Originally from Investment Treaty Arbitration and International Law - Volume 8

This paper outlines a straight-forward theory: that international investment arbitration is a lex investoria, an “investomercial” arbitration system purposefully designed by and, principally, for States in order to attract foreign investment. It draws upon the private international law roots of international commercial arbitration and is analogous to a private contract-based arrangement. States retain sovereign discretion to manage the extent of their current and future participation in the investor-state system through a number of different contractbased mechanisms. Tribunals should therefore continue to employ a strict textual standard of review when drafting their awards, employing general public international law standards of review only when absolutely necessary. Public international law jurists’ efforts to import into the investor-state system, wholesale and not when absolutely necessary, concepts such as the margin of appreciation and proportionality analysis from international human rights law in order to resolve a purported legitimacy crisis are misplaced. Attempts to do so, rather than strengthening legitimacy in the investor-state system, have weakened it by empowering investor-state tribunals, rather than the States that created the investor-state arbitration system, to act as a global administrative law body and, in so doing, to apply value judgments. This tribunal over-reach risks infringing State sovereignty; a risk which arguably crystallised with issuance of the Occidental v Ecuador Award. In the same way that long-term natural resource or public utility concession contracts often have to be renegotiated to address unforeseen circumstances, so it should be up to States, not tribunals by proxy, to renegotiate BITs to address new and unforeseen global economic and political events. Indeed, this is exactly the process currently underway: States are becoming vastly more sophisticated when drafting BITs, carefully considering whether or not to include investor-state arbitration in their investment agreements and factoring in important considerations for sustainable development. Public international law jurists must therefore leave the Statecreators of the investor-state system to develop it as they see fit.

I. INTRODUCTION

A colourful analogy has been drawn between the investor-state arbitration mechanism and the Australian platypus.3 The first biologists to examine the antipodean monotreme thought that it was an elaborate hoax, that a duck’s bill had simply been sown onto a beaver’s body.4 When scientists eventually realised that the animal was real, they were dumbfounded. Whilst it was warm-blooded, implying that it was mammalian, it laid eggs and had webbed feet like a bird or reptile. Into which of these inflexible categories should this strange beast fall?