THE STATE OF INTERNATIONAL INVESTMENT ARBITRATION

316 Pages·2013·1.92 MB·English

THE STATE OF INTERNATIONAL
INVESTMENT ARBITRATION: THE POSSIBILITY OF
ESTABLISHING AN APPEAL MECHANISM

Nicolette Butler

Submitted in accordance with the requirements for the degree of Ph.D.
The University of Leeds, School of Law

September 2012
The candidate confirms that the work submitted is her own and that appropriate
credit has been given where reference has been made to the work of others.
This copy has been supplied on the understanding that it is copyright material
and that no quotation from the thesis may be published without proper
acknowledgement.

© 2012 The University of Leeds Nicolette Butler
Acknowledgements
I would like to thank my supervisor Professor Subedi, without whom this work
would not have been possible; thank you for inspiring my interest in this subject
and also for sharing your vast knowledge and expertise.
To my parents: your love and support has enabled me to achieve so many
things. Thank you for believing in me.
My extended family and friends have also provided me with much
encouragement, motivation and comfort; for that I am thankful.
Special thanks to Lucy for housing me in London on my frequent (fun) research
trips, and also for her unwavering support.
Abstract
Currently most international investment disputes are settled through
investment arbitration. Investment arbitration is not carried out by a single
omnipotent body or court; rather, it is carried out by a number of different bodies
(including permanent arbitral institutions as well as ad hoc tribunals). These
different institutions and tribunals often produce diametrically opposing
decisions (which are final and binding), in cases where similar or even the same
facts are at stake. This is possible because binding precedent and stare decisis
do not operate in international investment arbitration. The conflicting decisions
that are being made are causing a crisis of consistency and uniformity in
international investment arbitration.
In order to address this crisis and reduce the capacity for inconsistent
decisions to occur, commentators have suggested various reforms to the
system of international investment arbitration. One suggestion that has been put
forward is the introduction of an appeal mechanism. The primary objective of
this thesis is to examine this proposal in detail. The thesis explores the debate
around the possible establishment of an appeals facility, analysing the basis of
the call for, as well as the potential advantages and disadvantages of an
appellate mechanism. It is submitted that the basis of the call has been
established and that the benefits would outweigh any demerits. Accordingly, the
thesis moves on to explore how an appeals facility might best be introduced. A
few suggestions have been made in this regard in the past, including the
creation of a centralised world investment court. This and indeed others will be
closely examined in this work, Finally, the thesis will consider whether any
existing international or regional dispute settlement mechanisms could serve as
inspiration for any future reforms to the system of international investment
arbitration.
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TABLE OF CONTENTS

CHAPTER I: INTRODUCTION............................................................................1
1.1 General background.......................................................................................1
1.2 Central research questions............................................................................4
1.3 Originality and significance of the research...................................................7
1.4 Methodology and overview of the thesis.......................................................9

CHAPTER II: HISTORY OF INTERNATIONAL INVESTMENT LAW AND
DISPUTE SETTLEMENT..................................................................................11
2.1 Introduction..................................................................................................11
2.2. Brief history of international investment law................................................12
2.2.1 The treatment of aliens and state responsibility in public
international law......................................................................................12
2.2.2 Customary international law roots of the law of foreign
Investment...............................................................................................14
2.2.3 Attempts to formalise the regulation of international investment
Law..........................................................................................................18
2.2.4 Bilateral investment treaties (BITs)................................................27
2.3 Dispute settlement.......................................................................................29
2.3.1 Methods of settling general international disputes.........................29
2.3.2 Methods of dispute resolution in international investment law.......41
2.4 Ad hoc arbitration.........................................................................................49
2.5 Institutionalised arbitration...........................................................................50
2.6 Conclusion..................................................................................................50

CHAPTER III: ADEQUACY AND EFFECTIVENESS OF THE CURRENT
SYSTEM OF SETTLING INTERNATIONAL INVESTMENT DISPUTES……..53
3.1 Introduction..................................................................................................53
3.2 Ad hoc arbitration.........................................................................................54
3.2.1 Advantages of ad hoc arbitration...................................................54
3.2.2 Disadvantages of ad hoc arbitration...............................................55
3.3 Institutionalised arbitration...........................................................................57
3.3.1 Advantages of institutionalised arbitration......................................57
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3.3.2 Disadvantages of institutionalised arbitration................................58
3.3.3 Specific arbitral bodies..................................................................58
3.4 System of international investment arbitration as a whole...........................80
3.4.1 Strengths........................................................................................80
3.4.2 Weaknesses...................................................................................85
3.5 Conclusion.................................................................................................105

CHAPTER IV: THE CRISIS OF CONSISTENCY IN INTERNATIONAL
INVESTMENT ARBITRATION AND THE PROPOSAL TO CREATE AN
APPEAL MECHANISM...................................................................................106
4.1 Introduction................................................................................................107
4.2 The crisis of consistency in international investment arbitration................108
4.2.1 Evidence of a crisis......................................................................108
4.2.2 Rebutting the claim of a crisis......................................................112
4.3 Possible introduction of an appeal mechanism..........................................113
4.3.1 Support for an appeal mechanism...............................................114
4.3.2 Opposition of the proposal to establish an appellate facility........131
4.4 Conclusion.................................................................................................142

CHAPTER V: POSSIBLE IMPROVEMENTS TO THE FRAMEWORK OF
INTERNATIONAL INVESTMENT ARBITRATION..........................................143
5.1 Introduction................................................................................................143
5.2 Increasing the role of the WTO’s dispute settlement body........................143
5.2.1 Advantages of increasing the role of the WTO DSB....................145
5.2.2 Disadvantages of increasing the role of the WTO DSB...............146
5.3 Establishment of guidelines for international investment arbitration..........149
5.3.1 Possible advantages....................................................................151
5.3.2 Possible drawbacks.....................................................................152
5.4 Increasing the role of national courts.........................................................153
5.4.1 Benefits of increasing the role of national courts.........................153
5.4.2 Potential problems with increasing the role of national courts.....156
5.5 Creation of a global multilateral investment treaty.....................................157
5.5.1 Previous attempts to negotiate a multilateral investment treaty...158
5.5.2 The basis of the call for a multilateral investment agreement......164
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5.5.3 Arguments against the negotiation of a multilateral investment
agreement.............................................................................................168
5.6 Creation of an appeal mechanism.............................................................171
5.6.1 The current situation....................................................................171
5.6.2 Purported benefits of an appellate mechanism............................173
5.6.3 Alleged disadvantages of an appeal mechanism.........................175
5.7 Conclusion.................................................................................................179

CHAPTER VI: THE PROPOSAL TO ESTABLISH AN APPEAL
MECHANISM...................................................................................................180
6.1 Introduction................................................................................................180
6.2 Existing review procedures in international investment arbitration............181
6.2.1 ICSID Convention arbitration……………………………………….182
6.2.2 Relevant provisions under other conventions..............................186
6.2.3 Annulment vs. appeal.................................................................. 189
6.3 A cost-benefit analysis of the proposal to establish an appeal
Mechanism.......................................................................................................191
6.3.1 The basis of the call for an appeals facility and its potential
advantages............................................................................................192
6.3.2 The alleged lack of necessity and the possible drawbacks of
establishing an appeal mechanism.......................................................201
6.4 Practicalities of establishing an appeal mechanism...................................207
6.4.1 An appeal mechanism incorporated into the ICSID framework...207
6.4.2 Making use of the World Trade Organisation’s Appellate Body...211
6.4.3 An appeals facility added to existing international investment
arbitral mechanisms which would be ring-fenced from other systems..212
6.4.4 A world investment court..............................................................214
6.5 Conclusion.................................................................................................218

CHAPTER VII: COULD ANY EXISTING DISPUTE SETTLEMENT
MECHANISMS ACT AS A MODEL FOR INTERNATIONAL INVESTMENT
ARBITRATION?..............................................................................................222
7.1 Introduction................................................................................................222
7.2 International dispute settlement mechanisms............................................223
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7.2.1 World Trade Organisation Dispute Settlement Body...................223
7.2.2 International Centre for Settlement of Investment Disputes.........231
7.2.3 World Intellectual Property Organisation Dispute Settlement
Body......................................................................................................237
7.2.4 International Tribunals for the Law of the Sea.............................240
7.2.5 International Court of Justice.......................................................243
7.2.6 Permanent Court of Arbitration....................................................247
7.3 Regional dispute settlement mechanisms.................................................248
7.3.1 Association of Southeast Asian Nations......................................249
7.3.2 Mercosur......................................................................................251
7.3.3 North American Free Trade Agreement.......................................255
7.3.4 The Court of Justice of the European Union................................258
7.4 Conclusion.................................................................................................262

CHAPTER VIII: Conclusion...........................................................................265
8.1 Answering the central research questions.................................................265
8.1.1 Summary of findings....................................................................265
8.1.2 Conclusions..................................................................................266
8.2 Further research........................................................................................277

BIBLIOGRAPHY.............................................................................................279
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Abbreviations
AISCC Arbitration Institute of the Stockholm Chamber of
Commerce
ASEAN Association of South East Asian Nations
BIT Bilateral Investment Treaty
CPR Centre for Public Resources
DSB Dispute Settlement Body
DSU Dispute Settlement Understanding
ECJ European Court of Justice
EU European Union
FDI Foreign Direct Investment
FTC Free Trade Commission
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
HKIAC Hong Kong International Arbitration Centre
IBRD International Bank for Reconstruction and Development
ICC International Chamber of Commerce
ICCA International Council for Commercial Arbitration
ICJ International Court of Justice
ICSID International Centre for the Settlement of Investment
Disputes
IEO International Economic Order
IFCAI International Federation of Commercial Arbitration
Institutions
ILC International Law Commission
IMF International Monetary Fund
ITO International Trade Organisation
MAI Multilateral Agreement on Investment
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MERCOSUR Southern Common Market
MIGA Multilateral Investment Guarantee Agency
NAFTA North American Free Trade Agreement
NGO Non-governmental organisation
NIEO New International Economic Order
OAS Organisation of American States
OECD Organisation for Economic Co-operation and Development
PCA Permanent Court of Arbitration
PICJ Permanent International Court of Justice
PRC Permanent Review Court
SEOM Senior Economic Officials Meeting
TRIMS Agreement on Trade Related Measures
TRIPS Agreement on Trade Related Aspects of Intellectual
Property
UK United Kingdom
UN United Nations
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
US/ USA United States/ United States of America
WIPO World Intellectual Property Organisation
WTO World Trade Organisation