Part II: Potential Inconsistencies in Investor-State Arbitration

The concept of non-binding decisions from investment tribunals holds a well-established position in investment law jurisprudence. In the case of AES Corporation v. Argentina (para 23), the tribunal underscored the absence of any established precedent in general international law and the lack of binding precedent within the specific ICSID system when it pertains to a State party to the Convention and a national of another State Party.

As a result, inconsistencies may arise from varying interpretations of facts and laws by different tribunals. For instance, two tribunals may agree on the legal aspects of a particular standard for safeguarding investments or a State’s defence, but they may differ in their assessment of the pertinent facts. An illustration of this inconsistency is found in cases such as CMS v. Czech Republic and Lauder vs. Czech Republic, where different tribunals reached opposing conclusions even though the cases shared a common set of facts but were brought by different claimants under different BITs.

Inconsistencies can also manifest as a result of multiple legal proceedings initiated by shareholders at various tiers of a corporate hierarchy. This is because international investment law not only allows parallel claims by direct shareholders but also permits indirect shareholders – that is, shareholders of shareholders within multi-level corporate structures – to independently initiate investment arbitration proceedings.

Unlike both domestic and international courts, investment treaty disputes are not under the jurisdiction of a permanent judicial institution. Instead, investment arbitration functions as an ad-hoc mechanism for resolving disputes. This leads to a substantially higher number of adjudicators (arbitrators), which adds to the inconsistency and absence of coherence in arbitral rulings. In permanent bodies, consistency is maintained by the continued presence of the same members. Additionally, the various ad-hoc arbitration panels operate independently without any established hierarchy. While there is a provision to annul ICSID awards under Article 52 of the ICSID Convention and to set aside non-ICSID awards; awards in investment treaty cases are not subject to appeals or any other form of external oversight by a hierarchically superior authority that could guarantee uniformity in the decision-making process.

This lack of predictability in the current decision-making system incentivizes both states and investors to present all possible arguments, even those that are expected to be dismissed. As a result, this leads to extended and more expensive proceedings for all parties.

Part III: Developing Consistency in International Investment Law – The Way Forward

In order to address the existing inconsistency in international investment dispute resolution, various countries, such as the European Union (EU) and Canada, in conjunction with international organisations like the United Nations Conference on Trade and Development (UNCTAD) and International Institute for Sustainable Development (IISD), are advocating for the establishment of a multilateral investment court (MIC). This approach was subsequently formalised in the EU’s Free Trade Agreement (FTA) with Canada and its Investment Protection Agreements (IPA) with Vietnam and Singapore. These agreements all establish a standing two-tiered judicial mechanism for settling investment disputes, which includes a tribunal of first instance and an appellate tribunal.

While proponents of the MIC have been active in advocating for its adoption across various platforms, it is important to acknowledge that the concept is still in its infancy. Achieving such a substantial transformation in the realm of investment law remains a complex process due to the involvement of numerous geopolitical stakeholders. In the meantime, it is essential to recognise that tribunals operating under the ISDS system possess significant influence in shaping consistency within the investment law framework. This section of the paper underscores specific practices that ISDS tribunals have historically employed (and should continue to employ in the future) – which not only reinforce the inherently multilateral nature of investment law but also play a pivotal role in enabling consistency within it.

How tribunals handle differing viewpoints regarding the appropriate interpretation of BITs indicates their perception of investment law as a uniform system, despite occasional departures from previous decisions that may lead to conflicts. Take, for instance, the openly conflicting ICSID decisions in the cases of SGS v. Pakistan and SGS v. Philippines. In SGS v. Pakistan, a restrictive approach was taken by the Tribunal on the interpretation of the umbrella clause and dispute resolution clause. On the other hand, in SGS v. Philippines, the Tribunal held the opposite, stating that it had jurisdiction based on the interpretation of the same clauses. The key point of interest here is how the tribunal in the second case did not attempt to evade conflict or reconcile its interpretation with that presented in the earlier decision. Instead, it explicitly expressed its disagreement and criticism with the same, even though it was not obligated to apply and interpret the Swiss-Pakistani BIT, but rather the Swiss-Filipino BIT.

In place of directly challenging a previous decision based on its legal interpretation or explicitly deviating from it, tribunals may also attempt to limit the applicability of earlier decisions by citing differences in underlying facts or the applicable BIT. This approach to ensure consistency was seen Salini v. Jordan, particularly regarding the issue of whether the MFN clause in the Italian-Jordanian BIT also encompassed more favourable dispute settlement provisions. The Salini Tribunal rejected the approach adopted in the Maffezini v. Spain, citing the distinction in scope between the BIT in the Maffezini case and the one under consideration in Salini.

Additionally, arbitral tribunals are also seen to make inferences from unrelated or partially related third-party BITs. This interpretive approach involves considering one treaty in the context of another treaty that shares similar subject matter, which implies that arbitral tribunals presuppose the existence of a broader system encompassing both the treaty they are interpreting and the third-party treaty. A classic example of such a cross-treaty reference was made in Maffezini vs. Spain, where the Tribunal referred to the Chile-Spain BIT in addition to the BIT in question, i.e., the Argentina-Spain BIT.

Conclusion

The multilateralisation of international investment law is not merely an abstract aspiration but a practical necessity in our interconnected world. The historical context, the prevalence of uniform clauses in BITs, and the role of investor-state arbitration all contribute to the notion that a more unified and consistent framework is both feasible and advantageous. This paper has articulated the case for the multilateralisation of international investment law by exploring its historical evolution, the impact of uniform clauses in BITs, and the pivotal role of investor-state arbitration in creating this framework.

You can read part I here.

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Lavanya Bhattacharya is a student at Jindal Global Law School, India.

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