Originally from The American Review of International Arbitration (ARIA)

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I.    INTRODUCTION

The “median international arbitrator [is] a fifty-three-year-old man who [is] a national of a developed state and [has] served as arbitrator in ten arbitration cases.”  As discussed in a previous article by Duggal and Lee,  concerns about the lack of diversity pervade international arbitration and exist both in international commercial arbitration and investment treaty arbitration. However, such concerns arguably assume particular significance in the context of investment treaty arbitration due to the greater public interest considerations and significant costs involved.

Further, the investor state dispute settlement (ISDS) system is currently plagued by an unprecedented legitimacy crisis.  States are increasingly withdrawing from the existing system by terminating investment treaties and heavily curtailing their use of ISDS. At the core of this legitimacy crisis lies the perception of State parties (especially emerging States from the Global South) that the ISDS system unduly favors investors from capital-exporting nations over States. 

A common perception is that ISDS consolidates “the power of large corporations at the expense of national sovereignty, and allow[s] corporations to bypass national judicial systems.”  Some also fear that “ISDS could discourage governments from adopting regulations for public welfare in health, environment, labour and other areas. Investor claims also have a strong impact on the public exchequer, as the average cost of defending an investor claim is estimated at US$4.5 million.”  The potential for regulatory discouragement is also described as the “chilling effect” of ISDS.

This legitimacy crisis has been acknowledged by the stakeholders of the ISDS system, and UNCITRAL Working Group III (WGIII or Working Group) has been considering various proposals to reform the system since 2017. The improvement of diversity in ISDS is one of the key areas of focus for the Working Group. In its 2018 draft report, the Working Group noted that “the current lack of diversity in decision makers in the field of ISDS contributed to undermine the legitimacy of the ISDS regime.”

In investor-state arbitration, arbitrators increasingly face questions regarding a State’s right to regulate and how this right is to be exercised with respect to foreign investors and investments. Since arbitrators appointed pursuant to the ISDS system are responsible for deciding questions that impact sovereign States in their domestic spheres, the identities of and extent to which tribunal members sitting in ISDS proceedings may be regarded as representative of the parties appearing before them have a crucial bearing on the perceived legitimacy of their decisions.           

In this article, we focus on the need for diversity in investment treaty arbitration and explore the reasons for the lack of diversity in the area. We  subsequently discuss existing initiatives to improve diversity and analyze the gaps that are not addressed by such initiatives. Last, we propose some recommendations for the way forward before our  final concluding remarks.