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Reforming International Investment Law: Addressing Legitimacy and Procedural Challenges in ISDS
Multilateral reform initiatives are being prompted by the problem of legitimacy facing international investment law. Working Group III was formed by the United Nations Commission on International Trade Law (UNCITRAL) to address procedural changes to the investor-state dispute settlement (ISDS) framework. A regulation mandating the use of all available local remedies before a case may be brought before an international arbitration panel is one change that has been suggested. This would bring ISDS into compliance with other areas of international law, such as international human rights law, where it is typically necessary to exhaust local remedies first. Nonetheless, investment tribunals have discovered methods to circumvent these regulations, such as using a most-favored-nation provision, using a futility exemption, and interpreting an investment treaty's goal and purpose broadly. These techniques are examined critically in this article along with how they affect the suggested reforms.
When deciding whether prior-recourse-to-local-remedies provisions raise admissibility or jurisdictional concerns, tribunals have not always reached the same conclusion. Regarding investment law, admissibility is a feature of the dispute that is brought before the tribunal, whereas jurisdiction is the tribunal's capacity to hear a case. Although the exhaustion of local remedies is typically viewed as an admissibility problem, it is typically included as a condition of the state's accession to arbitration in bilateral investment treaties. According to the Singapore Court of Appeal, a decision on admissibility is not subject to review by supervisory courts, but a decision regarding jurisdiction is. On the other hand, interpreting the exhaustion of local remedies requirement as an admissibility problem in split procedures may cause the processes to drag out. There are practical ramifications to approaching the exhaustion-of-local-remedies criterion as an admissibility problem.
In investment-treaty arbitration, there has been debate over the treaty interpretation principle that states that articles should be interpreted by their normal meaning in light of the agreement's goals and objectives. Certain academics contend that tribunals have been hasty to invoke the treaty's goal and purpose to provide investors with unduly broad protection. This has been applied to the interpretation of terms about prior resort to local litigation. The claimant's failure to comply with the 18-month litigation requirement is insufficient, according to the Abaclat tribunal, to bar the claimant from using arbitration. The Urbaser tribunal, however, contended that a weighing-of-interests criterion is not warranted by the goal, intent, and policy that underlie the 18-month norm.
Investors may import more advantageous substantive terms from other treaties under the most favored nation (MFN) clause in international investment law. It has been debatable, nonetheless, to what degree an investor may depend on a more advantageous dispute resolution mechanism under an MFN clause. The Maffezini v. Spain decision was the first where a tribunal allowed an investor to rely on a more advantageous dispute settlement clause in another treaty. The panel concluded that nothing prevented the claimant from taking advantage of the Chile-Spain BIT's more advantageous treatment. Nonetheless, public policy factors, such as the need for local remedies to be exhausted, may prevent reliance on the MFN provision. The panel in Plama v. Bulgaria issued a warning, stating that the Maffezini rulings should not be regarded as universal guidelines for other courts.
Arbitrator Stern agreed with the Plasma tribunal's principle in Impregilo v Argentina (I), but argued that dispute settlement clauses should not be excluded merely because they are "specifically negotiated". Additionally, she disapproved of the Maffezini strategy, claiming that better dispute-resolution clauses had never been imported under the MFN clause. Furthermore, Stern pointed out that the Ambatielos case—which maintained that the MFN provision was used to give Greek nationals the "substantive protection of an administration of justice"—had been misconstrued by the Maffezini panel and its adherents. The basic rule that an MFN clause does not apply to dispute resolution outside of the explicitly agreed argument has been stated in a few post-Plama decisions.
According to customary international law, which was first created for diplomatic protection, the futility exception is recognized. Its main goal is to stop nations from allowing unjustifiably long disputes to linger. The futility exception does not need to be expressly stated in BITs to be applicable under customary international law. In investment law, there are two main types of exhaustion-of-local remedies clauses: time-bound and not time-bound. Tribunals have applied the futility exception about time-bound clauses, but some interpret the time-bound provisions to require the state to prove that it would be possible to resolve an investor-state dispute within a specific period.
The Organisation for Economic Cooperation and Development (OECD) found that the average time to resolve a commercial dispute within Belgium is around 505 days. This means that Chinese investors could never be required to have prior recourse to Belgian courts. The Swiss-Egypt BIT provides that disputes must be submitted to local courts before they may be submitted to international arbitration. However, it is highly unlikely that Swiss courts would be able to resolve an investor-state dispute within six months. The principle of contemporaneity can act as a counterbalance to these conflicting interpretations of the principle of effectiveness. It is prudent for states contemplating time-bound exhaustion-of-local-remedies clauses to consider the prescribed period carefully. The ordinary meaning of "treatment" would not extend to procedures for the resolution of disputes.
- The use of Most-Favored Nation clauses to import favorable dispute resolution terms is debated, with some tribunals rejecting their applicability to procedural aspects.
- Tribunals differ on whether exhaustion clauses affect admissibility or jurisdiction, impacting the length and complexity of arbitration processes.
- Proposals for ISDS reform include mandating the use of local remedies before international arbitration, aligning with international law practices.
