
United States, England and Wales, and the Netherlands”, 7 International Journal for
Court Administration (21 April 2016, no. 2).
75) The controversy started after the Russian Federation filed a writ of summons before
the district court in The Hague on 10 November 2014 in the matter that is known as
the Yukos case. See Writ of Summons of 10 January 2014 of the Russian Federation,
available in English at <www.italaw.com/sites/default/files/case-
documents/italaw4158_0.pdf>, paras. 486-515.
76) See e.g., Constantine PARTASIDES, “The Fourth Arbitrator? The Role of Secretaries to
Tribunals in International Arbitration”, 18 Arbitration International (2002, issue 2)
<http://arbitration.oxfordjournals.org/content/18/2/147>, p. 1; Gary BORN,
International Commercial Arbitration (Kluwer 2014) p. 2000.
77) In Belgium, law clerks operate under the authority and the instructions of judges,
whom they assist in preparing their legal task (Art. 162(2) Belgian Judicial Code). They
must take an oath and are subject to ethical and disciplinary rules (see e.g., Arts. 289,
299bis, 412 Belgian Judicial Code).
78) Writ of Summons of 10 January 2014 of the Russian Federation, available in English at
<www.italaw.com/sites/default/files/case-documents/italaw4158_0.pdf>, paras. 491-
499.
79) To ensure that the use of secretaries is a truly free choice for the parties, it is best
that the willingness of an arbitral tribunal to appoint one or more secretaries is
disclosed and agreed upon during the arbitrator selection stage.

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 80) See, e.g., Richard M. ALDERMAN, “Consumer Arbitration: The Destruction of the
Common Law”, 2 Journal of American Arbitration (2003, no. 1); U of Houston Law Center
No. 2006-A-18. Available at SSRN: <https://ssrn.com/abstract=923462)>; Carrie
MENKEL-MEADOW, “Whose Dispute Is It Anyway? A Philosophicla and Democratic
Defense of Settlement (In Some Cases)”, 83 Geo. L.J.( 1995) p. 2663; William M. LANDES
and Richard A. POSNER, “Adjudication as a Private Good”, University of Chicago Law
School, Working Paper No. 263 (July 1978).
81) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse”, 23
Arbitration International, LCIA (2007, no. 3) pp. 357-378.
82) Gabrielle KAUFMANN-KOHLER, “Arbitral Precedent: Dream, Necessity or Excuse”, 23
Arbitration International, LCIA (2007, no. 3) pp. 357-378.
83) See WIPO Jurisprudential Overview 3.0, Sect. 4.1; See also F. Hoffmann-La Roche AG v.
Relish Enterprises, 17 December 2007, WIPO Case No. D2007-1629; Mile, Inc. v. Michael
Burg, 7 February 2011, WIPO Case No. D2010-2011.
84) ICANN Bylaws, as amended on 22 July 2017, Art. 4(3)(a)(vi); The desire for IRP
Declarations to have precedential value was first stated in the ICANN Bylaws, as
amended on 11 April 2013, Art. IV(3)(21).
85) Flip PETILLION and Jan JANSSEN, Competing for the Internet: ICANN Gate – An Analysis
and Plea for Judicial Review Through Arbitration (Wolters Kluwer 2017) pp. 287, 309-310;
333-334.
86) Flip PETILLION and Jan JANSSEN, Competing for the Internet: ICANN Gate – An Analysis
and Plea for Judicial Review Through Arbitration (Wolters Kluwer 2017) pp. 346-348, 358-
360.
87) See International Council for Commercial Arbitration (ICCA), Young ICCA Guide on
Arbitral Secretaries, The ICCA Reports No. 1, available at <www.arbitration-icca.org>,
Commentary to Art. 2(2):
“It is imperative that the parties are provided with sufficient information
to make an informed decision as to the appropriateness of a particular
candidate. Requiring the arbitral tribunal to submit the candidate's
curriculum vitae for review before his or her appointment should address
any concerns the parties may otherwise have regarding potential
conflicts.”
88) See International Council for Commercial Arbitration (ICCA), Young ICCA Guide on
Arbitral Secretaries, The ICCA Reports No. 1, available at <www.arbitration-icca.org>,
Arts. 3(f) and 4(1).
89) Gustav Flecke GIAMMARCO, “The ICC Scrutiny Process and Enhanced Enforceability of
Arbitral Awards”, 24 Journal of Arbitration Studies (1 September 2014, no. 3) p. 57.
90) Jason FRY, Simon GREENBERG, Francesca MAZZA, The Secretariat's Guide to ICC
Arbitration, ICC Publication No. 729E (2012) p. 328, para. 3-1182; Gustav Flecke
GIAMMARCO, “The ICC Scrutiny Process and Enhanced Enforceability of Arbitral
Awards”, 24 Journal of Arbitration Studies (1 September 2014, no. 3) pp. 47-77.
91) ICC Rules of Arbitration, Appendix II, Art. 6.
92) Gustav Flecke GIAMMARCO, “The ICC Scrutiny Process and Enhanced Enforceability of
Arbitral Awards”, 24 Journal of Arbitration Studies (1 September 2014, no. 3) p. 62.
93) ICC Rules of Arbitration, Art. 34.
94) Michaël W. BÜHLER, Thomas H. WEBSTER, Handbook of ICC Arbitration (Sweet &
Maxwell 2014) p. 504.
95) Jason FRY, Simon GREENBERG, Francesca MAZZA, The Secretariat's Guide to ICC
Arbitration, ICC Publication No. 729E (2012) p. 335; Gustav Flecke GIAMMARCO, “The ICC
Scrutiny Process and Enhanced Enforceability of Arbitral Awards”, 24 Journal of
Arbitration Studies (1 September 2014, no. 3) pp. 68-69.
96) ICC International Centre for ADR, Expert Rules, Art. 9.
97) ICC International Centre for ADR, Expert Rules, Art. 9(2).
98) Art. 1, Nominet DRS Policy
99) See “Expert Review Group” on Nominet's website, <www.nominet.uk/wp-
content/uploads/2015/08/Expert-Review-Group.pdf>.
100) See, e.g., France: Art. 1510, Code of Civil Procedure; French Cour de Cassation, 7 January
1992, Rev. Arb., 1992, p. 470; Belgian Arbitration Law: Art. 1699 Belgian Judicial Code;
Switzerland: Art. 11 International Arbitration Convention; UNCITRAL Model Law on
International Commercial Arbitration (1985), with amendments as adopted in 2006,
Art. 18; see also Ricardo UGARTE and Thomas BEVILACQUA, “Ensuring Party Equality in
the Process of Designating Arbitrators in Multiparty Arbitration: An Update on the
Governing Provisions”, 27 Journal of International Arbitration (2010, Issue 1) pp. 9-49.
101) Code of Sports-related Arbitration, in force as from 1 January 2017, Sect. S20.
102) See, e.g., Nominet's DRS Policy, Sect. 20; Cepani, Rules for Domain Name Dispute
Resolution, 1 January 2018, Art. 18.
103) See JAMS Optional Arbitration Appeal Procedure, June 2003,
<www.jamsadr.com/files/Uploads/Documents/JAMS-
Rules/JAMS_Optional_Appeal_Procedures-2003.pdf>.
104) See, e.g., Arbitration Act 1996 of England, Sect. 69.
105) See Queen Mary University of London, School of International Arbitration, PwC, 2013
International Arbitration Survey – Corporate Choices in International Arbitration,
Industry Perspectives, <www.arbitration.qmul.ac.uk/docs/123282.pdf>, pp. 5, 21-22.

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 106) <www.arbitration-icca.org>.

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Document information
Technology as Facilitation: Transcript of the Session
Publication (*)
Evolution and Adaptation:
The Future of International I Introduction: Excerpt from Transcript of Icca Yearbook (XCIII) 2068
Arbitration
As is customary, we devote this portion of the Yearbook to reflect on ICCA Congresses past.
2068 marks the fiftieth anniversary of the 2018 ICCA Congress in Sydney (at the time part of
the nation-state of Australia, back when ICCA Congresses were held in a single location
Bibliographic reference rather than virtually or holographically). The topic of the Congress, fittingly enough for this
'Technology as Facilitation: retrospective, was Evolution and Adaptation: The Future of International Arbitration.
Transcript of the Session', in A review of the program shows that there were many interesting sessions touching on what
Jean Engelmayer Kalicki and at the time was perceived as arbitration's looming crisis of legitimacy and how to address
Mohamed Abdel Raouf (eds), it, as international dispute resolution passed from what today we mark as its golden age
Evolution and Adaptation: into the more uncertain period of the 2020s and 2030s.
The Future of International
Arbitration, ICCA Congress One session, however, that struck us particularly apt for review from our vantage point fifty
Series, Volume 20 (© Kluwer years later was titled Technology as Facilitation. In that session, the panelists explored
Law International; technology emerging at that time that they believed might affect and improve the conduct
International Council for of arbitral proceedings.
Commercial The extant video of the conference shows Hugh Carlson, (1) Gabrielle Nater-Bass, (2) Rashda
Arbitration/Kluwer Law Rana SC, (3) and moderator Paul Cohen (4) demonstrating what today seem like
International 2019) pp. 813 - extraordinarily rudimentary versions of augmented reality, instant translation, and
835 machine learning systems. As with so much footage from the time, viewers will note that
the panelists look considerably older than they do today. Such was the era before
regenerative therapy.
P 813 The panelists of course knew that their prognostications for the benefits of technology in
P 814 arbitration would not be entirely accurate. Taking as their caveat Niels Bohr's famous
quip “Predictions are hard to make – especially about the future,” the panelists attempted
to extrapolate what arbitration might look like five or ten years hence, based on the
technology developing at that time. They could not then have known about or predicted
the scope of innovations such as the Comprehensive Brain-Computer Interface, the
Instanet [Internet that instantly and precisely answers any specific question you have], or
the transformational power of quantum computing.
Given the technology then on the horizon, the panelists focused on how augmented reality,
instant translation, and machine learning might affect the arbitrations of the day. Those of
us old enough to remember augmented reality will recall that it was an early attempt to
superimpose computer-generated images onto the real world, through lenses such as
glasses, goggles, or (in the case of the ICCA Congress), old-fashioned smartphones.
The panelists explained that augmented reality technology could be helpful in resolving
aspects of construction disputes (recall that, prior to the widespread use of AI architecture
and 3D printing for most infrastructure, construction disputes were relatively
commonplace.) For example, augmented reality could effectively show images of what a
particular construction design looked like, how it might have gone wrong, and where there
were any structural flaws. These would be especially useful in lieu of site visits where the
site was inconvenient, unsafe, or largely destroyed.
To illustrate the uses of augmented reality in this context, the panelists devised a mock
arbitration proceeding around the destruction of the Death Star, the fictional weapon in
the twentieth century science fiction classic Star Wars. Rashda Rana cross-examined Darth
Vader (Steve Fleming of Opus 2), appearing via video conference. The audience had been
instructed at the beginning of the session on how to download an augmented reality app
on their smartphones. At various points during the cross-examination, the audience was
invited to train their smartphones onto the main screen, where they could see images of
the Death Star in motion.
Even by the standards of the day, this was a relatively primitive demonstration. Headsets
such as the Microsoft HoloLens delivered a more intense and sophisticated augmented
reality experience; but at a cost of US$ 3,000 each (pre e-currency), this was not an
effective option for an audience of several hundred people.
The panel then turned to a demonstration of instant translation technology. Here too some
viewers of the video today might be forgiven for sniggering at the state of the art. “Instant
translation” was neither instant nor entirely accurate.
Once again using the ubiquitous smartphones of the era, the panelists used the Microsoft
Translation app, one of several then on the market. The translation functions of the time
needed the user to select the language in which they were speaking and the language into

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 which they wished their speech to be translated. Written translation accompanied the
spoken words.
The results were mixed. The translation app appeared to have trouble with Gabrielle
Nater-Bass's Swiss-accented German, although it translated her French and Italian
adequately. Members from the polyglot audience were invited to speak in various
languages. The app tended to do better with European languages than with others –
perhaps because of their greater structural similarity to English.
It did not seem as though instant translation software would make human translators
P 814 redundant any time soon – and indeed the neural implants that facilitated the so-called
P 815 Babel Fish function (named after the quasi-telepathic creatures from the twentieth
century science fiction Hitchhiker's Guide to the Galaxy) would not become commonplace
until the late 2030s. Nonetheless, the panelists noted that the speed with which the
translation apps were improving was exponential. By the mid-2020s, they predicted, the
accuracy rates of these programs would approach human levels.
The panel explained that the translation apps were a form of what at the time was called
machine learning – the process now very familiar to us whereby an algorithm would absorb
immense amounts of data and use it to develop the ability to mimic or perform particular
functions that until then had been the exclusive province of human minds. Thus, the
audience heard computer-generated music styled after Bach, based on inputs from all of
the composer's works.
Turning to the potential applications of machine learning for the arbitrations of the day,
the panel devised yet another mock arbitration. This one centered on the travails of the
fictional Mr. Spock, an alien from the television show and later movie series Star Trek
(often confused today with the above-mentioned, equally science-fictional Star Wars.)
Steve Fleming of Opus 2 once again played the witness, via video conference. His firm had
downloaded all the scripts from Star Trek episodes and movies into a machine learning
database. Hugh Carlson cross-examined the witness. His questions were scripted, but the
responses from the database based on those questions were unknown. Thus, Hugh would
ask the database (addressed as “Computer,” consistent with Star Trek lore) to find
instances anywhere in the scripts in which Spock had made a particular kind of statement.
The database would comb through the scripts, find what it believed to be language
matching Hugh's query, and then show video from the series corresponding to the script
excerpt.
According to the panelists, the database worked well, although it did show a couple of
excerpts different from the ones that the panelists had expected. This demonstrated the
surprising flexibility of machine learning, even in its early stages fifty years ago.
After a very entertaining mock examination of Mr. Spock, it was time to leave the galaxy far
away and come back to planet earth. As augmented reality technology was still not widely
available back in the day, the panelists then discussed “equality of arms” – or concerns
regarding due process – sharing with the audience certain “tips” if they were to make use of
such technology in their arbitration proceedings.
The session concluded with a round of questions from the audience, touching on all the
topics that the panel had broached. The video of the session is available in the ICCA
archives; a Real-Feel™ holographic augmentation can be found on the Instanet at
Insta.ICCA2018.TechasFacilitation/RealFeel.
For those of you who are old-fashioned, a transcript of the session's proceedings can be
found below.

II Transcript of the Icca Sydney 2018 Congress Session “Technology as

Facilitation”
Cohen: Hello everyone, please take your seats. Welcome. This is going to be a rather
different, very different panel to the other ones, for better or worse. We are talking this
P 815 afternoon about technology in arbitration and there are a series of panels this afternoon.
P 816 This one is technology as facilitation, which is to say, some of the ways in which
technology can make our lives better or easier in arbitration. We will see if that's the case
or not as we go through.
The operating principle here is something that a science fiction writer named William
Gibson once wrote which was: the future is already here, it's just not evenly distributed.
What he meant by that is that there are various technologies which are in use somewhere
in the world today, but are too unwieldy, not fit for purpose or too expensive to be used
more ubiquitously. So we are going to test that proposition and take a bunch of
technologies that are in use today so we will see how and whether they might work in the
arbitration context.
None of this would be possible without our friends at Opus Two. I have to give them great
thanks. Opus Two, if you don't know, is a software and services business at the cutting edge
of legal tech. How many of you have used LiveNote in a hearing? Pretty much all of you.
LiveNote was invented by Graham Smith Bernal, who is the creator of Opus Two, as well. So
the flagship Opus Two device, Opus Two Magnum, has all sorts of wonderful bells and
whistles, is cloud-enabled and you can basically have real-time transcription services

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 used in hearings; LiveNote, of course; and all sorts of other things. It can be entirely
paperless, which I know is not a development that's universally welcome but probably
ought to be.
It's all very twenty-first century and the Chief Technology Officer of Opus Two, Steve
Fleming, will be up on the screen to your right later on in the program. And also there are
some representatives in Booth 8. Taryn Auchecorne and Katie Beth Jones, who are in the
back, will be able to show you some of these demos afterwards.
I should also thank Daniel Mason of Mason Videos. It depends on if the AR works whether I
thank him or kill him. Full disclosure, he is my brother-in-law.
The state of the art in this stuff – augmented reality – that Daniel helped with, is the
Microsoft HoloLens and it's a wonderful device. You just stick it on, there's a headset, and
you can see all these fantastic things happening. But it costs US$ 3,000 a pop. We asked
them if they would be willing to lend us any. They were not willing to lend us one, let alone
several dozen. So good news for those who like to play around with their phones as some
you are no doubt doing now, we need your phones. We are going to use the phones to do
some of this technology.
Before I do that, let me introduce your panel to you. I'm not going to bother going into long
introductions, we are much better looking in real life, as you can tell. They are probably
well known to you in any event.
We are going to show you three different types of technologies: (i) augmented reality [AR],
(ii) instant translation and (iii) real-time analysis. I apologize: some of you will have to
move around to get a better view during parts of this presentation. We didn't design the
set-up here with two different projection screens. The folks here have been terrific helping
us and in accommodating us. Thanks for all the help, which has been essential.
Let's talk about augmented reality. Those of you who have not yet done this probably have
not downloaded this app. If you take the time now to start downloading it, that would be
helpful if you're interested in seeing this demo. Go to the app store if you have an iPhone,
or if you have an Android phone, which is pretty much anything which is not an iPhone, go
to Google Play. If you have a Blackberry …. 2005 called. It wants it back.
P 816
P 817
You download HP reveal and you should get different kinds of apps, it will depend whether
it's an app store or Google play, but it should be fairly easy to download.
So, what is augmented reality? You've probably heard of virtual reality where you stick
stuff over your head and you're in a different world like in that movie Ready Player One.
Augmented reality is slightly different. You superimpose images on top of the world as you
see it, as will be familiar to anyone who has played Pokemon Go, where you see fake
Pokemon in the real world, or to anyone who has played with Snapchat and can add filters.
We'll start with the virtual reality demonstration in a moment. For those of you who have
not got there yet, scroll through introductory steps and go to “log in”, not “sign up”, and put
in the user name “Icca” and password “Icca”. Hopefully you will see the seven little white
dots scrolling around. That will be sign that you are in the app ready to go.
Can I have a show of hands of who is there already? Now let me tell you before we go any
further, and again I apologize for the set-up, it's probably better if you're further back
because you won't get a good look of the screen. Hopefully you'll get the best view of the
screen a few rows back. And you'll be able to see the AR.
What's AR good for? Well it's useful for construction arbitration. You have a bunch of
schematics and diagrams and sites and site visits and things like that where it would be
very helpful or certainly easier to be able to visualize and see what's going on in an
augmented reality set-up. You would put on glasses like this and all of a sudden here's the
bridge, here's the building or what have you.
We have designed for you an augmented reality hypothetical. It involves a construction
dispute and it is called Galactic Empire v. Deathstar Manufacturers Inc. A long time ago, in a
galaxy far, far away, the claimant, the Empire, is an autocratic regime engaged in
interstellar conquest and domination. The respondent, Deathstar Manufacturers [DSM], is a
maker of giant weapons of mass destruction. The Empire hired DSM to build a weapon and
the weapon was destroyed by a group of rebels.
The Empire asserts that DSM's design of the Deathstar was either deliberately or
negligently flawed, thus permitting its destruction. The respondent denies any such design
flaws. So let's imagine now we've had the star witness for the Empire, the claimant, show
up in direct examination and they are about to show up in cross-examination.
And I need to introduce the other “half” of technology we are doing here. We've talked
about the three. The “half” is video conferencing. You've seen video conferencing and it's
nothing new to you because this is one of the technologies that has become sufficiently
cheap and ubiquitous that you can use at no cost. If the witness is not actually in another
galaxy, he is rumored to be in New York. Counsel, if you're ready we will ask the witness to
come to the video. The witness will be on the right.

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 **STAR WARS MUSIC**
Counsel (Rana): Thank you Mr. Arbitrator. Thank you, witness. What was your role
on the Deathstar, Mr. Vader?
Witness (Fleming): Lord Vader.
Counsel: Sorry, Lord Vader.
P 817
P 818
Witness: I was sent by the Emperor himself to supervise the destruction of the
rebels.
Counsel: And I take it that things didn't quite go to plan.
Witness: One of the rebels is strong in the Force.
Counsel: Can we stick to the facts Mr. Vader. What was the cause of the
Deathstar's destruction, in your opinion?
Witness: I have given you my answer.
Counsel: Perhaps I can rephrase the question. What was the physical, rather than
the metaphysical, cause of the Deathstar's destruction?
Witness: The rebels dropped a torpedo into the thermal exhaust port causing a
chain reaction.
Counsel: It's the Empire's position that this thermal exhaust port was
improperly exposed permitting the kind of destructive effect that occurred with
the rebel attack. So, in your opinion, all the rebels had to do was swan up to the
Deathstar, drop a bomb into the thermal exhaust port, and Bob's yer uncle.
Witness: This is exactly what they did.
Counsel: Well, it was a little bit more complicated than that, wasn't it? The
rebels had to breach all the Deathstar's defenses, fly through innumerable
crenellations and laser towers and then launch a device into a space only 2
meters wide while flying approximately 10,000 kilometers per hour.
Witness: If you use the Force, it is not so difficult.
Counsel: So you keep saying, Lord Vader. But really this was a one-in-a-million
shot. No reasonable building company could have foreseen that this kind of
catastrophic event would occur.
Witness: They could and they did. The Deathstar was fatally flawed, deliberately
so.
Counsel: Well, we'll let the Tribunal be the judge of that. Obviously we can't take
them on a site visit because the Deathstar was completely destroyed. Although I
understand that the Empire has commissioned a new one?
Witness: That is correct.
Counsel: So, my client's work could not have been all that shoddy, could it? In
any event, I want to take you through a simulation of the events leading up to
the Deathstar's destruction so we can show the Tribunal what we think occurred.
Can I ask our technical support team to pull up a model of the Deathstar,
please?
Cohen: Okay, now folks, on these slides if you have the app and you're pointing your phones
with any luck the Deathstar should appear. The little dots should coalesce into one dot
and, presto, you have a Deathstar.
Counsel: Mr. Vader, is this a realistic depiction of the Deathstar?
Witness: It is.
Counsel: Can we look at the thermal exhaust port, please.

P 818 Cohen: Okay, there should be another image now, hopefully of the thermal exhaust port.
P 819 Anyone? No one. Okay
Counsel: The Tribunal is moving forward. Lord Vader, how big was the Deathstar?
Witness: I'm not exactly sure, but well over 100 kilometers across, the size of a
moon.
Counsel: And again, the thermal exhaust port was 2 meters wide?
Witness: Correct.
Counsel: All right. Now, let's look at the Deathstar's defenses. Technical
assistance, could you please zoom out again.
Cohen: I have no idea what this actually shows. If it shows something we will be happy.

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 Counsel: Lord Vader, can you guide us through the Deathstar's defenses, please.
Witness: In the outer perimeter, there are a number of laser cannons. Similar
weapons can be found inside the canyons. And of course, the Deathstar has a
large number of single person spacecraft known as TIE fighters that can be
scrambled in defense.
Counsel: And where was the thermal exhaust port in relation to all those
defenses?
Witness: Beyond that, at the end of a long ravine in the outer hull.
Counsel: So let me see, if we can see what it must have taken to destroy the
Deathstar. Simulation please.
Cohen: Okay, next slide. Anything? Getting some yesses.
Counsel: So first you need a small one-person spacecraft, is that right?
Witness: Several of them could attack at once.
Counsel: Okay, several could attack. In any event, one of those spacecraft needs
to dodge the incoming fire from the laser cannons, needs to avoid all the TIE
fighters, dip into the ravine, then dodge all the crenellations in the ravine,
which is not much wider than the spacecraft itself, then avoid the laser cannons
inside the ravine, avoid the TIE fighters in hot pursuit, and fire a bomb into a
smaller space than the arm span of a wookie.
Witness: It's actually a proton torpedo, not a bomb.
Counsel: Is that similar to a photon torpedo in Star Trek?
Witness: I have no idea what you're talking about.
Counsel: Never mind. The point, Lord Vader, that I'm making is that this is all a
highly improbably series of events, is it not? When lightning strikes a tree we
don't blame it for having negligently grown in the wrong place.
Witness: The emperor can make lightning strike where he wishes.
Counsel: Good for him. Now, will you agree with me, Lord Vader, that if a
manufacturer were setting out to make a shoddy device prone to self-
destruction or sabotage, he would probably use a somewhat simpler design
flaw? Specifically, one liable to be less lethal to any would-be saboteur.
Witness: I withdraw my case on behalf of the Empire.
Counsel: I beg your pardon.
Witness: I have heard your words and see your wiles. You are clearly also from
P 819 the Dark Side. Join me, and we will conquer the galaxy. You may never again
P 820 have fear of the IBA Guidelines or will need to seek third-party funding, and
all your arbitrators will be partial.
Counsel: Sounds good to me.
Cohen: Alright, thank you very much, Lord Vader. You are excused. [Applause] Ok, we'll
leave that slide up for a minute but I think we're done for the moment with the AR, so thank
you. You can all sit down if you want to.
So Gabrielle, do you have some thoughts about the possibilities and pitfalls of AR in
international arbitration?
Nater-Bass: Yeah. After that very entertaining cross-examination of Lord Vader, it's
unfortunately time to leave the galaxy and come back to planet earth. While you just saw
how augmented reality can really enhance arbitration proceedings, I would like you now to
focus with me on two aspects that are absolutely key for the arbitration practice. And that
is due process and effectiveness.
How can we ensure that augmented reality technologies as you just saw them do not
compromise due process and effectiveness? In this regard, I would like to share with you an
experience I just had a couple of weeks ago in an arbitration in which I was an arbitrator. It
was a complex construction case, not as complex as we have just seen, but the case
actually concerned defects and alleged design defects in a granulation process facility.
Just the Friday before a Monday the hearing was supposed to start, claimant announced
that it wanted to use augmented reality, by way of a special software where they would
actually take the tribunal – and they planned to use that for the opening pleadings but
also for a cross- and direct examination – through the facility and would show them the
effects and design problems they have identified.
While one can easily see that that in fact would have been really interesting, it maybe
would have facilitated also the tribunal to understand the technology. The tribunal was all
of a sudden, of course, confronted and not unexpectedly with questions of due process as
respondent heavily disputed the use of such augmented reality, not having had a chance
to look at the software, to test it, to see whether it actually reflects reality where one can

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 see in this facility.
There are some key takeaways I would like to share with you today. As I said, there is no
doubt that augmented reality can increase effectiveness and it can also probably save
time and costs, such as travel costs. But in order to make sure that due process and fair
treatment is not jeopardized, you always have to ask yourself whether the contemplated
use of said technology does not in any way jeopardize the party's right to be heard, the
party's right to equal treatment and the party's right to present his or her own case. As you
all are aware, if there is a “yes” to any of these questions, your award is at risk, not only of
being challenged but probably of not being recognized and enforced.
That's why there are some do's and don'ts or practical tips if you use augmented reality
that I would like to share with you. First of all, address the potential use of the technology
as early as possible in the proceedings and reach an agreement thereon. While ideally, you
would start discussing augmented reality use at the outset of an arbitration, it is not very
realistic. Most likely, you will start thinking of such technology when you start approaching
P 820 the evidentiary hearing phase. So the latest stage may be the organizational conference.
P 821 And there, you should not only discuss and reach agreement what type of technology to
use, but also how you plan to use it. In the example I was just explaining to you, we ended
up at the end using it because there was no time to just allow it for the opening and
presentation, but only after the opposing party and its expert had time over the weekend
to use and test the technology, but not for cross-examination. So you should prevent any
surprises.
And this actually brings me to the next practical tip: ensure that the other party and its
tactical experts, as well as the tribunal, had the possibility to get, access, tests, and get
familiar with the technology, as well.
And, please, that's my next tip, use appropriate, accessible and – for both parties –
affordable technology. Make sure that the technology is sophisticated enough so that it is
credible enough, but at the same time, it should be easy. It should be possible to test and
get familiar with this technology within a fairly short period of time so that the tribunal, as
well as opposing party and expert can use it. If the technology requires a license, make
sure that that license also allows you to let the tribunal and opposing party use the
software.
With that, I come to tip number four and I think that in preparing these sessions we
understood how important that tip is. Test all technology you intend to use before D-day,
as you will remember there is Murphy's principle and it's true for that, as well. If it can go
wrong, it will go wrong at that adverse moment.
And my last tip, please make sure that whatever you try or intend to use is in compliance
with the applicable law and the procedural rules, the arbitration rules and the seat of the
arbitration. These may have certain restrictions which, for example, force a hearing to take
place in person. Thank you very much and now I think the show can go on.
Cohen: The show goes on. Thank you very much, Gabrielle. I was remiss, in all my
excitement about AR, in not telling you about how this video conferencing works and how
easy it is. This happens to be a video conference system called Zoom which I use all the
time and it's basically free. I have the upgraded version for $ 15 US dollars a month and all
I need to do is on my iPad or phone or computer I start the Zoom video and I invite a
participant. The participant receives an email and she clicks on the link in the email and
she is in the video conference, presto. So that's what we're using right now with Darth Vader
who happened to have been in New York and I believe the other witnesses are also in New
York.
Let's move on. Let's talk about instant translation. I personally am constantly in awe of this
community, where there are so many people who are able to handle unbelievably complex
disputes in a language that is not necessarily their first language.
But what could happen if everyone could speak in their native language and make
themselves heard and understood? The technology, believe it or not, is almost there. It's
not quite there, as you'll see. But it's made amazing strides over the past couple of years
and we're going to demo it in a moment, again with our polyglot panel's help, specifically,
Gabrielle. She fulfills the polyglot quota.
But before we do that, we just wanted to run the real-time transcription service on this,
through another video that we affectionately like to call, Science Fiction Icons and Their
P 821 Friends Talk Past Each Other. So, it's a very short and, frankly, not terribly coherent tale
P 822 about the search for truth, dry cleaning, breach of contract and arbitration. Here we go.
So the video will be on your, at your left. The transcription will be on your right.
[Short video with clips from science-fiction films and TV shows follows] [Laughter]
Cohen: All right; hopefully you can see both the video and the transcription. Now, can I ask
Opus Two's CTO Steve Fleming to join? I know he's on the other line. We have the translation
set up, is that right, Steve?
Fleming: That's right, Paul. All ready.
Cohen: Okay, so, I guess we'll get going. Gabrielle, if you'd like to get started. Let's see what
happens. Fingers crossed.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Nater-Bass: I will now interrogate this system in different languages using my iPhone app
that I have downloaded and I hope you bear with me with a small demonstration. I get
started. Hello! Hello! [German speaking]
[English translation]
Nater-Bass: The app we just see costs nothing.
[German speaking]
[English Translation]
Nater-Bass: What is the cost of the license?
[German Translation]
Fleming: Thanks, Gabrielle. So, as you switch languages, I think I'll also sort of just address
the question. I think it's worth stating we were using Microsoft Translate which is a
consumer application really. The technology itself is not really mature enough for prime-
time usage. But it definitely serves as a useful illustration of how far this technology has
advanced. Voice recognition is, as you know, advancing at a very quick pace – near 95
percent accuracy with Siri, Alexa, Google, etc. At present Opus Two, you know we only really
seek to provide the services of skilled simultaneous or consecutive interpreters, I should
say, for arbitration hearings worldwide.
Nater-Bass: Good. I will continue.
Let's test French now. [French speaking]
[Translation] How much is it to use the license?
Fleming: Well, that's a tricky question to answer. I think you know in theory, if this service
were available, there would be some degree of cost attached to it, for all this technology,
as Paul will explain when we look at the analytics piece. There's a significant investment
really needed in developing, training and perfecting it, particularly when it comes to legal
models of equal parlance, etc. I think the long-term benefit for this type of translation
technology would be that it would effectively circumvent the need for human professionals
at a hearing. But I must stress this is very much theoretical and you know we would still use
highly skilled humans for the foreseeable future.
P 822
P 823
Nater-Bass: Thank you very much. Let's go on and test Italian once. [Italian speaking]
[Translation] Do you have customers in the legal field? In the case of affirmative reply also
just in the field of international arbitration law?
Fleming: Yes, again I think the question there is tied to whether this type of technology is
ultimately useful in arbitration. And you know, clearly it is not at this time, but we are very
much sort of moving towards a world where a tourist, if you can imagine these days, the
next generation of tourists amongst us will have no concept of what it is to be lost or not to
be able to communicate in a foreign country by use of smart phones and apps like these.
The complexities around legal and speech recognition, etc. within that sphere are very
difficult and involve a lot of machine learning which we'll come to talk about shortly.
Nater-Bass: Thank you very much for this informative answer. Let's continue. You can see
you can switch really quite fast from one language to the next one. [French speaking]
Assume that the software is being used by a court, more technical devices are needed to
put it all in place.
Fleming: Yes, in theory one can imagine this actually working with a very small device
whether that be a smart phone or something similar or certainly interfacing through the
softwear that you're using within the hearing. You know, ultimately it's the type of thing
that we would integrate into our platform to run an electronic arbitration. As I said, the
technology isn't there yet but Opus recently fitted out a high-tech court room project in
Abu Dhabi, and it's actually built with this kind of technology in mind, behind the scenes at
least for sort of some degree of speech recognition, etc.
Nater-Bass: Thanks also for this. I have one other interesting question before I open this
to the audience for questions.
Nater-Bass: [German speaking]
[Translation] Is it possible to program specific terms? If so, how is this done?
Fleming: Yes, I think for this app, deep learning is a really key part of artificial intelligence.
As I said, Paul's going to look at this in layman's terms. But in an ideal world actually these
models will continue to train themselves. If you look at the world of what's becoming
known as ambient computing, which is household devices like an Amazon Alexa, etc, those
are going to be a major driver behind effecting speech technology and recognizing human
speech. I think it's predicted about 75 percent of households in the US are expected to
have one of these devices by 2020. So, all of that will go towards perfecting the models,
etc., etc. You know, what's key for a technology business in the legal space is to utilize
where possible your data set and expertise to help train models in speech and in
particular, types of disputes, instruction, etc. and give it sort of language packs, if you will.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 So, all of this stuff is terribly interesting and exciting, love to get into it in greater detail
but there's probably not enough time for all of that right now.
P 823
P 824
Cohen: All right, thank you very much. We have time for one volunteer who speaks a
language that is not German, Italian or French. Australian does not count. Anyone? I see
somebody there. What's your language?
Audience Member: Arabic.
Cohen: Arabic? Let's just see. Hold on. Okay, we're just going to hit the Arabic function if it's
there and then you can try out a question and we'll see how it works, and only you will know
whether it's accurate.
Nater-Bass: Ready?
Cohen: Okay. Do you want to come up here, sir? Can we have this? Thank you.
Congratulations. Get a prize. Okay. You need the phone, though. Speak in the microphone
here and when you're ready, sit down and then let's see. Ready?
Audience Member: Should I ask a question?
Cohen: Yeah, yeah any question. Say anything you like. Say whatever. Ready?
Audience Member: [Arabic speaking]
Nater-Bass: You have to hold it while you say the language.
Audience Member: Ok. [Arabic speaking]
Nater-Bass: Hold the microphone and then slowly speak in.
Audience Member: [Arabic speaking]
Cohen: Well, it doesn't like you, I'm sorry. Oh, well. Thank you for doing that anyway. All
right, Rashda is going to try one. Which language are you trying, Rashda? Let us know.
Rana: I will just say something in Urdu. It's a language I can speak, yes.
Cohen: Let's see if they have Urdu. They should. Just waiting for it, Steve.
Fleming: No problem.
Cohen: Technical difficulties.
Nater-Bass: Sorry, it's giving up the ghost.
Cohen: Okay, now it's working.
P 824
P 825
Nater-Bass: I just have to restart it if you give me one second.
Cohen: Okay. We will do that demo, but let's move on until the demo is ready. That was
instant translation. Before we get back to it let's talk about the third demo, which is real
time analytics. What the heck is real-time analytics? Well, without putting too fine a point
on it, it's a form of artificial intelligence. And AI appears to be sort of the flavor of the
month in so many sectors, but as a legal community we don't know an enormous amount
about it, which is hardly surprising. We're not computer scientists, we're lawyers. Is it
working? Still not working. Okay, so at the risk of straying very far afield from my fields of
strength, which are mostly Premier League soccer and Star Trek episodes, I am going to try
to give you a little primer on what AI is.
So first of all, AI – first slide of what AI is, Steve. It's a form of computer programming
obviously. Not all computer programs are AI. A lot of them are, these days. If you go to an
ATM or something like that, the cash machine, the programs that are involved in spitting
out the cash and figuring out your bank account are probably not AI programs. The really
excellent demo web app that was shown at the Damages Breakfast yesterday, I suspect –
from what little I've seen of it – is not an AI program. Nonetheless, it is a very effective
program.
But AI is increasingly becoming sort of, if not dominant, at least very prominent in all forms
of computer programming. I have gone to the next slide but I should probably explain
again where AI came from. The name is about sixty-some years old and it really dates to an
article that Alan Turing, the mathematician and code breaker wrote in the early 1950s, sort
of half tongue in cheek, saying that the computer will have reached the level of human
intelligence when you can have a remote conversation with a human on one hand and a
computer on the other hand and not be able to functionally tell the difference between
them. Now, AI went through a number of different iterations. In the 1980s, it was very
popular to do something called “expert systems” whereby you interrogated experts at what
they were good at so you would take very prominent arbitrators and say: how did you
decide the case? How does this work? What did you do? Take us through this. And then you
would try to translate all of that into a logic-based computer program. If you're interested,
it was usually Lisp or Prolog. Well, that didn't work. Well, it didn't work very well.
So the modern form for about the past fifteen or so years of AI that's really come to

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 dominate AI is something called “machine learning”. Okay, so you've probably heard this
term quite a lot. I'll go to the next slide. Machine learning is a form, again vastly
oversimplifying it, but it's a form of programming whereby you give a computer inputs and
the computer program learns from those inputs and improves as it does it. So if you can
see the slides, there are a number of examples of different kinds of machine learning
algorithms. There's ones that you have for Netflix for example, you know, if you like this
movie you'll love that movie; to examine whether people are good credit risks or bad
credit risks. Not the most popular, possibly not the most effective of all of them. The spam
filter on your email is a machine-learning programming, probably a Bayesian algorithm
that says, is this spam, is this not spam? Sometimes it gets it right. Sometimes you get an
email about Viagra and it can't be helped.
P 825 And the form of machine learning that is coming in turn to dominate machine learning is
P 826 something called a “neural network.” A neural network is an attempt to mimic the way
the brain works. So we have a bunch of neurons and synapses and they fire and we get
inputs from those and we build them up into incredibly complex layers that allow us to
see, hear, talk, arbitrate, do whatever it is that we're doing. They do a bunch of things.
Facial recognition systems are usually neural network apps, game-playing artificial
intelligence like the stuff that you can play Go or win Jeopardy with, self-driving cars.
Computer-generated art and music – the sound doesn't appear to be working on the slide,
which is a shame. Let's see if it works. In any event, what would have been playing, if you
could hear it, was a rather nice little computer-generated – okay, a rather tinny but
otherwise maybe nice computer-generated – tune which was done simply by giving the
computer program all of Bach and saying, here's all of Bach, now do something that sounds
like it, okay?
How does that work? Without getting too technical about it, there are lots and lots of inputs
that you get into the computer and some of them get it right and some of them get it wrong
and the computer favors the inputs that get it right through something called back-
propagation. So something says: this is a human being in front of the car, please stop. The
input that gets that right gets weighted better than the input that drives thru the human
being in the simulation – it obviously wouldn't happen in real life.
As you do that, you build up, as your brain does, a series of dos and don'ts and this works
and this doesn't and hence with more data it becomes more sophisticated. So how does
that actually work? Well it is like the old joke, how do you get to Carnegie Hall? I guess we
can adapt it now. How do you get to the Sydney Opera House, when you ask someone in the
street, how do you get to the Sydney Opera House? The answer: practice, practice, practice,
as the joke goes.
So data, big data, is how you're meant to practice. We just speed the vast amounts of data
and they get better and better, hopefully, at identifying stuff and doing what they do: the
same way that we do, when you think about it. We are born, we have no data, we are pretty
useless and then we grow up and slowly we absorb things and learn how to walk and so on
and so forth. So that is the theory. We are not going to talk about robots and robot masters
taking over and all that stuff, but we will in the next panel – a much different panel. (5) We
are just going to focus on the positive uses or potentially positive uses of data.
So now go to the next slide. We have yet another demonstration for you with a remote
witness and this one is: Spock v. United Federation of Planets. It is going to employ the real-
time analytics that we are talking about and I will explain how it works.
Why would we care about this kind of technology, real-time analytics, the practical
application? Well I don't know about you, but there are a number of times in a case where I
have thought: I know the witness said something, somewhere, sometime about something; I
can't remember the exact words but it had to do with some theme or other. And you have
no idea where it is. Similarly with a document: there is something in the zillions of
documents; you know you saw it but you can't quite put your finger on it. You can't do a
specific word search because you can't remember the exact word, you just get a sense of
what it was about.
P 826 Well, this is the kind of thing that real-time analytics will really excel at and we will see, we
P 827 will test it out. We have designed this cross-examination of a witness to elicit specific
kinds of evidence, but the exciting bit is we are not exactly sure whether it will elicit the
specific evidence that we think it will elicit. Hopefully it will elicit either that evidence or
something similar to it so we will find out again.
Here's the hypothetical, in case you are wondering. The claimant, Mr. Spock, is a former
officer in Starfleet. He alleges that the respondent passed him over for promotion because
of his unusual appearance. The respondent – this is important – respondent counterclaims
that the claimant is a confirmed mutineer who once tried to hijack a Starship.
Now the data that we are using here, obviously because this is not a real case, is we have
downloaded every Star Trek episode – and this is my field of expertise, I am happy to say.
We downloaded every single Star Trek episode, a few of the movies. We are going to use
that to comb through some of the questions, to comb through the evidence and see what
happens. Let's see how it works.
Can I ask the witness now to come for cross-examination if he is there? On the screen on
your left, your right, sorry. Hello, witness. Are you ready for the witness?

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 Counsel(Carlson): Good afternoon, Mr. Spock. Mr. Spock, can you hear me?
Witness(Fleming): I can hear you.
Counsel: Perfect. Mr. Spock, you claim that the federation denied you a
promotion to captain on the basis of your non-human appearance. Is that right?
Witness: Affirmative.
Counsel: You are of course aware, Mr. Spock, that the Federation is an inter-
planetary, multicultural organization in which one's color, shape and size
ceased to be relevant centuries ago.
Witness: Indeed; my being passed over was a triumph of human emotion over
the precepts of federation law.
Counsel: But isn't it a fact, Mr. Spock, that you were once court-martialed for
having mutinied and hijacked the Enterprise?
Witness: That information is classified and inadmissible
Counsel: Well, Mr. Spock, that information is essential to the Federation's
defense in this case. The Tribunal has ruled that it can come in. Witness: Most
illogical.
Counsel: Mr. Spock, were you not arrested for conspiring to take over the
Starship Enterprise from the Captain?
Witness: I decline to answer under Starfleet Regulation 5.4.
Counsel: Be that as it may, Mr. Spock. We have the logs of the Enterprise for the
entirety of the five-year mission. I now propose to have the Tribunal review
those logs. Computer, please pull the transcripts from the Enterprise logs.
Cohen: This is all, if you haven't figured it out, on the screen on your right.
Counsel: Computer, please identify language corresponding to the prior
question? [Excerpt from Star Trek episode]
Counsel: Mr. Spock, do you deny that these logs reflect that you submitted
yourself to court martial on a charge of mutiny?
P 827
P 828
Witness: I see no purpose in responding to questions premised on the possibility
that a computer is flawed.
Counsel: Indeed, Mr. Spock. So let us take this further. Mr. Spock, on this mission
did you order a communication blackout?
Witness: Same answer.
Counsel: Then this communication blackout was ordered under false Starfleet
mission instructions to take command of the Enterprise from Captain Kirk, wasn't
it?
Witness: I fail to see the purpose of this line of questioning.
Counsel: It's something we call cross-examination, Mr. Spock. Allow me to try
again. Did you order a communication blackout under the guise of false
Starfleet mission instructions to take command of the Enterprise from Captain
Kirk for what you claim were medical reasons and did you then instruct the crew
to trust your orders?
Witness: I believe the relevant response is objection: compound question.
[Laughter]
Counsel: Enough of this. Computer: identify relevant logs corresponding to my
previous question.
[Excerpt from Star Trek episode]
Counsel: So in fact, Mr. Spock, you had no authorization from Captain Kirk to
take the Enterprise toward Talos IV?
Witness: There were extenuating circumstances.
Counsel: Be that as it may, Mr. Spock. The record clearly reflects that you
admitted your guilt. Well, Mr. Spock?
Witness: I do not believe you have asked a question, sir.
Counsel: You submitted yourself for court martial because you knew you had
taken the ship to Talos IV without the Captain's authorization and you lied
about it, didn't you?
Witness: Vulcans are incapable of lying.
Counsel: Is that so?

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Witness: Indeed, you will find evidence of the fact in the ship's logs.
Counsel: Well there were a lot of episodes – I mean missions. Where exactly in
the logs do you contend that there is evidence that Vulcans don't lie?
Witness: I refer to the so-called Enterprise Incident, in which the ship crossed the
Neutral Zone into Romulan space on a spy mission. Counsel: You were a spy?
Witness: Affirmative.
Counsel: All right. Computer: identify log entries corresponding to when Spock,
and the Enterprise, raided Romulan space for a Federation spy mission.
[Excerpt from Star Trek episode]
Counsel: Hmm, Mr. Spock, you clearly lied when you told the Enterprise crew that
you were taking command with Captain Kirk's authorization. How do you explain
that?
Witness: Frustrating. The only logical explanation is that the writers were quite
inconsistent in their conception of Vulcan attributes.
Counsel: Do you have anything else to say, Mr. Spock?
P 828
P 829
Witness: Yes. May I have a mask like your previous witness's? It will serve to
cover my ears.
[Laughter]
Cohen: Thank you very much, Captain Carlson. Thank you, Mr. Spock.
As you saw, we weren't quite sure what would necessarily come up with those. We actually
had different clips in here than the ones we thought would come, but there were related
ones that came up. So the technology does work, and it works in sort of interesting ways.
Rashda, tell us in general terms about what you think of these kinds of AI programs for
facilitating arbitration.
Rana: I am actually interested in what all of you have to say about some of the technology
that we've shown you, but I want to just deal with two particular points about technology
and the dispute resolution community. We are not atypical in the sense that I see a great
deal of resistance to the use of technology.
I don't know if Justice Lindgren is in this room. Is he? Justice Lindgren was a federal court
judge, Federal Court of Australia judge, and I actually did the very first entirely electronic
court case with him. How long ago do you think that might be? It was entirely electronic,
meant to have no paper at all.
Cohen: Last month.
Rana: Just guess. How long ago do you think it might have been?
Carlson: Last year.
Rana: Last year, any other guesses?
Audience Member: Ten years?
Rana: 1997.
Cohen: Wow.
Rana: Entirely electronic. We all had computer screens, we had a technical person bringing
up all the documents as we set them. They were all bar-coded so we had to read a bar
code and the document came up. When we handed in submissions, it was a case that went
for, I don't know, ten months or something. We gave him forty-seven folders of paper for our
submissions because nobody could get the hang of the electronic stuff and I must say since
1997 – so what's that, twenty-one years ago – the uptake on technology has been really
slow. And I am afraid it is actually us, it is the lawyers; it is not the technology because the
pace of advancement of technology has been extremely fast and even between now, what
we've shown you and if we were to repeat this next year you will see that it has advanced
quite a great deal.
P 829
P 830
So I just wonder what the resistance is, and I know that some of the résistance seems to be
the potential for self-interest, in fact the potential possibility that we are going to lose our
jobs as either lawyers – or perhaps the even bigger fear arbitrators – and whether AI in
particular can actually replace what people are talking, the soft areas of decision-making,
the ethical areas of decision making and whatever is the human ingredient that goes into
decision-making.
I don't see it as a problem. I hope I am not robotic in my own mentality but I don't see it as
a problem. So, I would be quite interested to see where the resistance actually is and if,
quite a lot of you probably follow OGEMID and you may have seen the recent discussion on
AI but it is actually a very disturbing kind of resistance to taking up where we have got to. I

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 will give three examples:
(1) One is the Care Vault, which I always use because there are robots that are nurses and
they are absolutely brilliant. They make fabulous decisions, correct decisions much
more quickly and actually nurturing in a way that a nurse might be.
(2) The other one is self-driving cars. I mean they are a no-brainer and we will all have
one soon. It will be a similar resistance to when email and iPhones came up. It will all
be forgotten in a couple of years.
(3) The other one is, I am just trying to tackle the resistance in terms of the soft stuff.
Caring, emotional stuff that seems to come in when people talk about AI, and that is
the use of pets, AI pets, to help people who are housebound, whether they are old or
disabled or sick, as replacement of real pets and they seem to serve the same
purpose. So when old, sick, disabled people or housebound people have been tested,
the responses that they have shown in terms of progress and health are the same as if
they had a real dog. Perhaps we are beginning to turn in terms of our minds to what is
a useful way of using AI. I spoke at lunchtime with some people about the
international citizen of Saudi Arabia, the robot Sophia. She is a bit creepy, but she is
probably a form of what we should expect as your next tribunal.
Cohen: You are looking to quash the resistance. Hugh, your thoughts?
Carlson: I thought that I might to attempt to bridge the gap between the topic of this panel,
which is titled Technology as Facilitation, and the topic of the next panel, which is
Technology as Disruption. And I thought I might do so by identifying that these two topics
are very much a question of timing: the further we move away from the status quo, I think –
and perhaps we disagree here a little bit – the greater the likelihood the technologies may
disrupt rather than facilitate. What would be of interest to us is what will happen as we
move away from facilitation and towards disruption; that is, if we think perhaps simply of
facilitation as a sunny day and disruption as a blackened night sky, what do we make of
that twilight? So if I may be permitted for a moment to gaze into the early dusk glow to
offer a few observations, they would be these:
First, international arbitration will prove resilient to direct disruption by AI. What do I
mean by disruption? In the context of law, I offer the following crude definition:
widespread replacement of junior associates by Artificial Intelligence For those of you in
the audience with an Amazon Echo think: “Alexa, prepare for me three to four paragraphs
P 830 explaining why discounted cash flow is an inappropriate valuation methodology in this
P 831 case and send me highlighted PDFs of the authorities upon which you rely.” If and when AI
should be able to accomplish reliably tasks like these, disruption will have arrived.
So why will international arbitration be resilient to disruption as I just have clearly
defined? A couple of words on complexity and data: with regard to complexity: in
international arbitration, little of what junior associates do, as many people in this room
know, is the form of gruntwork that can easily be automated. There are of course
exceptions to this – document production and reviews, perhaps – but by and large the type
of work that they are doing is generally distinguishable than that of their compatriots in
different practice groups.
With regard to data, I think this benefits from Paul's helpful summary. As a general
principle, Artificial Intelligence is only as intelligent as its data is copious and useful.
Because international arbitration has a far smaller data set than exists in many other
practices, in part due to a lack of transparency, what AI is capable of doing in international
arbitration is quite limited, at least for the time being. Unless the move to transparency
more meaningfully informs our processes, AI will lag in international arbitration as
compared against other practices, including litigation.
The second observation I have for you is that, just because international arbitration is
likely to prove comparatively resilient to disruption doesn't mean that we are out of the
woods. This is because litigation is going to become more competitive, potentially more
competitive, due to large, rapidly-growing data sets as well the benefit of much more AI
investment in litigation than in arbitration. Litigation in many jurisdictions will become
increasingly automated, it will become correspondingly less expensive, and it will become
quicker. In addition, the predictability of outcomes will continue to increase.
These advantages, and they will continue to grow, I submit to you are going to make it more
palatable to clients weighing litigation against arbitration.
The third and final observation is to encourage the people in this room to keep an eye on
AI outside of the legal space. Significant advancements in Artificial Intelligence across
various industries will cause lasting change in the international arbitration market place,
to our clients well before AI directly disrupts our own niche industry. We can't reliably
predict how it is going to happen but we can say with near certainty that this
transformation will be widespread and profound.
I have heard the expression that AI is the new electricity. Seemingly overnight new
industries will emerge and others will fade away. To paraphrase Robert Depito, the co-
founder of the US Financial Services firm Blackrock, Apple was not in the music industry,
Google was not in the mobile phone industry and Amazon was not in the groceries industry
– until they were. So too will technology companies soon enter and disrupt other

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 industries, likely including at least several of those we consider to be staples in the
international arbitration market place. As a community we will want to follow closely these
developments and adapt rapidly as the market's place procedural needs change and to
the title of this conference evolves. Thanks.
Cohen: Thank you very much Rashda. Thank you, Hugh.
To my immense shock and delight, we actually have a few minutes left over. So we are
going to let you out early. Kidding. We are going to take questions.
P 831
P 832
Can I ask Steve to come to the Zoom? Let's have a look at you. It will be more fun that way.
Thanks, Steve. So, questions for any of the panel or comments. Let's leave out “AI is going to
take us all over and be our robot masters.” Save that for the next panel that is coming right
after the break.
Audience Member: Thank you, I have a question. My name is Alice from the VIAC [Vienna
International Arbitral Centre]. I have a question with respect to the translation issue and
with respect to confidentiality. I am just wondering what about the live translation, where
is it done and who is translating and is that secure. You know we are talking about
confidential proceedings and then you know who could possibly access and I think some of
the concerns that I would have when using the service.
Cohen: Before I let Steve answer that, let me just observe that we are talking about
cybersecurity as well, (6) right after we talk about AI. So it is a very timely question. Thank
you. Steve.
Fleming: That is a great question, actually. So obviously I have seen in court hearings and
various other disputes, even some arbitrations, the use of tools like Skype for video
conferencing and I think that by and large that is going out encrypted over the internet.
However, for a tool such as translation which is obviously working through the data and
producing in effect a transcript of what is holding the recording of the audio. You would not
want to be utilizing any kind of cloud service, because of the security and sensitivity
around that data, for any of the technologies that we have been developing in that space.
But we have localized versions of the software running. So in essence, it would be running
purely on our systems and it wouldn't be subject to any sort of any public cloud service.
The data could be kept in accordance with the policies agreed at the start of the case.
Audience Member: Fantastic.
Audience Member: Vismay Shroff, I am an attorney from Bombay, India. I had a question
about language translation options. We saw German, French and Italian translated to
English. What options do you have for English to be translated into other languages? I
suppose this may be of interest to everybody here as well.
Fleming: Should I take that one?
Cohen: Yes, go ahead Steve.
Fleming: Very quickly, yes that particular application that we used actually works – works
from any language to any language that it supports. So if you are on the receiving end, as
Gabrielle was using on her phone in French or in whatever language she was logged in at
P 832 the time, if I were to speak back to her in English it would actually play back that in the
P 833 native language selected. So it does do it both ways and again it is a great application if
you are a tourist. There are a number of these devices that you can actually get now, some
of which are completely offline, which you speak into and it will send things back and vice-
versa. That technology does exist.
Cohen: Thank you for your question.
[Translation into Hindi]
Audience Member: Damn it, it is showing it on there, it is now saying it.
Audience Member: A question for Steve, please: one of the messages that you are going to
hear in the next panel is that it is going to be primordial for the tribunal to be able to
understand how algorithms or any form of technology works on the side, obviously, of
counsel but also very importantly the arbitrators. My question to you: how prepared are
you, as the technical side of this, to put it to naughty lawyers who are very backwards in
technical terms in order to be able to understand how your technology comes to the
decisions that they do? How they work, opening the black box for us essentially. How
prepared are you, how ready are you to put this information to us?
Fleming: Right, that is a good question. I think, if I heard the question correctly, from the
technologies we looked at today the third technology which was the text analytic piece,
something we are actually launching in BETA form quite shortly. We will be launching it in
the summer. We are just in the middle right now of testing it and productizing it and our
philosophy really is the technology business in the legal space. It has never been to blind
anyone with science. LiveNote is a technology that has significant benefits with a very
minimal learning curve.
So, that's a great example of sitting in front of the piece of technology and immediately
getting the benefit without having to do anything. What we are looking at when it comes to

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 AI, I think (we almost prefer the term IA, which is Intelligence Automation or sort of
automated intelligence), what we are looking to serve users are useful and relevant
extracts that are semantically similar to the piece of text that a witness has given in their
evidence. The mock-up you saw today is really a working prototype. We are actually
working with a lot of our user groups and users and really anybody who wants to come and
have a look at it. We will have it available to folks to play with. We wouldn't introduce a
technology that effectively doesn't work or could not be relied upon. What we are really
interested in doing is making it as accurate as possible, as useful as possible sort of
provides an easy benefit.
Cohen: Time for two more questions: the gentlemen here and then one other.
Audience Member: Michael Patrick Joyce. As an arbitrator how do I tell the difference
between augmented reality and distorted reality? In other words, it is a question of
control. How do I know that I am not being hoodwinked? How do I know that I am not being
blinded by science?
P 833
P 834
Cohen: That is a good question. One of the slides I insisted on deleting was one my brother-
in-law stuck in with me turning into Sean Connery, it is his version of me in a distorted-
augmented sense.
Fleming: Maybe I can answer your question also by referring back to what I have just
explained. I think in order to ensure due process, and also for the tribunal, you have to
check there is no other way to make this augmented reality technology in advance.
Actually, they have to be shown and explained to the tribunal. They have to be shown and
explained to those technical experts, and used only if everybody is in agreement. This is
not just reflecting something which is not reality; it can be used. In other words, you have to
test it, get familiar with it. You have to get comfortable with it and that needs time and
preparation. I think that is key.
Cohen: Time for one more question. If there is anyone. Fine if there isn't. Is that Kathleen?
Audience Member: I am not sure that this question is better for this panel or next. So if it is
better for the next, Sophie will say it and take it. I was interested in what Hugh has to say
about how AI is likely to affect court litigation versus arbitration, availability of data etc. I
wonder what your position is with respect to how AI made an impact on existing inequality
of arms between parties and how the availability of technology will either increase or
decrease what we see already as being the disparate capabilities of parties with more
resources, and it seems to be that AI has the possibility of actually narrowing that gap if it
is available to all or greatly increasing it if it is not. From my perspective you can see a
world in which this technology was available relatively widely or one in which it is not
available at all, which will boil down to cost and data. I don't know what your thoughts are
about that.
Carlson: I think it is a very good question and it is one that is really being grappled with it
at the moment. I am involved in a project with Harvard Law School, its International
Development Society, in which access to justice through Artificial Intelligence is the
subject. I think that could be extrapolated and applied in the international arbitration
context.
My inclination is that it will do more to narrow the gap as opposed to widen it for the
reason you have described. I think the technology will not prove prohibitively expensive in
due course. It may take some time to arrive to that, but once we do I think parties will have
available to them tools that will permit them to generate comprehensive briefs at a
fraction of the cost that is currently available with, for example, international counsel. Now
that is not to suggest that counsel won't play a role in that process, but it will be a
comparatively reduced role permitting parties that perhaps presently don't have access to
the system to indeed gain that and have a voice that they may not know.
Rana: I would just like to add that I think Hugh is right and I think, Kathleen, you
anticipated it in terms of the narrowing of the inequality of inequity of arms. An online
P 834 dispute resolution system has just gone live in England and one of the bases behind it was
P 835 in fact to allow litigants in person to actually go through the process in quite a
mechanical way which is a little bit harder when you have to fill in forms and come to court
and speak to an opponent, perhaps a lawyer opponent as well as a judge, so the idea is
that fairly simple mechanical claims can now be deal with online. And I am not just talking
about filing on line, it is actually the whole dispute that gets dealt with and decided online
by the computer. Certainly we are beginning to see that in other jurisdictions as well, small
cases but I just want to reiterate what I said: the pace of advancement is enormous, so you
can start with little cases but we will very quickly be looking at big cases where quite a lot
of the dispute will be dealt with online – so not just with a robot but just online, and again
algorithms are developing very quickly to enable that sort of thing to happen.
In the nineteenth century when the phone was developed, it was actually regarded with a
great deal of suspicion. It was devil's work. Now we have moved on from that, and I think
Hugh mentioned where we are at is like the new electricity and it as well was regarded with
great suspicion. The notion that you could switch a switch and you had light and you were
actually interfering with nature – not just devil's work but interfering with nature. This is the

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 resistance I would like you all to get over. Your life will be much better for it.
Cohen: On that note, it remains to me just to give enormous thanks to Steve. It is 1:00 in the
morning for him. So, thank you for staying up and being Darth Vader and being Mr. Spock.
Thank you for everything. Thank you to the AV people, John over there, and of course to our
fabulous panel. Thank you for coming.
[Applause]
P 835

References
*) The General Editors would like to thank Justin R. Rassi, Associate in the International
Dispute Resolution Group and Public International Law Group, Debevoise & Plimpton,
LLC, for his assistance in preparing the Transcript. Thanks also to Steve Fleming of Opus
2 for his participation and considerable technical assistance.
1) Director of Practice and Senior Associate, Three Crowns LLP; adjunct professor,
Georgetown Law School; co-director, International Arbitration Workshop, Harvard Law
School
2) Partner, Homburger, Zurich; Co-head, ICCA-ASIL Task Force on Damages.
3) Commercial and construction infrastructure lawyer; Past-President and Member of the
Advisory Board of ArbitralWomen; Past-President. Australian Branch of the Chartered
Institute of Arbitrators.
4) Barrister and US-trained lawyer practicing at 4-5 Gray's Inn Square Chambers and in San
Francisco; Editor-in-Chief, Journal of Technology in International Arbitration; Co-chair,
International Task Force of the Silicon Valley Arbitration and Mediation Center.
5) See “Technology as Disruption”, this volume, pp. 837-868.
6) See “Technology as Disruption”, this volume, pp. 837-868.

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 16
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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Cybersecurity and Cyber Insurance
Publication (*)
Evolution and Adaptation: I Introduction
The Future of International
Arbitration Cybersecurity focuses on protecting computers, networks, programs and data from
unintended or unauthorized access, change or destruction. (1) More broadly speaking,
cybersecurity involves protecting systems and processes from malice, error, or mischance.
Bibliographic reference This, in turn, requires cross-disciplinary expertise. Cybersecurity is about so much more
than computers and systems engineering. It involves cryptography, computer security,
'Cybersecurity and Cyber economics, risk management, applied psychology, software engineering and the law. While
Insurance', in Jean this paper contains insights applicable to organizations located anywhere in the world, it
Engelmayer Kalicki and focuses on Australia and the United States.
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: More than 94 percent of Australian businesses have access to the internet, this is
The Future of International increasing year on year, thus making cybersecurity more important than ever. (2) A major
Arbitration, ICCA Congress concern amongst businesses at the moment is the challenge that cyber risks present. (3)
Series, Volume 20 (© Kluwer Some companies are reporting that there are over twenty serious cyberattacks every day.
Law International; (4) There are many recent high-profile incidents where businesses' information systems
International Council for have been compromised, leading to sensitive data being accessed. Cybersecurity is
Commercial important, as no organization – no matter how skilled – is immune from the risks and
Arbitration/Kluwer Law associated costs of dealing with cyberthreats.
International 2019) pp. 839 - Although this article will not extensively cover all the current risks, it will aim to cover
848 some risks in the current threat landscape, the costs associated with data breaches, and
P 839 the use of cyber insurance as a method of mitigating cyber incidents. The paper relies on
P 840 previous published research by the author and co-authored with Ciaran Finnane, (5) as
well as the recent and only empirical study of cyber insurance policies done by Sasha
Romanovsky, Lillian Ablon, Andreas Kuehn, and Therese Jones from RAND.org. (6)

II Security Threat and Risk Landscape

P 840 Organizations face a number of cyberthreats and risks when an organization's security is
P 841 breached. Table 1 below lists some of these threats which may include:
Table 1.Cybersecurity Threats
Term Definition
Denial of service attacks (7) An attack that prevents or impairs the
authorized use of information system
resources or services
Unauthorized access to data and networks Any access that violates the stated security
for corporate espionage, activism, fraud, policy
and extortion/blackmail (8)
Discovery of vulnerability (9) A characteristic or specific weakness that
renders an organization or asset (such as
information or an information system) open
to exploitation by a given threat or
susceptible to a given hazard
Interference with data and networks An unauthorized act of bypassing the
(Intrusion) (10) security mechanisms of a network or
information system
Data breaches (11) The unauthorized movement or disclosure
of sensitive information to a party, usually
outside the organization, that is not
authorized to have or see the information
Ransomware (12) Malicious software (malware) that locks
your keyboard or computer to prevent you
from accessing your data until you pay a
ransom (usually through cryptocurrencies
such as Bitcoin)

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 Term Definition
Credential Harvesting Malware / Spyware Software that is designed to gather data
(13) from a computer or other device and
forward it to a third party without the
consent or knowledge of the user. This often
includes collecting confidential data such
as passwords, PINs, credit card numbers,
monitoring keyword strokes, tracking
browser habits and harvesting email
addresses
Social Engineering (14) The art of gaining access to buildings,
systems or data by exploiting human
psychology, rather than by breaking in or
using technical hacking techniques
An organization hit with a cybersecurity incident may react in a number of ways. Mitigation
of damages is the key priority for most organzations when under threat. The most
important component in mitigation against damage is protecting assets not already
compromised such as data that has not yet been stolen. (15) This could require the
stopping of the denial of service attack as soon as possible through various means –
technical measures, paying a bribe, isolating data, making immediate data backups, or
launching a counter denial of service attack. Damage control may also mean ensuring that
there is no media attention to the matter. Mitigating against damage is one facet in the
aftermath of a cyber incident.
Of these threats data breach is one of the most prevalent. High profile data breaches
locally and abroad highlight the high costs and damage caused by breaches of personal
P 841 information covered under the Australian Privacy Act. The Office of Australian Information
P 842 Commission (OAIC) recommends that all entities have a data breach response plan.
OAIC recommend a four-step plan: (1) contain the breach and do a preliminary assessment;
(2) evaluate the risk associated with the breach; (3) notification; and (4) prevent future
breaches. Having a data breach plan is one method of mitigating against damages and
costs. Having a data breach response plan may also reduce cyber insurance premiums.
There are similar data breach notification laws throughout many parts of the world
including the United States, Europe and China. (16)
While implementing a data breach response plan can assist in mitigating these costs,
businesses are increasingly turning to cyber insurance as a means of deflecting associated
costs of cyber incidents. (17)

III The Cost of Data Breaches

Research suggests that the cost to an organization for a data breach can be significant. (18)
When attackers are successful in breaching systems, it can have significant financial and
non-financial consequences for the affected business. The average financial cost for a
business of a data breach in 2014 was US$ 2.8 million, with roughly 30 percent of these
costs associated with legal, forensic, and investigation. (19) In 2017, the average total cost
of a data breach is now US$ 3.62 million. The IBM Security/Ponemon study revealed that
US$ 141 was the average cost per lost or stolen record. (20) There is a further 27.7 percent
likelihood of a recurring data breach within the next two years. A large part of the total
cost though is the loss of business and reputational loss. (21) The successful attacks take an
average of twenty-three days to resolve; with it increasing to fifty days if it was an attack
from within the business. (22) Aside from the financial and nonfinancial losses, the most
alarming statistic is that over 60 percent of businesses that experience a cyberattack, such
as those listed above, go out of business within six months. (23)

IV Risk Reduction
P 842 There is a need to manage and reduce these risks to business. Although there are many
P 843 ways to reduce the risk, the threats will always be present and ever evolving. As a way to
offset some of the damage of cyberattacks, some may consider taking out a cyber
insurance policy. Cyber risk is currently ranked the top risk in Australia by businesses for
the 2015 Banana Skins Insurance Survey, moving up from thirteenth place in 2013. (24)
Whilst regulation remains the main concern globally, cyber risk currently rates fourth in
2015, moving from twenty-second place in 2013. (25) This survey of over 806 respondents
shows how much of a concern cyber risk has become for businesses in Australia and also
worldwide, it shows how much of a growing issue this has become and the need to manage
and reduce these risks. Cyber insurance is one way to manage and offset this risk.
Although businesses are increasingly seeing the need for cyber insurance, the reality of
acquiring insurance policies that cover cyberthreats, is not as pressing. A 2016 AusCert and
BDO survey of Australian and New Zealand businesses as covered by Computer World (26)
revealed that only 13.8 percent of respondents had cyber coverage under their various
insurance policies, 7.4 percent thought that they might be covered through other polices,
with another 9.4 percent stating that they have separate cyber insurance policies. (27)
Close to 70 percent were not covered for cyber related incidences in their policies.

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 Furthermore only 48 percent had a cyber response plan with 41 percent also having a
cyber incident response team.

V What is Cyber Insurance?

Cyber insurance generally is taken out to protect businesses from risks associated with
online activities; (28) the insurance can cover things such as lost business due to a system
breach, or compensation for stolen data. (29) Traditional insurance policies cover tangible
assets such as computers and related hardware. Cyber insurance aims to cover items
associated with a breach, such as network interruption, reputation loss, notification and
monitoring costs. (30) Like any insurance policy, there are numerous inclusions and
exclusions depending on what level of cover is chosen.
The cyber insurance market is currently worth US$ 1.5 billion with the United States
accounting for approximately US$ 1 billion, European countries US$ 150 million, with the
rest of the market shared between other countries. (31) The uptake of cyber insurance in
P 843 the United States has been far more rapid than in other countries around the world. Forty-
P 844 seven states in the United States currently require businesses to notify customers and
government of a data breach, and this may be one reason why cyber insurance in the
United States is more prevalent. (32)
Businesses need to consider numerous things when assessing whether cyber insurance is
suitable for them and the level of cover required. Some things that need to be considered
are the reputation loss, monitoring and notification costs, and network interruption
associated with the breach. (33) It is also necessary to evaluate the type of data being held
by the business and the consequence of losing such data. (34)
Insurable losses include both first-party losses and third-party losses. As Bailey explains:
“First-party losses concern claims made by an insured for financial harm suffered directly
by the insured organization as a result of an insured occurrence whereas third-party losses
concern claims made against an insured, by a third party, for losses related to an insured
occurrence.” (35)
Table 2 below highlights different types of insured losses.
P 844
P 845
Table 2.Insurance Losses
Insured First Party Losses Insured Third Party Losses
Property damage of tangible assets Damage to third party property both
(servers, computers) tangible and intangible
Property damage of intangible assets (data, Denial of access or use
software)
Theft of proprietary information or data Insufficient measures to protect third party
from consequences of malware
Business interruption Unauthorized use of third party data
Damage to company assets from malware Unauthorized use of confidential
information
Incident management costs Failure to prevent unauthorized access, use
or interference of data or networks
Replacement of damaged or destroyed Defense expenses for legal costs incurred
goods such as software, hardware
Fraudulent transfer of funds or data
In the United States cyber insurance has gained serious momentum after a decade of
underwriting thousands of polices. In Australia, there is comparatively little reliable data
for the local market. (36) The lack of local data is a problem in many jurisdictions.
There is little research in cyber insurance, and what is there is mostly theoretical. A recent
study (the first of its kind) by Romanovsky et al., however, produced a comprehensive
analysis of losses covered by cyber insurance policies, exclusions, underwriting
approaches to risk and factors used to determine premiums. (37) Researchers examined
180 cyber insurance policies in the States of New York, Pennsylvania and California. The
researchers noted that the term “cyber insurance” did not indicate stand-alone policies.
Instead, cyber insurance was captured in policies such as “Commercial Property”, “Internet
Liability”, “Burglary and Theft”, and so on.
The insurance questions did not cover the substance of a particular cybsercurity protocol,
or corporate structure. The policies merely asked if there was, for example, the role of
Chief Information Security Officer or Privacy Officer. Or was there a management or IT
security management. The protocols and roles themselves were not questioned.
International Organization for Standardization (ISO) standards and National Institute of
Standards and Technology (NIST) cybersecurity frameworks were only mentioned once but
the authors note that these frameworks are beginning to be integrated with the policies of

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 major insurance companies. Some companies merely looked at competitors rates in order
to set their own. Researchers note that there were few cases where the insurance
companies had the requisite experience and confidence to develop their own pricing
model. They cannot, for instance, use claim counts for data due to the paucity of related
claims.

1 A Case Study – Ashley Madison

There are many high profile cases in which a business's data has been breached, with many
P 845 millions of customers affected. A recent example is the Ashley Madison incident where
P 846 millions of customer records were breached and then placed in a publicly available
database for anyone to search. The Ashley Madison incident was global news for quite a
while, with two affected customers reportedly taking their own lives when their identities
were disclosed. (38) The Ashley Madison incident is still unfolding and represents a large
breach, the next example is of a small professional firm. The firm discovered that a virus
had infected its small network of twenty-two computers, including two virtual servers and
associated hardware. The firm had antivirus software installed on all computers and
definitions were up to date. When the virus was first discovered the firm notified its
information technology providers and insurers who attempted to remove the virus without
success. The only way to rectify the virus was to wipe all the computers and restore data
from a back-up. The firm lost three days of business due to the down time. As the firm
having a cyber insurance policy, the insurance company deployed their response team
who minimized reputational damage and harm to the business. Although this is a relatively
small incident, it shows the effect that a cyberattack can have on a company, and the
importance of procedures to minimize and reduce the effects of the attack. The insurers
paid out a total US$ 35,265 to cover the incident. (39) Without the cyber insurance policy,
restoration of the affected systems might have taken many more days.

2 A Case Study – Sony (40)

On 8 December 2014, Sony informed its employees, that personally identifiable
information about employees and their dependents may have been obtained by
unauthorized individuals as a result of a “brazen cyber-attack”, including names, address,
social security numbers and financial information. (41) On 7 December 2014, C-SPAN
reported that the hackers stole 47,000 unique Social Security numbers from the Sony
Pictures Entertainment (SPE) computer network. (42) Although personal data may have
been stolen, early news reports focused mainly on celebrity gossip and embarrassing
details about Hollywood and film industry business affairs gleaned by the media from
electronic files, including private email messages, released by the computer criminals. The
leak revealed multiple details of behind-the-scenes politics on Columbia Pictures' current
Spider-Man film series, including emails between head of Sony pictures Amy Pascal and
others to various heads of Marvel Studios. (43) In addition to the emails, a copy of the
P 846 script for the upcoming James Bond film Spectre, which was due to be released in 2015,
P 847 was obtained. (44) As a result of this breach, later in December, former Sony Pictures
Entertainment employees filed four lawsuits against the company for not protecting their
data that was released in the hack, which included Social Security numbers and medical
information. (45) In January 2015, details were revealed of the Motion Picture Association of
America's lobbying of the United States International Trade Commission to mandate US
internet service providers (ISPs) either at the internet transit level or consumer-level
internet service.
While some experts estimate that the Sony hack cost the company US$ 100 million, Sony
CEO Michael Lynton is reported as stating, “I would say the cost is far less than anything
anybody is imagining and certainly shouldn't be anything that is disruptive to our budget,”
and was “well within the bounds of insurance”. (46)

VI Australian Cyber Insurance Market

Some people have argued that the cyber insurance market is immature, with insufficient
data to perform effective actuarial analysis of the risk. Others have refuted this claim
citing that at least in the United States, the cyber insurance market is now over a decade
old with advanced threat analytics, cyberattack incidents, thousands of data breaches
publicized and analyzed, the introduction of new security and privacy laws and the
correlating lawsuits for data breaches and security incidents. (47)
There are two hurdles in Australia preventing companies from venturing into cyber
insurance. The first is that Australian insurance companies may genuinely not have enough
data about Australian cyber incidents. The second is that there is no legal duty in Australia
to report data breaches, and the publication of detailed cyber incidents and threat
analysis is newer to the Australian landscape – we have traditionally had fewer statistics.
In many other jurisdictions data breach notification is compulsory and comes with heavy
fines for failure to notify the appropriate authority and customers of the breach. (48)
P 847
P 848

VII Conclusion
Even the best designed systems are vulnerable to attacks, and businesses need to assess

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 and take steps to minimize the risk. (49) Minimizing the risk of an attack is not just about
spending money on information technology security, it is also about implementing
appropriate procedures and making the culture of a business security-aware. (50) The type
of attacks will continue to evolve, and the number of businesses affected will rise. The
Australian Government is considering introducing mandatory data breach notifications for
businesses, and this may increase the uptake of cyber insurance. (51)
P 848

References
*) Alana Maurushat: Professor of Cybersecurity and Behaviour at Western Sydney
University; Member of the Board of Directors and Special Cyber Advisor for the
cybercrime investigations firm IFW Global.
1) University of Maryland University College, Cyber Security Primer
<www.umuc.edu/cybersecurity/about/cybersecurity-basics.cfm>.
2) Australian Bureau of Statistics, Business Use of Information Technology, 2013-14 (16 July
2015) <www.abs.gov.au/ausstats/abs@.nsf/mf/8129.0>.
3) Price Waterhouse Coopers, CSFI/PwC Insurance Banana Skins Australia 2015.
4) Ibid.
5) Ciaran FINNANE and Alana MAURUSHAT, “Managing Cybersecurity Risks through Cyber
Insurance”, Precedent (2016, issue 32).
6) Sasha ROMANOSKY, Lillian ABLON, Andreas KUEHN, and Therese JONES, “Content
Analysis of Cyber Insurance Policies: How Do Carriers Price Cyber Risk”, 2017 Workshop
on the Economics of Information Security.
7) Department of Homeland Security, A Glossary of Common Cybersecurity Terminology,
National Initiative for Cybersecurity Careers and Studies <https://niccs.us-
cert.gov/glossary>.
8) Ibid.
9) Ibid.
10) Ibid.
11) Ibid.
12) Kim ZETTER, “What Is Ransomware? A Guide to the Global Cyberattack's Scary Method”,
Wired (14 May 2017)
<https://www.acsc.gov.au/publications/ACSC_Threat_Report_2017.pdf>.
13) Kaspersky Lab, “What is Spyware?” <www.kaspersky.com.au/resource-
center/threats/spyware>.
14) George HULME and Joan GOODCHILD, “What is Social Engineering? How Criminals Take
Advantage of Human Behavior”, CSO (3 August 2017)
<www.csoonline.com/article/2124681/social-engineering/what-is-social-
engineering.html>.
15) Alana MAURUSHAT, “Hack Counter-Attack: Its Uses and the Need for Legislation”, 6 E-
Finance & Payments: Law & Policy Issue 12 (December 2012).
16) Alana MAURUSHAT, “Data Breach Notification Law Across the World from California to
Australia”, Privacy Law and Business International (2009). This research was updated
from 2016-2017.
17) Price Waterhouse Coopers, CSFI/PwC Insurance Banana Skins Australia 2015.
18) Ponemon Institute, 2015 Cost of Data Breach Study: Australia, p. 1 shows that the
average organizational cost for a data breach has reached US$ 2.82 million or US$ 144
per lost or stolen record of personal information, see <www-03.ibm.com/security/data-
breach/>.
19) Ibid.
20) Ponemon Institute, 2017 Cost of Data Breach Study: Global Overview (IBM Security, June
2017).
21) Department of Communications and the Arts, Australian Government, Stay Smart
Online ‘Small Business Guide’ Stay Smart Online
<https://www.communications.gov.au/sites/g/files/net301/f/SSO%20Small%20Busine
ss%20Guide.pdf>.
22) Ibid.
23) Ibid.
24) Price Waterhouse Coopers, CSFI/PwC Insurance Banana Skins Australia 2015.
25) Ibid.
26) Stuart CORNER, “What Cyber Insurers Look For” Computerworld (20 Nov. 2017)
<https://www.computerworld.com.au/article/630214/what-cyber-insurers-look/>.
27) AusCert BDO, 2016 Cyber Security Survey <https://www.bdo.com.au/en-au/2016-
cybersecurity-survey-results>.
28) Centre for Internet Security, Cyber Insurance Research Paper, p. 7
<www.canberra.edu.au/cis/storage/CIS%20Cyber%20Insurance_FINAL.pdf>.
29) Ibid.
30) Ibid., p. 8.
31) Keith KIRKPATRICK, “Cyber Policies on the Rise”, 58 Communications of the ACM (2015) p.
21.
32) Ibid.

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 33) Centre for Internet Security, Cyber Insurance Research Paper, p. 8
<www.canberra.edu.au/cis/storage/CIS%20Cyber%20Insurance_FINAL.pdf>.
34) Ibid.
35) Liam BAILEY, “Mitigating Moral Hazard in Cyber-Risk Insurance”, 3 Journal of Law &
Cyber Warfare (2014, issue 1).
36) Interview with Leon Fouche, partner and national leader of Cybersecurity at insurance
advisory firm BDO in Sam WORTHINGTON, “Is Cyber Security Insurance Really Worth it?”
Security Brief Australia (6 August 2016).
37) Sasha ROMANOSKY, Lillian ABLON, Andreas KUEHN, and Therese JONES, “Content
Analysis of Cyber Insurance Policies: How Do Carriers Write Policies and Price Cyber
Risk?”, WEIS Conference 2017. Available at <https://weis2017.econinfosec.org/wp-
content/uploads/sites/3/2017/06/WEIS_2017_paper_28.pdf>.
38) Chris BARANIUK, “Ashley Madison: ‘Suicides’ over Website Hack”, BBC News (24 August
2015) <www.bbc.com/news/technology-34044506>.
39) Centre for Internet Security, Cyber Insurance Research Paper, p. 10
<www.canberra.edu.au/cis/storage/CIS%20Cyber%20Insurance_FINAL.pdf>.
40) Paper on file with author (Draft). Adib HAQUE and Alana MAURUSHAT, “Why Attribution
is Hard – the Sony Hack Analysed”.
41) State of California Department of Justice Office of the Attorney General, Sony Pictures
Entertainment Notice Letter (8 Dec. 2014).
42) C-Span, “Hacking and Cybersecurity Threats” (7 Dec. 2014).
43) Julie MAKINEN, “North Korea Decries U.S. Allegations on Sony Hack; U.S. Turns to China”,
Los Angeles Times (20 Dec. 2014).
44) Phil HELSEL, “North Korea Insults Obama, Blames U.S. for Internet Outgages”, NBC News
(26 Dec. 2014).
45) Ralph ELLIS, “Lawsuits Say Sony Pictures Should Have Expected Security Breach”, CNN
(20 Dec. 2014).
46) Mary MILLIKEN, “For Sony Picture CEO, Cyberattack Won't Set Studio Back”, Reuters (8
Jan. 2015) <www.reuters.com/article/2015/01/09/us-northkorea-cyberattack-sony-
idUSKBN0KI02420150109#2iLM0p9aTU3B...>.
47) Sasha ROMANOSKY, “Comments to the Department of Commerce on Incentives to
Adopt Improved Cybersecurity” (April 2013)
<www.ntia.doc.gov/files/ntia/romanosky_comments.pdf>.
48) Alana MAURUSHAT, “Data Breach Notification Law Across the World from California to
Australia”, Privacy Law and Business International (2009). Updated Report 2015
forthcoming.
49) Ibid.
50) Ibid.
51) Attorney General for Australia, “The Australian Government has responded to the
inquiry of the Parliamentary Joint Committee on Intelligence and Security (PJCIS) into
the Telecommunications (Interception and Access) Amendment (Data Retention) Bill
2014” (Media Release, Recommendation p. 38)
<www.attorneygeneral.gov.au/Mediareleases/Pages/2015/First Quarter/Government-
Response-To-Committee-R...>.

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 KluwerArbitration

Document information
Cyber Intrusion as the Guerrilla Tactic: An Appraisal of
Publication Historical Challenges in an Age of Technology and Big Data
Evolution and Adaptation: Edna Sussman
The Future of International (*)
Arbitration
“There is a new mantra in cybersecurity today: ‘It's when not if.’” (1)
Bibliographic reference I Introduction
Edna Sussman, 'Cyber Cyber intrusion and hacking are in the news almost daily with damaging invasions of law
Intrusion as the Guerrilla firms, corporations, governmental agencies, and political entities. “Security breaches are
Tactic: An Appraisal of becoming so prevalent that there is a new mantra in cybersecurity today: ‘It's when not if,’
Historical Challenges in an a law firm or other entity will suffer a breach.” (2) Those who monitor information
Age of Technology and Big technology (IT) systems report dozens of attempted attacks on a daily basis. Arbitration
Data', in Jean Engelmayer participants have not been immune. (3)
Kalicki and Mohamed Abdel P 849
Raouf (eds), Evolution and P 850
Adaptation: The Future of At the ICCA Congress in 2018, a consultation draft of the Cybersecurity Protocol for
International Arbitration, International Arbitration was circulated for comment. (4) The Protocol is
ICCA Congress Series, Volume
20 (© Kluwer Law “intended to encourage participants in international arbitration to become
International; International more aware of cybersecurity risks in arbitration and to provide guidance that
Council for Commercial will facilitate collaboration in individual matters about the cybersecurity
Arbitration/Kluwer Law measures that should reasonably be taken, in light of those risks and the
International 2019) pp. 849 - individualized circumstances of the case to protect information exchange and
868 the arbitral process”. (5)
It is hoped that adherence to the Protocols coupled with adherence to practical guidance
on how to protect against cyber intrusion (6) will diminish the number of incidents in
international arbitration.
While guerrilla tactics such as fabricated or illegally obtained evidence are not new, cyber
intrusion requires a review of pertinent issues that might arise where fabricated or illegally
obtained evidence is made possible by virtue of cyber intrusion. This paper seeks to flag
for further analysis: (a) the issues that may arise and that may require consideration by
arbitrators in instances in which evidence is introduced at the hearing which is, or is
claimed to be, hacked or fabricated through cyber manipulation; (b) unconscious
influences that can impact decisions where such evidence is an issue; and (c) the
arbitrator's duties when confronted with such evidence. The discussion will provide an
overview of the admissibility of illegally obtained documents, authentication of
documents, sanctions, the psychological impact on decision-making of inadmissible
evidence, the influence of one's native legal culture on decision-making and the
arbitrator's duty to report.
P 850
P 851

II Admissibility
Arbitrators have broad discretion in dealing with evidence. They may admit or reject
evidence and have full discretion in evaluating and weighing the evidence in determining
what weight, if any, the evidence should be given. Art. 19(2) of the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on International
Commercial Arbitration provides that “[t]he power conferred upon the arbitral tribunal
includes the power to determine the admissibility, relevance, materiality and weight of
any evidence”. National laws governing the arbitration provide similar powers to the
arbitrators. (7)
The International Bar Association (IBA) rules and various institutional rules grant broad
discretion to the arbitral tribunal in the taking of evidence. Art. 9(1) of the 2010 IBA Rules
on the Taking of Evidence in International Arbitration provides that “[t]he arbitral tribunal
shall determine the admissibility, relevance, materiality and weight of evidence”. Art.
20(6) of the 2014 International Centre for Dispute Resolution (ICDR) International
Arbitration Rules provides that “[t]he tribunal shall determine the admissibility, relevance,
materiality and weight of the evidence”. Rule 34(a) of the 2013 American Arbitration
Association (AAA) Commercial Arbitration Rules provides that “[C]onformity to legal rules of
evidence shall not be necessary.” Rule 22.1(vi) of the 2014 London Court of International
Arbitration (LCIA) Arbitration Rules provides that the tribunal “shall have the power … to
decide whether or not to apply any strict rules of evidence (or any other rules) as to the
admissibility, relevance or weight of any material tendered by a party on any issue of

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 fact…”.
The courts recognize the discretion afforded to arbitrators, and consistent with the
deference courts generally give arbitral decisions, courts have confirmed that arbitral
tribunals are not bound by domestic rules of evidence. (8) “In practice, international
arbitral tribunals typically do not apply strict rules of evidence, particularly rules of
evidence applicable in domestic litigations.” (9)
Given this wide discretion and the binding nature of arbitral awards, tribunals generally
admit evidence to avoid risking vacatur for failure to provide a full and fair opportunity to
present the case, and then consider its credibility, weight and value. (10) However, on a
proper showing, evidence may be excluded by the arbitral tribunal. Where it is
P 851 demonstrated that evidence has been obtained illegally the arbitral tribunal is faced with
P 852 a difficult choice. With the prevalence of cyber intrusions in today's world, it is
inevitable that tribunals will be increasingly required to address the question of whether
or not they should admit illegally obtained evidence. Reporting on a dispute before a
federal court in New York, an aptly named article in The Wall Street Journal was titled
“Hackers for Hire are Easy to Find”. (11) As described, hundreds of personal emails of a
Kuwaiti billionaire were posted online and available to all. It was reported that the cost for
the hackers was US$ 400, demonstrating the low cost and ease with which computer
hacking can be accomplished.
However, no clear line of authority has developed to guide tribunals as to how they should
treat illegally obtained evidence. Tribunals have arrived at different conclusions on the
question. (12)
The Corfu Channel case, heard before the International Court of Justice between 1947 and
1949 was an early instance in which the tribunal dealt with illegally obtained evidence. (13)
The United Kingdom in violation of Albania's sovereignty conducted a mine sweeping
operation in Albanian waters to find evidence in support of its case that Albania had failed
to give warning to the United Kingdom about mines in the channel as was required by
international law, which caused several British warships to be struck by submerged mines.
While the court found that the United Kingdom's actions were unlawful, the court did not
exclude the evidence and did not apply any material sanctions against the United
Kingdom.
Taking a different position in the prominent arbitration decision in Methanex v. United
States (Methanex), long before WikiLeaks, the tribunal declined to admit the wrongfully
obtained evidence. (14) Methanex attempted to rely on documents obtained by going
through wastepaper and rubbish in support of its position. The tribunal stressed the
general duty of good faith and the fundamental principles of justice and fairness:
“[I]t would be wrong to allow Methanex to introduce this documentation into
these proceedings in violation of its general duty of good faith and, moreover,
that Methanex's conduct, committed during these arbitration proceedings,
offended basic principles of justice and fairness required of all parties in every
international arbitration.” (15)
The Methanex tribunal, however, also considered the question of materiality of the
evidence and concluded that it was only of “marginal evidential significance”. (16)
P 852 In the well-known Yukos award which granted $ 50 billion in damages, the tribunal relied
P 853 extensively on confidential diplomatic cables from the United States Department of
State that had been illegally obtained and published on WikiLeaks. (17) The tribunal
specifically referenced the views expressed by officials in the US Embassy's cables
published by WikiLeaks in support of its decision stating that the cables revealed the
“candid” and “unguarded” views of PwC's senior management, an important issue in the
case. (18) The tribunal provided no analysis of whether evidence illegally obtained should
be admitted.
In Libananco v. Turkey (Libananco), (19) while the arbitration was in progress, Turkish
authorities were intercepting electronic communications, including between Libananco
and its legal counsel, and obtained 2,000 legally privileged and confidential emails.
Turkey maintained that the surveillance activities had nothing to do with the arbitration
and the files intercepted were not shared with the department that was handling the
arbitration. The tribunal referenced as having been affected: basic procedural fairness,
respect for confidentiality and legal privilege, the right of parties to advance their
respective cases freely and without interference, and respect for the tribunal itself. The
tribunal expressed the principle that “[p]arties have an obligation to arbitrate fairly and in
good faith and that an arbitral tribunal has the inherent jurisdiction to ensure that this
obligation is complied with”. (20) The tribunal directed that any document which had been
intercepted which related to the arbitration be destroyed and held that any privileged
documents or information which may be introduced in the future, as well as any evidence
derived from possession of such documents or information, would be excluded from
evidence.
In Caratube v. Kazakhstan, (21) Caratube attempted to introduce eleven documents that
had been made publicly available on the Internet as a consequence of a hacking of the
Kazakhstan government's IT system. Hackers had uploaded about 60,000 documents onto a

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 website known as “Kazakhleaks”. The tribunal allowed the admission of all non-privileged
leaked documents but excluded from the record all illegally leaked privileged documents
finding that the tribunal must afford privileged documents the utmost protection. (22)
P 853 The application for reconsideration of an interim decision in Conoco Phillips v. Venezuela
P 854 provides an example of the potential for flashpoints between the search for truth and
other values. (23) Venezuela, in an application for reconsideration of an interim decision,
relied on US Embassy cables made available on WikiLeaks which showed that Venezuela
had attempted to negotiate in good faith with the claimant, Conoco Phillips, including
about compensation for the expropriation and which directly contradicted previous
factual findings of the tribunal. The challenge was rejected based on the tribunal's analysis
of the right to reconsider a prior decision under the ICSID rules, concluding that its prior
decision had res judicata effect and could not be reconsidered. In a strong dissent
Professor George Abi-Saab, concluding that the revelations of the WikiLeaks cables, which
he found to be reliable, radically contradicted the factual analysis of the prior decision,
stated:
“In the circumstances, I don't think that any self-respecting Tribunal that takes
seriously its overriding legal and moral task of seeking the truth and dispensing
justice according to the law on that basis, can pass over such evidence, close its
blinkers and proceed to build on its now severely contestable findings, ignoring
the existence and the relevance of such glaring evidence.
It would be shutting itself off by an epistemic closure into a subjective make-
believe world of its creation; a virtual reality in order to fend off probable
objective reality; a legal comedy of errors on the theatre of the absurd, not to
say travesty of justice, that makes mockery not only of ICSID arbitration, but of
the very idea of adjudication.” (24)
That the discretion afforded to arbitrators calls upon them to balance the search for truth
and other values is not new. It is just being presented in a new context in our digital world.
As William Park said, “Nothing new resides in balancing truth-seeking against values that
further public goals rather than adjudicatory precision.” (25) As William Park elaborated:
“Arbitrators are supposed to arrive at some understanding of what actually
happened and what legal norms determine the parties' claims and defenses. In
finding facts and applying law, arbitrators should aim at getting as near as
reasonably possible to a correct view of the events giving rise to the
controversy, and to consider legal norms applied in other disputes that raise
similar questions.
This does not mean that arbitrators do not balance truth-seeking against other
goals. Indeed, they do so all the time, notably in connection with document
production (which competes with economy and speed), and attorney-client
P 854 privilege (which inhibits attempts to get at what corporate officers really knew).
P 855 However, such balancing of interests does not require abandonment of truth
taking as an aspiration.” (26)
In short, there are no bright lines that govern the admissibility of illegally obtained
evidence, as is the case with many of the instances in which the tribunal is called upon to
balance competing values. The decisions appear to emphasize who committed the
wrongful act, whether the documents are privileged, and whether the information revealed
was material to the decision on the merits.
Cherie Blair and Ema Gojković, in their comprehensive article analyzing the existing
jurisprudence, conclude that a trend may be discerned based on existing case law. They
posit that the “legal and policy elements which have been taken into account when
deciding admissibility of illegally obtained evidence include: (27)
(1) Has the evidence been obtained unlawfully by a party who seeks to benefit from it?
(2) Does the public interest favour rejecting the evidence as inadmissible?
(3) Do the interests of justice favour the admission of evidence?”
As decisions continue to explicate the question of admissibility of evidence that is the fruit
of a cyber intrusion, other issues and concerns present themselves that bear analysis.

III Authentication
While this discussion focuses on emails, similar issues can arise with text messages, (28)
Facebook entries and postings on other social media outlets, (29) and evidence from the
P 855 “internet of things”. (30) Litigation positions taken by parties with the ascendance of cyber
P 856 intrusion are presented in a variety of ways. A party may contend that the documents
were “stolen” by hacking into his or her IT system; thus, illegally obtained. (31) That
contention raises questions of admissibility discussed above. A party may contend that it
no longer has the documents available for production because it was hacked. (32) That
contention raises questions of proof as with any assertion that documents no longer exist,
although a forensic examination may be required for the production of such proof in the
context of digital evidence. Or illegally hacked emails might be posted publicly on

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 WikiLeaks or some other platform on the web that is publicly available. (33) Again, that
raises a question of admissibility discussed above. The party may contend that the emails
were fabricated by a hacker and that they did not write them. That contention raises
questions of authenticity discussed in this section.
Authentication is not an issue frequently encountered in international arbitration.
However, it is likely that with the prevalence of cyber intrusions and the ease with which it
seems to be possible to intrude, arbitrators will likely be required to review an increasing
number of objections to admissibility based on lack of authenticity.
In the famous case of Ceglia v. Zuckerberg, (34) plaintiff, Paul Ceglia, alleged that while he
was at Harvard, Facebook's CEO, Mark Zuckerberg, entered into a “work-for-hire” contract
pursuant to which the plaintiff helped fund the development of Facebook in exchange for a
one-half interest in Facebook. The authenticity of the purported contract and of several
related emails was challenged. Given the magnitude of what was at stake, a variety of
forensic examination tools were employed, including a review of the metadata, backdating
anomalies, formatting anomalies, and a linguistic analysis. Each of these forensic tests is
discussed by the court at length in its decision. Based on its conclusion that the purported
contract and the emails were not authentic but recently created fabrications, the court
relying on its inherent authority concluded that the case could not go to the jury and
dismissed. (35)
In the United States, Rule 902 of the Federal Rules of Civil Procedure was recently
amended to provide for self-authentication of digital evidence. A record generated by an
electronic process, or system that produces an accurate result and data copied from an
electronic device, storage medium, or file if authenticated by a process of digital
P 856 identification, as shown by a certification of a qualified person is self-authenticating,
P 857 without the need for a testifying witness. (36) However, as the comments to the new rule
note, authenticity does not preclude other grounds for objection and parties remain free to
object on other grounds including that the digital evidence was not placed there by them.
Thus, while self-authentication does relieve one aspect of proof, it does not, and is not
intended to, resolve claims that the computer was hacked and false evidence was
introduced.
For arbitrators faced with determining authenticity, a review of factors which had been
considered under earlier versions of the U.S. Federal Rules of Evidence to test authenticity
may be instructive in determining authenticity. In addition to evidence as to digital hash
values and testimony from a forensic witness as to when the email issued and from which
device based on the metadata and other features, Hon. Paul W. Grimm, Daniel J. Capra, and
Gregory P. Joseph, Esq. identify a variety of circumstantial factors that may be considered
and could be useful to arbitrators confronted with this issue. (37)
They conclude that
“[w]hile it is true that an email may be sent by anyone who, with a password,
gained access to another's email account, similar questions could be raised
with traditional documents…. The mere fact that hacking, etc., is possible is not
enough to exclude an email or any other form of digital evidence…. If the mere
possibility of electronic alteration were enough to exclude the evidence, then
no digital evidence could ever be authenticated.” (38)

IV Sanctions
The question of what sanctions a tribunal has authority to impose, and when and how
sanctions should be imposed has been the subject of extensive discussion in recent years
in the wake of the issuance of the 2013 International Bar Association Guidelines on Party
Representation in International Arbitration (IBA Guidelines). (39) Various proposals have
been made as to who should be responsible for sanctioning counsel. (40) Guerrilla tactics,
including cyber intrusion, bring that issue to the fore.
P 857
P 858
Tribunals are appropriately concerned about guerrilla tactics, and consideration of
remedies beyond the exclusion of evidence may be appropriate in cases of cyber
intrusion. As the tribunal stated in Libananco: (41)
“The Tribunal attributes great importance to privilege and confidentiality, and
if instructions have been given with the benefit of improperly obtained
privileged or confidential information, severe prejudice may result. If that event
arises the Tribunal may consider other remedies available apart from the
exclusion of improperly obtained evidence or information.”
The IBA Guidelines empower the tribunal to address “misconduct” by a party
representative after giving the parties notice and a reasonable opportunity to be heard.
Misconduct is broadly defined by the IBA Guidelines to include “breach of the present
guidelines, or any other conduct that the arbitral tribunal determines to be contrary to the
duties of a party representative”. (42) The nature of the “misconduct” intended to be
covered has not been established but, certainly, cyber intrusion would fall into that
category. The guidelines give the tribunal power to respond and specifically identify

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 admonishing the party representative, drawing inferences, apportioning costs, and taking
other “appropriate measures in order to preserve the fairness and integrity of the
proceeding”. In determining the remedy, the tribunal is to consider the nature and gravity
of the misconduct, the good faith of the party representative, the extent to which the party
representative knows about or participated in the misconduct, the potential impact of a
ruling on the rights of the parties, the need to preserve the integrity and fairness of the
arbitral proceedings, and the enforceability of the award. (43) These considerations clearly
P 858 outline the matters to be considered in deciding whether or not to impose a sanction on a
P 859 party for cyber intrusions, if it is concluded that the tribunal has authority to do so.
Others have added disqualification of counsel, and even in particularly egregious cases, a
dismissal of the entire case with prejudice as possible sanctions. (44)
On must start with the question of whether there is authority to impose the sanction.
Authority for sanctions might be found in institutional rules, party adoption of the IBA
Guidelines, party agreement, and perhaps even the tribunal's inherent power. (45) Much
has been written about the inherent powers of arbitrators but the scope of the tribunal's
inherent power is an unresolved question and a continuing subject of debate. (46)
Drawing negative inferences, often cited and on occasion applied, raises less serious
questions about the authority of the tribunal. But depending on the circumstances and the
relationship of the inference to the wrongful conduct even that may raise questions of
punitive measures in violation of due process and risk vacatur. (47)
The question of whether the tribunal has the power to impose cost sanctions on the parties
– and even more questionably, on the counsel – has not been firmly settled. (48) Pierre
Mayer opined that “punishing a counsel, or a party through a decision on costs is an abuse
of the power to sanction. This is because an arbitrator is not allowed to impose a penalty
without a basis in law: ‘[W]ithout a power specifically conferred either by the law or by the
P 859 parties … an arbitrator is not allowed to impose a penalty.’” (49) Others have taken a
P 860 different view. (50) Yet, others have suggested that the power to impose cost sanctions
should be more vigorously pursued, (51) as arbitration users have urged. (52) Some courts
have confirmed the tribunal's authority to impose costs as a sanction. (53)
Whether or not the tribunal has the authority to disqualify counsel in international
arbitration has also not been definitively decided. The historical view has been that
arbitral tribunals do not have the power to disqualify or sanction counsel. (54) However,
that may be evolving. In a leading case, Hrvatska Elektroprivreda, d.d. v. Republic of
Slovenia, the tribunal disqualified the counsel brought into the representation shortly
before the hearing, which presented a conflict with one of the arbitrators, based on the
inherent power of the tribunal to take measures to “preserve the integrity of the
proceedings”. (55) In a subsequent case, the tribunal in The Rompetrol Group N.V. v.
Romania declined to disqualify the counsel and, while not deciding the limits of the
tribunal's powers, stated that “such powers as may exist would be one to be exercised only
rarely, and in compelling circumstances”. (56) Given the right of the parties in arbitration
to select a representative of their choosing, any power to disqualify counsel will certainly
be very sparingly exercised. (57) Some courts have found disqualification to be beyond the
powers of an arbitrator. (58) Courts, however, in appropriate circumstances, have
disqualified counsel who have engaged in cyber guerrilla tactics. (59)
The dismissal of the entire case with prejudice as a sanction for guerrilla tactics would be
an extreme measure and not likely to be the remedy chosen by a tribunal. Gunther
P 860 Horvath, Stephan Wilske, and Jeffrey Leng report that no tribunal has done so. (60) Courts
P 861 have not always been so restrained and have dismissed complaints lodged by parties
who have engaged in illegal conduct in the collection of evidence by cyber intrusion. (61)

V The Impact on Decision-Making of Inadmissible Evidence

National laws provide exclusionary evidentiary rules where the prejudicial effect of the
evidence outweighs its probative value, where the nature of the evidence has limited
reliability and therefore limited probative value, or where policy considerations dictate
exclusion as is the case in disincentivizing illegal behavior. While these exclusionary
evidentiary rules authorize and, in some cases, require the fact-finder to exclude the
evidence, the fact is that the fact-finder has already seen the evidence.
Study after study has established that fact-finders cannot ignore inadmissible information
and are influenced in their decision-making by that information, even if it has been
excluded. As Doron Teichman and Eyal Zamir sum up the literature:
“[n]umerous studies have documented the effects of inadmissible evidence in …
legal domains, such as hearsay evidence, pretrial media reports, and illegally
obtained evidence. These studies show that inadmissible evidence affects
judicial decision-making in civil as well as criminal settings, irrespective of
whether that evidence favors the prosecution or the defense. A recent meta-
analysis concluded that ‘inadmissible evidence produced a significant
impact.’” (62)
Illustrative study outcomes include one study which demonstrated that there was a spread
in finding liability as between judges who saw inadmissible privileged information

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 damaging to the plaintiff (29 percent found for plaintiff) as compared to judges who did not
see that information (55 percent found for the plaintiff). There was a spread of 25 percent
in the damages awarded between judges who saw evidence of an unrelated criminal
conviction which was suppressed as unduly prejudicial and those who were not informed of
the prior criminal conviction. (63) Recognition of unconscious influence is undoubtedly the
rationale for not permitting parties to introduce evidence of settlement discussions.
P 861
P 862
As the courts have found it can be “difficult to ‘unring the bell’”. (64) Arbitrators should be
sensitive to this unconscious influence and carefully assess the evidence upon which they
rely to ensure that it supports their conclusions without reference to excluded evidence.
Advocates should be sensitive to the fact that highlighting evidence to urge its exclusion
may cause it to make an even deeper impression on the fact-finder.

VI The Impact on Decision-Making of Native Legal Culture

At a recent conference, a well-known arbitrator suggested that looking to the law of one's
own jurisdiction is very useful in considering whether the governing law makes sense. Those
in attendance were surprised by that comment, but it was perhaps just a conscious
recognition of the fact that at an unconscious level one's own legal culture, whether native
or the one in which an individual has predominantly practiced, may influence one's
analysis and decision.
Supporting this conclusion Joshua Karton found in his study of the evolution of contract law
in arbitration, that tribunals considered extrinsic evidence where they were charged with
applying the law of a common law jurisdiction even though the law of that jurisdiction
would have precluded such evidence. (65) We can surmise that this outcome resulted from
the influence of the arbitrators' native legal culture. As Giuditta Cordero-Moss aptly put it
“the legal background of the arbitrator is recognized as playing an important role, a sort of
imprinting, which will influence the approach taken….” (66) Thus, while the award may be
written with reference to the applicable law, the conclusion may be driven by an
arbitrator's legal culture. As Justice Scalia pointed out, quoting Chancellor James Kent who
said, “I almost always found [legal] principles suited to my views of the case.” (67) National
laws may vary as to the admissibility of unlawfully obtained evidence and influence
decisions on the admissibility of evidence obtained through cyber intrusion. (68)
A comprehensive decision reviewing prior relevant authorities was issued by the Singapore
Court of Appeals in 2016, which directly addressed the question of the balance between
the competing policy imperatives of truth and privilege in the context of WikiLeaks
exposure. (69) A former employee sought to introduce into evidence communications of his
former employer with its counsel, which had been hacked by unknown parties and
uploaded onto WikiLeaks. The court concluded that even though the WikiLeaks material
submitted as evidence was publicly available, because it constituted a minute fraction of
P 862 the approximately 500 GB of data that had been pilfered just from the former employee's
P 863 system, it was highly probable that few, if any, knew of its existence, and therefore the
contents were not public knowledge and retained their confidential status. The court
considered the fact that the employee had not been the perpetrator of the cyberattack
but concluded that there was little doubt that the employee knew that the emails were
privileged. The court held that the confidential character of the information in the emails
had not been lost by its posting on WikiLeaks because to hold otherwise would be to
“sanction and to encourage unauthorized access and pilferage of confidential information”.
The court further examined whether or not the documents supported the conclusions the
employee sought to draw from them and concluded that they did not. The court concluded
that “the balance between the competing imperatives of truth and privilege is … struck in
favor of the latter”. (70)
Historically, case law from the United Kingdom supported accepting evidence which had
been obtained in violation of law or ethics. (71) In 1980, the High Court of Justice, Chancery
Division, opined that in civil cases “the judge cannot refuse it [evidence] on the ground that
it may have been unlawfully obtained in the beginning”. (72) That statement of principle
may be in the process of evolving, (73) and considerations of competing values are being
reviewed in light of subsequent enactments. In a decision issued in 2003, the English Court
of Appeal considered violations of the Human Rights Act committed by an insurer which
filmed a video of the claimant in her home without her knowledge, having obtained access
to the claimant's home by deception. The court weighed the circumstances against the
relevance of the evidence and concluded “this is not a case where the conduct of the
defendant's insurers is so outrageous that the defence should be struck out …. It would be
artificial and undesirable for the actual evidence, which is relevant and admissible, not to
be placed before the judge who has the task of trying the case.” (74)
In an even more recent case in 2010, documents had secretly been accessed and copied
for the wife from the husband's server in his office and passed on to the wife's solicitor. The
English Court of Appeal narrowed the Hildebrand rule which was previously thought to
permit access to information about the other spouse whether or not it was confidential to
assist in proceedings concerning financial provision. The court held that where rights
pursuant to Art. 8 of the Human Rights Act and expectations of privacy are breached
turnover of the documents to the husband's counsel was required, and the wife was

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 restrained from using any information contained in the documents. The court also noted
that the wife was at liberty to commence ancillary proceedings to obtain information to
which she is entitled with respect to the husband's finances. The court noted that the
P 863 conduct in question might also have constituted criminal offenses under the Computer
P 864 Misuse Act 1990 and the Data Protection Act 1998. In rendering its decision, the court
stated that it had given due regard to the competing right to a fair trial, right to preserve
confidence and right to rely on evidence. (75)
In the United States, to safeguard the Fourth Amendment rights, the exclusionary rule does
not permit the admission of evidence seized during an unlawful search as proof against the
defendant at a criminal trial. The courts have developed the “fruit of the poisonous tree”
doctrine which extends the exclusionary rule to require suppression of other evidence that
is derived from and is tainted by the illegal search or seizure. The doctrine is not
applicable in civil cases. (76) How courts handle evidence derived through illegal or
unethical means in civil cases is not uniform and is generally fact specific. Courts have said
that “[g]enerally in civil cases, the manner in which evidence is obtained is irrelevant to
the issue of admissibility.” (77) On the other hand, the courts have noted that “courts
routinely preclude [the] use of evidence obtained in violation of the ethical rules in order
to appropriately remedy that violation”. (78)
Addressing an application to strike references to documents that had been released by
others on WikiLeaks from the complaint, a US District Court declined to do so. The court
found that since the
“documents have been available in the public domain for more than five years,
and this Court does not have the power or ability to limit its access. … ‘[I]t is
unlikely that the court can now effectively enforce an injunction against the
internet in its various manifestations, and it would constitute a dubious
manifestation of public policy were it to attempt to do so.’ … [The] complaint
does not put this material ‘in the public eye’ any more than the internet has
already done so.” (79)
In France, views on the issue have been split between the “Civil” and the “Criminal”
divisions of the French Supreme Court (Cour de Cassation). In civil matters, the legality of
evidence has been considered through the prism of a more general notion of “fairness”
(loyauté) in the administration of evidence, established by the decision of Cour de
Cassation in 2011. In that case, a company produced in support of its application audio
tapes containing recorded telephone conversations with representatives of two of its
competitors. The Paris Court of Appeals held that while the recordings were obtained in an
unfair manner, they could not be completely excluded from the debate by the mere
P 864 application of an “abstract principle” of fairness, without showing that production of such
P 865 evidence had a specific impact on the right to a fair trial of the parties in question. The
Cour de Cassation disagreed and held that the recordings, made unbeknownst to their
subjects, were not admissible as evidence. (80) In its decision, the Court relied on Art. 9 of
the French Civil Procedure Code, Sect. 1 of Art. 6 of the European Convention on Human
Rights, and the “principle of fairness in the administration of evidence”.
Yet, the prohibition is not absolute. For example, the Cour de Cassation admitted findings,
derived from the surveillance by a bailiff of a person, when such surveillance was made in
public, holding that “any harm caused to the privacy of Mr. Z., in public spaces or places
open to public, without any incitement to go there […] were not disproportionate”. (81) In a
more recent decision, the court has further clarified that “the right to prove one's case can
only justify the production of evidence which causes harm to privacy, where such
production is indispensable to the exercise of that right, and where the harm was
proportionate to the aim pursued”. (82)
The Criminal Division of the Cour de Cassation, on the other hand, is less concerned with the
principle of loyauté. It relies in particular on Art. 427, para. 1 of the Criminal Procedure
Code, which states that “[e]xcept where the law provides otherwise, offenses may be
established by any means of evidence and the judge shall rule based on his personal
conviction”, to admit evidence obtained in an illegal or unfair way. (83) In general, the
Criminal Division admits a victim's use of unfairly obtained evidence, if it is a condition for
her access to justice, as well as where admission of such evidence is a condition to
establish the innocence of the person. It also rules on a regular basis that there is no legal
provision allowing criminal judges to exclude evidence submitted by an individual to the
investigative authorities on the sole basis that such evidence would have been obtained
illegally or unfairly, and that it is only up to the judges, pursuant to Art. 427 of the Criminal
Procedure Code, to assess the probative value of such evidence, having submitted it to an
adversarial debate. This includes, notably, cases where the illegally obtained evidence
includes the content of a person's communications with her lawyers. (84)
In light of the unconscious influence of one's native legal culture, there may be situations
where counsel would wish to consider emphasizing differences, if there are any, between
the applicable law and the native legal culture of the arbitrators.
P 865
P 866

VII Duty to Report

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 Cyber intrusion is a crime in jurisdictions around the world. (85) Violations of privacy laws
are also implicated. What, if any, is the arbitrator's duty to report a cybercrime? And to
whom? Local authorities? Counsel's bar association? The administering institution? While
arbitrators must first consider whether they are under any legal or ethical obligation that
requires them to take action, (86) the resolution of the question presents the tension
between reporting wrongdoing and the confidentiality of the arbitration proceeding. (87)
Elliott Geisinger and Pierre Ducret distinguish between doctored documents and witnesses
lying on the stand, which they consider sufficiently dealt with by the tribunal's disregard of
such evidence on the one hand and what they referred to as a “Balrog” (88) on the other
hand. A Balrog is a violation of fundamental national or supranational rules close to
transnational public policy. They cite as examples, money laundering, corrupt practices,
P 866 gross violation of competition law, fraudulent conveyances, financing of terrorism,
P 867 violation of embargoes, traffic of cultural property, and gross violations of
environmental regulations. (89) If a party hacks into another parties' computer system, or
worse yet, posts it publicly or provides it to others to post publicly, one might well
conclude that the matter involves no ordinary doctored document, but rather rises to the
level of a Balrog.
However, Geisinger and Ducret conclude that finding a reporting duty is in complete
contradiction with the confidential nature of international commercial arbitration and
suggest that most legal systems would not impose any such duty even with respect to
Balrogs. (90) They allow for possible exceptions for extremely serious violations of
fundamental legal principles such as human trafficking where the confidentiality of the
arbitration becomes a “minor consideration”.
Two anecdotes confirm the historic general acceptance of Geisinger and Ducret's
conclusion. It became clear to the tribunal in the course of one hearing some years ago,
when the testimony of one witness was interrupted and both counsel requested an
adjournment, that the testimony revealed a Balrog which had not previously been
identified. The tribunal approached the arbitral institution and requested a formal legal
opinion as to their duties. A British QC was retained to deliver an opinion virtually
overnight. He opined that the tribunal did not have a duty to report the Balrog. The
tribunal relied on that advice. In another case, it became apparent from the testimony
that a bridge was in imminent danger of collapse because the steel that had been used in
its construction was not of sufficient thickness. The tribunal advised counsel that if they
did not report it to the authorities promptly the tribunal would take it upon itself to do so.
Perhaps the historic bright line between reporting a Balrog and preserving confidentiality
as drawn where there is a danger to life and limb is applicable to cyber intrusion. But with
the advent of criminal statutes around the globe dealing with corruption and money
laundering, some of which impose reporting requirements that vary across jurisdictions,
coupled with the emergence of these issues in arbitration, the duty to report criminal
activity has gained attention with no clear answer as to the scope of the arbitrator's duties
to report. (91) Data breach notification laws and regulations have been enacted in many
jurisdictions (92) making the issue of the duty to report potentially relevant to cybercrimes
as well.
P 867
P 868
The countervailing considerations of arbitrator confidentiality and the privacy of the
proceedings, the obligation to make every effort to ensure that the award is enforceable,
and the emerging view that arbitrators have a responsibility to uphold the international
rule of law and must be concerned with international public policy will thus likely be a
subject of concern not only in the context of corruption and money laundering but perhaps
in the area of cyber intrusion as well.
While dealing with the obligations of lawyers with respect to the criminal act of money
laundering, the bar associations which collaborated on the effort noted in their report the
“essential ethical obligations of the legal profession not to support or facilitate criminal
activity”. The report further noted the fact that specific laws and regulations in many
countries “have been extended to lawyers and require, in a formal sense, lawyers to take
specific actions” including “in some jurisdictions an obligation to inform the authorities”.
Based on the development of these recent legal requirements the report strikes a final
cautionary note.
“The obligation by lawyers to report is highly controversial and is seen by many
to endanger the independence of the legal profession and to be incompatible
with a lawyer client relationship. However, in some countries lawyers can
themselves be prosecuted for failure to carry out appropriate due diligence
and report suspicious transactions to the authorities. It is important that
lawyers in such countries are fully aware of these obligations and the actions
they need to take.” (93)
Arbitrators who are attorneys may or may not be bound by the duties of attorneys, and
which law would apply is far from clear, but if confronted with a cyber intrusion an
arbitrator might be wise to heed this admonition with respect to cyber intrusion as well
and consider what obligations, if any, he or she has to report.

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 VIII Conclusion
The ease with which it appears cyber intrusion can be accomplished and the almost daily
reports of hacks suggests that arbitrators are likely to be presented with issues related to
breaches of cyber security. The issues are not new. They are merely presented in a new
guise. It is hoped that this article will assist arbitration practitioners in understanding the
issues as presented in this context and provide guidance as to how to approach them.
P 868

References
*) Edna Sussman: Full-time independent arbitrator and Distinguished ADR Practitioner in
Residence at Fordham University School of Law; former litigation partner at White &
Case LLP and has served as an arbitrator in over 200 complex commercial arbitrations,
both international and domestic, under many institutional rules and ad hoc; member
of the panel of many of the leading dispute resolution institutions around the world
and fellow of the Chartered Institute of Arbitrators; sits on the Board of the American
Arbitration Association; chair of the AAA-ICDR Foundation; Chair of the New York
International Arbitration Center; past President of the College of Commercial
Arbitrators; graduate of Barnard College and Columbia Law School; has lectured and
published widely on arbitration, mediation, energy and environmental issues.
1) David REIS, ABA Tech Report 2017, ABA,
<https://www.americanbar.org/groups/law_practice/publications/techreport/2017/se
curity.html> (last visited 23 May 2018).
2) Id.
3) See, e.g., Allison ROSS, “Cybersecurity and Confidentiality Shocks for the PCA”, Glob.
Arb. Rev. (23 Jul. 2015)
<https://globalarbitrationreview.com/article/1034637/cybersecurity-and-
confidentiality-shocks-for-the...> (reporting on an attempted hack of the PCA website
during the hearing of the maritime border dispute between the Philippines and China);
Zachary ZAGGER, “Hackers Target Anti-Doping, Appeals Bodies Amid Olympics”,
Law360.com (12 Aug. 2016, 5:00 PM)
<https://www.law360.com/articles/827962/hackers-target-anti-doping-appeals-
bodies-amid-olympics> (A group of hackers attempted to infiltrate the website of the
Court of Arbitration for Sport during the Rio Olympic Games.).
4) Cybersecurity in International Arbitration ICCA-NYC Bar-CPR Working Group, Arbitration-
ICCA.org, <www.arbitration-icca.org/projects/Cybersecurity-in-International-
Arbitration.html> (last visited 23 May 2018).
5) Draft Cybersecurity Protocol for International Arbitration – Consultation Draft, ICCA-NYC
Bar-CPR, <http://www.arbitration-
icca.org/media/10/43322709923070/draft_cybersecurity_protocol_final_10_april....> at
p. 5 (last visited 23 May 2018).
6) Following are some of the currently available sources that address cybersecurity
measures, but technology is constantly evolving and hackers are increasingly
sophisticated and developing new cyber weapons. Thus, keeping up to date on the
latest guidance is essential. See, e.g., Stephanie COHEN and Mark MORRIL, “A Call to
Cyber Arms: The International Arbitrator's Duty to Avoid Digital Intrusion”, 40 Fordham
Int'l. L. J., 981, 1012–1018 (2017); Jill D. RHODES and Robert S. LITT, The ABA Cybersecurity
Handbook: A Resource for Attorneys, Law Firms, and Business Professionals, 2d ed. (ABA
2018); Maud PIERS and Christian ASCHAUER eds., Arbitration in the Digital Age: The
Brave New World of Arbitration (Cambridge 2018); ARIAS, U.S, Practical Guide for
Information Security in Arbitration (ARIAS 2017) <https://www.arias-us.org/wp-
content/uploads/2017/08/ARIAS-US-Practical-Guide-for-Information-Securit...>; Philip
Doyle GRAY, The Pillars of Digital Security: How to Ethically Use Technology in Legal
Practice (2017).
7) See Gary BORN, International Commercial Arbitration, 2d ed. (Kluwer 2014) Sect.
15.09(A) (citing the U.S. Revised Uniform Arbitration Act; the English Arbitration Act; the
French Code of Civil Procedure; German ZPO; Austrian ZPO; Hong Kong Arbitration
Ordinance; Japanese Arbitration Law; Korean Arbitration Act; and Costa Rica
Arbitration law).
8) See, e.g., Bell Aerospace Co. Div. of Textron, Inc. v. Int'l Union, United Auto., etc., 500
F.2d 921, 923 (2d Cir. 1974) (“In handling evidence an arbitrator need not follow all the
niceties observed by the federal courts.”).
9) G. Born, supra fn. 7, at 2310.
10) Edna SUSSMAN, “The Arbitrator Survey – Practices, Preferences and Changes on the
Horizon”, 26 Am. Rev. Int'l Arb. (2015) pp. 517, 521 (survey results demonstrated that
only 11 percent of arbitrators excluded evidence that would not be admissible under
national evidentiary standards more than 75 percent of the time).
11) Cassell BRYAN-LOW, “Hackers for Hire Are Easy to Find”, The Wall Street Journal (23 Jan.
2012)
<https://www.wsj.com/articles/SB10001424052970203471004577145140543496380>.

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 12) See generally, Cherie BLAIR and Ema Vidak GOJKOVIĆ, “WikiLeaks and Beyond:
Discerning an International Standard for the Admissibility of Illegally Obtained
Evidence”, 22 ICSID Rev. – For. Inv. L. J. 1 (2018, issue 1); J. H. BOYKIN and M. HAVALIC,
“Fruits of the Poisonous Tree: The Admissibility of Unlawfully Obtained Evidence in
International Arbitration”, 5 Transnat'l Disp. Mgmt. J. (2015); Jessica O. IRETON, “The
Admissibility of Evidence in ICSID Arbitration: Considering the Validity of WikiLeaks
Cables as Evidence”, 30 ICSID Rev. – For. Inv. L. J. (2015, issue 1) p. 231.
13) Corfu Channel (Merits) (U.K. v. Alb.), 1949 I.C.J. Rep. 4 (9 Apr.).
14) NAFTA Chapter Eleven Arbitral Tribunal: Methanex Corporation v. United States of
America, Final Award on Jurisdiction and Merits (3 August 2005) Text of Decision, 44
I.L.M. 1345 (2005).
15) Id., at para. 59.
16) Id., at para. 56.
17) Hulley Enters. Ltd. (Cyprus) v. Russian Fed'n, (PCA Case No. AA 226), Final Award (18 Jul.
2014) paras. 1185-1186 (hereinafter Hulley). The District Court of The Hague quashed the
final award from Hulley on other grounds on 20 April 2016. See Rechtbank Den Haag,
Pronunciations, De Rechtspraak (20 Apr. 2016)
<http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBDHA:2016:4230>
[https://perma.cc/4RHA-YHZ5]. As of this writing the appeal is pending.
18) Hulley, supra fn. 17, at para. 1189.
19) Libananco Holdings Co. Ltd. v. Republic of Turkey (ICSID Case No. ARB/06/8), Decision
on Preliminary Issues (23 Jun. 2008) (hereinafter Libananco).
20) Id., at para. 78.
21) Caratube Int'l Oil Co. LLP & Devincci Salah Hourani v. Republic of Kazakhstan (ICSID Case
No. ARB/13/13), Award of the Tribunal, (27 Sep. 2017) paras. 150-166 (hereinafter
Caratube) (summary of the decision on the claimants' request for the production of
“leaked documents”). See also, Alison ROSS, “Tribunal Rules on Admissibility of Hacked
Kazakh Emails”, Glob. Arb. Rev. (22 Sep. 2015)
<https://globalarbitrationreview.com/article/1034787/tribunal-rules-on-
admissibility-of-hacked-kazakh...> (discussing the parties' positions and the decision).
22) Caratube, supra fn. 21, at para. 166.
23) ConocoPhillips Petrozuata, ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria
B.V v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Decision on
Respondent's Request for Reconsideration (10 Mar. 2014).
24) ConocoPhillips Petrozuata, ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria
B.V v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Decision on
Respondent's Request for Reconsideration – Dissenting Opinion of Georges Abi-Saab
(10 Mar. 2014) para. 66.
25) William W. PARK, “Truth Seeking in International Arbitration” in Markus WIRTH, et al.,
eds., The Search for “Truth” in Arbitration: Is Finding the Truth What Dispute Resolution Is
About? (Juris 2011) pp. 1, 10.
26) William W. PARK, “Arbitrator Integrity: The Transient and the Permanent”, 46 San Diego
L. Rev. (2009) pp. 629, 695.
27) C. BLAIR and E.V. GOJKOVIĆ, supra fn. 12, at p. 25. See also, J.H. BOYKEN and M. HAVALIC,
supra fn. 12 (distilling the decisions to provide a roadmap for analysis of
admissibility).
28) See Rena ANDOH and James SALEM, “Text Messages as Evidence: The Current State of
Affairs in New York State Courts”, N.Y.L. J. (9 Feb. 2018, 3:00 PM)
<https://www.law.com/newyorklawjournal/sites/newyorklawjournal/2018/02/09/text-
messages-as-evidence-t...>; Sara E. COSTELLO, “Establishing That Text Messages Are
Admissible”, A.B.A. (1 Apr. 2013)
<http://apps.americanbar.org/litigation/litigationnews/top_stories/040113-text-
message-admissible.htm...>; P.W. GRIMM, et al., infra fn. 37, at p. 19.
29) See Siri CARLSON, “When Is a Tweet Not an Admissible Tweet? Closing the
Authentication Gap in the Federal Rules of Evidence”, 164 U. Pa. L. Rev. (2016) p. 1033;
John G. BROWNING, “Introducing Social Media Evidence”, 74 The Advoc. (Texas) (2016)
p. 112; Honorable Paul W. GRIMM, et al., “Authentication of Social Media Evidence”, 36
Am. J. Trial Advoc. (2013) p. 433.
30) Ronald J. HEDGES and Kevin F. RYAN, The Internet of Things: What Is It, What Can
Happen with It, and What Can Be Done When Something Happens, N.Y.S. Bar Assn.,
<http://www.nysba.org/Journal/2018/Apr/What_Is_It,_What_Can_Happen_With_It,_and
_What_Can_Be_Done_When...> (last visited 23 May 2018).
31) See discussion on Caratube v. Kazakhstan above.
32) See, e.g., Ousterhout v. Zukowski, No. 11 CV 9136, 2016 WL 3675564 (N.D. Ill. 5 Apr. 2016);
DeCastro v. Kavadia, 309 F.R.D. 167 (S.D.N.Y. 2015).
33) See, e.g., Republic of Kazakhstan v. Ketebaev, No. 17-CV-00246-LHK, 2017 WL 6539897
(N.D. Cal. 21 Dec. 2017) (describing a hacking of emails of Kazakh government
employees, which were posted on a website and posted on personal Facebook pages
and newspaper websites, and included attorney-client communications between
Kazakh officials and their attorneys; the case was dismissed for lack of personal
jurisdiction).
34) Ceglia v. Zuckerberg, No. 10-CV-00569-A, 2014 WL 1224574 (W.D.N.Y. 25 Mar. 2014), aff'd,
600 F. App'x 34 (2d Cir. 2015).
35) Id.

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 36) CARL A. AVENI, “New Federal Evidence Rules Changes Reflect Modern World”, A.B.A.
Litigation News (23 Apr. 2018)
<https://www.americanbar.org/groups/litigation/publications/litigation-
news/featured-articles/2018/ne...>.
37) Hon. Paul W. GRIMM, et al., “Authenticating Digital Evidence”, 69 Baylor L. Rev. (2017)
pp. 1, 9. See also, Hon. Paul W. GRIMM, “Authenticating Digital Evidence, 31 GP Solo –
Litigation (2014, no. 5) p. 46,
<https://www.americanbar.org/content/dam/aba/publications/gp_solo_magazine/se
ptember_october_2014/gps...>; Robert MORGESTER, “Introducing Digital Evidence in
California State Courts (N. Am. & Caribbean Conf., 2016), <www.iap-
association.org/getattachment/Conferences/Regional-Conferences/North-America-
and-Caribbean/4...> (last visited 23 May 2018).
38) Hon. P.W. GRIMM, et al., supra fn. 37.
39) International Bar Association, IBA Guidelines on Party Representation in International
Arbitration (2013) (hereinafter IBA Guidelines).
40) See, e.g., Elliott GEISINGER, “‘Soft Law’ and Hard Questions: ASA's Initiative in the
Debate on Counsel Ethics in International Arbitration” in Daniele FAVALLI, ed., The
Sense and Non-sense of Guidelines, Rules and Other Para-regulatory Texts in
International Arbitration (Juris 2015) p. 17 (proposing a global arbitration ethics
council); Tom JONES and Alison ROSS, “Mourre Calls for Institutions to Join Forces”,
Glob. Arb. Rev. (9 Mar. 2018)
<https://globalarbitrationreview.com/article/1166513/mourre-calls-for-institutions-
to-join-forces> (noting that ASA's proposal did not attract international consensus
because important institutions took the view that counsel misconduct is for the
arbitrators to deal with, along with the support of the institutions); Carlos A. CARMONA,
“Considerations on the IBA Guidelines on Party Representation in International
Arbitration: A Brazilian Point of View”, 1 Les Cahiers de l'Arbitrage (2014) pp. 29, 44;
Felix DASSER, “A Critical Analysis of the IBA Guidelines on Party Representation” in D.
FAVALLI, ed., The Sense and Non-sense of Guidelines, Rules and Other Para-Regulatory
Texts in International Arbitration (Juris 2015) pp. 33, 47; Jarred PINKSTON, “The Case for
Arbitral Institutions to Play a Role in Mitigating Unethical Conduct by Party Counsel in
International Arbitration”, 32 Conn. J. Int'l L. (2017) pp. 177, 201; Vincent S. DATTILO,
“Ethics in International Arbitration: A Critical Examination of the LCIA General
Guidelines for the Parties' Legal Representatives”, 44 Ga. J. Int'l & Comp. L. (2016) pp.
637, 645 (By incorporating ethical standards in arbitral rules, the arbitrators
themselves would become the enforcers of these rules, therefore, empowered to
sanction attorneys for applicable misconduct). See also, William W. PARK, “A Fair Fight:
Professional Guidelines in International Arbitration”, 30 Arb. Int'l (2014, issue 3) p. 409.
41) Libananco, supra, fn. 19, at para. 80.
42) IBA Guidelines, supra fn. 39, at p. 3.
43) IBA Guidelines, supra fn. 39, at p. 16 (Guidelines 26 and 27 on remedies for misconduct).
See also, Edna SUSSMAN, “Can Counsel Ethics Beat Guerrilla Tactics?: Background and
Impact of the New IBA Guidelines on Party Representation in International
Arbitration”, N.Y. Disp. Resol. Law (Fall 2013) at p. 47.
44) See generally, Abba KOLO, “Witness Intimidation, Tampering, and Other Related
Abuses of Process in Investment Arbitration: Possible Remedies Available to the
Arbitral Tribunal”, 26 Arb. Int'l (2010, issue 1) p. 43.
45) J. PINKSTON, supra fn. 40; Philip D. O'NEILL, “The Power of Arbitrators to Award
Monetary Sanctions for Discovery Abuse”, Disp. Resol. J. (Nov. 2005 – Jan. 2006) at p. 60
(discussing the different approaches courts have taken to potential sources of
authority for this power); Sarah WHITTINGTON, “Timor-Leste v. Australia: ‘Guerrilla
Tactics’ and Schoolyard Bullies in State Arbitration”, 6 Y.B. on Arb. & Mediation (2014)
pp. 429, 437 (“Recent studies of ‘guerrilla tactics’ in arbitration present divergent views
on how to effectively sanction or prevent these actions.”); Pedro J. MARTINEZ-FRAGA,
“Good Faith, Bad Faith, but Not Losing Faith: A Commentary on the 2010 IBA Rules on
the Taking of Evidence in International Arbitration”, 43 Geo. J. Int'l L. (2012) pp. 387, 421
(discussing inherent authority of arbitrators to impose sanctions).
46) See Margaret L. MOSES, “Inherent Powers of Arbitrators to Deal with Ethical Issues” in
Arthur ROVINE, ed., Contemporary Issues in International Arbitration and Mediation, The
Fordham Papers (Brill/Nijhoff 2014) p. 93; Andrea BJORKLUND and Jonathan BROSSEAU,
“Sources of Inherent Powers in International Adjudication”, 6 Eur. Int'l Arb. J. (2018, no.
2) p. 1.; 76 Int'l L. Ass'n Rep. Conf. (2014) pp. 823-851 (International Law Association's
report on the inherent and implied powers of arbitrators in international commercial
arbitration); Martins PAPARINSKIS, “Inherent Powers of ICSID Tribunals: Broad and
Rightly So” in Ian A. LAIRD and Todd J. WEILER, eds., Investment Treaty Arbitration and
International Law, Volume 5 (Juris 2011) p. 9;
47) W. PARK, supra fn. 40, at p. 422; Menalco J. SOLIS, “Adverse Inferences in Investor-State
Arbitration”, 34 Arb. Int'l (2018, issue 1) p. 79.
48) G. BORN, supra, fn. 7, at Sect. 15.10.
49) “Mayer on Arbitrators' Powers and Limits”, Glob. Arb. Rev. (25 Oct. 2017)
<https://globalarbitrationreview.com/article/1149346/mayer-on-arbitrators-powers-
and-limits>.

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 50) Richard KREINDLER and Mariel DIMSEY, “Sanctioning of Party Conduct Through Costs: A
Reconsideration of Scope, Timing and Content of Costs Awards” in Patricia
SHAUGHNESSY and Sherlin TUNG, eds., The Powers and Duties of an Arbitrator, Liber
Amicorum Pierre A. Karrer, 2d ed. (Kluwer 2017) p. 201.
51) Gunther J. HORVATH et al., “Dealing with Guerrilla Tactics at Different Stages of an
Arbitration” in Gunther HORVATH, et al., eds., Guerrilla Tactics in International
Arbitration (Kluwer 2013) pp. 33, 48-50.
52) Queen Mary Univ. of London Sch. of Int'l Arb., International Arbitration Survey: Current
and Preferred Practices in the Arbitral Process (2012) p. 41 (reporting that according to
the survey, an overwhelming majority of respondents believe tribunals should take
into account improper conduct by a party or its counsel when allocating costs).
53) BORN, supra fn. 7, at pp. 2316-2317.
54) Catherine ROGERS, Ethics in International Arbitration (Oxford 2014) pp. 135.
55) Hrvatska Elektroprivreda, d.d. v. Republic of Slovenia (ICSID Case No. ARB/05/24),
Tribunal's Ruling Regarding the Participation of David Mildon QC in Further Stages of
the Proceeding (6 May 2008).
56) The Rompetrol Group N.V. v. Romania (ICSID Case No. ARB/06/3), Decision of the
Tribunal on the Participation of a Counsel (14 Jan. 2010).
57) Alan Scott RAU, “Arbitrators Without Powers? Disqualifying Counsel in Arbitral
Proceedings”, 30 Arb. Int'l, (2014, issue 3) pp. 457, 511 (“Precisely because of their
regulatory spareness, transnational rules will have the virtue of directing the attention
of arbitral tribunals to the core of what alone is critical – that is, to what is minimally
necessary to ensure the fairness of proceedings.”).
58) Nw. Nat. Ins. Co. v. Insco, Ltd., 866 F. Supp. 2d 214, 217 (S.D.N.Y. 2011).
59) See, e.g., Bona Fide Conglomerate, Inc. v. Sourceamerica, No. 314CV00751GPCDHB, 2016
WL 4361808, at *6 (S.D. Cal. 16 Aug. 2016) (where privileged documents were leaked to
WikiLeaks, the court disqualified the counsel overriding the magistrate's
recommendation of the lesser remedy of evidence exclusion, while noting that “an
order of disqualification of counsel is a drastic measure, which courts should hesitate
to impose except in circumstances of absolute necessity”).
60) G. HORVATH, et al., supra fn. 51, at pp. 51-52; Gunther J. HORVATH, et al., “Lessons to be
Learned for International Arbitration” in Gunther Horvath, et al., eds., Guerrilla Tactics
in International Arbitration (Kluwer 2013) pp. 278-279.
61) See, e.g., Leor Expl. & Prod., LLC v. Aguiar, No. 09-60136-CIV, 2010 WL 3782195 (S.D. Fla.
28 Sept. 2010), on reconsideration in part, No. 09-60136-CIV, 2011 WL 4345294 (S.D. Fla.
15 Sept. 2011) (dismissing the case in which the party had engaged in computer hacking
relying on the court's inherent power to impose sanctions for bad-faith conduct and
finding that no lesser sanction would suffice under the circumstances); Salmeron v.
Enter. Recovery Sys., Inc., 579 F.3d 787 (7th Cir. 2009) (dismissing the case as a sanction
for the willful leak of documents which were ultimately posted on WikiLeaks).
62) Doron TEICHMAN, et al., “Judicial Decision-Making: A Behavioral Perspective” in Eyal
ZAMIR, et al., eds., Oxford Handbook of Behavioral Economics and the Law (Oxford 2014)
pp. 1, 9. See also, Andrew J. WISTRICH, et al., “Can Judges Ignore Inadmissible
Information? The Difficulty of Deliberately Disregarding”, 153 U. Pa. L. Rev. (2005) pp.
1251, 1279-1281.
63) Edna SUSSMAN, “Arbitrator Decision-Making: Unconscious Psychological Influences
and What You Can Do About Them”, 24 Am. Rev. Int'l Arb. (2013) pp. 487.
64) N.L.R.B. v. Jackson Hosp. Corp., 257 F.R.D. 302, 307 (D.D.C. 2009).
65) Joshua D. H. KARTON, The Culture of International Arbitration and the Evolution of
Contract Law (Oxford 2013) pp. 195-232.
66) Giuditta CORDERO-MOSS, “Non-national Sources in International Commercial
Arbitration and the Hidden Influence by National Traditions”, 63 Scandinavian Stud. of
L. (2017) p. 22.
67) Antonin SCALIA, et al., Making Your Case: The Art of Persuading Judges (2008) p. 27.
68) See Jane COLSTON, “The Fruit from a Poisoned Tree – Use of Unlawfully Obtained
Evidence”, IBA Int'l Litig. Newsl. (Sep. 2017) at p. 20.
69) Wee Shuo Woon v. HT S.R.L., [2017] S.G.C.A. 23 (Sing.).
70) Id., at 29.
71) Nigel COOPER, The Fruit of the Poisoned Tree – The Admissibility of Evidence in Civil Cases
(unpublished manuscript) (on file with author) <www.bgja.org.uk/wp-
content/uploads/2014/02/NigelCooper.pdf> (last visited 24 May 2018) (discussing the
English case laws on the admissibility of evidence obtained in violation of law or
ethics).
72) Helliwell v. Piggott-Sims, [1980] F.S.R. 356 (Eng.).
73) N. COOPER, supra, fn. 71, at p. 1.
74) Jones v. University of Warwick [2003] EWCA (Civ) 151 (Eng.).
75) Tchenguiz v. Imerman, [2010] EWCA (Civ) 908 (Eng.).
76) Lingo v. City of Salem, 832 F.3d 953, 958 (9th Cir. 2016); White v. City of Birmingham, Ala.,
96 F. Supp. 3d 1260, 1271 (N.D. Ala. 2015), as amended (27 May 2015) (noting that the
Supreme Court has “repeatedly declined to extend the exclusionary rule to
proceedings other than criminal trials” and permitted the evidence, noting its
immense probative value); United States v. Janis, 428 U.S. 433, 460 (1976).
77) Carr v. Ferrell-Duncan OBGYN Clinic, 538 S.W.3d 360, 363 (Mo. Ct. App. 2018); accord,
Radder v. CSX Transp., Inc., 68 A.D.3d 1743, 1744-1745 (2009).

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 78) Scranton Prod., Inc. v. Bobrick Washroom Equip., Inc., 190 F. Supp. 3d 419, 434 (M.D. Pa.
2016), reconsideration denied, No. 3:14-CV-00853, 2016 WL 7173786 (M.D. Pa. 8 Dec.
2016).
79) Bible v. United Student Aid Funds, Inc., No. 1:13-CV-00575-TWP, 2014 WL 1048807, at *4
(S.D. Ind. 14 Mar. 2014), rev'd and remanded on other gds., 799 F.3d 633 (7th Cir. 2015).
80) Ass. plén., 7 January 2011, Bull. 2011, Ass. plén., No. 1. See also, Com., 13 October 2009,
n°08-19.525 (barring transcript of a telephone conversation overheard unbeknownst to
the interlocutor).
81) Civ. 1ère, 31 October 2012, Bull. 2012, I, No. 226.
82) Civ. 1ère, 25 February 2016, n°15-12.403.
83) Notably, and contrary to the stance of the civil division of Cour de Cassation, the
criminal division has recognized as admissible recordings of private telephone
conversations. See Crim., 31 January 2007, Bull. crim. 2007, No. 27, p. 100.
84) Crim., 11 June 2002, Bull. crim. 2002, No. 131; Crim., 31 January 2007, Bull. crim., No. 27, p.
100; Crim., 27 January 2010, Bull. crim. 2010, No. 16; Crim., 7 March 2012, Bull. crim. 2012,
No. 64; Crim., 31 January 2012, Bull. crim. 2012, No. 27.
85) See, e.g., Directive 2013/40/EU, of the European Parliament and of the Council of 12
August 2013 on Attacks Against Information Systems and Replacing Council Framework
Decision 2005/222/JHA; Tony KRONE, “Hacking Offences”, Austl. Inst. Crim.,
<https://aic.gov.au/publications/htcb/htcb005> (24 last visited May 2018) (describing
how computer hacking crimes are defined in Australia); Nat'l Conf. on St. Legis,
Computer Crime Statutes. (12 May 2016)
<http://www.ncsl.org/research/telecommunications-and-information-
technology/computer-hacking-and-unau...> (All fifty US states have computer crime
laws; most address unauthorized access or computer trespass. Some state laws also
directly address other specific types of computer crime, such as spyware, phishing,
denial of service attacks, and ransomware); Computer Fraud and Abuse Act, 18 U.S.C.
Sect. 1001 (1986); Computer Misuse and Cybersecurity Act, No. 19, c. 50A, 1993 (Sing.);
The Information Technology Act, No. 21, Acts of Parliament, 2000 (Ind.).
86) C. ROGERS, supra fn. 54, at p. 97; Alexis MOURRE, “Arbitration and Criminal Law:
Reflections on the Duties of the Arbitrator”, 22 Arb. Int'l (2006, issue 1) p. 95.
87) Steven C. BENNETT, “Who Is Responsible for Ethical Behavior by Counsel in
Arbitration”, Disp. Resol. J. (May-Jul. 2008) at pp. 38, 44 (Attorneys have an obligation
under the rules of professional conduct to report unethical conduct of other members
of the bar. If this obligation applies to attorneys when they serve as arbitrators, the
arbitrators would have conflicting ethical obligations – to maintain confidentiality and
to report unethical conduct by counsel in arbitral proceedings.). Cf. Carrie MENKEL-
MEADOW, “Ethics Issues in Arbitration and Related Dispute Resolution Processes:
What's Happening and What's Not”, 56 U. Miami L. Rev. (2002) pp. 949, 955 (suggesting
that the answer may depend on whether the arbitration process is purely private or
sponsored by a court). Also see, Robert BLACKETT, “The Very Naughty List: What
Happens If Arbitrators Suspect Criminal Activity by the Parties”, The Arbiter: Int'l Disp.
Newswire (Winter 2014) p. 6 (discussing what should arbitrators in an English-seated
arbitration do – legally and/or ethically – when they suspect one or both parties have
committed, is committing, or intends to commit a criminal offence); Kristen M.
BLANKLEY, “Lying, Stealing, and Cheating: The Role of Arbitrators as Ethics Enforcers”,
52 U. Louisville L. Rev. (2014) pp. 443, 462-491 (discussing why arbitrators should be
acting as ethics enforcers); S. COHEN and M. MORRIL, supra fn. 6; JEFFREY WAINCYMER,
Procedure and Evidence in International Arbitration (2012) p. 105 (discussing the powers,
rights and duties of arbitrators).
88) The Balrog reference draws upon Tolkien's Lord of the Rings tale of miner dwarves who
dug too deeply and unleashed “a terrible daemon from ancient times”, the Balrog.
89) Elliott GEISINGER and Pierre DUCRET, “The Uncomfortable Truth: Once Discovered
What to Do with It” in Markus WIRTH, et al., eds.,The Search for “Truth” in Arbitration: Is
Finding the Truth What Dispute Resolution Is About? (Juris 2011) pp. 113, 114.
90) Id., at pp. 128-130; See also, A. MOURRE, supra fn. 86.
91) See, e.g., Inan ULUC, Corruption in International Arbitration (Wildy, Simmonds and Hill
2018) pp. 192-200; A. MOURRE, supra fn. 86. Sara NADEAU-SEGUIN, “Commercial
Arbitration and Corrupt Practices: Should Arbitrators Be Bound by a Duty to Report
Corrupt Practices?, 10 Transnat'l Disp. Mgmt. J. (2013, issue 3); A. Timothy MARTIN,
“International Arbitration and Corruption: An Evolving Standard”, 1 Transnat'l Disp.
Mgmt. J (2006, issue 2); A. MOURRE, supra, fn. 86.
92) See, e.g., U.S.: Conf. on St. Legis. Security Breach Notification Laws (all fifty states have
statutory breach notification laws); Regulation (EU) 2016/679 of the European
Parliament and the Council of 27 April 2016 on the Protection of Natural Persons with
Regard to the Processing of Personal Data and on the Free Movement of Such Data, and
Repealing Directive 95/46/EC (General Data Protection Regulation), 2016 O.J. L 119/1,
Art. 33.
93) A Lawyer's Guide to Detecting and Preventing Money Laundering, a collaborative
publication of the International Bar Association, the American Bar Association and the
Council of Bars and Law Societies of Europe (2014) at p. 2 <https://www.anti-
moneylaundering.org/AboutAML.aspx> (last visited 3 November 2018).

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 KluwerArbitration

Document information
Report of the Rapporteur for the “Hot Topics” Panel
Publication Marina Kofman
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introduction
The Hot Topics Panel was a round-table discussion of some “hot topics” in arbitration at
the time of the 2018 ICCA Sydney Congress. The panel featured Mark Kantor, Independent
Topics Arbitrator, as Moderator, with Judith Levine, Permanent Court of Arbitration; Joongi Kim,
Investment Arbitration Yonsei Law School and Natalie Reid, Debevoise and Plimpton, making up the panel. The
topics discussed were improperly obtained evidence, the Belt and Road Initiative (BRI),
parallel proceedings and arbitration for claims of discrimination and sexual misconduct.
This is an edited summary of the panel discussion.
Bibliographic reference
Marina Kofman, 'Report of II Improperly Obtained Evidence
the Rapporteur for the “Hot
Topics” Panel', in Jean Levine: Last night while returning from your respective cocktail receptions, you may have
Engelmayer Kalicki and smelled smoke lingering in the Sydney air. As a local, I can tell you that the smoke was not
Mohamed Abdel Raouf (eds), on account of the sizzling hot topics we will be delivering to you this afternoon, but, as you
Evolution and Adaptation: may have read in our local press, some bushfires resulting from extraordinarily hot April
The Future of International weather. In addition to our changing climate, other front-page stories in the local press
Arbitration, ICCA Congress leading up to the ICCA week have included dubious sporting practices, reprimand of a
Series, Volume 20 (© Kluwer dubious lawyer, a spotlight on the extent of Chinese development of ports in our Pacific
Law International; neighbors, and allegations of cyber-attacks across the West. Some of the same headline
International Council for themes will pop up during our discussion this afternoon.
Commercial I will be kicking off with the topic of improperly obtained evidence. If a piece of evidence
Arbitration/Kluwer Law has been obtained as a result of dumpster-diving, email hacking, unauthorized
International 2019) pp. 873 - wiretapping or large-scale national security breach, can it ever be relied upon in an
894 international arbitration? I will answer, yes it can. But that answer may depend on who did
P 873 the dirty work, how material is the evidence, and who got hurt by the unlawful act. Due to
P 874 time constraints I will not be dealing with fraudulent creation of evidence, such as the
allegedly fabricated documents in the Lighthouse/East Timor (1) and Sanum (2) cases, but
rather, I will focus on where evidence is questionable not on account of its authenticity, but
rather the manner in which it was obtained.
A preliminary consideration will be whether the party seeking to rely on the evidence, was
itself involved in unlawfully obtaining it. Some examples where this was the case were
Methanex v. United States, (3) in which claimants sought to admit documents obtained by
acts of trespass, searching trash cans and dumpsters to retrieve private correspondence.
(4) In Libananco v. Turkey, (5) Turkey sought to rely on thousands of privileged and
confidential emails obtained through court-ordered surveillance in an unrelated
investigation. (6) What were the consequences? Generally speaking, in these circumstances
the evidence will not be admitted. Both tribunals ruled that evidence was inadmissible,
with the Methanex tribunal basing its conclusions on principles of unclean hands and bad
faith. The Methanex tribunal said that the conduct committed during the arbitration
offended basic principles of justice and fairness. However, they did leave the door slightly
ajar if the evidence would have been material, by examining whether and ultimately
concluding that it only would have been of marginal evidential significance in support of
Methanex's case.
What about when the evidence was originally obtained in an unlawful manner, but the
party relying on it simply found it (in the public domain, for example)? Is that party an
innocent but fortunate bystander, or a tainted conspirator? Examples where the original
means of obtaining evidence may be questionable, but the party seeking to rely on it was
not involved, include a number of Court of Arbitration for Sport (CAS) match-fixing cases,
for example, a FIFA fee-fixing case where a Sunday Times investigation revealed
unauthorized wiretapping of players admitting to match-fixing. FIFA then found the players
were involved in the match-fixing based on that evidence. (7) Likewise, in Metalist v. UEFA,
a team was sanctioned on the basis of match-fixing admissions obtained through illegal
phone tapping. (8)
P 874
P 875
You may be familiar with various cases involving WikiLeaks cables, which in 2010 were
released on a massive scale into the public domain. These were US State Department
diplomatic cables, and the release was contrary to US espionage laws and international
norms on diplomatic immunity. This provided something of a treasure trove for parties in
international arbitration and litigation. For example, in the Chagos Marine Protected Area
Arbitration (Mauritius v. United Kingdom), (9) brought by Mauritius against the UK, Mauritius

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 sought to rely on a diplomatic cable which recorded a British official telling US diplomats
that it would become “difficult if not impossible” for former inhabitants to pursue their
claim of resettlement on the islands if the entire Chagos Archipelago were a marine
reserve. This was used as evidence to question the true intention behind the UK's
declaration of a marine protected area. The UK acknowledged that the document was
unfortunate but cited UK court decisions questioning its accuracy. It did not claim archival
immunity. (10)
In the Yukos cases, diplomatic cables recording meetings between former auditors of
Yukos, PwC, and staff at the US Embassy in Moscow were similarly relied on by the
claimants to show Russian authorities pressured PwC to withdraw their audits as part of a
broader campaign to destroy Yukos and take its assets. Russia did not object to the
admissibility of the cables and did not disagree that they reflected the “candid” and
“unguarded” views of the auditors held at the time. (11)
In ConocoPhillips v. Venezuela, Venezuela relied on WikiLeaks cables to ask the tribunal to
revisit a decision on liability alleging the cables showed the claimants made false
representations to the tribunal. (12) In the case of Caratube v. Kazakhstan, (13) the
claimants sought to admit evidence from a site similar to WikiLeaks following a hacking
attack against the Kazakh Government's computer network. There Kazakhstan did object on
the basis of privilege. (14)
What are the consequences? The action taken by tribunals has been varied. In practice,
P 875 one factor is whether or not the other side has actually objected. So, if there is no
P 876 objection, the tribunal might admit the evidence either as probative or corroborative of
other evidence, which is how the Yukos tribunal dealt with it. (15) A tribunal might choose
to consider evidence as not reliable or material, which is how the Chagos tribunal dealt
with it, citing UK court decisions that the report was not accurate, but making a passing
comment that it did not consider it appropriate to place weight on a record of such
provenance. (16) Or, a tribunal may choose to ignore it altogether, as the majority in
ConocoPhillips v. Venezuela did. By contrast, the dissenting arbitrator in that case found
those cables to be highly probative and accused his colleagues of “closing their blinkers”
instead of “seeking the truth and dispensing justice”. (17)
If there is an objection by the other side, what have tribunals done? Cherie Blair, in a
speech last year, argued for “grabbing the bull by the horns”. (18) An example of this is a
series of Swiss Federal Supreme Court decisions reviewing a CAS decision. Those courts and
tribunals went through a balancing act of looking at the interest of establishing the truth on
the one side, against the interest in preserving the legally protected rights that have been
infringed by the taking of evidence. That Swiss approach led to upholding the CAS decision
based on wiretaps, by which they ultimately deferred to the public interest and sports
interest involved in the fight against match-fixing. (19)
Some tribunals have acknowledged that even if a document was initially obtained
unlawfully, the disclosure could not be damaging because of its extensive prior and public
disclosure, which is how some of the UK (20) and US courts (21) have dealt with WikiLeaks
cables.
P 876
P 877
In Caratube v. Kazakhstan, the tribunal appreciated the need to protect against
cybercrime and acknowledged the potential unfairness of allowing confidential evidence
obtained through hacking, but also referred to the need for the tribunal to have access to
potentially relevant information already in the public domain, and allegedly relevant and
material to the dispute. Only non-privileged leaked documents were to be admitted. (22)
Finally, another possibility is for a tribunal to appoint an independent confidentiality
advisor to review the documents and make privilege determinations. This happened in a
Permanent Court of Arbitration (PCA)-administered NAFTA case – St Marys v. Canada, which
settled very quickly after the advisor issued his report. (23) The process avoids the problem
of a tribunal having to put the “genie back into the bottle” so to speak or having to un-see
the already seen “fruit of the poisonous tree”.
I do not think this is a topic which is going to go away, with more and more data vulnerable
to security breaches, as is being discussed now by the technology panel. (24) I do have
questions for my panellists arising from these issues, so from Natalie, I would like to know,
what role, if any, do you see the IBA [International Bar Association] Guidelines or other soft
law instruments having to play?
Reid: Thank you Judith. I think when we talk about soft law we start from the question of
what is the role that soft law generally plays. We think of perhaps three roles. They can
aspire to and sometimes succeed in reflecting a widely held consensus; they can reflect
best practices, or they can attempt to progressively develop the law. We all know that
depending on where particular soft law or guidelines fall, they may have more or less
acceptance in the given field. When we come to the particular question of illegally
obtained evidence, the two sets of rules or guidelines that come to mind are the IBA
documents: the IBA Guidelines on Party Representation, regarding the conduct of party
representatives (counsel), and the IBA Rules on the Taking of Evidence.
Let us start with the Guidelines on Party Representation. I find it interesting that when
discussing evidence, they speak about false evidence and they speak about whether or not

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 the witnesses' or expert's evidence is his or her own. But they are silent on illegally
obtained evidence. I think the one conclusion we can draw from this is that the focus of the
Guidelines and other soft law instruments when it comes to arbitration proceedings is
more on accuracy of the evidence as it is presented to the tribunal, leaving questions
about how information is obtained for other debates in other fora at other times.
P 877
P 878
To move on to the IBA Rules on the Taking of Evidence, again the question is, what if
anything do they have to say about it? Again, there is surprisingly little, at least on their
face. Art. 9.2(b) contemplates exclusion of evidence on the basis of “legal impediment or
privilege under the legal or ethical rules determined by the Arbitral Tribunal to be
applicable”, leaving open the basis for an argument that illegally obtained evidence would
breach ethical rules. When we look to the very next provision however, Art. 9.3, building out
and expanding on what Art. 9.2(b) is supposed to mean, again we see a focus on attorney-
client privilege and suitable confidentiality. This underscores two points of reference,
number one, what were the parties' expectations, and number two, the need to maintain
fairness and equality in proceedings.
It is perhaps not surprising that what we see is a certain willingness in tribunals to accept
illegally obtained evidence, except where it is proved that it affects the integrity of the
proceeding itself, such as where one of the parties is alleged to be involved in the illegal
activity to obtain the evidence for use in the case. Or, where it has an adverse effect on the
equality of arms. The instances where tribunals have been inclined to bar evidence
allegedly illegally obtained is where it implicates privilege, which is sacrosanct, for
example in Caratube (25) and Libananco. (26)
Levine: Yesterday, Chief Justice Menon said that ethics is a big issue. (27) To the extent
ethical issues are posed by these cases, what are the tools available to address them?
Kim: Thank you Judith, I think there are two ways to think about this. One way is “what” can
be done and the other is “who can do it”. With reference to the “what” part, as we know
from the Queen Mary surveys, there is very little a tribunal can do. What they can do
depends upon how egregious the misconduct in the way the evidence was obtained, and of
course, the involvement – whether it is the parties or counsel. We know that the tribunal
can take appropriate measures and they can safeguard integrity of proceedings. What is
left is of course the obvious tool in the tribunal's possession, which is costs – but is that
enough? Is that what is going to be able to control how we deal with this problem? How far
should a tribunal go? What else could they do?
Then the next question of course would be “who”. Is it the tribunal or is it the opposing
counsel? Is it the seat of where the dispute is occurring or is it perhaps the bar association
of counsel, or the bar association where opposing counsel is from? It is very complex.
Another issue we should consider is, if you are the tribunal and you have this evidence that
is suspect – it is easier if it is very clear. But what if it is “sufficient” and it just “does not
look right”? One of my favourite analogies is Michael Hwang's analogy. He has framed it as
to whether the tribunal should be a watchdog or a bloodhound. Yes you should be a
watchdog and guarantee these things, but should you be a bloodhound when the evidence
is suspect? That is where he draws the line, so we should think about that.
P 878
P 879
Kantor: The topic of illegally obtaining evidence always raises the issue of conduct of
counsel and conduct of the arbitrators. Judith, do you see a role either formal or informal
for the arbitral institution in the context of illegally obtained evidence?
Levine: I am not sure that it always raises the issue of ethics and conduct of the arbitrators
unless they have somehow been complicit in the collection of that evidence. As for
institutions, it may depend on the institution's involvement if we are talking about items
that are exhibited to pleadings within the context of the case with dozens of pleadings. For
an institution like the ICC that handles thousands of cases, as a practical matter that may
simply not be possible. Some of the arguments and issues that can be raised with respect
to even the arbitrators who do have authority and inherent power over the conduct of
proceedings, even have power over the reporting or disciplining of counsel, then I think it
would be even a further stretch to say that the institutions do that. They may not be aware
of what is going on. To the extent we see dubious practices amongst arbitrators or counsel
anecdotally or first-hand in the course of our work, institutions might be able to take that
into account informally, considering for example, not putting their names on a list of
potential arbitrators for appointment in a particular case, but I do not expect that there is
any duty to get into the nitty gritty of particular items of evidence from the institution's
point of view. That is more a matter for the parties and the arbitrators.
Kantor: Institutions are important not only in connection with the question you have just
answered but also obviously in the Belt and Road Initiative. Joongi, you are the next person
up and that is your talk.

III Belt and Road Initiative

Kim: I was thinking about how to frame this. If you look at our panel, on my right Judith is
from Australia and to my far left is Mark who is from the United States and of course both

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 are very large countries. In contrast, Natalie and I are from very small countries. We are
easily intimidated. What we do in Korea to encourage ourselves, to inspire ourselves – we
have a very simple saying, we say that the small pepper is hot. I think my topic is the
hottest of course! The Belt and Road Initiative, I think, is a cauldron – it is smoldering and I
think it is going to generate a tremendous number of transactions, projects and ultimately
disputes. There is no question about this. If there is one thing I would like you take away
when you leave – it is the meaning of Belt and Road itself. But if you look at the deeper
meaning, if you understand Chinese text, it is very simple but it is counter-intuitive. “Belt”
refers to the land and the “Road” – literally “road” means “route”. So actually it refers to
the maritime route. So it is two things – it is maritime and land. The land Road is the Silk
Road economic belt. Maritime of course is the maritime Silk Road. This is a massive
undertaking.
P 879
P 880
There is a recent Economist article that has compared the Belt and Road Initiative – that it
is anywhere between seven to ten times the scale of the Marshall Plan. (28) This is
extraordinary. I think this is a game changer. It covers all of Central Asia, Africa, Europe, the
Middle East – over seventy-one countries and jurisdictions are involved. The Asian
Infrastructure Investment Bank [AIIB], with one hundred billion dollars in capital, will
potentially provide synergy. The BRI is supposed to lead to in excess of over one trillion
dollars in projects. Eventually economists tell us this could lead to over 20 trillion dollars
in GDP. This is extraordinary, and if you dig a little deeper – the numbers which are
interesting to us, is of the seventy-one jurisdictions, fifty-five have BITs [bilateral
investment treaties], usually with China and there are a number that have multilateral
investment treaties as well. Of course the big challenge, and this comes inbound and
outbound, will be that a lot of the jurisdictions involved among the seventy-one are
challenging jurisdictions, where those that are accustomed to liberal democracy and rule
of law will not necessarily find it. For example, inadequacies can exist in terms of the
competence and independence of judiciaries, which presents serious challenges.
Among recent developments in January, we note Chinese experts here will know very well,
but in January 2018 the Supreme People's Court announced they will have three special
courts – one will be in Xi'an which is supposed to cover more land-orientated disputes, and
one in Shenzen, which will deal with more maritime disputes and Beijing is supposed to
act as the headquarters. So the first issue of course is these are courts and they are not
arbitration tribunals.
The second thing to note is that CIETAC [China International Economic and Trade
Arbitration Commission] has recently adopted its own investment rules, and it has also set
up a Silk Road Arbitration Centre in Xi'an. As well as that, the Wuhan Arbitration
Commission has announced a One Belt One Road Arbitration Centre for international
Public-Private Partnership projects. The last interesting thing that is developing and
simmering is the Department of Justice in Hong Kong has an interesting initiative – it is
called the EBRAM (E-Belt and Road Arbitration and Mediation Centre), a planned online
platform to attract BRI disputes. My first question will go to Judith on my right and the
question is, how, where and under what circumstances will these disputes be resolved?
Levine: It is hard not to notice the level of excitement generated by the potential of
disputes around the Belt and Road. Many institutions have responded enthusiastically. For
example, the ICC [International Chamber of Commerce] announced last month a
commission to address BRI dispute resolution potential. (29) The HKIAC [Hong Kong
P 880 International Arbitration Centre] has been particularly active in promoting its suitability
P 881 for the “Belt and Road” disputes and their brochure on this is available at the Congress
booth. (30) In 2017, there were BRI-related events in Malaysia dedicated to investment
disputes along the Belt and Road. I actually see some parallels between the excitement
about potential arbitrations of Belt and Road disputes and potential arbitrations in the
context of climate change disputes that will come as a result of the new green economy
created by the Paris Agreement. (31) Both Paris and the BRI are massively ambitious
projects that will entail billions if not trillions of dollars in investment and infrastructure,
and they both promise a web of new projects and legal relationships that will bring with
them the potential for disputes.
In both contexts, because of the cross-border nature of these relationships there will be a
desire for neutrality, enforceability and flexibility. International arbitration is seen as an
attractive dispute resolution option. But I do not think in either context that there is a one-
size-fits-all approach to arbitration, given the wide range of possible disputes. It will
depend on the constellation of stakeholders, specializations, public or private nature,
governing law, and any required technical expertise. Joongi, you mentioned the Asian
Infrastructure Investment Bank, which was formed in 2015 and has eighty-four member
states, and which looks ready to commit billions in finance related to Belt and Road
initiatives. I took a look at their General Conditions for Sovereign-backed Loans (32) and
these contain an arbitration clause for disputes among the bank and the loan parties,
typically a state or project-implementing entity. The clause provides that the governing
law shall be international law, disputes shall be submitted to arbitration under the
UNCITRAL Rules, the appointing authority shall be the Secretary-General of the Permanent
Court of Arbitration and the place of arbitration shall be The Hague. (33)

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 Other interesting elements in these General Conditions include incorporation of social and
P 881 environmental policy, (34) and reference to an operational policy recently adopted on
P 882 international relations, which includes funding projects in areas where the international
boundaries are disputed. (35) I think in cases where there are inter-state elements, which
may arguably arise for disputes between state-owned enterprises [SOEs] and host
countries under investment arrangements, some institutions will be particularly
experienced for that type of dispute, but, for say a construction dispute with sub-
contractors, other types of institutions may be more appropriate.
Either way, I think it is important to find neutral institutions who can appoint arbitrators
with relevant experience, relevant legal knowledge and skills, capacity to hold
proceedings in the region if that makes practical sense, and also – given China's stated
preference for mediation as a first step – experience with alternative forms of dispute
resolution. As with climate change disputes, there may also be the need for technical
expertise, procedural flexibility and account to be taken of the interest of affected
communities, (36) for example, those displaced by the Laos railway project. I will leave my
remarks there.
Kim: Thank you Judith. So Natalie, given your expertise, the burning question would be –
how do you think the Belt and Road region will be affected in terms of ISDS, do you think
there will be anything brought by Chinese investors or claims brought against China, or
other investors? It is a massive project.
Reid: It is a massive question! I think that what we will see – certainly as a feature, if we
take a step back and remind ourselves of the features that you highlighted, this is a series
of infrastructure projects that is unprecedented in human history. The purpose of it really
is to deepen connections, whatever one may think of the motivations behind this project –
but certainly to deepen the connections between China and markets across the Belt and
Road: Asia, Middle East and Europe. More than 70 countries are involved as you said, a host
of bilateral investment treaties and multilateral instruments, by the latest count, China is
party to over 100 bilateral investment treaties that are in force and has investment
agreements in force with all but 10 of the countries that would be involved in One Belt One
Road. The question becomes less “whether or not” Chinese investors may have claims,
speaking not just as an investment arbitration practitioner, but as the daughter of a civil
and structural engineer – infrastructure and construction will generate disputes. But the
question rather is whether there will be an accessible forum for the substantive claims that
may be generated. For those of us who have been involved with disputes governed at least
in part by Chinese BITs, we know that there are different types of BITs, and different types
of Chinese BITs and they are not all created equal and certainly there are varying degrees
of access to that international forum.
Even if investments by Chinese investors, including of course the state-owned enterprises,
P 882 would be covered under the definition of investor and definition of investment, I do think
P 883 there would be a greater need – and with the increased sophistication of these players
– a greater demand for a comprehensive and uniform approach that provides greater
access to the international forum. In the absence of which, you know the risk that you are in
the truly unenviable position of having a claim, and perhaps a valid claim that is worth a
very large sum, but no impartial forum in which you can bring that claim.
I noted that you have mentioned not just the flocking to One Belt One Road of international
arbitration centres, but the prospective creation of courts. That may provide some release
out, but again there may be some question as to whether that would be a fully adequate
alternative solution because there would be the question of whether those courts would
have jurisdiction over sovereigns against whom Chinese investors may wish to bring a
claim.
Kim: Another issue is, as we know, the Chinese government traditionally has pushed for
multi-tiered clauses, so negotiation, mediation, arbitration, but then there is recently
some conflicting evidence that a lot of the Chinese SOEs actually are not interested in
mediation and would rather go straight to arbitration. What do you think of the future of
these multi-tiered clauses?
Reid: The multi-tiered clause is not unfamiliar to those of us in practice. We see it
frequently where there are parties who expect to have long-standing professional
relationships – the idea is that this kind of clause, if well designed and well implemented,
will maximize the opportunities to resolve the dispute before they threaten that long-
standing relationship. I think the perceived wisdom or conventional wisdom, harking back
to an earlier panel, is that Chinese parties were supposed or believed to have an aversion
to the direct conflict of arbitration. To the extent that, whether it is by past practice or
current preference that you will still be seeing multi-tiered clauses, I would not be
surprised. Again, in any kind of negotiation it is the party that has the leverage in that
negotiation that tends to help decide what the dispute resolution clause looks like. The
question again I think is, it is infrastructure, and that I think brings with it a set of different
considerations – the potential delay that could be generated by protracted dispute
resolution would be in great tension with the way in which construction disputes are
ideally resolved. A delay can make or break a project, it can certainly bankrupt a
contractor or a supplier, so what you would expect is to see a multi-step process that
reflects all of the best practices and innovations of construction arbitration. Seeing that in

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 mega-projects, or what used to be called “mega-projects” before One Belt One Road – you
have the Channel Tunnel, the Hong Kong International Airport – it is an opportunity to
deploy those lessons learnt as well as a source of lots of work for those of us in the room.
Kantor: Joongi, I was struck by the fact that Judith's response to your question drew our
attention to an arbitration clause that has very familiar features to it. Also the first
question you put, that triggered an investor-state set of issues, which again are very
familiar issues to people who attend ICCA Congresses. Another issue that is very familiar is
the tension between confidentiality and transparency that we have seen particularly in
P 883 investor-state world, but also in state-sponsored initiatives more generally – pressure
P 884 towards transparency. Is that same tension playing out in Belt and Road, or is it instead
something that is left to the individual projects and individual dispute resolution forums?
Are we seeing any trend there?
Kim: I think the one thing just off the top of my head, is the new courts that they are
planning to set up. These are courts, so they will be transparent, they will not be
confidential. Depending on how actively these courts will be used I think that sends a very
good signal in terms of transparency.
Kantor: You do make an assumption there about transparency. I remind you, that if you
went to Western Europe you would find much greater practical barriers, to access to court
filings and other court documents than you might find if you were, for example, Canadian.
So the extent to which we see transparency in national court systems varies as a practical
matter from country to country and indeed from court to court.
Kim: I have been told that they have been looking at things like the Singapore International
Commercial Court and I am sure for some things, the DIFC [Dubai International Financial
Centre]. So that is something to think about – whether they are going to go in that direction
and to what extent. I do not think they are going to go as far as Canada.
Kantor: Be it all as it may – the multiplicity of forums that you have mentioned almost
guarantees parallel proceedings. Does it not, Natalie?

IV Parallel Proceedings
Reid: What is it in particular that I am going to be focusing on, given how many of us have
dealt with parallel proceedings before – what actually makes this a hot topic? What I will
not be talking about is many of the broad kinds of parallel proceedings we are familiar
with: multiple contract-based or treaty arbitrations arising from the same facts or
simultaneous treaty or contract arbitrations, or many other examples where there are
simultaneous international and domestic proceedings. The reason I will not be talking
about most of those is because that basic phenomenon is not new, and we are familiar with
the means that have been developed and deployed to manage potential conflicts between
fora, whether it is Art. II of the New York Convention and anti-suit injunctions, to the
practical solution of appointing the same tribunal in newer cases.
Perhaps what we are interested in here, and part of my own personal interest, is that
recent years have seen increased incidence or at least increased public knowledge of a
kind of parallel proceedings that raises a whole host of procedural questions and questions
of principle. International arbitration of a commercial or investment matter, on one hand,
and simultaneous domestic criminal proceedings involving the same entities, the same
transactions or the same individuals on the other. The trend that we are seeing – or at least
the phenomenon that I find interesting is that the tribunals seem increasingly willing to
issue provisional measures in those circumstances. A caveat, in terms of setting this topic
P 884 up, I focus on investor-state cases for a couple of reasons – one is that they are public, and
P 885 therefore we know about the cases and second, because the state is respondent in
almost all cases, or at least a party, the potential tensions that are inherent in these kinds
of parallel proceedings are brought into sharp relief.
I think they offer solutions available to tribunals in a way that would be difficult to
replicate in purely private commercial disputes. We can trace the evolution of this issue –
from the Tokios Tokelés v. Ukraine (37) case in 2003, which I think many of you know was the
first tribunal to hold that it had the authority to grant provisional measures to enjoin a host
state in continuing with criminal prosecution, even though it declined to grant the
provisional measures in that case; through to Caratube (38) which Judith had already talked
about, in which that tribunal announced what perhaps is still seen as the clearest
articulation of the standard that is often applied, in concluding that a particularly high
threshold must be overcome before a tribunal, an ICSID [International Centre for
Settlement of Investment Disputes]Tribunal, it said, can indeed recommend provisional
measures regarding criminal investigations conducted by the state. Perhaps unsurprisingly
under that particularly high threshold it concluded that it was not satisfied in that case.
Again, we follow the trend through to Quiborax v. Bolivia, (39) where that tribunal, in
contrast, did order Bolivia to suspend the criminal proceedings because it concluded that
the criminal prosecutions at issue in that case were a defence strategy that had appeared
to target the claimants in the arbitration precisely because they had initiated the
arbitration, and ordered provisional measures in order to protect the procedural integrity
of the arbitration.
So what is new and hot? In the last four years alone, and this is perhaps skipping over 2010-

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 2014, we have seen publicly disclosed decisions in more than half a dozen cases in which
provisional measures have been sought regarding domestic criminal proceedings. Not all
of them have come out the same way, and I think that looking at the outcomes in the way in
which tribunals have weighed the particular factors provides food for further discussion
and some guidance on the ways in which the case law in this area is developing. The cases
in which provisional measures have been granted are cases which are familiar to many,
Laos v. Lao Holdings, (40) Hydro v. Albania, (41) Nova Group v. Romania (42) and Pugachev v
Russia. (43) Cases in which they were denied – Churchill Mining v. Indonesia, (44) where the
tribunal concluded that the party against which the criminal proceedings were apparently
directed was not a party to the arbitration and it would have no effect on the proceeding;
P 885 Teinver v. Argentina, (45) where the criminal prosecutions or investigations were happening
P 886 too late to have any effect on the arbitral proceeding and Italba v. Uruguay, (46) where
there was no effect on the proceedings because the witnesses were released and the party
seeking the provisional measures had not established that the witnesses would be
impaired.
Coming to what might be the most recent decision in this area – a February 2018 SCC order,
(47) where the emergency arbitrator partially granted and partially denied the request. In
a split decision, the emergency arbitrator denied the portion of the request which involved
the principal of the claimant, who was imprisoned, and sought an order directing his
release from prison. No absence of aggressive lawyering there. The emergency arbitrator
denied that portion, saying that it was essentially the final release sought, and concluded
that the individual in question could pursue the claim while incarcerated but ordered
Mongolia to permit reasonable access to local and international counsel in order to ensure
that the individual could in fact pursue the claims.
What are the conclusions we can draw from this? What has been driving tribunals'
decisions? The considerations we have seen highlighted in this line of cases is the tribunal
will weigh, on one hand, the sovereign right – and some of them will even say it is a duty –
to pursue criminal proceedings in the sphere of their jurisdiction. Recognition that the
mere fact that you have initiated an arbitral proceeding, even an ICSID proceeding, does
not confer immunity on you from domestic criminal action. But on the other hand,
recognizing that there are important, perhaps fundamental concerns, about due process,
about access to the international forum and the integrity of the proceedings. Again, we see
tribunals being more and more willing to issue provisional measures, certainly around the
ability of a party to participate in proceedings or to obtain the evidence in order to
present the case, that has been impaired or threatened, especially where it would directly
impact the evidence that is relevant to the case and that the tribunal views as necessary
towards deliberations.
I will pause there and kick it to Judith first. I have talked about instances in which tribunals
have been willing or not willing to halt ongoing criminal investigations or prosecutions.
There are some interesting questions of practice and procedure about what to do when
those criminal proceedings are not halted. How do you in fact continue to manage an
arbitration and protect the integrity of that arbitration when you have these ongoing
criminal proceedings? Let us start with testimony of witnesses.
Levine: I will speak about some of the more practical elements of managing testimony of
witnesses and will reflect on a recently concluded confidential case which was a claim
brought by a state against an investor pursuant to a shareholder agreement. It concerned
an alleged bribe of a high-ranking official and had parallel ICSID investor-state
proceedings, parallel criminal prosecutions in the home state of the investor against the
person alleged to have made the bribe, and parallel criminal prosecutions in the host
state against the official alleged to have received the bribe. All of these people were of
interest to the tribunal. Some practical solutions were required for one witness who was
physically able to come to The Hague, but had concerns for their safety and being arrested
because there were still live Interpol arrest warrants.
P 886
P 887
The PCA would make safe passage arrangements under its Headquarters Agreement with
the Netherlands for key witnesses to attend, in that case, for a key witness to attend a
merits hearing. (48) These arrangements include a supplement to our Headquarters
Agreement, which provides the protocol for liaising with the Dutch Ministry of Foreign
Affairs, who communicates with officials at the airport and allows entry without arrest to
the witness entering. They mirror similar privileges and immunities and arrangements of
other courts and tribunals in The Hague. We use them to facilitate entry of witnesses in the
Yukos arbitrations and several others since. We have also replicated them in our host
country agreement with other member states and negotiated them on an ad hoc basis for a
site visit to a country where participants in a site visit were concerned about being
arrested. (49)
In the case I mentioned, the tribunal also had to go to Switzerland to examine witnesses,
and the one witness that the tribunal was keen to hear from was the high-ranking official
who was alleged to have received the bribe. During the course of proceedings, he was
released from prison and moved to England, and the tribunal on its own initiative decided
to question him and they travelled to London to conduct that examination. One final
interesting procedural aspect of that case was that there were some objections to

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 admissibility of evidence that was obtained in the courts in a separate national
investigation – which harks back a bit to my earlier presentation on questionable methods
of obtaining evidence – one of the parties called experts to testify on the forensic and
procedural shortcomings in the investigation. Ultimately, the tribunal did not treat the
evidence as relevant so did not have to tackle that judgment call head on. Those are some
issues that have come up with parallel criminal proceedings. There are of course many
examples of how we coordinate other types of parallel proceedings. (50)
P 887
P 888
Reid: A question to Joongi about what happens when the parallel proceedings are no longer
parallel. So, the domestic criminal case has yielded a conviction of the individual and let
us say it is the individual claimant or the individual is the principal of the entity that is the
claimant. What happens in the international arbitration? There are questions of the effect
that that conviction would have on the tribunal.
Kim: The questions are how much weight can you give it and does it rise to the level of res
judicata. I think generally the way it is viewed is, in a criminal case, if you think about it in
terms of the standard of proof, it is much higher. So, do you grant more weight to these
criminal cases than to civil and administrative cases? I think the general view is it would
not reach the level of res judicata. Particularly for an investor-state case, that domestic
jurisdiction does not affect a res judicata on an international tribunal.
We do have very interesting cases, one going on right now, that – to the extent we are able
to disclose – is Mol v. Croatia. (51) It is a very interesting case where there was conviction at
the first level, it got upheld all the way to the supreme court and then the separate
constitutional court, and the Croatian constitutional court has remanded it back for retrial.
Specifically, in the decision apparently they say, “this decision is not subject to res judicata
for an international tribunal”, because there are apparently two parallel cases going. I
have never seen that before. From the tribunal's perspective, they do not necessarily have
a verdict. But let us say they deny the weight of the evidence on which the criminal
decision has been made, then that award can proceed on. But in a New York Convention
scenario – could that lead to a public policy challenge on the award, which is another
interesting question to think about.
Kantor: Natalie, as I have mentioned to all three of you before, I face a little bit of conflict
here because I am sitting as an arbitrator in a matter where questions of corruption have
arisen, and national court proceedings have consequences for the arbitration in which I am
an arbitrator. So let me change the focus just a little bit and thereby avoid that. Some
disputes are extremely large – they involve large quantities of money and large interests
from the parties. The two examples of that are the softwood lumber dispute that has been
going on for decades between interests in the United States and interests in Canada. The
second is the extraordinary case of the Lago Agrio Chevron v. Ecuador dispute (52) – $ 9
billion in damages. One of the interesting things to me about both of those disputes is the
multiplicity of forums in which the parties seek to have some or all of the issues
adjudicated or delayed or obfuscated or clarified. Is there something about large disputes
that triggers parallel proceedings, and if so, are there lessons we can draw from them?
P 888 Reid: It is a great question. Large disputes at least in my experience and observation and
P 889 particularly when they are very large – the stakes are so large – if you have motivated
parties and competent, creative counsel on both sides it will turn into the proverbial,
three-dimensional chess game. But it will be played out as a three-dimensional chess
game in almost every possible forum. Whether it is an attempt to obtain strategic
advantage or to create leverage, whether it is an effort to obtain or generate evidence for
use in one of the other proceedings, for example the Lago Agrio and Chevron cases have
produced a wealth of case law in the US for how you can actually use a 1782 proceeding to
get the kind of evidence that nobody ever believed you could use, for use in an
international arbitration. The lessons learnt I think, may be that when you have those kinds
of cases which are more likely to occur, perhaps in natural resources cases, whether it is oil
and gas or mining, again because of the stakes, is they push the boundaries of what is
viewed as possible. How many proceedings can we juggle at once, how can we devise a
kind of strategy to continue to pursue and hopefully accomplish our client's goals, so that
we can make it a little bit more feasible so it now becomes conceivable within the realm of
the possible, when before, people might not have imagined it because it was just too big.
Kantor: One of the consequences of these kinds of disputes is that we lose finality, which we
often think of as a positive in the world of international arbitration. Am I right about that,
that the bigger the dispute the less likely to see finality or am I being too gloomy? But let
us move on to my topic and then open it up to the floor for comments.

V Arbitration for Claims of Discrimination and Sexual Misconduct

Kantor: It is not unusual in arbitration conferences to hear discussions today of diversity
and the need for more diversity in the world of arbitration, whether it is gender, race,
colour, or national origin. That is not what I am raising here. What I am raising is the use of
arbitration as a tool to hide discriminatory misconduct, including sexual harassment. Let
me offer you three illustrations from the United States. The first, you may have noticed
claims being brought in by anchors and former anchors and reporters against Fox News,
women alleging sexual harassment – and their employment contracts provided for

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 mandatory arbitration and for that arbitration to be confidential. Some of those women
have gone into US national courts in an effort to avoid those arbitration clauses, and
seeking public accounting of those allegations. The second example, very recently – there
is an American law firm based out on the West Coast – it had in its employment contracts
for summer law clerks an arbitration clause. Because it was well advised and because it
was primarily based in California, it was sensitive to Californian jurisprudence so in that
arbitration clause, it listed every single statute that may be implicated in employment-
related claims, most obviously, civil rights statutes and statutes that could give rise to
anti-discrimination claims or gender or sexual harassment claims.
A law lecturer at Harvard Law School came across this clause courtesy of a student who
gave it to him and he proceeded to tweet out the clause together with his outrage that this
was intended to prevent public discussion of claims of sexual misconduct or civil rights
violations. That triggered quite a controversy in the law school world – among faculty and
P 889 law students alike. In my own institution, where I am an adjunct at Georgetown, that led
P 890 one faculty member who was familiar with arbitration from consumer protection issues
to discuss the topic on an email listserve for permanent faculty and the law school visitors
committee proposing that any law firm that had such an arbitration clause be prohibited
from interviewing students at Georgetown Law School. That triggered a fair amount of
supportive conduct as well as some opposition. In the meantime, the law firm that had
been the object of this issue withdrew the arbitration clause generally. They did not, as
they could have, withdraw the portion of the arbitration clause that might breach sexual
misconduct or civil rights misconduct, instead they simply withdrew the entire arbitration
clause because what mattered to them was recruiting at major law schools.
That is by the way what some major business organizations have done in the United States.
Rather than face the public reputation consequences – simply avoid the entire issue by
moving away from arbitration and back into national courts. Now that did not resolve the
issue for law schools. Instead, the issue at least in Georgetown is now quite live and the
deans responsible for those subject areas have now raised them with other peer law
schools and with the National Association for Law Placement, which is an organization that
acts as a clearing body for law placement by law schools for their law students. So this will
continue to be an issue as to whether or not arbitration clauses in employment contracts
with law students seeking law clerk jobs or possibly even with associates seeking
permanent employment with law firms will be a ground for law faculties to seek to deny
those law firms interviewing rights at the law schools.
The third example has nothing whatsoever to do with employment law, and that is
important because the United States and Canada are somewhat unusual in the world in
permitting mandatory pre-dispute arbitration agreements for employment contracts. The
third dispute involves Stephanie Clifford and Donald Trump. Stephanie is perhaps better
known as Stormy Daniels. They had what appears to be a consensual arrangement – not an
employment arrangement – I might add. But, at some point the idea arose that there ought
to be a payment of money in return for confidentiality and that contract contained an
arbitration clause. The arbitration clause provided for confidentiality, and now Ms. Clifford
would like to be free from her arbitration clause and free from the confidentiality, and that
has ended up in the US District Court in California to determine whether or not the
appropriate forum is confidential arbitration or the public courts.
The issue which pervades all three of these types of disputes – let me quote you Stormy
Daniels's lawyer in announcing they will oppose a motion to compel arbitration – what he
said was “We will vigorously oppose the just filed motion from ‘DJT’ and ‘MC’ to have this
case decided in a private arbitration, in a private conference room, hidden from the
American public. This is a democracy and this matter should be decided in an open court
of law owned by the people.”
The two themes at issue there are transparency and public accountability. In arbitration,
including commercial arbitration, historically we have asserted that confidentiality and
privacy are positive attributes of commercial arbitration. We kind of like the idea of
private arbitrators. The counter-pressure began in the world of consumer arbitration in
America, but applies in employment arbitration and now goes beyond to address
confidentiality agreements which are ubiquitous in the world of international commerce.
P 890 Those same themes are apparent – transparency and public accountability. They are
P 891 counter-pressure to attributes of international commercial arbitration that we have
often seen as positives. So the issue for us here, when we look at issues that have public
interest associated with them, for example, discriminatory conduct, including sexual
harassment, is whether arbitration is antithetical to those ideals. Judith let me ask you for
your thoughts on this.
Levine: This does not relate to sex or employment or harassment or Donald Trump, I am
afraid, but it does raise questions about an employment context in the sense of women's
rights and trying to achieve a balance between confidentiality and transparency. I am
referring to two recent arbitrations conducted at the PCA (53) under the Bangladesh Accord
on Building and Fire Safety in Bangladesh, (54) which affects the ready-made garment
industry in Bangladesh. Perhaps some of you are wearing clothes that were made in
Bangladesh and might be aware of the legally binding agreement that came out as a result
of the Rana Plaza tragedy in 2013 and that led to two arbitrations being brought by trade
unions representing millions of workers against two of the fashion companies that signed

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 up to the Accord. The case involves workers' rights and certainly high reputational stakes.
Last year, a tribunal at the PCA chaired by ICCA's President Donald Donovan was handling
two parallel claims by global unions against two fashion companies. The second
procedural order, (55) which you can find on the PCA website, tackled the confidentiality
and transparency balance, which was also the subject of Constantine Partasides's
presentation on the transparency topic earlier. (56)
The parties had agreed to apply the UNCITRAL Rules, which do not provide much guidance
beyond private hearings and the non-publication of the award without party consent. The
unions argued for full transparency given the millions of stakeholders involved and the
hundreds of companies who had signed up and the involvement of states and
intergovernmental organizations. The respondents however preferred full confidentiality
given that they were contesting liability and considered themselves in compliance with
the Accord and did not want the reputational damage that resulted just from naming them
in the context of such a claim.
Both sides argued that the governing law was on their side irrespective of whether it was
Bangladeshi or Dutch law. Both sides found in both of those laws, either arguments in
favour of an implied duty of confidentiality, or in favour of transparency. Ultimately, the
tribunal struck a balance between those transparency concerns on the one hand and the
public interest elements to the case. But on the other hand, the tribunal had to look at the
terms of the Accord itself and found that the drafters of the Accord provided the
transparency about supply factories but preserved confidentiality of linking that to the
names of the companies. They acknowledged that to have named the companies would
inevitably have caused reputational damage before any findings on liability, and not
P 891 served the purposes of the Accord. (57) As a result of this decision, you can read about the
P 892 cases, you can read about the Accord and how it has been interpreted. The unions have
announced that the cases have settled and praised the process as a turning point for
arbitration of Business and Human Rights disputes. (58) It seems that the fashion industry
also endorses the process because a new version of the Accord, which comes into effect in
a couple of weeks, has already been signed by over 140 fashion companies. Its arbitration
clause is new and improved (59) – the previous one was somewhat pathological – but it
does maintain the balance with respect to confidentiality and transparency that was
already in the Accord that has been interpreted by those tribunals. It also contains some
whistle-blower protections for workers to raise concerns about health and safety in a
confidential way through a hotline. I thought I would throw out that example because it is
interesting. It may be discussed tomorrow in the New Frontiers panel (60) and it carries on
the theme of the transparency panel earlier today.
Kantor: I would very much like to ask difficult and searching questions of Joongi and Natalie
but I'm conscious of time and it really is important to allow the audience to ask questions
and make comments on it so perhaps we could raise up the lights in the room and bring
out the roaming microphones.

VI Audience Questions
Audience member: You can add to your list investment treaty arbitration because these
issues which you are discussing – and my question to you – are they not directly related to
the fact that in all issues leaving the core subject of international trade – one thing is
international trade and all classical arbitration developing pressure from the public, like
from journalists, who have been pressing for public viewing the moment that you have
issues of public importance which go beyond the core normal trade stuff. That is my
question to you.
Kantor: My answer was more sensitive to that issue but we were also aware that there were
a number of excellent panels at the conference dealing directly with investor-state
arbitration. We tried to choose topics that would not duplicate or overlap with some of
those other panels and that is why you have not heard as much from us about investor-
state as perhaps you might have anticipated given the background of the four people
sitting up here in the room.
P 892
P 893
Audience member: I have two comments on the Belt and Road Initiative. The first is the Belt
and Road Initiative is really a moving target, it is not really fixed. Today there are sixty-five
countries. Tomorrow if the US wants to join or Japan, there will be sixty-seven, so it is a
moving target. For certain, I think that the arbitration institutions should not be over-
excited about this One Belt One Road Initiative because a lot of the investments are really
policy bank investments in those countries – China Development Bank, China Export-
Import Bank – they are not going to be ready to sue the government for that kind of project.
The secondary remark I want to add is about AIIB versus the One Belt One Road Initiative.
Asia Infrastructure Investment Bank is an international financial institution and is not a
Chinese financial institution. I am working for AIIB and so far there is no single project
invested in by AIIB in those Belt and Road Initiative countries. That is why the governing
body of AIIB, they are criticized somehow by the Chinese government who say, “you are not
really pushing for our One Belt One Road Initiative.” I think the people should distinguish
between AIIB on the one hand and One Belt One Road on the other hand.
Audience member: Thank you very much for this interesting debate. I would just add to the

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 debate about your question to Judith regarding the direct involvement of an institution
regarding legal evidence. I think there can be direct involvement. I am not talking about a
real case but, for example, if there is a challenge against an arbitrator and this challenge is
supported by legal evidence, then the institution would have to decide on balance
whether to accept the challenge or reject it based on the main other factors. I would like to
hear the point of view of Ms. Levine, on whether she agrees with me or not. I would like to
make a second comment regarding the Belt and Road Initiative. The Cairo Regional Centre
For International Commercial Arbitration, the Beijing Arbitration Commission and KLRCA
[Kuala Lumpur Regional Centre for Arbitration] (61) – have entered into a Belt and Road
Cooperation Agreement last year and there have been several events in Beijing and Cairo
about this.
Levine: When deciding a challenge, an institution is acting in a decision-making function so
it is different from providing administrative support to the decision makers, which was the
subject of Mark's earlier question. Secondly, I would add that we have been called on to
provide assistance in identifying forensic experts to decide forgery of signature and also
experts on computer forensics so the PCA can support tribunals in getting an independent
expert to come in and help decide on the authenticity of documents.
Audience member: This is primarily to Judith, although others may be inclined to jump in.
The question is in regard to everybody's favourite case Chevron and Lago Agrio and the 28
USC 1782 issues, which Natalie identified. For those of you who do not know about this,
there is a wacky little US law that allows interested parties who may not even be the
litigants to obtain US style discovery of materials and information in the US “in aid of a
P 893 proceeding in front of a foreign or international tribunal”, and there has been a lot of
P 894 dispute as to whether arbitration tribunals, either investment or commercial, constitute
a foreign or international tribunal under the meaning of this particular statute. I have
written on numerous occasions that neither investment nor commercial proceedings do,
unfortunately with respect to investment proceedings the weight of courts has gone against
me so I am still battling it out. It is still open on the commercial front and my question to
Judith is, certainly as Natalie suggested this might be an improper use of 28 USC 1782 from
the perspective of the parties although the courts have taken different views. Could the
arbitrators or could the parties enter into some contract or agreement or could the
arbitrators enter an order prohibiting this type of information from being allowed into the
proceedings and how would that be construed? Most importantly, would we be able to stop
any interested party from even getting this information because once it is out, it is out and
can be used for a variety of different purposes?
Levine: I do not have a view on the Chevron v. Ecuador (62) case and I have had no
involvement with that case. In the Yukos case, there was an interesting use of Sect. 1782 in
the context of the criminal prosecution of Mikhail Khodorkovsky in Russia. The Criminal
Court, and I think it was his lawyers in the criminal proceedings, sought a deposition of the
PwC auditors that I mentioned in connection with WikiLeaks, and a Californian court
granted that deposition. How it relates to the arbitration is the transcript of that
deposition was then proffered by the Russian Federation as evidence in the context of the
international arbitration. (63)
P 894

References
*) Marina Kofman: Associate at Norton Rose Fulbright.
1) Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Timor-Leste (ICSID
Case No. ARB/15/2), Award (22 December 2017) para. 226; see also “Debevoise censured
over ‘fraud’ in casino dispute”, Global Arbitration Review (2 February 2018) at
<https://globalarbitrationreview.com/article/1153317/debevoise-censured-over-
%E2%80%9Cfraud%E2%80%9D-...> (last accessed 12 November 2018).
2) Laos v. Lao Holdings NV and Sanum Investments Ltd (SIAC Case No. 143 of 2014) Award
(29 June 2017) para. 210.
3) Methanex v. United States of America (UNCITRAL Rules).
4) Methanex v. United States of America, Final Award (Jurisdiction and Merits), (3 August
2005) pt. 2, ch. I, para 55.
5) Libananco Holdings Co. Limited v. Republic of Turkey (ICSID Case No. ARB/06/8).
6) Libananco Holdings Co. Limited v. Republic of Turkey (ICSID Case No. ARB/06/8), Award
(2 September 2011) para. 22.
7) Fusimalohi v. FIFA (CAS Case No. 2011/A/2425), Award (8 March 2012) para. 10.
8) Football Club Metalist. v. UEFA & PAOK FC (CAS Case No. 2013/A/3297), Award (29
November 2013) para. 8.10; Natalia KISLIAKOVA, “Using Illegally Obtained Evidence in
the Court of Arbitration for Sport”, CIS Arbitration Forum (16 February 2018) at
<http://www.cisarbitration.com/2018/02/16/using-illegally-obtained-evidence-in-the-
court-of-arbitrati...> (last accessed 15 October 2018).
9) Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom) (PCA Case No
2011-03).

11
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 10) Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom) (PCA Case No.
2011-03), Award (18 March 2015) para. 494.
11) Hulley Enterprises Ltd v. Russian Federation (PCA Case No. AA 226), Award (18 July 2014)
para. 1189; Yukos Universal Ltd v. Russian Federation (PCA Case No. AA 227), Award (18
July 2014) para. 1189; Veteran Petroleum Ltd v. Russian Federation (PCA Case No. AA 228),
Award (18 July 2014) para. 1189; see also James H. BOYKIN and Malik HAVALIC, “Fruits of
the Poisonous Tree: The Admissibility of Unlawfully Obtained Evidence in International
Arbitration”, 5 Transnational Dispute Management (August 2015).
12) ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of
Paria B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Interim
Decision (7 January 2017) para. 135.
13) Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of
Kazakhstan (ICSID Case No. ARB/13/13).
14) Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of
Kazakhstan (ICSID Case No. ARB/13/13), Award (27 September 2017) paras. 150-156.
15) Hulley Enterprises Ltd v. Russian Federation (PCA Case No. AA 226), Award (18 July 2014)
para. 1223; Yukos Universal Ltd v. Russian Federation (PCA Case No. AA 227) Award (18
July 2014) para. 1223; Veteran Petroleum Ltd v. Russian Federation (PCA Case No. AA 228),
Award (18 July 2014) para. 1223.
16) Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom) (PCA Case No.
2011-03), Award (18 March 2015) para. 542.
17) ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of
Paria B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Dissenting
Opinion of Georges Abi-Saab (10 March 2014) para. 66.
18) Alison ROSS, “Blair's Two-Step Test for Illegally Obtained Evidence”, Global Arbitration
Review (27 April 2017) at <https://globalarbitrationreview.com/article/1140718/blair's-
two-step-test-for-illegally-obtained-evi...> (last accessed 16 October 2018).
19) Decision of the Swiss Federal Supreme Court 4A_448/2013 of 27 March 2014, para. 3.2.2;
Decision of the Swiss Federal Supreme Court 4A_362/2013 of 27 March 2014, para. 3.2.2;
see also Luca BEFFA, “Does an award based on illegally obtained evidence violate
public policy? Not necessarily according to the Swiss Federal Supreme Court”, Global
Arbitration News (24 April 2015) at <https://globalarbitrationnews.com/does-an-
award-based-on-illegally-obtained-evidence-violate-public-...> (last accessed 16
October 2018) discussing two “almost identical” decisions by the Swiss Federal
Supreme Court.
20) In R (Bancoult) v. Secretary of State for Foreign and Commonwealth Affairs (No 3) [2014]
EWCA Civ 708, para. 58, the Court found “if a relevant document has found its way into
the hands of a third party, even in consequence of a breach of inviolability, it is prima
facie admissible.”, subsequently affirmed [2018] UKSC 3 (Lord Mance, J), paras. 10-21.
21) Bible v. United Student Aid Funds, Inc., No. 1:13-CV-00575-TWP-TAB, 2014 WL 1048807, at
*4 (S.D. Ind. 14 Mar. 2014), where the Court noted WikiLeaks documents had been in
public domain for more than five years, and plaintiff “does not put this material ‘in the
public eye’ any more than the internet has already done so.”, subsequently reversed
on other grounds, 799 F.3d 633 (7th Cir. 2015).
22) Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of
Kazakhstan (ICSID Case No. ARB/13/13) Award (27 September 2017) paras. 150-156; Nikki
O'SULLIVAN, “Lagging Behind: Is There a Clear Set of Rules for the Treatment of Illegally
Obtained Evidence in International Arbitrations?”, Practical Law Arbitration Blog (31
August 2017) at <http://arbitrationblog.practicallaw.com/lagging-behind-is-there-a-
clear-set-of-rules-for-the-treatme...> (last accessed 16 October 2018).
23) St Marys VCNA LLC v. Canada, Confidentiality Order (24 October 2012) and Consent
Award (12 April 2013).
24) See the contribution of Edna SUSSMAN for the Technology as Disruption panel: “Cyber
Intrusion as Guerilla Tactic: An Appraisal of Historical Challenges in the Age of
Technology and Big Data”, this volume, pp. 849-868.
25) Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of
Kazakhstan (ICSID Case No. ARB/13/13).
26) Libananco Holdings Co. Limited v. Republic of Turkey (ICSID Case No.ARB/06/8).
27) Sundaresh MENON, “The Influence of Public Actors on Lawmaking in International
Arbitration: Domestic Legislatures, Domestic Courts and International Organizations”,
this volume, pp. 112-150.
28) The Economist, “Will China's Belt and Road Initiative Outdo the Marshall Plan?” (8
March 2018) <https://www.economist.com/finance-and-economics/2018/03/08/will-
chinas-belt-and-road-initiative-outd...> (last accessed 16 October 2018).
29) “The International Court of Arbitration of the International Chamber of Commerce (ICC
Court) has announced the establishment of a commission to address dispute
resolution potential in relation to China's Belt and Road Initiative.” ICC (5 March 2018)
at <https://iccwbo.org/media-wall/news-speeches/icc-court-launches-belt-road-
initiative-commission/> (last accessed 9 November 2018).
30) “HKIAC announces Belt and Road Programme”, HKIAC (26 April 2018) at
<http://www.hkiac.org/news/hkiac-announces-belt-and-road-programme> (last
accessed 9 November 2018).
31) Judith LEVINE, “Adopting and Adapting Arbitration for Climate Change-Related
Disputes” in Wendy MILES, ed., Dispute Resolution and Climate Change: The Paris
Agreement and Beyond (International Chamber of Commerce 2017) p. 24.

12
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 32) “General Conditions for Sovereign-backed Loans”, Asian Infrastructure Investment Bank
(1 May 2016) at <https://www.aiib.org/en/policies-strategies/_download/general-
conditions/policy_general_conditions_s...> (last accessed 16 October 2018).
33) “General Conditions for Sovereign-backed Loans”, Asian Infrastructure Investment Bank
(1 May 2016) Sect. 7.04, at <https://www.aiib.org/en/policies-
strategies/_download/general-conditions/policy_general_conditions_s...> (last
accessed 16 October 2018).
34) “General Conditions for Sovereign-backed Loans”, Asian Infrastructure Investment Bank
(1 May 2016) Sect. 4.01(b), at <https://www.aiib.org/en/policies-
strategies/_download/general-conditions/policy_general_conditions_s...> (last
accessed 16 October 2018); Environmental and Social Framework”, Asian Infrastructure
Investment Bank (February 2016) at <https://www.aiib.org/en/policies-
strategies/_download/environment-framework/20160226043633542.pdf> (last
accessed 16 October 2018); “Directive on Environmental and Social Policy”, Asian
Infrastructure Investment Bank (4 December 2017) at
<https://www.aiib.org/en/policies-strategies/_download/environment-
framework/environ menttal-and-soci...> (last accessed 16 October 2018).
35) “Operational Policy on International Relations”, Asian Infrastructure Investment Bank
(21 March 2017) at <https://www.aiib.org/en/policies-
strategies/_download/operational-policy-on-international-relations/...> (last
accessed 16 October 2018).
36) Judith LEVINE, “Adopting and Adapting Arbitration for Climate Change-Related
Disputes”, in Wendy MILES, ed., Dispute Resolution and Climate Change: The Paris
Agreement and Beyond (International Chamber of Commerce 2017) p. 24.
37) Tokios Tokelés v. Ukraine (ICSID Case No. ARB/02/18).
38) Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of
Kazakhstan (ICSID Case No. ARB/13/13).
39) Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of
Bolivia (ICSID Case No. ARB/06/2).
40) Lao Holdings N.V. v. Lao People's Democratic Republic (ICSID Case No. ARB(AF)/12/6).
41) Hydro S.r.l. and others v. Republic of Albania (ICSID Case No. ARB/15/28).
42) Nova Group Investments, B.V. v. Romania (ICSID Case No. ARB/16/19).
43) Sergei Viktorovich Pugachev v. The Russian Federation (UNCITRAL).
44) Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia (ICSID Case No.
ARB/12/14).
45) Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The
Argentine Republic (ICSID Case No. ARB/09/1).
46) Italba Corporation v. Oriental Republic of Uruguay (ICSID Case No. ARB/16/9).
47) Mohammed Munshi v. Mongolia (SCC CASE No. 2018/007), Award on Emergency
Measures (5 February 2018).
48) Agreement Concerning the Headquarters of the Permanent Court of Arbitration
between the Permanent Court of Arbitration and The Kingdom of the Netherlands (30
March 1999).
49) Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (PCA
Case No. 2009-23), Second Partial Award (30 August 2018).
50) An example of harmonious coordination of parallel proceedings is a case that initially
started as three cases against the same State at the SCC (brought under the Energy
Charter Treaty (ECT)), at the ICSID (brought under a BIT) and at the PCA (brought under
the UNCITRAL Rules and a different BIT). The tribunal had already been constituted in
the PCA-administered case. The parties drafted a formal consolidation agreement that
provided that the three cases would be heard by the UNCITRAL tribunal. The SCC and
ICSID cases were deemed to have commenced under the UNCITRAL Rules and formally
terminated at other fora. In another case, there were parallel proceedings commenced
at the ICSID and at the PCA. Co-arbitrators were the same in both proceedings, but
presiding arbitrators were different. The parties adopted parallel timetables and had
the two tribunals sit together in hearing both cases. Bangladesh Accord Arbitrations
represent an example of coordinated contract-based arbitrations. There, two separate
complaints were brought by the same two global workers unions, but against two
separate fashion brands. All of the parties involved were signatories to the Accord on
Fire and Building Safety in Bangladesh signed on 15 May 2013 referring to the UNCITRAL
Rules. The parties agreed that while remaining formally distinct, the cases would be
heard by the same tribunal. In investor-state arbitration, some cases can be
technically separate but coordinated as a single proceeding. Proceedings brought by
Stabil LLC and Ukrnafta as claimants against the Russian Federation is one of such
examples (“Arbitration Between PJSC Ukrnafta as Claimant and The Russian Federation
— Arbitration Between Stabil LLC and Ten Others as Claimants and The Russian
Federation”, Permanent Court of Arbitration (2 May 2016) at
<https://pcacases.com/web/sendAttach/1701> (last accessed 12 November 2018)).
51) Republic of Croatia v. MOL Hungarian Oil and Gas Company Plc (PCA Case No. 2014-15).
52) Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador
(UNCITRAL, PCA Case No. 2009-23).

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 53) <https://pca-cpa.org/en/cases/152/> (last accessed 17 October 2018).
54) Signed on 15 May 2013. See <http://bangladeshaccord.org/> (last accessed 17 October
2018).
55) Bangladesh Accord Arbitrations, Procedural Order No. 2 (4 September 2017).
56) Constantine PARTASIDES, “What Has Been the ‘Spillover’ Effect of the Transparency
Debate on Commercial Arbitrations?”, this volume, pp. 699-710.
57) Bangladesh Accord Arbitrations, Procedural Order No. 2 (4 September 2017).
58) “The 2013 Bangladesh Accord, and its more recent 2018 iteration show that businesses
are willing to work with national governments, IGOs, NGOs, and groups representing
affected individual workers to agree on arbitration as a neutral, enforceable and
flexible means to address grievances relevant to business and human rights.” (Judith
LEVINE and Kashpee WAHID, “Business and Human Rights: A ‘New Frontier’ for
International Arbitration?”, 5 The ACICA Review (2017, no. 2) pp. 35, 39).
59) 2018 Accord on Fire and Building Safety in Bangladesh (May 2018) Art. 3, at
<http://bangladesh accord.org/wp-content/uploads/2018-Accord-full-text.pdf> (last
accessed 9 November 2018).
60) Campbell MCLACHLAN, “Scope for Enlarged Participation in International Arbitration”,
this volume, pp. 1061-1076.
61) Now called the Asian International Arbitration Centre (AIAC).
62) Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador
(UNCITRAL, PCA Case No. 2009-23).
63) Hulley Enterprises Ltd v. Russian Federation (PCA Case No. AA 226), Award (18 July 2014)
paras. 1222-1223; Yukos Universal Ltd v. Russian Federation (PCA Case No. AA 227), Award
(18 July 2014) paras. 1222-1223; Veteran Petroleum Ltd v. Russian Federation (PCA Case
No. AA 228), Award (18 July 2014) paras. 1222-1223; see also Judith LEVINE, “Can
Arbitrators Choose Who to Call as Witnesses? (And What Can Be Done If They Don't Show
Up?)” in Legitimacy: Myths, Realities, Challenges, ICCA Congress Series no. 18 (2014) p.
315.

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Document information
Arbitration of Disputes Arising in Conflict and Post-Conflict
Publication Zones: Managing the Risks
Evolution and Adaptation: Samantha Lord Hill
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference Since 2000 alone there have been over twenty armed conflicts in the Middle East region
resulting in hundreds of thousands of casualties and the destruction of towns and cities,
Samantha Lord Hill, the most widely reported being the Iraq Wars (2003-2011 and 2014-present), the Yemeni
'Arbitration of Disputes Crises and Civil War (2004-present), the Egyptian Crisis (2011-2014) and the Syrian Civil War
Arising in Conflict and Post- (2011-present).
Conflict Zones: Managing the
Risks', in Jean Engelmayer These types of armed conflicts have had a significant impact on both the global and
Kalicki and Mohamed Abdel domestic economies. In December 2016, the Institute for Economics and Peace (IEP)
Raouf (eds), Evolution and released a report titled “The Economic Value of Peace – Measuring the Global Economic
Adaptation: The Future of Impact of Violence and Conflict”, in which it stated that the total economic impact of
International Arbitration, violence on the global economy in 2015 was estimated to be US$ 13.6 trillion, or 13.3
ICCA Congress Series, Volume percent of world GDP. (1) On a domestic scale, taking Syria as an example, the economic
20 (© Kluwer Law impact of the conflict was estimated at 54.1 per cent of GDP in 2015. (2)
International; International While much attention on the world stage is paid to armed conflicts and their effects, as
Council for Commercial countries have become less inclined to use military force to achieve their foreign
Arbitration/Kluwer Law objectives they have increasingly turned to the use of sanctions as a lower risk and
International 2019) pp. 897 - arguably more cost-effective alternative. The purpose of sanctions has been described as
916 “to try to alter strategic decisions of state and non-state actors that threaten [a state's]
P 897 interests or violate international norms of behaviour” (3) such as democracy, human rights
P 898 or the rule of law. One of the most recent examples in the Middle East region is the
sanctions imposed on the State of Qatar in June 2017 by regional governments including
Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Jordan, Chad, Djibouti, Comoros,
Maldives, Mauritania, Senegal and Yemen (Hadi government), on the basis of Qatar's
alleged support of terrorism. (4) Such sanctions have ranged from the blocking of airspace
to Qatari aircraft and the suspension of all flights and sea contacts to Qatar (5) to the
freezing of accounts, deposits and investments held by certain Qatari entities and
nationals in the countries which have imposed sanctions against Qatar. (6)
Notwithstanding the challenges of doing business in conflict zones (whether armed or
otherwise), the need for foreign investment and assistance to support humanitarian and
security goals during the conflict period, and to facilitate the restoration of any affected
areas during and post-conflict, represents an attractive and lucrative opportunity for
foreign investors and businesses. Taking three recent examples:
– As at February 2018, the World Bank had secured approximately US$ 4.7 billion to be
invested in rebuilding and restoring Iraq's electricity generation and distribution
networks, water and sewage treatment plants, oil and gas facilities,
telecommunication systems, hospitals, schools, housing, and transportation networks.
(7)
– Efforts to rebuild Syria have already begun with the International Monetary Fund
estimating that approximately US$ 100 to 200 billion will be needed for physical
reconstruction alone. (8)
– The Minister of Industry, Mine and Trade in Iran has said that, since the lifting of
economic sanctions against Iran in January 2016 as a result the nuclear deal signed in
P 898 the Joint Comprehensive Plan of Action in 2015, US$ 9.7 billion in investment has
P 899 already been registered in Iran, (9) and China's state-owned CITIC Group has
recently agreed to grant a US$ 10 billion line of credit, which is likely to fund
infrastructure projects throughout Iran as part of China's Belt and Road Initiative. (10)
Against the myriad of risks facing entities that wish to do business in these conflict and
post-conflict zones, the incorporation of an arbitration agreement into the relevant
contract is just one of the measures that businesses usually take to try to mitigate their
potential exposure. This, coupled with the challenges faced in the performance of
contractual obligations in conflict and post-conflict zones, unsurprisingly leads to a rise in
both domestic and international arbitration: if one looks at the Middle East, the London
Court of International Arbitration (LCIA) statistics show that Middle Eastern parties made
up 3 percent of its caseload in 2006, (11) with an increase to 6.4 percent in 2016. (12)
While the agreement to arbitrate in a stable, foreign jurisdiction, with a well-established
arbitration regime (such as London, Paris or, for Middle Eastern disputes in particular, the
Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM)) and

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 the designation of the arbitration rules of a leading and internationally-recognized arbitral
institution (such as the International Chamber of Commerce (ICC), LCIA or DIFC-LCIA) will go
a long way towards providing a robust dispute resolution mechanism, there are risks that
may arise (and have in fact arisen) in the arbitration of disputes concerning conflict and
post-conflict zones. Such risks give rise to interesting questions of arbitral practice which
will be considered further in this paper.

II Risks Arising in Arbitration Involving Conflict and/or Post-Conflict

Zones
1 Institutional Arbitration in a Conflict or Post-Conflict Zone
When choosing arbitration as the agreed dispute resolution mechanism, parties have the
choice of agreeing to either ad hoc arbitration, for example under the UNCITRAL
Arbitration Rules 2010, or institutional arbitration where an arbitral institution such as the
ICC, LCIA, or DIFC-LCIA is designated to administer the arbitration in accordance with its
P 899 own procedural arbitration rules. The procedural certainty and efficiency that comes with
P 900 institutional arbitration appears to make it the preferred option with, for example, the
ICC recording a total of 966 new cases filed in 2016 alone, involving 3,099 parties from 137
countries. (13)
Where parties choose institutional arbitration, the risk of the institution ceasing to operate
as a result of conflict can arise where the designated institution is physically located
within the conflict zone. By way of example, the Beirut Chamber of Commerce and Industry
had a Conciliation and Arbitration Commission in 1974 but its activities were suspended
during the Lebanese Civil War, which occurred from 1975 to 1990. (14) It was only later in
1995 that the Lebanese Arbitration Center was founded and arbitration activities resumed.
(15) Similarly, the author understands that the Yemeni Centre for Conciliation and
Arbitration is not presently functioning as a result of the Yemeni Civil War. While the lack of
a functioning arbitral institution creates clear administrative difficulties, the more
fundamental risk is that it might render the arbitration agreement between the parties
inoperable and/or incapable of being performed.
Where the designated arbitral institution remains in operation, practical difficulties may
arise in the administration of the arbitration. As a result of the sanctions presently
imposed upon the State of Qatar, for example, the postal services between Qatar, on the
one hand, and the various states that have cut diplomatic ties with Qatar on the other
hand have been suspended. (16) Art. 3.1 of the Arbitration Rules of the Qatar International
Center for Conciliation and Arbitration (QICCA) provides that all notices, data, memoranda,
documents and other correspondence shall be delivered either by hand or by registered
mail. (17) It is only after the formation of the arbitral tribunal that the parties may agree to
use electronic means of communication pursuant to Art. 3.2. (18) Therefore, a party residing
in a state that has imposed postal restrictions against Qatar is likely to face difficulties in
filing its notice of arbitration (19) or its response (20) (as applicable) under the QICCA
Arbitration Rules. Where a party is unable to file its notice of arbitration, the arbitration
clearly cannot commence; (21) where a party is unable to file its response, there is a risk of
the arbitration proceeding without the participation of the respondent. (22)
In addition, where sanctions operate to restrict the transfer of funds into a state,
difficulties can arise in paying the arbitration registration fee to the arbitral institution,
P 900 with the result that, if the fee is not paid in time, the institution will not register the case.
P 901 (23) Similarly, where the parties fail to make the deposit on costs to the institution
within the relevant time frame, the institution may suspend or terminate the proceedings
(or request the arbitral tribunal to do so). (24)
The above types of risks can be alleviated by designating a well-established arbitral
institution physically located outside the conflict or post-conflict zone, which is
accustomed to dealing with procedurally complex disputes such as the LCIA or the ICC. For
example, the LCIA Arbitration Rules 2014 allow for the filing of the request for arbitration
and the answer in hard copy or by electronic means and so the risk of a party being unable
to file its request for arbitration or its answer is more limited, even if that party is located
in a conflict zone. (25) Similarly, while the ICC Arbitration Rules 2017 require that the
request for arbitration be delivered in hard copy to one of the ICC offices (even if the
request is filed by email), (26) a claimant has a choice as to which office it may deliver the
request to thereby allowing greater scope for compliance with the Rules. Moreover, the
LCIA Arbitration Rules 2014 allow for the arbitration to proceed notwithstanding that the
request for arbitration is incomplete or the answer is missing, late or incomplete. (27)
With respect to the filing fee and deposit on costs, both the LCIA Arbitration Rules 2014 and
the ICC Arbitration Rules 2017 allow for a party to make a substitute deposit on costs to the
institution where the other party fails to make such payment in order to allow the
arbitration to proceed. (28) The party effecting the substitute payment may then request
the arbitral tribunal to make an order or award in order to recover the amount paid as a
debt immediately due together with any interest. (29)
Interestingly, the question of the effect of sanctions on arbitration procedure was
addressed expressly by the ICC, LCIA and the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) in the context of the sanctions imposed by the European

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 Union on Russia in connection with the Crimea and Eastern Ukraine crisis in March 2014. In
June 2015, the ICC, LCIA and SCC confirmed in a joint statement that those sanctions do not
explicitly target arbitration proceedings, but that the asset-freezing restrictions might
require additional administrative steps on the side of the affected party. (30) In addition,
the joint statement clarified that “the sanctions do not impose a general prohibition for
Russian parties to seek arbitration before European arbitral institutions, and Russian
parties are not treated differently from other parties”. (31)
Accordingly, when entering into a contract connected with a conflict or post-conflict zone,
designation of a leading arbitral institution situated outside the conflict zone and
accustomed to dealing with procedurally complex disputes ought to be one of the first
steps taken in order to manage the risks that may arise in any future arbitration.
P 901
P 902
2 Appointment of the Tribunal
In any arbitration there is a risk that a party may be unable or unwilling to appoint an
arbitrator in accordance with the procedure agreed between the parties; that risk is
increased where a party is located in a conflict or post-conflict zone and may have
difficulties communicating with potential arbitrator candidates. Most, if not all, modern
arbitral institutions contain default provisions for the appointment of the arbitral tribunal
by the institution or a designated appointing authority in the event that either party is, or
both parties are, unable to participate in the appointment process.
Under the LCIA Arbitration Rules 2014, the LCIA Court alone is empowered to appoint the
arbitral tribunal and it may do so by having regard to any nomination of an arbitrator
made by a party. (32) However, the LCIA Court may proceed to appoint the arbitral tribunal
notwithstanding any absent or late nomination by a party. (33) Similar provisions can be
found in the ICC Arbitration Rules 2017, which provide the ICC Court with the power to
appoint the arbitral tribunal in the event of any default by a party or parties. (34) For their
part, the UNCITRAL Rules 2010 designate the Secretary-General of the Permanent Court of
Arbitration at The Hague as the appointing authority in the absence of a designation by the
parties. (35)
Therefore, even where a party is located in a conflict or post-conflict zone and cannot, for
any reason, take the procedural steps necessary for the appointment of an arbitrator,
provided that the parties have chosen a well-established set of arbitration rules
containing a reliable default appointment mechanism, any risk posed to the appointment
process ought to be mitigated.

3 Jurisdictional Objections: Who Is the Real Respondent Now?

Where claims are brought against a state or state-owned entity, jurisdictional or
procedural objections may be raised where the legitimacy of the government of the state
against which the claim has been brought is in question.
The author is aware of one recent case against a Middle East state in which the tribunal
was advised by an “acting” minister that the power of attorney of the law firm appointment
to represent the state had been revoked and that a new ministry had taken over the
defence of the state. The “acting” minister represented a revolutionary group which
claimed that it superseded the government of the state. The tribunal found that the onus
was on the “acting” minister to demonstrate that the government had been superseded
and that the law firm appointed by the government was no longer authorized to act.
Following submissions from all concerned parties, the tribunal found that although the
revolutionary group had taken control of parts of the state, including the capital city, there
P 902 was no evidence on the record in the arbitration to demonstrate that the international
P 903 community recognized a change in government. In particular, in dismissing the
contentions of the “acting” minister, the tribunal relied upon evidence from the UN
General Assembly, the UN Security Council and the Council of the Arab League which
referenced and reaffirmed the legitimacy of the government to act on behalf of the state.
Accordingly, where there is a risk of objections, whether jurisdictional or procedural, being
raised in respect of the legitimacy of the respondent or its representatives, additional care
must be taken by the claimant to identify the proper respondent in the request for
arbitration and a suitable procedure ought to be proposed for dealing with such objections
efficiently and cost-effectively in order that they do not frustrate the arbitration of the
underlying dispute.

4 Jurisdictional Objections: Arbitrability of the Dispute

Where the substance of a dispute involves matters arising as a result of, or in connection
with, conflict, or where a party to a dispute is subject to certain sanctions, questions can
arise as to whether the dispute is capable of settlement by arbitration or whether it
concerns matters that are reserved exclusively for national courts.
As two authors have commented: “practice indeed shows that arbitral tribunals and
domestic courts have accepted that the existence of a sanctions regime does not render a
dispute inarbitrable, but rather that the public policy character of a sanctions regime

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 should be taken into account by the tribunal in rendering its decision.” (36)
This statement is in line with the decision in Fincantieri Cantieri Navali Italiani SpA and OTO
Melara SpA v. Ministry of Defence of Iraq, (37) in which an ICC tribunal seated in Switzerland
held that the application of the UN sanctions regime against Iraq in the 1990s was a matter
of mandatory law applicable to the merits of the dispute as distinct from a matter
applicable to the arbitrability of the dispute. The Italian parties sought to have the
decision set aside before the Swiss Federal Tribunal but it supported the tribunal's
decision and confirmed that the matter was arbitrable pursuant to Swiss law. (38) However,
the Italian parties had also referred the matter to the Italian courts and the Court of
Appeal of Genoa reached a different conclusion, holding that, as a matter of Italian law,
the dispute was inarbitrable. (39) This approach was later criticized by the Paris Court of
Appeal, which refused to enforce the Genoa Court's decision in France. (40)
A further example can be seen in the case of La Campagnie Nationale Air France v. Libyan
P 903 Arab Airlines, in which an UNCITRAL arbitral tribunal seated in Montreal, Canada, the
P 904 Montreal Superior Court and the Quebec Court of Appeal each rejected an argument
that the dispute was inarbitrable because of sanctions imposed on Libya by the UN
Security Council. (41) Rather, the question as to the effect of the sanctions regime was seen
as one concerning the admissibility of the claim to be decided by the tribunal rather than
one of arbitrability of the dispute. (42)
While a party cannot prevent the opposing party from raising an objection to jurisdiction
based on the arbitrability of the dispute, a party can seek to manage the disruption to the
arbitration process by proposing a suitable procedure for dealing with such objections
efficiently and cost-effectively.

5 Party Non-Participation
Where a party is physically located in a conflict or post-conflict zone, there is a risk that
that party may be unable, or may choose not, to participate in the arbitration. As
indicated earlier in this paper, most modern arbitration rules include default provisions to
address the situation in which a respondent fails to provide an answer or response to a
request for arbitration, enabling the arbitration to continue in any event. However, the
more complex question arises in circumstances where a party becomes unable or unwilling
to participate in the arbitration because of events that have arisen after the arbitration
commenced.
Arbitral tribunals are usually given broad discretion to conduct arbitral proceedings in the
manner they deem appropriate provided that they comply with the applicable arbitral
rules (in particular those relating to impartiality, independence and a reasonable
opportunity to be heard) and any agreement of the parties. (43) However, in circumstances
where a party is no longer able or willing to participate in the arbitration, great care has to
be taken in order to limit the risk of a challenge to the award.
It is widely accepted that where a party fails to participate in the arbitration, the tribunal
has an inherent power to continue the proceedings so that the arbitration is not frustrated
by a party's non-participation. (44) The Chartered Institute of Arbitrators (CIArb) Guideline
on Party Non-Participation provides that, before proceeding with the arbitration, the
arbitrators should satisfy themselves, to the extent they are able to do so, that the
claimant has a prima facie case, that all parties were properly notified of the proceedings,
and that the non-participating party has no acceptable excuse for its non-participation.
(45) Where a party's non-participation is caused by “unforeseeable circumstances that are
beyond the control of the party concerned” and the party informs the tribunal accordingly,
this excuse is likely to be acceptable such that the arbitrators may extend any applicable
time limits in order to allow the party to re-engage in the proceedings. (46)
P 904
P 905
Where a party does not provide an acceptable excuse and the tribunal proceeds with the
arbitration, the tribunal should ensure that the non-participating party is given a fair
opportunity to take part in the arbitration in order to present its case and to comment on
the arguments and evidence submitted by the opposing party. (47) Therefore, the tribunal
should ensure that all parties are copied in all correspondence, and that the non-
participating party is provided with copies of all notices, procedural orders, directions and
submissions. (48) Where a party fails to attend a scheduled hearing, the arbitrators may
decide to continue with the hearing in its absence or call a temporary adjournment while
enquiries are made regarding the non-attendance. (49)
Accordingly, where a party is unable or unwilling to participate in an arbitration as a result
of events that have occurred in a conflict or post-conflict zone, an experienced arbitral
tribunal ought to be able to navigate its way through the obstacles presented to allow the
arbitration properly to progress, while at the same time ensuring that both parties are
given a fair and reasonable opportunity to present their case and limiting the risk of a
challenge to any awards rendered.

6 Access to Documentary Evidence

One of the key risks affecting many, if not all, disputes in conflict or post-conflict zones is
the security of evidence. Documents or other evidence may be seized or destroyed,

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 whether purposely or by mistake. This risk is especially acute in disputes with an element
of political sensitivity, or in areas of heightened violence, where bombing or other forms of
physical destruction are ongoing. Access to project areas may be limited or non-existent,
or simply unsafe.
A lack of access to documentary evidence carries with it two main risks: (1) that a party will
be unable to comply with its disclosure obligations in the arbitration, as a result of which
adverse inferences may be drawn against that party; and (2) that a party will not have the
documentary evidence required to support and prove its case.
Tribunals have excused a party from the duty to disclose evidence where it is shown that
the evidence was lost due to the occurrence of civil strife, war, riots and revolution or other
forms of disaster. (50) However, such explanations have not been accepted without
substantiation. (51) If a party's claim that documents have been destroyed is prima facie
inconsistent with known facts, or reasonable business practice of parties in similar
circumstances, the party claiming that it is unable to produce the required documents
must be able to provide a satisfactory explanation to the tribunal. (52)
In William J Levitt v. The Islamic Republic of Iran, (53) the tribunal determined that
P 905 reasonable record keeping practices would dictate that copies of original documents
P 906 would be stored in a location away from the area affected by civil strife:
“It must be recognized that the record in this Case is further obscured by
Claimant's alleged inability himself to supply documents supporting his version
of the facts. The failure to maintain virtually any records outside Iran is rather
inexplicable in a corporation with experienced and sophisticated management.
Also, the failure to produce as a witness a key former employee who had been in
charge of the irrigation project in Iran left an important gap in Claimant's
proof.” (54)
If, on the other hand, a party is concerned that the opposing party may have documentary
evidence that is at risk of destruction, it can seek a preservation order in order to compel
the owner or custodian of the documents to maintain them and protect them against loss
or damage. A preservation order can be sought as a preliminary measure either from the
local court in whose jurisdiction the documents are located (if such court is functioning),
the court at the seat of arbitration, or from the arbitral tribunal.
Where a party fails to produce a document and/or fails to comply with a preservation
order, without reasonable explanation, a tribunal may draw adverse inferences against
that party as a result of its failure, the inference being that the document is likely to be
damaging the party's case in the arbitration. (55)
The guidelines regarding adverse inferences in international arbitration were set out in the
1992 version of the International Bar Aassociation Rules on the Taking of Evidence in
International Commercial Arbitration and modified in the 2010 version (IBA Rules). Art. 9(5)
of the 2010 IBA Rules provides:
“If a Party fails without satisfactory explanation to produce any Document
requested in a Request to Produce to which it has not objected in due time or
fails to produce any Document ordered to be produced by the Arbitral Tribunal,
the Arbitral Tribunal may infer that such document would be adverse to the
interests of the party.” (56) (Emphasis added.)
However, the power to draw adverse inferences ought to be used in exceptional cases only.
This principle was expressed in a 2010 award (57) in which the sole arbitrator said:
“It is a well-established principle in international commercial arbitration that
arbitrators may draw adverse inferences against a party that refuses, without
reasonable excuse, to disclose documents and information under its control,
P 906 essential to prove or disprove claims asserted against it. The use of such power
P 907 by an arbitrator is an exceptional one, and should only be used when the
arbitrator is satisfied that certain requirements are met.” (58) (Emphasis added.)
In George Edwards v. Government of the Islamic Republic of Iran, (59) the principle of
adverse inferences was considered in circumstances where the claimant had fled Iran
amidst the Islamic Revolution, and, in the process, had abandoned business records that
he said were essential to his contract claims. The claimant alleged that the Iranian
Government had gained access to the documents that the claimant had left behind and so
the claimant requested that adverse inferences be drawn against the Government for its
failure to produce such documents. The tribunal refused the claimant's application. It
acknowledged the evidentiary hurdles confronting claimants displaced by the Islamic
Revolution, but held that “where there is no evidence that the Respondent came into
actual possession of the document in question, the Tribunal cannot shift the burden of
proof” (60) to Iran or draw adverse inferences from Iran's non-production.
A similar issue arose in H. A. Spalding Inc. v. Ministry of Roads and Transport, (61) in which
both parties alleged that all of the records that were kept in Teheran were in the custody
and control of the Iranian Government. The tribunal held that “even though Claimant's
Teheran records are no longer available to Claimant it does follow that they are available

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 to Respondents and that inferences may be drawn against them”. (62)
In order to mitigate the risk that a party is unable to access documentary evidence to
support its case and/or comply with an order for document production because of the
disappearance or destruction of documents in a conflict zone or post-conflict zone, parties
operating in such zones should implement document management procedures to ensure
that copies are kept outside the affected areas and, preferably, outside the jurisdiction.
Where electronic documents are concerned, back-up versions of the documents should be
stored overseas. The risk of a party being unable to provide a justifiable reason for the
inability to produce documents might also be reduced where such party has kept a record
of the steps it has taken to keep its documents safe and secure.

7 Absent Witnesses
Difficulties may also arise in arbitrations concerning conflict or post-conflict zones in
respect of the availability of fact witness evidence. This is particularly so where there are
P 907 travel restrictions in place between the country of residence or nationality of a fact witness
P 908 and the country in which the arbitration will take place. By way of example, as a result
of the sanctions imposed on Qatar in June 2017, citizens of the United Arab Emirates (UAE),
Saudi Arabia and Bahrain were banned from entering Qatar and Qatari citizens residing in
those countries were forced to leave and other Qatar citizens were banned from entering.
(63)
Where a fact witness has provided a witness statement in an arbitration and is required by
the opposing party to appear at the hearing for cross examination, the consequences of a
witness's failure to appear at the hearing may be significant. Art. 4.7 of the IBA Rules
provides that:
“a witness whose appearance has been requested pursuant to Article 8.1 fails
without a valid reason to appear for testimony at an Evidentiary Hearing, the
Arbitral Tribunal shall disregard any Witness Statement related to that
Evidentiary Hearing by that witness unless, in exceptional circumstances, the
Arbitral Tribunal decides otherwise”. (64) (Emphasis added.)
Accordingly, the default position under the IBA Rules is that a witness who fails to appear
at a hearing shall have his or her evidence disregarded. (65) Exceptional circumstances
may exist where the witness's failure to appear is due to circumstances beyond his or her
control; however, it is for the party presenting the witness to demonstrate that such
exceptional circumstances exist. (66) In making such a determination, the tribunal is likely
to consider the extent to which the witness, and the party presenting the witness, might
have been able to make alternative arrangements for the witness to provide his or her
testimony, for example by video conference under Art. 8.1 of the IBA Rules.
Where the evidence of a fact witness is taken by video conference, care has to be taken to
ensure that equality and fairness is maintained for both parties, including by ensuring that
the technology used is of sufficient quality to approximate live testimony and that exhibits
can be shared with the witness and the hearing room simultaneously. (67) In addition, it is
important to ensure that the evidence is taken in accordance with the laws applicable at
P 908 the location of the witness on giving evidence in foreign proceedings. (68) In many
P 909 instances, the taking of such evidence will be governed by international treaties such as
the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters or
the Vienna Convention on Consular Relations. (69)
Lastly, where a party fails without satisfactory explanation to make available a fact witness
for cross-examination (whether in person or by video conference), the arbitral tribunal may
infer that such evidence would be adverse to the interests of that party. This principle is
enshrined in Art. 9.6 of the IBA Rules. (70)
Accordingly, when arbitrating disputes involving individuals who are located in conflict or
post-conflict zones, it is necessary to plan ahead and ensure that steps are taken in
advance so that procedures are put in place to ensure fact witnesses are available and
able to attend the hearing to provide their oral testimony. Such procedures may include
agreeing to hold the hearing in a place to which the fact witnesses can travel and/or
arranging the formalities and logistics of video conferencing well in advance.

8 Dealing with Local Courts

While most modern arbitration rules provide the arbitral tribunal with broad powers to
order interim measures, (71) sometimes it is necessary to seek assistance from local courts
at the seat of the arbitration, the place of residence or business of a party to the
arbitration or the place(s) where a party's assets are located. A party may require
assistance from a local court in respect of matters such as the preservation and/or
production of documentary evidence, subpoenaing witnesses, the preservation of assets,
including by placing a prohibition on their sale or other dissipation out of the relevant
jurisdiction, and/or by way of injunction refraining a party from commencing or pursuing
proceedings in another jurisdiction while the arbitration is ongoing.
In times of conflict, it is often the case that the courts physically located in a conflict zone
cease to operate properly with judges, administrative staff and lawyers having fled the

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 area during the conflict. Moreover, where new factions take control of conflict areas issues
arise as to which courts, if any, form part of the official judicial system. Taking Syria as an
example, the International Legal Assistance Consortium (ILAC) Rule of Law Report: Syria
2017 noted that “[t]he sheer number of different armed opposition groups, each of which
have formed their own separate administrative and judicial institutions, means that there
is no single system of justice in areas outside of government control”. (72)
In order to limit the risk, therefore, of the effect of a lack of a functioning court system in a
conflict or post-conflict zone, a party's first step ought to be to choose a seat of arbitration
outside the conflict zone, preferably in a well-established, arbitration-friendly, robust
jurisdiction such as England or France so as to ensure that the courts having supervisory
jurisdiction over the arbitration are not subject to or affected by the circumstances in the
relevant conflict or post-conflict zone.
P 909
P 910
Where the arbitration is seated outside the affected zone, and the parties have chosen a
modern set of procedural arbitration rules that empower the tribunal to order interim
measures, the parties to the arbitration ought to have a good level of protection through
the supervisory courts at the seat and the tribunal itself in respect of any interim relief
they may wish to seek. That does not, however, extinguish the risk that a recalcitrant party
may choose not to comply with orders made by the courts at the seat of arbitration or the
tribunal or that it may seek its own orders from the local courts in the conflict or post-
conflict zone in an attempt to frustrate the arbitration process or any award rendered
therein. In these latter situations, the question becomes one of strategy, requiring an
assessment of which court(s) outside the conflict or post-conflict zone might be most
appropriate to approach in order to obtain assistance.

9 Enforcing the Award

In many instances, parties which have endured an arbitration will voluntarily honour the
resulting award rendering the process for recognition and enforcement of the award
unnecessary; in one study, 86 percent of corporate counsel interviewed indicated that in
more than 76 percent of their arbitration proceedings, the unsuccessful party voluntarily
complied with the award. (73) However, where a party fails to comply with an award, for
example by not making payment of amounts awarded to the successful party, it will be
necessary for the successful party to take steps to have the award recognized and enforced
in order that it can then have the award executed against the assets of the unsuccessful
party.
To the extent that the unsuccessful party has assets located outside a conflict or post-
conflict zone, the procedural risks associated with dealing with local courts situated inside
the conflict zone can be overcome by targeting the conflict-free assets in the first instance.
However, even where such an approach is taken, there remains a risk that the unsuccessful
party may seek to resist recognition and enforcement of the award on one or more of the
grounds set out in Art. V of the 1958 New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (New York Convention). The most likely Art. V
candidates to be relied upon when seeking to resist recognition and enforcement of an
award concerning a dispute connected with a conflict or post-conflict zone are considered
below.
a “Not given proper notice” or “otherwise unable to present his case”
Art. V(1)(b) of the New York Convention provides that a court may refuse recognition and
enforcement where “the party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration proceedings or was
otherwise unable to present his case”. (74)
P 910 It is well established that Art. V(1)(b) of the New York Convention is to be interpreted
P 911 narrowly, with the result being that it has seldom been invoked successfully. (75) In fact,
a 2010 survey of 136 reported court decisions over the past 35 years concerning an alleged
violation of Art. V(1)(b) shows that the article was successfully invoked in only 10 percent of
cases. (76) The survey found that only where the parties had effectively been denied an
opportunity to be heard would a challenge based on Art. V(1)(b) of the New York Convention
be successful. (77) In this vein, Born has asserted that the phrase “unable to present his
case” has extended the procedural fairness ground only to “cases in which extraordinary
circumstances, akin to force majeure, prevented a party from presenting its case”. (78) In
addition, in general, enforcing courts will reject an argument made under Art. V(1)(b) of the
New York Convention where the defendant has been given the opportunity to participate in
the arbitration. (79) A party alleging that it has not been able to present its case must show
that its failure to participate in the proceedings did not result from its own conduct. (80)
Notwithstanding the above, one can easily see how an unsuccessful party who has been
unable to participate in the appointment of an arbitrator or has been unable to properly
present his case, for example because of a lack of documentary evidence as a result of
conflict activities or the inability of a witness to appear at the hearing, may seek to resist
recognition and enforcement on this ground. It is for this reason that it is particularly
important that tribunals appointed to deal with disputes connected with conflict or post-
conflict zones take care in their approach to the conduct of proceedings and ensure that

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 the parties are each given a reasonable opportunity to be heard and that the matters
affected by virtue of events within the conflict or post-conflict zone are properly
considered.
b Procedural irregularity
Similar arguments as those under Art. V(1)(b) may be raised under Art. V(1)(d) of the New
York Convention which provides that a court may refuse recognition and enforcement
where “the composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place”. (81)
P 911
P 912
In line with the pro-arbitration, pro-enforcement bias of the New York Convention, the
courts in many (if not all) Contracting States require there to be a substantial defect in the
composition of the arbitral tribunal or the arbitral procedure in order for Art. V(1)(d) of the
New York Convention to be successfully engaged. (82) As Born states: “[i]t is clear that a
serious violation of the procedural law of the arbitral seat is necessary in order to justify
non-recognition of an award under Article V(1)(d). It is insufficient to deny recognition of an
award that a minor or incidental violation of the procedural law occurred.” (83)
The preferred approach appears to be to consider whether the defect in the composition
of the arbitral tribunal or in the arbitration procedure had a material impact on the
outcome of the arbitration, (84) i.e. would the outcome of the arbitration be different, had
the procedural irregularity not have occurred? However, and again, while Art. V(1)(d) has
only been invoked successfully in a small number of cases, (85) there is a clear risk that an
unsuccessful party who has been unable properly to participate and present his case
because of events occurring in a conflict or post-conflict zone may seek to rely on this
article to resist recognition and enforcement. This serves as yet another reason why
arbitrators dealing with cases involving conflict or post-conflict zones must take extra care
in their approach to the conduct of proceedings.
c Matter not capable of settlement by arbitration
Art. V(2)(a) of the New York Convention expressly allows the enforcing court of a Contracting
State to refuse to enforce a foreign arbitral award where “[t]he subject matter of the
difference is not capable of settlement by arbitration under the law of that country. (86)
Under this article, an enforcing court can make enquiries into the arbitrability of a dispute
ex officio, even if neither party to the dispute has raised an objection to enforcement
based on arbitrability. (87) While the concept of arbitrability is posited in the New York
P 912 Convention, (88) the Convention does not set a criterion for what constitutes an arbitrable
P 913 matter and what does not. This is because Art. V(2)(a) of the New York Convention
provides that the difference must be capable of settlement by arbitration according to the
‘law of that country’. (89) It seems undisputed that the enforcing court is bound by its own
lex fori and, as such, must determine whether an award has violated any rules of its own
country in relation to arbitrability. (90) The general principle adopted by most states is
that matters that involve such sensitive public policy issues should be resolved by state
courts and not by arbitration. (91)
Where the dispute in question arises out of events which have occurred as a result of
conflict, or brings into question the effect of measures imposed by state governments or
international bodies during crises periods, one can envisage arguments by the
unsuccessful party as to why the dispute involves sensitive issues of public policy
rendering the dispute inarbitrable. However, on balance, and while each case is of course
fact-sensitive, it appears that the strong public policy in favour of resolving disputes by
arbitration is likely to prevail, in particular where ultimately the dispute is one of a
contractual or economic nature between commercial entities. (92) Indeed, steps can be
taken to manage the risk associated with a negative finding on arbitrability at the
enforcement stage by seeking recognition and enforcement in an arbitration-friendly
jurisdiction where possible.
d Public policy
Lastly, Art. V(2)(b) of the New York Convention permits the enforcing court to refuse
recognition and enforcement of the award ex officio where it finds that recognition and
enforcement would be contrary to the public policy of the country in which enforcement is
sought. (93) In the 1824 case of Richardson v. Melisch, (94) the court famously stated that
“public policy is a very unruly horse and once you stride it, you never know where it will
carry you”. (95) This quote elegantly captures the unpredictable nature of public policy
arguments and it is for this reason that public policy is often viewed as the catch-all
ground on which a party may try to resist recognition and enforcement of an arbitral
award. (96) For this reason, this ground is one of the most often invoked.
P 913
P 914
In recent times, the public policy ground of the New York Convention has sparked debate
in particular in respect of cases where the enforcement and subsequent execution of an
award might be contrary to a sanctions regime.

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 The United States District Court for the Southern District of New York considered Art. V(2)(b)
of the New York Convention in MGM Productions Group, Inc v. Aeroflot Russian Airlines. (97)
In that case, MGM Productions Group Inc (MGM) was the assignee of an arbitral award
obtained by Russo International Ventures, Inc (Russo), a New York corporation, against
Aeroflot Russian Airlines (Aeroflot). The award was rendered by a Stockholm Chamber of
Commerce arbitral tribunal seated in Sweden and ordered Aeroflot to pay to Russo
approx. US$ 13.1 million plus interests and costs. MGM sought recognition and enforcement
of the award in the United States but its application was opposed by Aeroflot, which
contended that confirmation of the award would be contrary to public policy of the United
States because the agreement the subject of the dispute concerned transactions relating
to Iran which were prohibited by the US sanctions against Iran. (98) The question of
whether the agreement violated US sanctions had already been considered by the arbitral
tribunal, which had found that the agreement did not violate such sanctions. (99) The Court
agreed with the arbitral tribunal and found that even if the agreement had violated US
sanctions, Aeroflot had not convinced the Court that the public policy defence under the
New York Convention supported its case. (100) Accordingly, the Court recognized and
enforced the award.
In addition, the United States Court of Appeals for the Ninth Circuit considered Art. V(2)(b)
of the New York Convention in Ministry of Defense of Iran v. Cubic Defense Systems, (101) in
which the Court found that economic sanctions and foreign policy disputes are not
sufficient to override the strong public policy in favour of the recognition of international
arbitration awards. The case concerned recognition and enforcement of an ICC award
rendered in Switzerland in May 1997 in which the tribunal had ordered Cubic Defense to
pay US$ 2.8 million plus interests and costs to the Ministry of War of the government of Iran
(predecessor to the Ministry of Defense and Support for the Armed Forces of the Islamic
Republic of Iran) (the Ministry). The dispute had arisen out of contracts for the sale and
service of an air combat manoeuvring range for use by Iran's military but the Iranian
Revolution had resulted in non-performance of the contracts by Cubic Defense.
In June 1998, the Ministry filed a petition before the courts in the United States seeking
recognition and enforcement of the ICC award, which petition was granted. Cubic Defense
then appealed, arguing, under Art. V(2)(b) of the New York Convention, that confirmation of
the ICC award was contrary to a fundamental public policy of the United States against
trade and financial transactions with the Islamic Republic of Iran. (102) In particular, Cubic
P 914 Defense pointed to the sanctions the United States has imposed on Iran, including the
P 915 Iranian Assets Control Regulations, the Iranian Transactions Regulations and the
Weapons of Mass Destruction Proliferators Sanctions Regulations. (103) Cubic Defense
further contended that the existence of a policy prohibiting payment of the award was
sufficient to demonstrate the existence of a fundamental public policy against
confirmation of the award and that, even though the sanctions did not specifically prohibit
confirmation of the award, they constituted evidence of a comprehensive US policy against
trade, investment and economic support for Iran such that confirmation of the ICC's award
was repugnant to the public policy of the United States. (104)
On hearing Cubic Defense's submissions, Judge Fisher commented as follows:
“We are not persuaded by Cubic's argument, which gives too little weight to this
country's strong public policy in support of the recognition of foreign arbitration
awards, and too much weight to the regulatory restrictions governing payment
of the ICC's award. … we conclude that the Ministry, and the United States as
amicus curiae, have the better argument.” (105)
Further, the Court stated:
“Our analysis begins with the strong public policy favoring confirmation of
foreign arbitration awards. ‘The goal of the Convention, and the principal
purpose underlying American adoption and implementation of it, was to
encourage the recognition and enforcement of commercial arbitration
agreements in international contracts and to unify the standards by which
agreements to arbitrate are observed and arbitral awards are enforced in the
signatory countries.’ (106) … To prevail, therefore, Cubic must demonstrate a
countervailing public policy sufficient to overcome this strong policy favoring
confirmation of the ICC's award. Cubic has not met that ‘substantial’ burden.”
(107)
The Court confirmed that the ICC's award was not contrary to the public policy of the
United States under Art. V(2)(b) of the New York Convention and that Cubic Defense had not
identified a public policy sufficient to overcome the strong federal policy in favour of
recognizing foreign arbitral awards. (108) In doing so, the Court drew a distinction between
“confirming” the award under the New York Convention (i.e. recognition and enforcement)
and ordering payment of the award (i.e. execution), stating that “we should not refuse to
confirm an arbitration award because payment is prohibited when payment may in fact be
authorized by the government's issuance of a specific license”. (109)
Similarly, in January 2014, the Swiss Federal Supreme Court (110) recognized and enforced
P 915 an award rendered by a three-member tribunal seated in Teheran, in which the tribunal
P 916 ordered an Israeli-controlled Swiss company to pay US$ 97 million in damages plus

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 P 916
interest to an Iranian company. The tribunal had rendered its award in 2001 but when it
remained unpaid in 2011, the Iranian company commenced enforcement proceedings in
Switzerland. The Court of First Instance in Geneva granted enforcement of the award which
was affirmed by the Court of Justice. However, the Israeli-controlled Swiss company
appealed to the Federal Supreme Court arguing that enforcement should be refused under
Art. V(2)(b) of the New York Convention on the basis that the payment of the award would
violate international economic sanctions against Iran, which in turn would be contrary to
the public policy of Switzerland. The Swiss Federal Supreme Court rejected the arguments
and found that the Swiss company had failed to make out its case. It went on to say that
the Swiss company had not developed or substantiated its arguments on the relationship
between Swiss and international law or properly explained why the payment of the award
would violate the sanctions regime or be incompatible with public policy.
In line with the pro-enforcement bias underpinning the New York Convention, it is likely to
be difficult for an unsuccessful party to an arbitration to resist enforcement on the public
policy ground simply by virtue of the connection between the dispute and a particular
conflict. However, clearly a party's chances of successfully enforcing an award are
increased when enforcement is sought in a jurisdiction renowned for being arbitration-
friendly and which has minimal connection to or involvement with the conflict.

III Concluding Remarks

The lucrative business opportunities presented by the need for foreign investment across
industries in conflict and post-conflict zones, coupled with the status of arbitration as the
preferred method of dispute resolution for the international business community, has
given rise and will continue to give rise to an increase in the number of arbitrations
involving conflict and post-conflict zones.
Such arbitrations will inevitably raise complex questions of arbitral procedure and
concomitant risks, many of which can be managed provided that parties are alive to such
risks and take steps to mitigate them at the outset of a project or transaction. This requires
parties to give careful consideration to their arbitration agreement when entering into the
initial contract in order to minimize the risk of the chosen arbitration mechanism being
affected by events occurring in the conflict or post-conflict zone. It also requires parties to
put measures in place during the life cycle of the project, even before a dispute arises, to
ensure that it is in a position, in the event that a dispute does arise, to properly support its
case and comply with its obligations to the tribunal, for example in respect of document
disclosure. Lastly, it requires that both the parties and the arbitrators are aware of the
procedural issues that might arise by virtue of the connection of the dispute to a conflict or
post-conflict zone and that these issues are dealt with in such a way as to limit the risk, in
so far as possible and practicable, of a challenge to a subsequent arbitral award.
P 916

References
*) Samantha Lord Hill: Senior Associate, Dispute Resolution, Freshfields Bruckhaus
Deringer, Dubai (UAE) and Singapore, LLB (Hons), LLM, ACIArb, Any views set out in this
article are the views of the author only and do not represent the views of Freshfields
Bruckhaus Deringer. The author would like to thank Erin Miller Rankin and Sami
Tannous (Partners, Freshfields Bruckhaus Deringer) and Monty Taylor (Associate,
Arnold & Porter) for their support in the preparation of this paper.
1) Institute for Economics and Peace, “The Economic Value of Peace 2016: Measuring the
Global Economic Impact of Violence and Conflict” (15 December 2016) p. 4 (available
at <https://reliefweb.int/report/world/economic-value-peace-2016-measuring-
global-economic-impact-violen...>).
2) Ibid., p. 3.
3) J. MASTER, “What Are Economic Sanctions?”, Foreign Affairs (7 August 2017) (available
at <https://www.cfr.org/backgrounder/what-are-economic-sanctions>).
4) See for example, “UAE supports statements of Kingdom of Bahrain and Kingdom of
Saudi Arabia on Qatar”, Emirates News Agency (5 June 2017) (available at
<http://wam.ae/en/details/1395302617576>).
5) See for example UAE Cabinet Resolution No. 18 of 2017 which implements the UAE's
measures against Qatar; see also “Emirates suspends flights to and from Qatar”,
Emirates News Agency (5 June 2017) (available at
<http://wam.ae/en/details/1395302617600>); “Etihad suspends flights to and from
Qatar”, Emirates News Agency (5 June 2017) (available at
<http://wam.ae/en/details/1395302617604>); “Saudi Arabian Airlines announces
suspension of all flights to and from Qatar”, Emirates News Agency (5 June 2017)
(available at <http://wam.ae/en/details/1395302617640>); “Gulf Air suspends flights
to and from Qatar”, Emirates News Agency, (5 June 2017) (available at
<http://wam.ae/en/details/1395302617645>); K. PAUL, S. AZHAR and J. MERRIMAN,
“Saudi Arabia Revokes Qatar Airways' Licences”, Reuters (6 June 2017) (available at
<http://uk.reuters.com/article/uk-gulf-qatar-license-idUKKBN18X0XS>).

10
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 6) Dubai Financial Services Authority letter dated 12 June 2017; See “UAE Central Bank
Issues Instructions for Freezing Accounts, Deposits, Investments of Designated
Terrorists, Terror Organisations”, Emirates News Agency (9 June 2017) (available at
<http://wam.ae/en/details/1395302618302>).
7) “World Bank's Commitment to Iraq Reaches US$ 4.7 Billion”, World Bank, (14 February
2018) <www.worldbank.org/en/news/press-release/2018/02/13/world-banks-
commitment-to-iraq-reaches-us47-billi...>.
8) International Monetary Fund, “Syria's Conflict Economy”, IMF Working Paper
WP/16/123, (International Monetary Fund, 2016) p. 21.
9) “Iran Attracts $10bn in Foreign Investment Post-JCPOA”, Iran Business News (21
February 2018) <www.iran-bn.com/2018/02/21/iran-attracts-10bn-in-foreign-
investment-post-jcpoa/>.
10) “Iran, China Sign $10 Billion Finance Deal”, Finance Tribune, (14 September 2017)
<https://financialtribune.com/articles/economy-business-and-markets/72363/iran-
china-sign-10-billion-...>.
11) LCIA, “Director's Report 2006”, p. 4.
12) LCIA, “Facts and Figures – 2016: A Robust Caseload”, p. 6.
13) “ICC Reveals Record Number of New Arbitration Cases Filed in 2016”, ICC News
Bulletin (18 January 2017); ICC, “2016 ICC Dispute Resolution Statistics” (2017).
14) N. NAJJAR, Arbitration and International Trade in the Arab Countries (Brill/Nijhoff,
Leiden, Boston 2018) p. 213.
15) For more information on the Lebanese Arbitration and Mediation Center, see
<www.ccib.org.lb>.
16) “UAE and Saudi Arabia cut ties with Qatar – live updates”, The National (5 June 2017)
(available at <https://www.thenational.ae/world/uae-and-saudi-arabia-cut-ties-
with-qatar-live-updates-1.24574>).
17) QICCA Rules, Art. 3.1.
18) QICCA Rules, Art. 3.2.
19) QICCA Rules, Art. 4.1.
20) QICCA Rules, Art. 5.1.
21) QICCA Rules, Art. 4.2.
22) QICCA Rules, Art. 5.4.
23) See for example QICCA Rules, Art. 44.2.
24) See for example QICCA Rules, Art. 48.2.
25) LCIA Arbitration Rules 2014, Arts. 1.2 and 2.2.
26) ICC Arbitration Rules 2017, Art. 4.1.
27) LCIA Arbitration Rules 2014, Art. 5.1.
28) LCIA Arbitration Rules 2014, Art. 24.4; ICC Arbitration Rules 2017, Art. 37(5).
29) LCIA Arbitration Rules 2014, Art. 24.3 to 24.5.
30) ICC, “LCIA and SCC Joint Statement” (17 June 2015) p. 6 (available at
<http://sccinstitute.com/media/80988/legal-insight-icc_lcia_scc-on-sanctions_17-
june-2015.pdf>).
31) Ibid.
32) LCIA Arbitration Rules 2014, Art. 5.7.
33) LCIA Arbitration Rules 2014, Art. 7.2.
34) ICC Arbitration Rules 2017, Art. 12.
35) UNCITRAL Arbitration Rules 2010, Art. 6(1).
36) E. DE BRABANDERE and D. HOLLOWAY, “Sanctions and International Arbitration” in L.
VAN DEN HERIK, ed., Research Handbook on UN Sanctions and International Law
(Edward Elgar Publishing 2017) p. 307.
37) ICC Award 6719 (Interim Award) Journal du droit international (1994) 1071 discussed in
E. DE BRABANDERE and D. HOLLOWAY, “Sanctions and International Arbitration” in L.
VAN DEN HERIK, ed., Research Handbook on UN Sanctions and International Law
(Edward Elgar Publishing 2017) p. 307.
38) Fincantieri Cantieri Navali Italiani SpA and OTO Melara SpA v. M et Tribunal Arbitral (23
June 1992) ATF 118 II 353 Swiss Federal Tribunal 355.
39) Fincantieri Cantieri Navali Italiani SpA v. Iraq (1994) Riv. Dell'arb Court of Appeal Genoa
510.
40) Legal Department of the Ministry of Justice of the Republic of Iraq v. Fincantieri Cantieri
Navali Italiani (15 June 2006) Rev Arb (2007) Paris Court of Appeal 87.
41) E. DE BRABANDERE and D. HOLLOWAY, “Sanctions and International Arbitration” in L.
VAN DEN HERIK, ed., Research Handbook on UN Sanctions and International Law
(Edward Elgar Publishing 2017) pp. 308-309.
42) Ibid., p. 310.
43) See generally ICC Arbitration Rules 2017, Art. 22.
44) CIArb Guideline on Party Non-Participation, para. 4.
45) CIArb Guideline on Party Non-Participation, Art. 1.1.
46) CIArb Guideline on Party Non-Participation, para. 1(c).
47) CIArb Guideline on Party Non-Participation, para. 1(c).
48) CIArb Guideline on Party Non-Participation, para. 4(a).
49) CIArb Guideline on Party Non-Participation, Art. 4.
50) N. O'MALLEY, Rules of Evidence in International Arbitration: An Annotated Guide (2012)
p. 300.
51) Ibid.

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 52) Ibid.
53) William J Levitt v. The Islamic Republic of Iran, Case no. 210, Concurring and Dissenting
Opinion of Richard C. Allison, 3 September 1991 regarding Chamber Three Award No.
520-210-3.
54) Ibid.
55) N. O'MALLEY, Rules of Evidence in International Arbitration: An Annotated Guide (2012)
pp. 300-301; S. GREENBERG, F. LAUTENSCHLAGER, “Adverse Inferences in International
Arbitral Practice”, 22 ICC International Court Bulletin (2011, no. 2).
56) IBA Rules, Art. 9(5).
57) S. GREENBERG, F. LAUTENSCHLAGER, “Adverse Inferences in International Arbitral
Practice”, 22 ICC International Court Bulletin (2011, no. 2); see also J. SHARPE, “Drawing
Adverse Inferences from the Non-production of Evidence”, 22 Arbitration International
(2006, no. 4) pp. 549-572.
58) S. GREENBERG, F. LAUTENSCHLAGER, “Adverse Inferences in International Arbitral
Practice”, 22 ICC International Court Bulletin (2011, no. 2). See also Marvin Feldman v.
Mexico (ICSID Case No. ARB(AF)/99/1) (16 December 2002).
59) George Edwards v. Government of the Islamic Republic of Iran, Award No 451-251-2 (5
December 1989).
60) George Edwards v. Government of the Islamic Republic of Iran, Award No 451-251-2 (5
December 1989), para. 11.
61) H. A. Spalding Inc. v. Ministry of Roads and Transport, Award No 212-437-3 (24 February
1986).
62) H. A. Spalding Inc. v. Ministry of Roads and Transport, Award No 212-437-3 (24 February
1986) para. 31.
63) “UAE supports statements of Kingdom of Bahrain and Kingdom of Saudi Arabia on
Qatar”, Emirates News Agency (5 June 2017) (available at
<http://wam.ae/en/details/1395302617576>).
64) IBA Rules, Art. 4.7.
65) N. O'MALLEY, Rules of Evidence in International Arbitration: An Annotated Guide
(Informa Law 2012) para 4.50.
66) N. O'MALLEY, Rules of Evidence in International Arbitration: An Annotated Guide
(Informa Law 2012) para. 4.53.
67) 1999 IBA Working Party and 2010 IBA Rules of Evidence Review Subcommittee,
“Commentary on the Revised Text of the 2010 IBA Rules on the Taking of Evidence in
International Arbitration”, pp. 17-18.
68) M. DANIS, “Strategic Options with Foreign Witnesses in International Arbitration”
(Association of Corporate Counsel, 23 May 2012).
69) M. DANIS, “Strategic Options with Foreign Witnesses in International Arbitration”
(Association of Corporate Counsel, 23 May 2012).
70) IBA Rules, Art. 9.6.
71) See for example, ICC Arbitration Rules 2017, Art. 28; LCIA Arbitration Rules 1998, Art. 25;
LCIA Arbitration Rules 2014, Art. 25.
72) International Legal Assistance Consortium, “Rule of Law Report: Syria 2017” (available
at <www.ilacnet.org/wp-content/uploads/2017/04/Syria2017.pdf>).
73) Queen Mary University of London, “International Arbitration: Corporate Attitudes and
Practices 2008” (available at <www.arbitration.qmul.ac.uk>).
74) New York Convention, Art. V(1)(b).
75) H. VERBIST, “Challenges on Grounds of Due Process Pursuant to Article V(1)(b) of the
New York Convention” in E. GAILLARD and D. DI PIETRO, eds., Enforcement of Arbitration
Agreements and International Arbitral Awards: The New York Convention in Practice
(Cameron May 2008) p. 692.
76) Ibid.
77) A. JANA, A. ARMER, J. KLEIN KRANENBERG, “Article V(1)(b)” in H. KRONKE, et al., eds.,
Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the
New York Convention (Kluwer Law International 2010) p. 231.
78) G. BORN, International Commercial Arbitration (Kluwer Law International, 2001) p. 832.
79) A. JANA, A. ARMER, J. KLEIN KRANENBERG, “Article V(1)(b)” in H. KRONKE, et al., eds.,
Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the
New York Convention (Kluwer Law International 2010) p. 253; Geotech Lizenz AG v.
Evergreen Systems Inc., 697 F.Supp. 1248, 1253 (E.D.N.Y. 1988); Biotronik Mess-und
Therapiegeräte GmbH & Co. v. Medford Medical Instrument Co., United States District
Court, 12 May 1976 reported in ICCA Yearbook Commercial Arbitration II (1977)
(henceforth Yearbook) p. 250, p. 250.
80) A. JANA, A. ARMER, J KLEIN KRANENBERG, “Article V(1)(b)” in H. KRONKE, et al., eds.,
Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the
New York Convention (Kluwer Law International 2010) p. 253.
81) New York Convention, Art. V(1)(d).
82) G. BORN, International Commercial Arbitration, 2nd ed. (Kluwer Law International 2014)
p. 3581.
83) Ibid.

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 84) Ibid., p. 3582; 41, X SA v. Y, Swiss Federal Tribunal, 28 July 2010 reported in Yearbook
XXXVI (2011) p. 337 [17]; Case No. 411, Oberlandesgericht Karlsruhe, 14 September 2007
reported in Yearbook XXXIII (2008) p. 541 at p. 546; Case No. 82, Oberlandesgericht
Bayern, 23 September 2004 reported in Yearbook XXX (2005) p. 568; Pacific China
Holdings Ltd v. Grand Pacific Holdings Ltd [2011] HKCFI 424, 102-103 (Hong Kong Court of
First instance); Pacific China Holdings Ltd v. Grand Pacific Holdings Ltd [2012] HKCU 971
(Hong Kong Court of Appeal).
85) A. J. VAN DEN BERG, “New York Convention of 1958: Refusals of Enforcement 2007”, 18
ICC International Court of Arbitration Bulletin (2007, no. 2) p. 26; D. DUSHYANT, “A
Review of Most Common Grounds for Refusing Enforcement Including ‘Public Policy’”,
Paper of the Speech held at the 11th International Arbitration Day and United Nations
New York Convention Day “The New York Convention: 50 Years” in New York, 1 February
2008.
86) New York Convention Art. V(2)(a).
87) New York Convention Art. V(2)(a); D. DI PIETRO, “General Remarks on Arbitrability
Under the New York Convention” in L. A. MISTELIS and S. L. BREKOULAKIS, eds.,
Arbitrability: International and Comparative Perspectives (Kluwer Law International
2009) p. 96.
88) New York Convention Arts. II(1), V(2)(a).
89) New York Convention Art. V(2)(a).
90) G. BORN, International Commercial Arbitration, 2nd ed. (Kluwer Law International 2014)
p. 3694; D. DI PIETRO, “General Remarks on Arbitrability Under the New York
Convention” in L. A. MISTELIS and S. L. BREKOULAKIS, eds., Arbitrability: International
and Comparative Perspectives (Kluwer Law International 2009) pp. 85, 109; P.
BERNARDINI, “The Problem of Arbitrability in General” in E. GAILLARD and D. DI
PIETRO, eds., Enforcement of Arbitration Agreements and International Arbitral Awards:
The New York Convention in Practice (Cameron May 2008) p. 503, p. 516.
91) G. BORN, International Commercial Arbitration, 2nd ed. (Kluwer Law International 2014)
p. 994.
92) T. CUMMINS, R. MEADE and L. YOUNGMAN, “Economic Sanctions: Implications for
International Arbitration”, Global Arbitration Review (19 April 2017) (available at
<https://globalarbitrationreview.com/insight/the-middle-eastern-and-african-
arbitration-review-2017/1...>).
93) New York Convention, Art. V(2)(b).
94) Richardson v. Melisch (1824) 2 Bing 229.
95) Ibid. 252.
96) G. BORN, International Commercial Arbitration, 2nd ed. (Kluwer Law International 2014)
pp. 3650-3651.
97) 573 F.Supp.2d 772 (S.D.N.Y. 2003).
98) MGM Productions Group, Inc v. Aeroflot Russian Airlines, 573 F.Supp.2d 772 (S.D.N.Y.
2003) p. 774.
99) MGM Productions Group, Inc v. Aeroflot Russian Airlines, 573 F.Supp.2d 772 (S.D.N.Y.
2003) p. 776.
100) MGM Productions Group, Inc v. Aeroflot Russian Airlines, 573 F.Supp.2d 772 (S.D.N.Y.
2003) p. 776.
101) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011).
102) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21001.
103) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21001.
104) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21002.
105) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21003.
106) Quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974).
107) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21003.
108) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) p. 21006.
109) Ministry of Defense of Iran v. Cubic Defense, 665 F.3d 1091 (9th Circ. 2011) pp. 21005-
21006.
110) Swiss Federal Supreme Court, Case 4A_250/2013, 21 January 2014.

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 KluwerArbitration

Document information
Date of Breach, Contributory Fault, and Mitigation of
Publication Damages in Investment Arbitration
Evolution and Adaptation: Jawad Ahmad
The Future of International (*)
Arbitration
I Introduction
Topics Depending on the date when a breach is established, a tribunal may view the investor's
conduct as either contributory fault or a failure to mitigate. Importantly, this distinction in
Investment Arbitration treatment results in dramatic variations in the amount by which an award is discounted.
This paper argues that the date of breach may determine how the investor's conduct is
categorized – as either contributory fault or a failure to mitigate. Before discussing these
Bibliographic reference principles, it is worth briefly mentioning what is understood by full reparation under
international law.
Jawad Ahmad, 'Date of
Breach, Contributory Fault, Under international law, the purpose of full reparation is to restore the position of the
and Mitigation of Damages in injured party by wiping out all of the consequences of the illegal act. This principle stems
Investment Arbitration', in from the Chorzów Factory Case. (1) Notably, “the amount of compensation must not be more
Jean Engelmayer Kalicki and P 917 than the loss actually incurred by the injured party”, (2) so as to avoid overcompensation.
Mohamed Abdel Raouf (eds), P 918 This is achieved by principles limiting compensation. How they are applied will depend
Evolution and Adaptation: on a number of factors, “including the facts of the individual case, the conduct of the
The Future of International parties, the underlying treaty, and possibly other equitable considerations”. (3)
Arbitration, ICCA Congress Both contributory fault and mitigation “share an essential feature: ‘being defenses
Series, Volume 20 (© Kluwer pleaded by the debtor […] they are not affirmative claims’”. (4) Both principles focus on
Law International; investor conduct and behavior so as to reduce the award sum substantially. The date of
International Council for breach of the primary obligation separates the operation of these principles. Contributory
Commercial fault analysis takes place prior to the breach, while mitigation analysis occurs after.
Arbitration/Kluwer Law
International 2019) pp. 917 - The parties should have this distinction at the forefront of their minds when framing their
935 respective cases. Recalling the theme of the 2018 ICCA Congress being “evolution and
adaptation”, all arbitration stakeholders should reflect on how these principles can be re-
approached effectively.

II Contributory Fault and Mitigation of Damages

Contributory fault requires the tribunal to take into account any contribution to the loss by
the injured party. Art. 39 of the International Law Commission Draft Articles on
Responsibility of States for Internationally Wrongful Acts (ARSIWA) encapsulates the
principle under public international law. (5) This principle also finds its source in domestic
legal systems under similar terms, such as “contributory negligence”, “comparative fault”,
“faute de la victime” and “contribution to the injury”. (6) Significantly, contributory fault
P 918 assessment centers on “the occurrence of damage in the first place” (7) and, thus, before
P 919 the breach, in the form of the internationally wrongful act. This is distinct from the
mitigation of damages, which, as discussed further below, centers on the injured party's
steps to reduce its loss after the breach. (8)
Only willful or negligent actions or omissions may amount to contributory fault, which
should result in more than a de minimis contribution to the injury. (9) Commentators also
opined that the action or omission should constitute “reproachable behavior”. (10)
There are presently two types of contributory fault cases.
First, where the contributory fault of the investor, while it increased the loss that the
investor sustained, was unrelated to the wrongful act of the State. MTD v. Chile (11) and Iurii
Bogdanov et al. v. Moldova (12) both involved situations where the investor had a “reckless
manner and/or ha[d] exercised bad or poor business judgment”. (13)
P 919
P 920
Second, where the contributory fault of the investor provoked the wrongful act of the
respondent. In these cases, the tribunal determines whether there is a sufficient causal
link between the investor's conduct and the respondent's wrongful act as per Arts. 31(1) and
39 of the ARSIWA. (14) There are more cases falling within this latter category than the
former category. Occidental v. Ecuador, (15) Yukos v. Russia, (16) and Copper Mesa v. Ecuador
P 920 (17) involved situations where the investor was found to have undertaken an act that
P 921 provoked the respondent to commit an internationally wrongful act. The dissenting
arbitrators in Burlington Resources v. Ecuador (18) and Bear Creek v. Peru (19) also found
that the respective investors' acts had provoked the State in question.
P 921
P 922

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 Contributory fault requires a comparison of the parties' respective contributions to the loss
sustained by the injured party. The analysis is complex “and the [t]ribunal ha[s] a
corresponding margin of estimation”. (20) These “estimations” by tribunals have generated
high discount figures. In MTD the tribunal reduced the compensation amount by 50 percent
(approximately US$ 5.871 million), (21) in Occidental by 25 percent (approximately US$
589.8 million), (22) in Yukos by 25 percent (approximately US$ 16.6 billion), (23) and in
Copper Mesa by 30 percent (approximately US$ 4.793 million). (24)
There is ample writing that “adjustment is performed as a blanket percentage discount
over the value of damages that have been calculated” (25) with insufficient reasoning. (26)
Coupled with the fact that Occidental and Yukos represent two of the largest awards in
investment arbitration history (27) and “[t]here is nothing as likely to fuel a backlash as
damages awards that are seen as excessive and are not founded on satisfactory reasoning”.
(28)
P 922 The conduct assessed under contributory fault analysis in the second category of cases was
P 923 also found to have violated domestic law. In Occidental, the claimants were found to
have carried out an “unlawful act” by failing to acquire the necessary ministerial
authorization. (29) In Yukos, the claimants were found to have violated Russian tax law (30)
and their conduct formed part of a larger alleged pattern of the claimants' illegal and bad
faith conduct. (31) In Copper Mesa, the claimant's “senior personnel in Quito were guilty of
directing violent acts committed on its behalf, in violation of Ecuadorian criminal law”. (32)
In Bear Creek, the dissenting arbitrator maintained that the claimant had failed to obtain a
“social license” (33) that required community consent and support for the project, which
had its source in both international and domestic law. (34) In Burlington, the conduct in
question was the investor's non-payment of taxes, which the dissenting arbitrator
maintained “played a major role in the chain of events leading to the expropriation”. (35)
Allegations of domestic law violations may serve as grounds either to dismiss a case for
want of jurisdiction or to attack the merits or admissibility of the claim. (36) Contributory
fault, however, serves as a “rider” argument when the investor conduct in question does not
rise to the level that could compel the dismissal of the case on jurisdictional, merits, or
admissibility grounds.
P 923
P 924
Mitigation of damages requires the injured party to take reasonable steps to reduce the
loss it has incurred after the breach of the obligation. Commentary 11 to Art. 31 of the
ARSIWA recognizes the principle, highlighting that the expression “duty to mitigate” does
not entail a legal obligation rising to the level of international responsibility. Rather, a
failure to take reasonable steps to reduce the loss “may preclude recovery to that extent”.
(37) Investment tribunals have recognized it frequently as a general principle of law. (38)
Mitigation is a duty to be performed, but a failure to conduct mitigation efforts “may not
be to the detriment of the claimant”. (39) The respondent carries the burden of proving
that the claimant did not mitigate its losses. (40) If the respondent succeeds in discharging
its burden, then the tribunal will attribute the losses to the claimant's failure to mitigate
those losses. (41) The ultimate objective is to determine “if it was unreasonable for the
claimant to go for that particular mitigation opportunity, but not whether that opportunity
was the next best alternative available”. (42) The Respondent, thus, seeks:
“to build a new hypothetical situation in which the claimant takes a reasonable
mitigation opportunity that it did not take in the actual world. The recoverable
damages would be the difference between the claimant's hypothetical situation
but for the breach, and the claimant's hypothetical situation if it had
mitigated.” (43)
The respondent's objective to build a hypothetical extends to situations where (a) the
injured party has failed to mitigate at all; and (b) where the injured party has mitigated,
but the steps taken were not, in the respondent's view, reasonable.
P 924
P 925
Determining “reasonable steps” is a factual inquiry, “although common ones would include
renegotiation of contracts, redeployment of resources, or even the abandonment of a
losing investment”. (44) Investment tribunals have rarely found investors to have failed to
mitigate damages. In EDF v. Argentina “the tribunal decided that the company's [i.e., EDFI,
the investor] lack of diligence in negotiating the sale of a massive lot of shares to a third
party constitutes a failure to mitigate.” (45) EDFI had sold its shares in the investment
vehicle, EDEMSA, to another shareholder, IADESA, and kept its claims in the arbitration.
Significantly, the investor had disregarded the possibility of successfully obtaining a
renegotiated tariff with the local government in its agreement with EDEMSA, thus leaving
any possible benefit derived from the renegotiation process to the buyer. (46) The tribunal
appeared to be conscious that both EDFI and IADESA were shareholders of EDEMSA and
knew “that a tariff change was being discussed with the [local government]”. (47)
There is a consistent pattern of investment tribunals deferring to the injured parties'
efforts to mitigate their loss. As a result, there are more investment treaty cases where the
tribunal has rejected the respondent's arguments that the investor failed to mitigate.
Some examples of this trend are discussed below.

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 In Saar Papier v. Poland, the claimant claimed compensation for the damage suffered to its
investment due to an import ban on secondary raw material for the production of toilet
and tissue paper. The tribunal ruled that the claimant did not fail in its duty to mitigate
because it did everything it could to challenge the import ban by challenging the customs
office's decision rejecting importation the second time. Additionally, the tribunal found
that there were no reasonable substitutes for the claimant's secondary raw material and,
thus, it had not failed to mitigate by exploring alternatives. (48)
In Middle East Cement v. Egypt, the tribunal rejected the respondent's argument that the
claimant failed to mitigate by not continuing to supply cement as the decree banned only
a certain type of cement. (49) Moreover, the tribunal was not persuaded by the respondent
that the alternative types of cement and their exportation from Egypt to other countries
had been proven feasible. Additionally, exporting the non-banned cement was not an
economically feasible alternative. (50) As to the argument that the claimant could have
resumed its business activities after the lifting of the ban three years after it was
introduced, the tribunal determined that “[a]n investor who has been subjected to a
P 925 revocation of the essential license for its investment activity, three years earlier, has good
P 926 reason to decide that, after that experience, it shall not continue with the investment
activity, after the activity is again permitted”. (51)
In AIG v. Kazakhstan, the claimants made a certain equity investment in Kazakhstan. An
ordinance issued by the authorities stopped all works related to the investment project.
The tribunal found that the respondent had expropriated the claimants' investment. The
respondent, however, argued that the claimants failed to mitigate by not accepting its
offer for an alternative site. The tribunal rejected that argument as “it would be wrong in
principle to impose on the injured party (the creditor or foreign investor) a ‘duty’ to
examine (and if reasonable, to accept) an alternative solution” (52) where there has been a
taking of property.
In HEP v. Slovenia, the respondent argued that by declining its offers to sell electricity, as
well as by not seeking to import electricity from outside Slovenia, the claimant failed to
mitigate its damages. The tribunal found that the State's offers materially differed in
economic aspects from what the claimant was supposed to have obtained if the
respondent had not breached the treaty. Thus, the tribunal decided that the claimant
acted reasonably in rejecting those offers. Moreover, the tribunal considered whether the
claimant's use of expensive sources of electricity was reasonable in reaction to the
respondent's failure to resume delivery of energy by the prescribed date. The tribunal
ultimately ruled that the claimant acted reasonably and chose not to “second-guess” the
claimant's decision. (53)
In Dunkeld v. Belize, the tribunal considered whether the claimant failed to mitigate its
damages by not using “‘a fair and independent mechanism’” (54) through the Government-
offered compensation process following the respondent's compulsory acquisition of the
claimant's investment. (55) The tribunal noted that pursuing local remedies “is not strictly
linked to the mitigation of losses, such that any duty to mitigate should require the
exhaustion of local remedies”. (56) But local remedies may provide a remedy that appears
“more rapid or certain than that of an international claim, such that a party would be
P 926 derelict in failing to attempt the local process”. (57) The tribunal concluded that the
P 927 investors had pursued “local compensation without a successful result, and the
Respondent ha[d] not identified any other steps that the Claimant could reasonably have
taken to mitigate its losses.” (58)
In National Grid v. Argentina, the respondent introduced emergency measures in reaction
to the 2002 economic crisis that required renegotiation of public utility contracts. By the
time the claimant filed its statement of claim, the renegotiations had achieved nothing.
Soon afterward, the claimant sold its shares in the investment vehicle to a third party for
US$ 14 million without prejudice to its rights in arbitration and in mitigation of its loss. The
respondent maintained that the claimant's decision to sell its shares was negligent and an
intentional attempt “to inflict a serious economic burden on the Respondent”. (59) The
tribunal concluded that the claimant had sold its stake for the best price it could obtain
and that it would not “second-guess” the claimant's business judgment to sell in lieu of
accepting the pre-conditions for renegotiation with the respondent. (60)
The above awards confirm the observations shared in scholarship that “investment
tribunals are rather cautious in accepting a violation of the duty to mitigate damages”. (61)
Tribunals may be reluctant to see past the wrong committed by the respondent. Once an
internationally wrongful act is deemed to have occurred, there would be little logic in
scrutinizing efforts undertaken (or not taken) by the injured party in reaction to the breach.
P 927 (62) Moreover, the wrongful act by the respondent may have completely prevented the
P 928 injured party from carrying out any mitigation efforts. (63) The respondent must show
something far more imprudent on the investor's part. Respondents thus face an uphill
battle in demonstrating that the claimant failed to mitigate.
In comparison to percentages applied in contributory fault cases discussed above,
quantifying the effect of mitigation of damage tends to produce “hard numbers” that
represent the financial gain acquired (or that could have been acquired) by the injured
party. For example, in EDF v. Argentina, the tribunal reduced the award sum by
approximately US$ 14.1 million, (64) in National Grid v. Argentina by US$ 14 million, (65)

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 and in Bridas v. Turkmenistan, a non-investment case, the tribunal reduced the award by
US$ 50 million representing the claimant's failure to mitigate as it had continued to incur
operating costs despite not being able to obtain revenues. (66) Thus, computing the
mitigation amount tends to be more precise, quantifiable, and involves less of a judgment
call.

III Distinguishing Contributory Fault and Mitigation: The Relevance of

the Date of Breach
Both contributory fault and mitigation focus on “the fact that due to the conduct of the
injured party the damage is more substantial”. (67) Drawing “a distinction between them is
at times hard to make” (68) because an act or an omission could be either contributory
fault or a failure to mitigate. A bright line can be drawn if the focus of the inquiry centers
on the date of breach.
The distinction becomes apparent when focusing on what obligation has been breached. In
LaGrand, the International Court of Justice (ICJ) found the United States to have breached
Art. 36(1) of the Vienna Convention on Consular Relations by not informing two German
nationals of their rights under the Convention following their arrest, which thereby
deprived Germany of the opportunity to provide assistance to its nationals under the
P 928 Convention. (69) The ICJ case is identified in Commentary 3 to Art. 39 of the ARSIWA as an
P 929 example of contributory fault:
“(3) In the LaGrand case, ICJ recognized that the conduct of the claimant State
could be relevant in determining the form and amount of reparation. There,
Germany had delayed in asserting that there had been a breach and in
instituting proceedings. The Court noted that ‘Germany may be criticized for the
manner in which these proceedings were filed and for their timing’, and stated
that it would have taken this factor, among others, into account ‘had Germany's
submission included a claim for indemnification’.” (70)
Thus, the ICJ regarded Germany as having contributed to its injury due to the United States'
breach of the provisional measures order because Germany delayed commencing
proceedings. (71) The provisional measures order in question was granted on 3 March 1999
and ordered the United States to take all measures to ensure Walter LaGrand, one of the
German nationals, was not executed pending the final disposition of the case. (72) The ICJ
did not consider, however, “Germany's delay in the context of the United States' breaches
of Article 36 of the Vienna Convention on Consular Relations as contributing to the damage
flowing from those injuries (a failure to mitigate damage)”. (73)
Investment treaty tribunals, and counsel, have used language that blurs the two principles
of contributory fault and mitigation. In CME v. Czech Republic, the respondent raised both
mitigation and contributory fault arguments, (74) which the tribunal appears to have
conflated. (75) In EDF v. Argentina, the tribunal seems to have blended the concept of
contributory fault with mitigation of damages. (76) In Yukos, the tribunal concluded that
P 929 the date of expropriation was on 19 December 2004, the date of Yuganskneftegaz's auction,
P 930 (77) yet the tribunal considered the investor's conduct after the date of expropriation in
its contributory fault analysis: Yukos's non-payment of a loan and how that contributed to
its bankruptcy, (78) which occurred in March 2006. (79)
Identifying and being clear on the date of breach keeps these principles distinct. The date
of breach serves as the dividing line between contributory fault and mitigation of
damages. In other words, contributory fault analysis ends where mitigation begins.
Determining the date of breach is, however, far from clear in many cases as it will depend
on the content of the obligation that is breached and the factual circumstances of the
case. The tribunals in Yukos (80) and Renta 4 (81) arrived at different dates of
expropriation despite both disputes stemming from the same factual context, highlighting
that there are many different ways to characterize the same set of facts. (82)
An outright expropriation would be an instantaneous breach (83) whereby the date of
taking would be the date of the breach. However, determining the date of breach may be
P 930 more challenging if the expropriation is “creeping”, in that it involves a series of measures
P 931 taken by the accused State. (84) A similar difficulty may extend to determining the
relevant date at which the investor has not received fair and equitable treatment or full
protection and security, vis-à-vis a series of persistent measures. (85)
Depending upon the type of expropriation, a party may be able to frame the dispute by
putting forward a specific date as the alleged date of expropriation. In direct
expropriations, the expropriating State “determines in the first instance the moment of
expropriation”. (86) If the investor disputes that determination, then it is reviewed by the
designated jurisdiction to decide the issue. In “creeping” expropriation cases, however, the
investor's initial allegation “‘determines’ in the first instance the moment of
expropriation”. (87) The initial allegation would also be subject to final determination by
the designated jurisdiction.
In two cases, the respondent elected not to advance dates of breach as part of its liability
strategy, leaving to the investors considerable freedom to frame the dispute in this regard.
(88) Insofar as contributory fault and mitigation are concerned, the parties may be

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 incentivized to propose a date or range of dates of breach helpful to their particular
positions. The below hypothetical demonstrates this point.

1 Hypothetical
P 931 Suppose a foreign investor (Investor A) operates a coal mine in Country B. On 1 November
P 932 2017, Country B introduces a series of measures, including tax assessments, affecting all
coal mine operators. On 1 December 2017, Investor A starts selling assets at its factory to
minimize its financial exposure in Country B. On 1 January 2018, Country B directly
expropriates investor A's investment such that the entirety of Investor A's business is now
State-owned.
a Scenario 1
Tribunal concludes that the date of expropriation is 1 November 2017, the date of Country
B's first measure, which crystalizes as the date of breach. All of Investor A's conduct after 1
November 2017 could be evaluated through the lens of mitigation. Hence, Investor A's
move to sell its assets on 1 December 2017 could be argued to constitute steps taken by
Investor A to reduce its loss. Country B could either argue that proceeds of the asset sale
should be discounted from the damages awarded to Investor A or that Investor A failed to
mitigate because it could have sold the assets for a higher price. In the latter event, the
burden will be on Country B to put forward a hypothetical asset sale.
b Scenario 2
Tribunal concludes that the date of expropriation is 1 January 2018, which is the date of the
final measure undertaken by Country B and, hence, the date of breach. All of Investor A's
conduct prior to 1 January 2018 could be evaluated through the lens of contributory fault.
Thus, Investor A's move to sell assets at its factory on 1 December 2017 may be viewed as
provoking the wrongful conduct of Country B's expropriation one month later, i.e., 1 January
2018. (In this connection, one commentator even suggested that Yukos's steps to remove
P 932 assets from the grips of the Russian authorities in the course of the tax enforcement
P 933 proceedings could be seen as contributory fault.) (89) Country B may argue that Investor
A was attempting to reduce its asset base so that Country B could not enforce, for example,
its tax assessments issued on 1 November 2017. Selling assets while a tax assessment is
pending would amount to contributory fault because it is equivalent to an asset-stripping
scenario. This exposes the investor to injunctions and civil and criminal fines, all of which
harm the investment before the State takes it over and could potentially provoke the
subsequent expropriation. Country B may even argue that what Investor A was doing was
illegal under the law of Country B. Investor A may argue, however, that Country B had its
mind set on destroying Investor A's investment and that Country B used illegality as a
pretext to expropriate. (90)

2 Analysis
The above hypothetical illustrates how the date of breach affects the availability of
contributory fault and failure to mitigate as defenses to the respondent state. As discussed
above, depending upon how the conduct is assessed, through the lens of contributory fault
or mitigation, there may be vast economic consequences in the final award sum. Finding
that the investor contributed to its loss tends to result in discounting the final award sum
by a percentage figure of the entire award, but discounting on the ground of mitigation
tends to generate more precise numbers. All things being equal in the above hypothetical,
the respondent has an interest in insisting on a date of expropriation as late as possible so
that it can cast all of the investor's conduct as going to contributory fault. Conversely, the
investor would want to insist on an earlier date of expropriation to portray its subsequent
conduct as mitigation of damages, reducing the discount on the final award sum. Of course,
this hypothetical cannot account for all of the various reasons a party may have for putting
forward a particular date of breach.
P 933
P 934

IV Conclusion
Why does ISDS exist? To ascertain who, as between a foreign investor or a host State, ought
to bear the economic burden concerning an international investment dispute. In short, it is
all about the damages:
“[I]nvestment arbitration is about money. Investors initiate investment claims
to recover monetary losses and respondent states defend against these claims
to prevent paying money out of the taxpayers' pockets.” (91)
Revolt against ISDS is the flavor of the decade with States and interest groups campaigning
to replace or otherwise alter the existing ISDS model with a permanent court. Ample
academic writing and debate have enriched the arbitration community, investigating both
the possibility and (non)-practicability of such a court. Critics of the system should,
however, not lose focus of the “bottom line” and should consider strategies that could
serve to reduce the compensation amount payable by States.

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 Despite the obvious importance to compensation, lawyers and academics regard quantum
of damages “as the ‘poor cousin’ of more important legal battles about jurisdiction over
claims and their merits, and hence [questions of damages and compensation] have
received less systematic attention”. (92) Such predisposition may be understandable. If
respondent counsel, for example, can secure the dismissal of a case on jurisdiction or the
merits, then a quantum strategy may find itself relegated to a subsidiary concern. Rarely,
however, will counsel for the respondent possess such foresight on the strength of its case
at the inception of the dispute. Whether the case is bifurcated or not may also have a
bearing on developing an effective quantum strategy. One commentator has noted that the
non-bifurcation of the Yukos hearings between merits and quantum may have had a
significant impact on the contributory fault analysis in that case. (93)
We live in a world of the US$ 50 billion ISDS award. (94) To date, the Yukos Awards hold the
record as the highest award in investment arbitration. Even excluding the Yukos Awards,
the last five years have shown an increase in the amount awarded to successful claimants.
According to a recent survey, in cases since 2013 the average amount awarded to successful
claimants is US$ 171 million, which is an increase of over 124 percent when compared to
P 934 the US$ 76.3 million average in an earlier version of the same survey based on publicly
P 935 available awards as of 31 December 2012. (95) The overall average “amount across all
cases to date (a data pool of 132 excluding Yukos) is now US$ 110.9 million.” (96) To
emphasize the point differently, “the median amount awarded to successful claimants … in
cases from 2013 onwards, was US$ 40 million (compared to US$ 10.7 million prior to 2013).”
(97) This is “a 274% rise of the median, which might be considered a better reflection of a
‘typical’ case”. (98) Thus, the financial stakes in investment arbitration are more than a
final cadence and warrant a serious reflection on a quantum strategy at an early stage.
Quantum is the implicit beat of ISDS and both contributory fault and mitigation have
powerful implications for its rhythm.
P 935

References
*) Jawad Ahmad: Associate, Mayer Brown International LLP in London; former private law
clerk for Judge Charles N. Brower, 20 Essex Street Chambers, London, physically based
in Washington, D.C., where he acted as a tribunal assistant in both investor-State and
commercial arbitrations; previously, Judge Brower's Legal Adviser at the Iran-United
States Claims Tribunal in The Hague where he worked on State-to-State arbitrations;
Associate Editor, Kluwer Arbitration Blog; Editor, Arbitration International.
1) Factory at Chorzów (Germany v. Poland) (Merits) (1928 P.C.I.J. (ser. A) No. 17), Judgment
(13 September 1928) at 47.
“[R]eparation must, as far as possible, wipe out all the consequences of the
illegal act and reestablish the situation which would, in all probability,
have existed if that act had not been committed. Restitution in kind, or, if
this is not possible, payment of a sum corresponding to the value which a
restitution in kind would bear; the award, if need be, of damages for loss
sustained which would not be covered by restitution in kind or payment in
place of it – such are the principles which should serve to determine the
amount of compensation due for an act contrary to international law.”
2) Stephan WITTICH, “Compensation”, Max Planck Encyclopedia of Public International
Law, Oxford Public International Law (May 2008) at
<http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-
e1025?rskey=GOucGQ&resu...> (last accessed 2 January 2018) para. 16.
3) Borzu SABAHI, Kabir DUGGAL and Nicholas BIRCH, “Principles Limiting the Amount of
Compensation” in Christina L. BEHARRY, ed., Contemporary and Emerging Issues on the
Law of Damages and Valuation in International Investment Arbitration (Brill/Nijhoff
2018) p. 325 at p. 346.
4) Horia CIURTIN, “A Hermeneutical Perspective upon the ‘Mitigation of Damages’
Principle: The Metamorphosis of a Concept in International Law”, 12 Transnational
Dispute Management (2015, no. 6) p. 1 at p. 17.
5) Draft Articles on Responsibility of States for Internationally Wrongful Acts, Art. 39,
<https://www.law.umich.edu/facultyhome/drwcasebook/Documents/Documents/Inter
national%20Law%20Commissi...>. “In the determination of reparation, account shall be
taken of the contribution to the injury by wilful or negligent action or omission of the
injured State or any person or entity in relation to whom reparation is sought.”
6) Commentary 5 to Art. 39 of the ARSIWA. “Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries” International Law Commission, 53rd
Sess., UN Doc. A/56/10 (New York, 23 April – 1 June and 2 July – 10 August 2001),
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>; See
also B. SABAHI, K. DUGGAL and N. BIRCH, “Principles Limiting the Amount of
Compensation”, fn. 3 above, p. 326.
7) Irmgard MARBOE, Calculation of Compensation and Damages in International
Investment Law, 2nd ed. (Oxford 2017) para. 3.241.

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 8) H. CIURTIN, “A Hermeneutical Perspective Upon the ‘Mitigation of Damages’ Principle:
The Metamorphosis of a Concept in International Law”, p. 6; see also Irmgard MARBOE,
Calculation of Compensation and Damages in International Investment Law, fn. 7 above,
para. 3.241.
9) Commentary 1 to Art. 39 of the ARSIWA. “Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries” International Law Commission, 53rd
Sess., UN Doc. A/56/10 (New York, 23 April – 1 June and 2 July – 10 August 2001),
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>.
10) I. MARBOE, Calculation of Compensation and Damages in International Investment Law,
fn. 7 above, para. 3.243 (footnote omitted).
11) MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7),
Award (25 May 2004) paras. 242-243. In MTD v. Chile, the tribunal found the respondent
to be in breach of the fair and equitable treatment standard in the Chile-Malaysia BIT,
as the respondent had induced the claimants to enter into the project, but later did
not grant necessary permissions. The tribunal, however, found that the claimants had
contributed to their losses by “fail[ing] to protect themselves from business risks
inherent in their investment in Chile”. According to the tribunal, “a wise investor”
would not have paid the full amount up front for the land but would have staged future
payment to project progress.
It is debatable whether MTD v. Chile falls under the category of contributory fault. One
commentator has suggested that the claimants' conduct was related arguably to the
respondent's conduct. Cf. Mark KANTOR, “Chapter 38: The Impact of Contributory
Investor Conduct: Only with Difficulty Commensurable” in Meg N. KINNEAR, Geraldine
R. FISCHER, Jara MINGUEZ ALMEIDA, Luisa Fernanda TORRES, Mairée Uran BIDEGAIN,
eds., Building International Investment Law: The First 50 Years of ICSID (Kluwer Law
International 2015) p. 533 at p. 548. “The situation in MTD v. Chile, as explained above,
encompassed investor conduct unrelated to Chile's unlawful conduct (the business risk
of dealing with a potentially unreliable partner in the project), but also investor
conduct that was arguably related to Chile's conduct (relying on a land valuation that
presumed the development permits later denied by Chile would be forthcoming).”

12) Iurii Bogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia JSC v. Republic of Moldova
(SCC), Arbitral Award (22 September 2005) pp. 3, 15-17. The first claimant, a Russian
citizen, had established Agurdino-Invest Ltd., a wholly owned investment company in
the Republic of Moldova, the second claimant. The second claimant had entered into
a privatization contract with the respondent pursuant to which it would sell its assets
to the respondent in Agurdino–Chimia JSC, the third claimant. In exchange for the sale,
the second claimant would acquire shares held by the respondent in state-owned
entities that were not specified. Despite numerous requests to the respondent, the
respondent did not deliver shares on the ground that the third claimant's share
requests were not eligible for acquisition. The issue turned on whether the
respondent's criteria for eligible shares deprived the claimants of any compensation
as required by the privatization contract. The respondent rejected the third claimant's
request for shares. While the tribunal found that the respondent had breached its
treaty obligation to accord fair and equitable treatment (FET), the claimants were
found to have contributed to their loss by failing to specify in the privatization
contract the criteria on which the shares would be chosen and because the second
claimant had “enter[ed] into the Privatization Contract on such vague terms, the
Claimant[s] must have been aware of the risk that the compensation in Compensation
Shares at their face value might not be fully satisfactory”. The tribunal found that while
the respondent had breached the FET standard, the claimants had contributed to their
loss by failing to ensure more specificity in their contract with the respondent on the
conditions of their compensation. The tribunal did not specify the percentage or
amount that represented the claimants' contribution to their loss.
13) B. SABAHI, K. DUGGAL and N. BIRCH, “Principles Limiting the Amount of Compensation”,
fn. 3 above, p. 326.
14) See also Commentary 13 to Art. 31 of the ARSIWA. “Draft Articles on Responsibility of
States for Internationally Wrongful Acts, with commentaries” International Law
Commission, 53rd Sess., UN Doc. A/56/10 (New York, 23 April – 1 June and 2 July – 10
August 2001),
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>. “It is
true that cases can occur where an identifiable element of injury can properly be
allocated to one of several concurrently operating causes alone. But unless some part
of the injury can be shown to be severable in causal terms from that attributed to the
responsible State, the latter is held responsible for all the consequences, not being
too remote, of its wrongful conduct….”

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 15) Occidental Petroleum Corporation and Occidental Exploration and Production Company
v. The Republic of Ecuador (ICSID Case No. ARB/06/11). Award (5 October 2012) para.
680. In Occidental v. Ecuador, the tribunal found the respondent to have both
expropriated and breached the relevant treaty's FET standard by issuing the
caducidad decree that terminated the contract with the respondent with immediate
effect. The tribunal, however, noted that the claimants provoked the respondent by
failing to obtain ministerial authorization in executing a transfer of partial ownership
to a third party, which led to the caducidad decree. The tribunal was unanimous that
the claimants contributed to their loss but split on the claimants' percentage of
contribution.
16) Hulley Enterprises Limited (Cyprus) v. The Russian Federation (PCA Case No. AA 226), Final
Award (18 July 2014) paras. 1585, 1614 and 1621 (Hulley Final Award). In Yukos, the
tribunal found that the respondent had unlawfully expropriated the claimants'
investment and used tax violations as a pretext to justify its acts. The tribunal,
however, found that the claimants had provoked the respondent by abusing the tax
regime in Russia, specifically the low-tax regions and the Double Taxation Treaty
between Cyprus and Russia, which enabled the respondent to rely on that conduct as
justification to expropriate the claimants' investment.
Note that Hulley Final Award; Yukos Universal Limited (Isle of Man) v. The Russian
Federation (PCA Case No. AA 227), Final Award (18 July 2014); and Veteran Petroleum
Limited (Cyprus) v. The Russian Federation (PCA Case No. AA 228), Final Award (18 July
2014) (collectively the “Yukos” awards) are nearly identical. For simplicity, this article
will only cite to the Hulley Final Award and not to the other two.
17) Copper Mesa Mining Corporation v. Republic of Ecuador (PCA Case No. 2012-2), Award (15
March 2016), paras. 1.111, 4.265, 5.65, 6.66-6.67, 6.85, 6.98-6.99, 6.100-6.102, 6.123, and
6.129-6.130. The tribunal found the respondent to have expropriated two of the
claimant's concessions, Junín and Chaucha, and, with respect to the Junín concessions,
also breached fair and equitable treatment and full protection and security
protections under the Canada-Ecuador BIT for failing to support the claimant against
anti-miner protesters. The tribunal found that there was no expropriation of the third
concession, Telimbela. With respect to the Junín concession, the respondent issued
termination resolutions that were deemed to have been arbitrary and issued without
due process, which amounted to unlawful expropriation. The respondent contended
that it issued the termination resolutions on the ground of legitimate public policy as
the claimant had failed to acquire the approval of local communities during the time
it held the concession. The tribunal, however, considered the claimant's conduct as
contributing to its loss. The Junín concessions spawned years of anti-miner and pro-
miner protests, both groups having engaged in a series of violent acts. The tribunal
found that the claimant's local company had by itself and through contractors and
sub-contracts employed armed men in uniform using tear gas canisters and firing
weapons at local villagers more than two years prior to the termination notice for the
Junín concessions. Thus, the claimant “had substantially reduced its chances of turning
the Junín concessions into a commercial success”. Notably, the tribunal found that the
claimant's senior personnel in Ecuador had violated Ecuadorian criminal law and that
claimant's senior management in Canada, while not privy to the planning and
execution of the violent acts, was negligent.
18) Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5), Decision on
Reconsideration and Award (7 February 2017) paras. 572-581 and n. 1113. A majority of
the tribunal rejected the respondent's argument that the claimant contributed to its
loss. First, the claimant's non-payment of taxes under the contested tax measure was
not the triggering event for the expropriation. A majority of the tribunal found that,
even if the claimant had paid the taxes, the respondent would have expropriated the
claimant's investment in any event (the dissenting arbitrator, however, believed that
claimant's refusal to pay its taxes played a role in the chain of events leading to the
expropriation). Second, the claimant's threat to suspend operations did not aid the
respondent's case on contributory fault. Both parties violated the procedural order
recommending that the parties refrain from aggravating the dispute. Thus, the
reference to the claimant's threat was not helpful to the respondent. Third, the
claimant's refusal to sign an agreement with the respondent concerning its property
rights also did not contribute to its loss. The claimant could not be forced to negotiate
an agreement against its will.

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 19) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Award (30
November 2017) paras. 149, 202, 406, 411-412. The claimant was granted a supreme
decree permitting its mining project in Santa Ana to go forward, but soon afterwards
social unrest and protests ensued prompting the respondent to revoke the decree over
three years later. Leading up to the revocation decree, the claimant engaged in a
series of community outreach workshops with both communities falling within the
project's direct and indirect area of influence. One issue was whether further outreach
contributed to the social unrest that justified the revocation decree. A majority of the
tribunal found that the respondent had not proven a causal link between the
claimant's outreach activities concerning its project and the revocation decree. The
majority found that the respondent's authorities were aware of the activities and they
“were conducted with their approval, support, and endorsement, and that no
objections were raised by the authorities in this context”. Bear Creek Mining
Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Partial Dissenting Opinion
of Professor Philippe Sands QC (30 November 2017) paras. 4, 19, and 39. The dissenting
arbitrator, however, opined that the claimant was responsible for the social unrest
“that left the Peruvian government in the predicament it faced, and the need to do
something reasonable and lawful to protect public well-being”. The dissenting
arbitrator found the claimant's contribution to be both significant and material. The
dissenting arbitrator noted that the claimant's project failed because it did not
manage to ensure harmony between the project and those it affected in the
community. The dissenting arbitrator noted that discontent arising from a significant
number of communities falling within the claimant's project influence were not
addressed by the claimant in its outreach activities and, further, there was disparate
treatment of communities. Essentially, according to the dissenting arbitrator, the
protests were caused by the claimant because it did not “take real or sufficient steps
to address those concerns and grievances, and to engage the trust of all potentially
affected communities”.
20) MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7),
Decision on Annulment (21 March 2007) para. 101.
21) MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7),
Award (25 May 2014) paras. 242-243.
22) Occidental Petroleum Corporation and Occidental Exploration and Production Company
v. The Republic of Ecuador (ICSID Case No. ARB/06/11), Award (5 October 2012) para.
687.
23) Hulley Final Award, para. 1634.
24) Copper Mesa Mining Corporation v. Republic of Ecuador (PCA Case No. 2012-2), Award (15
March 2016) paras. 6.133 and 7.30-7.32.
25) Carla CHAVICH and Pablo LÓPEZ ZADICOFF, “Economics in Investor-State Arbitration
Beyond Quantum” in Marion JANSEN, Joost PAUWELYN and Theresa CARPENTER, eds.,
The Use of Economics in International Trade and Investment Disputes (Cambridge 2017)
p. 335 at p. 347 (footnotes omitted).
26) See Wolfgang ALSCHNER, “Aligning Loss and Liability – Toward an Integrated
Assessment of Damages in Investment Arbitration” in Marion JANSEN, Joost PAUWELYN
and Theresa CARPENTER, eds., The Use of Economics in International Trade and
Investment Disputes (Cambridge 2017) p. 283 at p. 317. “Given its significant impact on
damages, contributory fault is one of the areas where more law and more economics
would be desirable to move from a discretion-based case-by-case analysis to a more
predictable methodology clarifying how we measure fault legally and how we quantify
it monetarily.” (Footnotes omitted); B. SABAHI, K. DUGGAL and N. BIRCH, “Principles
Limiting the Amount of Compensation”, fn. 3 above, p. 328. “The percentage (or the
amount) by which tribunals should reduce damages for contributory fault, however,
has not received careful attention and is not based on any particular formula.”
(Footnotes omitted); Wojciech SADOWSKI, “Yukos and Contributory Fault”, 12
Transnational Dispute Management (2015, no. 5) p. 27. “[A] simple split expressed as a
percentage more approximates to a business deal or a decision taken ex aequo et
bono rather than the outcome of a legal determination made in accordance with
transparent and predictable criteria.” (Emphasis in italics in original) (footnotes
omitted).
27) M. KANTOR, “Chapter 38: The Impact of Contributory Investor Conduct: Only with
Difficulty Commensurable”, fn. 11 above, p. 552.
28) Thomas WÄLDE and Borzu SABAHI, “Compensation, Damages and Valuation in
International Investment Law”, 3 Transnational Dispute Management (2006, no. 5) p. 2.
29) Occidental Petroleum Corporation and Occidental Exploration and Production Company
v. The Republic of Ecuador (ICSID Case No. ARB/06/11), Award (5 October 2012) paras.
672 and 680.
30) Hulley Final Award, paras. 1614 and 1621.
31) Ibid., para. 1607.
32) Copper Mesa Mining Corporation v. Republic of Ecuador (PCA Case No. 2012-2), Award (15
March 2016) para. 6.100.
33) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Partial
Dissenting Opinion of Professor Philippe Sands QC (30 November 2017) para. 3.

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 34) Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No. ARB/14/21), Award (30
November 2017) para. 406.
“Even though the concept of ‘social license’ is not clearly defined in
international law, all relevant international instruments are clear that
consultations with indigenous communities are to be made with the
purpose of obtaining consent from all the relevant communities. In its
application for a public necessity declaration, Claimant listed 5
communities as falling within the Project's area of direct influence and 21
communities within the Project's indirect area of influence. Claimant
continuously emphasized – including at the Hearing – that it went far
beyond the minimum requirements of Article 4 of Ministerial Resolution No.
304527 by, amongst others, conducting over 130 community outreach
workshops. Still, the question remains whether Claimant took the
appropriate and necessary steps to engage all of the relevant and likely to
be affected local communities, and whether its approach contributed
significantly to the nature and extent of the opposition that followed.”
(Em phasis in italics in original) (footnotes omitted).
35) Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5), Decision on
Reconsideration and Award (7 February 2017) paras. 577-580 and n. 1113.
36) For example, Bear Creek Mining Corporation v. Republic of Peru (ICSID Case No.
ARB/14/21), Award (30 November 2017) para. 328. In Bear Creek, the lack of “social
license” was used as a basis to dismiss claims on admissibility; Hulley Final Award,
para. 1374. In Yukos, the tribunal dismissed the respondent's argument based upon the
“unclean hands” doctrine, but noted that it would assess the allegations through the
lens of contributory fault; Copper Mesa Mining Corporation v. Republic of Ecuador (PCA
Case No. 2012-2), Award (15 March 2016) para. 5.65. In Copper Mesa, the tribunal also
rejected the respondent's reliance upon the “unclean hands” doctrine and, instead,
treated the issue under “analogous doctrines of causation and contributory fault”.
37) Commentary 11 to Art. 31 of the ARSIWA. “Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries” International Law Commission, 53rd
Sess., UN Doc. A/56/10 (New York, 23 April – 1 June and 2 July – 10 August 2001),
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>; See
also Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), 1997 I.C.J. 7, Judgment (25
September 1997) paras. 80-81.
38) Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt (ICSID Case
No. ARB/99/6), Award (12 April 2002) para. 167. “The duty to mitigate damages is not
expressly mentioned in the BIT. However, this duty can be considered to be part of the
General Principles of Law which, in turn, are part of the rules of international law which
are applicable in this dispute.”; AIG Capital Partners, Inc. & CJSC Tema Real Estate Co. v.
Republic of Kazakhstan (ICSID Case No. ARB/01/6), Award (7 October 2003) para.
10.6.4(1). “Mitigation of damages, as a principle, is applicable in a wide range of
situations. It has been adopted in common law and in civil law countries, as well as in
International Conventions and other international instruments.”; CME Czech Republic
B.V. v. Czech Republic (UNCITRAL Arbitration), Final Award (14 March 2003) para. 482.
“One of the established general principles in arbitral case law is the duty of the party
to mitigate its losses.”
39) Herfried WÖSS, Adriana SAN ROMÁN RIVERA, Pablo T. SPILLER, and Santiago
DELLEPIANE, Damages in International Arbitration Under Complex Long-Term Contracts
(Oxford 2014) para. 5.106 (footnotes omitted).
40) Ibid.
41) Ibid., para. 5.107.
42) Ibid., para. 5.108.
43) Ibid. (footnotes omitted).
44) B. SABAHI, K. DUGGAL and N. BIRCH, “Principles Limiting the Amount of Compensation”,
fn. 3 above, p. 332.
45) H. CIURTIN, “A Hermeneutical Perspective Upon the ‘Mitigation of Damages’ Principle:
The Metamorphosis of a Concept in International Law”, p. 17 (footnotes omitted).
46) EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A.
v. Argentine Republic (ICSID Case No. ARB/03/23), Award (11 June 2012) paras. 1301-1309.
47) Ibid., paras. 1298 and 1307.
48) Saar Papier Vertriebs GmbH v. Republic of Poland (UNCITRAL), Final Award (16 October
1995) paras. 98-102.
49) Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, (ICSID Case
No. ARB/99/6), Award (12 April 2002) para. 168.
50) Ibid., paras. 168-169.
51) Ibid., para. 169.
52) AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan
(ICSID Case No. ARB/01/6) Award (7 October 2003) para.10.4.6.(5)(a).
53) Hrvatska Elektroprivreda d.d. v. Republic of Slovenia (ICSID Case No. ARB/05/24), Award
(17 December 2015) paras. 214-216.
54) Dunkeld International Investment Limited v. The Government of Belize (PCA Case No.
2010-13), Award (28 June 2016) para. 195.
55) Ibid., paras. 4 and 197.

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 56) Ibid., para. 197.
57) Ibid. See also William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel
Clayton and Bilcon of Delaware Inc. v. Government of Canada (PCA Case No. 2009-04),
Government of Canada – Counter-Memorial on Damages (9 June 2017) paras. 86-98;
Government of Canada – Rejoinder on Damages (6 November 2017) paras. 92-113.
Canada argued, citing inter alia Dunkeld, that the claimants should have sought
judicial review of the joint review panel's decision, which a majority of the tribunal
found to be in breach of the minimum standard of treatment, as it would have fully
restored their lost opportunity.
58) Dunkeld International Investment Limited v. The Government of Belize (PCA Case No.
2010-13), Award (28 June 2016) para. 199.
59) National Grid P.L.C. v. Argentina Republic (UNCITRAL), Award (3 November 2008) para.
273.
60) Ibid. The tribunal also noted that the respondent's threats to the buyer of shares
affected the price ultimately paid by the third party: “Furthermore, the Respondent
made it known at the time of the sale that it would hold buyers of shares, such as
Dolphin, responsible for any compensation awarded to claimants such as National
Grid. There seems to be little doubt that announcements of this sort would have
weighed on the price paid by Dolphin, or any other buyer, pressures which would not
seem to have been present in other comparable transactions.”
61) I. MARBOE, Calculation of Compensation and Damages in International Investment Law,
fn. 7 above, para. 3.265.
62) Georg Schwarzenberger was skeptical to require the injured party to act when the
breaching party had committed a wrongful act. I. MARBOE, Calculation of
Compensation and Damages in International Investment Law, fn. 7 above, Chapter 3, at
n. 549, citing Georg SCHWARZENBERGER, International Law as Applied by International
Tribunals (Stevens and Sons Ltd., London 1957) p. 663.
63) S.D. Myers, Inc. v. Government of Canada (UNCITRAL), Second Partial Award (21 October
2002) at paras. 98, 164-167. Canada had introduced a temporary boarder closure of
polychlorinated biphenyl (PCB) from Canada to United States which significantly
curtailed the claimant's business in exporting PCB from Canada to United States for
remediation during the period of the ban. This temporary closure was in breach of Arts.
1102 and 1105 (national treatment, full protection and security, and the international
minimum standard of treatment). The tribunal's objective was to award the claimant
damages for the “‘window of opportunity’” to export PCB it would have had but for the
respondent's breach. In this regard, the tribunal rejected the argument that the
resumption of claimant's activities after the ban was lifted eighteen months after it
was first introduced was an issue of mitigation. “If CANADA's measure were to have
destroyed SDMI's opportunity to develop its business of remediating the Canadian PCB
inventory (and this is a position that is advanced by SDMI) it could not mitigate that
damage by doing what it allegedly had lost the opportunity to do. Logically, the two do
not fit.” (Italics in original.)
64) EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A.
v. Argentine Republic (ICSID Case No. ARB/03/23), Award (11 June 2012) para. 1317.
65) National Grid P.L.C. v. Argentina Republic, UNCITRAL, Award (3 November 2008) para.
290. One could add Hrvatska Elektroprivreda d.d. v. Republic of Slovenia to this list as
well. The final phase of the arbitration exclusively concerned the cost of replacing the
electricity HEP (the claimant) should have received from Slovenia but for the breach.
HEP's conduct in replacing electricity in reaction to the breach was mitigation of
damages, which the tribunal computed to be € 77,205,000. Hrvatska Elektroprivreda
d.d. v. Republic of Slovenia (ICSID Case No. ARB/05/24), Award (17 December 2015) para.
470(b).
66) BRIDAS SAPIC and ors v Turkmenistan (International Chamber of Commerce Case No
9058/FMS/KGA), Third Partial Award and Dissent (6 September 2000) paras. 46-53.
Reported in Investment Claims (Oxford 2015).
67) S. WITTICH, “Compensation”, fn. 2 above, para. 40.
68) Ibid.; See also James CRAWFORD, State Responsibility – The General Part (Cambridge
2013) p. 501. “The principle of contribution to injury and that of mitigation of damages
are closely related and a clear distinction between them is at times hard to make.”
69) LaGrand (Germany v. US) (2001 I.C.J. Rep.), Judgment (27 June 2001) at 515.
70) Commentary 3 to Art. 39 of the ARSIWA. “Draft Articles on Responsibility of States for
Internationally Wrongful Acts, with commentaries” International Law Commission, 53rd
Sess., UN Doc. A/56/10 (New York, 23 April – 1 June and 2 July – 10 August 2001),
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>.
(Italics in original) (footnotes omitted).
71) J. CRAWFORD, State Responsibility – The General Part, fn. 68 above, p. 501.
72) LaGrand (Germany v. US) (2001 I.C.J. Rep.), Order (3 March 1999) at 16.
73) J. CRAWFORD, State Responsibility – The General Part, fn. 68 above, p. 501.
74) CME Czech Republic B.V. v. Czech Republic (UNCITRAL), Final Award (14 March 2003)
paras. 300-304.

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 75) Ibid., paras. 481-483. The CME v. Czech Republic tribunal did not find that the claimant
contributed to its own loss by firing the general director of its majority shareholder
and withholding daily broadcasting logs from a third company. The tribunal titled the
section as “Respondent's Request for Re-litigation of the Partial Award on the basis of
‘Mitigation’ or ‘Contributory Fault’” which was misleading as any alleged contributory
fault would have been assessed prior to the breach and any conduct after the breach
would have been assessed as mitigation. The tribunal also appears to have viewed the
respondent's arguments as an attempt to re-litigate the Partial Award on liability.
76) EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A.
v. Argentine Republic (ICSID Case No. ARB/03/23), Award (11 June 2012) para. 1301. “It
would be patently unfair to allow Claimants to recover damages for loss that could
have been avoided by taking reasonable steps. In other words, the injured party must
be held responsible for its own contribution to the loss.”
77) Hulley Final Award, para. 1762.
78) Ibid., para. 1630.
79) Ibid., paras. 1074-1075. See also W. SADOWSKI, “Yukos and Contributory Fault”, fn. 26
above, p. 18.
80) Hulley Final Award, para. 1762. The Yukos tribunal ruled that the date of expropriation
was 19 December 2004, the date of the Yuganskneftegaz's auction.
81) Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I.,
Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A.,
GBI 9000 SICAV S.A. v. The Russian Federation (SCC No. 24/2007), Award (20 July 2012)
para. 189. The Renta 4 tribunal accepted 23 November 2007 as the date of
expropriation which was when Yukos “was removed from the Unified Register of
Companies in the wake of the end of the bankruptcy proceedings as pronounced by
the Moscow Arbitrazh Court”. See also Manuel A. ABDALA and Alan ROZENBERG,
“Assessing Investor Damages Involving Publicly Traded Companies – with Examples
from the Yukos Cases” in Marion JANSEN, Joost PAUWELYN and Theresa CARPENTER,
eds., The Use of Economics in International Trade and Investment Disputes (Cambridge
2017) p. 349 at p. 359, in which the authors argue that 14 April 2004 could have been the
date of expropriation.
82) RosInvestCo UK Ltd. v. The Russian Federation (SCC No. 079/2005), Final Award (12
September 2010) para. 674. The third case, Rosinvest, does not indicate the precise
date of expropriation, but instead identifies the valuation date to be 24 January 2007,
which was the date when the Participation Agreements were terminated with Elliot
International, a Cayman Island company, that controlled and owned the investments
(Yukos shares) at issue.
83) Art. 14(1) of the ARSIWA. “Draft Articles on Responsibility of States for Internationally
Wrongful Acts, with commentaries”, International Law Commission, 53rd Sess., UN Doc.
A/56/10 (New York, 23 April – 1 June and 2 July – 10 August 2001)
<http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf>.
84) J. CRAWFORD, State Responsibility – The General Part, fn. 68 above, pp. 257-258.
“A further area which is the cause of disagreement is that of expropriation
of property. It may be considered that the taking of the property itself is an
instantaneous act, with the situation of deprivation that follows reflective
only of its consequences, as opposed to the act itself…. An outright,
acknowledged expropriation (e.g., by decree or judicial decision) may well
occur and be completed on a given day, whereas a ‘creeping’ expropriation
consisting of a series of acts together amounting to virtual deprivation is in
a different category – even though the source of obligation may be the
same.”
See also W. Michael REISMAN and Robert D. SLOANE, “Indirect Expropriation and its
Valuation in the BIT Generation”, 74 The British Yearbook of International Law (2004) p.
115 at p. 143. “In the circumstances of a creeping or consequential expropriation,
however, where the state takes property rights indirectly and unlawfully, it becomes
difficult if not impossible to discern when, precisely, the foreign investor ‘irretrievably
lost’ the value of its investment.” (footnotes omitted).
85) Azurix Corp. v. The Argentine Republic (ICSID Case No. ARB/01/12), Award (14 July 2006)
paras. 313 and 417.
86) W. Michael REISMAN and Robert D. SLOANE, “Indirect Expropriation and Its Valuation
in the BIT Generation”, fn. 84 above, p. 115 at p. 143.
87) Ibid., p. 144.

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 88) Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I.,
Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A.,
GBI 9000 SICAV S.A. v. The Russian Federation (SCC No. 24/2007), Award (20 July 2012)
para. 190.
“The Respondent questions the date of 23 November 2007, asking ‘how
Claimants can argue that the alleged expropriation occurred in November
2007, which was several years after most of the alleged expropriatory
events of which they now complain, and over a year after they gave notice
of their expropriation claim.’ (SoRej para. 443.) The Respondent further
asserts that as it denies that ‘any expropriation occurred at all, it is
certainly not incumbent on the Respondent to put forward alternative
dates on which such a non event may have occurred.’ (SoD para. 477, n. 822.)
If the Respondent could propose more appropriate dates, it might
prudently have advanced such contentions in the alternative, rather than
simply denying that its measures had the effect of an expropriation. Having
rejected that denial, the Tribunal accepts the Claimants' logic in putting
forward the date as 23 November 2007.”
Hulley Final Award, para. 1738. “While Respondent does not propose any
specific alternative date when Claimants lost control of their investments,
Professor Dow suggested at the Hearing that such a date would, in any
event, have to be before the end of 2004.” (Footnotes omitted).

89) W. SADOWSKI, “Yukos and Contributory Fault”, fn. 26 above, pp. 25-26.
“The third important area of the company's potential contribution is
concerned with the alleged steps taken by Yukos in the course of the tax
enforcement proceedings in order to remove assets from the reach of the
Russian authorities. This was noted, in particular, by the Quasar tribunal
who called it a ‘perfectly understandable reaction would be to save what
could be saved of what is, after all, presumptively the property of any
corporate entity's owners’. In this respect, two observations seem to be
pertinent. First, it is possible that the conduct of the Yukos owners moving
the assets away in response to the conduct of the state, contributed to the
ultimate demise of the company and the pace thereof. Given that the
company's assets were being liquidated not only through tax enforcement
proceedings, but also through the acts of the company itself, its equity
value was decreasing at an even faster rate. Yet in the light of the Hulley
tribunal's determination that Russia intended to expropriate Yukos, a
passive approach of the shareholders and managers of the company would
not have saved it. Hence, although the conduct of Yukos was not without the
influence on the actual insolvency of the company, a causal link between
the conduct and the injury cannot be established. However, as shall be
shown in the next section, that conduct should not be without consequences
regarding the level of damages.”
(Emphasis in italics in original) (footnotes omitted); see also Hulley Final
Award, para. 1810. “The Tribunal notes that even after the tax assessments
at issue in the present arbitration were issued, Claimants and their owners
were able to divert money earned by Yukos out of Yukos, and into the two
Stichtings, and therefore away from the tax authorities. The Tribunal cannot
exclude the possibility that, but for the expropriation, the very same
mechanism would have been resorted to by Claimants under different
circumstances to divert some of the money earned by Yukos.” (footnotes
omitted). The diversion of funds was analyzed in the fair market value of
Yukos; Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro
Corporación Eurofondo F.I., Rovime Inversiones SICAV S.A., Quasar de Valors
SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v. The Russian
Federation (SCC No. 24/2007), Award (20 July 2012) para. 123.
“The response to this argument can be very succinct. If Yukos' owners and
management concluded that the Russian Government had set its face
against them and was pursuing an objective of confiscation, they would
hardly have been encouraged to keep profits sitting nicely where they
could be taken by state power. If the storm clouds were so ominous, there
was no reason to invest in assets within the jurisdiction (because they would
be susceptible to dispossession by force) and the perfectly understandable
reaction would be to save what could be saved of what is, after all,
presumptively the property of any corporate entity's owners.”

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 90) See, for example, Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro
Corporación Eurofondo F.I., Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A.,
Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v. The Russian Federation (SCC No.
24/2007), Award (20 July 2012) paras. 122-124. The tribunal appeared to have accepted
that Yukos's reaction to divert funds from Russia's grip was not “outlandish or
exaggerated”.
91) W. ALSCHNER, “Aligning Loss and Liability – Toward an Integrated Assessment of
Damages in Investment Arbitration”, fn. 26 at p. 283 (footnotes omitted).
92) Charles N. BROWER and Michael OTTOLENGHI, “Damages in Investor-State Arbitration”,
4 Transnational Dispute Management (2007, no. 6) p. 2.
93) M. KANTOR, “Chapter 38: The Impact of Contributory Investor Conduct: Only with
Difficulty Commensurable”, fn. 11 above, pp. 551-552.
94) Yukos Awards.
95) “Investment Treaty Arbitration: cost, duration and size of claims all show steady
increase”, Allen & Overy LLP (14 December 2017) at
<www.allenovery.com/publications/en-gb/Pages/Investment-Treaty-Arbitration-cost-
duration-and-size-of-...>; See also Matthew HODGSON and Alastair CAMPBELL,
“Damages and costs in investment treaty arbitration”, Global Arbitration Review (14
December 2017) at
<http://globalarbitrationreview.com/print_article/gar/article/1151755/damages-and-
costs-in-investment...>.
96) M. HODGSON and A. CAMPBELL, “Damages and costs in investment treaty arbitration”,
fn. 95 above. As mentioned, this figure excludes the approximately US$ 50 billion
award in the Yukos Awards. Including the Yukos Awards, the overall average comes to
US$ 486.1 million.
97) Ibid.
98) Ibid.

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 KluwerArbitration

Document information
Sovereign Wealth Funds: The New Kids on the Block
Publication Solomon Ebere
Evolution and Adaptation: (*)
The Future of International
Arbitration I Introduction
Sovereign Wealth Funds (SWFs), which manage the foreign assets of States, have recently
emerged as a significant class of global investors. Although they have been making
Topics headlines in the mainstream press following several high-profile investments in major
Investment Arbitration Western banks amid the 2008 financial crisis, as well as their involvement in corruption-
related scandals spanning from Eastern Europe to South-East Asia, limited attention has
been devoted to SWFs in international arbitration. Yet, they have become active players at
both ends of the spectrum, i.e. as claimant and as respondent, and it looks like this is just
Bibliographic reference the beginning. This presentation attempts to shed some light on the critical issues relating
Solomon Ebere, 'Sovereign to international arbitrations in which this unique type of investor is involved.
Wealth Funds: The New Kids SWFs are not your typical foreign investors. According to the International Working Group of
on the Block', in Jean Sovereign Wealth Funds (IWG), comprising twenty-six States maintaining SWFs, which put in
Engelmayer Kalicki and place best practices known as the “Santiago Principles”, SWFs are
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: “special purpose investment funds or arrangements that are owned by the
The Future of International general government. Created by the general government for macroeconomic
Arbitration, ICCA Congress purposes, SWFs hold, manage, or administer assets to achieve financial
Series, Volume 20 (© Kluwer objectives, and employ a set of investment strategies that include investing in
Law International; foreign financial assets.” (1)
International Council for P 936
Commercial P 937
Arbitration/Kluwer Law This definition highlights two key aspects of SWFs: they are State-owned entities whose
International 2019) pp. 936 - purpose is to invest in foreign assets. One would be remiss not to mention another key
952 aspect that sets SWFs in a class of their own: they are of a very significant financial size, as
they manage trillions of dollars.
Their investments have raised some concerns, particularly in host States. Whilst
traditionally the bulk of SWFs' investments was in the financial sector, they have
diversified their portfolios, investing in other sectors, such as natural resources, defence
and infrastructure. Host States have suspected that States behind these SWFs, some of
whom are at odds with the international community, may be inclined to invest in these
strategic sectors to foster their geopolitical interests, rather than for purely commercial
goals. For instance, the potential acquisition of several ports in the United States in 2006
by Dubai Ports World, owned by the Government of Dubai, gave rise to national security
concerns in the US Congress. (2) As a result of these suspicions, many countries have
established pre-screening procedures applicable to SWF investments (e.g., Canada, China,
France, Germany, Japan, Korea, Russia and the United States).
SWFs have also come under considerable scrutiny due to their implication in scandals over
fraud and corruption of high-level government officials of host States. This is the case of
the Malaysian SWF, 1Malaysia Development Berhad (1MDB). According to the US
Department of Justice, between 2009 and 2015, more than US $ 4.5 billion in funds
belonging to 1MDB were misappropriated by high-level officials of 1MDB, including
Malaysia's former prime minister who set up 1MDB in 2009, as well as officials and
executives of International Petroleum Investment Company (IPIC), an Abu Dhabi SWF that
had injected US$ 3.5 billion in 1MDB. (3)
Another noteworthy aspect of SWFs is their increasingly important role in the economic
development of emerging jurisdictions. Asia, along with Africa and Latin America, have
been key destinations for sovereign funds in recent years – an important dimension of
ever-expanding “south-south” trade and investment, given that some of the most
prominent and active SWFs are themselves funded and controlled by emerging economies.
This unique blend of politics, banking, national security concerns and emerging
jurisdictions makes SWFs natural candidates for many more international arbitrations to
come, whether commercial or treaty-based.
This presentation endeavours to capture some of the salient issues these disputes could
involve. First, we will look in more detail at what makes SWFs such “unique” actors. Second,
we will analyze the disputes SWFs have been involved in to date, as respondents or as
claimants against their contractual counterparts and/or host State of investment. Third, we
will describe the jurisdictional hurdles SWFs could face in an investment treaty arbitration
context, as well as the protections they could rely upon to redress the wrong they have
suffered.
P 937

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 P 937
P 938

II SWFS: A Growing but Controversial Force

1 SWFs Are Strange Creatures
“Sovereign wealth funds are special purpose investment funds or arrangements,
owned by the general government. Created by the general government for
macroeconomic purposes, SWFs hold, manage, or administer assets to achieve
financial objectives, and employ a set of investment strategies that include
investing in foreign financial assets. The SWFs are commonly established out of
balance of payments surpluses, official foreign currency operations, the
proceeds of privatizations, fiscal surpluses, and/or receipts resulting from
commodity exports.” (4)
SWFs are thus creatures of governments, whose purpose is to invest in foreign financial
assets. However, these features do not make them unique. Throughout the history of
international arbitration are disputes in which the claimants have been State-owned
entities, including ones investing in foreign financial assets. (5)
So what differentiates SWFs from other State-owned entities? First and maybe foremost, is
the sheer financial size and potential growth of these funds. They manage trillions of assets
– US $ 7.4 trillion as of September 2017 according to the Sovereign Wealth Fund Institute –
and could grow to a staggering amount in the years to come given that they have more than
P 938 doubled in the last decade. (6) The current size of the fifteen largest SWFs is summarized in
P 939 the table below:
Rank Sovereign Wealth Home Jurisdiction Assets (US$ billion)
Fund
1 Government Pension Norway 737.2
Fund Global
2 SAMA Foreign Saudi Arabia 675.9
Holdings
3 Abu Dhabi UAE 627.0
Investment Authority
4 China Investment China 575.2
Corporation
5 SAFE Investment China 567.9
Company
6 Kuwait Investment Kuwait 386.0
Authority
7 Hong Kong Monetary Hong Kong (China) 326.7
Authority Investment
Portfolio
8 Government of Singapore 285.0
Singapore
Investment
Corporation
9 National Welfare Russian Federation 239.3
Fund
10 Temasek Holdings Singapore 173.3
11 National Social China 160.6
Security Fund
12 Qatar Investment Qatar 115.0
Authority
13 Australian Australia 88.7
Government Future
Fund
14 Revenue Regulation Algeria 77.2
Fund
15 Investment UAE 70.0
Corporation of Dubai
Second, both governments and the press alike have viewed them suspiciously. While
during the financial crisis in 2007-2008, western governments and western banks welcomed
with open arms much-needed capital from SWFs to bail them out, the suspicion that the
States behind these SWFs made these investments for national strategic purposes
remained. As Germany's chancellor, Angela Merkel, told the financial newspaper

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 Handelsblatt, “The question is whether the participation of a state fund is motivated by the
willingness to exercise political influence.” (7) Whether these national security concerns
P 939 are legitimate or not, they have led a number of western governments to add pre-
P 940 screening procedures to SWF investments. (8) The press did not spare SWFs either.
Maybe partly for the sake of publicity and newspaper sales, a lot of sensationalist ink was
spilled writing about them, and not all the coverage was accurate. (9)
Third, the fact that some of these SWFs are at the centre of recent corruption scandals
involving high-profile officials and business people has added to their controversial
appearance and the perceived lack of transparency of their operations. Some scholars
have argued that these funds could be legitimately disguised as supporting domestic
development when in reality they were used to deepen the pockets of the political
leaders. (10) One such example is the high profile corruption scandal involving the alleged
channelling of several hundreds of millions of funds from 1MDB to the former Malaysian
Prime Minister Najib Razak's personal accounts.

2 SWFs in Five Continents

The number of SWFs is rapidly growing. In simplistic terms, three generations of SWFs can
be identified. The first generation was born in the 1970s in the Gulf countries, in Norway
and in Canada, resulting from the necessity to invest the proceeds of the sale of
commodities, in particular oil. The second generation, which was born more recently,
involved major geopolitical actors, such as China and Russia. The third generation,
contemporaneous, was born in emerging markets which disposed structural surpluses of
commodities, such as Libya. (11) Finally, it has emerged that African States are catching up
and have established their own SWFs in the past few years. (12)
P 940
P 941
While the largest SWF is European, specifically Norway, two regions dominate the
landscape in terms of total number of entities and total assets: Asia Pacific and the Middle
East. (13) SWFs traditionally invested in high-profile assets in western banks. Yet, many of
them are now turning to emerging markets, as they believe that economic growth in the
decade to come will be dominated by the emerging world, including in Asia, sub-Saharan
Africa and Latin America. (14) Sub-Saharan Africa is expected to show the largest growth in
terms of percentage although total assets are expected to remain comparatively modest.
(15)

III SWF Litigation and Arbitration

The emerging role of SWFs in world affairs has recently led to a flurry of high-stake
litigations and arbitrations.
During the financial crisis back in 2007 and 2008, several SWFs stepped in and invested
much-needed capital in a number of capital-starved corporations, including in and/or
through leading western banks such as Citigroup, Goldman Sachs or Société Générale.
However, the market continued to plummet and the SWFs suffered heavy losses. Soon
thereafter, these SWFs commenced legal actions against the aforementioned banks, both
before national courts and before arbitral tribunals. Arbitrations and litigations in this
category that are public knowledge as of the date of writing include the following:
– The Abu Dhabi Investment Authority, one of the world's largest SWFs, initiated two
arbitrations against Citigroup over a 2007 deal in which the SWF had agreed to pay
US$ 7.5 billion to acquire a 4.9 percent stake in Citigroup. In the first arbitration
initiated in 2009, the SWF sought US$ 4 billion in damages before an American
Arbitration Association/International Centre for Dispute Resolution (AAA/ICDR)
tribunal on the ground that Citigroup had fraudulently induced it into buying the
P 941 stake. The SWF claimed that Citigroup had issued preferred shares to other investors
P 942 and thereby diluted the value of the shares the SWF had purchased. In 2011, the
tribunal dismissed that claim. (16)
In 2013, the SWF filed a second claim worth US$ 2 billion also with the AAA/ICDR but
before a different tribunal, alleging that Citigroup had breached their investment
agreement and an implied covenant of good faith and fair dealing by failing to use
“commercially reasonable efforts” to ensure the SWF received the best possible
return on its investment. The second tribunal also dismissed this claim. It held that
the “narrow language” of the contract meant that Citigroup was only required to make
commercially reasonable efforts to consummate the transactions contemplated in
the agreement. It did not require Citigroup to operate its business so as to maximize
the SWFs' return. Moreover, Citigroup could not have breached the implied covenant
on the facts alleged as there was no evidence that it had acted purposefully to
deprive it of the fruits of the contract. Finally, the tribunal rejected any allegations
that Citigroup's acts and omissions had been commercially unreasonable. (17)
– The Libyan Investment Authority (LIA), Libya's SWF created towards the end of
Qaddafi's regime, brought a US$ 1.2 billion claim against US leading investment bank,
Goldman Sachs, before the English High Court over a series of trades. The LIA claimed
that it was too unsophisticated to understand what it was buying and that Goldman
Sachs exercised undue influence over it. It also argued that the trades entered into

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 were unconscionable bargains. On either basis, the LIA contended that it was entitled
to rescind the trades and to the return of its premium. In October 2016, the High Court
dismissed the LIA's claim. (18)
– In 2014, the LIA brought another claim before the English High Court against another
leading investment bank, Société Générale, for US$ 2.1 billion regarding trades
executed between 2007 and 2009. This time, the LIA claimed that Société Générale
had obtained the contract through corruption, involving the payment of US$ 58.5
million to a Panama-registered company called Leinada, controlled at the time by
Libyan businessman Walid Giahmi. On 3 May 2017, on the eve of the start of the
hearing, the parties settled for an alleged amount of € 963 million. (19)
Another type of dispute involving SWFs pertains to high-level corruption scandals.
P 942 Arbitrations in this category that are public knowledge as of the date of writing include the
P 943 following:
– On 22 October 2015, the State General Reserve Fund of the Sultanate of Oman, Oman's
SWF, initiated arbitration proceedings against the Republic of Bulgaria before the
International Centre for Settlement of Investment Disputes (ICSID). (20) The claim
relates to the Omani SWF's shareholding in the Bulgarian bank, Corporate
Commercial Bank (Corpbank) that collapsed in 2014. As widely reported in the foreign
and financial press, Corpbank was Bulgaria's fourth largest lender until it saw a run on
deposits in 2014. Since then, the bank's license has been revoked and bankruptcy
proceedings initiated, amidst allegations from Bulgarian authorities and
parliamentarians that the bank's management hid gaping losses by engaging in a
pyramid scheme. It has also been reported that the bank's largest shareholder,
controversial businessman Tsvetan Vassilev, faces charges of alleged embezzlement,
which he contests. (21)
– In June 2016, the IPIC, one of Abu Dhabi's SWFs, and its subsidiary Aabar Investments
launched a US$ 6.5 billion London Court of International Arbitration (LCIA) claim
against 1MDB, the scandal-plagued Malaysian SWF. The dispute is rooted in a 2012
deal wherein IPIC agreed to guarantee two sets of bonds worth US$ 3.5 billion that
1MDB issued to finance the purchase of power plants. After 1MDB struggled to honour
its debts, the parties signed a bailout agreement in May 2015, in which IPIC agreed to
provide 1MDB with an immediate US$ 1 billion cash loan and temporarily assume its
obligations to pay interest on the bonds. IPIC was to assume liability for all payments
under the bonds and forgive other debts upon receiving a transfer of assets of
equivalent value from 1MDB. However, in April 2016, IPIC declared that it was
terminating the agreement, contending that 1MDB had repeatedly defaulted on
interest payments under the bonds, which IPIC had continued to honour as guarantor.
This dispute has arisen in the wake of a much bigger scandal over alleged
misappropriation of funds from 1MDB, which is US$ 11 billion in debt. Anti-corruption
investigations have been launched in Singapore, Switzerland, the United Arab
Emirates (UAE) and the United States amid allegations that the funds landed in the
hands of former Malaysian Prime Minister Najib Razak's friends and associates, as
well as officials and executives from IPIC. The US Department of Justice is still trying
to recover US$ 1 billion that they say was ultimately spent on luxury homes in
Manhattan and Los Angeles, Picasso and Monet paintings, and financing for
Hollywood blockbuster The Wolf of Wall Street. In April 2017, IPIC and 1MDB agreed to
settle the dispute for US$ 1.2 billion. (22)
– In a London-based arbitration, the LIA secured a US$ 380 million award against
P 943 Zambia for nationalizing Zamtel, a Zambian telecom company in 2011. The LIA owned
P 944 a 75 percent share of Zamtel through its subsidiary LAP Green, while the Zambian
government owned 25 percent.
– It was also reported that the LIA brought similar claims against other African
countries, including Rwanda and Chad. The LIA claims that these countries took
advantage of “Libya's political turmoil to nationalise assets belonging to the
country's US$ 66 billion sovereign funds” following the eight-month-long conflict that
brought a brutal end to Muammar Gaddafi's forty-year rule. (23)

IV Jurisdictional Issues in Investment Arbitrations

In order for an SWF to benefit from the protection of an international investment
agreement (IIA), its claim must vest a tribunal with jurisdiction ratione temporis, ratione
personae and ratione materiae.
There are four jurisdictional issues of particular relevance to SWFs. The first and second
concern issues of jurisdiction ratione materiae: whether pre-admission screening of
proposed investments of SWFs breaches treaty obligations and whether the purchase of
foreign assets qualifies as an investment under bilateral investment treaties and under
ICSID. The third and fourth concern issues of jurisdiction ratione personae: whether SWFs
qualify as foreign investors under bilateral investment treaties and under the Convention
on the Settlement of Disputes between States and Nationals of Other States (the ICSID
Convention), since the ICSID Convention does not permit arbitration between states. Each
of these questions raises interesting legal issues. We will look at them in seriatim.

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 1 Jurisdiction Ratione Materiae: Whether Pre-admission Screening of Proposed
Investments by SWFs Breaches Treaty Obligations. (24)
Considering the political sensitivity involved, many countries have established pre-
screening procedures applicable to SWF investments. This is typically done pursuant to a
domestic statute that empowers national government agencies to review potential
investments by foreign persons to determine the effect of these investments on, inter alia,
national security. (25) Similar procedures have been developed in Australia, Canada,
China, France, Germany, Japan, Korea and Russia. (26)
P 944
P 945
Whether such procedures may violate obligations under an investment treaty depends on
the language of the BIT. There appear to be three prevalent approaches to pre-admission
review of investments in BITs:
– If the BIT is silent on the issue, no protection is afforded to the investor.
– The so-called “admission model”: host States are obligated to create favourable
conditions; however, the actual admission of an investment is conditional upon host
State laws and policy. Only if there is a breach of these requirements, would there be
a breach of the applicable BIT. (27)
– The so-called “pre-establishment model”: (28) national treatment is guaranteed to
investors at the pre-investment stage. If the claimant can establish it was in “like
circumstances” and not given equal treatment to domestic investors, there could be
a potential breach of the BIT. However, finding an investor that is “in like
circumstances” might not be a simple task: “The test requires comparison. The
identification of a national ‘comparator’ is important. Such a comparator would be
difficult to find, as it is unlikely that any national investor would have the deep
pockets of the SWF, its association with a foreign state, or possess motivation by
national as well as commercial interest.” (29)

2 Jurisdiction Ratione Materiae: Whether the Purchase of Foreign Assets Qualifies

as an “Investment” Within the Meaning of the Applicable BIT and ICSID
Convention
SWFs must also satisfy the criteria for determining the existence of an “investment” under
the ICSID Convention. A common formulation for this was developed by the tribunal in the
Salini v. Morocco case, which lists four characteristics of investment: contribution, duration
of performance, risk, and promotion of the economic development of the host State. Of the
four criteria, there are concerns that an SWF may have trouble with the “promotion of the
economic development” standard as (1) an SWF investment may not make a sufficiently
meaningful long-term contribution to the economy of the host State, and (2) by definition,
an SWF would be more concerned with the protection of a sovereign's wealth rather than
participating in the economic development of the host State.
A similar question may also arise under some BITs, in particular the latest ones, such as the
Morocco-Nigeria BIT, wherein “investment” is defined inter alia as “contribut[ing]
P 945 sustainable development”, which is itself defined as “the reduction of poverty, increase of
P 946 productive capacity, economic growth, the transfer of technology, and the furtherance
of human rights and human development”. (30)

3 Jurisdiction Ratione Personae: Whether SWFs Qualify as Foreign Investors

Under BITs
SWFs differ from traditional private corporations as they are State-owned and, generally,
State-controlled. The question that arises is whether they qualify as “investors” under the
applicable BIT. Again, the answer will depend on the language of the applicable BIT. There
appear to be three common approaches:
– The BIT defines the term “enterprise” as including state-owned entities: in this
situation, SWFs would qualify as “investors” under the BIT. (31)
– The BIT defines the term “investor” as including state corporations registered under
the laws of X: in this situation, an SWF would qualify as an “investor” under the BIT if it
is set up as a state corporation. (32)
– The BIT is silent on the issue: a tribunal is likely therefore to adopt a plain meaning
analysis to see if SWFs would qualify as “investors” under the BIT. (33)
While a review of BITs reveals that the definition of “investors” or related term differs
widely depending on the BIT, unsurprisingly, Middle Eastern States that are home to the
largest SWFs (e.g., Kuwait, Qatar, Saudi Arabia and the UAE) usually negotiate BITs
containing a broad definition of “investors”. By contrast, other significant SWF jurisdictions,
such as China, Norway, Russia or Singapore, or barely include State-owned entities in the
definition of “investors”. (34)
P 946
P 947
4 Jurisdiction Ratione Personae: Whether SWFs Qualify as Foreign Investors

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 Under the ICSID Convention?
The question here is whether SWFs, given that they are State-owned, satisfy the objective
requirement under Art. 25(2) of the ICSID Convention, which defines “National of another
Contracting State” as follows:
“any juridical person which had the nationality of a Contracting State other than
the State party to the dispute on the date on which the parties consented to
submit such dispute to conciliation or arbitration and any juridical person
which had the nationality of the Contracting State party to the dispute on that
date and which, because of foreign control, the parties have agreed should be
treated as a national of another Contracting State for the purposes of this
Convention”.
Aaron Broches, who was the general counsel to the World Bank and a founding father of
ICSID, answered the question in the affirmative and set forth the following test:
“There are many companies whose shares are owned by the government, but
who are practically indistinguishable from the completely privately owned
enterprise both in their legal characteristics and in their activities. It would
seem, therefore, that for purposes of the Convention a mixed economy company
or government-owned corporation should not be disqualified as a ‘national of
another Contracting State’ unless it is acting as an agent for the government or is
discharging an essentially governmental function. I believe it is fair to say that
there was a consensus on this point among those participating in the
preparation of the Convention.” (Emphasis added.) (35)
ICSID case law confirms that the so-called Broches test is the appropriate test to
determine whether a State entity's activities fall outside the scope of the ICSID
Convention. For instance, in CSOB v. The Slovak Republic, the tribunal concluded that even
though CSOB was owned by the Czech Republic, its activities were primarily commercial as
opposed to governmental in nature. (36) Similarly, in CDC v. The Slovak Republic, the
tribunal concluded that CDC, an entity wholly owned by the UK government, conducted
activities that were commercial in nature, not governmental. (37)

V Substantive Protections Available to SWFS in Investment Arbitrations

Assuming a tribunal determines that it possesses jurisdiction to hear a claim brought by an
P 947 SWF, the next questions to arise concern the substantive protections available to SWFs
P 948 under IIAs. The case law on that point has been limited to date for at least two reasons.
First, SWFs have only recently engaged in investment treaty arbitrations. Second, the only
publicly available investor state arbitration, State General Reserve Fund of the Sultanate of
Oman v. Republic of Bulgaria, is still in the early stage of the proceedings. Notwithstanding,
once jurisdiction has been established, SWFs should be entitled to all the protections
afforded to investors under the applicable IIAs, including the core ones such as protections
against discrimination; expropriation; and fair and equitable treatment and full protection
and security.

1 Prohibitions Against Discrimination: National Treatment and Most-Favoured-

Nation Clauses
The principle of non-discrimination is one of the basic protections for foreign investors and
investments in host nations. (38) IIAs most commonly provide guarantees against
discrimination in two ways. First, national treatment (NT) ensures that foreign investors will
be treated no less favourably than similarly situated domestic investors, unless such
differential treatment can be justifiably related to a non-discriminatory public policy
rationale. Second, most-favoured-nation (MFN) treatment ensures that foreign investors
will not be treated less favourably than investors from any third country. Claims brought by
SWFs arising out of alleged violations of (1) the national treatment and (2) MFN standard
seem likely given that SWF investments are sometimes prohibited at the entry level or pre-
establishment stage due to their State-ownership and/or control. (39)
a National Treatment Standard
The standard framework for applying the NT standard in a particular case requires an
arbitral tribunal to consider three questions. First, whether the foreign investor and the
domestic investor are in comparable circumstances. (40) Second, whether the treatment
accorded to the foreign investor is less favourable, in result, than the treatment accorded
to domestic investors – arbitral tribunals do not necessarily require an intent to
discriminate but are satisfied with the factual existence of less favourable treatment. (41)
Third, whether different treatment can be justified on the basis of its relation to valid
grounds of public policy. (42)
P 948 As described above, the host State has the sovereign right to establish pre-screening
P 949 procedures applicable to SWF investments. An SWF will be protected against
discriminatory measures only under the so-called “admission model” and “pre-
establishment model”. (43) Even then, a number of hurdles remain for the SWF to prove

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 that the host State has violated the NT standard, such as finding a “comparator”. Given the
unique nature of SWFs, it may be difficult to find a national investor that shares similar
characteristics.
b Most-Favoured-Nation Standard
MFN clauses, like NT clauses, are extremely common in IIAs. In contrast with NT clauses,
which focus on discrimination in favour of local investors, the focus of an MFN clause is on
discriminatory treatment as between foreign investors. As with the NT standard, finding a
“comparator” may be an issue.

2 Expropriation, Fair and Equitable Treatment and Full Protection and Security
Other core protections, including against uncompensated expropriations (44) or violations
of the fair and equitable treatment (FET) standard (45) and full protection and security (46)
may also be invoked. For instance, SWFs could be subject to treatment that violates the
FET standard, including their legitimate expectations, as well as the full protection and
security standard.
P 949
P 950
If a host State's measures have a severe, lasting impact on an investment, the measure
might also potentially breach the applicable expropriation clause.

VI Reservations and Exceptions or “Exit Provisions”

One of the mechanisms most commonly employed by States in managing concerns about
regulatory sovereignty has been to include reservations and/or exceptions in their IIAs.
Reservations and exceptions serve as a key means of safeguarding the exercise of the
police power and, as such, should also be considered in addressing concerns arising from
the alleged targeting of strategic sectors by SWFs (such as the supposed threat that they
might obtain access to sensitive technologies, critical infrastructure or enjoy controlling
interests in enterprises that exploit a host State's natural resources). For example, more
contemporary BIT practice in some countries permits a host State to derogate from its
investment treaty obligations in relation to the financial sector if such measures are taken
for “prudential reasons”. In addition, certain IIA provisions appear intended to permit
States to take reservations in respect of substantive IIA disciplines for both existing and
future non-conforming measures. Finally, some IIAs appear to permit a host State to
essentially derogate from its treaty obligations, should the subject matter of its regulatory
measures relate to its national or essential security interests. (47)

1 Prudential Measures and Transfer of Funds Exception

Prudential measures typically ensure the host State's ability to maintain the integrity of its
financial institutions and safeguard the stability of its financial system, by allowing the
host State to provide less favourable treatment to foreign investors in respect of the
establishment and operation of investments in the financial sector. Similarly, a transfer of
funds exception permits the host State to limit fund transfers by financial institutions to
their affiliates for the same purpose, i.e., maintaining the integrity of the host State's
financial system. (48)
These types of provisions are, however, rare and can mostly be found in the Canadian BITs
P 950 and the 2012 US Model BIT. (49) By contrast, the BITs entered into by the States hosting the
P 951 largest SWFs do not contain such provisions. (50) Furthermore, Canada or the United
States has very rarely relied on these types of provisions in prior investor-State disputes.
(51) Yet, it would be interesting whether these provisions become more popular following
the resurgence of nativist and populist sentiments following the 2007-2008 financial crisis.

2 Reservations for Existing and Future Non-conforming Measures (52)

Some IIAs also contain general reservations for non-conforming existing and future
measures. Their purpose is to exempt a wide range of existing and future measures from
the core substantive protections typically afforded to investors. Similarly to prudential
measures and transfer of funds exceptions, these reservations are in practice rare – they
can only be found in Chinese and Canadian BITs. (53) Sometimes, these reservations
operate to exempt all such measures from the NT obligation only. In other instances, these
reservations are more expansive and exempt measures from the MFN and FET obligations
as well as from the prohibitions against arbitrary and discriminatory treatment.

3 Public Policy/National Security Concerns Exception

Finally, SWFs must be prepared to answer the host State's objection that the former's
investment contravenes the latter's public policy or national security concerns, justifying
the host State's violation of its IIA obligations. As explained by a commentator, this
“exception” may take different forms:
“An essential security interest exception purports to allow a host State to
derogate from its BIT obligations, including investor treatment standards (e.g.,
NT, MFN treatment and minimum treatment standards), performance

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 requirement and expropriation obligations, if the impugned measure is
necessary to protect the essential security interests of the host State….
Concerns have largely focused on the alleged self-judging nature of the
exception ….
It may be helpful, in this regard, to view such provisions as existing on a
spectrum. At one end would be the broadest essential security interest
exception clause – as illustrated by the 2012 US Model BIT, which appears to
have been designed to be unabashedly ‘self-judging’, with few restrictions.
P 951 Somewhere in the middle is the 2004 Canada Model FIPA, which appears to
P 952 have been intended to be ‘self-judging’ from the perspective of the host
State, but which nevertheless expressly restricts its use to times of war and
related circumstances. And at the other end of the spectrum are IIAs that do not
even contain an essential security interest exception, but which would leave
open the possibility that some form of de facto reservation might exist as a
matter of customary international law.” (54)
P 952

References
*) Solomon Ebere: Senior Associate at Omnia Strategy LLP, London; international
arbitration lawyer with more than six years of experience; admitted to the New York
and Paris Bars; participated in proceedings conducted under the ICC, ICDR, Swiss,
UNCITRAL and ICSID Arbitration Rules, as well as in court proceedings before the US
and the UK courts; J.D., Georgetown Law; Global Law Scholar, Georgetown Law; founder
and former chair of the Georgetown International Arbitration Society; post-graduate
degree in comparative law and a J.D. equivalent, both from the University of Paris I (La
Sorbonne).
1) IWG, Sovereign Wealth Funds – Generally Accepted Principles and Practices – “Santiago
Principles” (October 2008) at
<http://www.ifswf.org/sites/default/files/santiagoprinciples_0_0.pdf>.
2) See “Dubai Seeks to Calm the Storm Over Ports”, The Economist (10 March 2006) at
<http://www.economist.com/node/5620236>.
3) See “Justice Department Complaint Seeking 1MDB Assets”, New York Times (16 June
2017) at <https://www.nytimes.com/interactive/2017/06/16/world/asia/1mdb-
malaysia-complaint.html>.
4) International Monetary Fund and International Forum of Sovereign Wealth Funds,
“Santiago Principles”, (October 2008) at <http://www.iwg-
swf.org/pubs/eng/santiagoprinciples.pdf>.
5) See, e.g., Cskoslovenka Obschodni Banka, A.S. v. Slovak Republic (ICSID Case No.
ARB/97/4), Decision on Jurisdiction (24 May 1999) (dispute in which the claimant was a
commercial bank in which its home State, the Czech Republic, had an interest); CDG
Group plc v. Republic of Seychelles (ICSID Case No. ARB/02/14), Award (17 December
2003) (CDC Group, a development finance institution owned by the United Kingdom,
brought a claim in 2002 against the Seychelles); Telenor Mobile Communication AS v.
Hungary (ICSID Case No. ARB/04/15), Award (13 September 2006) (in 2004, Telenor
Mobile, a telecommunications company majority owned by Norway, commenced
arbitration against Hungary); Hrvataska Elektroprivreda d.d. v. Republic of Slovenia
(ICSID Case No. ARB/05/24), Award (17 December 2015); Flughafen Zürich A.G. and
Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela (ICSID Case No.
ARB/10/19), Award (18 November 2014).
6) Sovereign Wealth Fund Institute, “Sovereign Wealth Fund Market Size by Quarter 1998
to 2017” (updated February 2018), at <https://www.swfinstitute.org/sovereign-wealth-
fund-rankings/>; CNBC, “The World's Biggest Sovereign Wealth Funds in 2017” (17 July
2015) at <https://www.cnbc.com/2015/07/17/the-worlds-biggest-sovereign-wealth-
funds.html#slide=1>.
7) Le Figaro, “Europe Looks at Sovereign Wealth Funds” (20 July 2007) at
<http://www.lefigaro.fr/economie/2007/07/20/04001-20070720ARTFIG90040-
l_europe_se_penche_sur_les_fond...>; see also Laurence DUBIN, “Les Fonds souverains:
Propos Introductifs”, pp. 10-11, in Les Fonds Souverains entre Affirmation et Dilution de
l'Etat Face à la Mondialisation (2014).
8) See infra Sect. IV.1, “Jurisdiction Ratione Materiae: Whether Pre-admission Screening of
Proposed Investments by SWFs Breaches Treaty Obligation”.

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 9) See, e.g., Adriano B. LUCATELLI, “A Swiss Sovereign Wealth Fund: Not Such a Smart
Idea”, Market Mogul (11 August 2015) (“sovereign wealth funds are open to abuse, as
they inspire political covetousness. Politicians may be tempted to earmark profits on
foreign investments for politically motivated means, or to use the sovereign wealth
fund as a means of exercising greater influence over their central bank, which by
definition should be independent.”) at <https://themarketmogul.com/swiss-sovereign-
wealth-fund-not-smart-idea/>; see also Samantha PEARSON, “Sovereign Wealth Funds:
Foreign Cash Has Its Drawbacks”, Financial Times (26 April 2011) (“there is a sense of
unease about SWFs' lack of transparency and their exploitation of local resources”) at
<https://www.ft.com/content/e5e4f274-6ef5-11e0-a13b-00144feabdc0>; see also Peter
GALUSZKA, “Sovereign Wealth Funds: Benefit or Threat?”, Moneywatch (5 May 2008)
(“Just when CEOs thought they had a handle on secretive and powerful hedge funds,
they must consider a quieter but even bigger monster – Sovereign Wealth Funds.”) at
<https://www.cbsnews.com/news/sovereign-wealth-funds-benefit-or-threat/>.
10) See, e.g., Daniel W. DREZNER, “White Whale or Red Herring?: Assessing Sovereign
Wealth Funds”, Stockholm: Glasshouse Forum 2008 (in which the author argues that
SWFs can serve as slush fund vehicles for corruption).
11) Laurence DUBIN, “Les Fonds souverains: Propos Introductifs” in Les Fonds Souverains
entre Affirmation et Dilution de l'Etat Face à la Mondialisation (2014) p. 9 (“Les Fonds
souverains: Propos Introductifs”: “on peut distinguer trois générations de fonds. La
première date des années 70 et est apparue dans les Etats du Golfe, en Norvège et au
Canada en raison de la nécessité d'investir les recettes de l'exportation des matières
premières. La deuxième génération, plus récente, est marquée par la création de fonds
souverains par des acteurs géopolitiques majeurs, comme la Chine et la Russie. La
troisième génération, contemporaine, provident des pays émergents disposant
d'excédents structurels de matières premières.”).
12) The Economist, “Sovereign-Wealth Funds Catch on in Africa” (16 March 2017) available
at <https://www.economist.com/news/finance-and-economics/21718893-countries-
disagree-about-how-use-them-...>; see also Financial Times, “Sovereign Funds Expand
in Africa” (15 December 2013) available at <https://www.ft.com/content/515caa8e-
5750-11e3-9624-00144feabdc0>.
13) See Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) p. 278. For a more up-to-date ranking, see Sovereign Wealth
Fund Institute, “Sovereign Wealth Fund Rankings” (updated February 2018), at
<https://www.swfinstitute.org/sovereign-wealth-fund-rankings/>.
14) Mahmoud KASSEM, “Adia Targets Emerging Markets as Long-Term Gains Slow”, The
National (4 July 2017) at <https://www.thenational.ae/business/adia-targets-emerging-
markets-as-long-term-gains-slow-1.91754>. Sheikh Hamed bin Zayed Al NAHYAN, Adia's
managing director, said in the fund's annual review, published on 4 July 2017, “We
expect that over two-thirds of the growth in global GDP over the coming ten years will
come from those emerging economies; with roughly half coming from China and India
alone.”
15) PwC, “Sovereign Investors 2020: A Growing Force”, p. 10, at
<https://www.pwc.com/ee/et/publications/pub/sovereign-investors-2020.pdf>.
16) See Global Arbitration Review, “US Court Allows Abu Dhabi Fund's Claim to Proceed” (27
November 2013) at <http://globalarbitrationreview.com/article/1032829/us-court-
allows-abu-dhabi-funds-claim-to-proceed>.
17) See Global Arbitration Review, “Abu Dhabi Fund Won't Challenge Citigroup Award” (22
March 2017) at <http://globalarbitrationreview.com/article/1138494/abu-dhabi-fund-
won%E2%80%99t-challenge-citigroup-...>.
18) The Libyan Investment Authority v. Goldman Sachs International, [2016] EWHC 2530 (Ch)
at
<www.20essexst.com/sites/default/files/judgments/Libyan%20Investment%20Authorit
y%20v%20Goldman%20Sach...>.
19) See the Financial Times, “SocGen Agrees € 963m Settlement with Libyan Investment
Authority” (4 May 2017) at <https://www.ft.com/content/7dc88450-3094-11e7-9555-
23ef563ecf9a>.
20) See ICSID website at <https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?
CaseNo=ARB/15/43>.
21) See Luke E. PETERSON, “Oman's Sovereign Wealth Fund Is the Latest Claimant to Try to
Hold a Sovereign State – this Time Bulgaria – Liable for Losses Tied to a Bank Failure”,
IA Reporter (23 October 2015) at <https://proxy.ppl.nl:2094/articles/omans-sovereign-
wealth-fund-is-the-latest-claimant-to-try-to-hold...>.
22) See Sebastian PERRY, “Malaysia State Fund Faces Claim over Debt Bailout”, Global
Arbitration Review (14 June 2016) at
<https://globalarbitrationreview.com/article/1036405/malaysian-state-fund-faces-
claim-over-debt-bailo...>; see also Tom JONES, “Malaysia's 1MDB Settles LCIA Claim”,
Global Arbitration Review (24 April 2017) at
<https://globalarbitrationreview.com/article/1139957/malaysia%E2%80%99s-1mdb-
settles-lcia-claim>.

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 23) See I-ARB, “Zambia Pays First Installation of 380 Million USD Award” (undated) at
<https://www.iarbafrica.com/en/news-list/17-news/544-zambia-pays-first-
installation-of-380-million-us...>.
24) See Grant HANESSIAN and Kabir DUGGAL, “The Role of Sovereign Welfare Funds and
National Oil Companies in Investment Arbitrations”, Global Arbitration Review (9 June
2016); see also Anna JOUBIN-BRET, “Admission and Establishment in the Context of
Investment Protection” in A. REINISH, ed., Standards of Investment Protection (OUP
2008) pp. 9 et seq.
25) See, e.g., the Committee on Foreign Investment in the United States (CFIUS).
26) See Mathias AUDIT, “Le Règlement des Litiges Relatifs à l'Activité des Fonds Souverains”,
pp. 107-110 (Les Fonds Souverains entre Affirmation et Dilution de l'Etat Face à la
Mondialisation 2014).
27) See, e.g., the India-Kazakhstan BIT, Art. 3(1) (“Each Contracting Party shall encourage
and create favourable conditions for investors of the other Contracting Party to make
investments in its territory, and admit such investments in accordance with its laws
and policy.”).
28) See, e.g., the 2012 U.S. Model BIT, Art. 3(1) (“Each Party shall accord to investors of the
other Party treatment no less favorable than that it accords, in like circumstances, to
its own investors with respect to the establishment, acquisition, expansion,
management, conduct, operation, and sale or other disposition of investments in its
territory.”).
29) M. SORNARAJAH, “Sovereign Wealth Funds and the Existing Structure of the Regulation
of Investments”, 1 Asian Journal of International Law (2011, issue 2) pp. 281-282.
30) See The Preamble and Art. 1(3) of the Morocco-Nigeria BIT, dated 3 December 2016.
31) See, e.g., NAFTA, Arts. 1139 and 201(1) (“enterprise means any entity constituted or
organized under applicable law, whether or not for profit, and whether privately-owned
or governmentally-owned, including any corporation, trust, partnership, sole
proprietorship, joint venture or other association”).
32) See, e.g., the Ghana-China BIT, Art. 1(b) (“The term ‘investor’ means…. In respect of
Ghana … (ii) state corporations and agencies and companies under the laws of Ghana
which invest or trade abroad.”); see also Czech Republic-Kuwait BIT, Art. 1(2)(b); see
also US-Rwanda BIT, Art. 1.
33) See, e.g., South Korea – Kazakhstan BIT, Art. 1(2)(b); see also the Japan-Pakistan BIT, Art.
1.
34) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 291-296. (“It is not surprising that the States members of
the United Arab Emirates (UAE), Saudi Arabia, Kuwait and Qatar, which are home to
five of the 15 largest SWFs (ADIA, SAMA Foreign Holdings, KIA, Qatar Investment
Authority and Investment Corporation of Dubai), are most consistent in their practice
and almost always negotiate BITs containing the broadest definition of investor for
their SWFs (….) Similar to China, BITs entered into by significant SWF jurisdictions other
than the Middle East States suggest that including government-owned or –controlled
entities in the definition of investor is more the exception than the rule and often
contain ambiguous terminology.”).
35) Aron BROCHES, “The Convention on the Settlement of Investment Disputes between
States and Nationals of Other States”, 136 Recueil des Cours (1972) pp. 354-355.
36) See CSOB v. The Slovak Republic (ICSID Case No. ARB/97/4), Decision on Jurisdiction (24
May 1999) para. 20.
37) See CDC v. The Seychelles (ICSID Case No. ARB/02/14), Award (17 December 2003) para.
17.
38) See Todd WEILER, “Prohibitions Against Discrimination in NAFTA Chapter 11” in Todd
WEILER, ed., NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future
Prospects (Transnat'l Publishers 2004) p. 27.
39) See infra Sect. IV.1 on pre-admission screening.
40) Some tribunals require foreign and domestic investors to be in the same line of
business (see, e,g., Feldman v. Mexico (ICSID Case No. ARB (AF)/99/1), Final Award (16
December 2002) while other tribunals have determined that such comparisons need
not be made only within the same industry sector (see, e.g., Occidental Exploration v.
Ecuador (LCIA No. UN 3467), Final Award (1 July 2004).
41) See, e.g., Thunderbird v. Mexico (UNCITRAL), Award (16 December 2002) para. 183.
42) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) p. 282.
43) See infra Sect. IV.1 “Jurisdiction Ratione Materiae: Whether Pre-admission Screening of
Proposed Investments by SWFs Breaches Treaty Obligations.”

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 44) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 285-286 (“While the language of such clauses varies
somewhat, all generally protect investors from both direct and indirect expropriations.
In determining whether a host State's measure(s) amounts to indirect expropriation,
tribunals have often considered factors such as: (i) the impact of the measure (which
encompasses a relative appraisal of: alleged destruction of economic value,
deprivation of control and permanence of measure), and (ii) the legitimate
expectations of the investor, in establishing and maintaining the investment,
considered in proportion with/to (iii) the nature, objectives and character of the
measure and the means of its introduction and application.”).
45) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 283-284 (“The exact contours of the FET standard are … not
easily defined…. Notwithstanding its seemingly enigmatic character, it appears
beyond doubt that the FET standard is informed by principles such as due process,
transparency, good faith, and stability, mediated by a principle of proportionality.”);
see also Katia YANNACA-SMALL, “Fair and Equitable Treatment Standard: Recent
Developments” in A. REINISCH, ed., Standards of Investment Protection (OUP 2008) pp.
111-130; see also Christopher F. DUGAN, Don WALLACE, Jr., Noah RUBINS, Borzu SABAHI,
Investor-State Arbitration, “Chapter XVII ‘Fair and Equitable Treatment’ and ‘Full
Protection and Security’” (OUP 2008) pp. 491 et seq.
46) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 286-287 (“Tribunals largely agree that the full protection
and security standard imposes an obligation of vigilance and due diligence on a host
State, to prevent wrongful injuries to foreign investors and to punish the perpetrator
responsible for such injuries.”).
47) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) p. 302.
48) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 303.
49) See, e.g., Art. 20 of the 2012 U.S. Model Bilateral investment Treaty, at
<https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf>; see
also Art. 10(2) of Canada's 2004 Model Foreign Investment Protection Agreement (FIPA),
at <https://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf>.
50) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 304-305.
51) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) p. 306.
52) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 306 et seq.
53) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 306 et seq.
54) Elizabeth WHITSITT and Todd WEILER, “Sovereign Wealth Funds and Bilateral
Investment Treaties' New Models: Issues, New Trends and State Practice” in Fabio
BASSAN, Research Handbook on Sovereign Wealth Funds and International Investment
Law (Edward Elgar 2015) pp. 310 et seq.

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 KluwerArbitration

Document information
The Excessive Scope for “the Individual” in Decision-
Publication Making in Investment Arbitration: Views from Younger
Evolution and Adaptation: Practitioners
The Future of International Lucas Bastin
Arbitration
(*)

Topics I Origins and Purpose

Investment Arbitration The origins of this contribution lie in a London classroom. At a lecture by a senior
practitioner in investment arbitration, the topic of “the backlash” in investment arbitration
arose. The senior practitioner took the time to explain what this shorthand reference
Bibliographic reference meant. He touched on familiar points. The unexpected scope of the substantive
protections in investment treaties. Tecmed para. 154. The CME / Lauder The perceived early
Lucas Bastin, 'The Excessive high rate of success of claims. The lack of consistency in decisions. The sense that policy
Scope for “the Individual” in and politics, as truer expressions of sovereignty, receive insufficient voice.
Decision-Making in The explanation was clear and powerful. But at the end of it, one of the students asked
Investment Arbitration: simply: how were such “mistakes” made? It seemed obvious to this student that, in
Views from Younger particular, a system that produced inconsistent decisions and thereby unpredictable legal
Practitioners', in Jean outcomes would lose attractiveness to repeat users of that system. That a “backlash”
Engelmayer Kalicki and followed was something that was so likely that the mistakes ought not to have been made.
Mohamed Abdel Raouf (eds),
Evolution and Adaptation: It is easy to criticize with hindsight. Understanding the consequences of an approach to an
The Future of International issue at the time it is taken is far harder than doing so a decade or more later. One can
Arbitration, ICCA Congress explain in reply to enquiries such as this, from those who are emerging into the investment
Series, Volume 20 (© Kluwer arbitration field only now and were not directing the development of the system prior to
Law International; the “backlash”, that the system was young, previous guidance was minimal, and nothing
International Council for was written into investment treaties to protect against the causes of the backlash
Commercial developing. While Tecmed para. 154 might not be written today, it was a reasonable
Arbitration/Kluwer Law approach to a new and difficult question fifteen years ago.
International 2019) pp. 953 -
966 But such an answer to the question would not be a complete one. Infancy of the system is
P 953 not necessarily an explanation, or certainly a complete explanation, for why people versed
P 954 in the field universally believe a backlash occurred. As such, the initial purpose of this
contribution was to discern what problems had in fact arisen in investment arbitration to
tarnish its reputation and lead States to reconsider its scope. And because this
consideration was being undertaken in the context of a presentation on the as-advertised
“provocative” New Voices Panel at the ICCA Sydney 2018 Congress, it followed that the
views consulted and represented should be those of the younger generation of investment
arbitration practitioners.
With this objective in mind, this contribution was originally predicated on obtaining the
views of a significant number of “younger” (that is, under the age of forty, in line with the
composition of the ICCA New Voices Panel) investment arbitration practitioners as to which
parts of the system had been a success, and which parts a failure. This contribution was to
act as an intergenerational report card: a fresh perspective on the state of the system that
the “older” generation might find interesting (if a touch impudent), and one that would give
a voice to a younger generation and articulate the way in which that generation might start
to contribute to the improvement of a system of international rights protection that was
unprecedented in international law.
However, as discussions with those younger investment arbitration practitioners took
place, (1) the purpose of this contribution evolved. It became clear that one issue with the
investment arbitration system attracted a greater level of attention and energy than
others. It was true that concerns existed among the younger practitioners about the
persistent lack of a jurisprudence constante on core legal issues and the resulting “battle of
authorities”, the lack of any structured entry into the profession, the lack of diversity, the
lack of an international investment court, the treatment of amici curiae, the level of
engagement with civil society's views of the profession, and the monetization of
investment treaty arbitration. These were imperfect aspects of the system that the younger
practitioners believed required attention.
But the issue that recurred and prompted deepest concerns was the scope the system
allowed to the personal preferences, approaches and even biases of individual decision-
makers, and the way such personal matters could generate procedural and substantive
consequences – a facet of the investment arbitration system that came in the discussions
to be referred to as the role of “the individual” in that system. Concern was expressed by
the younger practitioners that the influence of “the individual” could be so great that it
could redirect the course of an arbitration and the procedural balance between the

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 parties, prompt a departure from settled legal principle, or lead someone to engage in
conduct that, though not regulated expressly as inappropriate and thus not forbidden,
placed the integrity of the process in doubt. Systemically, the scope of operation allowed
to “the individual” was too broad, extending beyond mere discretion that facilitated
appropriate decision-making.
This space for arbitrator individuality, which one might have regarded as a key strength of
the system, emerged as a source of frustration among the younger practitioners. A measure
P 954 of faith in the decision-making in the system had been lost. There was a sense that the
P 955 persuasiveness of substantive submissions had ceded too much ground to the
intractability of personal preference, to the unknowable extent of the influence granted to
“the individual”.
It may be that the emergence of this theme was, in truth, a reflection of the growing
maturity of the younger practitioners – it was not that this balance was new or had tipped
in a different direction, but it was simply that these younger practitioners now saw the real
position, as it is and was. But even if that were so, the question still remained much the
same as the one which the student in the classroom asked: how was it that those with the
capacity to influence the profession had left these matters unregulated? If the scope for
“the individual” was so large in investment arbitration decision-making, why were greater
efforts not expended to limit such variables to an appropriate level of discretion that
facilitated proper decision-making?
Hence the ultimate scope of this contribution. Rather than a report card from the young to
the old on the shortcomings in the system generally, the content of which would perhaps
surprise no one and merely parrot concerns about the system that experienced
practitioners and academics had articulated many times before, the issue that falls to be
considered is the extent to which the space for “the individual” in the decision-making
ranks of the investment arbitration system is excessive, damages the system, and ought to
be limited.
In essaying this issue, this piece has two broad steps. The first is to identify the character of
the alleged shortcoming, to assess in what ways the excessive space for “the individual” in
the decision-making of the investment arbitration system manifests itself. The second
stage is to discuss what remedies might be implemented to limit any such excess of such
space.

II The Excessive Space for “The Individual” in the Decision-Making of

the Investment Arbitration System
1 Introduction – Difficulty or Value of Proof by Anecdote
Proof by anecdote is among the most unreliable proof that exists. It needs to be treated
with caution. But collective experience is equally not something that should be ignored,
because from it broader truths may be inductively identified. This is not a novel concept,
even if it is out of vogue. As Aristotle put it:
“From perception then, as we hold, memory results, and from repeated
recollections of the same phenomenon comes experience, for memories which
are numerically many form but a single experience. Next, from experience, or
from the entire universal which is retained in the soul … comes the elementary
principle of art and science; if the concern be with production, of art, if with
reality, of science.” (2)

P 955 The ethnographic method relies on the truth underlying Aristotle's observation. The rise of
P 956 ethnographic research as a discipline reflects the acceptance that, ultimately, one must
have for consistent anecdotal evidence. If one experiences a phenomenon enough, a
measure of truth associates to that phenomenon. The instinct then is to analyze and
regulate that truth, rather than allowing it to remain “anecdotal” or “relativized” – that is,
rather than allowing it merely to be, as Nietzsche describes it, “a mobile army of
metaphors, metonyms, anthropomorphisms, in short a sum of human relations which have
been subjected to poetic and rhetorical intensification, translation and decoration”. (3)
While the present contribution does not pretend to be a rigorous ethnographic study that
tries to characterize any perception that arises from discussions with younger practitioners
as a principle of science or something more elevated than an anecdotal or relativized
truth, it is expected that the strength of its observations will derive from the recognition by
readers of the validity of the examples discussed as to how excessive space for “the
individual” in the decision-making of the investment arbitration system is proving
problematic.
To that end, five such shortcomings were key among those identified by the younger
practitioners interviewed. (4)

2 The Shortcomings
The first shortcoming related to the space for “the individual” in respect of decisions by
arbitrators concerning the procedure used in a given arbitration. This shortcoming was the

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 one that appeared most frequently at the forefront of the comments by the young
practitioners interviewed, even if it was one of the less trenchant. That perhaps is
inevitable, as shortcomings in the procedural balance of an arbitration are the most
ostensible, and thus most obvious and memorable. One nonetheless needs to be clear to
what this shortcoming refers once one puts aside complaints about a procedural issue
merely being decided adversely to a party in a way that imposed a large or inconvenient
burden on it. Rather, the shortcoming is one whereby personal preference on the part of
the arbitrator plays an active part in the determination of procedural questions.
On this topic, younger practitioners expressed concern about how, seemingly in the
absence of express regulation of the precise matter before the arbitrators, those
arbitrators were able to take steps such as resigning from arbitrations shortly after a
substantive hearing but before any Award for reasons of personal convenience, leaving a
hearing during sitting hours to attend to personal matters while procedural decisions were
being taken for the conduct of the hearing and post-hearing, and in one instance liaising ex
parte with an appointing party during the pendency of an arbitration about the content of
the arbitration.
P 956 The shortcoming in these matters was not the fact that certain individuals made decisions
P 957 that one might think were inadvisable in the circumstances – human error cannot be
eliminated entirely. Rather, the shortcoming identified was that these decisions placed
the procedural balance of the arbitration at risk, seemingly on the basis that personal
considerations were prioritized above the procedural integrity of the arbitration. It
seemed an elementary failure of regulation of decision-making conduct for “the
individual” to influence procedural outcomes in an arbitration in such ways.
The second shortcoming was derived less from case-by-case experience. It related to the
space for “the individual” to dictate substantively how a case would be presented and
decided. The concern here was a familiar one – through an individual's public positioning
of his or her views on substantive issues in investment arbitration, it became possible to
predict with a degree of accuracy how he or she would decide a particular legal issue or
even a case as a whole. This ramified consequences which the younger practitioners
identified as giving excessive scope to individual preferences to exert disproportionate
influence in investment arbitration.
In a context where the individual in question was not (yet) sitting as arbitrator, the younger
practitioners pointed out that it meant would-be arbitrators could in effect “advertise”
their views and “pitch” for arbitral appointments by a party with which his or her publicly
expressed views aligned. It could even incentivize would-be arbitrators to adopt
exaggerated forms of certain views in order to attract attention and appointments by such
a party. It exposed the profession to criticism that ideology rather than, or at least in
addition to, legal merits was a key characteristic for eligibility for such appointments. It
risked entry to arbitrator ranks based on “form rather than substance”. And it made the
diligence appointing parties completed on arbitrators extensive, even “invasive”.
As to the context where the individual was already an arbitrator in the field, this
shortcoming was also noted by the younger practitioners as resulting in the concentration
of appointments among a relatively small number of arbitrators who had “proven
themselves”. The volume of appointments some individuals received, often by claimants
or respondents only, both resulted from and encouraged a “doubling down” on views on
certain legal issues, where the specific facts of the dispute then had to meet a higher
practical burden to “turn” that arbitrator in favour of a conclusion he or she would
otherwise not be expected to adopt. This facilitated the rise of the “professional
arbitrator” – someone who could obtain enough appointments in the field of investment
arbitration, notwithstanding the relative paucity of new cases each year, to sustain a full-
time practice. It meant that the “tie-breaker” of the presiding arbitrator, and the capacity
of that person to act decisively in that role, became of outsized importance to the
substantive outcome of the dispute – almost a return to the time where the third member
of a tribunal was an umpire rather than an arbitrator. And, perhaps of greatest systemic
concern, it meant that a small number of arbitrators were able to secure a large number of
appointments, and through that privileged position to generate and propagate new legal
principles or lines of authorities that received endorsement in the (multiple) cases on
which they sat and eventually thereby gained a currency or prominence disproportionate
to the number of arbitrators who had endorsed such a principle. (5)
P 957
P 958
The shortcoming in this regard was the way in which these highly personalized features of
the path to becoming, and then gaining eminence as, an arbitrator could have substantive
results. The concern was not that people had views and had expressed them publicly, but
rather that these views became “commoditized” in “the market” of investment arbitration
appointments. To even be “on the supermarket shelf”, as put by one younger practitioner
with a turn of phrase, “you had to be branded, because no one buys ‘no name’ in this field”.
In subtle ways (or not), the capacity for three individuals to form a tribunal with neutral
and impartial views on the submissions made to them was eroded by the space “the
individual” was afforded in investment arbitration to signal, articulate and decide matters
of substance.
The third shortcoming is related to the capacity for “the individual” to issue a minority

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 decision in an investment arbitration context. The ability of an arbitrator to decide a case
as he or she thinks correct is of course not objectionable. Hence the proper place for
dissenting opinions in investment arbitration, and the lack of any formal doctrine of stare
decisis.
However, in the absence of any requirement of consensus or binding precedents, the space
for “the individual” to issue decisions without reference to the work of other tribunals that
have considered or are considering the same issues is very broad. It was no surprise that
the decision-making that resulted in the CME/Lauder controversy, or the “battle of
authorities” that ensues when deciding a legal issue that has generated multiple lines of
authority, was noted by the younger practitioners as at times unhelpful. It was also
described to be not an exclusive product of the variability of the legal norms in issue, but
as a product at least in part of the individuals who happen to be appointed as arbitrators
in one case to the next.
Complaints about this feature of the system, while retaining some validity, do feel well
worn. Beyond such points, though, a further aspect of the shortcoming was cited by a
number of the younger practitioners interviewed. In recent years, one can point to
decisions that departed markedly from what was perhaps, by this point, considered a
settled principle of international investment law. Naming the cases and arbitrators would
be caddish, even self-defeating, but they are well known. And the point arising from the
interviews is not that some decisions are wrong and deserving of censure. Rather it is that
they have been rendered with what appears to be either insufficient regard to previous
consistent authorities, or with an excessive reliance on the absence of a formal doctrine of
stare decisis in investment arbitration.
This feature is something one would expect investment arbitration to have overcome by
now, as a result of its “adolescence”. (6) It is of course doctrinally correct that international
P 958 fora such as investment arbitration tribunals do not have a formal doctrine of stare decisis.
P 959 (7) But a recent trend in discussions of the value of previous authorities is beginning to
reflect something more than their having “persuasive” value only. (8) Decisions in the area
have begun to accept that the earlier decisions exert a stronger normative force on
tribunals. There is an emerging notion in more recent cases that, even in the absence of a
formal doctrine of stare decisis, arbitrators have a “duty” to take account of previous
decisions in an effort to facilitate the formation of consistent legal principles and
interpretations, with the purpose of enhancing the predictability of international
investment law and of the scope of protection it afforded to investment. (9) As Judge
Kannan Ramesh of the High Court of Singapore, who might be thought to have come to the
issue with fresh eyes with the assistance of eminent counsel, concluded:
“There is no system of precedent in international law. Past decisions have no
precedential value even where the same treaty or State is involved. That said, a
de facto doctrine of precedent for investment treaty arbitration definitely exists
and investment tribunals approach their task by carefully considering the work
of other tribunals. The consensus appears to be that this is both conducive to
the development of a jurisprudence constante in international investment law,
and helpful to individual tribunals in examining how similar issues have been
resolved or as illustrating the application of established principles.” (10)
P 959
P 960
The choice for arbitrators, therefore, ought not to be whether they agree or disagree with
what has been said before. It ought rather to be whether they see such an analytical error
in previous decisions so as to mean those decisions ought not to be followed. Reasons for
departure from settled principle ought to be given that go beyond a personal dislike for
that principle, or the mere ability to articulate an arguable line of reasoning alternative to
the one adopted by many arbitrators previously (and which, indeed, may have been
expressly rejected by those previous, numerous arbitrators).
Instances where this reassertion of minority views results in an outlier decision departing
from a settled line of principle thus appear to be more an expression of “the individual” in
investment arbitration rather than an example of the system correcting a mistake that
many arbitrators have made previously. Indeed, it may even have reached the point
whereby insisting that an arbitrator is entitled to decide a case without reference to
previous decisions – which position has been maintained even by very prominent
arbitrators who have been involved in many previous cases – openly elevates the influence
of “the individual” above the influence of the system.
The fourth shortcoming is related to the capacity for “the individual” to engage in conduct
which, though not proscribed by any rule or guideline, is nonetheless questionable. While
this conduct is often hard to index against precise procedural or substantive consequences
in an investment arbitration, the concern was expressed that the conduct gives rise to
doubts about the investment arbitration system that are needless.
The younger practitioners interviewed cited several examples of this. Most connected one
way or another to the appropriateness of an individual accepting an arbitral appointment.
The old debate about “double-hatting” – or what Professor Sands, almost a decade ago in
the same city that the 2018 ICCA Congress is taking place, called the “revolving door” of the
same person acting both as counsel and arbitrator (11) – remained an issue. So too did the

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 maintenance of personal or professional relationships while the two relevant individuals
were counsel and arbitrator in the same case. Excessively narrow interpretations of what
constituted a conflict of interest, in the absence of regulation of the precise situation in
the International Bar Association (IBA) Guidelines or elsewhere, were also a concern. This
was especially so in a context where challenges to arbitrators were becoming more
commonplace, and the high degree of interconnection in a small profession was reaching a
P 960 level whereby arbitrators may be challenged for connections not only with counsel, but
P 961 also with agents, (12) parties, (13) entities related to parties, (14) experts or witnesses,
(15) or even a law firm not involved in the case at hand but involved in other cases against
a disputing party. (16) An impression among some younger practitioners was that this
developing web of situations that might prompt an arbitrator challenge was not being met
with additional care about accepting appointments, but rather with what one practitioner
called a “bring it on!” attitude.
The fifth and final shortcoming about the excessive space given to “the individual” in
decision-making in investment arbitration that arose out of discussions with younger
practitioners was one entirely unrelated to the foregoing shortcomings. It related to the
lack of guidelines that existed for the discharge of the duties of an appointing authority.
A meaningful number of arbitrators, especially presiding arbitrators, in investment
arbitrations are appointed by an appointing authority. In the ICSID context, the Secretary
General in 2016 calculated that ICSID was responsible for appointing 15 percent of “all”
ICISD tribunal members. (17) That is one in seven of the total arbitrators in ICSID
arbitrations. One assumes that the majority of these appointments concern the presiding
arbitrator, such that the percentage of presidents appointed by ICSID is in fact much
higher. In addition, a number of younger practitioners had experience of cases where the
Secretary-General of the Permanent Court of Arbitration (or his designee) or the President
of the International Court of Justice was involved in the appointment of an arbitrator in a
non-ICSID arbitration.
The function of the appointing authority in the investment arbitration context is thus an
important one. But no guidelines exist as to how an appointing authority identifies the
person who will be appointed. ICSID has in this lacuna developed a ballot procedure,
which it describes on its website, but no other appointing authority has done likewise. Yet,
even in the ICSID context, as with other appointing authorities, there is little guidance
given to appointing authorities as to who an appropriate appointee (or, in a ballot process,
candidate) might be. The latitude for an appointing authority thus to appoint any
arbitrator at all outside the ICSID context, and any arbitrator from the Panel of Arbitrators
within the ICSID context, is very wide. This latitude means that appointing authorities are
P 961 free to consider not only who might be a good appointee as presiding arbitrator in a
P 962 given case, but also whether desirable objectives such as increased diversity among the
arbitrator ranks can be concurrently advanced. (18)
It also means, however, that considerable power is vested in a few people, who operate
without regulation as to whom an appropriate appointee might be in a given case. This is a
large space in which “the individual” in investment arbitration generates substantive
consequences. The size of this space prompted two core comments by the younger
practitioners. The first is that those few appointing authorities become natural magnets for
those seeking appointments. That may be the way of the world, and there have been
precious few alternatives proposed, (19) but such magnetic power exacerbates the
difficulty that was identified by the younger practitioners. The second consequence is that
it leaves the investment arbitration system generally, and the prominent appointing
authorities specifically, open to criticism. (20) Irrespective of whether one believes the
major appointing authorities in investment arbitration exercise their powers appropriately
or otherwise, it is the vesting of those powers and the consequent vulnerability to such
criticism that the younger practitioners noted was an example of the excessive space given
to “the individual” in decision-making in investment arbitration.

3 The Macroscopic Problem

The foregoing shortcomings are ones which, in the impression of the younger practitioners
interviewed, cumulatively result in the investment arbitration system affording excessive
scope for “the individual” in the decision-making that defines and mobilizes that system.
However, a natural response to this is that, at some point, the system needs to vest
decision-making power in someone. It is inherent in the nature of a system that has
competing arguments determined by human beings that “the individual” is going to play a
part in that determination. The lens is too microscopic if one criticizes a system as a whole
by reference to specific shortcomings.
While that reply is fair, the above shortcomings are not without a macroscopic unity:
virtually all of the shortcomings arise in one way or another out of a lack of regulation. The
extent of discretion given to decision-makers left enough room for “the individual” to exert
an influence on the decision-making which had no regulatory check.
P 962
P 963
It is of course true that the number of actors in international arbitration is large, and it is
arguable that the number is higher in investment arbitration where sovereign decisions, a
public purse and civil society are engaged uniquely. That diversity of actors in investment

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 arbitration makes it difficult to regulate all, or even most, situations in which an
inappropriate expression of “the individual” might arise. But lack of regulation – especially
when it is to such an extent that the cumulative effect of the shortcomings arising from the
expression of “the individual” damages the system as a whole – can be addressed. After all,
as Professor Gaillard recalls, “one cannot forget that arbitration is intended for the parties
and not for all the other actors that gravitate around it.” (21)
Professor Gaillard's reminder on this point explains why the macroscopic problem arising
from the shortcomings discussed above is so important. Through allowing unregulated
expressions of “the individual” to damage the system as a whole, it is the “symbolic
capital” of the actors in the system that suffers the most. (22) Moreover, in a system where
arbitrators “demonstrate some of the markers of professionalization and have consciously
invoked the nomenclature of professionalism”, (23) loss of symbolic capital by decision-
makers by reference to their conduct giving rise to the above shortcomings also produces a
loss of symbolic capital by the system of investment arbitration as a collective.
This observation results from the fact that the decision-makers are more than
functionaries. They oversee the “rituals” of the system. (24) They also act as “value leaders”,
who formulate and execute an “ambition … to provide guidance as to the way international
arbitration should develop and arbitral social actors should behave … [and] are
recognized, at varying degrees of legitimacy, as having the social ability to provide such
guidance”. (25) When “the individual” is given too much scope in the decision-making
within the investment arbitration system such that the above shortcomings occur, it is not
just personal reputations that suffer. It is, rather, the symbolic capital of the system as a
whole and the value leadership within that system that is impaired.
What is more, the specificities of the structure of the investment arbitration system
highlight how viral the damage done by an undue influence of “the individual” in decision-
making can be. Of particular relevance is the ability of one person to play multiple
functions within the system – at once counsel, arbitrator, academic commentator, media
commentator, professional organization leader, among others. In performing a concurrent
P 963 variety of functions, however, it is open to that person, even expected, to maintain a
P 964 consistent “role” – that term referring to the “activity consisting in defending certain
values or beliefs”, which in investment arbitration is sometimes reduced to the unhelpful
dichotomy whereby “a given player may perceive his or her role as defending States or
defending the interests of foreign investors”. (26) This is not a mere theoretical
observation. It has very practical consequences relating to how the investment arbitration
system understands conflict of interests that can exclude a person from fulfilling a
particular function in that system. As Professor Gaillard elaborates on this point:
“The current trend in assessing conflicts of interests in international arbitration
is to focus on functions. It is sometimes argued that a social agent routinely
performing the function of counsel has a structural conflict of interest which
should preclude him or her from acting as co-arbitrator, president or member
of an ad hoc committee in ICSID arbitration. An analysis focusing on roles as
defined above, rather than on functions, or at least in conjunction with the
concept of function, might be a more fruitful exercise, as it is the role, not the
function, which polarizes the field.” (27)
At a subcutaneous level of analysis, therefore, the problem arising from the shortcomings
noted above about the excessive scope given to “the individual” in the decision-making in
investment arbitration is that insufficient regulation leaves room for the “role” a particular
decision-maker adopts to influence those decisions. Questions of “double-hatting”,
conflicts of interest, who appoints and is appointed, departures from settled legal
principles, the path to eminence as an arbitrator, ex parte communications – all these are
cast in a different light if their common cause is the assimilation by decision-makers of
“the individual” with an adopted “role”. Such a conclusion, if correct, would mean decision-
making is at risk of being defined by a decision-maker viewing his or her mandate as being
the defence of personalized values or beliefs. That is not, one would hope to posit without
controversy, how most would characterize the objective and impartial duty of determining
disputes by reference to a transparent and predictable system of legal rules.
Macroscopically, therefore, the lack of regulation and the way in which “the individual” can
operate in that absence when engaging in decision-making within the investment
arbitration system is both the unifying shortcoming to which almost all the concerns of the
younger practitioners related, and also the cause of the excessive influence over such
decision-making that is exerted by “the individual” and any corresponding “role” a
decision-maker may have adopted.

4 The Need for Regulation

It ought to go without saying that none of the younger practitioners involved in the
P 964 discussions, and certainly not the younger practitioner presently collating those remarks
P 965 and commenting on them, adopts a “holier than thou” position. Younger practitioners
are not decision-makers. They have never had to transition from a predominantly counsel
role to a predominantly arbitrator role. They are not value leaders, not guardians of rituals,
and possess little symbolic capital. They know little of the difficulties that come with being
decision-makers in the investment arbitration system, and little of how much space “the

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 individual” in that system truly has when sitting in a room with other decision-makers
trying to reach consensus.
But, equally, younger practitioners are part of the investment arbitration system. They are
part of the same collective of which the decision-makers are also a part. And it is from that
base commonality that many of the younger practitioners' comments raised the need for
additional regulation, tailored to limiting the excessive scope afforded to “the individual”
in decision-making within investment arbitration.
It seems apparent from the nature and extent of the shortcomings discussed above that a
significant uptick in the regulation of decision-makers' conduct in the investment
arbitration system is required. Arbitration practitioners have shown themselves perfectly
capable of doing this. The 2010 IBA Rules on the Taking of Evidence in International
Commercial Arbitration, the 2014 IBA Guidelines on Conflicts of Interest in International
Arbitration and the 2013 IBA Guidelines on Representation in International Arbitration are
all good examples from the last handful of years as to how regulation can keep pace with
events. The 1987 IBA Rules of Ethics for International Arbitrators are perhaps due an
overhaul, but it runs alongside the emergence of an increasing number of ethical codes for
arbitrators being issued by arbitral institutions or professional bodies, (28) and the work of
scholars such as Professor Rogers. (29)
None of these codes, however, are tailored to the investment arbitration system, or to
limiting the space afforded to “the individual” in the decision-making within that system.
That is why the various shortcomings discussed above are mostly unregulated. But given
the existence of those shortcomings and the macroscopic problem they suggest, the case
for a supplement to the IBA Rules/Guidelines focused on investment arbitration is
convincing. A supplement of this kind could answer the specific manifestations of “the
individual” that are problematic.
Thus, for instance, principles of precedent in investment arbitration could be expressly
stated, such as by reference to an express duty for arbitrators to take account of previous
decisions in an effort to facilitate the formation of consistent legal principles and
interpretations. A limit on the total number of appointments in investment arbitrations a
person can accept may be worth considering, if only to ensure that a person's “role” does
not gain undue influence over his or her decision-making or over a significant portion of
the decision-making in the investment system as a whole. Express regulations on what
P 965 constitutes acceptable “double-hatting” and what does not – perhaps by reference to
P 966 whether a party or its counsel would gain an insight into an arbitrator's approach to an
issue that is not shared by the opposing party or its counsel – might warrant attention. So
too would express regulation of the matters to be taken into account by appointing
authorities when appointing arbitrators. A revisiting of the “lists” in the IBA Guidelines on
Conflicts of Interest in light of peculiarities of investment arbitration, and in particular the
reality that fewer actors participate in that system more often when compared to (say)
commercial arbitration, may also be merited.
Some of these nascent proposals may seem like significant departures from the status quo.
A cap on total number of appointments, for example, may even impinge on party
autonomy. But, at a minimum, the unique nature of the investment arbitration system and
of the various shortcomings discussed above means serious consideration ought to be
given to significant alterations to the regulation of the space afforded to “the individual” in
the decision-making in investment arbitration.

III Conclusion
“How sharper than a serpent's tooth it is to have a thankless child.”
None of the younger practitioners consulted during the preparation of this contribution
were insensitive to the fact that the decision-makers in the investment arbitration system
to date had to find answers to difficult questions in a new field with sparse guidance and
regulation. None, equally, were insensitive to the fact that the terms of the applicable
investment treaty, contract or legislation often are cast in broad language that inevitably
admits of a variety of approaches and viewpoints. A genuine appreciation pervaded of the
distance that international investment law, and the regulatory framework within which
decision-makers operated, had come in what is still a relatively short period of time. We
younger practitioners are no thankless Gonerils.
But nor are we Lear blind. The identification of the shortcomings discussed in this
contribution is the product of reflection and a measure of insight. In many cases, the
younger practitioners spoke in terms of real devotion to their field of practice and those
who have led that field to date. It is that devotion that spurs a desire to rectify
shortcomings by way of more detailed regulations focused on the problems in this field.
The proposals noted briefly above are not offered as a panacea. They are offered certainly
with the awareness that difficult discussions would need to follow to achieve more
detailed regulation of the specific shortcomings in the field of investment arbitration.
However, it is hoped that, in the context of a forum such as the ICCA Sydney 2018 Congress,
the voice of a younger generation might be heard by the decision-makers, and such
discussions, both difficult and rewarding, might follow.
P 966

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 P 966

References
*) Lucas Bastin: Barrister, Essex Court Chambers, London. Thanks are due to Monty Taylor,
and participants in and attendees at the New Voices Panel at the ICCA Sydney
2018Congress for comments.
1) With some two dozen younger investment arbitration practitioners. The methodology
employed in preparing this contribution based on those interviews is set out in fn. 4
below.
2) ARISTOTLE, Posterior Analytics (trans., Bouchier, Oxford 1901) at 127-128.
3) Friedrich NIETZSCHE, “On Truth and Lying in a Non-Moral Sense” in The Norton
Anthology of Theory & Criticism (Norton 2001) at p. 878.
4) The following account is a summary of the shortcomings thus identified and the
consequences they produce. The account is not intended in the present contribution to
be tendentious, but rather an attempt to summarize the collective observations made
by those interviewed. The younger practitioners who participated in the discussions
are not identified to preserve the anonymous basis on which the comments were given.
Records of discussions are kept on file with the author. Unless otherwise stated or
obvious, quotations below are from the younger practitioners themselves.
5) For an articulation of the danger that lies in such a situation, see the dissent of
Arbitrator Stern in Impregilo S.p.A. v. Argentine Republic (ICSID Case No. ARB/07/17),
Award (21 June 2011) para. 5.
6) As phrased in: Jean KALICKI, “A Talk by Jean Kalicki ′89”, Harvard Law School, 30
October 2015, available at <https://www.youtube.com/watch?v=nTE0Z4e6qrQ>.
7) See, as a small selection of examples: AES Corporation v. Argentine Republic (ICSID Case
No. ARB/02/17), Decision on Jurisdiction (26 April 2005) para. 23 (which view was
specifically endorsed in AES Summit Generation Limited and AES-Tisza Erömü Kft. v.
Republic of Hungary (ICSID Case No. ARB/07/22), Decision of the ad hoc Committee on
the Application for Annulment (29 June 2012) para. 99); Wintershall Aktiengesellschaft v.
Argentine Republic (ICSID Case No. ARB/04/14), Award (8 December 2008) paras. 187
and 194; Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v.
Republic of Paraguay (ICSID Case No. ARB/07/9), Decision on Jurisdiction (29 May 2009)
para. 58; Víctor Pey Casado and President Allende Foundation v. Republic of Chile
(ICSID Case No. ARB/98/2), Award (8 May 2008) para. 119; Caratube International Oil
Company LLP v. Republic of Kazakhstan (ICSID Case No. ARB/08/12), Award (5 June 2012)
para. 234.
8) This expression of the (limited) value of precedents, albeit sometimes half-heartedly
and over competing commentary on the point by a dissenting arbitrator, is reflected
in, e.g.: Impregilo S.p.A. v. Argentine Republic (ICSID Case No. ARB/07/17), Award (21 June
2011) para. 108 (but note the dissent of Arbitrator Stern on this issue, para. 5);
Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5), Decision on
Reconsideration and Award (7 February 2017) para. 46 (but note the dissent of
Arbitrator Stern on this issue, para. 46); Daimler Financial Services AG v. Argentine
Republic (ICSID Case No. ARB/05/1), Award (22 August 2012) para. 52; Quasar de Valors
SICAV S.A. and others (formerly Renta 4 S.V.S.A and others) v. Russian Federation (SCC
Case No. 24/2007), Award on Preliminary Objections (20 March 2009) para. 16; Murphy
Exploration and Production Company International v. Republic of Ecuador (PCA Case No.
2012-16; formerly AA 434), Partial Final Award (6 May 2016); Republic of Ecuador v.
United States of America (PCA Case No. 2012-5), Award (29 September 2012) para. 188.
9) Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v. Government
of Mongolia (UNCITRAL), Decision on Jurisdiction (25 July 2012) para. 417; KT Asia
Investment Group B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/09/8), Award (17
October 2013) para. 53; Churchill Mining Plc/Planet Mining Plc v. Republic of Indonesia
(ICSID Case No. ARB/12/14 and 12/40), Decision on Jurisdiction (24 February 2014) para.
85; Renée Rose Levy and Gremcitel S.A. v. Republic of Peru (ICSID Case No. ARB/11/17),
Award (9 January 2015) para. 76. This line of cases recalls the earlier expressed view of
Professor Wälde that a tribunal should not depart from established practice (in the
NAFTA and ICSID context, such as the case before him) without in-depth reasoning and
after hearing the Parties in writing and orally on the precise issue, and even then it
may still not be proper for a tribunal to do so: International Thunderbird Gaming
Corporation v. United Mexican States (UNCITRAL), Separate Opinion (1 December 2005)
paras. 130-131.
10) Swissbourgh Diamond Mines (Pty) Limited and others v. Kingdom of Lesotho (PCA Case
No. 2013-29), Set Aside Judgment of the High Court of Singapore (14 August 2017) para.
103 (citations omitted).
11) Luke Eric PETERSON, “Arbitrator Decries ‘Revolving Door’ Roles of Lawyers in
Investment Treaty Arbitration”, IA Reporter (25 February 2010) available at
<https://www.iareporter.com/articles/arbitrator-decries-revolving-door-roles-of-
lawyers-in-investment...>.

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 12) See Arbitration Between the Republic of Croatia and the Republic of Slovenia (PCA Case
2012-04), Partial Award (30 June 2016) para. 130.
13) See Luke Eric PETERSON, “After ICSID Tribunal Is Constituted, US Investor Big Sky
Energy Corporation Seeks to Disqualify Arbitrator Nominated by Kazakhstan”, IA
Reporter (30 January 2018) available at <https://www.iareporter.com/articles/after-
icsid-tribunal-is-constituted-us-investor-big-sky-energy-c...>.
14) See Suez, Sociedad General de Aguas de Barcelona S.A. & Vivendi Universal S.A. v.
Argentina (ICSID Case No. ARB/03/19), Decision on Second Challenge to Gabrielle
Kaufmann-Kohler (12 May 2008) paras. 36-40.
15) See Luke Eric PETERSON, “Co-arbitrators Declare Themselves to Be ‘Equally Divided’ on
Challenge to Third Tribunal Member, thus Putting ICSID in the Driver's Seat”, IA
Reporter (21 October 2017) available at <https://www.iareporter.com/articles/co-
arbitrators-declare-themselves-to-be-equally-divided-on-chall...>.
16) See, e.g.: Luke Eric PETERSON, “Venezuela Hires Private Investigator to Examine Ties of
Yves Fortier's Secretary to his Former Law Firm, but Again Fails to Make Out Its Case for
Disqualification”, IA Reporter (9 May 2017) available at
<https://www.iareporter.com/articles/venezuela-hires-private-investigator-to-
examine-ties-of-yves-for...>.
17) Claire LIPMAN, “An Interview with Meg Kinnear, Secretary General of ICSID: Part 2/4:
ICSID Arbitration Procedure”, Practical Law Arbitration Blog (3 February 2016) available
at <http://arbitrationblog.practicallaw.com/an-interview-with-meg-kinnear-secretary-
general-of-icsid-par...>.
18) A lack of diversity remains a problem in investment arbitration, as in international
arbitration generally: see as a leading contribution on the issue Lucy GREENWOOD and
Mark BAKER, “Getting a Better Balance on International Arbitration Tribunals” 28
Arbitration International (2012) p. 653.
19) See the proposal for, inter alia, “constituting a collegial body for the appointment of
ad hoc committee members [for ICSID annulment committees] sending its
recommendations to the president of the Administrative Council”, Hamid GHARAVI,
“ICSID Annulment Committees: The Elephant in the Room”, Global Arbitration Review
(24 November 2014) available at <www.derainsgharavi.com/2014/11/icsid-annulment-
committees-the-elephant-in-the-room/>.
20) See Hamid GHARAVI, “ICSID Annulment Committees: The Elephant in the Room”, Global
Arbitration Review (24 November 2014) available at
<www.derainsgharavi.com/2014/11/icsid-annulment-committees-the-elephant-in-the-
room/>. It is in such a context that the OECD is now investigating systemically the way
in which appointing authorities act in investment arbitrations, and how that system of
designation and appointment can be improved: see
<www.oecd.org/investment/Consultation-ISDS-appointing-authorities-
arbitration.htm>.
21) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015) p. 1 at p. 4.
22) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015) p. 1 at p. 2.
23) Catherine ROGERS, “The Vocation of International Arbitrators”, 20 American University
International Law Review (2005) p. 957 at pp. 976-977.
24) For a fuller exploration of the sociological import of such “rituals” and how they
manifest in the international arbitration world, see Emmanuel GAILLARD, “Sociology of
International Arbitration”, 31 Arbitration International (2015) p. 1 at pp. 10-13.
25) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015) p. 1 at p. 7.
26) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015) p. 1 at p. 14.
27) Emmanuel GAILLARD, “Sociology of International Arbitration”, 31 Arbitration
International (2015) p. 1 at p. 15.
28) See, e.g., the codes issued by the American Arbitration Association, the Milan Chamber
of National and International Arbitration, the Singapore International Arbitration
Centre, and the Cairo Regional Centre for International Commercial Arbitration.
29) See, e.g.: Catherine ROGERS, “The Vocation of International Arbitrators”, 20 American
University Journal of International Law and Policy (2005) p. 959; Catherine ROGERS,
“Regulating International Arbitrators: A Functional Approach to Developing Standards
of Conduct”, 41 Stanford International Law Review (2005) p. 53.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Arbitration of Internal Trust Disputes: The Next Frontier for
Publication International Commercial Arbitration?
Evolution and Adaptation: S. I. Strong
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference Although “external” trust disputes (1) have long been subject to arbitration at both the
national and international levels, recent years have seen increasing interest in “internal”
S. I. Strong, 'Arbitration of trust arbitration, meaning proceedings that address matters involving trustees and/or
Internal Trust Disputes: The beneficiaries. While arbitral specialists do not find the concept of internal trust arbitration
Next Frontier for particularly problematic, many trust lawyers view the procedure with trepidation if not
International Commercial outright horror. (2) To some extent, differences in how trust arbitration is perceived can be
Arbitration?', in Jean explained by a mutual lack of understanding about the intricacies of the secondary body
Engelmayer Kalicki and of law: on the one hand, trust lawyers often fail to appreciate the sophistication of
Mohamed Abdel Raouf (eds), contemporary arbitration law while on the other hand, arbitral specialists overlook the
Evolution and Adaptation: special challenges associated with trusts.
The Future of International
Arbitration, ICCA Congress Unfortunately, experts in the two fields of law seldom communicate, which leads to a
Series, Volume 20 (© Kluwer variety of problems in practice. For example, experts in trust law often propose model
Law International; clauses and procedural rules that do not comply with best practices in arbitration law,
International Council for P 971 while experts in arbitration frequently promote or adopt procedures that are not
Commercial P 972 sufficiently tailored to the special needs of trust disputants. If trust arbitration is to
Arbitration/Kluwer Law flourish, individuals and institutions in both fields – trust law and arbitration law – must
International 2019) pp. 971 - work together to develop a mechanism that complies with the unique requirements of both
984 bodies of law.
Trust arbitration is an extremely complicated subject, and it is impossible to provide a
comprehensive analysis of all of the relevant issues in the space provided here. (3)
However, it is useful to introduce some of the key concepts and authorities so that experts
in international commercial arbitration can appreciate the importance of trusts in the
global marketplace and can begin to recognize the special challenges involving arbitration
of these types of disputes. This discussion will therefore proceed as follows.
First, Sect. II provides some basic background on trusts and their importance to the
international commerce. Next, Sect. III outlines some of the problems that can arise in this
area of law, particularly from a trust law perspective. Sect. IV discusses recent legislative,
judicial and institutional developments in this area of law, including examples from
Europe, Australasia and the Americas. Finally, Sect. V concludes the discussion.

II Trusts in the International Commercial Context

The trust is traditionally considered a creature of the common law, since the device was
originally developed in medieval England as a means of conveying and protecting
property through the division of legal and beneficial ownership. (4) However, many civil
law jurisdictions have seen the benefit of this particular mechanism and have adopted
similar devices known as Stiftungen (foundations) or associations. While the precise
requirements for creating a trust will vary across jurisdictional lines, the Hague Convention
on the Law Applicable to Trusts and on Their Recognition states that:
“the term ‘trust’ refers to the legal relationships created … by a person, the
settlor, when assets have been placed under the control of a trustee for the
benefit of a beneficiary or for a specified purpose”.
A trust has the following characteristics –
(a) the assets constitute a separate fund and are not a part of the trustee's own estate;
P 972
P 973
(b) title to the trust assets stands in the name of the trustee or in the name of another
person on behalf of the trustee;
(c) the trustee has the power and the duty, in respect of which he is accountable, to
manage, employ or dispose of the assets in accordance with the terms of the trust
and the special duties imposed upon him by law. (5)
Traditionally, trusts have been characterized almost exclusively as an estate planning tool
for wealthy individuals and families. However, trusts are routinely used in high-value
commercial matters and operate in many jurisdictions as the functional equivalent of
corporations. (6) Some of the more common types of “commercial” or “business” trusts
include pension trusts, investment or unit trusts (which include mutual funds, real estate

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 investment trusts (REITs), oil and gas royalty trusts, and asset securitization trusts) and
trusts relating to the issuance of bonds. (7) International elements frequently exist with
respect to both commercial and intergenerational trusts, with beneficiaries living in
jurisdictions that are different from the place of the trust or the place where other
beneficiaries reside. (8)

III Problems with Trust Arbitration

While internal trust disputes can be made subject to post-dispute arbitration agreements
(compromis) with relative ease, the real question is whether and to what extent arbitration
can be mandated on a pre-dispute basis by including an arbitration provision in the trust
itself. Unfortunately, these types of provisions have experienced some difficulties because
of the traditional conceptualization of trusts as donative rather than contractual in nature.
P 973 (9) Although the notion of trusts as donative instruments has been criticized by a variety of
P 974 commentators, particularly with respect to commercial trusts, which clearly reflect a
bargained-for exchange, (10) trusts are routinely viewed as something other than contracts.
Early commentary identified five criteria that must be satisfied if an arbitration provision
in a trust is to be considered enforceable. While these elements are not embodied in a
particular statute, they nevertheless resonate with judges, legislators and commentators.
Thus, it is often said that an arbitration provision in a trust will only be considered valid if:
(1) the court's jurisdiction is not being ousted in an unacceptable fashion;
(2) the clause purporting to be an arbitration clause is an agreement that is both (a)
operable, effective and capable of being performed and (b) covers the dispute at
issue;
(3) the clause is binding on the party seeking to avoid arbitration;
(4) all interested parties, including unascertained, unborn and legally incompetent
beneficiaries, are properly represented in the proceeding; and
(5) the subject matter of the dispute is arbitrable. (11)
A detailed analysis of each of these issues is beyond the scope of the current discussion,
although there are a number of works that can be consulted. (12) Instead, the focus here
will be on illustrating in broad outline how two of the above-mentioned concerns – in this
case, points (3) and (4) – can raise issues that do not exist in other forms of international
commercial arbitration.

1 Can an Arbitration Provision in a Trust Bind All Parties to the Arbitration?

The first item to consider involves the question of whether an arbitration clause found in a
trust can bind the party seeking to avoid arbitration. The problem usually relates to
beneficiaries, who typically do not sign the trust instrument or accept any burdens
thereunder. (13) However, it is possible, even in jurisdictions that view trusts as donative in
nature, for the deed of trust to be drafted in such a way that benefiting from the trust
would be deemed an agreement to submit trust disputes to arbitration. By accepting the
gifts or invoking any rights under the trust deed, the beneficiaries would be deemed to
agree to settle any dispute in accordance with the arbitration agreement contained in the
trust deed. (14)
P 974 This technique is known in England as “deemed acquiescence” and indicates that
P 975 beneficiaries who receive some sort of benefit under the trust are bound by the terms of
the instrument, including any mandatory arbitration clause contained therein. (15) Under
this doctrine, “any beneficiary (even an unborn or unascertained one) who derives his
entire interest in the trust from the settlor, and whose rights and obligations under the
trust are hence determined by the trust deed, is deemed to acquiesce to the arbitration
provision.” (16)
The United States has adopted a similar approach under a theory known as “conditional
transfer”. (17) Under this doctrine, provisions found in the trust are binding on beneficiaries
to the extent that the beneficiary's “rights” in the corpus of the trust are seen as “wholly
derivative” of the settlor's “right to pass her property to the persons of her choosing”. (18)
Because the beneficiary has “rights” in the trust only because the settlor granted those
rights, the settlor may condition receipt of any benefits on compliance with arbitration
provisions contained in the trust. (19) Courts in civil law countries (most notably
Switzerland) have used similar techniques to bind beneficiaries to arbitration provisions
found in trust instruments. (20)
Deemed acquiescence and conditional transfer would appear to raise few concerns within
the arbitral community because they resemble certain theories used in arbitration law to
extend an arbitration agreement to non-signatories. (21) For example, deemed
acquiescence and conditional transfer could easily be analogized to implied consent,
estoppel or third-party beneficiaries in the arbitral context.
Although there appears to be something of a split of authority in the United States
P 975 regarding the application of arbitral principles on non-signatories to trust disputes, (22)
P 976 international practice would seem to support such an approach. Indeed, the United
Nations Commission on International Trade Law (UNCITRAL) issued a formal
recommendation in 2006 stating that form requirements relating to the definition of an

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 “agreement in writing” under the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (New York Convention) should be relaxed and given
an expansive interpretation. (23) While the recommendation does not specifically indicate
what can now be considered an “agreement in writing” under the New York Convention, (24)
a 2005 report from an UNCITRAL working group suggests that the concepts of deemed
acquiescence and conditional transfer (which incorporate principles of estoppel) could fall
within the expansive approach to an “agreement in writing” advocated by UNCITRAL, which
would allow international trust arbitration to benefit from the pro-enforcement bias of the
New York Convention. (25)
Parties and courts seeking additional guidance on how to interpret an “agreement in
writing” can also look to the 2006 version of the Model Arbitration Law for assistance. (26)
Option I and Option II of the revised version of Art. 7 of the Model Arbitration Law both
eliminate the need for the parties to have signed the arbitration agreement in question.
(27) Option II goes even further, stating that an “‘[a]rbitration agreement’ is an agreement
by the parties to submit to arbitration all or certain disputes which have arisen or which
may arise between them in respect of a defined legal relationship, whether contractual or
not”. (28) Because Option II does not mention the need for the arbitration provision to
appear in a contract, jurisdictions adopting this provision would likely have few, if any,
problems enforcing a mandatory arbitration provision found in a trust. However, Option I
and Option II would both be very useful in overcoming concerns about whether an
arbitration provision in a trust instrument can bind all relevant parties.
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P 977
2 Identifying Proper Parties to a Trust Arbitration
Even if trusts are considered capable of binding parties through an arbitration provision in
the trust deed, questions exist about the propriety of using arbitration when some parties
in interest may be unascertained, unborn or legally incompetent (such as through legal
minority) at the time the dispute arises. (29) Concerns about the legal status of
beneficiaries are most often seen in the context of inter-generational trusts. These types of
devices can endure over several lifetimes, which means that a trust dispute might arise
before one or more beneficiaries are born (30) or ascertained. (31) Commercial trusts are
unlikely to generate the same level of concern about unborn or unascertained
beneficiaries, since beneficial interests in commercial trusts are typically reflected in
certificates or shares that are conveyed in a manner similar to that seen in the corporate
context. (32) However, it is possible that some shares in a commercial trust could be held
by minors or other legally incapacitated persons.
Specialists in international commercial arbitration may find these kinds of concerns
somewhat challenging, since arbitration seldom involves the rights of persons who are not
actually present in the dispute. However, courts have traditionally characterized trust
disputes to operate in rem, with decisions binding “all persons having adequate notice,
whether or not they actually participate in the proceeding”. (33) As a result, courts and
arbitral tribunals must give special attention to questions involving who should have
notice of a trust proceeding, how notice must be given to those persons and what sort of
procedures must be used to protect the rights of all interested parties, regardless of
whether they are present or not. (34)
The first task – identifying who should be given notice of a trust dispute – requires a careful
reading of the trust document as well as a detailed knowledge of the context in which the
trust operates. For example, some beneficiaries may not be identified in the trust by
name. Although this practice may seem strange to commercial specialists, it has long been
condoned by trust law. Trusts can endure for a very long period of time, which means that
the terms of the trust must be sufficiently flexible so as to anticipate a variety of different
circumstances, including those relating to the possibility that some beneficiaries might not
yet be born or ascertained or might not have legal capacity.
P 977
P 978
These types of issues have been resolved in litigation by allowing judges to appoint a
person to represent the interests of any unnamed, unascertained or legally incompetent
beneficiaries. (35) In England, the person named to protect the beneficiaries' claims,
called a “special representative,” cannot have any independent interest in the dispute
itself. (36) Other jurisdictions, such as the United States, either appoint an independent
representative similar to a special representative or allow an existing beneficiary who
shares the absent beneficiary's interests to protect the absent beneficiary's claims in a
practice known as “virtual representation”. (37) Minors and other legally incompetent
persons may have legal representatives, typically referred to as guardians, already in
place. (38)
The question then becomes whether these sorts of representative mechanisms can be used
in arbitration. The answer may depend on whether the trust instrument specifically
describes the representative mechanism that is to be used. For example,
“[t]here appears to be no reason why the court would not grant a stay [of
litigation] to the trustee on the sole ground that the beneficiary is not properly
represented in the arbitration. If the arbitration provision is properly drawn to

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 provide for adequate representation, then the child [or other beneficiary]
should be bound to take the benefit of it.” (39)
In drafting such a provision, the settlor should be sure to “provide how incapacitated,
unascertained and unborn beneficiaries can come (or be brought) forward to make their
claims…. The arbitral tribunal could determine who should be served with notice of the
arbitration, in the same way as, in court proceedings, a judge can.” (40) Furthermore, “[t]o
avoid problems the trust deed should provide for payment of … [special or virtual
representatives] out of the trust fund”. (41) Notably, this technique appears to be equally
appropriate in the context of both commercial and inter-generational (family) trusts.
Trustees who are not given explicit powers to appoint special or virtual representatives
could attempt to do so based on their general discretionary powers to resolve trust
disputes. This approach would likely be bolstered by statutory provisions allowing trustees
P 978 to pursue non-judicial means of dispute resolution. (42) While some within the trust law
P 979 community have questioned whether an arbitral tribunal can be relied upon to appoint
a competent representative, then-Professor (now Judge) David Hayton has said that “[o]ne
can leave it to the good sense of the arbitrator to provide for due process and a fair
hearing by appointing appropriate skilled independent persons to represent minors and
unborn and unascertained beneficiaries”. (43)

IV The Rise of Trust Arbitration Around the World

Although trust arbitration faces some very real jurisprudential challenges, the outlook for
this particular procedure has never been more positive. Not only have numerous common
law and civil law jurisdictions adopted legislation specifically providing for arbitration of
internal trust disputes, but a number of courts and arbitral institutions have also
supported advances in this field.

1 Legislative Developments
Numerous jurisdictions from around the world have begun to adopt legislation allowing
arbitration of internal trust disputes. Although the shape and form of these provisions can
vary widely, they all demonstrate that the traditional animus toward trust arbitration is
waning.
The United States has enacted perhaps the most diverse array of pro-trust arbitration
legislation. At the time of writing, five US states (Arizona, Florida, Missouri, New Hampshire
and South Dakota) have adopted statutes explicitly recognizing the validity of an
arbitration provision found in a trust. (44) Support for trust arbitration can also be found in
the Uniform Trust Code (UTC), a model enactment that has been adopted in whole or in
part by thirty-one US states and the District of Columbia, and in the laws of two other
states (Washington and Idaho), although these provisions do not specify whether the settlor
or the trustee is the holder of the authority to choose arbitration as a means of resolving
disputes. (45)
Other countries have also embraced legislation on trust arbitration. For example, Guernsey
and the Bahamas have both adopted extremely wide-ranging legislation, with other
P 979 common law jurisdictions, most notably New Zealand, poised to follow suit. (46) Several
P 980 civil law jurisdictions, most notably Liechtenstein, Malta, Panama and Paraguay, allow
arbitration of internal disputes involving trusts or trust-like devices. (47) Although
Switzerland does not recognize trusts as a matter of national law, Swiss courts appear
capable of enforcing awards arising out of arbitration of foreign trusts pursuant to the
Swiss statute on private international law. (48)
Relatively little authority exists regarding the enforcement of arbitral awards generated by
internal trust arbitration other than Weizmann Institute of Science v. Neschis, a US decision
that considered whether and to what extent an arbitral award rendered in Liechtenstein
should be given preclusive effect in a US court proceeding. (49) The court provided for
enforcement of the award, even though Liechtenstein had not yet acceded to the New York
Convention. No known case exists under the New York Convention, although various
commentators have argued that trust arbitration falls within the terms of the New York
Convention. (50)

2 Judicial Developments
Skeptics in this area of law routinely claim that trust arbitration can only develop as a
statutory device. However, a number of courts have upheld arbitration of an internal trust
dispute despite the absence of any specific legislation on the subject.
The most well-known of these decisions is Rachal v. Reitz from the Supreme Court of Texas.
(51) In Rachal, the Texas Supreme Court overcame concerns about the contractual nature of
trusts by embracing the direct benefits theory of estoppel (essentially, the doctrine of
P 980 conditional transfer) and applying all terms of the trust, including the arbitration
P 981 provision, against the beneficiary because the beneficiary had clearly indicated
acceptance of the terms and validity of the trust by accepting the benefits of the trust and
suing to recover damages for violation of the terms of the trust. (52) The court approved of
this type of “equitable defensive” theory because it “promote[d] fairness by holding a

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 party to its position in the performance of an agreement or in bringing litigation”. (53)
The Texas approach can be contrasted with that that taken in California. In 2014, the
California Court of Appeal held in McArthur v. McArthur that an arbitration provision in a
trust was unenforceable against an objecting beneficiary. (54) However, in so doing, the
court did not reject the direct benefit estoppel theory seen in Rachal but instead noted
that the beneficiary did not seek to claim benefits or enforce her rights under the trust; to
the contrary, she sought to set the trust aside in its entirety. As a result, the arbitration
provision could not be held against the beneficiary, and her claim had to be heard in
litigation.
Another California case – Roehl v. Ritchie – saw the California Court of Appeal upholding an
award arising out of trust arbitration after one of the parties claimed that the arbitrator
had exceeded the scope of his powers in issuing a series of awards relating to an
accounting issue. (55) Notably, the court at no point suggested the arbitration provision
might be unenforceable, even though the relevant language was found in the trust itself.
This is not to say that all US decisions have been positive. Indeed, a number of early cases
involving trust arbitration were relatively negative, although many of these decisions can
no longer be considered good law. The most well-known of these decisions comes from
Arizona. In Schoneberger v. Oelze, the Arizona Court of Appeals denied enforcement of an
arbitration provision in a trust on the grounds that a trust is not a contract. (56) Although
this case is still sometimes referred to in comparative analyses, it has since been
superseded by statute, as recognized by the Arizona Court of Appeals in Jones v. Fink. (57)
Another case that is frequently cited as curtailing the arbitration of trust disputes is In re
Jacobovitz' Will, a New York state court decision from 1968 that held that wills (and, by
extension, trusts) were non-arbitrable as a matter of public policy. (58) However, In re
Jacobovitz' Will was called into question by In re Blumenkrantz, (59) which allowed
arbitration of internal trust matters.
P 981 Michigan underwent a similar shift at about the same time. For years, Meredith's Estate, a
P 982 1936 decision from the Supreme Court of Michigan, was frequently cited as prohibiting
trust arbitration because trust disputes are in rem proceedings. (60) However, Meredith's
Estate was superseded by implication by In re Nestorovski Estate, (61) which concluded that
an arbitration proceeding did not improperly oust the court of jurisdiction over probate
concerns.

3 Institutional Developments
The final set of developments to consider involves institutional rules. While there is no
requirement that parties to an internal trust dispute must use a specialized rule set
(indeed, there are examples of trust arbitrations proceeding under the general rules of the
American Arbitration Association (AAA), the International Chamber of Commerce (ICC) and
the International Centre for Dispute Resolution (ICDR)), (62) the numerous challenges
associated with trust arbitration (63) suggest that a dedicated rule set might be useful
even if it is not required. Indeed, certain types of commercial trust disputes have been
arbitrated for decades (64) largely, though not exclusively, as a result of a set of
specialized rules developed by the AAA in conjunction with the International Foundation of
Employee Benefit Plans (IFEBP). (65)
While the AAA/IFEBP rules do not address the precise types of internal disputes under
P 982 discussion in this paper, they doubtless inspired the AAA to create a more general set of
P 983 rules – the AAA Wills and Trusts Arbitration Rules – applicable to a wider range of trust
disputes. (66) At this point, the AAA is the only arbitral institution to have created a rule set
dedicated entirely to trust disputes.
That is not to say that other arbitral institutions have ignored internal trust arbitration
entirely. In 2008, the ICC issued a report indicating that the ICC considered its standard
arbitration rules to be sufficient in any matter involving an internal trust dispute and
suggesting that parties use a special model arbitration clause that was to be placed in the
trust in question to ensure that all parties would be bound by the clause. (67) In 2018, the
ICC adopted several revisions to its model clause for trust arbitration, although the basic
approach remained the same. (68)
Both the ICC and AAA approach trust arbitration from an arbitration perspective, which has
its benefits. However, both regimes have been criticized for failing to appreciate fully the
special concerns associated with arbitration of trust disputes, a problem that perhaps
could have been avoided had trust lawyers been more closely involved in the process of
developing the various rules and clauses. (69) As a result, it is not surprising that trust
lawyers have taken matters into their own hands.
The most ambitious initiative from the trust law community has come from the American
College of Trust and Estate Counsel (ACTEC). In a 2006 report, ACTEC proposed a number of
initiatives, including model legislation concerning trust arbitration and model clauses for
use in trusts. (70) While these provisions have the support of the trust law community, they
reflect significant shortcomings from an arbitral perspective. (71)
Interestingly, the most promising procedural approach to trust arbitration comes from the
world of corporate law. Trust arbitration is conceptually similar to shareholder arbitration,

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 particularly with respect to the need to bind potentially large numbers of parties through
a document that does not meet the technical requirements of a contract. (72) Therefore, it
has been suggested that the German Arbitration Institute (DIS) Supplementary Rules for
Corporate Law Disputes could provide a very helpful basis for a new set of rules for internal
trust law arbitration. (73)
P 983
P 984

V Conclusion
Although it is impossible to provide a comprehensive analysis of the special challenges
associated with trust arbitration in a work of this nature, hopefully this discussion has
provided a working introduction to the subject. Trust arbitration is very much at the cusp of
a major breakthrough, and it is important that arbitral specialists understand the unique
nature of this particular procedure. Indeed, proponents of trust arbitration will need to
address a number of critical questions if the process is to reach its full potential. (74)
Hopefully, the points raised in this chapter will prove helpful to those future discussions.
P 984

References
*) S.I. Strong: Ph.D. (law), University of Cambridge; D.Phil., University of Oxford; J.D., Duke
University; M.P.W., University of Southern California; B.A., University of California, Davis.
The author, who is admitted to practice as an attorney in New York, Illinois, and
Missouri and as a solicitor in England and Wales and in Ireland, is the Manley O.
Hudson Professor of Law at the University of Missouri, Senior Fellow at the Center for
the Study of Dispute Resolution, and Adjunct Professor at Georgetown University Law
Center. Prof. Dr. Strong sits as an arbitrator on a variety of international commercial
and trust-related matters.
1) “External” trust arbitration involves disputes between trusts and third parties, such as
financial advisors or other entities bound to the trust by contract.
2) American College of Trust and Estate Counsel, Arbitration Task Force Report (Sept.
2006), available at <www.mnbar.org/sections/probate-
trust/ACTEC%20Arbitration%20Task%20Force%20Report-2006.pdf> (discussing the
“blinding prejudice” against trust arbitration in some segments of the trust law
community) pp. 4-7.
3) Additional reading is available. See generally S.I. STRONG, ed., Arbitration of Trust
Disputes: Issues in National and International Law (Oxford University Press 2016); Grant
JONES and Peter PEXTON, ADR and Trusts: An International Guide to Arbitration and
Mediation of Trust Disputes (Spiramus Press 2015); S.I. STRONG, “Mandatory Arbitration
of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper
Procedural Choices”, 28 Arbitration International (2012) p. 591 (hereinafter STRONG,
Arbitrability); S.I. STRONG, “Arbitration of Trust Law Disputes: Two Bodies of Law
Collide”, 45 Vanderbilt Journal of Transnational Law (2012) p. 1157 (hereinafter STRONG,
Two Bodies).
4) Strong, Two Bodies, supra fn. 3, at p. 1169.
5) See Convention on the Law Applicable to Trusts and on Their Recognition, Art. 2, 1 July
1985, 23 I.L.M. 1389 (1984).
6) S.I. STRONG, “Congress and Commercial Trusts: Dealing With Diversity Jurisdiction
Post-Americold”, 69 Florida Law Review (2017) p. 1021 (hereinafter STRONG, Commercial
Trusts).
7) See John H. LANGBEIN, “The Secret Life of the Trust: The Trust as an Instrument of
Commerce”, 107 Yale Law Journal (1997) p. 165 at pp. 168-176; STRONG, Arbitrability,
supra fn. 3, at pp. 599-604. A number of these types of trusts have been subject to
arbitration in various countries. See Hastings v. Wilson, 516 F.3d 1055, 1059 (8th Cir.
2008); Bortrager v. Central States, Southeast and Southwest Areas Pension Fund, 425 F.3d
1087, 1092 n. 1 (8th Cir. 2005); Contract Serv. Emp'ee Trust v. Davis, 55 F.3d 533, 535 (10th
Cir. 1995); Reeves v. Tarvizian, 351 F.2d 889, 890-892 (1st Cir. 1965); Stender v. Cardwell,
Civ. No. 07-cv-02503-REB-MJW, 2009 WL 3416904, at *2 (D. Colo. 20 Oct. 2009); See also
The Law Debenture Trust Corp. plc v. Elektrim Fin. B.V. [2005] EWHC 1412, paras. 38-47
(Ch.) (Engl.).
8) STRONG, Arbitrability, supra fn. 3, at pp. 599-604; STRONG, Commercial Trusts, supra fn.
6.
9) See David HAYTON, et al., Underhill and Hayton Law Relating to Trusts and Trustees
para. 11.83 (18th edn., LexisNexis 2010) (stating that “[a] trust is not a contract but a
unilateral transfer of assets to a person prepared to accept the office of trustee with
the benefits and burdens attached to such office”); STRONG, Two Bodies, supra fn. 3, at
p. 1174.
10) LANGBEIN, supra fn. 7, at pp. 166-167; See also STRONG, Commercial Trusts, supra fn. 6;
STRONG, Two Bodies, supra fn. 3, at p. 1172.
11) See Lawrence COHEN and Marcus STAFF, “The Arbitration of Trust Disputes”, 7 Journal of
International Trust and Corporate Planning (1999) p. 203 at p. 209.

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 12) See id.; STRONG, Arbitrability, supra fn. 3, at p. 591; STRONG, Two Bodies, supra fn. 3, at
p. 1157.
13) It is possible to bind trustees to arbitration through a side contract.
14) Tina WÜSTEMANN, “Arbitration of Trust Disputes” in Christoph MÜLLER, ed., New
Developments in International Commercial Arbitration (Schulthess Verlag 2007) p. 33 at
p. 45.
15) This approach relies in part on language found in the Arbitration Act 1996 stating that
an arbitration agreement binds any person claiming “under or through” a party to the
agreement. Arbitration Act 1996, Sect. 58(2); See also id. Sect. 82(2); Lawrence COHEN
and Joanna POOLE, “Trust Arbitration – Is It Desirable and Does it Work?”, 18 Trusts &
Trustees (2012) pp. p. 324 at p. 328; Michael HWANG, “Arbitration of Trust Disputes” in
LEGAL MEDIA GROUP, ed., Guide to the World's Leading Experts in Commercial Arbitration
(2009) p. 83 at p. 84.
16) Paul BUCKLE, “Trust Disputes and ADR”, 14 Trusts & Trustees (2008) p. 649 at pp. 655-
656.
17) See American Cancer Soc., St. Louis Division v. Hammerstein, 631 S.W. 2d 858, 864 (Mo.
App. 1981); Tennant v. Satterfield, 216 S.E.2d 229, 232 (W. Va. 1975).
18) E. Gary SPITKO, “Gone but Not Conforming: Protecting the Abhorrent Testator from
Majoritarian Cultural Norms Through Minority-Culture Arbitration”, 49 Case Western
Reserve Law Review (1999) p. 275 at p. 300.
19) See id.
20) See WÜSTEMANN, supra fn. 14, at pp. 45-46.
21) See Thomson-CSF, SA v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995) (discussing
“agency (actual and apparent), alter ego, implied consent, ‘group of companies,’
estoppel, third-party beneficiary, guarantor, subrogation, legal succession and
ratification of assumption”); STRONG, Two Bodies, supra fn. 3, at p. 1212.
22) Compare Zisman v. Lesner, No. 6:08-cv-1448-Orl-31DAB, 2008 WL 4459029, at *3-4 (M.D.
Fla. 29 Sept. 2008) (allowing used principles of equitable estoppel to overcome the
technical absence of a “writing” in a trust-related dispute), and Decker v. Bookstaver,
No. 4:09-CV-1361, 2010 WL 2132284, at *1-2 (E.D. Mo. 26 May 2010) (allowing arbitration
of internal trust dispute based on incorporation by reference of an arbitration
provision found in a side agreement), with McArthur v. McArthur, 168 Cal. Rptr. 3d 785
(Cal. Ct. App. 2014) (refusing to adopt a theory of direct benefit estoppel).
23) See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. II,
10 June 1958, 21 U.S.T. 2518, 330 U.N.T.S. 3 (hereinafter New York Convention); UNCITRAL,
Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article
VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, U.N. Doc. A/6/17 (7 July 2006) (hereinafter UNCITRAL Recommendation)
(recommending that Art. II(2) of the New York Convention “be applied recognizing that
the circumstances described therein are not exhaustive”); STRONG, Two Bodies, supra
fn. 3, at pp. 1214-1216.
24) New York Convention, supra fn. 23, Art. II(2); See also UNCITRAL Recommendation,
supra fn. 23.
25) See Note by the Secretariat, UNCITRAL, Working Group II (Arbitration), Settlement of
Commercial Disputes: Preparation of Uniform Provisions on Written Form for
Arbitration Agreements, U.N. Doc. A/CN.9/WG.II/WP.139 (14 Dec. 2005) paras. 16-21
(hereinafter UNCITRAL Note); STRONG, Two Bodies, supra fn. 3, at pp. 1216-1218.
26) See UNCITRAL Model Law on International Commercial Arbitration, Art. 7, UNCITRAL,
18th Sess., Annex 1, U.N. Doc. A/40/17 (21 June 1985), revised by Revised Articles of the
UNCITRAL Model Law on International Commercial Arbitration, UNCITRAL, 39th Sess.,
Annex, U.N. Doc. A/61/17 (7 July 2006) (hereinafter Model Arbitration Law).
27) See id.; UNCITRAL Note, supra fn. 25, paras. 11-12; Gerard MEIJER and Josefina GUZMAN,
“The International Recognition of an Arbitration Clause in the Articles of Association of
a Company” in C.J.M. KLAASSEN et al., eds., Onderneming en ADR, (Wolters Kluwer 2011)
pp. 117 at pp. 143-145.
28) See Model Arbitration Law, supra fn. 26, Art. 7, Option II.
29) See COHEN and STAFF, supra fn. 11, at p. 209.
30) An example might be a trust for the benefit of “my grandchildren”, not all of whom may
be born at the time the trust is created or at the time the dispute arises.
31) An example might be a trust created for the benefit “those of my grandchildren who
graduate from college”. Not only might the number of grandchildren change, but the
limiting condition (graduation from college) could be fulfilled at any time up until the
death of a potential beneficiary.
32) See STRONG, Commercial Trusts, supra fn. 6.
33) Blaine Covington JANIN, “Comment, The Validity of Arbitration Provisions in Trust
Instruments”, 55 California Law Review (1967) p. 521 at p. 529.
34) See STRONG, Arbitrability, supra fn. 3, at pp. 637-649; S.I. STRONG, “Empowering
Settlors: How Proper Language Can Increase the Enforceability of a Mandatory
Arbitration Provision in a Trust”, 47 Real Property, Trust and Estate Law Journal (2012) p.
273 at pp. 309-325 (hereinafter STRONG, Language).
35) See BUCKLE, supra fn. 16, at pp. 649-650.
36) See Gail E. MAUTNER and Heidi L.G. ORR, “A Brave New World: Nonjudicial Dispute
Resolution Procedures Under the Uniform Trust Code and Washington's and Idaho's
Trust and Estate Dispute Resolution Acts”, 35 American College of Trust and Estate
Counsel (ACTEC) Journal (2009) p. 159 at pp. 161, 163-164.

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 37) See William M. MCGOVERN, et al., Wills, Trusts and Estates: Including Taxation and
Future Interests, 4th edn. (West 2010) pp. 613-614.
38) See id. at pp. 660-663.
39) COHEN and STAFF, supra fn. 11, at pp. 222-223.
40) Id. at p. 223.
41) David HAYTON, “Future Trends in International Trust Planning”, 13 Journal of
International Trust and Corporate Planning, (2006) p. 55 at p. 72.
42) See STRONG, Two Bodies, supra fn. 3, at pp. 1188-1191 (discussing the Uniform Trust
Code and related legislation).
43) HAYTON, supra fn. 41, at p. 72.
44) See Ariz. Rev. Stat. Ann. Sect. 14-10205; Fla. Stat. Ann. Sect. 731.401(2); Mo. Rev. Stat.
Sect. 456.2-205.1; N.H. Rev. Stat. Sect. 564-B:1-111A ; S.D. Codified Laws Sect. 55-1-54.
45) See Idaho Code Ann. Sects. 15-8-101, 15-8-103; Wash. Rev. Code Sects. 11.96A.010,
11.96A.030; National Conference of Commissioners on Uniform State Laws (NCCUSL),
Uniform Trust Code (2000), Sect. 111, last revised or amended in 2005,
<www.law.upenn.edu/bll/archives/ulc/uta/2005final.htm>; STRONG, Two Bodies, supra
fn. 3, at pp. 1189-1190.
46) See Arbitration Amendment Bill 2017 (N.Z.) (proposing a new Sect. 10A in the
Arbitration Act 1996 (N.Z.) that would “deem” arbitration clauses in trusts to be
arbitration agreements under the 1996 Act and would give arbitrators the ability to
appoint representatives empowered to act for minor, unborn or unascertained
beneficiaries); David BROWNBILL, “Arbitration of Trust Disputes Under the Bahamas
Trustee Act 1998”, in Arbitration of Trust Disputes, supra fn. 3, p. 313 at p. 313; Paul
BUCKLE, “Trust Arbitration in Guernsey” in Arbitration of Trust Disputes, supra fn. 3, p.
289 at p. 289; S.I. STRONG, “The Future of Trust Arbitration: Quo Vadis?” in Arbitration of
Trust Disputes, supra fn. 3, p. 531 at p. 533 (hereinafter STRONG, Quo Vadis).
47) See Maltese Arbitration Act, ch. 387, Sect. 15A; Dante FIGUEROA, “Civil Law Trusts in
Latin America: Is the Lack of Trusts an Impediment for Expanding Business
Opportunities in Latin America?”, 24 Arizona Journal of International and Comparative
Law (2007) p. 701 at pp. 704-707; Edgardo MUÑOZ and Sofía LLAMAS, “Arbitration of
Mexican Trust Disputes: A Couple Made For Each Other?”, 23 University of Miami
International & Comparative Law Review (2015) p. 1 at pp. 81-83; Georg VON SEGESSER
and Katherine BELL, “Arbitration of Trust Disputes”, 35 ASA Bulletin (2017) p. 1 at p. 35;
Rafael IBARRA GARZA, “(Un)enforceability of Trust Arbitration Clauses in Civil and
Common Law”, 22 Trusts & Trustees (2016) p. 759.
48) See Tina WÜSTEMANN and Roman HUBER, “Trust Arbitration in Switzerland” in
Arbitration of Trust Disputes, supra fn. 3, at pp. 383, 386, 406-407.
49) See 421 F.Supp.2d 654, 674-83 (S.D.N.Y. 2005).
50) See Sarah GANZ, “Enforcement of Foreign Arbitral Awards Arising from an Internal Trust
Arbitration: Issues Under the New York Convention” in Arbitration of Trust Disputes,
supra fn. 3, at p. 494; Margaret L. MOSES, “International Enforcement of an Arbitration
Provision in a Trust: Questions Involving the New York Convention” in Arbitration of
Trust Disputes, supra fn. 3, at pp. 467, 493; STRONG, Two Bodies, supra fn. 3, at pp. 1213-
1219.
51) See Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013); See also Mary F. RADFORD, “Trust
Arbitration in the United States Courts” in Arbitration of Trust Disputes, supra fn. 3, p.
175 at p. 175-202; STRONG, Two Bodies, supra fn. 3, at pp. 1207, 1245 (discussing case law
in other states, including New York, Michigan and California).
52) See 403 S.W.3d 840 (Tex. 2013).
53) Id. at 848.
54) See 168 Cal. Rptr. 3d 785 (Cal. Ct. App. 2014).
55) See 54 Cal. Rptr. 3d 185 (Cal. Ct. App. 2007).
56) See Schoneberger v. Oelze, 96 P. 3d 1078 (Ariz. Ct. App. 2004), superseded by statute,
Ariz. Rev. Stat. Ann. Sect. 14-10205.
57) See Jones v. Fink, No. CA-SA 10-0262, 2011 WL 601598 (Ariz. Ct. App., 22 Feb. 2011)
(discussing Ariz. Rev. Stat. Ann. Sect. 14-10205).
58) See In re Jacobovitz' Will, 295 N.Y.S. 2d 527, 529 (Sur. Ct. Nassau Co. 1968), superseded by
implication by In re Blumenkrantz, 824 N.Y.S. 2d 884, 887 (Sur. Ct. Nassau County 2006).
59) See Blumenkrantz, 824, N.Y.S. 2d at 887.
60) See Meredith's Estate, 266 N.W. 351, 354, 356 (Mich. 1936), superseded by implication by
In re Nestorovski Estate, 769 N.W. 2d 720, 732 (Mich. Ct. App. 2009).
61) See Nestorovski Estate, 768, N.W. 2d at 732.
62) See Municipality of San Juan v. Corporacion para el Fomento Economico de la Ciudad
Capital, 597 F.Supp.2d 247, 248-249 (D. Puerto Rico 2008) (upholding terms of a pre-
dispute, mandatory arbitration provision in the trust deed calling for arbitration under
the ICDR Arbitration Rules); Burlington Resources Oil & Gas Co. LP v. San Juan Basin
Royalty Trust, 249 S.W.3d 34, 36, 38 (Tex. App. 2007) (involving a post-dispute
arbitration agreement concerning accountings and audits of the trust and invoking the
AAA Commercial Arbitration Rules); New South Federal Savings Bank v. Anding, 414
F.Supp.2d 636, 646-647 (S.D. Miss. 2005) (upholding mandatory arbitration agreement
in trust deed rider invoking the AAA Commercial Arbitration Rules); Newbridge
Acquisition I, L.L.C. v. Grupo Corvi, S.A. de D.V., No. 02 Civ. 9839(JSR), 2003 WL 42007, at *1
(S.D.N.Y. 6 Jan. 2003) (involving an arbitration provision in a trust agreement invoking
the ICC Arbitration Rules).

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 63) See COHEN and STAFF, supra fn. 11, at p. 209.
64) See Hastings v. Wilson, 516 F.3d 1055, 1059 (8th Cir. 2008); Bortrager v. Central States,
Southeast and Southwest Areas Pension Fund, 425 F.3d 1087,1092 n.1 (8th Cir. 2005);
Contract Serv. Emp'ee Trust v. Davis, 55 F.3d 533, 535 (10th Cir. 1995); Reeves v. Tarvizian,
351 F.2d 889, 890-92 (1st Cir. 1965).
65) See AAA/IFEBP Multiemployer Pension Plan Arbitration Rules for Withdrawal Liability,
effective 1 Sept. 1986, <www.foreclosuremediationfl.adr.org/sp.asp?id=22108>;
AAA/IFEBP Impartial Umpire Rules for Arbitration of Impasses Between Trustees of
Joint Employee Benefit Trust Funds, effective 1 Jan. 1988, available at
<www.foreclosuremediationfl.adr.org/sp.asp?id=22111>; Teamsters-Employers Local 945
Pension Fund v. Waste Management of New Jersey, Inc., No. 11-902 (FSH), 2011 WL
2173854, at *2 (D.N.J. 2 June 2011); I.L.G.W.U. Nat'l Retirement Fund v. Meredith Gray, Inc.,
94 Fed. Appx. 850, 852 (2d Cir. 2003).
66) See AAA Wills and Trusts Arbitration Rules, effective 1 June 2012, available at
<http://www.adr.org>.
67) See ICC Arbitration Clause for Trust Disputes, 19 ICC International Court of Arbitration
Bulletin (2008) p. 9.
68) See ICC Arbitration Clause for Trust Disputes, 29 ICC International Court of Arbitration
Bulletin (2018, no. 3) pp. 92 and 94; see also <https://iccwbo.org/publication/icc-
arbitration-clause-trust-disputes-explanatory-note/>.
69) See E Gary SPITKO, “A Critique of the American Arbitration Association's Efforts to
Facilitate Arbitration of Internal Trust Disputes” in Arbitration of Trust Disputes, supra
fn. 3, at pp. 59, 73; STRONG, Arbitrability, supra fn. 3, at pp. 629-637; STRONG, Language,
supra fn. 34, at pp. 309-325.
70) See Robert W. GOLDMAN in Arbitration of Trust Disputes, supra fn. 3, at pp. 74, 86-98
(reproducing the various ACTEC proposals).
71) See S.I. STRONG, “Institutional Approaches to Trust Arbitration: Comparing the AAA,
ACTEC, DIS, and ICC Mechanisms” in Arbitration of Trust Disputes, supra fn. 3, at pp. 99,
103-140 (hereinafter STRONG, AAA, ACTEC, DIS and ICC).
72) See STRONG, Two Bodies, supra fn. 3, at p. 1167 n. 39.
73) See DIS Supplementary Rules for Corporate Law Disputes, effective 15 Sept. 2009,
available at <www.dis-arb.de/download/DIS_SRCoLD_%202009_Download.pdf>;
STRONG, AAA, ACTEC, DIS and ICC, supra fn. 71, at pp. 103-140; STRONG, Arbitrability,
supra fn. 3, at pp. 637-649.
74) STRONG, Quo Vadis, supra fn. 46, at pp. 544-547.

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Document information
International Arbitration of Corporate Disputes: A
Publication Workable Balance Between Two Dimensions of Party
Evolution and Adaptation: Autonomy
The Future of International Massimo Benedettelli
Arbitration
(*)

Bibliographic reference I Corporate Disputes as a Novel Frontier of International Arbitration

Massimo Benedettelli, Corporate disputes may become a novel frontier of international arbitration once their
'International Arbitration of peculiarities are identified and properly dealt with (I). It is a fact that an array of distinct
Corporate Disputes: A kinds of disputes may arise from the formation, operations and winding-up of a company
Workable Balance Between (II). It is also a fact that in this specific sector of international business many legitimate
Two Dimensions of Party reasons may lead the parties to prefer private adjudication to State court litigation, there
Autonomy', in Jean being in principle no obstacles to the settlement via arbitration of corporate disputes (III).
Engelmayer Kalicki and Arbitrating corporate disputes, however, poses several problems regarding all facets of an
Mohamed Abdel Raouf (eds), arbitration, be it the jurisdiction of the arbitral tribunal, the organization of the
Evolution and Adaptation: proceedings, the determination of the applicable law, or the effects, review and
The Future of International enforcement of the award (IV). Solving these problems is not an easy task. Only a few
Arbitration, ICCA Congress arbitration laws address them with provisions ad hoc, and when the dispute at bar is
Series, Volume 20 (© Kluwer international different laws may potentially apply, so that the coordination of the relevant
Law International; legal systems for identifying the applicable law becomes a necessary and preliminary step
International Council for (V). This article submits that arbitral tribunals should approach corporate disputes by
Commercial considering that in this area of business two equally important dimensions of party
Arbitration/Kluwer Law autonomy cross and overlap, namely the parties' power to have recourse to arbitration for
International 2019) pp. 985 - settling their disputes and the parties' power to incorporate a company by choosing
1009 among the different models of corporate organization laid down by State law for the
P 985 carrying out of entrepreneurial activities. Thus, the issue becomes how party autonomy in
P 986 arbitration and party autonomy in corporate matters can be balanced so that the will of
the parties, as reflected in the arbitration agreement and in the corporate contract, is best
protected (VI). This article further submits that this balancing would be best achieved if
arbitral tribunals would handle the regulatory problems raised by the arbitration of
corporate disputes through a two-pronged method: firstly, by trying to combine to the
largest possible extent the law of the seat of the arbitration and the law under which the
company has been incorporated; secondly, by giving precedence to the latter when a
“true” conflict-of-laws materializes (VII). (1) Such a method would have the benefit of
enhancing party autonomy, predictability and legal certainty. It would also create the
conditions for a “virtuous” forum shopping whereby entrepreneurs would be able to select
the lex societatis and the lex arbitri that best fit their needs, without jeopardizing the
legitimate interests States have in the regulation of corporations (VIII).

II Do “Corporate Disputes” Really Exist?

Disputes may arise with respect to the various acts that are required for the formation of a
company. For instance, founders may fail to fulfil obligations as to the subscription and
payment of the company's capital, members of the company's administrative bodies may
be held liable for debts incurred on behalf of the company before the company is
incorporated, the very existence of the company may be challenged by any interested
party with the purpose of lifting the corporate veil when the process of incorporation has
not been properly complied with.
Disputes may also result from the operations of the company. Resolutions taken by the
company's administrative bodies (including resolutions of the shareholders' meeting
approving the company's financial statements) may be challenged as to their existence,
validity or effectiveness. Individuals holding positions in bodies charged with the
company's administration or control (board of directors, management board, supervisory
board, board of statutory auditors) may be sued for damages when they fail to comply with
fiduciary and other duties which under applicable law or contractual arrangements
regulate the performance of their activities. Disputes may also arise when said individuals
are removed from office and their employment or service contract is terminated, as well as
when a shareholder is excluded from the company or forced transfers of shares are carried
out.
Shareholders of the company may enter into agreements regulating the exercise of their
voting rights (within the shareholders' meeting or other corporate bodies) and patrimonial
rights (as to the collection of dividends or the distribution of assets in case of liquidation
of the company). They may also regulate the disposal of shares or other instruments issued
P 986 by the company (whether through sales, usufructs, collaterals or other types of acts) by
P 987 granting to each other pre-emption, “first offer/refusal”, “tag-along” or “drag-along”

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 P 987
rights, or by setting-up “lock-up” periods during which such disposals are prohibited.
Shareholders may also undertake commitments of other kinds with respect to transactions
(capital increases, capital decreases, mergers, de-mergers, transformations of the
corporate form, defences from hostile take-overs) which affect the structure of the
company's capital or its control and governance. The validity, interpretation and
performance of all such agreements and commitments may be controversial, leading to
disputes (e.g., in the context of a merger with respect to the determination of the share
exchange ratio or the protections granted to minority shareholders, bondholders and
creditors).
Additional types of disputes may arise in two situations which change the “status” of the
company. The company may decide to enter into a capital market by listing shares, bonds
or other financial instruments or by carrying out transactions (including take-over offers)
over instruments of other listed companies. By so doing the company becomes subject to
the rules which regulate the relevant market, the breach of which may lead to
controversies with the market authorities and other market participants. The “status” of
the company changes also when the company becomes insolvent. This triggers additional
obligations on the company's administrative and control bodies the respect of which can
be vindicated by any interested party. Moreover, to maximize the insolvency assets and
achieve the equal treatment of the creditors the bankruptcy administrator may terminate
or avoid contracts, payments or other acts of the company, which may also generate
disputes.
Finally, disputes may result from the winding-up of the company, for instance with respect
to decisions taken by the competent corporate body on the liquidation of the company's
assets and the distributions of the proceeds between the creditors and the shareholders.
All these disputes share the common feature of being directly or indirectly connected with
the formation, operations and winding-up of companies. In other important respects,
though, they differ from each other.
First, they differ as to their cause of action, which could be grounded, alternately or
cumulatively, in: the law under which the company is incorporated (the lex societatis); the
disputed contract (deed of incorporation, shareholders' agreement, investment
agreement, merger/de-merger deed) or act of private autonomy (take-over offer) and the
relevant applicable law (the lex contractus); the law governing issues of liability in tort (the
lex loci delicti); the law governing the company's insolvency (the lex fori concursus) or the
capital market where the company is active (the lex mercatus).
Second, the relief requested may also be of quite distinct kinds. Claimants in corporate
disputes may alternatively seek: condemnations to pay amounts of money as damages or
as overdue debts vis-à-vis the company; declarations as to the inexistence, invalidity or
ineffectiveness of the company, of corporate acts, of acts of disposal of shares or other
instruments issued by the company; the fixing of terms of corporate transactions (e.g., the
merger/de-merger share exchange ratio); the removal of directors or other company
officers. Moreover, the claimants may request, or the applicable law may provide, that the
relevant decisions have erga omnes effects, i.e. that they bind not only the parties in
dispute but also third parties belonging to a qualified class (shareholders, creditors,
corporate bodies).
P 987
P 988
Third, the dispute may arise between different subjects such as founders/shareholders, the
company, individuals holding positions in the company's administrative and control
bodies, the company's creditors, financial market authorities, administrators of the
company's bankruptcy.
Given all such differences one could question whether it makes any sense at all to speak of
“corporate disputes”: legal categories should not just be a tribute to scholarly ingenuity or
intellectual narcissism, they should also be of real use to the practice of the law. However,
the experience of some jurisdictions shows that the submission to arbitration of disputes
connected with the formation, operations and winding-up of companies poses some
peculiar problems and triggers the need of ad hoc regulations. Whether or not this happens
will depend on the case at bar and on the applicable law. When this happens, corporate
disputes must be singled out from the broader category of commercial disputes so that
parties, counsel and arbitrators are provided with adequate tools for properly handling
their settlement through arbitration.

III Reasons for Arbitrating Corporate Disputes

The reasons which normally lead the actors of international business to prefer arbitration
to court litigation may find further grounds when the dispute at bar relates to the
formation, operations or winding-up of a company.
The search for an independent adjudicator with the aim of avoiding the parochialism
which may sometimes affect State courts can be justified by the specific desire of ousting
the jurisdiction of the courts of the company's State of incorporation, i.e. those courts
which could often be the “natural” forum for corporate disputes. This may be the case, for
instance, when the dispute arises from a shareholders' agreement which some or all

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 shareholders have executed with the purpose of derogating from the company law rules
governing the company's affairs. In this case the parties may be concerned that the courts
of the State of incorporation may not fully enforce or properly interpret such agreement
and rather give a priori precedence to the forum's lex societatis. This concern may be
higher when the company is a special purpose vehicle which has been incorporated in a
foreign jurisdiction by investors who originate from another country, or from countries
sharing the same legal tradition, particularly when the law of incorporation of the vehicle
is one with which the investors have little familiarity, or which materially departs from the
company laws of the investors' State of origin, and the shareholders' agreement serves the
objective of bringing the “rules of the corporate game” back to what the investors are more
accustomed to. In this scenario the choice of arbitration may be also driven by the parties'
desire to have an adjudicator with the required level of expertise, an expertise that foreign
courts may not necessarily have when facing those sophisticated mechanisms of corporate
governance which are often reflected in shareholders' agreements.
The higher level of “finality” that awards may have if compared to court judgments, and the
higher “speed” that arbitration may offer vis-à-vis court proceedings, may be crucial when
selecting the method for settling corporate disputes. This is certainly the case when the
P 988 dispute relates to matters that need to be decided quickly if one wants to avoid
P 989 disruptions to the company's business, as is for instance the case when the dispute
deals with the existence, validity or effectiveness of resolutions of corporate bodies, or
with the existence, validity or effectiveness of transactions on shares carried out in breach
of limits set out in the company's articles of association, and consequently with the
entitlement of the relevant shareholders to cast their vote in the shareholders' meeting.
The confidentiality which may govern arbitral proceedings, as opposed to the publicity
which normally accompanies court proceedings, may also be a prominent feature. It is
quite often the case, in fact, that undertakings relating to corporate governance or
shareholding structures are documented through shareholders' agreements or investment
contracts, rather than being incorporated into the company's articles of association,
because for various, and not necessarily illegitimate, reasons the contracting parties
prefer such instruments not to become known by the public-at-large. More in general,
investors may consider it harmful for the company's business if the market becomes aware
that disputes have arisen between the company's shareholders, or between the company
and the members of its administrative and control bodies, or about a shareholders'
meeting resolution.
The worldwide recognition of arbitration agreements and circulation of foreign awards
which is guaranteed by the 1958 New York Convention may also justify a preference for
arbitration. Lacking equivalent multilateral instruments, the recognition and enforcement
of choice-of-court agreements and foreign court judgments is regulated by the private
international laws in force in the relevant States. Such laws not only differ in significant
respects, sometimes they also provide for the exclusive jurisdiction of the forum courts
with respect to corporate disputes involving domestic companies. When, as also happens,
the recognition and enforcement of a foreign judgment is made conditional upon the
requirement that the foreign court has acknowledged jurisdiction on a ground known by the
law of the forum, (2) this will mean that foreign judgments rendered by courts of a State
other than the State of incorporation of the relevant company, including judgments
rendered by courts selected by the parties pursuant to choice-of-court agreements, may
be denied recognition. More in general, the predictability and legal certainty which result
from a contractual choice of the dispute resolution method will be enhanced if the parties
enter into an arbitration agreement, rather than a choice-of-court agreement, given the
wide territorial reach of the New York Convention.
Whatever benefits the parties may draw from submitting their corporate disputes to
arbitration, this would be a non-issue if one were to consider such disputes a priori non-
arbitrable. (3) Two arguments could be raised in this respect, both of which, however, do
not withstand scrutiny.
P 989
P 990
Corporate disputes could be held not arbitrable on the ground that they often trigger the
application of mandatory rules set out by the applicable lex societatis, lex mercatus or lex
fori concursus. This position reflects the old-fashioned “public law taboo” (4) according to
which only magistrates of the State to which a given mandatory rule belongs can be
entrusted with the delicate task of interpreting/applying it and can properly implement
the underlying public policies. In most jurisdictions this taboo has been overcome, and
since long. If no one any more doubts that disputes involving issues of antitrust law can be
arbitrated, (5) there are no reasons why the same should not be true for disputes involving
issues of company law, financial markets law, insolvency law.
A different, and more articulated, argument could be brought forward by reference to
those provisions which in some countries, as mentioned, reserve to the forum's courts
jurisdiction over corporate disputes involving domestic companies. This is what happens,
for instance, in all Member States of the European Union pursuant to Art. 24, no. 2, of the
so-called Brussels I-bis Regulation, (6) establishing the exclusive jurisdiction of the courts
of the Member State in which the company has its seat over “proceedings which have as
their object the validity of the constitution, the nullity or the dissolution of companies … or

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 the validity of the decisions of their organs”. It could be maintained that if a State does not
trust foreign magistrates with respect to the interpretation and application of its company
law, it should trust private adjudicators such as arbitrators even less, particularly when, as
is often the case in international arbitration, they may not be trained in the law which is
going to be applied to the merits of the dispute. This line of reasoning is flawed, as the law
in force in some Member States of the European Union confirms. Indeed, the travaux
préparatoires of the 1968 Brussels Convention, where such provision was first
contemplated, and of subsequent treaties whereby new Member States have adhered to
such instrument, demonstrate that its true rationale was that of ensuring the “forum/jus”
identity, i.e. the coincidence between the adjudicating court and the applicable law, in
consideration of the special expertise which is required when issues of lex societatis are at
bar. (7) Evidently, a proper construction of company law issues was deemed important,
P 990 also for the spillover effects that wrong decisions may have on other disputes by creating
P 991
precedents, and litigation on such issues before foreign courts was considered in this
respect risky. It was feared that foreign judges either could have ended up applying a
different company law on the basis of their own conflict-of-law rules, or could have wrongly
applied/interpreted the foreign law of incorporation, being influenced in its construction
by the domestic company law with which they presumably were more familiar. These
considerations cannot be extended pari passu to arbitrators, though. (8) Arbitrators, in
particular when sitting in international tribunals, are not, and should not behave as if they
were, organs of any State, including the State where their arbitration is seated. As such,
they are not bound by the private international law of any given State. They are also
accustomed to applying laws of jurisdictions other than the one in which they have
qualified without being influenced by the peculiarities of their legal culture of origin. No
wonder, then, that in some EU Member States the provision of Art. 24, no. 2, of the Brussels
I-bis Regulation providing for the exclusive jurisdiction on certain corporate disputes lives
well together with other provisions that expressly admit their arbitrability. (9)
Moreover, general prohibitions to settle corporate disputes by arbitration would run
counter to the favor arbitratus which inspires the New York Convention, (10) justifying a
restrictive interpretation of those treaty provisions which allow the contracting States not
to enforce arbitration agreements or awards when their subject-matter is not arbitrable.
(11)

IV Problems Raised by the Arbitration of Corporate Disputes

Statutes and case-law of some jurisdictions evidence that the arbitration of corporate
disputes poses special problems, leading to deviations from the regime which governs, in
general, the arbitration of commercial disputes. Spain (12) and Italy (13) have ad hoc
P 991 arbitration laws. In Russia certain corporate disputes are arbitrable only by domestic
P 992 arbitration. (14) The Supreme Courts of Germany (15) and Austria (16) have set out
conditions that need to be satisfied when the arbitration deals with resolutions of a
company's shareholders' meeting or other matters which also require the relief to be
enforceable vis-à-vis the company. In Brazil companies can be admitted to listing in a
certain regulated market only if their by-laws provide for arbitration (17) and
commentators have long discussed whether arbitration clauses inserted in the by-laws by
P 992 a majority resolution can bind dissenting or new shareholders. (18) In other countries it
P 993 is debated whether corporate disputes are at all arbitrable and, if so, if special rules are
needed. (19)
Looking at the experience of these jurisdictions may help to detect which specific
problems the arbitration of corporate disputes raises, even when the applicable laws are
silent and gaps need to be filled.
First, corporate disputes may pose problems with respect to the jurisdiction of the arbitral
tribunal, in terms of subject-matter arbitrability, admissibility and extension of the
arbitration agreement to non-signatory parties.
As noted, it would be wrong to consider all disputes relating to the formation, operations
P 993 and winding-up of a company not arbitrable, in principle and a priori. This does not
P 994 exclude, however, that the applicable law may provide that some corporate disputes
may not be settled via arbitration (20) or, more likely, that they may be settled via
arbitration but only if certain conditions are complied with. (21)
The rationale for such special treatment may be twofold. Corporate disputes often impinge
on the interests of wider categories of stakeholders (shareholders, creditors, the company,
members of the corporate bodies, investors, the company's employees) other than the
parties to the dispute at bar. This is certainly the case when the claimant challenges the
existence, validity or effectiveness of a resolution of a corporate body by reference to the
applicable company law or the existence, validity or effectiveness of a transfer of shares
by reference to limitations set out in the company's by-laws, particularly if the relief
P 994 requested is a declaratory or constitutive decision, rather than damages. It may also be
P 995 the case when a claim is raised against the company's directors for breach of their
“fiduciary” or other duties by the company or by shareholders exercising a “derivative
action”.
Moreover, the settlement of a corporate dispute may require the interpretation of rules of
the applicable company law for solving issues which the relevant State of incorporation

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 may wish to be correctly adjudicated. This may justify a stricter control of the awards to
avoid that errors in law can “spread” around, due to the force of precedent that may attach
to any adjudicatory decision even when rendered by arbitral tribunals.
Such “conditional arbitrability” of corporate disputes may take different forms. It may
require that the seat of the arbitration be placed in the State of incorporation of the
relevant company under the assumption that the State of incorporation would then be in a
better position to ensure that the proceedings are conducted consistently with the
interests that it deems worthy of protection. (22) This solution, however, results in an
almost absolute prohibition to submit corporate disputes to international arbitration,
which may not satisfy the needs of international business, and may be also at odds with
the State's undertakings under the New York Convention, if a pro-arbitration construction
of Art. II is maintained. An alternative, and more arbitration-friendly, solution may be that
of allowing corporate disputes to be arbitrated in a State other than the State of
incorporation, but to require that the proceedings are carried out in compliance with
special rules, so that the peculiarities of corporate disputes are duly taken into account.
(23)
Corporate disputes may also justify ad hoc admissibility requirements. In particular, when
the dispute potentially affects subjects other than the parties, it may be provided that the
arbitral tribunal should not proceed unless evidence is given that the request for
arbitration has been made known to the public at large or has otherwise been
communicated to such other subjects (e.g., by serving them, or the company, with a copy of
the request (24) or by recording its existence with the competent companies' register (25)
or by giving public notice of the request through the means used for mass-claims
litigations). This to ensure that all such subjects may protect their interests with any
instrument (e.g., joinder as an additional party or as an intervenor, tierce-opposition) which
the applicable law grants them for such purpose.
P 995 Arbitration agreements for the settlement of corporate disputes may be deemed to bind
P 996 also non-signatory parties. This may be the case when the arbitration agreement is
contained in the by-laws of the company so that it may be considered one of the rules
which govern the company's organization with erga omnes effects, and its acceptance may
be deemed implied when someone acquires shares of the company or accepts to serve as
a company's officer. (26) It may also be the case when the arbitration agreement is
embodied in a compromissory clause and the contract (shareholders' agreement,
investment agreement) has been executed also by the company with the intention of
becoming a party to it. (27)
Second, special procedural rules may be required for the arbitration of corporate disputes.
This may be the case with regard to the modalities for the constitution of the arbitral
tribunal. (28) Even when the dispute is only between two parties, or multiple parties who
represent two groups of opposed interests, the fact that the award may produce effects on
subjects other than those which are eventually litigating may justify restrictions on the
parties' freedom to form the arbitral tribunal through the “classic” mechanism whereby
each party appoints one arbitrator and may rather require that all members of the arbitral
tribunal be selected by an independent institution.
The need to protect subjects other than the claimant(s) and the respondent(s) whose
interests may be affected by the award may also justify their joinder in the pending
P 996 arbitral proceedings as additional parties or as intervenors (29) and rules aimed to ensure
P 997 that their right to take part in the proceedings is effective, particularly when they are
numerous and cannot individually afford the costs of a litigation. (30) The likelihood that
the same or connected issues are the subject of concurrent arbitral proceedings (as may
happen when a corporate resolution is challenged) may require rules on consolidation. (31)
Similar reasons may lead to the enactment of rules mandating that, by departing from the
confidentiality that often accompanies arbitration, awards rendered on corporate
disputes be published (32) or made otherwise known to interested third parties through
the same means that can be used for informing them about the existence of a request for
arbitration, so that such third parties can have recourse to any instrument which the
applicable law grants them for challenging the validity of the award or for resisting its
enforcement. Such rules may also be justified by the interest that the State of
incorporation may have in ensuring transparency for decisions on company law issues so
that a consistent body of precedents can be created and made known to market operators.
(33)
Moreover, the subject-matter of the dispute may justify that the arbitral tribunal be
empowered to grant interim measures of a special kind, e.g., the suspension of resolutions
of the shareholders' meeting, (34) the appointment of ad hoc administrators, the issuance
of injunctions addressed to shareholders or directors.
Third, as to the rules applicable to the merits the arbitral tribunal may be required to
P 997 adjudicate any company law issue arising in the arbitration, including when it arises as an
P 998 incidental question only, on the basis of the lex societatis of the State of incorporation,
or, to say it otherwise, the arbitral tribunal may be prohibited from adjudicating such
issues ex aequo et bono, or by reference to laws of other States. (35)
Fourth, special rules may apply to the award. Such rules may relate to its effects, since
there may be circumstances in which the award binds not only the claimant(s) and the

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 respondent(s), or other parties to the arbitration agreement who have elected not to
participate in the arbitration, but also third parties (other shareholders, members of the
company's administrative bodies), particularly if under applicable law they were informed
of the request for arbitration and entitled to join the proceedings. (36)
A special regime may be contemplated also with regard to the means for challenging the
award. The importance that the State of incorporation may give to a proper interpretation
and application of its company law may justify that the parties are granted the non-
waivable right to request the setting-aside of the award, (37) also for errors in law. (38)
Furthermore, the impact that the award may have on subjects other than those which were
parties to the dispute may justify granting them the power to react to the award by making
use of special instruments (e.g., tierce opposition) which some legal systems devise for the
purpose of protecting third parties from the indirect/”reflex” effects that an award may
have on them. (39)
P 998
P 999

V Coordinating the Different Laws Potentially Applicable to the

Arbitration of Corporate Disputes
In the context of international business transactions, corporate disputes may trigger the
application of different laws, with the consequent need of coordinating the relevant legal
systems.
This is certainly true concerning the law applicable to the merits. The settlement of these
disputes may likely give rise to issues of company law, to be decided in principal or
incidentally, with the consequence that the arbitral tribunal will have to deal with the
preliminary question of identifying the lex societatis which governs the relevant company.
As is well known, States determine the scope of application of company law on the basis of
the alternative theories of the “registered seat” and of the “real seat”, with the risk that if a
company has been formed in one jurisdiction but is de facto administered from another
jurisdiction two different laws could claim to be the applicable law of incorporation. (40)
Even when there is no doubt about the identity of the State of incorporation, company law
rules of other States with which the company has important connections (a branch, a
permanent establishment or other relevant links) could apply. Rules affecting the
operations of the company may be laid down also by the State whose laws govern a
financial market in which the company is active, and by the State where proceedings for
the insolvency of the company have been opened. (41) Corporate disputes may also
originate from contracts (shareholders' agreements, investment agreements) or other acts
of party autonomy (take-over offers), the governing law of which may belong to a State
different than the company's State of incorporation. Finally, corporate disputes may also
result from tortious claims, leading to the application of a still different law based on the
customary connecting factor of the place where the harmful event has occurred.
Different laws may also apply with specific regard to the regulation of the arbitration of
corporate disputes. The State of incorporation may treat the settlement by arbitration of
disputes relating to the formation, operations and winding-up of a company as a matter
which impacts on the functioning of the company and therefore needs to be regulated
through its company law. In the practice of international arbitration it may easily happen,
though, that the State of incorporation of the company to which the corporate dispute at
bar refers does not coincide with other States involved in the arbitration, namely the State
where the parties want the arbitration to be seated, the State whose law governs the
arbitration agreement, the State whose law the parties have chosen to regulate the
procedural aspects of the arbitration, the State whose courts act as juge d'appui (in
connection with the constitution of the arbitral tribunal, the instruction of the case, the
granting of interim measures), the State where recognition and enforcement of the award is
sought. The laws of all such States may provide rules addressing one or more of the
P 999 problems which, as pointed out above, corporate disputes typically pose. The relevant
P 1000 regulations may differ, or even be contradictory with each other, as would happen, for
instance: if the lex societatis would provide for the non-arbitrability of a dispute that under
the lex arbitri can be settled via arbitration or if the lex societatis would contemplate
grounds for vacating the award that the lex arbitri ignores; or if the lex societatis, in contrast
to the lex arbitri or to the lex contractus governing the arbitration agreement, would allow
the “extension” of the arbitration agreement to the company or to other non-signatory
stakeholders, and would require that such subjects are allowed to participate in the
arbitral proceedings by procedural means which the lex arbitri does not contemplate; or if
the law of the State where the award is enforced would not allow its recognition vis-à-vis
third-party subjects that have not taken part in the arbitral proceedings, notwithstanding
that the lex societatis or the lex arbitri admits that the award can produce such effects.
Thus, more than other kinds of commercial disputes, corporate disputes can generate
conflict-of-laws situations, triggering the need to coordinate the relevant legal systems.
Such coordination will be carried out in each State in accordance with its own private
international rules, subject to limits stemming from international treaties. An important
role in this respect will obviously be played by the New York Convention, with respect to
matters for which it provides harmonized rules. The New York Convention can be indirectly
relevant also for matters which it leaves unregulated (e.g., arbitrability) since also in this

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 case the contracting States will have to exercise their legislative discretion having regard
to the favor arbitratus which inspires the Convention, and their arbitration laws will have to
be construed accordingly.
By contrast to State courts, arbitral tribunals, which have “no forum”, will not be
necessarily bound by a sole source of private international law and will rather resort to
one of the different methods that the practice of international arbitration has developed
to address conflict-of-laws issues. Whatever method they choose, arbitral tribunals will
normally be guided by certain paramount values. They shall respect the will of the parties,
since it is the parties' agreement that grounds their jurisdiction. They shall ensure
predictability and legal certainty through the application of laws that the parties could
have reasonably expected to become relevant in the settlement of their corporate
disputes. They shall make any effort to secure the enforceability of their awards both in the
State of the seat of the arbitration as well as in those other States where the parties have
an actual interest in having them enforced. When determining the applicable law, arbitral
tribunals may also wish to avoid lending themselves to fraudulent schemes that the
parties may have set up, should they realize that the arbitration is instrumental to
escaping from the reach of State overriding mandatory rules.
It is this author's opinion that all these values could be better protected if arbitral
tribunals would handle conflict-of-laws issues which arise in the arbitration of corporate
disputes by a voie directe reference both to the law of the State of incorporation of the
relevant company and to the law of the State of the relevant arbitral seat. This cumulative
application of two laws should take place by trying to combine their regulations to the
largest extent possible, and, when this proves to be unworkable since the conflict of laws is
“true”, by giving precedence to the law of the State of incorporation.
The main reason which justifies this solution is that in this area two equally important
P 1000 dimensions of party autonomy overlap and may contradict each other: arbitration
P 1001 autonomy, i.e. the power to derogate to the jurisdiction of State courts by referring the
dispute to private adjudicators, and corporate autonomy, i.e. the power to carry out
entrepreneurial activities by making use of an organizational model devised by the
company law of a given State. Were arbitral tribunals to solve the problems raised by the
arbitration of corporate disputes by reference to the lex arbitri only, this would imply
disrespect of another law, the lex societatis, that the same parties to the dispute have also
chosen for regulating their relationships (as founders, shareholders, members of corporate
bodies).
Indeed, arbitration autonomy and corporate autonomy stand, in principle, on an equal
footing. When the lex societatis dictates rules which directly or indirectly deal with the
settlement of corporate disputes, their consideration by the arbitral tribunal would be
consistent with the parties' will, and certainly would not take the parties by surprise. This
would be a necessity, if the arbitral tribunal has to render an enforceable award, when the
type of relief sought (42) shows that the jurisdiction of the State of incorporation is the only
one (or the main one) where the parties have an actual interest in having the award
recognized and enforced. Considering the lex societatis may be proper also when no such
interest exists, or there is even evidence that the parties wish to avoid any “contact”
between their dispute and the State of incorporation (this could happen, e.g., when the
claim arises out of a shareholders' agreement which the parties have stipulated with the
intention of derogating from provisions of the lex societatis and the enforcement of which
has been secured through collaterals over assets located outside the State of
incorporation). Even in this scenario, in fact, the arbitral tribunals will have to look to the
lex societatis in order to determine whether the interest pursued by the parties is
legitimate or, rather, evidences a fraude à la loi, recourse to arbitration being just
instrumental to the avoidance of overriding mandatory rules of the State of incorporation.
The suggested approach for managing conflict-of-laws issues in the context of the
arbitration of corporate disputes imposes on the arbitral tribunal the task of finding the
proper balance between potentially different regulations set out by the lex arbitri and by
the lex societatis. This becomes easier if one correctly understands what arbitration
autonomy and corporate autonomy really are. Such understanding may also justify the
precedence that should be given to the lex societatis over the lex arbitri when conflicts
between the two laws cannot be solved by means of interpretation.

VI Arbitration Autonomy Versus Corporate Autonomy: Reducing and

Solving Conflicts
Party autonomy is not just self-regulation of private interests. Party autonomy is self-
regulation of private interests through norms. Thus, it requires a legal system, “external” to
the parties, to which the parties can refer when the norms which they have agreed upon
need to be enforced. In the practice of international business the parties mostly rely on
State institutions to perform such function.
P 1001
P 1002
When protecting party autonomy through their institutions, however, States set out limits
and conditions to the parties' power to self-regulate their interests so as to ensure that the
exercise of such power does not jeopardize the public good. This obviously happens when

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 the parties decide to set up a company, since the incorporation of a company takes place
by reference to models of entrepreneurial organization devised by State law and with the
cooperation of State bodies. It also happens when the parties decide to oust the
jurisdiction of State courts by settling their disputes through private adjudication, since it
is to State courts that the parties mostly and ultimately look when they need to enforce
their arbitration agreements or awards that are pronounced on their basis.
Party autonomy is the blood which makes companies alive. If it is true that companies are
“creatures of the law”, (43) i.e. legal fictions through which States set out alternative
organizational models for the carrying out of entrepreneurial activities, it is also true that
their actual existence ultimately depends on the founders' and shareholders' will to make
use of such legal instrument, as such will is expressed by the execution or adherence to the
deed of incorporation, which is a contract. Other contracts surround the operations of the
company and may impact on the company's capital structure and corporate governance,
such as shareholders' agreements, investment agreements, contracts documenting
transactions carried out on financial markets. Contracts may also be stipulated to regulate
a company's winding-up.
In the field of company law, freedom of contract finds quite important limits and
conditions, though. In fact, company law lays down special rules which deviate from the
contract and tort law regime that would normally apply to the regulation of private
relationships, in particular in areas such as the liability for one's own debts and agency.
(44) Because of such special rules companies are a powerful instrument made available to
those who own/control or manage the company for dealing with various categories of more
or less “weak” counterparties (creditors, minority shareholders, employees, financial
market participants, other stakeholders affected by the company's activity). Therefore, it
does not come as a surprise that when granting the “privilege of incorporation” States lay
down mandatory rules which become an essential component of their company law and
provide mechanisms to ensure that such mandatory rules are duly complied with by their
addressees, be they the company's founders, the shareholders or the directors.
States put limits and conditions also on party autonomy in arbitration. Arbitration is not
just a mechanism for the settlement of disputes, arbitration is the settlement of disputes
through adjudication. Indeed, arbitral tribunals are not asked to render whatever type of
decision may settle the dispute, they are asked to decide on the basis of legal syllogisms,
i.e. by applying rules to facts, at the end of adversarial proceedings and through measures
that can have res judicata effects and be the ground for forced execution. No wonder, then,
that when cooperating with the enforcement of arbitration agreements and awards States
P 1002 may wish to check that the ousting of the jurisdiction of courts and the conferral of
P 1003 adjudicatory powers to private bodies does not run counter to any public interest.
States do so by declaring certain matters non-arbitrable, by requiring that the arbitral
proceedings comply with principles of fair trial and due process equal or similar to those
applicable to court proceedings, by controlling that the awards are not at odds with their
public policy or other rules the respect of which is intrinsic to the proper exercise of an
adjudicatory function.
By inserting arbitration agreements in a company's deed of incorporation or by-laws, in a
shareholders' agreement, in an investment agreement, or in any other contract related to
the formation, operations or winding-up of the company, the parties interconnect the laws
that govern the relevant company and the relevant arbitration. As mentioned, in the
context of international business transactions such laws may belong to different legal
systems and may provide for different or even contradictory rules on issues such as
arbitrability, extension of the arbitration agreement to non-signatories, the conduct of the
arbitral proceedings, effects of the award, means to challenge the award or to resist its
enforcement. By contrast to other situations where conflicts of laws materialize, this is a
peculiar one to the extent that the conflict is generated by two acts of party autonomy, the
arbitration agreement and the corporate contract, both of which have been freely
executed by the parties and represent the parties' will. This justifies an approach which, as
mentioned, tries to combine the lex arbitri and the lex societatis, before determining which
one trumps the other in case such “cumulative application” proves to be impossible.
Indeed, a proper and “smart” construction of the provisions of the lex arbitri and of the lex
societatis regulating the arbitration of corporate disputes may show that their clash is only
apparent. Different instruments can serve this purpose.
First, it has to be checked whether such provisions “want” to be applied in the
circumstances. Even when broadly formulated, those set out by the lex societatis may
apply only when the dispute is not limited to issues arising from the interpersonal
relationship of the claimant(s) and the respondent(s) but affects the organization of the
company and the interests of other subjects, whether directly or indirectly. For instance,
the lex societatis may wish to regulate disputes on whether a shareholders' resolution is
valid, or a shareholder has the right to attend and cast his/her vote in a shareholders'
meeting, given that their outcome will have effects erga omnes, while it may be less
concerned about the way damage claims for breaches of undertakings contained in a
shareholders' or investment agreement are settled. Similarly, provisions of the lex arbitri
may not intend to be applied to situations where the only link between the relevant
jurisdiction and the dispute comes from the fact that such jurisdiction has been chosen to
be the seat of the arbitration. For instance, provisions that would exclude the subject-

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 matter arbitrability of corporate disputes or the parties' waiver to remedies against the
award could be deemed not to apply, respectively, when the company is incorporated
under a foreign law and when there is no other connection between the dispute and the
State of the lex arbitri but for the seat.
Second, it must be checked whether the rules of the lex arbitri and of the lex societatis
potentially in conflict are dispositive or mandatory, mandatory rules of the lex societatis
having to prevail over dispositive rules of the lex arbitri, and vice versa. For such purpose
both the arbitration agreement and the corporate contract will have to be interpreted on
P 1003 the basis of the hermeneutic principle ut magis valeat, i.e. by preferring among alternative
P 1004 constructions the one that allows both acts of party autonomy to be valid and effective
under their governing law. In most contemporary jurisdictions both arbitration law and
company law are to a large extent disposable, i.e. they can be derogated by the parties, or
by their agents (arbitral institutions and arbitral tribunals, founders/shareholders and
company's directors, respectively), in order to make them consistent with the parties'
actual needs. Such derogations normally have to be expressly set out in the relevant
contracts. It may well be, though, that when inserting an arbitration clause in a deed of
incorporation or other corporate contract and when providing for an arbitral seat in a
State different than the State of incorporation the parties may have not fully appreciated
the complex conflict-of-laws problems to which such choices could lead. It is then
legitimate to presume, failing any indication to the contrary, that the parties would have
exercised all the powers granted to them by the applicable lex arbitri and lex societatis as
far as necessary to ensure their coexistence and the effectiveness of both the arbitration
agreement and the corporate contract. (45)
Third, the conflict between lex arbitri and lex societatis may be “false” when one set of rules
still allows the achievement of the ultimate objectives pursued by the other set of
(different) rules. Statutes are often drafted by taking a merely domestic perspective, i.e.
without considering the possibility that the matter that is the object of regulation could
end up being connected with other legal systems and therefore trigger a conflict-of-laws
issue. Then, it does not necessarily go against the intentions of the legislator to hold that
with respect to cross-border matters the strict application of rules of a given statute, even
when mandatory, may leave room for the application of a foreign law, as long as such law
performs the same function, though through different means. This technique for dealing
with situations of (apparent) conflict-of-laws may found further justification when one is
faced with different, but functionally equivalent, provisions of the lex arbitri and of the lex
societatis and the relevant States have to honour their obligations under the New York
Convention. The New York Convention, in fact, carries with it the duty to interpret the
contracting parties' domestic law as far as possible in light of the treaty, of the favor
arbitratus by which it is inspired, and of the contracting States' obligation to recognize, in
principle, foreign arbitrations.
A few examples may clarify how the suggested approach could work. (46)
The lex societatis may mandatorily require that all the members of the arbitral tribunal be
appointed by an independent institution, even when the dispute does not involve a
plurality of parties, while the lex arbitri (or the arbitration rules to which the parties may
have referred) may contemplate the “classic” default mechanism according to which each
party appoints its own arbitrator and the arbitrators so appointed designate the president
of the tribunal. If the arbitration clause set out in the corporate contract is silent on this
P 1004 issue, it will have to be interpreted in the sense that the (implied) will of the parties was
P 1005 both to dispose of such default rule in order to comply with the lex societatis and to
grant the power to appoint the members of the tribunal to the institution which under the
law of the seat of the arbitration (or under the selected arbitration rules) performs such
function. (47)
The lex societatis may attribute powers of juge d'appui to the court of the place where the
company has its registered or its administrative seat, in connection with various matters
such as the constitution of the arbitral tribunal, the monitoring of the independence and
impartiality of the arbitrators, the gathering of evidence, the issuance of interim measures.
Lacking any express indication to the contrary, provisions of this kind will have to be
construed as mere rules on territorial venue, laid down on the implicit assumption that the
arbitration is domestic, rather than as rules on international jurisdiction aimed to
preclude the exercise of the relevant powers by foreign courts or arbitral tribunals and
institutions.
The lex societatis may restrict the parties' freedom to choose the law or the rules
applicable to the merits or to request the arbitral tribunal to adjudicate ex aequo et bono,
by prescribing that corporate disputes must necessarily be decided by applying the law
under which the company has been incorporated, whether in general or only when the
dispute relates to specific issues of corporate law (e.g., validity of resolutions of corporate
bodies). By contrast, the lex arbitri (or the arbitration rules) may provide that the arbitral
tribunal must always comply with the mandate received from the parties and apply the
law that they have chosen or adjudicate on equitable grounds if this is what the parties
have agreed. It may also grant to the arbitral tribunal wide powers to select the law or the
rules that it deems more proper in the circumstances when there is no parties' agreement
on the point. When the arbitration clause in the corporate contract does not contain any
agreement on the applicable law or rules, it will have to be construed as if it incorporates

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 by reference the above-mentioned conflict-of-laws rule set out by the lex societatis. If it
rather contains the agreement to apply a foreign law (i.e., the law of a State other than the
State of incorporation) or mandates the arbitral tribunal to adjudicate ex aequo et bono, it
will have to be construed as if such agreement was meant to cover only those disputes, if
any, which under the lex societatis can be so decided (e.g., because the lex societatis
characterizes them as contractual).
The lex societatis may protect third parties whose interests may be directly or indirectly
affected by the dispute (other shareholders, the company, members of the corporate
bodies, creditors) first by requiring that they be informed of any pending arbitration and of
any award rendered at its outset. Whatever is the prescribed means of publicity (recording
the request for arbitration and the award on the companies' register, individual service of
process, notice by instruments used for mass claims) such publicity may run counter to
provisions of the lex arbitri (or of the arbitration rules) aimed to secure the confidentiality
of the arbitral proceedings. This conflict of regulations could be overcome, though, by
construing the arbitration agreement as if it contained an implied waiver of the applicable
provisions on confidentiality, which normally are disposable by the parties.
P 1005
P 1006
The lex societatis may secure the protection of third parties who are affected by the
arbitration of corporate disputes also by granting them the right to join the proceedings or
to seek the consolidation of concurrent proceedings, to apply for the setting aside of the
award or to resist its enforcement. By so doing, the lex societatis may lay down ad hoc
procedural rules or may refer to the regime which applies to commercial arbitration in
general. It could be the case that the lex arbitri allows the joinder in pending arbitral
proceedings or their consolidation, or that it contemplates instruments to challenge the
award and its effect, though through procedures which do not coincide with those set out
by the lex societatis. This difference in regulation should not be an obstacle to the
application of the lex arbitri for the reasons given above: in this case the conflict-of-laws is
“false”, since provisions of the lex societatis which have been laid down on the assumption
that the arbitration was domestic should leave room in cross-border situations for
provisions of the applicable foreign law which, though different, are equivalent as to
function and effects.
Moreover, some apparent clashes of regulation between lex societatis and lex arbitri may
be overcome by an interpretation in favor validitatis of the arbitration agreement. In
particular, if the lex arbitri permits the joinder only if there is the consent of all the parties
of the pending arbitration and/or of the arbitral tribunal, such consent could be deemed
given by the claimant(s) and respondent(s) when they have become parties to the
arbitration agreement, and by the arbitrators when they have accepted their mandate to
adjudicate the dispute, being aware that the company was governed by the relevant lex
societatis and that the arbitration was governed by the relevant lex arbitri.
Finally, the lex societatis may prescribe that awards that have settled the corporate
dispute by adjudicating on company law issues should always be challengeable on the
ground of errors in the application of the law and that such remedy should not be waivable
in advance by the parties. Should the lex arbitri, as it sometimes happens, provide for such
remedy only if the parties have expressly consented to it in the arbitration agreement,
such consent will have to be considered implicitly given pursuant to the already referred
criterion which requires that all efforts be made to make the arbitration agreement valid
also under the lex societatis. If, as will be the case for most jurisdictions, the vacation of an
award for errors in law is simply not contemplated, then a possible solution to the conflict
of laws could be found by checking if the lex arbitri allows the parties to waive their right to
have the award set aside by the courts of the State of the seat. If this condition is satisfied,
the lex arbitri could be construed in the sense that it allows not only such full waiver, but
also the different and partial waiver that would occur if the parties agree that the
jurisdiction on claims for setting the award aside should be conferred on the courts of a
State other than the State of the seat. Then, an interpretation in favor validitatis of the
arbitration clause set out in the corporate contract could be that the parties have
accepted to grant jurisdiction on set-aside claims for errors in law to the courts of the
State of incorporation of the relevant company.
Arbitral tribunals may resort to all these interpretative instruments in order to overcome
apparent clashes between the lex societatis and the lex arbitri and to implement to the
largest possible extent the parties' will, as reflected in the arbitration agreement and in
the corporate contract. There may be situations, though, where the conflict-of-laws is “true”
P 1006 since the two laws which are potentially applicable provide for opposite regulations of the
P 1007 same issue. This may be the case, in particular, when the lex societatis contains a
straightforward prohibition to settle by arbitration a certain class of corporate disputes
which under the lex arbitri would be arbitrable or when the lex societatis makes such
arbitrability conditional to procedural requirements which are incompatible with the lex
arbitri.
In such situations the conflict of laws will have to be solved, in principle, in favour of the
lex societatis, which will trump the lex arbitri. The reason is that the mandatory provisions
of the lex societatis which give rise to the conflict will likely aim to protect the interests of
those third parties which may be directly or indirectly affected by the corporate dispute,

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 or the general interest of the State of incorporation to ensure that its company law is
correctly interpreted and applied so as to ensure a level-playing field among all market
participants. Obviously, such interests do not belong to the parties in dispute and cannot
be disposed of through the mere execution of an arbitration agreement and by choosing to
have the arbitration seated in a jurisdiction whose arbitration law is at odds with the law
of incorporation. Indeed, arbitration agreements cannot bind subjects which are not privy
to them, even less when the dispute arises or is connected to a legal instrument, i.e. the
company, that the litigating parties themselves have freely accepted to use, thus
accepting also to be bound by any rule of the law of incorporation which may prove to be
incompatible with rules governing the arbitration under the lex arbitri.

VII International Arbitration of Corporate Disputes as a Tool for a

“Virtuous” Forum and Law Shopping
In the era of globalization entrepreneurs often conduct regulatory arbitrages by selecting
among different laws potentially applicable to their operations the one they believe best
fits their needs. They do so when they choose the law under which their company is going
to be incorporated by looking at the alternative types of company models which States
“offer” in the “market of corporate charters”. They may also choose the stock exchange
where their shares are going to be listed or their financial transactions are carried out by
considering the regulations which govern the relevant financial market. They may even try
to have insolvency proceedings opened in the State whose insolvency courts and laws are
preferred, particularly when their purpose is the restructuring rather than the liquidation
of the debtor. (48)
Regulatory arbitrages may also underlie the selection of the method for the settlement of
commercial disputes. When entering into choice-of-court agreements or choosing to file an
application in one of the alternative fora that may have jurisdiction on the relevant claim,
as well as when selecting the seat of the arbitration or the State in which to seek assistance
for enforcing the arbitration agreement and the award, entrepreneurs consider (educated
entrepreneurs should consider) also the “qualities” of the different judicial systems and
procedural laws, and the impact that such systems and laws may prospectively have on
the outcome of their dispute. (49)
P 1007
P 1008
It is debated whether regulatory arbitrages are a positive or negative phenomenon. In a
free market perspective there is no reason why the law applicable to business should not
be considered as a “commodity” that the entrepreneurs freely select, as they freely select
other factors of the productive process, it being then up to the market to “price” such
choice and ultimately assess whether or not the entrepreneurial calculus has been correct.
It has been argued, however, that such a freedom would inevitably result in a “race to the
bottom” as to the quality of the regulation of business, since entrepreneurs would
inevitably prefer rules which are less restrictive. As a result, “regulatory lift-offs” would be
allowed, jeopardizing the States' sovereign power to govern their economies and structure
their markets consistent with what is required by the public good. (50)
This position suffers from a double misconception. It is obvious that entrepreneurs pursue
their “egoistic” interests, but this does not mean that they will always and necessarily aim
to escape the reach of State regulations or try to be governed by the lowest regulatory
standards, also because consumers, lenders, authorities and other stakeholders may give
value to the “regulatory profile” of their corporate counterparties. On the other hand, even
when entrepreneurs do pursue “regulatory lift-offs”, sooner or later there will be the need
for a “jurisdictional touch-down” (e.g., when arbitration agreements or awards are not
spontaneously complied with), so that the State where the relevant transaction or dispute
finally “lands” will be able to check whether party autonomy has been properly exercised
and to secure the implementation of its mandatory rules. (51)
Indeed, shopping for the best forum and for the best laws can be a “virtuous” exercise as
long as the fundamental right of the parties to self-regulate their interests finds the correct
balance with the fundamental right of the States to pursue the wealth of their national
communities.
The submission of corporate disputes to international arbitration shows that this balancing
exercise is possible.
There is no reason why entrepreneurs should be precluded from getting the benefits that
normally attach to international arbitration when a dispute arises with respect to the
formation, operations and winding-up of a company. This, however, should not put at risk
the safeguards which the State of incorporation provides to the benefit of third parties
with whom the company, its owners/controlling entities and its managers interact, or for
the purpose of creating a level playing field in the market as to the interpretation and
application of its company law. The real problem, then, is how to address potential
conflicts that may arise between the lex arbitri and the lex societatis in the regulation of
the settlement by arbitration of corporate disputes.
Arbitral tribunals may contribute to reducing such conflicts to the minimum and solving
them on a rational and predictable basis if the method proposed in this article is followed.
It requires them to reconcile apparently conflicting provisions of the lex arbitri and of the

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 P 1008 lex societatis as far as possible through the interpretation devices suggested above, and to
P 1009 grant priority to the lex societatis over the lex arbitri when the conflict is “true”. Were
this approach to be adopted, the problems that the settlement of corporate disputes by
arbitration poses could find a solution. Arbitrating corporate disputes could then become
a new frontier of international arbitration.
P 1009

References
*) Massimo V. Benedettelli: Partner, ArbLit, Milan; Professor of International Law,
University “Aldo Moro”, Bari.
1) These propositions were first advanced in a presentation given during the XV Congress
of the Comitê Brasileiro de Arbitragem held in Florianopolis on 25-27 September 2016
(Trabalhos do XV Congreso Internacional de Arbitragem do Comitê Brasileiro de
Arbitragem, Consentimento na Arbitragem Internacional (CBAr 2017) p. 52 et seq.), and
further developed in M.V. BENEDETTELLI, “Sull'arbitrato societario ‘internazionale’”,
XXVII Rivista dell'arbitrato (2017) p. 299, and Id., “Patti parasociali ed arbitrato estero:
sul possibile equilibrio tra autonomia societaria e autonomia compromissoria”, LXII
Rivista delle società (2017) p. 631.
2) This is what happens under French law with the requirement of the compétence
indirecte of the foreign court: see B. AUDIT, “Le droit international privé en quête
d'universalitè: cours general (2001)” in Collected Courses of The Hague Academy of
International Law, Volume 305 (Brill-Nijhoff 2003) at p. 640 et seq.
3) On this issue see, also for further references, B. HANOTIAU, “L'arbitrabilité” in Collected
Courses of The Hague Academy of International Law, Volume 296 (Brill-Nijhoff 2003) at p.
164 et seq.; G. B. BORN, International Commercial Arbitration, 2nd edn. (Kluwer Law
International 2014) I, at p. 1029 et seq.
4) H. MUIR WATT, “Private International Law Beyond the Schism”, 2 Transnational Legal
Theory (2011) p. 347 at p. 362.
5) See, also for comparative law references, P.M. PATOCCHI, P. MARZOLINI, “La deroga
convenzionale della giurisdizione in favore dell'arbitrato” in M.V. BENEDETTELLI, C.
CONSOLO, L. RADICATI di BROZOLO, eds., Commentario breve al diritto dell'arbitrato
nazionale ed internazionale, 2nd edn. (Wolters Kluwer CEDAM 2017) p. 754 et seq.
6) Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters in the
European Union, in E.C.O.J., L 012, 2001, 1, as recasted through Regulation (EU)
1215/2012 of the European Parliament and of the Council of 12 December 2012, E.U.O.J.,
L 351, 2012, 1.
7) Many commentators agree that this is the ratio of Art. 24, no. 2, of the Brussels I-bis
Regulation (and of the equivalent provision contained in the 1968 Brussels
Convention): see, inter alia, G.A.L. DROZ, Compétence judiciaire et effets des jugements
dans le Marché Commun (Etude de la Convention de Bruxelles du 27 septembre 1968)
(Librairie Dalloz 1972) p. 103; J. KROPHOLLER, Europäisches Zivilprozeßrecht. Kommentar
zum EuGVÜ und Lugano Übereinkommen, 6th edn. (Verlag Recht und Wirtschaft 1998) p.
213 et seq.; M. VIRGÒS SORIANO, F. GARCIMARTÌN ALFÈREZ, Derecho procesal civil
internacional – Litigaciòn internacional (Civitas 2000) p. 188.
8) See P. SCHLOSSER, “Report on the Association of the Kingdom of Denmark, Ireland and
the United Kingdom of Great Britain and Northern Ireland to the Convention on
jurisdiction and the enforcement of judgments in civil and commercial matters and to
the Protocol on its interpretation by the Court of Justice”, in E.C.O.J., C 59, 1971, at Sect.
63(a).
9) This is the case of Italy and Spain: see fn. 12 and fn. 13 below.
10) See, inter alia, N. BLACKABY, C. PARTASIDES, A. REDFERN, M. HUNTER, Redfern and
Hunter on International Commercial Arbitration, 5th edn. (Oxford Univ. Press 2009)
Sects. 11.37, 11.61, 11.107.
11) New York Convention, Arts. II(2)(3) and V(2)(a).
12) Arts. 11-bis and 11-ter of Law 23 December 2003 no. 60, as amended by Law 20 May 2011
no. 11, (Spanish Law no. 2003/60), on which see CLUB ESPAÑOL DE ARBITRAJE, Informe
sobre el arbitraje societario en España (2013), available at
<www.clubarbitraje.com/sites/default/files/cea_Arbitraje_Societario_1.pdf> (last
accessed 24 May 2018); I. ARROYO, “El arbitraje en el derecho societario español”, XXVII
Rivista dell'arbitrato (2017) p. 283.
13) Arts. 34-36 of Legislative Decree 17 January 2003, no. 5 (“Italian Legislative Decree no.
2003/5”).

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 14) This results from the reform of Russian arbitration law enacted with Laws 29 December
2015, no. 382-FZ and no. 409-FZ, in particular from new Art. 225(1)(3) of the Arbitrazh
Procedure Code: see Freshfields Bruckhaus Deringer, “Russian M&A Deals in the
Context of the Arbitration Reform: Practical Guidance”, available at
<http://knowledge.freshfields.com/en/Global/r/3641/russian_arbitration_reform___fir
st_results_and_out...> (last accessed 24 May 2018). See also High Court, Maximov v OJSC
Novolipetsky Metallurgichesky Kombinat [2017] EWHC 1911 (Comm), refusing
enforcement in England of an award which had been annulled in Russia on the ground,
inter alia, of non-arbitrability of corporate disputes.
15) Bundesgerichtshof, 6 April 2009, no. II ZR 255/08, (reversing 29 March 1996, no. II ZR
124/95) and 6 April 2017, no. I ZB 23/16, holding that disputes concerning resolutions of
shareholders' meeting of German companies incorporated in the form of a limited
liability company or of a limited partnership, as well as disputes between partners of
a German partnership, can be submitted to arbitration only if the following conditions
are satisfied: (i) the consent of all shareholders to arbitrate results from the fact that
an arbitration agreement is set out in the company's by-laws or in a shareholders'
agreement (executed also by the company); (ii) all shareholders and other
stakeholders such as members of the corporate bodies (a) are informed about the
existence of the dispute and the development of the proceedings, (b) are entitled to
participate in the appointment of the members of the arbitral tribunal unless all
members are appointed by an independent institution, and (c) are entitled to join the
arbitral proceedings; (iii) the consolidation of arbitral proceedings having the same
subject-matter is possible. On this case-law see N. SCHMID-AHRENDTS, A. COVI,
“Arbitrability of Corporate Disputes: A German Perspective”, 4 International
Commercial Arbitration Review (2014) p. 116. In order to allow arbitral proceedings to
comply with these requirements the German Arbitration Institute (DIS) has enacted
special rules for corporate law disputes (“DIS Supplementary Rules”, in force from 15
September 2009; a slightly amended version of such rules is also attached as Annex 5
to the DIS Arbitration Rules in force from 1 March 2018). For a commentary of the DIS
Supplementary Rules see C. BORRIS, “Collective Arbitration: The European Experience
– Germany and the DIS Supplementary Rules for Corporate Law Disputes (DIS-SRCoLD)”
in B. HANOTIAU, E.A. SCHWARTZ, eds., Class and Group Actions in Arbitration (ICC
Institute of World Business Law 2016) p. 80 et seq.
16) Oberster Gerichtshof, 22 October 2010, no. 7 Ob 103/10p, holding that when the relief
requested is intended to produce effects over the company or the disputed
relationship is characterized by litisconsortium corporate disputes can be arbitrated
only upon the condition that (i) all shareholders have agreed to refer the matter to
arbitration, and (ii) all shareholders and the company are entitled to intervene in the
arbitral proceedings. See C. LIEBSCHER, “Arbitration and Company Law in Austria”, 12
European Company Law (2015) p. 128.
17) See Art. 39 of the Rules governing the Novo Mercado, a market of financial instruments
managed by Bovespa, the Sao Paulo stock exchange (available at
<www.bmfbovespa.com.br/en_us/listing/equities/listing-segments/novo-mercado/>,
last accessed 24 May 2018). The submission to arbitration of corporate disputes is
admitted, in principle, by Brazilian company law: see Arts. 109.3 and 136.A of Law 15
December 1976, no. 6404, as amended. See D. DE ANDRADE LEVY, “Aspectos Polêmicos
da Arbitragem no Mercado de Capitais”, VII Revista Brasileira de Arbitragem (2010, no.
27) p. 7. For a decision of a US federal district court declining jurisdiction and referring
the parties to arbitration over a class action filed by shareholders of a Brazilian
company listed both in the Bovespa and (through ADRs) in the New York Stock
Exchange see In re Petrobras Securities Litigation, 2015 WL 4557364 (S.D.N.Y. 2015).
18) For opposing views see M. CARVALHOSA, Comentàrios à la lei de sociedades anònimas,
4th edn. (Sariava 2008) p. 308 and D. De ANDRADE LEVY, “Aspectos Polêmicos da
Arbitragem”, fn. 17 above, at p. 26 et seq.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 19) On the debate in the United States as to whether “derivative actions” by shareholders
against company's directors for breach of their “fiduciary duties” can be submitted to
arbitration see for conflicting views P. HERZFELD, “Prudent Anticipation? The
Arbitration of Public Company Shareholders Disputes”, 24 Arbitration International
(2008) p. 312 and A. LIPTON, “Manufactured Consent: The Problem of Arbitration Clauses
in Corporate Charters and Bylaws”, 104 Georgetown Law Journal (2016) p. 583. On the
arbitrability of corporate disputes in Belgium, England, France, the Netherlands,
Sweden, Central/Eastern Europe jurisdictions, Singapore and India see, respectively:
D. VAN GERVEN, M. BERLINGIN, “Arbitration and Company Law in Belgium”, 12 European
Company Law (2015) p. 132 and O. CAPRASSE, Les sociétés et l'arbitrage (Brylant 2002); J.
CARTER, S. PAYTON, “Arbitration and Company Law in England and Wales”, 12 European
Company Law (2015) p. 138 and Court of Appeal, Fulham Football Club (1987) Ltd. v.
Richards, [2012] 1 All ER (Com) 1148 (holding that corporate disputes are arbitrable as
long as, also in light of the relief requested, they do not engage the rights of creditors
or impinge on any statutory safeguards imposed for the benefit of third parties); T.A.
BRABANT, M. DEPLATS, S. SALEM, “Arbitration and Company Law in France”, 12 European
Company Law (2015) p. 144, D. COHEN, Arbitrage et Société (L.G.D.J. 1993) and Cour
d'Appel de Paris, 20 January 2015, Coralsa Corporation Alimentaria S.A. c. Société
Ingelco n. 12/16039; H. DE MOL VAN OTTERLOO, “Arbitration and Company Law in the
Netherlands”, 12 European Company Law (2015) p. 160 and Hoge Raad der
Nederlanden, 10 November 2006, Groenselect, R05/063HR; K. LÖF, A. STEEN,
“Arbitration and Company Law in Sweden”, 12 European Company Law (2015) p. 166 and
Svea Court of Appeal, Folgerö v. Isaksson, Lummi and Strandbacke, Case Ő 2116-03; E.
VERESS, ed., Arbitrability of Company Law Disputes in Central and Eastern Europe (Forum
Iuris 2018); Singapore Court of Appeal, 26 October 2015, Tomolugen Holdings v. Silica
Investors, [2015] SGCA 57 and 9 January 2017, L Capital Jones Ltd. v. Maniach Pte Ltd,
[2017] SGCAS 03, holding that an oppression claim by a minority shareholder is
arbitrable; Bombay High Court, 20 August 2014, Rakesh Kumar Malhotra v. Rajinder
Kumar Malhotra, reported in
<http://arbitrationblog.kluwerarbitration.com/2016/06/16/a-false-start-uncertainty-
in-the-determinati...> (last accessed 24 May 2018) with a comment by A. KURLEKAR,
holding that claims by a shareholder against the companies' directors for oppression
and mismanagement are not arbitrable. See also Arts. 147-149 of the Uniform Act on
Commercial Companies and the Economic Interest Group, adopted on 30 January 2014
by the Organization for the Harmonization of Business Law in Africa, allowing the
submission to arbitration of “any dispute among members or among one or more
member(s) and the company”.
20) See DIS Supplementary Rules, Preamble, stating that according to the prevailing view
arbitration agreements cannot be validly inserted in the by-laws of a German stock
corporation (Aktiengesellschaft) whose shares are listed on a stock exchange, being
unclear whether the same prohibition applies also to “small” stock corporations having
a limited number of shareholders and not being listed in a capital market. See CLUB
ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sects. 20, 22 clarifying that the regulation
of corporate disputes set out in Spanish Law no. 2003/60 applies only to corporations
(including corporations whose shares are listed on a regulated market), i.e. companies
incorporated under Spanish law in the form of sociedades anònimas, limitadas and
comanditarias por acciones (contra I. ARROYO, “El arbitraje en el derecho societario
español”, fn. 12 above, at pp. 287, 297, arguing that also corporate disputes relating to
partnerships, such as a sociedad colectiva and a sociedad en comandita, can be
submitted to arbitration, and recalling that a pending proposal for the reform of
Spanish company law expressly excludes the arbitrability of corporate disputes
involving listed companies). See Art. 225(1)(2) of the Russian Arbitrazh Procedure Code,
referred to at fn. 14 above, providing that disputes concerning Russian “strategic”
companies (within the meaning of Federal Law no. 57-IZ of 29 April 2008) are not
arbitrable. See Arts. 34.1, 34.4 and 34.5 of Italian Legislative Decree no. 2003/5,
according to which the by-laws of companies incorporated under Italian law can
contain arbitration agreements devolving to arbitration disputes between
shareholders, or between shareholders and the company, or between members of the
company's administration and control bodies and the company or the company's
shareholders, provided that (i) the company's shares are not listed in a capital market
or are otherwise owned in a relevant measure by retail investors, (ii) the subject-
matter of the dispute is a disposable right relating to the corporate relationship (as is
not the case for disputes on resolutions of the shareholders' meeting which approve
the company's financial statements: see, inter alia, Corte di Cassazione, 20 August 2015,
no. 17283) and (iii) the dispute is not one where the intervention of the public
prosecutor is mandatorily required.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 21) See DIS Supplementary Rules, Sect. 2, fn. 1, stating that failure to comply with the
provisions on the joinder of shareholders to the proceedings affect the arbitrability of
the dispute as a matter of German law. See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn.
12 above, Sects. 39-45, clarifying that the provisions of Art. 11-bis.3 of Spanish Law no.
2003/60, which regulate the constitution of the arbitral tribunal and the organization
of the proceedings when the dispute relates to a shareholders' meeting resolution, are
mandatory, so that the parties would not be entitled to submit such disputes to
arbitration pursuant to different rules (unless the parties agree on such alternative
rules after the dispute has arisen). See M.V. BENEDETTELLI, “Sull'arbitrato societario
‘internazionale’”, fn. 1 above, at p. 320, holding that the mandatory rules set out by Arts.
34.2, 35 and 36 of Italian Legislative Decree no. 2003/5 (regulating the constitution of
the arbitral tribunal, the organization of the proceedings, the law applicable to the
merits, the remedies against the award) should be construed as conditions to the
arbitrability of corporate disputes involving Italian companies.
22) E.g., this is what happens under Russian law, with the result that certain corporate
disputes involving Russian companies cannot be settled through international
arbitration: see fn. 14 above.
23) E.g., this is what happens under Italian law: while the already mentioned provisions of
Arts. 34.2, 35 and 36 of Italian Legislative Decree no. 2003/5 regulating the arbitration
of corporate disputes involving Italian companies are mandatory, nowhere does
Italian law forbid such arbitrations to be seated abroad (see M.V. BENEDETTELLI,
“Sull'arbitrato societario ‘internazionale’”, fn. 1, at p. 316).
24) See DIS Supplementary Rules, Sects. 2.1. and 2.2, providing that when the dispute
requires a single decision binding all shareholders and the company, the claimant who
wishes to extend the effects of the award to such parties without naming them as
respondents must identify them in the statement of claim giving their address so that
they can be served by the arbitral institution, and Sect. 5.1, providing that if such
parties elect not to join the proceedings the arbitral tribunal must keep them
informed of any development by delivering them a copy of written pleadings,
procedural orders and decisions.
25) E.g., this is required by Art. 35.1 of Italian Legislative Decree no. 2003/5.
26) See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sects. 21-22, 69-70, confirming
that arbitration agreements set out in the by-laws of the company bind all the
shareholders, including those that have acquired shares after the arbitration
agreement was inserted in the by-laws and those who have voted against the relevant
resolution, and I. ARROYO, El arbitraje en el derecho societario español, fn. 12 above, at
p. 289, holding that such agreements bind also the company's directors. See Italian
Legislative Decree no. 2003/5, Art. 34.3 and Art. 35.5, providing, respectively, that the
arbitration clause set out in the company's by-laws binds the company and all the
shareholders and that the award binds also the company.
27) A company may execute a shareholders' agreement between two or more of its
shareholders for different reasons: for the sole purpose of acknowledging the existence
of the shareholders' agreement, so that any future cooperation by the company's
directors to breaches committed by one shareholder will not be deemed innocent,
entitling the non-defaulting shareholder to claim for damages; in order to make any
right that the shareholders have assumed to the company's benefit irrevocable; for
becoming a party to the shareholders' agreement (as long as this is possible under the
applicable company law) so that it directly assumes rights and obligations towards the
shareholders. These different scenarios trigger different effects as to whether an
arbitration agreement contained in the shareholders' agreement binds, or can be
“extended” to, the company: see M.V. BENEDETTELLI, Patti parasociali ed arbitrato
estero, fn. 1 above, at p. 631.
28) See Spanish Law no. 2003/60, Art. 11-bis.3, providing that when the dispute concerns
the challenge of a resolution of the shareholders' meeting all members of the arbitral
tribunal must be appointed by an arbitral institution, which must also be in charge of
the administration of the proceedings, and CLUB ESPAÑOL DE ARBITRAJE, Informe, fn.
12 above, Sect. 38, recommending that this provision be used for all types of corporate
disputes. See Italian Legislative Decree no. 2003/5, Art. 34.2, providing that an
arbitration clause set out in the by-laws of a company is null and void if it fails to
provide that all members of the arbitral tribunal must be appointed by a subject who
has no ties with the company. In an unpublished award (referred to in M.V.
BENEDETTELLI, “Sull'arbitrato societario ‘internazionale’”, fn. 1 above, at p. 315) an
arbitral tribunal seated in Switzerland has found such provision not to be inconsistent
with the ICC Rules.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 29) See DIS Supplementary Rules, Sects. 3.1 and 4, clarifying that other shareholders and
the company which have not been originally named as respondents may join the
proceedings, at their choice, on claimant's or on respondent's side, either as a party or
as a compulsory intervener, within the meaning of Sect. 69 of the German Code of Civil
Procedure when they are going to be bound by the award. See CLUB ESPAÑOL DE
ARBITRAJE, Informe, fn. 12 above, Sect. 86, stating that in the field of corporate
disputes it is “imprescindible regular la intervenciòn de un tercero” either as co-
claimant or as co-respondent. See Italian Legislative Decree no. 2003/5, Art. 35.2,
providing that third parties can join the proceedings as interveners either on a
voluntary basis, or, if they are shareholders, upon request of a party or by order of the
arbitral tribunal pursuant to, respectively, Arts. 105, 106 and 107 of the Italian Code of
Civil Procedure.
30) The failure to give to third parties the opportunity to join the arbitral proceedings
when under applicable law the award is able to affect their interests could be deemed
a ground for refusing recognition of the award under an extensive interpretation of Art.
V(1)(b) of the New York Convention.
31) See DIS Supplementary Rules, Sect. 9, requiring consolidation before the arbitral
tribunal first seized of multiple proceedings when the subject-matter of the dispute
requires a single decision. See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above,
Sect. 86, pointing out that when institutions administer the arbitration of corporate
disputes it is “imprescindible ampliar el campo de la acumulacion” of proceedings
dealing with the same dispute.
32) See Italian Legislative Decree no. 2003/5, Art. 35.5-bis, providing that when the subject-
matter of the dispute is the validity of resolutions of the shareholders' meeting the
tribunal's orders which suspend the effectiveness of the challenged resolution and
awards deciding on the merits must be filed by the company's directors with the
companies' register. See also Spanish Law no. 2003/60, Art. 11-ter, mandating that
awards which annul resolutions of the shareholders' meeting must be recorded in the
Registro Mercantil.
33) See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sects. 52-56.
34) See Italian Legislative Decree no. 2003/5, Art. 35.5. This provision is remarkable since it
embodies an exception to the general rule of Art. 818 of the Italian Code of Civil
Procedure whereby arbitral tribunals are not empowered to grant interim relief. Also
under Spanish law arbitral tribunals are entitled to order the suspension of resolutions
of shareholders' meeting, through an award if the decision has to be registered in the
Registro Mercantil: see CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sects. 95-96.
35) See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sects. 57-58, stating that while
Art. 11-bis of Spanish Law no. 2003/60 does not exclude the possibility for the arbitral
tribunal to decide ex aequo et bono the parties would be well advised to provide for
the application by the arbitral tribunal of (Spanish) law since companies are
“creaciones de la ley y sus controversias tienen una naturaleza eminentemente juridica”.
See Italian Legislative Decree no. 2003/5, Art. 36.1, providing that even if the
arbitration clause authorizes the tribunal to decide ex aequo et bono the award must
always decide on the basis of the applicable law when the subject-matter of the
dispute is the validity of a resolution of a shareholders' meeting or when in order to
reach its decision the tribunal needs to adjudicate (on an incidental basis) upon issues
which are not arbitrable.
36) See DIS Supplementary Rules, preamble, and Sect. 11, providing that the effects of the
award extend also to those shareholders which have been served with a copy of the
statement of claim pursuant to Sect. 2.2, irrespective of whether they have made use of
the right to join the proceedings. See CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12
above, Sect. 81, clarifying that the award binds all shareholders, irrespective of
whether they have taken part in the proceedings.
37) See Italian Legislative Decree no. 2003/5, Art. 35.3, providing that the remedies set out
by Art. 829 of the Italian Code of Civil Procedure for setting the award aside are not
waivable by the parties.
38) See Italian Legislative Decree no. 2003/5, Art. 36.1, providing that irrespective of any
waiver contained in the arbitration clause, the award must always be challengeable
for errors in law when the subject-matter of the dispute was the validity of a resolution
of a shareholders' meeting or when in order to reach its decision the tribunal has
adjudicated (on an incidental basis) upon issues which are not arbitrable. See also
CLUB ESPAÑOL DE ARBITRAJE, Informe, fn. 12 above, Sect. 76, and I. ARROYO, “El
arbitraje en el derecho societario español”, fn. 12 above, at p. 291, noting that corporate
disputes may trigger the application of mandatory rules or public policy principles of
the company's law of incorporation which the arbitral tribunal will be obliged to
enforce and the respect of which will be checked by Spanish courts in the context of
annulment proceedings.
39) See Italian Legislative Decree no. 2003/5, Art. 35.3, providing that the award is always
subject to the extraordinary means of challenge of opposizione di terzo and of
revocazione pursuant, respectively, to Art. 395, nn. 1), 2) 3) and 6) and Art. 404 of the
Italian Code of Civil Procedure.
40) See M.V. BENEDETTELLI, “Five Lay Commandments for the European Private
International Law of Companies”, XVII Yearbook of Private International Law
(2015/2016) p. 209, at p. 217 et seq.
41) Ibid., at p. 224 et seq.

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 42) E.g., a declaratory judgment on the invalidity of a shareholders' meeting resolution or
of a transfer of shares in breach of restrictions set out in the by-laws.
43) See E.C.J., 27 September 1988, 81/87, The Queen ex parte Daily Mail and General Trust
Plc, [1988] ECR I-5505, para. 19.
44) See M.V. BENEDETTELLI, “Five Lay Commandments”, fn. 40 above, at p. 216.
45) When the respondent does not challenge the arbitral tribunal's jurisdiction, i.e. when
both parties want their dispute to be settled through an arbitration seated in a State
other than the State of incorporation, such presumptions could be given stronger
legitimacy if the parties were to expressly confirm, in the terms of reference or in an
equivalent instrument, that this is indeed what they really wanted when the
arbitration agreement was executed. In such a case the arbitral proceedings would
start on more solid grounds, and the enforceability of the award also in the State of
incorporation of the relevant company could be better secured.
46) See, amplius, M.V. BENEDETTELLI, “Sull'arbitrato societario ‘internazionale’”, fn. 1 above,
at p. 321 et seq.
47) This solution has been followed in the unpublished Swiss ICC award referred to at fn. 28
above.
48) See M.V. BENEDETTELLI, “Five Lay Commandments”, fn. 40 above, at p. 246 et seq.
49) F. FERRARI, ed., Forum Shopping in the International Commercial Arbitration Context
(Sellier European Law Publishers 2013).
50) See W. BRATTON, J. MCCAHERY, S. PICCIOTTO, C. SCOTT, eds., International Regulatory
Competition and Coordination (Oxford Univ. Press 1996).
51) See R. WAI, “Transnational Liftoff and Juridical Touchdown: The Regulatory Function of
Private International Law in an Era of Globalization”, 40 Columbia J. Transn'l L. (2002) p.
209.

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 18
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 KluwerArbitration

Document information
New Arbitration Frontiers: Climate Change
Publication Annette Magnusson
Evolution and Adaptation: (*)
The Future of International
Arbitration “… this is the first time in history that we have to act on a threat collectively made
to ourselves, to act on it at scale, to act before the full consequences are felt, and
to act on behalf of a generation that has not yet been born – and to do it before
all the planetary boundaries have been breached.” (1)
Topics
Investment Arbitration At the Mauritius ICCA Congress in 2016, UN Secretary General Ban Ki-Moon concluded his
keynote address with the following words: “I ask all of you to use the great power of
arbitration to help the world overcome conflict and hatred and build a future of dignity for
all on a healthy planet.”
Bibliographic reference
Are we living up to the expectations reflected in the speech by the UN Secretary General?
Annette Magnusson, 'New Are we using the full potential of international arbitration to address the challenge of
Arbitration Frontiers: climate change? If not, how can we increase our efforts to use international arbitration in
Climate Change', in Jean the best possible way?
Engelmayer Kalicki and
Mohamed Abdel Raouf (eds), The purpose of this paper is to explore how international arbitration could contribute to a
Evolution and Adaptation: better world in the Anthropocene Age. (2) I hope it will inspire to act and to a part in the
The Future of International battle against climate change.
Arbitration, ICCA Congress P 1010
Series, Volume 20 (© Kluwer P 1011
Law International;
International Council for I The Starting Point
Commercial Today we see a triumvirate of digitalization, globalization and climate change affecting
Arbitration/Kluwer Law societies all over the planet at an ever-increasing pace. (3) We see the consequences of
International 2019) pp. 1010 - these forces at work on many levels and in many arenas, be it global, regional or national.
1035
International arbitration is already a fact of life in many arenas of global change. But could
more be done to align the potential of international arbitration specifically with climate
change targets? International arbitration adds force behind the words of international
agreements. And it enjoys a uniquely strong international support. These are valuable
features in the pursuit of efficient climate-change response tools.

1 How Climate Change Affects Society

To state that global warming is happening is no longer controversial. Nor is it controversial
to state that human activities are a dominant cause. (4)
A warmer planet involves potentially dramatic consequences. In 2015 the
Intergovernmental Panel on Climate Change (IPCC) reported that the warming of the
climate system is unequivocal, (5) and that the global surface temperature is projected to
rise over the twenty-first century under all emission scenarios assessed so far to date. (6)
The effects of climate change are not only about the weather. Socially destabilizing events
directly or indirectly associated with climate change risks are already causing tremendous
challenges. This is expected to increase. (7) In February 2018, the World Threat Assessment
report from the US Intelligence Community concluded that climate change is likely to give
rise to “economic and societal discontent – and possibly upheaval”. (8) Water scarcity risks
P 1011 heightening tensions between countries, turning control of water supplies into a weapon of
P 1012 war. Extreme weather events compound with other drivers to cause humanitarian
disasters, population migrations, water and food shortages and social disruption. (9)
Climate change impacts witnessed in recent years also include forced human migration
and displacement as a consequence of rising sea levels and other weather events. (10) A
recent report from the Intergovernmental Science-Policy Platform on Biodiversity and
Ecosystem services (IPBES) concludes that 50-700 million people risk being forced to
migrate in the next thirty years due to land degradation and climate change. (11) The 2014
International Bar Association (IBA) report Achieving Justice and Human Rights in an Era of
Climate Disruption concludes that “both at the state and international level, climate
change will create new pressures and challenges that will affect every region of the world”.
(12)
The need to cover the costs of climate change mitigation and adaptation is another
societal consequence. Costs associated with the impact of climate change are in the order
of trillions of US dollars, or several per cent of GDP. (13) Just in the period May 2013 – April
2014, it is estimated that governments spent US$ 92 billion as a consequence of floods,
droughts and other disasters. (14)

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 2 International Arbitration and Climate Change — An Odd Couple?
International efforts to address climate change are conducted in an arena governed by
political negotiations which at times resembles a battle of numbers for emissions targets
and temperature caps. The battle includes potentially sensitive discussions about who is
to blame, and who should pay. In this context, does international arbitration as an
operational legal tool have any role to play?
At first sight, the answer appears to be – no. For example, a quick check of the index in the
recently published treatise International Climate Change Law (15) reveals that arbitration is
not part of the picture. Indeed, it is not even mentioned once. The result is similar in other
P 1012 texts on climate change and the law. Compliance with agreements in the climate change
P 1013 regime tends to rely on a measure of assurance to states that if they act, others will
reciprocate. (16) It is this reliance that fosters implementation, not specific provisions on
enforcement, including arbitration.
From a global governance perspective, this is not surprising. International law contains few
examples of strong tools to secure both participation and compliance in efforts to resolve
collective action issues. (17) A description which fits well with the climate change crisis: it
is a long-term global issue requiring initiatives in concert. Efforts to tackle it have
consistently relied on consensus rather than confrontation. (18) Peer pressure or public
pressure are the practical mechanisms used to enforce agreed norms on climate change,
not formal dispute resolution. Different tools for transparency are also the most commonly
used mechanism for influencing state behaviour in the international environmental regime
as a whole, including efforts to mitigate climate change. (19) Although some other treaties
that target environmental issues do include language on state-to-state arbitration, these
provisions, with the exception of the United Nations Convention on the Law of the Sea
(UNCLOS), have rarely – if ever – been applied. (20)
In summary: details of enforcement have been left out of international instruments to
achieve sufficient state participation towards global climate change goals. In the period
leading up to the Paris Agreement in 2015, the then Executive Secretary of the UNFCC noted
that any system agreed should be “collaborative rather than punitive”. (21)
International arbitration, in contrast, ensures compliance with binding legal obligations,
be they in a public or private context.
Against this background, it is tempting to conclude that arbitration is unlikely to be used
to enforce international climate change law any time soon. Without an agreement to
arbitrate, no arbitration is possible. And a scenario where states buy into an arbitration
agreement under the climate change law regime is not very likely.
But the battle for climate change mitigation and adaptation is being played out in more
than one arena, and this paper will try to demonstrate how international arbitration could
still play an important role.
As we have seen, climate change is already having substantial effects on society. A large
share of global disruption and conflict could be argued to include elements of climate
change. In parallel, recognition that climate change is jeopardizing fundamental human
rights is gaining momentum. (22)
P 1013 Where climate change contributes to geopolitical conflicts, international arbitration can
P 1014 potentially make important contributions, as indeed it has done in the past. Arbitration
can untie challenging geopolitical knots through use of the rule of law and diplomacy, as
opposed to use of force. In the book Arbitrating for Peace, (23) published by the Stockholm
Chamber of Commerce (SCC) on the occasion of the SCC Centennial in 2017, authors
describe how arbitration has contributed to avoiding continued conflicts over the transfer
of natural gas, the seal trade, civil war, and construction of a diplomatic mission – just to
mention a few examples. There is no reason to believe that arbitration cannot continue to
contribute in this way to human co-existence in the future as well.

3 Climate Change and Human Rights

The interconnection between climate change and human rights has been confirmed by
international courts (24) and in international governmental bodies. (25) In 2014, the IBA
published the comprehensive report Achieving Justice and Human Rights in an Era of
Climate Disruption, (26) assessing the need to reform legal frameworks at national, regional
and international level to protect human rights threatened by climate change. One of the
report's key recommendations is the creation of a new international dispute resolution
structure for climate change issues, and it encourages arbitral institutions “to take
appropriate steps to develop rules and/or expertise specific to the resolution of
environmental disputes”. (27)
While recognizing the importance of the interconnection between climate change and
human rights, it will not be specifically addressed in this paper.

4 Along the New Frontier of Climate Change and Arbitration

Existing and well-established legal instruments, the commercial activities necessary to
reach climate change targets, and the viability of states' international obligations on

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 climate change are some of the building blocks along the new frontier of international
arbitration and climate change.
The public international law chapter in Sect. II describes international commitments for
climate change mitigation and adaptation as laid down in the United Nations Framework
Convention on Climate Change (UNFCCC) and the Paris Agreement, two of the main
P 1014 instruments of what has been referred to as the “relatively small body of international law”
P 1015 dealing with climate change. (28) As will be seen, they are not very strong in language of
enforcement, but a paper on climate change and dispute resolution would be incomplete
without them. In addition, this Section will discuss new contexts or models for bilateral
investment treaties (BITs).
Sect. III will address the commercial side. Foreign investments of relevance for climate
change mitigation and adaptation will be decisive, and here international arbitration can
contribute to vehicles for change.
And finally, there is the potential for cross-fertilization between established legal norms
and procedures, and climate change mitigation and adaptation objectives. This area
needs to be further explored to unleash the full force of the law to combat climate change,
and is discussed further in Sect. IV.

II Public International Law

In the widely-discussed The Economics of Climate Change, economist Nicholas Stern points
out that effective action on climate change “will require international frameworks that
allow countries to establish mutual responsibilities across the full range of dimensions of
action”. (29)
The Stern report was published in 2007. Since then, awareness of the consequences of
climate change has increased, the Paris Agreement negotiated and entered into force, and
renewable energy is on the rise – just to mention a few examples of positive signs in the
years since the report was first published.
But global ambitions to mitigate climate change still lack efficient enforcement
mechanisms. Could international arbitration fill this gap?

1 Dispute Resolution in International Climate Change Law Instruments

There is a sentiment that international environmental law tends to under-achieve because
enforcement is so difficult — there is simply no obvious court or jurisdiction to hear cases
in the event of an alleged breach of an international environmental treaty. (30) Although a
number of environmental treaties give states the option to accept the jurisdiction of the
International Court of Justice (ICJ) or even arbitration, states' willingness to do so is low.
The vague language of the obligations of international environmental law instruments also
adds to the difficulty of enforcement.
All of this would explain why, historically, courts and tribunals in general appear to have
P 1015 played a modest role in the development of international environmental law. (31) And
P 1016 where international dispute settlement procedures do exist, they are considered weak
due to lack of compulsory jurisdiction or enforcement, (32) and so in practice fall short in
reducing emissions. (33)
The same description also fits the UNFCCC and the Paris Agreement. The language in these
texts is weak or incomplete as far as enforcement goes. However, this does not mean that
these instruments do not matter. They do. The Paris Agreement in particular has been
hailed as a great victory for the international community, a victory that communicates an
important message about joint priorities.
But even if rightfully described as a breakthrough and a success, the Paris Agreement in
isolation will not resolve the climate change crisis. (34) Although a strong manifestation of
intent, it contains no strong tools to incentivize actual action on the ground.
The principal elements of the Paris Agreement are laid out below. But first, a brief
introduction is needed to the framework convention under the auspices of which the Paris
Agreement was negotiated.
a United Nations Framework Convention on Climate Change (UNFCCC)
The United Nations Framework Convention on Climate Change (UNFCCC) was adopted on 9
May 1992 after negotiations initiated in 1990. It remains at the centre of the UN climate
change regime, together with additional texts which have materialized as a result of the
yearly Conference of the Parties (COP). (35) COP decisions can play – and have played – a
significant role in carving out the details of the international climate regime. (36) The most
widely-known COP results outside the immediate sphere of climate change expertise are
probably the Kyoto Protocol (COP3) and the Paris Agreement (COP21).
The UNFCCC establishes a basis for future action. Although it contains few substantive
obligations, its broad scope is presented through the Preamble and specific articles on
Objective (Art. 2), and Principles (Art. 3). The Convention lays out commitments (Arts. 4-6),
including mitigation, adaptation, financial support and technology transfer, an
institutional framework (Arts. 7-11), and finally implementation and compliance

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 mechanisms (Arts. 7.2 and 12-14). Following the traditional model of multilateral
environmental agreements, implementation is primarily governed by transparency, in the
UNFCCC regime, through a system of reporting on a country's performance under the
Convention. However, the consequence of absence of reports – or “communication of
information related to implementation” as the text of Art. 12 reads — is not addressed.
P 1016 Art. 13 foresees a multilateral consultative process to resolve questions regarding
P 1017 implementation, and calls on the COP to carve out the details of the process at its first
session. Again, this issue has so far been left unaddressed by the COP, and no multilateral
process has yet been established. (37)
Art. 14 of the UNFCCC contains provisions on dispute resolution. These primarily seek to
have any “dispute between any two or more parties concerning the interpretation or
application of the Convention” decided “through negotiation or any other peaceful means
of their own choice”. (38) Parties can also declare in advance that they accept the
jurisdiction of the ICJ over disputes arising under the Convention. (39) So far, only 1 of the
197 parties (40) has declared that it accepts the jurisdiction of the ICJ. (41)
Art. 14 also enables parties to declare that they accept arbitration “in accordance with
procedures to be adopted by the Conference of the Parties” in “an annex on arbitration”.
(42) Similarly, “additional procedures relating to conciliation” are foreseen to be added to
the Convention by the COP in an annex. (43)
Procedures for arbitration or conciliation have not yet been addressed by a COP. The
potential of arbitration to promote and support the work of the parties to the Paris
Agreement was recently discussed at COP23 (2017). Together with the IBA, several arbitral
institutions seized the opportunity in Bonn to raise awareness of the potential of dispute
resolution in the field of climate change. (44) This initiative at the crossroads of
international arbitration and climate change is expected to continue at future COPs.
The current state of affairs thus means that implementation and enforcement mechanisms
under the UNFCCC are either absent or weak. (45) Joint decisions by states under the
regime are for the most part not legally binding under international law, and it is left to
each state to decide on implementation measures. (46) This may well lead to governments
choosing later rather than sooner when faced with the dilemma of short-term political
priorities prompting immediate decisions, decisions which may not necessarily be aligned
with long-term and non-binding international obligations.
P 1017 Voiced concern for the effectiveness of the climate change regime has long pointed
P 1018 towards the fact that there is “no truly effective mechanism to take states to task for
failure to comply” (47) and that the international community “is largely reliant on
individual states to commit to honour the object and the purpose of an agreement and
monitor compliance”. (48)
But reliance on the goodwill of governments to ensure that targets are achieved is seen as
inadequate. (49) One commentary summarizes the frustration in the following way:
“Despite the fact that the Framework Convention is a binding treaty, that goal seems to be
long gone, and it's a bit unclear whom you would sue if, say, your island nation is
disappearing under the rising seas.” (50)
b Paris Agreement
The Paris Agreement was concluded in Paris on 12 December 2015 as a result of COP21, and
formally as an agreement under the UNFCCC. (51) It has been welcomed and celebrated in
numerous global arenas and in climate change contexts.
The Agreement entered into force on 4 November 2016, i.e. thirty days after the date on
which at least fifty-five parties to the Agreement, accounting for at least an estimated 55
per cent of total global greenhouse gas emissions, deposited their instruments of
ratification, approval or accession with the Depository. (52) As of 11 June 2018, the Paris
Agreement has 197 Signatories and 178 Parties. (53)
The Paris Agreement seeks to progress climate change work through the use of nationally
determined contributions (NDCs). The idea of NDCs is that each party reports its intended
climate action for the purpose of reducing greenhouse gas (GHG) emissions. And in the work
leading up to the Paris negotiations, parties were invited at COP19 in 2013 to prepare and
submit intended nationally determined contributions (INDCs). (54)
The NDC provision in the mitigation section of the Paris Agreement (Art. 4) is characterized
as “the most significant legal obligation” in the Agreement. (55) It could be said to
represent a middle ground, i.e. it seeks to achieve concrete targets while simultaneously
P 1018 privileging sovereign autonomy. NDCs are to be prepared, communicated and maintained
P 1019 by signatory parties. (56) In addition, each party is to provide the information necessary
to track its progress in implementing and achieving those targets. (57)
Inclusion of the NDC rules has been described as “the outer edge of what was politically
achievable …” during the Paris negotiations. (58) The fact that NDCs represent procedural
obligations, in contrast to obligations of result (59) might have been one element of the
rules which in the end facilitated their inclusion in the Paris Agreement.
Complementing the language on mitigation, Art. 4 of the Paris Agreement also addresses

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 Adaptation (Art. 7), Loss & Damage (Art. 8) and Finance (Art. 9). Provisions for
implementation, or enforcement, are found in Arts. 13, 14 and 15.
As in other agreements in the multilateral environmental law (MEA) regime as a whole, the
Paris Agreement primarily relies on transparency for the purpose of oversight and
implementation. The Agreement does not include binding obligations of result relating to
NDCs, and the transparency framework is the “main mechanism to hold states accountable
for doing what they say they will do”. (60)
The Paris Agreement also includes provisions that foresee a mechanism to facilitate
implementation of and compliance with the agreement (Art. 15). But as yet there is no
language on the details: this is left for further elaboration by the COP. It remains to be seen
whether any language on dispute resolution can be agreed upon in upcoming negotiations.
In summarizing enforcement under the UNFCCC and the Paris Agreement, a picture thus
emerges of an international system by which action for climate change mitigation and
adaptation is safeguarded by a system relying on co-operation, or peer pressure, rather
than formal rules. This leads to vulnerability and hampers efficiency. (61)
The current system for addressing climate change at the international level could also be
described as a system where “stringency, participation, and compliance are interlinked”
and where weakness along any of these three dimensions will undermine the regime's
effectiveness, regardless of how strong the other two dimensions are. (62) So far, it appears
that states have been reluctant to hand over any authority to arbitral tribunals for the
purpose of safeguarding stringency and participation.
But could there be other areas of international law where arbitral tribunals might make a
difference?
P 1019
P 1020
2 Investment Arbitration and Climate Change
In the absence of strong tools for enforcement in international environmental law as a
whole, including climate change law, models and mechanisms created elsewhere in
international law could be worth examining. (63)
In this context, international investment law and investment arbitration are a potential
arena for climate change–related disputes. Perhaps this is how international arbitration
will indeed be used in the future to add force to the words of climate change obligations as
agreed in the UNFCCC or the Paris Agreement.
Since 1959, states have entered into over 3,000 bilateral treaties for the purpose of
protecting foreign investments. A majority of these treaties provide for arbitration between
investors and the state in a situation of potential breach of the investment protection
provisions of the treaty. By the end of 2017, a global total of 855 investor-state cases were
known to have been heard. (64)
The inclusion of international arbitration in bilateral investment agreements represents
what some would call a revolutionary development in international law. It confirms a
development by which not only states are the subject of international law. Judge Stephen
Schwebel, former President of the ICJ, summarizes the development in a speech from 2014
as follows: “That entitlement to international arbitration is one of the most progressive
developments in the procedure of international law in the last fifty years, indeed in the
whole history of international law.” (65)
Keeping the inherently evolutionary character of international law in mind, could
investment treaty arbitration be “a force for good” used to motivate a change of state
behaviour in compliance with international agreements, including climate change
policies? Some have argued affirmatively – yes. (66)
Where the treaty basis for the tribunal's jurisdiction is expressed in broad terms, for
example “all disputes relating to an investment”, this could support a broad approach to
the sources of obligations that form the basis of investors' claims, including environmental
or climate change obligations. (67) It has been held that “there is no obstacle preventing a
tribunal from interpreting the fair and equitable standard …. in a manner that is sensitive
to the legitimate regulatory objectives of the host state as defined by international
environmental law”. (68)
P 1020
P 1021
Another common standard in BITs is that of full protection and security. This standard
typically targets the state's obligation to protect the investor's property from actual
damage, including by the actions of others in situations where the state has an obligation
to exercise due diligence. (69) At a minimum, the standard is seen as protecting the
physical integrity of the investor's property. (70)
Could state behaviour harming the environment constitute a violation of the full protection
and security standard found in investment protection treaties? Perhaps, as illustrated by
an award from 2016 under the Canada-Barbados Bilateral Investment Treaty.
In Peter A. Allard v. The Government of Barbados, the Canadian investor argued that the
government was in breach of its treaty obligations due to failure to enforce both domestic

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 and international environmental laws, including international environmental treaties, and
therefore harmed his investment. (71) The claim was dismissed, but the arbitral tribunal
noted in the award rendered on 27 June 2016 that “consideration of a host State's
international obligations may well be relevant” in the application of the standard of full
protection of security. The reasoning of the arbitral tribunal has been described as a legal
standard which “may pave the way for future cases that environmentalists could help
investors against governments”, including a potential argument that a government's
actions and inactions on climate change violate the obligation of full protection and
security. (72)
A similar line of reasoning had been raised earlier, in late 2015, when haze originating from
forest fires in Indonesia caused severe air pollution problems in several neighbouring
countries in South-East Asia. (73) The haze gave rise to a debate on whether pollution
P 1021 caused by the forest fires constituted a violation of international law, and whether it could
P 1022 give rise to treaty claims. (74) The argument was raised that the standard of full
protection and security includes an obligation by the state to prevent damage caused by
“egregious pollution”. (75)
Could the standard of full protection and security be said to include a state obligation to
take all necessary steps to prevent damage to investments caused by GHG emissions? At
the time of writing, this remains an open question.
a Investments in renewable energy
Investments closely aligned with climate change mitigation are investments in renewable
energy, where growth has been very strong in recent years. Examples include wind and
solar parks, which are now being built at an unprecedented rate. (76)
In 2016, global renewable power generation rose by 9 per cent, and solar power alone
demonstrated a growth of more than 30 per cent. Renewable energy represents more than
half of new power capacity added worldwide in 2016. (77)
The US Energy Information Administration predicts that renewable energy will be the
fastest growing energy source between 2015 and 2040. (78) And the International Energy
Agency forecasts that the gas and renewables share of global energy supply could reach 54
per cent in 2040 – if governments adopt stronger climate policies. (79)
In short, investment in renewable energy has demonstrated strong growth — growth which
is expected to continue. This is essential for the Paris Agreement targets. (80) The Financial
Times editorial in September 2016 notes: “If the world is to reduce the risk of catastrophic
global warming to acceptable levels, there will have to be a huge reallocation of capital
away from fossil fuels and towards low-emissions energy sources.” (81)
But the sharp increase in investment in renewable energy has not been without its
challenges. In many jurisdictions, investments in renewable energy have been supported
P 1022 by feed-in tariffs, investment support, tax exemptions or other incentive schemes. (82) As
P 1023 economies have shifted, a number of these programmes have later been revised. (83)
And where policy has changed there are numerous examples of investors seeking
compensation from governments, arguing that changing legal regimes have constituted a
violation of their rights under various investment protection treaties, most notably the
Energy Charter Treaty (ECT). (84)
The public domain currently includes close to sixty claims under investment treaties
pending against states relating to investments in renewable energy. (85) Of all known
investor-state cases in the environmental or sustainability sphere, (86) most arise out of
investments in renewable energy. (87) A majority of these cases are based on investments
in solar energy. (88)
The first award in one of these so-called solar energy cases was rendered on 21 January
2016, as the result of ECT arbitration under the SCC Rules. The award has thereafter
become publicly available. (89)
The policy targeted in the arbitration included a special legal regime introduced by Spain
for the purpose of favouring and promoting energy production from renewable sources.
Following a change in this regime, the Dutch company Charanne B.V. and the Luxembourg
entity Construction Investments S.à.r.l. commenced arbitration against Spain, arguing that
the government's action violated the investment protection afforded to investors under
the ECT. One of the grounds advanced by the investors was that the changes constituted a
violation of the investors' legitimate expectations.
The arbitral tribunal stated that the existence of legitimate expectations on the part of the
investor is a relevant factor in analyzing whether a violation under the treaty has occurred,
and that the standard meant that an investor should be entitled to a legitimate
expectation that a state will not act “unreasonably, disproportionately or contrary to the
public interest”. (90) The Charanne Tribunal concluded that Spain had not acted in
violation of these obligations, and the claim was dismissed in its entirety. (91)
P 1023
P 1024
Following the award in 2016, additional awards have been rendered in what has come to
be described as renewable energy treaty arbitrations, with different factual backgrounds

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 and outcomes. (92) A common denominator, however, appears to be elaboration by the
different tribunals on the standard of legitimate expectations in terms of change of policy.
In Charanne, the arbitral tribunal noted that the standard of legitimate expectations
includes the notion that an investor should be able to expect that the state will act in the
“public interest”. (93) Could an overarching ambition to reduce CO2 emissions in turn be
deemed part of that public interest?
None of the awards in the solar energy arbitrations published to date contain any factual
conclusions or arguments regarding CO2 emissions. GHG emissions appears not to have
been argued, nor have any international obligations relating to climate change mitigation.
In Eiser v. Spain, (94) emissions targets form part of the factual background of the policy
subjected to the tribunal's review. A direct reference to the UNFCCC is made in the award
when the EU policy for reduction of GHG through development of renewable energy is said
to build “from multilateral agreements including the 1992 Framework Convention on
Climate Change”. (95)
In the Tribunal's Reasons in Novenergia v. Spain, the tribunal notes that the policy being
targeted in the case was “clearly enacted with the objective of ensuring that the Kingdom
of Spain achieved its emissions and RE targets”. (96) Apart from this, no general reference
either to GHG emissions or international obligations relating to climate change is found in
the award.
In summary, it appears that the potential legal territory where an arbitral tribunal could
find itself charged with the task of balancing international investment law – for example as
contained in the definition of public interest as an element of the notion of legitimate
expectations – and climate change law, including GHG-curbing ambitions or NDC
commitments under the Paris Agreement, remains unchartered. (97)
P 1024
P 1025
b Are BIT carve-outs the key?
One model commonly advocated and used to address environmental issues in modern
BITs is so-called carve-outs where states seek to reserve policy space for measures
motivated by environmental considerations. (98) In these BITs, the investment protection
afforded to investors under the treaty is excluded where measures attributed to the state
are motivated by environmental protection objectives (usually with the caveat that such
measures are not applied in a manner which would constitute arbitrary or unjustified
discrimination). (99) The intent is to preserve policy space for contracting states for such
measures.
The model by which environmental issues are addressed through carve-outs has
developed as a result of concern that the absence of such carve-outs in a BIT would in
practice prevent states from taking necessary action, also referred to as regulatory chill.
(100) The fear has been that states would refrain from taking measures to protect the
environment, including climate change mitigation and adaptation measures, where such
measures might potentially be seen as a breach of their international investment
protection obligations.
But the use of carve-outs as a tool to achieve global environmental goals has its
limitations.
First, a review of publicly available awards in investor-state arbitrations demonstrates
that very few cases in fact involve environmental issues. In a survey conducted by the SCC,
fewer than forty environment-related awards were identified in the public domain
between 1995 and August 2017. (101) This can be compared with the total number of 548
awards up to 31 December 2017, as reported by the United Nations Conference on Trade
and Development (UNCTAD). (102) Most of the known 548 awards have been based on BITs
dating back to the 1980s and 1990s, (103) that is, when carve-outs were not part of a
standard BIT. This would lead to the conclusion that even in the absence of carve-outs,
P 1025 environmental issues are rare in the available public docket of investor-state arbitration.
P 1026 The current regime of international investment law thus appears not to be an arena in
which international arbitration and environmental concerns typically cross paths.
Second, creating a regulatory space for governments in BITs specifically for action
addressing environmental protection, including climate change, achieves very little if this
space is de facto kept empty, that is, if states do not take concrete action for climate
change mitigation and adaptation.
Typically, the language of carve-outs in international investment agreements contains
nothing that incentivizes the state to take action. In the policy space effectively created by
carve-outs, traditional hurdles for climate change policy are therefore likely to play out.
The most common hurdle is probably the shift in political priorities. Policy objectives
considered necessary when signing a multilateral environmental agreement may not
necessarily enjoy the same status some years later, when other pressing issues enter the
political agenda. (104) For many governments, failure to meet climate change objectives
involves fewer immediate consequences than failure to address a current problem. An
economic crisis could easily shift priorities. This has been described as “the iron law of

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 climate policy”; that is, where climate policy is designed in a manner which puts it on a
confrontational course with policy focused on economic growth, climate policy will lose
every time. (105) And even when the costs of implementing a long-term agreement for
climate change are low and seen to offer clear advantages, the risk is always the short-
term negative impact on certain groups. (106) When this gives rise to conflict, it is a conflict
that policymakers can seldom afford to ignore. And yet another hurdle for climate change
policy is raised.
In summary, the potential new frontier of arbitration and climate change under the
umbrella of public international law is still in its infancy. And although arguably signs of
change are on the future horizon, including in international investment law, given the
dynamics of international climate change law, perhaps expectations should not be set too
high.
So, let us turn to the traditional role played by international commercial arbitration in
international trade and economic development. At the intersection between international
business and climate change resides another new frontier for arbitration and climate
change.
P 1026
P 1027

III International Commercial Arbitration

Climate change mitigation and adaptation require not only “unprecedented levels of
international cooperation” (107) but also enormous capital investment.
In a report from 2013, UNCTAD points out that foreign direct investment plays a key role in
building low-carbon economies. (108) Many other organizations have made similar
statements, (109) and in the work leading up to the Paris Agreement it was clear that for the
first time in UNFCCC history, the private sector was fully on board. (110)
Today climate change mitigation and adaptation are not only a matter for governments,
international organizations and international law. The private sector is equally important,
if not even more important. The role of the private sector in global environmental
governance, including climate change mitigation issues, has moved “from marginal to
central”. (111) Priorities established and initiatives taken by private actors, be they large
corporations or individuals, are essential. Already in the Stern report it was pointed out
that dangerous climate change cannot be avoided only through high-level international
agreements, but that it will take behavioural change by individuals and communities. (112)
Private companies are part of the equation.
This course of action is already under way. Large corporations are increasingly turning to
renewable energy to power their operations. Companies in general are investing in clean
technology and energy-efficiency measures. Not only does this make good business sense,
but it also demonstrates leadership in a broader corporate sustainability and climate
P 1027 commitment. (113) In an interconnected world where strong values are increasingly
P 1028 connected with profitability, (114) this matters. As one commentator says: “Being ‘green’
is no longer presented as a matter of responsibility, but as one of profitability and
competitiveness in the economy of the future.” (115)
The impact when global corporations establish global renewable energy commitments
across their entire operation can be quite substantial. (116) The mere size of corporations,
in combination with their ambitions, may even affect the renewable energy market as a
whole. When global corporations make the shift towards renewable power supply, it may
give renewable energy producers and policymakers certainty, and encourage business
models and policy strategies for an increase in renewable energy demand. (117)
Private capital and individuals thus play a decisive role, as does the market economy and
its instruments. International commercial arbitration is one of those instruments.
If predictions are right, we should see a large increase in the number of commercial
contracts relating to climate change mitigation and adaptation in the coming years. And
the momentum seems to be building. In September 2017, the Financial Times carried a
report of an “ethical investment boom”, seeking to capture the opportunity represented by
clean technologies, including renewable energy. (118) Funds that uphold environmental,
social and governance standards are also reported to outperform funds that do not. In
short, investors are finding that “if they are good to the planet and to people, they also end
up, on average, benefiting themselves”. (119)
The investment needed for climate change is diverse and global. Increasing demands for
energy due to higher living standards globally and a growing world population need to be
met. Renewable energy plants must replace carbon-heavy ones; energy-efficient
transportation will be needed to carry an increasingly mobile world population;
sustainable agriculture and reforestation must substitute unsustainable land use and
deforestation; and climate-resilient infrastructures must be built where global warming
and rising sea levels are already putting communities at risk. Investment is also needed to
support innovation of new technologies and to bring existing technologies to scale. (120)
Deploying new technologies and other steps necessary for societal transitions prompted by
P 1028 climate change will require considerable funds worldwide, and many stakeholders have
P 1029

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 P 1029
ventured figures. (121) In May 2017 the Organisation for Economic Cooperation and
Development (OECD) published a study which estimates that US$ 6.3 trillion of investment
in infrastructure will be required annually between 2016 and 2030. (122) This includes
investment in energy demand; telecoms; power and electricity transmission and
distribution; water and sanitation; primary energy supply chains; and transport. (123)
Against this background, legal frameworks – including the model offered by international
arbitration – will certainly play a decisive role. In this setting, arbitration must continue to
do what it has always done: enforce contracts.
Should arbitration procedure be adapted where the substantive issues relate to climate
change? This question is addressed next.

IV The New Frontiers

International arbitration could potentially make a difference for climate change through
procedural innovations, along with development of entirely new instruments for green
growth supported by international arbitration. This section explores some of these ideas.

1 Procedure
Procedure is one natural starting point when exploring international arbitration in a
climate change context. Could procedural mechanisms be put in place to ensure that
climate change elements are not marginalized in the course of resolving disputes through
arbitration? (124)
a Confidentiality
A potential hurdle for arbitration playing a role in climate change awareness could be its
inherent characteristic of confidentiality. Although investor-state arbitration represents a
new trend in this respect – through adoption of the United Nations Commission on
International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor-State
Arbitration (125) — parties to international commercial arbitration tend not to be
interested in having their dispute, or details of it, being made public. Perhaps there is
reason to revisit this principle where cases involve climate change–related matters.
As we have seen, transparency has traditionally been the main incentive to achieve
P 1029 compliance in international environmental law. In recent years, the general publicity
P 1030 offered by climate change litigation has also contributed to public involvement in the
threat of climate change. (126) When climate change becomes a story about a person, or a
community, rather than a scientific report focusing on GHG concentrations and large-scale
weather phenomena, awareness tends to become more tangible, more focused, and
potentially more effective. (127) Traditional international arbitration lacks this element.
Should we consider deviating from the confidentiality norm in cases involving issues with a
bearing on climate change mitigation and adaptation? There is a clear parallel to the
debate which preceded the UNCITRAL Rules on Transparency, and later the United Nations
Convention on Transparency in Treaty-based Investor-State Arbitration (the Mauritius
Convention), where arguments of public interest spearheaded development. A similar
argument could be made in a climate change context.
Of course, not all cases with a climate change element will include public interest. But
absent public interest, there could still be valuable – and even inspiring – details to be
shared on how the private sector is in fact building a low-carbon society.
A tool for transparency already in place where a case raises matters of public interest is
the instrument of amicus curiae. (128)
Provisions on submissions from third parties or non-disputing parties to the treaty have
been included in the UNCITRAL Transparency Rules, but are also found in other arbitration
rules. (129) Parties to the North American Free Trade Agreement (NAFTA) have for example
issued a specific Statement on non-disputing party participation, where public interest is
one of the elements listed for consideration by the tribunal when deciding to grant leave
to file an amicus brief.
b Applicable law
Applicable law and its sources provide another potential area for innovation. Could
interpretation of provisions on applicable law be expanded for the purpose of addressing
all issues of relevance for a particular dispute? And might this include laws or rules of law
regulating matters of relevance for climate change?
P 1030
P 1031
A parallel example is offered by the debate on arbitration and human rights, with
particular focus on investment arbitration. Where a dispute has consequences beyond the
immediate parties to the dispute, tribunals arguably need to consider the wider interest
and possibly apply competing norms when calibrating standards for an investment
protection treaty, including human rights. (130) Could there be cases where one such
competing norm is international climate change law?
A common obstacle to achieving coherent application of parallel or competing norms is

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 that each area of international law tends to operate in isolation. Just as in the human rights
context, the silo of international investment law is rarely confronted with the law as
contained in the silo of climate change law, while climate change commitments rarely play
out in disputes involving states under international investment law.
But climate change litigation in recent years has offered some interesting examples where
attempts have been made to tear down the walls between the silos. In these cases, reliefs
sought have been formulated with the aim of forcing governments to act, or to refrain from
taking certain action. A common denominator is what could be characterized as cross-
fertilization, or cross-referencing, of legal norms.
International law obligations have been brought into court proceedings, and arguments
put forward that national statutory law should be interpreted through the lens of
international obligations as laid down in the UNFCCC (Urgenda) or the Paris Agreement
(Arctic Oil).
In The People v. Arctic Oil in the Oslo district court, the NGOs Greenpeace Nordic
Association and Natur og Ungdom challenged the Norwegian government's decision to
grant licences for drilling in the Arctic, a decision taken a little less than one month after
Norway signed the Paris Agreement. The state's undertakings in its capacity as a signatory
to an international instrument of climate change mitigation and adaptation were, in the
opinion of the plaintiffs, highly relevant for assessing the state's action. In its claim to have
the decision by the Norwegian government declared unconstitutional, the plaintiffs argued
that international law as represented by the Paris Agreement and international human
rights should be applied when interpreting the state's obligation under the constitution.
(131) In addition, the plaintiffs argued that the impact assessment preceding the grant of a
licence was inadequate in relation to “Norway's national GHG emission reduction targets
and international obligations” (emphasis added). (132) After dismissal by the Oslo district
court in January 2018, the case is currently pending appeal. (133)
In Urgenda vs. The Netherlands, the Urgenda Foundation and a group of Dutch citizens
brought a legal action against the Dutch state, arguing that by not adequately regulating
and curbing Dutch GHG emissions, the state had committed the tort of negligence against
P 1031 its citizens. Urgenda held that international obligations, such as those of a signatory to the
P 1032 UNFCCC, should be relevant in defining the standard of the duty of care attributable to
the Dutch government vis-à-vis its citizens, even if the resolutions at issue have no legally
binding force between governments.
In its decision, the District Court of The Hague reasoned that “the Parties agree that due to
current climate change and the threat of further change with irreversible and serious
consequences for man and the environment, the State should take precautionary measures
for its citizens”. (134) The Court further observed that “the State is obliged to take measures
in its own territory to prevent dangerous climate change (mitigation measures)”, (135) and
noted that “it is an established fact that the State has the power to control the collective
Dutch emissions level (and that it indeed controls it)”. (136) In conclusion, the Court held
that current Dutch climate policies were inadequate and unlawful, labelled them as
hazardous negligence and ordered the Dutch government to limit the joint volume of Dutch
annual GHG emissions. (137) According to the same Court, the duty of care as contained in
the Dutch Civil Code translates into a legal obligation by the Dutch state to abide by
targets as defined in international instruments to which it is a signatory, including the
UNFCCC.
The Dutch and Norwegian examples illustrate how public policy as laid down in statutory
law, or a duty of care attributable to the government, have been used as arguments to
prompt a government or a public authority to live up to promises made at national and
international level, including action to reduce carbon emissions.
Could the same model have been applied had the case been heard before an arbitral
tribunal? This represents yet another open question for arbitration and climate change,
but might be an interesting area to explore going forward.

2 New International Models

A certain amount of cross-fertilization is already emerging in a formalized way through
cross-references between treaties. In addition, new instruments connecting the dots
between climate change, investment needs and economic development are on the
horizon. Policies other than those based directly on international instruments of climate
change law can play a role in the global response to climate change. (138) This could
include policy for low-carbon investment, energy efficiency improvements or natural
conservation programmes. (139)
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P 1033
a Bridging agreements
Perhaps greater emphasis could be put on the connection between different international
legal instruments going forward, for the purpose of achieving enforcement of climate
change commitments.
The award in Allard v. Barbados mentioned earlier is interesting from the point of view of

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 enforcement of international environmental law in general, as it reasons on the connection
between bilateral investment treaties and other international obligations of the state. The
investor had argued that the state was in breach of its obligations under international
environmental law and that had caused damage to his investment, which in effect
constituted a breach of the investment protection provisions of the BIT. (140) On this point,
the arbitral tribunal stated: “The fact that Barbados is party to the Convention on
Biological Diversity and the Ramsar Convention does not change the standard under the
BIT, although consideration of a host State's international obligations may well be relevant
in the application of the standard to particular circumstances.” (141)
Although not leading to the conclusion that there had been a violation of the BIT involved,
the arbitral tribunal appears to open the door to bringing in obligations as defined by
international environmental law when calibrating BIT standards. Could this be a bridge to
international climate change law in treaty-based investment arbitration?
Another example of bridging agreements is the Peru-US Trade Promotion Agreement of
2009, which includes specific language to that effect. In essence, the Peru-US TPA requires
the parties to use their best endeavours to fulfil their obligations under a number of
multilateral environmental agreements listed in the TPA. (142) In addition, the TPA
contains a chapter on dispute resolution, including international arbitration. (143) This in
turn enables enforcement through international arbitration for agreements that do not
contain provisions or other enforcement mechanisms.
The Peru-US TPA has been characterized as the first trade agreement to directly
incorporate environmental agreements in a dispute settlement-enforced system. (144) This
could be one way forward for arbitration and climate change.
In addition to the Peru-US agreement, other recent BITs and FTAs include language
addressing sustainability in general. (145) A recent OECD study reveals that more than 75
per cent of recently concluded IIAs include language referring to sustainable development
targets, and the trend is increasing; almost all treaties concluded between 2012 and 2013
contained language to that effect. (146)
P 1033
P 1034
The general aims of sustainable development as defined in the Sustainable Development
Goals (SDGs) (147) of 2015 can also be directly aligned with climate change targets. SDG 13
specifically targets Climate Action, and the energy goals of the SDGs are also closely
aligned with climate change mitigation targets covered by the Paris Agreement. (148)
Reference to sustainable development in instruments upon which arbitration is based
could thus in effect contribute to inclusion of climate change perspectives.
Another possible model to build a link with international climate change obligations and
other state commitments is to use COP decisions under the UNFCCC as interpretive
guidance for international commitments. (149) Although technically not binding under
international law, a COP decision could be understood as an expression of the
understanding of states regarding their joint commitments, and thus potentially bridge a
gap needed to establish that a certain measure of relevance for climate change is
governed by international law. As far as is known, no arbitral tribunal has yet been
presented with such an interpretive exercise.
b New instruments
The private sector will play an important role in climate change mitigation and adaptation
efforts, but it remains the task of government to provide a stable policy framework. (150)
However, a recurring theme following the Paris negotiations has been that although the
money for green investments exists, investors are hesitant to deploy their funds in the
absence of stable and transparent legal frameworks, including neutral and reliable
enforcement mechanisms. Today, no international legal instrument specifically
incentivizes and protects cross-border investment aimed at climate change mitigation and
adaptation.
New models for international agreements are needed – agreements that address the
specific needs of states as a consequence of climate change mitigation and adaptation
efforts, but at the same time provide investors with the necessary long-term stability.
Against this background, in 2017 the Arbitration Institute of the Stockholm Chamber of
P 1034 Commerce, with partners including the IBA and the crowd-sourcing platform HeroX, (151)
P 1035 initiated the Stockholm Treaty Lab contest. (152) The Stockholm Treaty Lab is using
crowd-sourcing to find an effective legal instrument for climate change mitigation and
adaptation. In this innovation contest the grand prize will be awarded to the contestant
team that drafts a model treaty with the greatest potential to increase investment in
climate change adaptation and mitigation.
The contest meets a need voiced that policymakers should “seek out new ways to use
international law as a catalyst, not a hurdle, for private investments in low-carbon growth”.
(153) The objective is to create a new model for an international treaty that, if
implemented, can be expected to create transparent, stable and enforceable investment
policy regimes to incentivize the investment needed to meet Paris Agreement targets.
One of the assessment criteria in the competition is enforceability, which is spelled out as

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 follows: “The Model Treaty is binding and enforceable. It contains an effective dispute
resolution mechanism, through which both investors and states can bring claims related to
the Treaty.” (154)
At the time of writing, the competition is under way and the jury is reviewing the
submissions. The competition has attracted attention from innovators in more than
twenty-five jurisdictions, organized in teams representing a wide variety of expertise. (155)
There appears to be a global and multidisciplinary consensus that a gap needs to be filled
to get the necessary investment for climate change mitigation and adaptation off the
ground.
P 1035

References
*) Annette Magnusson: Secretary General of the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC).The author wishes to acknowledge the invaluable
assistance of Sukma Dwi Andrina in preparing this text, and is grateful for additional
input from Anja Ipp and Alexey Vyalkov.
1) Thomas FRIEDMAN, Thank You for Being Late: An Optimist's Guide to Thriving in the Age
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in the Era of Anthropocene – An Institutional Analysis” (June 2015) available at
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Accelerations, fn. 1 above, p. 156.
4) A report published in 2015 examined 69,406 peer-reviewed articles on global
warming. Only 0.005 per cent of the authors rejected anthropogenic global warming,
see James Lawrence POWELL, “Climate Scientists Virtually Unanimous: Anthropogenic
Global Warming Is True”, 35 Bulletin of Science, Technology and Society (2015, issue 5-
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6) Ibid., pp. 10-13.
7) T. FRIEDMAN, Thank You for Being Late: An Optimist's Guide to Thriving in the Age of
Accelerations, fn. 1 above, p. 156; Nicholas STERN, The Economics of Climate Change.
The Stern Review (Cambridge University Press 2007) pp. 119-123.
8) Daniel R. COATS, “Statement for the Record: Worldwide Threat Assessment of the US
Intelligence Community”, p. 16, available at
<www.dni.gov/files/documents/Newsroom/Testimonies/2018-ATA---Unclassified-
SSCI.pdf> (last accessed 11 June 2018).
9) Ibid., p. 16.
10) IBA Presidential Task Force on Climate Change Justice and Human Rights, Achieving
Climate Change Justice and Human Rights in an Era of Climate Disruption (International
Bar Association 2014) p. 42.
11) IPBES Secretariat, “Media Release (March 2018): Worsening Worldwide Land
Degradation Now ‘Critical’, Undermining Well-Being of 3.2 Billion People”, available at
<www.ipbes.net/news/media-release-worsening-worldwide-land-degradation-now-
%E2%80%98critical%E2%80%99...> (last accessed 20 June 2018).
12) IBA Presidential Task Force on Climate Change Justice and Human Rights, Achieving
Climate Change Justice and Human Rights in an Era of Climate Disruption, fn. 10 above,
p. 43.
13) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 264 and
p. 471; Overview by Robert BLACKETT, “Ten Inconvenient Truths About Climate Change
Tort Claims”, The Arbiter (Spring 2018).
14) “Up in Smoke?” The Economist (26 November 2016) p. 53.
15) Daniel BODANSKY, Jutta BRUNEE, Lavanya RAJAMANI, International Climate Change
Law (Oxford University Press 2017) p. 363.
16) Ibid., p.3.
17) Ibid.
18) Ibid., p. 26, p. 50.
19) Ibid., p. 2, p. 242; also p. 16; Paris Agreement (opened for signature 22 April 2016,
entered into force 4 November 2016), Art. 13 available at <https://unfccc.int/process-
and-meetings/the-paris-agreement/the-paris-agreement> (last accessed 4 July 2018).

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 20) Examples of environmental disputes within the UNCLOS system include The Mox Plant
case (Ireland v. the United Kingdom) and The Chagos Archipelago case (Mauritius v. the
United Kingdom).
21) Alister DOYLE, “Enforcing a Global Climate Deal: Speak Loudly, Carry No Stick”,
Reuters Global Energy News (12 October 2015) available at
<www.reuters.com/article/us-climatechange-summit-sanctions-insigh-
idUSKCN0S506320151012> (last accessed 20 June 2018).
22) IBA Presidential Task Force on Climate Change Justice and Human Rights, Achieving
Climate Change Justice and Human Rights in an Era of Climate Disruption, fn. 10 above,
p. 41.
23) Ulf FRANKE, Annette MAGNUSSON, Joel DAHLQUIST, eds., Arbitrating for Peace, How
Arbitration Made a Difference (Wolters Kluwer 2016).
24) Inter-American Court of Human Rights, Advisory Opinion OC 23/17, 15 November 2017,
available at <https://aida-
americas.org/sites/default/files/resources_files/resumen_seriea_23_eng%20%281%2
9.pdf> (last accessed 21 June 2018).
25) Report of the Office of the United Nations High Commissioner for Human Rights on the
relationship between climate change and human rights, dated 15 January 2009,
available at <https://documents-dds-
ny.un.org/doc/UNDOC/GEN/G09/103/44/PDF/G0910344.pdf?OpenElement> (last
accessed 21 June 2018).
26) IBA Presidential Task Force on Climate Change Justice and Human Rights, Achieving
Climate Change Justice and Human Rights in an Era of Climate Disruption, fn. 10 above.
27) Ibid., p. 14.
28) Ibid., p. 44.
29) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 643. The
Stern Report has been widely debated but also criticized. See, among others, Robert
O. MENDELSOHN, “A Critique of the Stern Report”, available at
<www.environment.research.yale.edu> (last accessed 19 June 2018). In Dieter HELM,
The Carbon Crunch (Yale University Press 2012) p. 18, it was pointed out that the Stern
Report has not been peer reviewed (however, it also noted that this does not
necessarily translate into “a criticism of the content of the report itself”).
30) Polly BOTSFORD, “Environmental Law Gets Radical”, IBA Global Insight (October 2012).
31) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 283.
32) Ibid., p. 289.
33) Ibid.
34) Ibid., p. 209. The United Nations Environment Program also noted that the Nationally
Determined Contribution under the Paris Agreement only covers around one-third of
emissions reductions needed by 2030. See UN Environment, The Emission Gap Report
2017: A UN Environment Synthesis Report (United Nations Environment Program,
November 2017), pp. xiv and 1.
35) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 118.
36) Ibid., pp.19-20.
37) Ibid., pp. 153-54.
38) United Nations Framework Convention on Climate Change (opened for signature 4
June 1992, entered into force 21 March 1994), 1771 UNTS 107, Art. 14.1.
39) Ibid., Art. 14.2(a).
40) UNFCCC, “Status of Ratification of the Convention”, available at
<http://unfccc.int/essential_background/convention/status_of_ratification/items/26
31.php> (as of 22 February 2018).
41) UNFCCC, “Declarations of Status of Ratification of the Convention”, available at
<http://unfccc.int/essential_background/convention/items/5410.php> (last accessed
21 June 2018).
42) United Nations Framework Convention on Climate Change, fn. 38 above, Art. 14.2(b).
43) Ibid., Art. 14.7.
44) International Chamber of Commerce, “What Role for Dispute Resolution in Supporting
the Paris Climate Agreement?”, available at <https://iccwbo.org/media-wall/news-
speeches/role-dispute-resolution-supporting-paris-climate-agreeme...> (last
accessed 22 June 2018).
45) D. HELM, The Carbon Crunch, fn. 29 above, p. 156; D. BODANSKY, J. BRUNEE, L.
RAJAMANI, International Climate Change Law, fn. 15 above, p. 16.
46) Jorge E. VIÑUALES, Foreign Investment and the Environment in International Law
(Cambridge University Press 2012) p. 274.
47) Neil HODGE, “Acts or Emissions”, IBA Global Insight (February 2012), citing Hans Corell,
former Under-Secretary-General for Legal Affairs and the Legal Counsel of the United
Nations and Co-Chair of the IBA's World Organizations Committee.
48) Ibid.
49) Ibid.
50) Gernot WAGNER and Martin WEITZMAN, Climate Shock. The Economic Consequences of
a Hotter Planet (Princeton University Press 2015) p. 43.
51) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 212.

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 52) Paris Agreement – Status of Ratification, available at
<https://unfccc.int/process/the-paris-agreement/status-of-ratification>, 22 June
2018.
53) Ibid.
54) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 214.
55) Ibid., p. 231.
56) Paris Agreement, fn. 19 above.
57) Ibid., Art. 13.7 (b).
58) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 215.
59) Ibid., pp. 231-232.
60) Ibid., p. 242.
61) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 509.
Practical examples illustrating the weakness of the system include the United States'
withdrawal from the Paris Agreement, see Valerie VOLVOVICI, “US Submits Formal
Notice of Withdrawal from Paris Climate Pact”, available at
<www.reuters.com/article/us-un-climate-usa-paris/u-s-submits-formal-notice-of-
withdrawal-from-paris-c...> (last accessed 25 June 2018); Canada's abandonment of
the Kyoto Protocol, see “Canada to Withdraw from Kyoto Protocol, available at
<www.bbc.com/news/world-us-canada-16151310> (last accessed 25 June 2018); Japan's
refusal to extend the Kyoto Protocol, see Ministry of Foreign Affairs of Japan, “Japan's
position regarding the Kyoto Protocol”, available at
<www.mofa.go.jp/policy/environment/warm/cop/kp_pos_1012.html> (last accessed
25 June 2018).
62) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 6.
63) Zachary DOUGLAS, “The Enforcement of Environmental Norms in Investment Treaty
Arbitration” in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign
Investment to Promote Environmental Protection (Cambridge University Press 2013) p.
417.
64) United Nations Conference on Trade and Development, “Investor-State Dispute
Settlement: Review of Developments in 2016”, IIA Issues Note (May 2018, issue 1)
available at <http://investmentpolicyhub.unctad.org/Publications/Details/172> (last
accessed 2 July 2018).
65) Judge Stephen M. SCHWEBEL, “Keynote Address: In Defence of Bilateral Investment
Treaties” in Legitimacy: Myths, Realities, Challenges, ICCA Congress Series no. 18
(Kluwer 2015) p. 5.
66) Anatole BOUTE, “Combating Climate Change Through Investment Arbitration”, 35
Fordham International Law Journal (The Berkeley Electronic Press 2012, issue 3) p. 613.
67) Zachary DOUGLAS, “The Enforcement of Environmental Norms in Investment Treaty
Arbitration” in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign
Investment to Promote Environmental Protection, fn. 63 above, p. 424.
68) Ibid., p. 418.
69) Campbell MCLACHLAN, Laurence SHORE, Matthew WEINIGER, International Investment
Arbitration: Substantive Principles, 2nd edn. (Oxford University Press, Oxford 2010) p.
247 and p. 262; Asian Agricultural Products Ltd (AAPL) v. The Republic of Sri Lanka
(ICSID Case No ARB/87/3), Final Award (27 June 1990) paras. 50, 53; Peter A. Allard v The
Government of Barbados (PCA Case No. 2012-06), Award (27 June 2016) paras. 243-244.
70) Saluka Investments BV v. The Czech Republic (UNCITRAL), Partial Award (17 March 2006)
para. 483.
71) Peter A. Allard v. the Government of Barbados (PCA Case 2012-06), Award (27 June 2012),
for more information about the case see <https://pcacases.com/web/view/112> and
<http://graemehall.com/legal/papers/BIT-Complaint.pdf>.
72) SIMON LESTER, Cato Institute, “What If ISDS Lawsuits Were Used to Fight Climate
Change?”, at Huffington Post Blog, 3 October 2016 <www.huffingtonpost.com/simon-
lester/what-if-isds-lawsuits-wer_b_12311892.html?guccounter=1>.
73) Nash JENKINS, “The Current Haze over Southeast Asia Could Be Among the Worst Ever”,
available at <http://time.com/4060786/haze-singapore-indonesia-malaysia-
pollution/> (last accessed 25 June 2018).
74) Mark MANGAN and Henry DEFRIEZ, “Does the Haze over Southeast Asia Violate
International Law?”, Eco-Business (8 October 2015) available at <www.eco-
business.com/opinion/does-the-haze-over-southeast-asia-violate-international-
law/> (last accessed 25 June 2018).
75) “Does the Smoke Haze Over South East Asia Violate International Law?”, Dechert LLP
Legal Update (September 2015) p. 3.
76) PILITA CLARK, “The Big Green Bang”, Financial Times (19 May 2017) available at
<www.ft.com/content/44ed7e90-3960-11e7-ac89-b01cc67cfeec> (last accessed 2 July
2018). See also US Energy Information Administration, International Energy Outlook
2017 (September 2017) p. 81, available at
<www.eia.gov/outlooks/ieo/pdf/0484(2017).pdf> (last accessed 25 June 2018).
77) “The Big Green Bang”, Financial Times (19 May 2017) fn. 76 above.
78) See also US Energy Information Administration, International Energy Outlook 2017, fn.
76 above.

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 79) Anjli RAVAL and David SHEPPARD, “Oil Industry's Swagger Takes Knock from Gas
Boom”, Financial Times (19 February 2018) available at
<www.ft.com/content/b8ac0cf6-1269-11e8-8cb6-b9ccc4c4dbbb>.
80) International Energy Agency, World Energy Outlook 2016 (OECD/IEA 2016) and
International Energy Agency, World Energy Outlook 2017 (OECD/IEA 2017).
81) “Investment Threats in a Changing Climate”, editorial, Financial Times, 12 September
2016.
82) For additional details see for example European Commission, Commission Staff
Working Document: Guidance for the Design of Renewables Support Schemes, SWD
(2013) 439 final (5 November 2013) available at
<https://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_interve
ntion_swd04_en.pdf> (last accessed 26 June 2018).
83) For an overview see Norah GALLAGHER, “ECT and Renewable Energy Disputes” in Maxi
SCHERER, ed., International Arbitration in the Energy Sector (Oxford University Press
2017) p. 257.
84) Ibid., p. 258.
85) See, among others, “List of All Investment Dispute Cases” available at
<www.energycharter.org>, <www.italaw.com>, Mena Chambers, “ECT Dispute
Settlement List”, available at <www.menachambers.com/expertise/energy-charter-
treaty/dispute-settlement/>; SCC internally-produced statistics on investment
disputes related to renewable energy, updated as of 29 December 2017.
86) This would include cases dealing with green investments, for example renewable
energy, and cases where environmental policy has played a role.
87) Based on research on investor-state arbitration in the public domain by the
Arbitration Institute of the Stockholm Chamber of Commerce, as of 31 August 2017
thirty-two awards have been rendered in investor-state arbitration cases that dealt
with questions of measures to protect the environment and public health. See the
cases on <www.italaw.com>.
88) Annette MAGNUSSON, “Climate Disputes and Sustainable Development in the Energy
Sector: Bridging the Enforceability Gap” in Maxi SCHERER, ed., International
Arbitration in the Energy Sector (Oxford University Press 2017) p. 384.
89) Charanne and Construction Investments v. Spain (SCC Case No. V062/2012), Award (21
January 2016) available at <www.italaw.com/cases/2082> (hereinafter Charanne v.
Spain).
90) Ibid., para. 514.
91) Ibid., The quotes above are taken from the unofficial translation available at
<www.italaw.com/sites/default/files/case-documents/italaw7162.pdf>.
92) For an overview see Legitimate Expectations in Renewable Energy Treaty Arbitrations:
The Lessons So Far
<http://arbitrationblog.kluwerarbitration.com/2018/03/22/legitimate-
expectationsrenewable-energy-trea...>.
93) Charanne v. Spain, fn. 89 above, paras. 510 and 513-514.
94) Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain
(ICSID Case No. ARB/13/36), Final Award (4 May 2017) available at
<www.italaw.com/search/site/Eiser?
f%5B0%5D=sm_field_case_document_type%3Aaward> (hereinafter Eiser v. Spain).
95) Ibid., para. 101.
96) Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The
Kingdom of Spain (SCC Case No. 2015/063), Final Arbitral Award (15 February 2018),
para. 665.
97) On the potential normative conflict between international environmental law and
international investment law, see Francisco FRANCIONI, “The Private Sector and the
Challenge of Implementation”, p. 26 and Magnus Jeko LANGER, “Key Instruments of
Private Environmental Finance: Funds, Project Finance and Market Mechanism” in
Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign Investment to
Promote Environmental Protection (Cambridge University Press 2013) p. 134.
98) Manjiao CHI, Integrating Sustainable Development in International Investment Law:
Normative Incompatibility, System Integration, and Governance Implication
(Routledge 2018) p. 116.
99) Kathryn GORDON and Joakim POHL, “Environmental Concerns in International
Investment Agreements: A Survey” in OECD Working Papers on International
Investment 2011/01 (OECD Publishing 2011), available at
<www.oecd.org/daf/inv/investment-policy/WP-2011_1.pdf>, pp. 14-15 (last accessed
25 June 2018).
100) Eckhard JANEBA, “Regulatory Chill and the Effect of Investor State Dispute
Settlement” in CESIfo Working Papers No. 1688 (November 2016) p.1, available at
<www.cesifo-group.de/DocDL/cesifo1_wp6188.pdf> (last accessed 2 July 2018).
101) The SCC has conducted internal research on ISDS Awards within the Environmental
Sphere, see the cases on <www.italaw.com>. See also Pierre-Marie DUPUY,
“International Environmental Law: Looking at the Past to Shape the Future” in Pierre-
Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign Investment to Promote
Environmental Protection (Cambridge University Press 2013) p. 18.

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 102) UNCTAD, “Investor-State Dispute Settlement: Review of Development in 2016”, IIA
Issues Note: International Investment Agreements (UNCTAD May 2017), available at
<http://investmentpolicyhub.unctad.org/Publications/Details/172> (last accessed 27
June 2018).
103) Ibid., p. 3.
104) Examples include Henry VOY, “Poland on Course for Battle on New EU Climate Change
Target”, Financial Times (1 October 2014) available at <www.ft.com/content/4ec9373c-
495e-11e4-8d68-00144feab7de> (last accessed 2 July 2018); “Electricity Industry
Absorbs the Shock of Reforms”, Financial Times (24 June 2014); “UK Climate Effort Hit
by Carbon Capture Reverse”, Financial Times (25 September 2015). The 2016 US
election represents a recent and dramatic shift of policy in this regard, see, for
example, Michael D. SHEAR, “Trump Will Withdraw U.S. from Paris Climate
Agreement”, The New York Times (1 June 2017); Demetri SEVASTOPULO, Barney JOPSON
and Pilita CLARK, “Trump Takes US Out of Paris Climate Deal” in Financial Times (2
June 2017).
105) Roger PIELKE, JR., The Climate Fix (Basic Books 2010) p. 46.
106) Urs LUTERBACHER, “The Political Environment of Environmental Law” in Pierre-Marie
DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign Investment to Promote
Environmental Protection (Cambridge University Press 2013) p. 65.
107) Daniel M. FIRGER, “The Potential of International Climate Change Law to Mobilise Low-
Carbon Foreign Direct Investment” in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds.,
Harnessing Foreign Investment to Promote Environmental Protection (Oxford University
Press 2013) p. 177.
108) United Nations Conference on Trade and Development, Promoting Low-Carbon
Investment, UNCTAD Advisory Series A, No. 7 (United Nations Publication 2013).
109) OECD, Investing in Climate, Investing in Growth (OECD Publishing 2017) p. 264.
110) Kevin MOSS, “Business Helped Make the Paris Agreement Possible” (17 December
2015), available at <www.wri.org> (last accessed 27 June 2018); “The World Bank,
Private Sector – An Integral Part of Climate Action Post-Paris” (30 December 2015)
available at <www.worldbank.org> (last accessed 27 June 2018).
111) P. DUPUY, “International Environmental Law: Looking at the Past to Shape the Future”
in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign Investment to
Promote Environmental Protection, fn. 101 above, p. 9
112) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 448.
113) David GARDINER & Associates, LLC, Power Forward: Why the World's Largest Companies
Are Investing in Renewable Energy (Calvert Investment, CERES, WWF 2013) p. 4,
available at <www.ceres.org> (last accessed 26 June 2018).
114) See LRN, The HOW Report. A Global, Empirical Analysis of How Governance, Culture and
Leadership Impact Performance (LRN 2016), available at <http://lrn.com/governance-
culture-leadership/> (last accessed 26 June 2018): “Those [companies] that align
behaviors to sustainable, human values and conduct business with integrity
outperform and deliver disproportionate long-term value.”
115) P. DUPUY, “International Environmental Law: Looking at the Past to Shape the Future”
in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds., Harnessing Foreign Investment to
Promote Environmental Protection, fn. 101 above, p. 13.
116) David Gardiner & Associates, LLC, Power Forward: Why the World's Largest Companies
Are Investing in Renewable Energy, fn. 113 above, p. 6.
117) Ibid., p. 24.
118) James KYNGE, “The Ethical Investment Boom” in Financial Times (4 September 2017)
<www.ft.com/content/9254dfd2-8e4e-11e7-a352-e46f43c5825d>.
119) Ibid.
120) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 393.
121) See, e.g., UNFCCC, Report on the Analysis of Existing and Potential Investment and
Financial Flows Relevant to the Development of an Effective and Appropriate
International Response to Climate Change (UNFCCC 2007), available at
<http://unfccc.int/cooperation_and_support/financial_mechanism/items/4053.php>
; International Energy Agency, Energy Technology Perspectives 2012. Pathways to a
Clean Energy System, (OECD/IEA 2012) available at
<www.iea.org/publications/freepublications/publication/ETP2012_free.pdf> ; Ethan
ZINDLER and Ken LOCKLIN, Mapping the Gap: the Road from Paris (Bloomberg Energy
Finance 2016) available at <www.ceres.org/press/press-releases/report-on-12.1-
trillion-investment-in-renewable-power-needed-to-l...>; Green Growth Action
Alliance, The Green Investment Report. The Ways and Means to Unlock Private Finance
for Green Growth (World Economic Forum 2013) available at
<www3.weforum.org/docs/WEF_GreenInvestment_Report_2013.pdf> (all last accessed
26 June 2018).
122) OECD, Investing in Climate, Investing in Growth, fn. 109 above, Executive Summary.
123) Ibid., p. 28.
124) M. CHI, Integrating Sustainable Development in International Investment Law:
Normative Incompatibility, System Integration, and Governance Implication, fn. 98
above, p. 138.
125) UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, available
at <www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency.html>.

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 126) D. BODANSKY, J. BRUNEE, L. RAJAMANI, International Climate Change Law, fn. 15 above,
p. 287; Giulio CORSI, “New York City v. Big Oil: A New Opportunity to Address Climate
Change in the Trump Era?” (Climate Institute, 25 February 2018) available at
<http://climate.org/new-york-city-v-big-oil-a-new-opportunity-to-address-climate-
change-in-the-trump-...> (last accessed 27 June 2018).
127) Examples include Attracta MOONEY and Ed CROOKS, “2018 New York Sues Big Oil
Companies over Climate Change” in the Financial Times (10 January 2018)
<www.ft.com/content/4de8e4fc-f62b-11e7-88f7-5465a6ce1a00>; Agence France Presse,
“Peruvian Farmers Sue German Energy Giant for Contributing to Climate Change”, The
Guardian (14 November 2017) available at
<www.theguardian.com/world/2017/nov/14/peruvian-farmer-sues-german-energy-
giant-rwe-climate-change>; James CONCA, “Children Win Another Climate Change
Legal Case in Mass Supreme Court”, Forbes (19 May 2016) available at
<www.forbes.com/sites/jamesconca/2016/05/19/children-win-another-climate-
change-legal-case-in-mass-su...> (all last accessed 26 June 2018).
128) M. CHI, Integrating Sustainable Development in International Investment Law:
Normative Incompatibility, System Integration, and Governance Implication, fn. 98
above, p. 127.
129) See ICSID Rules of Procedure for Arbitration Proceedings, Rule 37(2) and SCC
Arbitration Rules Appendix III, Arts. 3 and 4.
130) LSE Laboratory for Advanced Research on the Global Economy, Toby Landau QC on
arbitration and human rights (28 March 2014) <www.youtube.com/watch?
v=bJaoADpICjs>.
131) People v. Arctic Oil Climate Lawsuit, Notice of Proceedings (18 October 2016), p. 43,
available at <www.savethearctic.org/en/peoplevsarcticoil/background-documents/>
(last accessed 4 July 2018)
132) Ibid., p. 37.
133) Ibid.
134) Urgenda Foundation v. the State of the Netherlands (Ministry of Infrastructure and the
Environment) (Case Number C/09/456689), Judgment (2015), The Hague District Court,
HA ZA 131396, para. 4.64, available at <www.elaw.org/system/files/urgenda_0.pdf>
(hereinafter Urgenda).
135) Ibid., para. 4.65
136) Ibid., para. 4.66.
137) The Dutch government appealed the case on 23 September 2015. The appeal is
currently pending and was heard at The Hague Court of Appeal on 28 May 2018. The
verdict is expected to be rendered on 9 October 2018. More information available
here <www.urgenda.nl/en/themas/climate-case/>.
138) D.M. FIRGER., “The Potential of International Climate Change Law to Mobilise Low-
Carbon Foreign Direct Investment” in Pierre-Marie DUPUY and Jorge. E. VIÑUALES,
eds., Harnessing Foreign Investment to Promote Environmental Protection, fn. 107
above, p. 178.
139) Ibid., p. 203.
140) Peter Allard v. Barbados, fn. 71 above, paras. 178, 230.
141) Ibid., para. 244.
142) The United States-Peru Trade Promotion Agreement (12 April 2016), Chapter Eighteen,
available at <https://ustr.gov/trade-agreements/free-trade-agreements/peru-
tpa/final-tex>.
143) Ibid., Chapter Twenty One.
144) IBA Presidential Task Force on Climate Change Justice and Human Rights, Achieving
Climate Change Justice and Human Rights in an Era of Climate Disruption, fn. 10 above,
p. 171.
145) Ibid., p. 169.
146) Kathryn GORDON, Joachim POHL and Marie BOUCHARD, “Investment Treaty Law,
Sustainable Development and Responsible Business Conduct: A Fact Finding Survey”,
OECD Working Papers on International Investment (OECD Publishing 2014).
147) United Nations General Assembly Resolution, Transforming Our World: The 2030
Agenda for Sustainable Development, A/RES/70/ (25 September 2015) available at
<www.un.org/ga/search/view_doc.asp?symbol=A/RES/70/1&Lang=E>.
148) Paris Agreement, fn. 19 above.
149) Jorge. E. VIÑUALES, “The Environmental Regulation of Foreign Investment Schemes
Under International Law” in Pierre-Marie DUPUY and Jorge E. VIÑUALES, eds.,
Harnessing Foreign Investment to Promote Environmental Protection (Oxford University
Press 2013) p. 275.
150) N. STERN, The Economics of Climate Change. The Stern Review, fn. 7 above, p. 409; also
see among others, OECD, Tackling Climate Change and Growing the Economy: Key
Messages and Recommendations from Recent OECD Work, available at
<www.oecd.org>; UNCTAD, “Investment Policy Framework for Sustainable
Development” (2015) available at <www.unctad.org/diae> (last accessed 4 July 2018).
151) See <www.herox.com/stockholmtreatylab>.
152) A. MAGNUSSON, Innovation Prize to Increase Green Investments
<www.hagainitiativet.se/en/blogg/Annette-Magnusson-Innovation-Prize-to-Increase-
Green-Investments>; see also <http://stockholmtreatylab.org/>.

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 153) D.M. FIRGER, “The Potential of International Climate Change Law to Mobilise Low-
Carbon Foreign Direct Investment” in P. DUPUY and J. E. VIÑUALES, eds., Harnessing
Foreign Investment to Promote Environmental Protection, fn. 107 above, p. 204.
154) See <www.herox.com/stockholmtreatylab/guidelines>.
155) See <www.sccinstitute.com/about-the-scc/news/2017/stockholm-treaty-lab-what-s-
next/>.

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 KluwerArbitration

Document information
What Can Arbitration and Human Rights as Mechanisms of
Publication Dispute Resolution Learn from Each Other in Order to Meet
Evolution and Adaptation: the Challenges of Climate Change?
The Future of International Ana Stanič; Petra Butler
Arbitration
(*)
(**)
Topics
Investment Arbitration According to the International Bar Association (IBA) Presidential Task Force on Climate
Change Justice and Human Rights, “[g]lobal climate change is a defining challenge of our
time”. (1) It “poses an effective obstacle to the continued progress of human rights” further
exacerbating the “existing inequities that afflict a world already riven with vast inequality,
Bibliographic reference poverty and conflict”. (2)
Ana Stanič and Petra Butler,
'What Can Arbitration and P 1036 Courts are becoming the “new front line of climate change action”. (3) In particular, there is
Human Rights as P 1037 a rise in tortious and other claims being brought by affected populations against
corporations in national courts including in respect of climate change. (4) At the same
Mechanisms of Dispute time, claims are increasingly being brought against states in national courts and
Resolution Learn from Each international human rights courts, including for contributing to climate change. (5) For
Other in Order to Meet the example, claims are being brought against states for breaches of Art. 8 of the European
Challenges of Climate Convention on Human Rights (ECHR) including for failing to take steps to stop serious
Change?', in Jean Engelmayer pollution from a waste treatment plant operated by a private company (6) and for granting
Kalicki and Mohamed Abdel a permit to operate a goldmine using the cyanidation process. (7) Specifically in Guerra
Raouf (eds), Evolution and and Others v. Italy the European Court of Human Rights (the Court) found “that severe
Adaptation: The Future of environmental pollution may affect individuals' well-being and prevent them from
International Arbitration, enjoying their homes in such a way as to affect their private and family life adversely”,
ICCA Congress Series, Volume holding Italy in breach of its obligation under Art. 8 by failing to provide the affected
20 (© Kluwer Law individuals information on the serious pollution risk from a factory near them. (8)
International; International
Council for Commercial At the same time private corporations are increasingly bringing claims against states for
Arbitration/Kluwer Law breaches of human rights, whether as part of investment treaty claims or as stand-alone
International 2019) pp. 1036 - claims in national courts and international human rights courts.
1057 There is no doubt that the number of climate change, environmental and human rights
P 1037 cases being brought against states as well as private corporations will rise in the future.
P 1038 Given the nature and the complexity of these cases, the way in which national courts,
international human rights courts and arbitral tribunals resolve these disputes will thus
need to change to ensure that there is no enforcement gap.
Through the prism of the Yukos cases this article examines the differences in approach
adopted by the Court and the investment treaty arbitral tribunal (the Tribunal) set up
under the Energy Charter Treaty (9) (ECT) to resolving, in essence, the same dispute, and
thereby highlights what investment treaty arbitration and human rights litigation can learn
from each other in order to meet the challenges of climate change and thereby ensure
there is no enforcement gap.
By way of background Sect. I sets out the key facts giving rise to the dispute in the Yukos
cases heard before the Court and the Tribunal. Sect. II examines the approach and
reasoning adopted by the Tribunal established to resolve the dispute between the three
controlling shareholders of Yukos and the Russian Federation (Russia) under the ECT. Sect.
III in turn examines the approach and reasoning adopted by the Court in proceedings
brought by Yukos against Russia for breaches of the ECHR. The key reasons for the
difference in the approaches of the two bodies are presented in Sect. IV. Sect. V discusses
the ways in which the enforcement of human rights can be bolstered by using the reasoning
and powers adopted by arbitral tribunals in investment treaty arbitrations. As finally, Sect.
VI sets out what investment treaty arbitration can learn from human rights law from the
point of view of a human rights lawyer.

I Key Facts Giving Rise to the Yukos Cases

OAO Yukos Oil Company (Yukos) was a Russian company engaged in the exploration,
production, refining, marketing and distribution of crude oil, natural gas and petroleum
products. In 2003 it had around 100,000 employees and a market capitalization of over US
$ 33 billion which ranked it among the ten largest oil and gas companies in the world by
market capitalization. (10)
The fact that Yukos had reallocated its trading operations to low-tax jurisdictions in order
to maximize profits was at the heart of the dispute between Yukos and Russia. Although
initially the Russian Tax Ministry had not objected to Yukos' “tax optimization structure”, in
December 2003 it ordered a tax re-audit for the year 2000. On 29 December 2003 the Tax

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 Ministry demanded that Yukos pay approximately US$ 3.5 billion for tax owed for 2000.
Shortly thereafter, given the size of the tax liability and the alleged fear that Yukos would
dissipate its assets the Russian Government proceeded to freeze shares Yukos held in its
subsidiaries as well as its other assets.
In November 2004 the Tax Ministry had re-assessed Yukos' tax liabilities for the years 2000
to 2003 at US$ 14.36 billion.
P 1038
P 1039
Given the size of the tax liabilities, Russia sold Yukos' core asset, Yuganskneftegaz (YNG), in
December 2004. YNG was sold to Baikal Finance Group, a company incorporated only a few
days before, and participating as the only bidder in, the auction for US$ 9.37 billion
although Dresdner Bank had previously valued it at between US$ 15.7 billion and US$ 18.3
billion and JP Morgan at between US$ 16 billion and US$ 22 billion. A few days later Baikal
Finance Group sold YNG to the Russian state-owned company, Rosneft. Thereafter, Yukos'
remaining assets were nearly all acquired by Gazprom and Rosneft in subsequent
bankruptcy auctions raising a total of US$ 31.5 billion. In November 2007, Yukos was
liquidated and struck off the register of legal entities.
During the period from 2003 to 2006 criminal investigations were initiated by Russia
against Yukos' management. The Tribunal had found that by 2006 “no fewer than 35 top
managers and employees of Yukos had been interrogated, arrested or sentenced”. (11) In
particular, Mr. Khodorkovsky, the director and main shareholder of Yukos, was arrested at
gunpoint in October 2003 and taken to Moscow where he was charged with economic
crimes including fraud, tax evasion and embezzlement. He was in prison for over ten years
until his much-publicized release in December 2013.
Russia denied that Yukos and its officers were targeted in a discriminatory way, contending
that taxation measures had also been applied to other tax offenders and that the searches
and seizures were taken as part of legitimate taxation measures and conducted in
accordance with usual practice and the appropriate procedural protections available
under Russian law.

II The Decision of the Tribunal

The three controlling shareholders of Yukos commenced investment treaty arbitrations
against Russia under the ECT in 2005. Claiming damages of US$ 114 billion, Yukos'
shareholders alleged that Russia had (i) failed to treat their investments in Yukos in a fair
and equitable manner and on a non-discriminatory basis in breach of Art.10(1) of the ECT;
(12) and (ii) expropriated their investments in breach of Art. 13(1) of the ECT. (13) The three
P 1039 arbitrations were consolidated into a single arbitration by the parties agreeing to appoint
P 1040 the same arbitrators to resolve them. The award on the merits was rendered on 18 July
2014, (14) over nine years after the original proceedings were commenced. The Tribunal's
reasoning in respect of these claims as well as regarding damages is examined below.

1 Breach of Art. 13 of the ECT

When considering the claim of expropriation, the Tribunal acknowledged that the ECT
expressly circumscribes the jurisdiction of the ECT in respect of tax in recognition of states'
sovereign rights in international law concerning taxation and their reluctance to subject
taxation measures to review by international arbitral tribunals. In particular, the Tribunal
noted that it had to determine whether actions taken by the Russian tax authorities fell
within the scope of the jurisdictional carve-out set out in Art. 21(1) concerning taxation
and/or were “brought back within the Tribunal's jurisdiction by the claw-back of Article
21(5) of the ECT”. (15) Thus, albeit not applying the doctrine of the margin of appreciation of
the Court, the Tribunal acknowledged that the threshold for the reviewability of a state's
actions in respect of tax under the ECT is high. In this regard the Tribunal noted that the
investors had “no issue with the right of the Russian Federation to enact tax provisions or
with the content of Russian tax law”, but with “the manner in which Russian tax law was
grossly distorted, misapplied and abused to effect the destruction of Yukos”. (16)
The Tribunal held that the carve-out of Art. 21(1) “appl[ied] only to bona fide taxation
actions, i.e., actions that are motivated by the purpose of raising general revenue for the
State”. (17) Having examined the facts, and in complete contrast to the conclusions
reached by the Court (discussed in Sect. III below), the Tribunal concluded that “the tax
assessments levied against Yukos by the Russian Federation, which the Tribunal has found
were designed mainly to impose massive liabilities based on VAT and related fines, and
were essentially aimed at paralyzing Yukos rather than collecting taxes, are not exempt
from scrutiny under the ECT”. (18) Furthermore, it found that the “subsequent steps in the
enforcement of the tax assessments [were] not captured by the carve-out”, because “they
too were exigently pursued by means that indicate that Yukos was not just being chased to
pay taxes, but was being driven into bankruptcy”. (19) It therefore concluded that it had
both direct and indirect jurisdiction over claims under Art. 13 of the ECT as the carve out of
Art. 21(1) did not apply in the case and that, in any event, the claw-back of Art. 21(5) could
be invoked.
In reaching the opposite conclusion to the Court regarding expropriation, the Tribunal

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 noted that it was not bound by the findings of the Court as ordre public as per Art. 31(3)(c) of
P 1040 the Vienna Convention of the Law of the Treaties. (20) It then went on to find that the
P 1041
auction of YNG and the bankruptcy of Yukos amounted to an effective expropriation of
Yukos and thus a breach of Art. 13. It is clear from the tone of the award that the Tribunal
was convinced that Russia's actions were politically and economically motivated, rather
than aimed at legitimate tax enforcement.

2 Breach of Art. 10 of the ECT

One of the key reasons for the Tribunal's finding that Russia breached Art. 10 was the
refusal of the Russian Tax Ministry and, subsequently, of its courts to reattribute to Yukos
its trading companies' VAT refunds. The Tribunal noted that Russia had sought to convince
it to adopt a broad interpretation to Russia's anti-tax abuse policy in order to reassign VAT
obligations from the subsidiaries located in low-tax regions to Yukos, whilst at the same
time seeking to rely on Yukos' error in filing VAT returns annually rather than monthly as a
basis to prevent Yukos from claiming such refunds for itself.
In contrast with the Court, the Tribunal held that “it was arbitrary and contradictory for the
authorities to re-attribute the trading companies' oil, revenues, profits, tax liabilities and
activities to Yukos but to refuse to re-attribute to Yukos those companies' entitlement to
VAT refunds”. (21)
Interestingly, the Tribunal went out of its way to explain why its conclusions differed from
those of the Court. Referring to the ECHR principle of proportionality, it noted that such
principle requires a state “not to go further than is necessary to attain the objectives of
ensuring the correct levying and collection of the tax and the prevention of tax evasion”.
(22) The Tribunal noted that the Court seemed to “have entirely missed the point being
made, namely that if the tax authorities were going to attribute to Yukos the transactions
carried out in the names of its trading companies, they should also have attributed to
Yukos the submission of normal VAT documentation by the trading companies”. (23) It
criticized the Court for adopting an entirely formalistic approach when finding “that
relevant rules made the procedure for VAT refunds sufficiently clear and accessible for the
applicant company to [be] able to comply with it” (24) and that Yukos “failed to submit any
proof that it had made a properly substantiated filing in accordance with the established
procedure”. (25)
In particular, the Tribunal strongly disagreed with the Court's conclusion that Yukos had
not received “any adverse treatment in this respect”, (26) finding that Yukos had received
“some thirteen billion dollars-worth of adverse treatment by reason of the imposition on it
of VAT liabilities earlier excluded by the undisputed export of the oil in question”. (27)
As evidence corroborating its finding that Russia “would have done whatever was necessary
to ensure that the VAT liability was imposed on Yukos” the Tribunal made reference to the
P 1041 second trial and conviction of Mikhail Khodorkovsky noting that after having been
P 1042 convicted of various tax-related crimes and sentenced for a term of nine years of
imprisonment in May 2005 he was sentenced to an additional thirteen years and six
months in prison essentially on the basis of the same circumstances surrounding Yukos
that led to his original conviction for tax evasion. (28)
Turning next to the fines imposed by Russia for failing to pay liabilities, the Tribunal found
these to be disproportionate and in breach of Russia's obligation under Art. 10. In this
regard the Tribunal noted that the Court held that the retroactive application of
Resolution 9–P violated the fundamental principle of legality and breached Art. 1 of
Protocol No. 1 of the ECHR. The Tribunal concluded that the fines levied in relation to the
2000 tax year were therefore barred by the statute of limitations. (29)
The following facts persuaded the Tribunal to find that Russia had further breached its
obligations under Art. 10. First, and unlike the Court, the Tribunal found that Yukos had
made good faith attempts to settle its tax claim. Second, it noted that soon after Yukos
was acquired by Rosneft, a significant portion of the tax assessments levied against YNG
were set aside or vastly reduced by Russian courts. Third, and again unlike the Court, the
Tribunal concluded that the price paid by Baikal at the auction for YNG was far below the
fair value of those shares. Fourth, and contrary to the Court, the Tribunal was persuaded
that the western banks “were actively ‘encouraged’ to enter into the confidential sale
agreement in order to accomplish their objective of being paid”. (30) The Tribunal held
that although Yukos was to shoulder some of the blame for not paying the western banks
and thereby increasing its exposure to the risk that it could be petitioned into bankruptcy,
it appeared undeniable “that initiating bankruptcy was not the goal of the Western banks,
but rather the objective of Rosneft, in the interests of its owner, the Russian Federation”.
(31) Finally, the Tribunal relied on the events surrounding the formal withdrawal by
PricewaterhouseCoopers of all of its prior audit reports for Yukos as evidence “that Yukos
was the object of a series of politically-motivated attacks by the Russian authorities that
eventually led to its destruction”. (32)
In view of the above, the Tribunal concluded that Russia had breached the shareholders'
right to fair and equitable treatment “by failing to meet basic requirements of procedural
propriety and due process, engaging in conduct that was unreasonable, arbitrary,
disproportionate and abusive, and failing to ensure a stable and transparent legal and
business framework”. (33) Furthermore, it held that the removal of judges refusing to rule in

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 Russia's favour and the lack of independence and impartiality of judges hearing Yukos'
cases constituted a denial of justice in breach of the fair and equitable treatment standard
of Art. 10(1). Finally, it held that Russian authorities had discriminated against the
shareholders' investments by (i) singling out Yukos and treating it in a markedly different
manner from other similar oil companies in Russia, (ii) treating YNG differently before and
after its acquisition by Rosneft, and (iii) ensuring a differential treatment in the bankruptcy
proceedings between creditors related to Yukos, on the one hand, and state-related
creditors, on the other hand.
P 1042
P 1043
3 Damages (34)
In assessing damages suffered by the shareholders as a result of Russia's breaches of the
ECT the Tribunal observed that there was an agreement between the parties that “in the
event of an expropriation through a series of actions, the date of the expropriation is the
date on which the incriminated actions first lead to a deprivation of the investor's
property that crossed the threshold and became tantamount to an expropriation”. (35)
The Tribunal then found that “a substantial and irreversible deprivation of Claimants'
assets occurred on 19 December 2004, the date of the YNG auction” (36) since YNG was its
main production asset.
Turning to the methodology for assessing damages the Tribunal noted that as the case
before it was one of unlawful expropriation (the requirements set out in paras. (a) to (d) of
Art. 13(1) not having been complied with by Russia) the shareholders were “entitled to
select either the date of expropriation or the date of the award as the date of valuation”.
(37) In this regard the Tribunal made reference to Art. 36 of the International Law
Commission's (ILC) Draft Articles on State Responsibility and noted that in case of an
illegal expropriation investors “must enjoy the benefits of unanticipated events that
increase the value of an expropriated asset up to the date of the decision, because they
have a right to compensation in lieu of their right to restitution of the expropriated asset
as of that date”. (38)
In determining Yukos' value as of 21 November 2007 the Tribunal opted for the comparable
companies method and then used the RTS Oil and Gas Index to calculate Yukos' value as at
the date of the award, being 30 July 2014.
Loss of dividends which would have been paid to the shareholder but for the expropriation
was considered by the Tribunal as the second element of the damages suffered by them as
a result of expropriation of their investment. In the case of the value of Yukos, the Tribunal
determined the value of the lost dividends on the date of the expropriation and the date
of the award. The Tribunal concluded that “Yukos' dividends in 2004 would have been USD
2.5 billion, and the sum of Yukos' dividends over the period from 2004 through the first half
of 2014 would have been USD 45 billion”. (39)
It accordingly concluded that the damages suffered by shareholders (including interest)
due to Russia's breach of Art. 13 of the ECT, based on a valuation date of 30 June 2014,
amounted to US$ 66.694 billion. (40)
P 1043
P 1044
Since the Tribunal had determined that the shareholders had contributed 25 percent to
the prejudice they suffered at the hands of Russia, the total amount of damages awarded
was reduced by 25 percent to US$ 50,020,867,798.

III The Decision of the Court

Yukos lodged a case against Russia for breaches of inter alia its rights under Arts. 6 and 18
of the ECHR and Art. 1 of Protocol No. 1 to the Convention on 23 April 2004. A one-day
hearing was held on 4 March 2010. (41) The Court rendered its decision on the merits on 20
September 2011, just under three years before the Tribunal rendered its decision in
respect of the ECT.

1 Exclusion of Jurisdiction
Before turning to the merits of the case, the Court had to determine whether it had
jurisdiction to hear the case as arbitral proceedings discussed in Sect. II were underway. In
particular, the Court had to determine whether its jurisdiction was excluded pursuant to
Art. 35(2) of the ECHR.
Art. 35(2) provides that the Court cannot consider a matter which is “substantially the
same” as one already being submitted to another procedure of international investigation
or settlement. (42) Accordingly, the Court had to determine whether the case brought
under the ECT was substantially the same as the matter put before it.
In reaching its decision on this point the Court adopted the triple identity test approach
regularly adopted by arbitral tribunals in investment treaty cases in respect of “fork in the
road” provisions. (43) Applying this test the Court found that although the proceedings
before it and the Tribunal refer “to the same events” (44) the parties before them are
different and that therefore the two matters were not “substantially the same”. (45)
P 1044

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 P 1044
P 1045
2 Breach of Art. 6
Turning to the first substantive claim made by Yukos against Russia the Court examined
the facts in the case through the prism of the obligations imposed on Russia under Art. 6 of
the ECHR. (46) The Court found that Yukos had not been given enough time during the trial
court or the appeal phase to study “the entirety of these documents and, more generally,
to prepare for the hearings on the merits of the case on reasonable terms”. (47) It also held
that the “appeal court failed to acknowledge, let alone to remedy the shortcomings
committed by the first-instance court as regards the applicant company's restricted
access to the case file”. (48) It therefore found Russia in breach of its obligation to accord
Yukos a fair trial pursuant to Art. 6(1), taken in conjunction with Art. 6(3)(b).

3 Breach of Art. 1 of Protocol No.1

Turning next to Russia's obligations under Art. 1 of Protocol No. 1, taken alone and in
conjunction with Arts. 1, 7, 13, 14 and 18 of the ECHR, the Court noted that Yukos alleged that
the “imposition and enforcement of the 2000-2003 Tax Assessments” (49) as well as the
auction of YNG “were unlawful, arbitrary and disproportionate”. (50)
Pursuant to Art. 1 of Protocol No. 1
“[e]very natural or legal person is entitled to the peaceful enjoyment of his
possessions. No one shall be deprived of his possessions except in the public
interest and subject to the conditions provided for by law and by the general
principles of international law. The preceding provisions shall not, however, in
any way impair the right of a State to enforce such laws as it deems necessary to
control the use of property in accordance with the general interest or to secure
the payment of taxes or other contributions or penalties.” (51)
Accordingly, the Court had to determine whether the actions taken by Russia as related to
the tax re-assessment, the auctioning of YNG and the bankruptcy of Yukos amounted to
interferences with its property rights and met the requirement of lawfulness, pursued a
legitimate aim, were proportionate to the aim pursued and were not discriminatory within
the meaning of Art. 14 of the Convention, taken in conjunction with Art. 1 of Protocol No. 1.
P 1045 Contrary to the Tribunal, the Court started its analysis by finding that Yukos' decision to
P 1046 structure its operations in low-tax jurisdictions was a sham. The Court described its role
in quite a different manner to how the Tribunal saw its own. It noted that “[a]s regards the
compliance with the domestic law, the Court has limited power … since it is a matter which
primarily lies within the competence of the domestic courts … and that [a]s regards the
quality of the law, the Court's task (was) to verify whether the applicable provisions of
domestic law were sufficiently accessible, precise and foreseeable…”. (52) Importantly, it
noted that in respect of tax it had to afford Russia “an exceptionally wide margin of
appreciation” (53) in the exercise of its fiscal functions under the lawfulness test given that
the third sentence in Art. 1 of Protocol No. 1 expressly reserved the right of “[c]ontracting
States to pass ‘such laws as they may deem necessary to secure the payment of taxes’”.
(54)
Turning to the facts in question the Court held that “notwithstanding the [s]tate's margin of
appreciation in this sphere”, the Court found “that there has been a violation of Article 1 of
Protocol No. 1 on account of the change in interpretation of the rules on the statutory time-
bar resulting from the Constitutional Court's decision of 14 July 2005 and the effect of this
decision on the outcome of the Tax Assessment 2000 proceedings”. (55) It then went further
to note that Yukos' “conviction under Article 122 of the Tax Code in the 2000 Tax
Assessment proceedings laid the basis for finding the applicant company liable for a
repeated offence with a 100% increase in the amount of the penalties due in the 2001 Tax
Assessment proceedings”, and thus found “that the 2001 Tax Assessment in the part
ordering [Yukos] to pay the double fines was not in accordance with the law, as required by
Article 1 of Protocol No. 1”. (56)
Turning to the tax authorities' refusal to allow Yukos to claim a refund for the VAT
reattributed to it, the Court simply found that Yukos “failed to submit any proof that it had
made a properly substantiated filing in accordance with the established procedure”. (57)
As noted in the preceding Section, the Tribunal had found that the refusal of the tax
authorities to allow Yukos to claim the refund resulted in a VAT obligation of US$ 13 billion.
Therefore, the Court's conclusion that Yukos “did not receive any adverse treatment in this
respect” (58) is perplexing.
Turning next to examine the actions of the Russian authorities to enforce the debt resulting
from the tax assessments for the years 2000-2003, the Court noted that these involved the
seizure of Yukos' assets, the imposition of a 7 percent enforcement fee on the overall
amount of the debt and the forced sale of YNG. The Court, in stark contrast to the Tribunal,
saw these actions as having the “common and ultimate goal … to force the company to
meet its tax liabilities”. (59) It noted that it had “no reason to doubt that throughout the
proceedings the actions of various authorities had a lawful basis and that the legal
provisions in question were sufficiently precise and clear to meet the Convention

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 standards concerning the quality of law”. (60)
P 1046
P 1047
Although the Court found that the choice of auctioning YNG “as the first item” (61) to be
auctioned in satisfaction of Yukos' liability was capable of dealing a fatal blow to its
ability to survive the tax claims and to continue its existence, it nevertheless found that “in
principle” the choice of auctioning YNG was not “entirely unreasonable”. (62) The Court
therefore found that the auctioning of YNG was disproportionate to the objectives of
enforcing tax obligations but not arbitrary.
Turning to the 7 percent enforcement fee the Court found that “in the circumstances of the
case the resulting sum was completely out of proportion to the amount of the enforcement
expenses which could have possibly been expected to be borne or had actually been
borne by the bailiffs”. (63) It, therefore, held that “domestic authorities failed to strike a
fair balance between the legitimate aims sought and the measures employed”. (64)
Without any detailed reasoning the Court held that an enforcement fee of 4 percent rather
than 7 percent would have been proportionate.

4 Breach of Art. 18 of the ECHR

Turning next to Art. 18, the Court refused to find that the overall effect of the actions taken
by Russia was “to destroy the company and to take control of its assets”. (65) Accordingly,
and unlike the Tribunal, the Court held that Yukos had not been able “to furnish the Court
with an incontrovertible and direct proof in support of his or her allegations” (66) that the
restrictions applied in respect of its rights under Art. 1 of Protocol No. 1 were in fact being
applied for a purpose other than the one for which it was prescribed. (67)
The Court noted that it was Yukos which had to substantiate its allegations that the actions
taken against it were politically motivated. It found that although it was “true that the case
attracted massive public attention and that comments of different sorts were made by
various bodies and individuals in this connection … [t]he fact remained … that those
statements were made within their respective context and that as such they are of little
evidentiary value for the purposes of Article 18”. (68) The Court thus concluded that “there
has been no violation of Article 18 of the Convention, taken in conjunction with Article 1 of
Protocol No. 1, on account of the alleged disguised expropriation of the company's
property and the alleged intentional destruction of the company itself”. (69)
P 1047
P 1048
5 Assessment of Damages
The Court turned to the question of the assessment of damages in its decision dated 15
December 2014. (70) Invoking the powers granted to it under Art. 41 of the ECHR the Court
noted that it could not “speculate as to what the outcome of court proceedings might have
been had the violation of the Convention not occurred” (71) and that there was “insufficient
proof of a causal link between the violation found and the pecuniary damage allegedly
sustained by the applicant company”. (72) It therefore found that in respect of the
breaches of Art. 6 there was “no ground for an award [of damages]”. (73)
Turning to the assessment of damages in respect of the breaches of Art. 1 of Protocol No. 1
the Court found that the amount Yukos should be compensated on account of the
retroactive imposition of the penalties, the payment of the enforcement fee and the
conduct of enforcement proceedings was € 1,866,104,634. Although it had found that the
auctioning of YNG was a disproportionate act, it did not award any damages in respect
thereof.

IV Key Reasons for the Differences in the two Decisions

As Sects. II and III reveal the Tribunal and the Court reached starkly different decisions,
with the Tribunal awarding damages in excess of US $ 50 billion and the Court awarding
damages of € 1.86 billion. Given that the same facts are the basis for both decisions, the
question is: What is the reason for this?
At first glance it may seem that the key reason for this difference is the different legal basis
for reviewing Russia's actions vis-à-vis Yukos as between the Tribunal and the Court.
However, it is clear from a careful review of the decisions that the key reason for the
difference is their different findings of facts in the cases.
Whereas the Tribunal looked at the totality of the actions directed at Yukos, the Court did
the opposite, dissecting the actions in turn. In fact, some of the most striking actions taken
by the Russian authorities against Yukos, such as the commencement of the bankruptcy
proceedings and its ultimate winding up, were only reviewed by the Court in a cursory
manner.
Moreover, it is evident that the Tribunal perceived Russia's actions in a completely
different light than the Court. By way of example, whereas the Tribunal found the fact that
within forty-eight hours of issuing their payment demands for the year 2000 the tax
authorities required Yukos to pay in full US$ 3.48 billion in alleged tax arrears, interest and
fines and prohibited Yukos from selling or encumbering the company's shareholdings in its

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 Russian subsidiaries as arbitrary and unfair, the Court found “no indication of arbitrariness
or unfairness … in this connection”. (74)
P 1048
P 1049
Moreover, whereas the Tribunal considered the imprisonment of Mr. Khodorkovsky and
other members of the management of Yukos as facts corroborating its findings, the Court
dismissed their relevance, insisting that the burden of proof was on Yukos to establish the
political motivation behind the actions taken by the Russian authorities.
The approach taken by the Court is surprising and disappointing. Given the nature of
allegations concerning breaches of human rights, one would have expected the Court to
adopt a broad approach to the review of the relevant facts rather than a narrow one.
Adopting a highly technical and formalistic approach to reviewing the facts in cases of
breaches of human rights runs the risk of failing to identify the heart of the breach.
Governments are increasingly sophisticated in the manner in which they breach human
rights of their citizens and deal with their political opponents. Consequently, the Court and
other international institutional mechanisms for holding states to account must rise to that
challenge.
As noted in Sect. II, the Tribunal accused the Court of being overly formalistic in its
reasoning. From reading the Court's decision one does not get at all a sense of the gravity
of the actions taken nor even the sheer amount of the tax liabilities, which exceeded US$
31 billion, imposed on Yukos. Even the tone of the decisions is completely different, with
the Court taking a more deferential view.
One possible way of explaining the different understanding of the facts could be the
difference in the nature of the proceedings themselves. Whereas the hearing lasted only
one day in the Court, the hearing on the merits in the arbitration took a month and was
preceded by a hearing on jurisdiction of ten days. Moreover, the hearing before the
Tribunal was preceded by several rounds of exchanges of written submissions and expert
evidence and extensive document production. The Court did not have the benefit of
detailed legal submissions nor the ability to cross-examine experts or witnesses.
The second key reason for the difference between the decisions is likely to stem from the
presumption of bona fides on the part of a State to which the Court referred in its
judgment. In fact the entire judgment is replete with statements of deference to Russia. No
such presumption or deference exists under international investment law or general public
international law.
The effect the operation of this presumption has on the outcome of a case can be seen
from the different way in which the Court and the Tribunal approached the determination
of the existence and significance of various so-called “anti-abuse” doctrines under Russian
law. Unlike the Court, the Tribunal held that “at the time of the tax assessments against
Yukos, the ‘business purpose’ doctrine … had not yet been explicitly adopted into Russian
law”. (75) This important difference between the findings of the Tribunal and the Court is
particularly stark since the Tribunal acknowledged that it had chosen not to accept in full
the evidence put forward by Russia's expert concerning the anti-abuse doctrine even
though the shareholders had not put forward any testimony challenging his evidence and
chose not to cross-examine him on the existence of the doctrine. The readiness of the
Tribunal to find against Russia has been criticized by human rights lawyers used to the
Court taking a much more deferential view of a state's actions.
P 1049
P 1050
The third reason for the difference between the two decisions stems from their different
approaches to the assessment of damages and causation further discussed in Sect. V
below.

V What can Human Rights Learn from Arbitration to Meet the

Challenges of Climate Change Litigation?
Now that the key reasons for the difference between the two decisions have been
identified, this Section discusses the four key ways in which the system of protecting
human rights ought to be enhanced to meet the challenges of climate change litigation by
adopting the rules of procedure used in commercial and investment treaty arbitration and
by granting powers regularly exercised by arbitral tribunals to the Court and other
international human rights institutions.
First, the procedural rules of the Court ought to change to allow for several rounds of
pleadings, exchanges of expert reports, and the cross-examination of experts and
witnesses. As noted in Sect. IV, whereas the hearing on the merits before the arbitral
tribunal lasted fourteen days the hearing on the merits of the Yukos claim in the Court was
only one day. (76) This is simply inadequate to deal with the complexity of climate change
and environmental cases going forward.
Moreover, the idea that such a complex case as Yukos, where there was a considerable
difference between the parties' pleadings on Russian law, could be determined by the
Court without probing the experts or witnesses is at odds with how such matters are
resolved in arbitration and, for that matter, in national courts. As discussed at the

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 beginning of this article, in the future many more claims for breach of proprietary rights
are likely to be brought before the Court and other human rights institutions whether
relating to climate change or otherwise. These claims will be factually and legally much
more complex than the types of claims heard to date by these institutions and will likely
be largely based on expert evidence. The rules of procedure concerning pleadings and
hearings, as well as the format of the application form, will need to be changed to allow
the Court to fulfil its function as the protector of human rights.
Second, the presumption of the bona fide nature of state actions applied by the Court
when analyzing actions of States must be abolished. The Court underlined the importance
of this presumption in the Khodorkovsky case when it noted that the “whole structure of the
Convention rests on the general assumption that public authorities in the member States
act in good faith”. (77) The Court does not provide any authorities for the existence of this
assumption in international or national laws. It is often claimed that such a presumption is
P 1050 the corollary of a state's obligation under customary international law to act in good faith.
P 1051 (78) But how can a state's international law obligation to act in good faith be turned into
a presumption that it does in fact act in good faith? This simply cannot be correct.
Moreover, how can such a “general assumption” be defended in the twenty-first century
especially within a body of law concerned with ensuring the defence of human rights and
by a court whose purpose is to act as the objective enforcer of human rights? The operation
of this presumption together with the requirement of exhaustion of local remedies and the
doctrine of the margin of appreciation unjustifiably limit the ability to hold states to
account in respect of human rights, and in a way that the reviewability of acts iure gestionis
is not limited in national courts.
Third, the Court must start using its power to grant interim measures under Art. 39 of the
ECHR more robustly. The power to grant injunctions is a powerful tool at the disposition of
tribunals in international commercial and investment treaty arbitrations. The readiness of
tribunals and national courts to use this power is key to an efficient and effective legal
system as it provides a mechanism to address the situation where irreparable damage
would otherwise be caused to a claimant. The ability to obtain freezing of assets orders
and other interim measures significantly reduces the likelihood of breaches and, as such,
the mere threat of the power being used acts as an important deterrent.
Although the test for granting an injunction adopted by international arbitral tribunals is
substantially the same as that under Art. 39 of the ECHR, the Court has interpreted its
power extremely narrowly. The Court has to date held that torture, house eviction and
extradition are the only instances of “an imminent risk of irreparable harm”. (79)
Such a narrow interpretation of the Court's power under Art. 39 further and seriously
undermines the effectiveness of the international human rights legal system, especially
when combined with the requirement of exhaustion of local remedies. The fact that
multinational companies are able to obtain interim measures in respect of proprietary
claims whereas individuals are not able to get them in respect of breaches of human rights
is difficult to justify in modern democracies. This difference in standards of protection is
putting the credibility of the entire system of enforcement of human rights at stake.
Fourth, there is a wide consensus amongst human rights lawyers that awards of damages
granted by the Court are “relatively low compared to damages awarded by domestic
courts of some Council of Europe states”. (80) Compared to awards in arbitration they are
very low. The difference in the amount of damages awarded by the Court in the Yukos case
when compared to that of the Tribunal is revealing. The key reason for this difference is the
“prevailing view that the primary remedy in Strasbourg is the finding of a violation of the
P 1051 Convention itself”. (81) The support for this narrow interpretation of the Court's powers
P 1052 cannot be found in the actual wording of the ECHR. (82) There is nothing in the wording
of Art. 41 to support the argument that the finding of breach should double up as a remedy.
As Judge Bonello said in Aquilina v. Malta it is “wholly inadequate and unacceptable that a
court of justice should ‘satisfy’ the victim of a breach of fundamental rights with a mere
handout of legal idiom”. (83)
The Court has a lot to learn from investment treaty tribunals as well as from commercial
arbitral tribunals and national courts with regard to the assessment of damages and
causality. In cases of breaches of political rights under Art. 6 the Court regularly refuses to
grant damages on the grounds that there is no clear link between the damages claimed
and the alleged violation. (84) Many ECHR judges have expressed their dismay at the
continued reluctance of the Court to even ensure that redress for fundamental rights at the
international level is at least the same as that granted in national courts. For example,
Judge Casadevall and Judge Kovler noted in Kingsley v. UK (85) that the Court could have
made an award of damages by reference to loss of opportunities or damage to reputation.
How stark the gap is in the approach taken by the Court and arbitral tribunals is revealed
by looking at the Yukos case. Whereas the Court refused to award damages in respect of
the breach of an Art. 6 right, the Tribunal had no difficulty in respect of the same facts
granting damages for the breach of fair and equitable treatment applying the “but for”
test.
That the principle which the Court should apply when assessing pecuniary damages is the
same as that taken by an investment treaty or commercial arbitral tribunal is clear from

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 the ECHR's Practice Directions on Just Satisfaction of Claims. It provides that “the applicant
should be place[d] as far as possible in the position in which he or she would have been
had the violation found not taken place, in other words restitutio in integrum”. (86)
The same basis for the assessment was adopted by the Tribunal. However, unlike the Court
the Tribunal noted that since restitution can only take place at the time of the award, the
value of an asset at the time of the award was decisive. It therefore held that shareholders
(i) should enjoy the benefits of unanticipated events that increase the value of the
expropriated assets up to the date of the decision, and (ii) should not bear risks of
unanticipated events which diminish the value of the assets. By granting the shareholders
the right to choose between the date of expropriation and date of the award as the date of
assessment of damages, the shareholders were able to receive over US$ 44 billion more in
damages.
P 1052
P 1053

VI What can International Arbitration Learn from Human Rights – A

Human Rights Lawyer's Point of View (87)
The task of the state to protect and to foster its citizens' rights inevitably results in conflict:
between the rights of the individual – natural or legal – on the one hand, and the right of
the community represented by the state on the other. (88) Decision-makers tasked with
resolving investment disputes have to take account of that conflict and must develop a
framework that aids the reconciliation of the actors' competing rights and duties. The Court
has been a pioneer in the creation of a framework balancing the right of the individual and
the right of the state as a place-holder for the community of citizens it represents.
An analysis of the Court's judgment in Yukos and the Yukos Tribunal's final award reveals
substantive similarities in the reasoning of the two bodies. Both the Court and the Tribunal
put an emphasis on the Russian authorities' “excessive harshness” (89) and their
“unyielding” inflexibility as to the pace of the proceedings. (90) Both considered the rights-
infringements on the part of Russia to be so severe that they granted the Claimant a record
amount of compensation. In that respect, the Yukos case confirms that a human rights
analysis does not significantly differ in its outcome from the analyses of tribunals under an
investment treaty.
Similarities notwithstanding, the decisions are far from identical. The Tribunal refused to
examine the procedural improprieties of the case under “fair and equitable treatment”
standard, whereas the Court conducted an in-depth analysis of a violation of the
Claimant's right to a “fair trial”. And the two bodies advanced diametrically opposed views
on the Claimant's “political motivation” charge. Since investment tribunals and human
rights courts do not operate in “parallel universes” it should be the aim of either regime to
learn from the other and to adopt, albeit modified, proven paradigms to avoid divergence
regarding fundamental legal principles. The following briefly outlines four principles
arising out of the Court's judgment which in the author's view should be adopted by
investment arbitral tribunals to aid the reconciliation of the actors' competing rights and
duties.
P 1053
P 1054
1 Balancing of Conflicting Rights' Positions
Human rights methodology provides for a balancing of conflicting rights' positions. (91)
The Yukos case illustrates the importance of this balancing. While the Tribunal did not
accept that Russia's measures had pursued the legitimate aim of collecting taxes, (92) the
Court considered that the Russian authorities' actions “pursued a legitimate aim of
securing the payment of taxes”, and that the 2000-2003 assessments were proportionate
measure in pursuit of that aim. (93) The Court went further – adopting the domestic
authorities' assessment that the Claimant's trading companies were “sham entities” (94)
and accepting the “fact” (95) that the Claimant had been found guilty of running a tax
evasion scheme.
All this testifies to the Court's opinion that Russia had not acted arbitrarily. However, the
Court's determination that measures pursued the legitimate aim of collecting taxes was
not determinative. Instead, the Court proceeded through a wider proportionality analysis,
in which it considered whether the measures were suitable, necessary and proportional in
view of the legitimate aim. Ultimately, the court determined that the measures were not.
It is this proportionality analysis to which tribunals should pay particular note. The
analysis formed the focal point of the Court's reasoning whether Russia's actions were
justified. (96) According to well-established Court jurisprudence, the proportionality
analysis has four limbs: (1) the measure in question is prescribed by law; (2) the measure
has a legitimate aim; (3) the measure is necessary to achieve that aim; (97) and (4) there is
a reasonable relationship of proportionality between the measure and the aim sought to
be realized. (98) A fair balance must be struck between the demands of the general
interest of the community and the requirements of the protection of the individual's
fundamental rights. (99)
P 1054 A full account of the Court's analysis is beyond the scope of this addendum, (100) but the

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 P 1054
P 1055 important point to note for the instant purpose is that the Court acknowledged Russia's
legitimate aim to pursue the collection of taxes (101) (relying on Art. 1(2) of Protocol No. 1 to
the ECHR) (102) and the wide margin of appreciation Russia enjoyed in the tax sphere in
order to implement its policies. However, when ascertaining whether Russia struck a fair
balance between the legitimate interest in enforcing the tax debt in question and the
protection of the Claimant's rights set forth in Art. 1 of Protocol No. 1 (103) it found that
Russian authorities did not employ the least infringing measures to pursue their aim. (104)
The Court stressed that the crux of the case did not lie in the attachment of the Claimant's
assets and cash per se, but rather in: (1) the speed with which the authorities demanded
the company make payment, (2) the decision that that Claimant's main production unit
would be the first asset to be compulsorily auctioned, and (3) the speed with which the
auction had been carried out. (105) Thus, Russia had violated the Claimant's right to
property under Art. 1 of Protocol No. 1 by instituting the enforcement proceedings against
the Claimant. (106)

2 Reliance on Well-Established Legal Standards

Investment treaty arbitration proceedings generally evolve around standards that are “re-
phrased” human rights standards, such as “fair and equitable treatment”, denial of justice,
or expropriation. In the Award the parties argued about the standard for expropriation laid
out in Art. 13(1) ECT, and the level of protection guaranteed by the “fair and equitable”
treatment standard in Art. 10(1) ECT (minimum standard or higher level of protection?).
The Court's jurisprudence, as well as the jurisprudence of other human rights tribunals,
provides arbitral tribunals with an important extra resource to interpret those standards.
As Harris et al. note, the ECHR is the “most advanced instrument of this kind. It has
generated the most sophisticated and detailed jurisprudence in international human
rights law.” (107)
Having regard to Court jurisprudence would have added to the robustness of the Tribunal's
reasoning. (108)
P 1055
P 1056
3 Implementation of Judicial Self-Restraint
Tribunals should include a human rights analysis in their decision-making process. In the
author's view, the inclusion of such a process will lead to judicial self-restraint.
The “margin of appreciation” doctrine plays a crucial role in this respect. The baseline of
the doctrine was first explained by the Court in Handyside v. the United Kingdom, which
noted that state authorities are in a better position than an international judge to take a
view on the content of moral requirements and on the “‘necessity’ of a ‘restriction’ or
‘penalty’ intended to meet them”. (109) This discretion is encapsulated in the “fourth
instance” doctrine, which states that the Court does not constitute a further court of appeal
from the decisions of national courts applying domestic law. (110)
The implementation of the margin of appreciation meant that the Court was not called
upon to scrutinize the legality of the Russian tax authorities' measures under domestic law.
It was “sufficient” for the Court to satisfy itself that the findings of the domestic courts had
neither been arbitrary nor manifestly unreasonable. (111)
In the author's view arbitral tribunals should develop a margin of appreciation doctrine
within investment arbitration. A state must have some scope to decide on how to fulfil its
function. Margin of appreciation is part of the proportionality analysis, and speaks to
whether the measure has a legitimate aim and whether or not the state has to choose the
least infringing measure available to the state if the result of doing so is that other
legitimate goals can also be achieved. The margin of appreciation has to be assessed in
light of the investment treaty (or in the Yukos case, the ECT). By entering into an
investment treaty a state circumscribes its policy choices, with the result that it may only
be able to limit the rights of an investor in the most severe circumstances. (112)

4 Standard of Proof
The Tribunal and the Court differ in the standard of proof they each apply. The Court
defines the standard of proof for the party who bears the burden of persuasion with regard
to a certain factual question or mixed factual and legal questions. The jurisprudence of the
P 1056 Court reveals that the state's standard of proof can fall into three categories: strict,
P 1057 intermediate, and lenient scrutiny. (113) The nature of the violation and the importance
of the right are the most important factors in determining which standard the Court
applies. (114) For example, the Court requires a high standard of proof in cases concerning
the right to life and the freedom from torture. (115)
Tribunals should look to adopt a more nuanced approach to standard of proof – one which
is linked to the margin of appreciation. By adopting a more bespoke approach, tribunals
will be better equipped to strike fair balance between safeguarding the individual's rights
on the one hand, and the rights of the community on the other.

5 Conclusion

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 Arbitral tribunals are tasked with balancing the rights of the investor with those of the
state's community. Using a human rights framework in an arbitral tribunal's decision-
making will not necessarily lead to a different outcome. However, it will lead to a more
robust methodological approach and reliance on well-established legal principles. The
inclusion of a human rights analysis into its decision-making process will increase an
investment arbitration tribunal's legitimacy and public acceptance. In terms of Darwinian
theory, “evolution by means of adaptation” might be one in a range of the silver bullets for
mastering the current challenges of investment arbitration.

VII Conclusion
Human rights protection and the protection of foreign investment have the same objective:
to protect non-state entities from state power. (116) In order to meet the challenges posed
by climate change both arbitration and human rights must learn from each other. In
particular, rather than lowering the bar of investor protection we must raise the bar for the
protection of human rights by ensuring that the Court exercises its powers to grant interim
measures and award damages, and by changing the way it takes evidence.
P 1057

References
*) Ana Stanič: English lawyer specializing in arbitration, EU and international law;
founder of E&A Law; visiting lecturer at the Centre for Energy, Petroleum and Mineral
Law and Policy in Dundee, the Technische Universität in Berlin, and the UIBE in
Beijing; represents states and energy companies in commercial and investment
treaty arbitrations, has appeared before the Court of Justice of the EU and filed a
number of cases before the Court.
This is a longer version of a paper presented by the author at the ICCA 2018
Conference in Australia during the panel on Potential of Arbitration Involving New
Types of Claims. The paper was prepared after extensive discussions with Petra
Butler. Sect. VI of this paper was written by Petra Butler and represents her views on
what arbitration can learn from human rights.
**) Petra Butler: Professor, Victoria University of Wellington; co-director, Centre for Small
States; and Visiting Professor, Queen Mary University of London. The author of Sect. VI
of this paper would like to thank Christoph Katerndahl for his valuable research
assistance.
1) International Bar Association, “Achieving Justice and Human Rights in an Era of
Climate Disruption, International Bar Association Climate Change Justice and Human
Rights Task Force Report” (November 2012) available at
<https://www.ibanet.org/PresidentialTaskForceCCJHR2014.aspx> (last accessed 12
June 2018).
2) Ibid.
3) Damian CARRINGTON, “Can climate litigation save the world?”, available at
<https://www.theguardian.com/environment/2018/mar/20/can-climate-litigation-
save-the-world> (last accessed on 12 June 2018).
4) Numerous cases are ongoing in national courts around the world. By way of example
on 3 March 2015 four victims of the fire in a factory in Pakistan filed claims against the
German retailer Kik in the court in Dortmund in Germany. Kik was the main buyer of
goods produced in the factory. On 30 August 2016, the Dortmund court accepted
jurisdiction and granted legal aid to the claimants to cover their costs. In February
2019 the same court dismissed the case on the basis that the claims were statute
barred. At the time of the publication of this article, the claimants were planning to
appeal the decision. For more information on the case see
<https://www.ecchr.eu/en/case/kik-paying-the-price-for-clothing-production-in-
south-asia/> (last accessed on 18 April 2019). Saul v. RWE – Case of Huaraz is the first
case brought before courts in Europe against an energy company for its alleged
contribution to climate change. Information on the case and the pleadings by the
parties in the case are available at <https://germanwatch.org/en/huaraz> (last
accessed on 12 June 2018). Okpabi and others v. Royal Dutch Shell Plc and Shell
Petroleum Development Company of Nigeria Ltd [2018] EWCA Civ 191 is an example of
an unsuccessful attempt to sue two companies in the Shell group (domiciled in the
United Kingdom and Nigeria respectively) in the UK Courts for alleged pollution in the
Niger Delta in Nigeria. More information is available at
<www.bailii.org/ew/cases/EWHC/TCC/2017/89.html> (last accessed on 12 June 2018).

11
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 5) One of many such cases around the world is the case brought by the Urgenda
Foundation together with 900 Dutch citizens against the Dutch government for failing
to set ambitious enough targets for cutting greenhouse emissions by 2020. On 4 June
2015, the District Court of The Hague ordered the Dutch government to cut the
country's greenhouse gas emissions by at least 25 percent by the end of 2020. On 9
October 2018, The Hague Court of Appeal upheld the decision of the lower court,
finding that the Netherlands had breached its duty of care by failing to pursue more
ambitious targets. More information on the case is available at
<www.urgenda.nl/en/themas/climate-case/> (last accessed on 18 April 2019).
6) Lopez Ostra v. Spain (Application no. 16798/90), (9 December 1994) available at
<http://hudoc.echr.coe.int/eng?i=001-57905> (last accessed on 12 June 2018).
7) Taşkın and Others v. Turkey (116/1996/735/932), (30 March 2005) para. 104, available at
<http://hudoc.echr.coe.int/eng?i=001-67401> (last accessed on 12 June 2018).
8) Guerra and Others v. Italy (Application no. 46117/99), (19 February 1988) para. 60,
available at <http://hudoc.echr.coe.int/eng?i=001-58135> (last accessed on 12 June
2018).
9) The text of the Energy Charter Treaty is available at
<https://energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf> (last
accessed on 12 June 2018).
10) Yukos Universal Limited (Isle of Man) v. The Russian Federation (PCA Case No. AA 227),
Final Award (18 July 2014) para. 73, available at
<https://www.italaw.com/sites/default/files/case-documents/italaw3279.pdf> (last
accessed on 12 June 2018) (Award).
11) Id., para. 83.
12) Pursuant to Art. 10(1) Russia had undertaken to “encourage and create stable,
equitable, favourable and transparent conditions for Investors … to make
Investments…. Such conditions shall include a commitment to accord at all times to
Investments … fair and equitable treatment. Such Investments shall also enjoy the
most constant protection and security and no Contracting Party shall in any way
impair by unreasonable or discriminatory measures their management, maintenance,
use, enjoyment or disposal….”
13) Under Art. 13 of the ECT Russia had undertaken that investments of investors would
“not be nationalized, expropriated or subjected to a measure or measures having
effect equivalent to nationalization or expropriation (hereinafter referred to as
‘Expropriation’) except where such Expropriation is: (a) for a purpose which is in the
public interest; (b) not discriminatory; (c) carried out under due process of law; and
(d) accompanied by the payment of prompt, adequate and effective compensation”.
14) Award, fn. 10, para. 63.
15) Id., para. 1406.
16) Id., para. 1381.
17) Id., para. 1407.
18) Id., para. 1444.
19) Id., para. 1445.
20) The text of the Convention is available at
<https://treaties.un.org/doc/publication/unts/volume%201155/volume-1155-i-18232-
english.pdf> (last accessed on 12 June 2018).
21) Award, fn. 10, para. 656.
22) Id., para. 677.
23) Id., para. 698.
24) Id., para. 699.
25) Ibid.
26) Ibid.
27) Id., para. 700.
28) Ibid.
29) The Court reached the same decision.
30) Award, fn. 10, para. 1148.
31) Ibid.
32) Id., para. 1253.
33) Id., para. 108.
34) For a good analysis of the Tribunal's reasoning concerning damages see Irmgard
MARBOE, Yukos Universal Limited (Isle of Man) v. The Russian Federation (Case
Comment), 30 ICSID Review – Foreign Investment Law Journal (2015, no. 2) p. 326.
35) Award, fn 10, para. 1761.
36) Id., para. 1762.
37) Id., para. 1763.
38) The text of the International Law Commission's Draft Articles on the Responsibility of
States for Internationally Wrongful Acts is available at
<https://casebook.icrc.org/case-study/international-law-commission-articles-state-
responsibility> (last accessed on 12 June 2018).
39) Award, fn. 10, para. 1812.
40) Id., para. 1825.
41) OAO Neftyanaya Kompaniya Yukos v. Russia, (Application No. 14902/04), (8 March
2012) available at <https://hudoc.echr.coe.int/eng#{%22itemid%22:[%22001-
106308%22]}> (last accessed on 12 June 2018) (Decision).

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 42) The text of the ECHR is available at
<https://www.echr.coe.int/Documents/Convention_ENG.pdf> (last accessed on 12 June
2018).
43) Vivendi v. Argentina (ICSID Case No. ARB/97/3), Award (21 November 2000) para. 53-5,
available at <https://www.italaw.com/sites/default/files/case-
documents/ita0206.pdf> (last accessed on 12 June 2018), Azurix v. Argentina (ICSID
Case No. ARB/01/12), Decision on Jurisdiction (8 December 2003) paras. 37-41, 86-92,
available at <https://www.italaw.com/sites/default/files/case-
documents/ita0060.pdf> (last accessed on 12 June 2018). For further cases see fn. 166
in Rudolf DOLZER and Christopher SCHREUER, Principles of International Investment
Law, 5th edn. (OUP 2012) p. 267.
44) Decision, fn. 41, para. 524.
45) Ibid., para. 526.
46) Art. 6(1) provides that “[i]n the determination of his civil rights and obligations or of
any criminal charge against him, everyone is entitled to a fair and public hearing
within a reasonable time by an independent and impartial tribunal established by
law”. Art. 6(3) guarantees that “[e]veryone charged with a criminal offence has the
following minimum rights: … (b) to have adequate time and facilities for the
preparation of his defence;…”. ECHR, fn. 43.
47) Decision, fn. 41, para. 540.
48) Id., para. 545.
49) Id., para. 552.
50) Ibid.
51) Id., para. 553.
52) Id., para. 559.
53) Id., para. 566.
54) Ibid.
55) Ibid.
56) Ibid.
57) Id., para. 602.
58) Ibid.
59) Id., para. 646.
60) Id., para. 647.
61) Id., para. 633.
62) Id., para. 654.
63) Id., para. 655.
64) Id., para. 657.
65) Id., para. 623.
66) Id., para. 663.
67) Art. 18 of the ECHR provides that “[t]he restrictions permitted under [the] Convention
to the said rights and freedoms shall not be applied for any purpose other than those
for which they have been prescribed”. Fn. 42, p. 14.
68) Award, fn. 10, id., para. 665.
69) Id., para. 666.
70) OAO Neftyanaya Kompaniya Yukos v. Russia, (Application No. 14902/04) (15 December
2014) available at <http://hudoc.echr.coe.int/eng?i=001-145730> (last accessed on 12
June 2018) (Damages Decision).
71) Id., para. 18.
72) Id., para. 19.
73) Ibid.
74) Decision, fn. 41, para. 535.
75) Id., para. 663.
76) In fact typically cases before the ECHR are decided on documents only.
77) Khodorkovskiy v. Russia (Application no. 5829/04), Judgement (28 November 2011),
available at <http://hudoc.echr.coe.int/eng?i=001-104983> (last accessed on 12 June
2018).
78) William BURKE-WHITE and Andreas VON STADEN, “The Need for Public Law Standards
of Review in Investor-State Arbitrations” in Stephan W. SCHILL, ed., International
Investment Law and Comparative Public Law (OUP 2010) p. 705.
79) ECHR, Interim measures (1 February 2018), available at
<https://www.echr.coe.int/Documents/FS_Interim_measures_ENG.pdf> (last accessed
on 12 June 2018).
80) Philip LEACH, Taking a Case to the European Court of Human Rights, 3rd edn. (OUP
2011) p. 600.
81) Ibid.
82) Art. 41 of the ECHR provides that “[i]f the Court finds that there has been a violation of
the Convention or the Protocols thereto, and if the internal law of the High Contracting
Party concerned allows only partial reparation to be made, the Court shall, if
necessary, afford just satisfaction to the injured party”. Fn. 48.
83) Aquilina v. Malta (Application no. 25642/94), (29 April 1999) p. 20, available at
<http://hudoc.echr.coe.int/eng?i=001-58239> (last accessed on 12 June 2018).
84) ECHR, Practice Direction: Just Satisfaction Claims (September 2016) at paras. 7 and 8,
available at <https://www.echr.coe.int/Documents/PD_satisfaction_claims_ENG.pdf>
(last accessed 12 June 2018).

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 85) Kingsley v. United Kingdom (Application no. 35605/97), (28 May 2002) available at
<http://hudoc.echr.coe.int/eng?i=001-60487> (last accessed on 12 June 2018).
86) ECHR, fn. 84, para. 10. For a discussion on how the approach taken by the Court in
assessing damages in case of expropriation differs from that adopted in public
international law see Héléne RUIZ FABRI, “The Approach Taken by the European Court
of Human Rights to the Assessment of Compensation for ‘Regulatory Expropriations’ of
the Property of Foreign Investors”, 11 N.Y.U. Envtl L.J. (2002-2003) p. 148.
87) This Section was written by Petra Butler and represents her views on what arbitration
can learn from human rights.
88) Soering v The United Kingdom, Application No. 14038/88 (7 July 1989) p. 89; Rolv
RYSSDAL, “Opinion: The Coming Age of the European Convention on Human Rights”, 1
EHRLR (1996) p. 18, p. 26. This is a very simplistic statement – being the core/starting
point-issues arise in all shades of grey. For the purpose of the argument advanced in
this addendum the core statement is sufficient.
89) Award, fn. 10.
90) Decision, fn. 41, para. 1583.
91) Petra BUTLER, “Red Riding Hood – Is Investor-State Arbitration the Big Bad Wolf?”, 5
Penn. St. J.L. & Int'l Aff. (2017) p. 328, p. 362.
92) Holding that the respondent was “not engaged in a true, good faith tax collection
exercise” (Yukos Award, fn. 2, p. 985), and was “not driven by motives of tax
collection”, p. 1037.
93) Decision, fn. 41, para. 606.
94) Id., para. 592.
95) Id., para. 649.
96) See Christoph GRABENWARTER and Katharina PABEL, Europäische
Menschenrechtskonvention: Ein Studienbuch, 6th ed. (C. H. Beck, München 2016) Sect.
18 paras. 14 et seq.
97) Monica CARSS-FRISK, “A Guide to the Implementation of Article 1 of Protocol No. 1 to
the European Convention on Human Rights”, Human Rights Handbook No. 4 (Council of
Europe, Strasbourg 2003) p. 109 et seq.
98) James v. the United Kingdom, A98 (1986) p. 50; and Lithgow v. the United Kingdom, A102
(1986) p. 120
99) Sporrong and Lönnroth v. Sweden, A52 (1982) p. 69 and 73; Tre Traktörer Aktiebolag v.
Sweden, A159 (1989) p. 59; Hentrich v. France, A296-A (1994) p. 45-49; Holy Monasteries v.
Greece, A301-A (1994) p. 70.
100) Decision, fn. 41, paras. 606 et seq.
101) Id., para. 606.
102) David HARRIS et al., Law of the European Convention on Human Rights, 2nd ed. (OUP
2009) p. 668. Compare also Clare OVEY and Robin WHITE, The European Convention on
Human Rights, 4th ed. (OUP 2006) p. 370, p. 373; Nußberger observes that only rarely
will an interference with the right to property be unlawful due to an illegitimate aim,
as states enjoy a very wide margin of appreciation in this respect: Angelika
NUßBERGER, “Enteignung und Entschädigung nach der EMRK” in Otto DEPENHEUER and
Foroud SHIRVANI, ed., Die Enteignung: Historische, vergleichende, dogmatische und
politische Perspektiven auf ein Rechtsinstitut (Springer, Berlin 2018) p. 89 p. 102.
103) Decision, fn. 41, paras. 646, 648.
104) Id., para. 653.
105) Decision, fn. 41, para. 650.
106) Id., para. 658.
107) David HARRIS et al., fn. 102, p. 30.
108) E.g., the Court has continuously stressed that under Art. 6 ECHR it is only concerned
with the question whether the proceedings as a whole have been fair: see Gäfgen v.
Germany, Judgment, ECtHR App. No. 22978/05, paras. 162-188 (1 June 2010); Decision,
fn. 41, para. 534; see also Petra BUTLER, “Human Rights” in Andrea BJORKLUND et al.,
Cambridge Compendium of International Commercial and Investment Arbitration (CUP,
forthcoming).
109) See Handyside v. the United Kingdom, Judgment, ECtHR App No 5493/72, para. 48 (7
December 1976).
110) See David HARRIS, et al., fn. 102, p. 14.
111) Decision, fn. 41, para. 594.
112) See Art. 9 of the Hong Kong – ASEAN Free Trade Agreement (FTA) (12 Nov 2017) which
sets out explicitly when the state can adopt measures necessary to maintain public
morals or the protection of privacy of individuals.
113) Depending on the width of the margin of appreciation. Mónika AMBRUS, “The
European Court of Human Rights and Standards of Proof” in Lukasz GRUSZCZYNSKI and
Wouter WERNER, eds., Deference in International Courts and Tribunals: Standard of
Review and Margin of Appreciation (OUP, 2014) p. 235. The Canadian Supreme Court
also has noted that the right in question and the facts of a case are determinative on
the level of standard of proof required (R v. Oakes [1986] 1 RCS 103, 137, 138 (SCC)).
114) See, e.g., Guiliani and Gaggio v. Italy (App. no. 23458/02), ECtHR 2011; Nachova and
others v. Bulgaria (app. nos. 43577/98, 43579/98), ECtHR (Chamber) 2004.
115) Guiliani and Gaggio v. Italy, above; The Court's jurisprudence regarding Arts. 2 and 3
reveals that strict scrutiny is akin to “beyond reasonable doubt”.

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 116) Erik DE BRABANDERE, “Complementarity or Conflict? Contrasting the Yukos-case
before the European Court of Human Rights and the Investment Tribunals”, 30 ICSID
Review – Foreign Investment Law Journal (2015, no. 2) p. 345.

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 16
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 KluwerArbitration

Document information
Scope for Enlarged Participation in International
Publication Arbitration
Evolution and Adaptation: Campbell McLachlan
The Future of International (*)
Arbitration
I Introduction
Bibliographic reference Two great innovative arbitrations that bookend the last decade–Abyei (1) and the first
cases under the Bangladesh Accord (2) – provide the inspiration for this closing panel. At
Campbell McLachlan, 'Scope first blush these cases, however individually remarkable, look unlikely companions. Abyei
for Enlarged Participation in concerned the delimitation of a territorial boundary between a national liberation
International Arbitration', in movement and a sovereign state whilst the Bangladesh Accord case involved a claim
Jean Engelmayer Kalicki and between trade unions and international buyers from the Bangladesh garment industry on
Mohamed Abdel Raouf (eds), building safety. Neither of them appears to provide an obvious precedent for a more
Evolution and Adaptation: general expansion of participation in international arbitration when set against the
The Future of International backdrop of the great engine of commercial arbitration that is the prime focus of this
Arbitration, ICCA Congress Council.
Series, Volume 20 (© Kluwer P 1061
Law International; P 1062
International Council for Yet these two cases, when considered together, are significant both for what they
Commercial demonstrate about the gaps in the contemporary system of international dispute
Arbitration/Kluwer Law resolution that arbitration is uniquely able to fill and the essential conditions and
International 2019) pp. 1061 - qualities needed if arbitration is in fact going to be able to meet the needs of enlarged
1075 participation on a more general basis. The cases are significant in at least three key
respects: (a) the pre-conditions needed for the insertion of binding third-party
determination according to law into a complex international dispute; (b) the capacity of
the arbitral process to accommodate group claims that would otherwise not have an
available and effective international forum; and (c) the core attributes of the arbitral
process that justify its privileged place in international dispute resolution.
Arbitration does not hold such a position simply by virtue of party autonomy. As the
International Law Commission put it:
“It is not the fact alone that the compromis may provide that the award is
binding on the parties which makes it so binding. The view of States that
international law makes an arbitration award binding, the circumstance that
the tribunal faithfully has adhered to the fundamental principles of law
governing its proceedings, these are the ultimate sources of the binding
authority of an international arbitral award.” (3)
The argument presented here is that arbitration does have the capacity to determine
complex disputes on the international plane that could not otherwise be effectively
determined in any court, national or international. Its capacity to do so is always
dependent on the willingness of the parties to subject themselves to third-party binding
adjudication of a particular dispute. It is no accident that both of the cases examined here
arose from major crises in which other means of dispute resolution had been tried but
found insufficient and a special framework had to be created to provide for arbitration. If
these precedents are to have any more general benefit, that will require a determination
on the part of States and private stakeholders to build a framework that enables more
general resort to arbitration and addresses the limitations that arbitration ordinarily has
in facilitating group claims.
The paper will develop this argument under five heads:
(1) The particular context that lead to the arbitration agreement in each case;
(2) The gap in participation in international dispute resolution that each agreement was
designed to fill;
(3) The significance of the cases in terms of the core elements of the arbitral process;
(4) The implications of two arbitral processes as possible precedent; and,
(5) The elements that would have to be addressed if the potential of international
arbitration in this regard were to be fully realized.
P 1062
P 1063
This last point is not merely technical. The larger point that invites consideration in the
light of both of these cases is that the process of international arbitration serves not only
the needs of international commerce, but also serves a wider purpose in the pacific
settlement of international disputes. (4) These two purposes are neither distinct nor
antithetical. They are mutually interdependent goals. Not only is peace and security an

1
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 essential condition for economic development; but also “the fullest collaboration between
all nations in the economic field with the object of securing, for all, improved labour
standards, economic advancement, and social security” (to borrow the language of the
Atlantic Charter) (5) is a key means of promoting peace and security.

II Context
Though they are both arbitrations conducted under the auspices of the Permanent Court of
Arbitration (PCA) in The Hague, each of Abyei and the Bangladesh Accord arbitrations took
place under special arbitration agreements concluded between the Parties following
major crises. They are anything but usual cases.

1 Abyei
In the case of Abyei, as the Award relates, the context was two long-running civil wars in
Sudan: “The Abyei Area is said to be at the geographical centre of this civil war, which is
the longest running conflict in Africa and has caused some two million deaths, significant
economic destruction and untold suffering, particularly for the people of Southern Sudan.”
(6) Negotiations for Peace had led to a series of agreements entered into between the
Government of Sudan and the Sudan People's Liberation Movement/Army (SPLM/A)
representing Southern Sudan, including an agreement to establish an Abyei Boundaries
Commission (ABC) to define and demarcate the Abyei Area. (7) These agreements were in
turn reconfirmed in the Comprehensive Peace Agreement concluded on 9 July 2005. (8) The
ABC carried out its work and delivered its Experts' Report on 14 July 2005. But
P 1063 disagreements arose between the Parties as to whether the ABC Experts exceeded their
P 1064 mandate. (9) In order to resolve these disagreements, the Parties agreed to submit their
dispute to arbitration. (10) They agreed to apply the PCA Optional Rules for Arbitrating
Disputes between Two Parties of which only one is a State. (11) They provided that the
Award “shall be final and binding” (12) and that “the Presidency of the Republic of Sudan
shall ensure [its] immediate execution”. (13) The Tribunal issued its Award on 22 July 2009.

2 Bangladesh Accord
The context for the conclusion of the Bangladesh Accord, including its arbitration
agreement, also concerned a major humanitarian crisis, but in a very different context. The
Accord was concluded on 13 May 2013 in the immediate aftermath of the April 2013 Rana
Plaza building collapse in the Bangladesh garment industry that led to the death of more
than 1,100 people and injured more than 2,000. Its signatories now include over 200 global
brands, retailers and importers in 20 countries in Europe, North America, Asia and
Australia and 10 trade unions. (14) The Accord commits the Parties to “a safe and
sustainable Bangladeshi Ready-Made Garment (‘RMG’) industry in which no worker needs
to fear fires, building collapses, or other accidents that could be prevented with
reasonable health and safety measures”. (15) It “covers all suppliers producing products for
the signatory companies”, which the signatories “shall require … to accept inspections and
implement remediation measures in their factories”. (16) If a supplier fails to implement
remediation measures required by the Accord Safety Inspector, the signatory is required to
implement a process that, if the default is not remedied, leads to termination of the
business relationship. (17)
The Accord is governed by a Steering Committee, with equal representation of trade union
and company representatives and a (non-voting) chair appointed by the International
Labour Organization. (18) Disputes between the Parties relating to the implementation of
the Accord must first be submitted to the Steering Committee for decision by majority
vote. “Upon request of either party, the decision of the SC may be appealed to a final and
binding arbitration process,” the resulting award to be enforceable in the courts of the
domicile of the relevant signatory and subject to the 1958 New York Convention where it is
applicable. (19)
In the two arbitrations to have arisen to date under the Accord, the Steering Committee
P 1064 was deadlocked. It reached the decision that it was unable to agree on the merits of a
P 1065 complaint brought by two trade unions, noting that the trade unions have the right to
proceed to arbitration. (20) The tribunals were constituted; confirmed their jurisdiction to
determine the claims; and rejected the Respondents' admissibility objection. (21) The
claims were settled in December 2017 and January 2018 respectively and terminated by
agreement in July 2018. (22)
In 2018, the parties to the original Accord adopted a revised “Transition Accord on Fire and
Building Safety in Bangladesh”. (23) This revised Accord continues the fire and building
safety programme until 2021. Clause 3 deals with dispute resolution. It continues to refer in
the first instance to the Steering Committee, which is now mandated to adopt a dispute
resolution process, including the opportunity for mediation. Nevertheless, arbitration
remains the backstop form of dispute resolution. The revised dispute resolution clause
specifies arbitration under the last revision of the UNCITRAL Arbitration Rules, seated in
The Hague, administered by the Permanent Court of Arbitration. The applicable law of the
revised Accord is the law of the Netherlands. (24)

III Jurisdiction Ratione Personae

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 In each case, the arbitration agreement concluded between the Parties filled a critical gap
in the reach of binding third-party adjudication of disputes and demonstrated the
capacity of the arbitral process to address that gap.

1 Abyei
Since World War II, the majority of armed conflicts have been internal rather than
international disputes. Where an intra-State peace agreement can be negotiated, the
secure demarcation of territorial disputes is often a key element. Yet many such peace
agreements fail, in part for want of an available means of third-party dispute settlement.
(25)
The nature of such agreements means that they fall outside the jurisdiction of established
P 1065 courts. The national courts of the home State are unlikely to be acceptable to both parties.
P 1066 On the international plane, the Statute of the International Court of Justice provides
that “Only States may be parties in cases before the Court.” (26) National liberation
movements enjoy a measure of legal personality at international law. (27) But they are not
competent to bring a case before the Court.
In the case of Sudan, the SPLM/A had been recognized as the appropriate representative
of the people of Southern Sudan. In that capacity it had negotiated and entered into the
Comprehensive Peace Agreement and the specific accords and agreements relating to the
Abyei Area. The delineation of the Abyei Area nevertheless had particular implications for
the potential creation of a new State. The Abyei Protocol provided for a referendum of the
“residents of the Abyei Area” simultaneously with a referendum of the people of Southern
Sudan. The latter would determine whether to confirm the unity of Sudan or to vote for
secession. The Abyei Referendum would decide whether the residents of Abyei wished to
remain a special administrative region in the north or to become part of a southern
province. As the Tribunal put it, the consequences of the choice to be made by the
residents of the Abyei Area were that “they may find themselves north or south of an
international boundary if South Sudan secedes”. (28)
If, then, the submission of the Abyei dispute to arbitration was a prelude to the possible
emergence of a new State in the future, the decision to do so challenged conventional
conceptions of arbitration. As at the date of the arbitration agreement, the dispute was
not, in the terms of the 1907 Hague Peace Convention, an “[i]nternational arbitration
[which] has for its object the settlement of differences between States”. (29)
Yet this was not ultimately an impediment. The PCA “is competent to place its offices and
staff at the disposal of the Contracting Powers for the use of any special Board of
Arbitration” (30) and its Council may settle “rules of procedure”. (31) The PCA has since 1934
accepted the administration of cases between a non-State party and a State (32) and has
P 1066 developed specific rules for such cases, which rules were applied in Abyei. (33) Moreover
P 1067 the use of international arbitration for the determination of territorial disputes at the
sub-national level is not unprecedented, tribunals finding that they are entitled to refer, in
addition to any specific agreements between the parties and applicable constitutional
provisions within the State, general principles of international law. (34)

2 Bangladesh Accord
The arbitration agreement in the Bangladesh Accord is no less remarkable for the way in
which it extended the ordinary reach of international arbitration. As recently as 2015 a
general survey of the use of arbitration in international labour disputes pointed out that
the creation of a standing tribunal to resolve international labour disputes “remains an
ideal”. (35)
The Bangladesh Accord deals with one set of international labour issues only (fire and
building safety) and then only in respect of one industry in one country. Yet within this
framework it breaks new ground. It binds together in a direct contractual relationship that
includes an arbitration agreement two parties that otherwise would not have been so
bound: the international brands that buy the garments manufactured in Bangladesh and
the unions representing the factory workers. (36)
A significant development on the workers' side of the dispute has been the establishment
of global trade unions, with the capacity to act on behalf of a group of national unions in
order to negotiate and conclude global framework agreements with multinational
corporations. (37)
These distinctive features are well summarized by the Tribunal:
“In the Tribunal's view, this case cannot be characterized either as a classic
‘public law’ arbitration (involving a State as a party) or as a traditional
commercial arbitration (involving private parties and interests), or even as a
typical labor dispute. A number of features distinguish the Accord from such
categorizations, including (a) the creation of the Accord in the wake of the Rana
Plaza tragedy; (b) the number of signatories to the Accord (over 200 as the date
the arbitrations were commenced); (c) the number of supplier factories affected
P 1067 by the Accord (over 1600); (d) the number of workers in the Ready-Made
P 1068 Garment industry protected by Accord (over 2 million); (e) the involvement of

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 international organizations in the negotiation and governance of the Accord
(including the ILO); (f) the involvement of States and State entities in the
negotiation and oversight of the Accord (including the government of
Bangladesh); (g) the involvement of Bangladeshi and international non-
governmental organizations as witnesses to the Accord and in an advisory
capacity; and (h) the public nature of the Accord itself and many associated
documents, as well as detailed information about factory remediation under
the Accord.” (38)
For present purposes, the Accord is distinctive because it furnishes standing consent on
the part of 200 international brand companies to submit to international arbitration a
claim by a union representing workers in supplier factories that the companies have failed
to abide by their Accord undertakings. It is not a “multi-stakeholder initiative”. The
supplier factories are not directly party to it; nor are the workers themselves. Rather the
Accord places the responsibility directly on the purchasing company to ensure that its
suppliers comply with the remediation requirements under the Accord. It subjects the
purchasing company to arbitration in the event of an alleged default and empowers the
unions to bring arbitral proceedings in the event that a dispute over building safety cannot
be resolved within the Steering Committee. For this purpose, the Accord relies upon the
enforcement mechanism of the New York Convention. It adopts and incorporates the
provisions of the UNCITRAL Model Law on International Commercial Arbitration as
applicable to the process of the arbitration. (39)

IV The Arbitral Process

The two cases have important implications for the operation of the arbitral process. In the
first place, in both cases the parties chose arbitration as part of a larger dispute resolution
process.
In Abyei, the first step had been an expert determination by the Abyei Boundaries
Commission (ABC). Their procedure was explicitly technical and not legal. The experts were
to be knowledgeable in history and geography; they were required to listen to the
representatives of the people and to consult the archives in order to arrive at a decision
that “shall be based on scientific analysis and research”. (40) By contrast, the arbitral
tribunal was asked to decide “[w]hether or not the ABC experts had … exceeded their
mandate” and to do so according to the applicable law. (41)
In Bangladesh Accord the parties were required first to present their dispute to the
P 1068 Steering Committee (consisting of an equal number of company and union representatives)
P 1069 for decision. The Accord then permitted either party to appeal the decision of the
Committee to a final and binding arbitration process. (42) The provision for arbitration
performs a useful ultimate adjudicatory role in the rare case where the Steering
Committee either cannot reach a decision or its decision is not accepted. Nevertheless its
significance must be seen in the context of the inspection and remediation process, which
is being carried out on a very large scale and which, in view of the ultimate remedy of
business termination in the event of non-compliance, has led to a high level of compliance
without the need for an adjudicatory process. (43)
In both cases the reference to arbitration sought to support the alternative forms of
dispute resolution by ensuring that, in the event that either party was dissatisfied with
their outcome, they could resort to a formal determination according to law. But the
parties' arbitration agreement in each case led to a quite different scope of review.
In Abyei, the Tribunal, construing the terms of the agreement in light of the jurisprudence of
the International Court of Justice, determined that it “must limit itself to assessing whether
the ABC Experts' findings can be understood as a not unreasonable discharge of their
mandate, that is, as an exercise that does not amount to a manifest breach of the
competence assigned to them”. (44) Although this element of its reasoning did not go
uncontested, (45) it has proved to have a much wider application in guiding international
tribunals charged with the review of the decisions of other bodies. (46)
The Tribunal also found as a general principle that a failure on the part of the Commission
to state reasons for a decision may lead to an excess of mandate. (47) The Parties were
entitled to expect that “an award should contain sufficient ratiocination to allow the
reader to understand how the tribunal reached its binding conclusions (regardless of
whether the ratiocination might persuade a disengaged third party that the award is
substantively correct)”. (48) Awards might be set aside if the conclusions were not
supported by any reasons at all, where the reasoning is incoherent or obviously incoherent
or frivolous. This part of its decision has also been subject to criticism. (49) No doubt the
adequacy of reasoning required will depend upon the nature of the particular arbitration
and the issues. But the Abyei standard has proved to be influential in subsequent cases
concerning the review of arbitral awards. (50)
P 1069
P 1070
By contrast, the terms of the Bangladesh Accord does not limit the reference to arbitration
to the question of excess of mandate. Rather it provides that the decision of the Steering
Committee may be “appealed to a final and binding arbitration process”. The Tribunal
found that on its own the term “appeal” does not denote whether the tribunal's task was to

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 be a de novo review or something more limited. However “considering the non-legal,
industry-based character of the first level of decision-making, there is every reason to
believe that the Accord signatories considered that the ‘arbitration’ to which that initial
decision could be ‘appealed’ would involve the full fact-finding and law-deciding authority
of standard arbitral processes”. (51)

V Implications for Enlarged Participation Generally

Both Abyei and the Bangladesh Accord Arbitrations are each the product of their respective
particular set of circumstances. They are important in themselves for their contribution of
a legal framework to the resolution of complex problems, even if they have not resolved all
aspects of the wider matrix of those problems. As Lowe and Tzanopolous conclude:
“decisions of tribunals cannot be expected to settle disputes unless the parties intend to
cooperate fully in the implementation of the decision … but they can make a major
contribution in clarifying the position by identifying strong legal rights and dismissing
untenable claims”. (52)
They are also important as precedents for the ability of the arbitral process to bring
together before an independent international tribunal parties that otherwise would not be
so subject.
The question that this leaves is the extent to which this experience is capable of being
generalized and how this might be achieved. It is tempting to say that, arbitration
agreements being the expression of the will of the parties, this is simply a matter of party
autonomy: that parties, whether political, private, commercial or industrial should simply
be left to determine for themselves whether they wish to choose arbitration as their
preferred means for the resolution of their disputes. Yet this would be to ignore the fact
that, as in the Bangladesh Accord Arbitrations, the parties may not otherwise be in a
contractual relationship that would ordinarily provide a basis for an arbitration
agreement; or that, as in Abyei, the dispute may be seen as internal within a State so as not
ordinarily to admit of international adjudication.
Moreover it would be to underrate the significance of the wider international institutional
support that facilitated the resort to arbitration: in the case of Abyei the Parties were
assisted to reach agreement through the involvement of the wider international
community, notably the Inter-Governmental Authority on Development (IGAD) and the
African Union.
P 1070 Submission to international arbitration for the resolution of intra-state disputes has
P 1071 continued in South Sudan. A “Revitalised Agreement on the Resolution of the Conflict in
the Republic of South Sudan” was concluded under the auspices of IGAD on 12 September
2018. (53) The Parties include both the Transitional Government of South Sudan and various
opposition and other political parties. One element of the Agreement is the establishment
of a Technical Boundary Committee “to define and demarcate the tribal areas of South
Sudan as they stood on 1 January 1956 and the tribal areas in dispute in the country”. (54)
In the event that any tribe claims that the report of this Committee is violated, that tribe is
entitled to resort to arbitration against the Government of South Sudan before the
Permanent Court of Arbitration in The Hague. (55)
In the case of the Bangladesh Accord the International Labour Organization has had a
strong role in facilitating the Accord and its implementation through the Steering
Committee. In both cases, the process of arbitration was facilitated by the availability of
the Permanent Court of Arbitration, which served as Registry and provided substantial
administrative support. In both cases, the arbitrations were conducted under
internationally developed procedural rules: the PCA's “Optional Rules for Arbitrating
Disputes between Two Parties of which only one is a State” in the case of Abyei and the
UNCITRAL Arbitration Rules 2010 in the case of the Bangladesh Accord.
The Bangladesh Accord has three further features that may have more general
implications. In the first place, it brings together a large number of corporate and union
parties in a standing agreement that, inter alia, provides for arbitration in the event of a
dispute that cannot be resolved by other means. It does so within an umbrella contractual
framework that lies outside the dense network of contract relations between particular
buyers and their suppliers, though the Accord makes plain that a failure to abide by
remediation required under its terms may produce real effects at the supply contract
level. The result is that the resolution of disputes is not left to ad hoc agreements
concluded after a dispute has arisen nor is such agreement left to the decision of
individual buyers.
Second, all of the parties to the Accord participate in a standing framework that is
designed to address the problems of building safety in the Bangladesh garment industry.
They have a collective voice in decision-making through the Steering Committee (and
related bodies). Arbitration performs only part of that wider process, existing to support it
where the parties cannot otherwise agree on the solution in a particular case.
Third, the Parties specifically agree that any Award will be internationally enforceable
under the New York Convention in the courts of the domicile of the signatory against whom
enforcement is sought. This represents a major advance in international enforcement that
only arbitration can provide. The courts of the host State would only exceptionally be able

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 to exercise jurisdiction to enforce building safety standards as a matter of public law
against international buyers. Such companies would likely not be subject to the personal
P 1071 jurisdiction of host state courts. In the normal case, the responsibility for building safety
P 1072 would fall on the local occupier. In any event, any judgment of the host state courts
imposing such a liability for breach of public law standards as the suit of the state would
only exceptionally be enforceable abroad. (56) By agreeing to arbitration and applying the
enforcement mechanism of the New York Convention, the Parties to the Bangladesh Accord
ensured that the responsibility for implementation assumed by the international brands is
reinforced, where ultimately necessary, by enforceability at home.
The New York Convention itself takes liberal view of the kinds of disputes that may be
validly submitted to arbitration and in turn the subject of an enforceable award. It applies
to disputes “in respect of a defined legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by arbitration”. (57) It extends “not only
to awards made by arbitrators appointed for each case but also those made by permanent
arbitral bodies to which the parties have submitted”. (58)
This example offers potential in many other contexts, in which international arbitration
can offer a neutral forum for the resolution of disputes that may otherwise founder for want
of a forum. An example is the field of environmental disputes. Arbitration is widely, though
not universally, agreed to as the preferred means of dispute resolution between states in
multilateral environmental treaties. (59) But such agreements are unlikely to apply
directly to disputes involving private parties that are alleged to cause environmental
harm.
International arbitration is capable of resolving such disputes. The Permanent Court of
Arbitration has developed a specific set of Optional Rules for Arbitration of Disputes
relating to the Environment and/or Natural Resources (PCA Environmental Arbitration
Rules), which have been used in several disputes. (60) The prospect for using arbitration to
decide such claims has also arisen with increasing frequency in the context of
counterclaims in investment arbitration. Of course a State may not wish to pursue such
claims in arbitration. It may prefer, for good public reasons, to enforce the obligations of
all private parties (whether domestic or foreign) under its own environmental regulations
before host state courts.
P 1072
P 1073
Where the State does wish to avail itself of arbitration as an alternative means of resolving
such a dispute (securing in the process the advantage of international enforceability of any
award against the foreign investor), it will be necessary for the tribunal to find that it has a
basis for jurisdiction over such a counterclaim; that it is admissible, being sufficiently
closely related to the investor's claims; and that the investor owes a duty under the
applicable law. (61) The majority of counterclaims asserted in investment arbitration to
date have failed on the view taken by the tribunal on the proper interpretation of the
investment treaty as instrument of consent pursuant to one or more of these grounds. (62)
A study recently prepared with the support of the Permanent Court of Arbitration and
published in January 2018 explores the limitations of the current structure of investment
treaties in facilitating such claims, whether by way of counterclaim or original action and
proposes a number of alternative models should States wish to amend their treaty
arrangements to facilitate such claims. (63) The framers of the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States (the ICSID
Convention) expressly envisaged both possibilities. Art. 25 makes provision on a fully
bilateral basis for “any legal dispute arising directly out of an investment between a
Contracting State … and a national of another Contracting State”. (64) Art. 46 requires a
tribunal, save in the case of contrary agreement, to “determine any incidental or
additional claims or counterclaims arising directly out of the subject-matter of the dispute
provided that they are within the scope of the consent of the parties and are otherwise
within the jurisdiction of the Centre”. (65)
Despite the limitations that have been encountered in practice, the recent examples of
the Decisions on Counterclaims in the Burlington and Perenco v. Ecuador cases (66) show
that, where there is jurisdiction (in those cases by consent), an international arbitral
tribunal is fully competent to determine very complex claims for environmental
remediation. In so doing, it may, pursuant to Art. 42(1) (second sentence) of the ICSID
Convention, apply the tort law of the host state to determine the applicable legal
standards. (67)
P 1073
P 1074
Important though they are, these decisions do not however resolve the difficult questions
of jurisdiction, admissibility and applicable law that otherwise arise for tribunals to whom
application is made to accept such claims in the absence of ad hoc agreement between
the parties. Nor do they challenge the bilateral paradigm of an investment dispute. To be
sure, in such cases the State stands as parens patriae, claiming damages in order to secure
remediation for the benefit of the people. But the decisions do not have direct
implications for the admission of new parties to arbitral proceedings. By contrast, the
Bangladesh Accord demonstrates the potential value of bringing together a number of
parties under the umbrella of the same standing agreement. It is to the significance of this

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 aspect of that case as a precedent that attention must finally turn.

VI Conditions for Enlarged Participation

The question whether arbitration is capable of providing for the aggregation of claims
where the parties have an identity of interest arising out of the same dispute is critical to
its ability to deal fairly with a larger range of complex transnational issues that either
present common issues or involve multiple claimants or defendants. (68)
Courts, whether national or international, typically have procedural rules at their disposal
that can facilitate the aggregation or consolidation of claims or provide for the
identification of test cases. Such procedures promote efficiency, but they also implement
important elements of the principle of legality: by promoting equal access to justice and
ensuring consistency of approach between like cases. The standing of arbitration as a
dispute resolution mechanism will ultimately be imperilled if arbitration clauses are
upheld, particularly in contracts of adhesion, but the consolidation of claims refused. (69)
There is a real risk that this can lead to a denial of justice if it has the effect of rendering
P 1074 otherwise valid claims uneconomic to pursue on an individualised basis. (70) More
P 1075 generally, a limitation on the ability of arbitral tribunals to consolidate or marshal cases
arising out of the same dispute heightens the risk of inconsistent decisions. (71)
The need to expand consolidation in order to ensure access and consistency is an
illustration of a larger point made at the outset of this paper. International arbitration has
considerable potential to resolve disputes involving parties that may otherwise not be
amenable to effective dispute resolution. Its ability to do so depends in the first instance
on the willingness of the parties, in the exercise of party autonomy, to commit to
arbitration. But the ultimate source of legitimacy and binding effect of an international
award is not simply a product of that agreement. It is also, as the International Law
Commission observed “the circumstance that the tribunal faithfully has adhered to the
fundamental principles of law governing its proceedings”. (72)
P 1075

References
*) Campbell McLachlan QC: Professor of Law, Victoria University of Wellington; Associé
Institut de Droit International; Associate Member, Bankside Chambers (Auckland &
Singapore), Essex Court Chambers (London); Senior Research Fellow 2019 KFG Berlin-
Potsdam Research Group “International Rule of Law: Rise or Decline?”.
1) Sudan v. The Sudan People's Liberation Movement/Army (the Abyei Arbitration) (Final
Award, 22 July 2009) XXX RIAA 145 (Abyei), as to which see: V. LOWE and A.
TZANAKOPOULOS “Introduction: The Abyei Arbitration” in L. BOSMAN and H. CLARK,
eds., The Abyei Arbitration, Permanent Court of Arbitration Award Series, Volume 9
(2012) p. 1; W. MILES, “The Abyei Arbitration: A Model for Peaceful Resolution of Disputes
Involving Non-state Actors” in U. FRANKE, A. MAGNUSSON and J. DAHLQUIST, Arbitrating
for Peace: How Arbitration Made a Difference (Kluwer, Alphen aan den Rijn 2016), p. 223;
cf. G. BORN and A. RAVIV “The Abyei Arbitration and the Rule of Law”, 58 Harv ILJ (2017)
p. 177.
2) IndustriALL Global Union v. Respondent (PCA Case Nos. 2016-36 and 2016-37), case
details available at: <https://pca-cpa.org/en/cases/152/> (Bangladesh Accord
Arbitrations); Accord on Fire and Building Safety in Bangladesh (13 May 2013) available
at: <http://www.industriall-union.org/sites/default/files/uploads/documents/2013-
05-13_-_accord_on_fire_a...> (last accessed 21 January 2019) (Bangladesh Accord). The
2013 Accord had a five-year duration (Preamble, para 2). It has now been replaced by
the 2018 Accord, which will expire on 31 May 2021, at which time “the work will be
handed over to a national regulatory body, supported by the International Labor
Organization” (Preamble, para. 2).
3) International Law Commission, “Commentary on the Draft Convention on Arbitral
Procedure adopted by the International Law Commission at its Fifth Session, prepared
by the Secretariat of the United Nations” (A/CN.4/92, 1955) p. 105.
4) Art. 33(1) Charter of the United Nations (signed 26 June 1945, entered into force 24
October 1945) 59 Stat. 1031, 145 UKTS 805 provides: “The parties to any dispute, the
continuance of which is likely to endanger the maintenance of international peace and
security, shall, first of all, seek a solution by negotiation, enquiry, mediation,
conciliation, arbitration, judicial settlement, resort to regional agencies or
arrangements, or other peaceful means of their own choice.” (emphasis added).
5) Fifth Principle, Declaration of Principles known as the Atlantic Charter issued by the
Prime Minister of the United Kingdom and the President of the United States of
America (signed 14 August 1941) 204 LNTS 384.
6) Abyei, [109].
7) Ibid., [113]-[117]; Abyei Protocol (26 May 2004) and Abyei Appendix (17 December 2004).
8) Ibid., [118].
9) Ibid., [133].

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 10) Ibid., [134]-[135]; Abyei Arbitration Agreement (7 July 2008), reproduced in L. BOSMAN
and H. CLARK at p. 453.
11) Art. 1(1) Abyei Arbitration Agreement.
12) Art. 9(2).
13) Art. 9(5).
14) Bangladesh Accord Arbitrations, Procedural Order No. 2 (4 September 2017) (“PO No 2”),
[4].
15) Bangladesh Accord, preamble para 1.
16) Ibid., “Scope.”
17) Ibid., “Supplier Incentives” [21].
18) Ibid ., [4].
19) Ibid., [5]; Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(signed 10 June 1958, entered into force 7 June 1959) 330 UNTS 38 (New York
Convention).
20) Bangladesh Accord Arbitrations PO No. 2, [53].
21) Ibid., [104].
22) Termination Orders dated 17 July 2018 available at: <https://pca-
cpa.org/en/cases/152> (last accessed 21 January 2019).
23) Available at: <https://admin.bangladeshaccord.org/wp-
content/uploads/2018/08/2018-Accord.pdf> (last accessed 21 January 2019).
24) Ibid., [24]. On 19 May 2019, the Accord, which had been subject to legal challenge in the
Bangladesh courts, reached a settlement under which its functions will be transferred
to a national Bangladesh safety entity, all other elements of the Accord remaining in
place: <https://bangladeshaccord.org/updates/2019/05/19/accord-reaches-
resolution-on-continuation-of-its-wor...> (last accessed 28 May 2019).
25) M. BOLTJES, Implementing Negotiated Agreements: The Real Challenge to Intra-State
Peace (Cambridge UP 2007); N. CASPERSEN, Peace Agreements (Wiley 2016).
26) Art. 34(1) Statute of the International Court of Justice (signed 26 June 1945, entered into
force 24 October 1945) 59 Stat 1055; UKTS 67 (1946); R. KOLB, The International Court of
Justice (Hart, Oxford 2013) p. 263.
27) R. JENNINGS and A. WATTS, eds., Oppenheim's International Law, 9th ed., (Longmans
1992) vol. 1, pp. 161-165.
28) Abyei, [594]. In the event, from 9 to 15 January 2011, an internationally monitored
referendum was held in South Sudan in which 98.83 percent of the voters voted in
favour of independence: Southern Sudan Independent Referendum Commission “Final
Results Report, 7 February 2011”, p. 94. On 9 July 2011, South Sudan seceded from the
Republic of Sudan and became a sovereign, independent State, the Republic of South
Sudan. South Sudan was admitted to membership of the United Nations on 14 July
2011. No official Abyei Referendum could be held and the status of the Area remains
contested and subject to UN supervision: UNSC Res 2386 (2017).
29) Art. 37, Convention for the Pacific Settlement of International Disputes (adopted 18
October 1907, entered into force 26 January 1910) (1907) 205 CTS 233.
30) Ibid. Art. 47.
31) Ibid. Art. 49.
32) Radio Corporation of America v. China (Award, 13 April 1935) III RIAA 1621, 8 ILR 26; J.D.
AMADO, J.S. KERN and M.D. RODRIGUEZ, Arbitrating the Conduct of International
Investors (Cambridge UP 2018) p. 11.
33) PCA, Optional Rules for Arbitrating Disputes Between Two Parties of Which Only One Is
a State 1993.
34) Kanton Wallis v. Kanton Tessin (Swiss Federal Court, 2 July 1980) BGE 106 Ib 154; Dubai-
Sharjah Border Arbitration (19 October 1981) 91 ILR 543, cited in Abyei [430]-[431]; and
see also: Brčko Inter-Entity Boundary (Bosnia v. Republika Srpska) (Interim Award, 14
February 1997) 36 ILM 396, (Final Award, 5 March 1999) 38 ILM 534, on which see: R.J.
HARRY, “The Brčko Arbitation” in U. FRANKE (2016) Ch. 11; Ch. SCHREUER 11 Leiden JIL
(1998) p. 71, 12 Leiden JIL (1999) p. 575. For a recent example of the use of arbitration to
determine a title dispute between Maori tribal groups in New Zealand see: Ngāti
Whakaue v. Ngāti Wahiao [2016] NZHC 1486, [2017] NZCA 429, [2017] 3 NZLR 770, citing
Abyei at [66]-[68].
35) K. CLAUSSEN, “The Use of Arbitration to Decide International Labour Issues” in A.
BLACKETT and A. TREBILCOCK, Research Handbook on Transnational Labour Law
(Edward Elgar 2015) Ch. 28, p. 395.
36) For a critique see: C. SCHEPER, “Labour Networks Under Supply Chain Capitalism: The
Politics of the Bangladesh Accord”, 48 Development and Change (2017) p. 1069.
37) <http://admin.industriall-union.org/issues/confronting-global-capital/global-
framework-agreements> (last accessed 16 February 2017).
38) Bangladesh Accord Arbitrations PO No. 2, [93].
39) Bangladesh Accord, [5]. The reference to the UNCITRAL Model Law may have been
intended to be to the UNCITRAL Arbitration Rules. The tribunals in the Bangladesh
Accord Arbitrations applied the latter to their proceedings: PO No. 1, [14.1].
40) Abyei Appendix, Sect. 4, cited at Abyei [116].
41) Arts. 2 and 3 Abyei Arbitration Agreement, reproduced in L. BOSMAN and H. CLARK at
pp. 456-457.
42) Bangladesh Accord, [5].

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 43) Bangladesh Accord “Quarterly Aggregate Report” (October 2018) available at:
<https://admin.bangladeshaccord.org/wp-
content/uploads/2018/12/Accord_Quarterly_Aggregate_Report_Octo...> (last accessed
21 January 2019).
44) Abyei, [510].
45) Dissent of Judge Al-Khasawneh, [181]-[182], [192]; G. BORN and A. RAVIV “The Abyei
Arbitration and the Rule of Law”, 58 Harv ILJ (2017) p. 177.
46) As in the case of an application for the annulment of an arbitral award on the ground
that “the Tribunal has manifestly exceeded its powers” under Art. 52(1)(b) ICSID
Convention: Fraport AG v. Philippines (ICSID Case No ARB/03/25), Decision on Annulment
(2010) [44]; LOWE and TZANOPOULOS, [65]-[66].
47) Abyei, [518]-[535].
48) Ibid., [531].
49) G. BORN and A. RAVIV, pp. 193-200.
50) Ngāti Whakaue v. Ngāti Wahiao [2017] NZCA 429, [2017] 3 NZLR 770, [66]-[68]. For
discussion of the reasoning requirement in domestic commercial cases see: Westport
Ins Corp v. Gordian Runoff Ltd [2011] HCA 37, 244 CLR 239, 281 ALR 593; D. WILLIAMS and A
KAWHARU, Williams & Kawharu on Arbitration, 2nd ed. (LexisNexis, Wellington 2017)
[14.10.1].
51) Bangladesh Accord Arbitrations PO No. 2, [63].
52) V. LOWE and A. TZANOPOULOS, [64]. On the continuing difficulties in resolving the Abyei
dispute and securing compliance with the Award see: UNSC Res 2386 (2017); G. BORN
and A. RAVIV, pp. 222-224.
53) Intergovernmental Authority on Development, “Revitalised Agreement on the
Resolution of the Conflict in the Republic of South Sudan” (signed 12 September 2018)
available at: <https://igad.int/programs/115-south-sudan-office/1950-signed-
revitalized-agreement-on-the-resolution...> (last accessed 1 February 2019).
54) Ibid., Art. 1.15.18.1.
55) Ibid., Art. 1.15.18.7
56) See further C.A. MCLACHLAN Foreign Relations Law (Cambridge UP 2014) Ch. 11, esp.
[11.73]-[11.84].
57) Art. II, New York Convention. Note however that, pursuant to Art. I(3) a State may, when
it becomes party to the Convention “declare that it will apply the Convention only to
differences arising out of legal relationships, whether contractual or not, which are
considered as commercial under the national law of the State”. At the time of writing,
47 of the 157 States Parties have made such a declaration:
<http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.
html> (last accessed 16 February 2018). On the construction of this declaration see:
UNCITRAL, “Guide on the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards” (New York 1958) (2016 ed.) UN Sales No E.16.V.7, [83]-[91].
58) Art. I(2).
59) T. STEPHENS, International Courts and Environmental Protection (Cambridge UP 2009)
pp. 28-36. Art. 14(2)(b) United Nations Framework Convention on Climate Change
(signed 9 May 1992, entered into force 21 March 1994) 1771 UNTS 107 provides for the
adoption by the Conference of Parties of an Annex on Arbitration, which has not yet
been adopted.
60) J. LEVINE “Information About the Activities of the Permanent Court of Arbitration in
Environmental Disputes in the Context of Energy Projects” (PCA 2014); J. LEVINE,
“Adopting and Adapting Arbitration for Climate Change-related Disputes” in W. MILES,
ed., Dispute Resolution and Climate Change: The Paris Agreement and Beyond (ICC 2017)
Ch. 3.
61) Urbaser SA v. Argentina (ICSID Case No ARB/07/26), Award (8 December 2016) Pt XII.
62) For discussion see: M. TORAL and T. SCHULTZ, “The State, a Perpetual Respondent in
Investment Arbitration?” in M. WAIBEL et al., eds., The Backlash Against Investment
Arbitration (Kluwer 2010) p. 577; BUBROWSKI, “Balancing IIA Arbitration Through the Use
of Counterclaims” in A. DE MESTRAL and C. LÉVESQUE, eds. Improving International
Investment Agreements (Routledge 2013) p. 212; D. ATANANSOVA, A.M. BENOIT and J.
OSTRANSKY, “Legal Framework for Counterclaims in Investment Treaty Arbitration”, 31 J
Int”l Arb (2014) p. 357.
63) J.D. AMADO, J.S. KERN and M.D. RODRIGUEZ, Arbitrating the Conduct of International
Investors (Cambridge UP 2018).
64) Art. 25, Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (signed 18 March 1965, entered into force 14 October 1966)
575 UNTS 159 (ICSID Convention).
65) Ibid., Art. 46.
66) Burlington Resources Inc v. Ecuador (ICSID Case No ARB/08/5), Decision on
Counterclaims (7 February 2017); Perenco Ecuador Ltd v. Ecuador (ICSID Case No
ARB/08/6), Interim Decision on the Environmental Counterclaim (11 August 2015).
67) Burlington [71]-[74]; Perenco [319] et seq.

9
© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
 68) See generally S.I. STRONG, Class, Mass and Collective Arbitration in National and
International Law (Oxford UP 2013) and, in the context of investment arbitration: C.
MCLACHLAN, L. SHORE and M. WEINIGER, International Investment Arbitration:
Substantive Principles, 2nd ed. (Oxford UP 2017) Ch. 4, esp. [4.200]–[4.214], discussing
Abaclat and Others v. Argentina (ICSID Case No ARB/07/5), Decision on Jurisdiction and
Admissibility. IIC (2011) 504; Ambiente Ufficio SpA. and Ors v. Argentina (ICSID Case No
ARB/08/09), Decision on Jurisdiction and Admissibility IIC 576 (2013); Alemanni and Ors
v. Argentina (ICSID Case No ARB/07/8), Decision on Jurisdiction and Admissibility) IIC
666 (2014). For proposed models to deal with such claims see J. AMADO, “Mass
Proceedings and Settlement Agreements”, Ch. 4 in Arbitrating the Conduct of
International Investors.
69) See, for example, the US Supreme Court jurisprudence upholding (by narrow majority)
limits on the aggregation of claims in consumer cases under the Federal Arbitration
Act: Stolt-Nielsen SA v. Animal Feeds International Corp 130 S. Ct. 1758 (2010); AT&T
Mobility LLC v. Conception 131 S. Ct. 1740 (2011); DIRECTV Inc v. Imburgia, 136 S. Ct. 463
(2017) cf. Sect. 11 Arbitration Act 1996 (NZ) (arbitration agreements in consumer
contracts unenforceable in the absence of separate written agreement after the
dispute has arisen).
70) G. BORN, “The US Supreme Court and Class Action Arbitration: A Tragedy of Errors”,
<www.kluwerarbitrationblog.com> (1 July 2011) (last accessed 8 February 2018);
“Arbitration Everywhere: Stacking the Deck of Justice”, New York Times (31 October
2015, 1 November 2015).
71) As in Lauder v. Czech Republic (Award) 9 ICSID Rep 62, IIC 205 (UNCITRAL, 2001); CME
Czech Republic BV v. Czech Republic (Partial Award) 9 ICSID Rep 121, IIC 61 (UNCITRAL,
2001); (Final Award) 9 ICSID Rep 264, IIC 62 (UNCITRAL, 2003), described as “the
ultimate fiasco in investment arbitration”: A. REINISCH “The Proliferation of
International Dispute Settlement Mechanisms” in I. BUFFARD, et al., International Law
Between Universalism and Fragmentation: Festschrift in Honour of Gerhard Hafner (2008)
pp. 107, 116. The problem also arises where a number of claims arise out of the same
state measure and give rise to a common legal issue.
72) Above fn. 3.

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 KluwerArbitration

Document information
Closing Keynote Address
Publication (*)
Evolution and Adaptation: I Introduction
The Future of International
Arbitration I would like to begin by acknowledging the traditional owners of the land on which we
meet, the Gadigal people of the Eora nation, and pay my respects to their elders past,
present and emerging.
Bibliographic reference It is a pleasure to have the opportunity to speak at the closing of this 24th ICCA Congress in
'Closing Keynote Address', in Sydney. I have had the immense privilege of attending many of the sessions over the past
Jean Engelmayer Kalicki and three days – and of course enjoyed the social functions that attend these gatherings. It is
Mohamed Abdel Raouf (eds), also my great pleasure that the Congress this year has been held in my hometown of
Evolution and Adaptation: Sydney, and I hope that alongside all the learning and networking, you have had an
The Future of International opportunity to get outside and enjoy the weather, the beaches and the views.
Arbitration, ICCA Congress Of course, of more importance than social functions and excursions, was the rigorous
Series, Volume 20 (© Kluwer academic program that we have been exposed to. A significant amount of work has gone
Law International; into each of the speakers' presentations and I thank them for devoting their time and
International Council for expertise to the big issues that are facing international arbitration. Too often these events
Commercial descend into an orgy of self-congratulations with little constructive being said. To the
Arbitration/Kluwer Law contrary, in this Congress we have been privileged to hear from over fifty speakers, all
International 2019) pp. 1079 - renowned experts on international arbitration, expressing what could only be described as
1087 a cosmopolitan view of the issues which will confront international arbitration in the
coming years and the best means to deal with them. Now in the face of the quality of the
presentations I will not try to compete with them but rather focus this morning on some of
the key themes emerging from the past few days.
These themes are ultimately what you all, the players in this field, have determined are
“The Future of International Arbitration”. They seem to me to be, firstly, the internal
challenge of legitimacy and associated with that issues of institutional design, costs,
delays and transparency and secondly, the external challenges and opportunities that the
coming years will bring in terms of technology. It is these two topics to which I will now
turn.
P 1079
P 1080

II Legitimacy
Thomas Schultz on Monday helped frame this issue of legitimacy in practical terms – why
do we care about legitimacy in international arbitration? He made the point that a regime
that is not legitimate to the actors who can change it is likely to be unstable – that is, it is
likely to change – and those who operate in that regime need to anticipate such changes.
(1) One way we can think about legitimacy, therefore, is from the perspective of each actor
who has change-making power. It is entirely sensible when one considers that any effort to
define values that mean arbitration is “legitimate” needs to balance the myriad interests
of its many players.
I think in the context of international arbitration and treating it as a process as distinct
from a series of cases governed by particular rules of proceedings, legitimacy involves the
concept of a process which is acceptable to the parties directly or indirectly affected by it.
Legitimacy of commercial arbitration in that sense is vital. Quite apart from investor-state
disputes it is the most common way of resolving international commercial disputes, its
importance being enshrined in the 1958 New York Convention and the UNCITRAL Model Law
on International Commercial Arbitration. It is thus a contributor to the rule of law and
international commerce and order. This Congress can only be congratulated for paying
such close attention to this issue. Confidence in the process or institution, whichever you
prefer to call it, is critical in those circumstances.
One of the problems facing this community is a prevailing public perception that
arbitration is not a legitimate means of resolving disputes that affect them. Of course the
“legitimacy-elephant” in the room is Investor State Dispute Settlement. This issue, as we
heard on Monday from Chief Justice Allsop, (2) caused significant public concern in this
country around ratification of the TPP – or the new TPP-11– because of the Australian
experience with the Philip Morris plain packaging tobacco dispute.
Unfortunately we are operating in an era where mistrust in public institutions is rife. It
seems this sentiment is only amplified in relation to international institutions. The
expropriation obligation has collided with notions of the public interest and states' rights.
(3) When considering expropriation disputes, tribunals take into account whether measures
taken are “proportional to the public interest presumably protected”. (4) I think it is trite
to say that questions of proportionality inevitably involve value judgments. The legitimacy

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 of tribunals making these judgments, when they operate outside accountable domestic
governments is in sharp focus. This is particularly so in countries such as Australia and
perhaps other common law countries where the concept of proportionality as a legal tool
is not perhaps as well understood and accepted as in civil law jurisdictions.
P 1080
P 1081
We are already seeing pushback from this uncomfortable intersection – one example being
the Court of Justice of the European Union (CJEU) ruling last month in Slovak Republic v.
Achmea (5) – that the investor-state dispute arbitration clause in the Netherlands-Slovakia
bilateral investment treaty is not compatible with EU law. In the CJEU's view, this
arbitration clause removes disputes involving the interpretation of EU law from judicial
review as provided for by the EU legal framework. (6)
A second issue is the provision in the “TPP-11” last month, for a senior level Commission
with authority to issue interpretations of the agreement that are binding on tribunals
considering it. (7) That Commission comprises government representatives of each party at
the level of Ministers or senior officials. (8) Thus at least to a limited extent any arbitral
tribunal's power to interpret the treaty potentially is limited. (9) Of course that has all
been thrown up in the air just last week, but of course I am making no comment about
that….
In this context of increasing involvement of public bodies in international arbitration,
Chief Justice Menon posed the following question to consider: “Under what conditions is
the exercise of power [over persons] … which is mediated through the laws of international
arbitration, rightful? And to what extent is it appropriate for certain actors to have a role in
shaping the rules by which such power is acquired and exercised?” (10)
So at the same time we are questioning the legitimacy of private arbitration resolving
disputes of a public nature, there is also a real question to be asked about the legitimacy
of the involvement of public bodies in arbitration, as against the arbitration precepts of
party autonomy and minimal curial intervention.
This involvement is problematic, firstly, because of state sovereignty and the effect of
changing national attitudes towards arbitration, when domestic policies can “profoundly
affect the global complexion of arbitration”. (11) The second concern is accountability,
where public actors make decisions as to arbitration with no accountability to the affected
private parties. Thirdly, is legislative and judicial overreach to the extent that party
autonomy and other interests of arbitration users are trampled in pursuit of public policy
concerns. Fourthly is the inconsistency that results when different jurisdictions produce
conflicting rules and norms as they seek, for example, to fill the gaps in the lex arbitri. This
is affected by the fifth concern, being that of legal precision. (12)
P 1081 The challenge for the future, in line with what Professor Schill contended at the Congress in
P 1082 2016, (13) is to develop a “constitutional legal mindset in thinking about the functioning
and legitimacy of international arbitration”. (14) As Chief Justice Menon has suggested,
what this requires is a concerted effort from all stakeholders to develop a set of core
principles to articulate and guide the proper relationship between public actors and
international arbitration. (15)
This is part of a broader need for arbitration to develop a certain level of “self-regulation”
in order to maintain its autonomy. (16) Alexis Mourre made the point, and I believe it was
well made, that the “development of procedural soft law is a fundamental condition for
the establishment of trust in arbitration”. (17)
But these sets of rules – such as guidelines on conflicts, best practices guides and the like –
in turn require legitimacy. This requires that the process of rule-making is representative,
transparent and consultative. An arbitral body engaged in a rule-making exercise should
draft under the auspices of a representative task force, submit the draft for consultation
with persons likely to participate in the process and engage in periodic review. (18) The
harmonization of arbitration rules depends on consensus in this community, which is
possible if you perceive yourselves as part of a global group sharing the same vision of
arbitration as an “autonomous global system of justice”. (19) Congresses such as these go a
long way to helping establish this common mindset.

1 Institutional Design
It may be that some of legitimacy challenges stem from a perception of investor-state
regimes being a “bad deal”. Won Kidane suggested on Monday that this may be because of
the impression that the expropriation obligation confers all the benefits on investors, with
no commensurate benefit on the individuals those investors affect. (20) Concern over this
imbalance has led to the imposition of some substantive obligations on investors under
some contemporary treaties, such as through counterclaim provisions, but by and large it
remains a one-way street. From an access point of view we were challenged as to whether
it is necessary to rethink this aspect of structural design to temper the pivot away from its
use.
The other big legitimacy discussion that has been had is over the issue of party
appointment. Alfonzo Gomez-Acebo expressed the view on Monday afternoon that there is
a problem with party appointments if it is thought the appointing party has a role to play
P 1082
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 P 1082 in ensuring “their” party's position is understood by the tribunal. (21) This is because such a
P 1083 notion is hard to reconcile with precepts of impartiality and independence. There may
be a role for soft-law producers, like the Chartered Institute of Arbitrators, to eliminate any
such ambiguity.
There is however the converse side, that party appointment of arbitrators offers disputing
parties confidence in the process. This is an important part of considering legitimacy from
the perspective of party self-interest. (22) An important factor to remember, and one that
is easily forgotten, is the reputation element for arbitrators – it is difficult to build up yet
easily destroyed – and this can work against any incentive to taint a decision in favour of a
party to secure future appointments. (23)
For commercial parties, the ability to select an arbitrator engenders a sense of control and
proximity to the proceedings. It always has been an integral part of party autonomy in
arbitration. Taking it away may diminish corporate users' preference for arbitration in the
first instance. (24) The other issue is whether corporate users have faith in institutions to
make appointments for them. In this context I think the point was well-made by Chief
Justice Allsop on Monday, that it would be unwise to transmogrify concerns about ISDS into
concerns about international commercial arbitration, as each needs to be understood
from its own perspective. (25) The degrees of concern attending each field are different,
and the solutions may need to be different too.

2 Costs and Delays

Perhaps it is trite to say it at this point, but a point of continued concern throughout this
Congress has been the need to address costs, delays and transparency. Surveys from 2015
confirm this – respondents perceived the worst characteristic of international arbitration
to be “cost”. (26) Corporate decision-makers historically selected international arbitration
as their contractual dispute mechanism because it was a faster, more effective way of
deciding disputes. Its continued popularity is dependent on maintaining this competitive
advantage.
It has been instructive at this Congress to hear perspectives from a variety of jurisdictions,
offering ideas that I personally had never considered. It can serve as a timely reminder
that what we might consider “arbitration orthodoxy” may represent only a fraction of what
is possible. The organization of arbitration proceedings was, by and large, developed by
practitioners from a narrow group of countries, who historically dominated its practice.
For example, the contribution of the Deputy General of the Beijing Arbitration Commission,
P 1083 Dr Fuyong Chen, offered insight into the manner in which that Commission relieves the
P 1084 concerns of users on efficiency and cost – by imposing a limitation on caseloads,
requiring prompt delivery of awards and using technology to enable mobile access,
notification, electronic signing and distance filing. (27)
Patricia Bergin, the former Chief Judge in Equity of the NSW Supreme Court, also raised the
possibility that the arbitral process can learn from initiatives implemented in domestic
courts, which face many common challenges. As she said, the current issues with the
Redfern Schedule bear some analogy to the challenges faced with the formal discovery
process in the NSW Supreme Court. In an attempt to control the burgeoning cost of the
process a Practice Note was issued, requiring service of evidence prior to discovery except
in exceptional circumstances, and limiting discovery to the issues in dispute as revealed
by that evidence. (28)
I agree with the comments of Patricia at this Congress that this procedure has resulted in
“the enhancement of the Court's capacity to control the process of document disclosure,
the speedier resolution of commercial cases and the reduction of costs”. (29) I appreciate
that the Practice Note is not unique and that steps similar to that required by it have been
adopted in many arbitrations. However it does demonstrate that proactive steps either by
use of the rules, or by case management in individual proceedings, can significantly limit
both costs and delay. I also appreciate concerns about due process but I do not think that
due process requires more than giving parties a fair opportunity to present their
respective cases. It does not include permitting the parties to chase every conceivable
rabbit down every conceivable burrow, or giving them unlimited time to undertake that
fruitless task.

3 Transparency
Finally, there is transparency. I think there is probably consensus that increasing
transparency in investor-state disputes is a laudable goal, in response to the sledges in
recent years that it is, apparently, secretive, skewed in favour of corporations, and
excludes the public whose funds and interests are at stake. (30)
So far each of the major transparency initiatives in recent years has been accompanied by
a clear recognition of the difference between ISDS and contract arbitration – where
confidentiality is assumed to be an essential feature.
However, it may be that certain disputes are of such a “public” nature that the distinction
is not tenable. One example we heard was the Microsoft Mobile v. Sony Europe (31) case,
P 1084 involving a tortious claim brought by Microsoft in England for alleged anti-competitive
P 1085 cartel conduct. The claim was ordered to be heard by an arbitral panel rather than the

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 P 1085
English courts pursuant to an agreement between the parties. The issue resulting is that
third parties who may also have been the victim of unlawful conduct will have access to
little or no information about it, and the public is kept in the dark about conduct that
could have had an impact on consumer prices. One interesting issue which could have
arisen out of the Microsoft Mobile case is whether production of material tendered in the
arbitration and the arbitrator's award, could be compelled in either regulatory
proceedings or proceedings in which the plaintiff was not bound by an arbitration
agreement. The privacy protection might not be as absolute as originally perceived.
Part of the issue stems from what I think most of us here would be quite happy about – the
exponential growth in the use of international arbitration. But it also means that
arbitration can now longer claim some exotic status – it is no longer litigation for the “hip”
– it is purely mainstream. (32) I hope this doesn't disappoint you too much. What we were
challenged to rethink this week is whether this new reality means the idea that party
autonomy prevails over all else will still hold true in ten, twenty or thirty years' time – and
what this means for the place of privacy and confidentiality.
A pessimistic scenario is that the absence of transparency will start to mean
misinformation – alternative facts, “post-truth” opinions and “fake news” abound.
Constantine Partasides QC posed the following question, and I will simply quote it: “In an
age in which an absence of information is often replaced by an abundance of
misinformation, is it acceptable – or even wise – for a process that now accounts for such a
significant proportion of commercial dispute resolution around the world to be
automatically confidential?”. (33)
What is interesting to note is that transparency was also a complaint we heard this year
from corporate users. Laura Abrahamson posited that from a corporate user's perspective,
there is significant demand for the publication of awards, whether in full, redacted or
summary form – and also for greater data around arbitrators to guide selection decisions.
(34) It might be premature to presume that the interests of the public and the interests of
corporations in this area will always conflict.
However, at the risk of offending some of my fellow judges, lack of transparency or for that
matter the reference of a body of international disputes to arbitration, has not in my view,
inhibited the development of the common law at least in this country. Commercial
arbitration has been around for decades, if not centuries, and the common law seems to
have muddled along. In that context it must be remembered that a huge majority of cases
in the courts don't involve any point of principle, but rather the application of established
principle to the facts. It is the curse of an appellate judge these days to be bombarded by
first instance decisions raising no point of principle and merely having the effect of raising
the judge's blood pressure as he or she has to wade through them. I regret that the same
could probably be said of a great number of awards
P 1085 However, I should say, that in the case of arbitrations that do raise a point of principle,
P 1086 courts would benefit from access to the reasoning of the arbitrators. If that could be
achieved it would be desirable. However, I would not subscribe to the view that it is a
serious policy matter, at least in this country, at the present time.

III Technology
Now we can't be at a Congress with the word “future” in the name without some mention of
how robots are going to be doing all our jobs soon. I would be lying if I said it doesn't keep
me up some nights. When one googles “what makes a good judge”, the first attribute that
comes up is “legal ability”. Anyone who has seen the YouTube video “paralegal vs robot”
should have no doubt that robots are far better at law than humans. And while some
lawyers no doubt seem like robots in terms of their lack of apparent need for sleep or
sustenance – I'm not sure how they will compete with the real deal. It seems every day
there is a new headline to the effect of “Are we ready for robot judges?”…. “AI to replace
lawyers”. It is enough to make the best of us nervous. I imagine the sessions yesterday
exploring how much more effective artificial intelligence will be than humans as
arbitrators has had much the same effect on you. (35) Although, I suspect these things worry
the younger “digital natives” among us far less than the “digital immigrants” such as myself.
The future of technology both in arbitration and litigation is at once both an opportunity
and a challenge. It offers solutions to the challenges such as unconscious bias and
managing voluminous documents. This Congress has shown us first-hand how the use of
different technologies will revolutionize arbitration – such as the use of augmented reality
in a proceeding. (36) I was grateful for an explanation of what this means at the time, so I
will pass on the favour – it refers to the superimposition of images on the world as you see
it – like Pokémon Go, for those who have also been confronted with robotic-like children
chasing imaginary creatures in their suburbs.
In line with the academic rigour that has attended this entire Congress, it was not all fun
and games and cross-examination of Darth Vader. There were also the difficult questions of
how we can ensure tech is used in a way that does not impinge on due process, and how we
can ensure there is equality of access to these programs. The other point made, that I
would repeat, is that technology is not only relevant to the process of arbitration, but also
the content of future disputes. It will change your clients' worlds well before it changes
yours. If for nothing than pure economic benefit, it is incumbent on us to understand and

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 embrace it.
P 1086
P 1087

IV New Voices
Finally, I would like to make mention of the young practitioners who spoke yesterday
afternoon – on topics as varied as arbitration in conflict zones, (37) sovereign wealth funds
in investor-state dispute settlement, (38) the principles limiting compensation in
arbitration (39) and their views on the state of the system. (40) These young practitioners
come to the table, it is evident, with a genuine devotion to the practice of arbitration, and
a desire to see it flourish. I think in a congress dedicated to thinking about the future of
international arbitration, these young voices are the ones that deserve particular
attention, and I commend them for their contributions.
The past few days have offered an unparalleled opportunity to engage in thoughtful
introspection about the future of this industry. I hope you have each found it as useful as I
have. I thank the organizing committee for the opportunity to speak, and I look forward to
meeting again at the next ICCA Congress.
P 1087

References
*) The Hon T.F. Bathurst: Chief Justice of New South Wales.
1) Thomas SCHULTZ, “Legitimacy Pragmatism in International Arbitration: A Framework
for Analysis”, this volume, pp. 25-59.
2) Chief Justice James ALLSOP AO, “Keynote Address”, this volume, pp. 3-22.
3) As discussed by Melida HODGSON and Patricia Cruz Trabanino, “The Evolution of the
Expropriation Obligation in Investment Arbitration and Its Adaptation in Treaties to
Reflect State Rights”, this volume, pp. 226-256.
4) LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine
Republic (ICSID Case No. ARB/02/1), Decision on Liability (3 October 2006) [195] citing
Técnicas Medioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No.
ARB (AF)/00/02 Award para. 154 (29 May 2003) [122].
5) Slowakische Republik v. Achmea BV (Case C-284/16).
6) Ibid. [56].
7) Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Art. 9.25(3)
<http://dfat.gov.au/trade/agreements/not-yet-in-force/tpp-11/official-
documents/Pages/official-docume...>,
8) Ibid. chapter 27.
9) Discussed by Professor Lucy REED, “Lawmaking by Arbitrators”, this volume, pp. 52-85.
10) Chief Justice Sundaresh MENON, “The Influence of Public Actors on Lawmaking in
International Arbitration: Domestic Legislatures, Domestic Courts and International
Organizations”, this volume, pp. 112-150.
11) Ibid.
12) Ibid.
13) Stephan W. SCHILL, “Developing a Framework for the Legitimacy of International
Arbitration” (ICCA Congress Series No 18, Legitimacy: Myths, Realities, Challenges).
14) Ibid. p. 826.
15) S. MENON, above fn. 10.
16) Alexis MOURRE, “Arbitral Institutions and Professional Organizations as Lawmakers”,
this volume, pp. 86-111 at p. 87.
17) Ibid.
18) Ibid.
19) Ibid.
20) Won KIDANE, “Sustainable Development Obligations and Access to Treaty Remedies in
Contemporary Investment Treaties and Models”, this volume, pp. 292-314.
21) Alfonso GOMEZ-ACEBO, “A Special Role of Party-Appointed Arbitrators?”, this volume,
pp. 318-416.
22) Natalie Y. MORRIS-SHARMA, “The T(h)reat of Party Autonomy in ISDS Arbitrator
Selection: Any Options for Preservation?”, this volume, pp. 432-447.
23) Ibid.
24) Ruth STACKPOOL-MOORE, “Institutional Appointment of Arbitrators”, this volume, pp.
417-431.
25) J. ALLSOP, above fn 2.
26) Queen Mary University of London, 2015 International Arbitration Survey: Improvements
and Innovations in International Arbitration, 7.
27) Fuyong CHEN, “Building Better Arbitration Proceedings: Practical Suggestions”, this
volume, pp. 736-743.
28) Supreme Court of NSW, Practice Note SC Eq 11, Disclosure in the Equity Division
<http://www.lawlink.nsw.gov.au/practice_notes/nswsc_pc.nsf/pages/574>.

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 29) Patricia A. BERGIN, “Building Better Arbitration Proceedings”, this volume, pp. 759-768
at p. 766.
30) Stanimir A. ALEXANDROV and Patrick CHILDRESS, “Transparency in International
Investor-State Arbitration: Commendable in Theory, Complicated in Practice”, this
volume, pp. 691-698.
31) [2017] EWHC 374 (Cth), as discussed by Constantine PARTASIDES QC, “What Has Been the
“Spillover” Effect of the Transparency Debate on Commercial Arbitrations?”, this
volume, pp. 699-710.
32) C. PARTASIDES, above fn. 31, at p. 703.
33) Ibid.
34) Laura ABRAHAMSON, “Costs, Delay and Transparency – A Comment on Continued
Legitimacy Concerns from the User's Perspective”, this volume, pp. 354-360.
35) Carsten VAN DE SANDE, “Technology as Disruption” (Panel Discussion at the 24th ICCA
Congress, Sydney, 17 April 2018).
36) Paul H COHEN, Hugh CARLSON, Rashda RANA SC and Gabrielle NATER-BASS,
“Technology as Facilitation”, this volume, pp. 813-836.
37) Samantha Lord HILL, “Arbitration of Disputes Arising in Conflict and Post-Conflict
Zones: Managing the Risks”, this volume, pp. 897-916.
38) Solomon EBERE, “Sovereign Wealth Funds: The New Kids on the Block”, this volume, pp.
936-952.
39) Jawad AHMAD, “Date of Breach, Contributory Fault, and Mitigation of Damages in
Investment Arbitration”, this volume, pp. 917-935.
40) Lucas BASTIN, “The Excessive Scope for ‘the Individual’ in Decision-Making in
Investment Arbitration: Views from Younger Practitioners”, this volume, pp. 953-966.

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

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 KluwerArbitration

Document information
Damages in International Arbitration: ICCA-ASIL Web
Publication Application
Evolution and Adaptation: Catherine M. Amirfar; Gabrielle Nater-Bass
The Future of International (*)
Arbitration
(**)

Topics I Introduction
Investment Arbitration On 16 April 2018, the ICCA-ASIL Task Force on Damages (the “Task Force”) held a one-hour
seminar titled “Damages in International Arbitration: ICCA-ASIL Web Application.” The
seminar introduced a prototype of the new web-based application (“web app”) that is the
culminating project of the joint ICCA and ASIL Task Force on Damages. The panel discussed
Bibliographic reference the genesis and purpose of the project: to create a free resource for international
Catherine M. Amirfar and arbitration practitioners across the globe, and to serve as a foundational guide to the core
Gabrielle Nater-Bass, concepts in damages, as well as the tricky or even undecided issues relating to damages.
'Damages in International Utilizing the prototype version of the web app, the panel demonstrated how the web app
Arbitration: ICCA-ASIL Web can assist practitioners to strengthen their understanding of damages concepts, identify
Application', in Jean thorny issues to address, and locate sources for further research.
Engelmayer Kalicki and The Task Force developed this web app with an eye towards providing the starting point on
Mohamed Abdel Raouf (eds), the topic of damages for a broad swathe of practitioners, ranging from experts who seek a
Evolution and Adaptation: refresher or an update on a particular point, to leading practitioners seeking to use the
The Future of International web app as a research resource, to those who are new to the field of damages in
Arbitration, ICCA Congress international arbitration seeking a primer on the topic. The Task Force believes that this
Series, Volume 20 (© Kluwer web app has the potential to change the way practitioners approach damages in
Law International; international arbitrations – to engage every damages phase with a rigorous review of the
International Council for issues and questions at play and to promote a comprehensive understanding of how each
Commercial issue fits together.
Arbitration/Kluwer Law P 1091
International 2019) pp. 1091 - P 1092
1095
II Mandate of the Task Force
In December 2016, ICCA and ASIL joined forces to establish the ICCA-ASIL Task Force on
Damages. The Task Force was charged with addressing an issue that, despite its
importance, is nevertheless too often overlooked in the field of international arbitration:
quantification of damages. The Task Force brings together a blue-ribbon panel of leading
legal and economics experts from jurisdictions across the globe to think creatively about
how to promote consistency and rigor in the field's approach to damages.
The Task Force consists of the following members:
Co-Chairs:
Catherine Amirfar, Debevoise & Plimpton, United States
Gabrielle Nater-Bass, Homburger, Switzerland
Members:
• Olufunke Adekoya, Aélex, Nigeria
• Sarah Grimmer, Hong Kong International Arbitration Center, Hong Kong
• Hilary Heilbron, Brick Court Chambers, United Kingdom
• Mark Kantor, Independent Arbitrator, United States
• Swee Yen Koh, Wongpartnership LLP, Singapore
• M. Alexis Maniatis, The Brattle Group, United States
• Irmgard Marboe, University of Vienna, Austria
• Chudozie Okongwu, NERA Economic Consulting, United States
• Kathleen Paisley, Amboslaw, Belgium
• Patrick W. Pearsall, Jenner & Block, United States
• Adriana San Román Rivera, Wöss & Partners, United States and Mexico
• Guido Santiago Tawil, M&M Bomchil Abogados, Argentina
• Thierry J. Senechal, Groupe ISD, France
• Jennifer Hall Vanderhart, Analytics Research Group, United States
• Karim A. Youssef, Youssef & Partners, Egypt
The Task Force is assisted by the following Rapporteurs:

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 • Aasiya Glover, Debevoise & Plimpton, United States
• Azeezah Goodwin, Debevoise & Plimpton, United States
• Stefanie Pfisterer, Homburger, Switzerland
• Christel Y. Tham, PCA, The Netherlands
The Task Force's mandate includes fostering the development of a more robust and
uniform approach to damages analyses in international arbitration. To that end, the Task
P 1092 Force have analyzed the legal, economic, and policy issues underpinning damages in the
P 1093 field of international arbitration, with a view not only to achieving consensus on the
fundamentals, but also to identifying and disentangling the procedural, legal and financial
principles related to damages.
The Task Force is developing an interactive, electronic web app of practical application, to
be used by arbitrators and practitioners alike. The web app guides users through the key
procedural, legal and quantitative issues implicated by the calculation of damages in
international arbitration.

III The Web Application

1 Overview of the App
The intended audience of the web app is broad, but sophisticated. The Task Force has
designed the organization and content to speak equally to practitioners putting together a
case on damages, to arbitrators deciding questions of damages in cases before them, to
law students looking for a deeper dive tutorial on damages subjects, and to experts –
financial, economists or otherwise – who want to explore the legal framework underlying
damages in international cases.
The web app covers the law on damages in the context of both international investment
arbitration and commercial arbitration, and damages topics arising under both
international and domestic law. The web app is divided into civil and common law
systems, and experts in each system contribute to their respective content.
In terms of function, the web app is fully interactive, permitting users to click through
several layers of buttons to reveal an increasingly interrelated network of damages topics.
The content for each topic contains links for key words and issues arising in the question of
damages, allowing the user to navigate between topics fluidly and to identify the major
questions and sources for each topic. The user can therefore explore how topics are
networked and related, and how issues arising in each area of the damages phase are often
dependent upon each other.
The Task Force hopes the web app drives home the point that damages issues arise from
the very outset of cases, throughout the life of the case and should be dealt with
proactively and with sophistication in particular about the economic and legal
consequences of decisions taken. For example, the treatment of sovereign risk, how such
risk is quantified and treated in a damages model goes to basic legal principles about how
to compensate and which party should bear the benefit or detriment of future unlawful
behavior.
Importantly, the web app is intended to be descriptive, not prescriptive. It is a resource
designed to illustrate the landscape of damages in international arbitration and point to
the specific locations where that landscape is unsettled or practitioners should take
special care to investigate further. If there is a debate on a particular issue – to use the
earlier example of the proper calculation of sovereign risk – that debate will be reflected
in the underlying discussion reflected in the web app. The idea is to ensure that divergent
viewpoints are considered, not necessarily to determine the “right” answer. In some
P 1093 instances, there may exist a common error which the web app will point out and explain.
P 1094 The goal, however, is always to be explicit about the presence of debate or controversy
– within the constraints of the web app format, which is most beneficial when balancing
usefulness with concise explanation.

2 Structure of the App

As mentioned, the web app guides users through the key procedural, legal and quantitative
issues implicated by the calculation of damages in international arbitration. It covers the
law on damages in the context of both international investment and commercial
arbitrations, and damages topics arising under both international and domestic law.
Hence, when accessing the web app, the user will first be presented with the primary three
topics: “Procedural”, “Legal”, and “Valuation”. Clicking on each topic will reveal the
subtopics layered within, demonstrating the avenues each practitioner must pursue when
entering the damages phase.
For example, a user interested in learning more about the pertinent legal principles
relevant to international investment arbitrations may click the “Legal” button, which opens
a new page displaying two alternative options: “International” and “National.” Clicking the
“International” button provides the user a network of international law legal principles,
with the narrower legal concepts nested within the overarching categories until the user
clicks on a button to reveal content specific to a certain category. The web app groups the

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 relevant legal principles on international law into seven major categories: Nature of Claim,
Legal Standard, Categories of Remedies, Valuation Date, Elements of Claim, Proof Relation
to Damages, and Limiting Principles. Each of these groupings includes the primary legal
principles or requirements in its set. The Nature of Claim category, for instance, provides
detailed information on the damages implications of certain types of international law-
based claims, including content on the damages considerations for unlawful and lawful
expropriation, as well as other breaches of international law. The Valuation Date category
addresses the choice of Date of Breach or Date of Award, in the context of an arbitration
governed by international law. The Limiting Principles grouping includes content on the
key bases for limiting damages in an arbitration based on international law: Mitigation,
Reasonable Certainty, Double Recovery, Contributory Conduct, and Legal Causation.
From there, by clicking on the “Categories of Remedies” button – a user could access the
primary remedies available in investment arbitration. These remedies – restitution,
compensation, satisfaction, and interest – appear as separate buttons that can be clicked
on to reveal more detailed information. For example, the “Restitution” button reveals a
final page of content including a general overview of the meaning of the term, a summary
of key issues, and selected sources for further reading. Key issues point a user to debates,
pitfalls to avoid or important considerations to take into account; in the “Restitution”
context, one key issue is that some arbitral tribunals take the position that restitution or
specific performance would be an undue interference with a state's sovereignty.
To the extent that the topics arise in national legal systems, the user can click on the
“National” button to reveal a decision tree for each of common and civil law, and continue
down either path to learn more about “Categories of Remedies” in the context of a
commercial arbitration governed by laws under each legal system.
P 1094
P 1095
Importantly, the content for each topic also contains intra-site links for key words and
issues arising with damages, allowing the user to navigate between topics fluidly and to
identify the major questions and sources for each topic. The user can therefore explore how
topics are related, and how issues arising in each area of the damages phase are often
dependent upon each other.

IV Conclusion
A thorough and nuanced understanding of damages is essential for practitioners in
international arbitration. It is a topic that cannot be confined to a “damages phase,” left to
the end of a case, but rather spills into, and underpins, certain key legal questions as to
liability like causation. Even the existence of a dispute may depend on the existence of
injury and, therefore, a deep-dive into the valuation of companies or projects. Moreover,
this topic – more than the legal and procedural questions – is often a central focus of
clients. Yet damages is also an area that too often exists in a silo, sometimes because the
procedural steps locate consideration of damages questions towards the end of
proceedings. For example, experts may be brought in at a different stage or phase long
after jurisdictional questions have been decided, or damages may be pled, briefed, and
heard after a final decision on the merits of a claim. However, the various procedural,
legal, and quantitative issues arising in a discussion of damages are necessarily interlinked
both with the various stages of an arbitration proceeding and with each other. It is
necessary, then, for practitioners to engage deeply in the damages issues from the very
beginning of a case, with the requisite special consideration given to the procedure early
on – an issue which the web app also addresses.
It is the hope of this Task Force that the web app it is creating will contribute to, and serve
as a primary resource for, the rigorous and nuanced analysis of damages in international
arbitration.
P 1095

References
*) Catherine Amirfar: Partner in the International Dispute Resolution Group at Debevoise &
Plimpton LLP in New York since 2008, serves as the Co-Chair of the firm's Public
International Law Group; spent two years as the Counselor on International Law to the
Legal Advisor at the US Department of State.
**) Gabrielle Nater-Bass: Partner at Homburger in Zurich since 2006; President of the
Arbitration Court of the Swiss Chambers' Arbitration Institution; Vice President of
ArbitralWomen.
Co-Chairs of the ICCA-ASIL Task Force on Damages

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© 2020 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.

Kluwer Arbitration is made available for personal use only. All content is protected by copyright and other intellectual property
laws. No part of this service or the information contained herein may be reproduced or transmitted in any form or by any means, or
used for advertising or promotional purposes, general distribution, creating new collective works, or for resale, without prior
written permission of the publisher.

If you would like to know more about this service, visit www.kluwerarbitration.com or contact our Sales staff at lrs-
sales@wolterskluwer.com or call +31 (0)172 64 1562.

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