Precedent in investment treaty arbitrations

Publication | June 2017

Introduction

With the recent proliferation of published arbitral awards in investment treaty arbitrations a body of arbitral decisions is emerging in the sphere of investor-state disputes. This article considers what relevance, if any, the doctrine of precedent (stare decisis) has in the context of investor-state arbitrations and whether it can be said that a body of case law is emerging and whether those decisions could, or should, amount to binding precedent in the sphere of investment arbitration.

Precedent in arbitration v court proceedings

Any analysis of the development of precedent in investment arbitration would be incomplete without first examining the legal parameters within which arbitral tribunals are required to operate. This contextualizes the debate and helps to clarify the fundamentally different starting points between those tasked with rendering judgments in the English (and many other national) courts and thereby developing the common law and their arbitral counterparts at the International Centre on the Settlement of Investment Disputes (ICSID).

Article 53 of the ICSID Convention has been cited by tribunals and commentators alike in support of the notion that there is no rule of precedent in general international law nor within the specific ICSID system. Article 53 provides that “[t]he award shall be binding on the parties ...”. This has been taken to exclude the applicability of precedent in subsequent ICSID cases, i.e. the award binding future users of the system.

The position under the ICSID Convention can be contrasted with the position under the common law where precedent developed by senior appellate courts is generally binding on lower courts (whereas decisions of lower courts are persuasive but generally not binding).

Historically, it was also the case that the highest court in England and Wales (then the House of Lords, now the Supreme Court) was bound by its earlier decisions. However, that is no longer the case. Lord Neuberger set out the limits of the common law doctrine of precedent in the Supreme Court’s decision in Willers v Joyce [2016] UKSC 44 which examined the status of decisions of the Judicial Committee of the Privy Council:

“Until 50 years ago, the House of Lords used to be bound by its previous decisions – see e.g. London Tramways Co Ltd v London County Council [1898] AC 375. However, that changed in 1966 following the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234, which emphasized that, while the Law Lords would regard their earlier decisions as “normally binding”, they would depart from them “when it appears right to do so”.

In this small but significant way, the common law doctrine of precedent is therefore tempered by the caveat that “when it appears right to do so” the Supreme Court may depart from its earlier decisions. Thus even in England and Wales the doctrine of precedent is not absolute.

ICSID tribunals however, have no hierarchy or ranking of seniority. It is difficult therefore to criticise ICSID tribunals for failing to follow decisions of their predecessors. This is particularly the case in investment treaty arbitration which combines complex issues of public international and private law and requires a careful balancing of investor and state interests – which may vary considerably from case to case and depend on the specific substantive treaty protections being invoked by the claimant. This makes identifying precedent difficult. Indeed tribunals who choose to follow previous decisions might be vulnerable to challenge, thus undermining the finality of arbitral awards.

Desirability of precedent in investor-state arbitration

Notwithstanding the difficulties of establishing a system of precedent in the sphere of investment treaty arbitration, there are reasons why it may be desirable. One of the most persuasive champions of the doctrine is L. Ron Fuller. In his writings on the “inner morality of the law”, Fuller listed eight key principles of legality. According to Fuller, adherence to these essential principles was of paramount importance to the creation of substantively fair law. Fuller advocated that law makers had to strive towards both consistency and predictability when making laws as without these essential virtues law would develop in a wholly irregular and haphazard manner.

It might be argued that there is no better way of securing both consistency and predictability within a legal system than through the observance of past case law. With regard to investment law, there is undoubtedly a need for a consistency in rule creation. This would not only serve to improve the certainty that can be afforded by counsel to clients but also help to shape the legitimate expectations of investors. Arguably this has already started to some extent as counsel consider previous awards when advising clients on prospects and clients no doubt consider that advice when making investment decisions.

Critics of the doctrine such as Irene M. Ten Cate, however, argue that consistency can only be achieved by sacrificing “accuracy, sincerity and transparency”. They suggest that a fixation with precedent is “only concerned with equality of outcomes, not with their merits” and argue that this is unsatisfactory in the public-private arena of investment treaty arbitration.

Notwithstanding the critics, with the growth of ICSID as a forum for the resolution of investor-state disputes a growing body of at least “softly” binding case law seems to be developing. The reasons for this trend are examined briefly below.

Reasons for emergence of soft precedent

Greater transparency in investment treaty cases

The emergence of a de facto body of precedent is in no small part attributable to the greater transparency evident in ICSID arbitration cases compared to commercial arbitration. The general availability of awards and greater reporting of cases has contributed to what Jeffrey Commission has called a “burgeoning corpus of precedents”. Nothing shows the contrast between the confidentiality of commercial arbitration and the openness of investment treaty arbitration better than Article 48(4) of the ICSID Arbitration Rules. Article 48(4) provides that the ICSID Centre “shall … promptly include in its publications excerpts of the legal reasoning of the Tribunal.”

It is precisely through the publication of such excerpts and awards that tribunals are able to follow in the footsteps of their predecessors and foster greater consistency in investment treaty cases. The tribunal in El Paso v Argentina articulated the position as follows:

“It is nonetheless a reasonable assumption that international arbitral tribunals, notably those established within the ICSID system, will generally take account of the precedents established by other arbitration organs, especially those set by other international tribunals.” (ICSID Case ARB/03/15, Decision on Jurisdiction, April 27, 2006, para. 39).

Homogeneity of subject matter and uniformity in the drafting of BITs and MITs

It may also be attributable to harmonization of substantive protections within bilateral and multilateral investment treaties (respectively, BITs and MITs). Such protections, whilst not identically drafted, typically comprise:

  • General Standards of Treatment of Foreign Investments
  • Protection Against Expropriation and Dispossession
  • Compensation for Losses.

Uniformity of form and content allows tribunals to apply a varying fact pattern to a relatively static body of legal issues. Thus awards might contribute to a growing investment treaty jurisprudence in respect of the substantive protections available through investor state arbitration.

Consistency of tribunal members

Two notable factors in the composition of tribunals presiding over investor-state disputes might also play a part: members are often prominent law professors, private practitioners or judges and many are repeatedly appointed. This has led some commentators to argue that there is an ‘emerging judiciary’ within the investment arbitration arena, paving the way for greater consistency of legal reasoning in cases where similar legal and factual issues repeatedly come before tribunals. (Though at the same time, the investment arbitration regime has faced criticism for this very lack of diversity.)

Conclusion

The possible emergence of a doctrine of precedent in investment treaty arbitration is welcomed by those who see a need for greater transparency in the legal reasoning of tribunals and a predictability of outcome more generally. There are those, however, who maintain that it is wrong to speak of precedent in the sphere of investment treaty arbitration and argue that the creation of a doctrine of precedent was never in contemplation during the drafting of the Convention.

It may be more palatable to both sides of the argument to speak of the development of a jurisprudence constante in which successive awards create well-established and persuasive – but not binding – principles which tribunals repeatedly have regard to. Like it or not, the emerging body of published investment arbitration awards seems to play some role already, at least informally, in investment treaty arbitration.

The views expressed in this article are the views of the authors and not necessarily the views of Norton Rose Fulbright.


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