Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (icsid Secretariat, Discussion Paper, 22 October 2004)

Legum, B, ‘Visualizing an Appellate System’, in F Ortino, A Sheppard, and H Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, BIICL, 2006)

OECD, Proposals for Improving Mechanisms for the Resolution of Tax Treaty Disputes (Paris, OECD, 2006)

end p.1169

Qureshi, A (ed), Perspectives in International Economic Law (The Hague, Kluwer Law International, 2002)

__ , ‘Sovereignty Issues in the WTO Dispute Settlement—A “Development Sovereignty” Perspective’, in W Shan (ed), Redefining Sovereignty (Oxford, Hart Publishing, 2007)

Schneider, M, ‘Does the WTO Confirm the Need for a More General Appellate System in Investment Disputes?’, in F Ortino, A Sheppard, and H Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, BIICL, 2006)

Tams, C, ‘Is There a Need for an ICSID Appellate Structure’, Paper delivered at Conference on ICSID held at Frankfurt University in Frankfurt (April 2006)

UNCTAD, Dispute Settlement (Investor-State) (Geneva, United Nations, 2003)

__ , World Investment Report (Geneva and New York, United Nations, 2003)

Veeder, VV, ‘The Necessary Safeguards of an Appellate System’, in f Ortino, a Sheppard, and h Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, biicl, 2006)

Wellens, K, Economic Conflicts and Disputes before the World Court (1922–1995): A Functional Analysis (The Hague and Boston, Kluwer Law International, 1996) Footnotes 87 Brown, above n 82 at 28. 1 See eg James Crawford, ‘Is There a Need for an Appellate System?’ in F Ortino, A Sheppard, and H Warner (eds) Investment Treaty Law: Current Issues—Vol I (London, BIICL, 2006). 2ICSID Secretariat, ‘Possible Improvements of the Framework for ICSID Arbitration’, Discussion Paper (22 October 2004). 3 See eg the 7 May 2004 Conference organized by the British Institute of International and Comparative Law in London on the subject of the feasibility and implications of the establishment of a mechanism for the hearing of appeals from investment. The conference proceedings have been published in Ortino et al, above n 1, and Conference on ICSID held at the University of Frankfurt in April 2006. 4 See generally, Ortino et al, above n 1. 5 Burton Legum, ‘Visualizing an Appellate System’ in Ortino et al, above n 1 at 121. 6 See eg Doak Bishop, ‘The Case for an Appellate Panel and its Scope of Review’, in Ortino et al, above n 1 at 15. 7 ICSID Discussion Paper, above n 2 at para 6. 8 See eg VV Veeder QC, ‘The Necessary Safeguards of an Appellate System’ in Ortino et al, above n 1 at 9–11; and Christian J Tams, ‘Is There a Need for an ICSID Appellate Structure’, Paper delivered at Conference on ICSID held at Frankfurt University, April 2006. 9 See eg MD Goldhaber, ‘Wanted: A World Investment Court’, The American Lawyer/Focus Europe (summer 2004), see <http://www.americanlawyer.com/focuseurope/investmentcourt04.html>. 10 See Bishop, above n 6 at 17. 11 See Veeder, above n 8 at 9. Also see Schreuer and Weiniger, ‘A Doctrine of Precedent?’ Ch 30 this volume. 12 See ICSID Discussion Paper, above n 2, at para 21. 13 Bishop, above n 6 at 15. 14 See Annex 10-F of the Central American FTA. 15ICSID Discussion Paper, above n 2 at para 20. 16 Ibid at para 21. 17 See UNCTAD, World Investment Report (Geneva and New York, United Nations, 2003). 18 See OECD, Proposals for Improving Mechanisms for the Resolution of Tax Treaty Disputes (Paris, OECD, 2006). 19 ICSID Discussion Paper, above n 2 at para 21. 20 Ibid, Annex para 1. 21 Ibid at para 3. 22 Ibid . 23 Ibid . 24 Ibid . 25 Ibid at para 6. 26 Ibid at para 7. 27 Ibid at para 9. 28 Ibid at para 10. 29 See US—Import Prohibition of Certain Shrimp and Shrimp Products, DS58/AB/R, circulated 12 October 1998. 30Doha Declaration (14 November 2001) at para 22: ‘In the period until the Fifth Session, further work in the Working Group on the Relationship Between Trade and Investment will focus on the clarification of: … consultation and the settlement of disputes between members. Any framework should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest. The special development, trade and financial needs of developing and least-developed countries should be taken into account as an integral part of any framework, which should enable members to undertake obligations and commitments commensurate with their individual needs and circumstances. Due regard should be paid to other relevant WTO provisions. Account should be taken, as appropriate, of existing bilateral and regional arrangements on investment.’ 31 Ibid . 32 See ‘Consultation and Dispute Settlement Between Members’, Note by the WTO Secretariat WT/WGTI/W/134 (7th August 2002) at paras 3 and 4. 33 Paper submitted by India to Working Group on the Relationship between Trade and Investment (October 2002) at para 4. 34 See A Qureshi, ‘Sovereignty Issues in the WTO Dispute Settlement—A “Development Sovereignty” Perspective’ in W Shan (ed), Redefining Sovereignty (Oxford, Hart Publishing, 2007). 35 See eg Michael Schneider, ‘Does the WTO Confirm the Need for a More General Appellate System in Investment Disputes?’ in Ortino et al, above n 1 at 103. 36 See generally, WT/WGTI/W/134, above n 32. 37 See AV Ganeson, ‘Strategic Options Available to Developing Countries with Regard to a Multilateral Agreement on Investment’ UNCTAD Paper No 134 (1998). 38WT/WGTI/W/134 (7th August 2002), above n 32 at para 5. 39 Ibid . 40WT/DS308/AB/R. 41 Ibid . 42 See WT/WGTI/W/134 (7th August 2002), above n 32, Part V. 43 Ibid at para 76. 44 It should be noted, however, that if the arbitration procedure of Art 25 of the DSU is used, the arbitration report cannot be appealed. 45UNCTAD, Dispute Settlement (Investor-State), UNCTAD Series on Issues in International Investment Agreements (Geneva, United Nations, 2003). 46 See Asif H Qureshi (ed), Perspectives in International Economic Law (The Hague, Kluwer Law International, 2002) at ch 1 (on which this section is based). 47 eg the Corfu Channel Case [Merits] ICJ (1949); and the Case Concerning Right of Passage Over Indian Territory [Merits] ICJ (1960). 48 See eg North Sea Continental Shelf Cases ICJ (1967); Fisheries Jurisdiction Case ICJ (1974); Aegean Sea Continental Shelf Case ICJ (1978); Case Concerning Delimitation of the Maritime Boundary in the Gulf of Maine Area ICJ (1984); Case Concerning certain Phosphate Lands in Nauru ICJ (1992). 49 See K Wellens, Economic Conflicts and Disputes before the World Court (1922-1995): A Functional Analysis (The Hague and Boston, Kluwer Law International, 1996) at 62 where the author lists ILA, ICAO, UNESCO, IMO, IMF, UNIDO IDA, and IFC. 50 eg Case of the Free Zones of Upper Savoy & the District of Gen PCIJ (1929), (1930), and (1931). 51Ahmadou Sadio Diallo [Republic of Guinea v Democratic Republic of the Congo] ICJ Press Communiqu? 2000/28. Authors: Asif H Qureshi Keywords: Arbitral rules & institutions – ICSID (International Centre for Settlement of Investment Disputes) – Review of arbitral awards – Appeal from award This chapter considers some of the arguments for an appellate process in the investment sphere, identifies some of the potential appellate options, and focuses on the development perspective to such a proposal. It is argued that a principal concern about the effort to introduce a non-ring-fenced appellate system in the investment sphere is that it seeks to add to the coherence and development of international investment law via a somewhat non-transparent route. Further, the need to inject the development dimension into any proposed appellate system is important. A development-friendly appellate system requires in particular a focus on its apparatus of interpretation, on participatory rights, and on technical assistance.

0subscriber_article?script=yes&id=%2Fic%2FMonograph%2Flaw-iic-9780199231386&recno=62&searchType=browse Chapter 28 An Appellate System In International Investment Arbitration?

(1)The Basis for the Call for an Appellate Process1155

(2)The Choice of Appellate Process?1159

(a) An Appellate Process Added to Existing Adjudicative Systems in the Investment Sphere Ring-fenced from Other Systems? 1160

(b) An ICSID Appeals Facility? 1160

(c) The Relevance of the Appellate Process in the WTO 1162

(3) A Supreme Investment Court? 1165

(4)The Development Perspective1168

Concluding Remarks1168

MOST successful judicial systems are accompanied by an appellate process. However, the need to accommodate such a mechanism in disputes processed through arbitration systems has not necessarily been apparent. Thus hitherto many of the US free trade agreements (FTAs) which deal with investment issues do not include appellate processes to follow the standard arbitral facility that is included in the agreements. In an international investment system wherein an external conflict resolution system is shopped for (eg the International Centre for Settlement of Investment Disputes (ICSID) ) as and when needed, the introduction of an appellate system in ICSID with potential ‘precedential’ consequences for other bilateral investment systems poses interesting challenges.

This brief chapter rehearses some of the arguments for an appellate process in the investment sphere, identifies some of the potential appellate options, and focuses on the development perspective to such a proposal. This chapter is not intended to be exhaustive but rather is proffered mainly as a framework paper focusing on some key issues.

(1) The Basis for the Call for an Appellate Process

The call for the possible introduction of an appellate system in international investment arbitration has been particularly attributed to the USA, 1 along with the placing of a proposal for an Appellate Facility under the auspices of ICSID. 2 These developments have led to a number of learned conferences on investment arbitration in which the proposal for an appellate system has been the subject of discussion involving both academics and practitioners in the field. 3 The impetus for an appellate system, however, seems to have lost its edge, at least of the political level, since 2004. 4

The USA's agenda for the introduction of an appellate system in investment arbitration is to be found in the US Trade Promotion Authority under section 2102 of

end p.1155

the US Trade Act 2002. Herein the USA's objectives in negotiations with respect to investment chapters 5 in international trade agreements are expressed as involving the inclusion in these agreements of ‘meaningful procedures for resolving investment disputes’ between an investor and a government, through inter alia the provision of ‘an appellate body or similar mechanism to provide coherence to the interpretations of investment provisions in trade agreements … .’ In the circumstances, it will be noted, the US justification for an appellate process focuses on the need for coherence in interpretation, along with the need to institute proper safeguards in dispute settlement, particularly where the USA is taken to task in international arbitration.

This approach by the United States is reinforced in Annex D of the New Draft US Model Bilateral Investment Treaty (BIT) 6 which states:

Within three years after the date of entry into force of the Treaty, the Parties shall consider whether to establish a bilateral appellate body or similar mechanism to review awards rendered under Article 34 in arbitrations commenced after they establish the appellate body or similar mechanism.

It is not surprising therefore that this same agenda was also taken up within ICSID. Thus, the ICSID Discussion Paper of 22 October 2004 points out: ‘A further, potentially most important, issue that has been raised is whether an appellate mechanism is desirable … in case law generated in ICSID and other investor-to-State arbitrations initiated under investment treaties’. 7

In the same vein, there is evidence of a growing consensus over the need for an appellate system in the investment sphere amongst investment practitioners and academics. 8 In sum the initiative and call for an appellate system comes mainly for the moment from interests in the developed hemisphere. Indeed, ‘the coherence in the interpretation of investment provisions’ which forms a basis for such a call is somewhat reminiscent of the OECD's failed initiative for a multilateral agreement on investment (MIA), and the failure on the part of developed countries in the WTO to set the agenda on trade and investment issues. These initiatives for an appellate process, coming as they do shortly after these abortive attempts at multilateralizing international investment law, beg the question whether they are focused purely on strengthening dispute settlement mechanisms (because initial arbitration decisions could be flawed); or seek to bring about substantive coordination in

end p.1156

international investment law. However, the possibility that they partake of both concerns cannot be excluded.

In the circumstances, there are several reasons for this call for an improved dispute settlement system in the investment sphere that encompasses an appellate process. First, an appellate system operates as a corrective mechanism in case an arbitration decision is made wrongly. Secondly, the increased number of ICSID cases has meant that the real and potential risk of inconsistent arbitration decisions is on the increase. 9 Therefore an appellate system is advocated to address the ‘sustainability’ of the existing arbitration system. 10 However, it needs to be noted that the achievement of the objective of consistency is limited by the differences in the provisions of the different international investment agreements. Furthermore, although there is no formal doctrine of precedent in investment arbitration, it has been noted that the reasons given for (and in) the awards are assuming ‘greater importance for other disputes’. 11 In this respect, it is believed that an appellate system would ensure coherence and consistency, 12 predictability, objectivity, and sensitivity in judicial decisions. 13 Thirdly, the advent and success of the WTO appellate system has a bearing on the thinking in the investment sphere, in particular given that the international trade and investment regimes operate in each other's shadows. Fourthly, certain sectors or origins of investment enjoy dispute settlement systems with appellate processes, and consequently open the way for distortions in investment flows and forum shopping in dispute settlement, for example, in relation to those investment disputes that are trade related under the WTO. Indeed, a growing number of trade agreements have begun to incorporate references to appellate processes, for example Annex 10-H US-Chile FTA and The Central American FTA. 14 This growing practice with respect to investment provisions in trade agreements is also to be found in BITs. In this respect, the following statement in the ICSID Discussion Paper is of note: 15

There have already been concluded several treaties that envisage, in broad terms, the eventual creation of such a mechanism. Several more such treaties are being negotiated. By mid-2005, as many as 20 countries may have signed treaties with provisions on an appeal mechanism for awards in investor-to-State arbitrations under the treaties.

end p.1157

In conclusion, whilst the weight of opinion within the discourse for an appellate process appears to be in favour for an appellate system, there are also arguments against the introduction of such a system. To complete the picture, these need to be noted. This side of the case has been eloquently formulated as follows:

Significant inconsistencies have not to date been a general feature of the jurisprudence of ICSID. It might also be argued that providing an appeal mechanism could fragment the ICSID arbitral regimes: ICSID arbitrations would in some instances be subject to the mechanism and in other cases remain free of the mechanism. Subjecting ICSID arbitral awards to an appeal mechanism might also detract from the finality of the awards and open opportunities for delays in their enforcement. 16

It may be observed that one of the frequently advanced reasons for an appellate process is ‘coherence and consistency’. This is the case despite the fact that the whole discourse for an appellate process has been in the setting of institutional reform in investment arbitration. Consequently, there are some prior questions here that precede an evaluation of the case for an appellate process, and which is missing in much of the commentary in this field.

First, it seems that deconstructionists would have much to say about proposals for reform in the international investment dispute settlement system, given that it is largely set against a normative framework that is bilateral, disorganized, and non-multilateral. Is it really possible meaningfully to evaluate the arguments for and the obstacles in setting up an appellate facility in the investment sphere, with the objective of providing normative coherence, in circumstances where the multilateral consensus on substantive matters is not very evident? Does this institutional debate not partake of concerns and preferences with respect to the normative framework of investment? Indeed, one may even venture to query whether the suggestion for an appellate facility at a multilateral level is not an attempt to force onto the international agenda an issue which has not received endorsement for being so negotiated by a significant constituency concerned with international investment law—namely, the developing countries. In recent history, as pointed out earlier, this lack of endorsement has happened twice, first in the context of the negotiations for a Multilateral Agreement on Investment (MIA) under the auspices of the OECD, and then under the Doha Agenda within the WTO.

As is the case, appellate processes are about interpretations of legal norms—and the system that partakes of the ultimate interpreter is also the ultimate legislator. Therefore, at the outset, it needs to be highlighted that the question posited is not simply a procedural/institutional one—one that is concerned about adjudication and the place and need for appellate processes in that system—but rather very much concerns the wider and much discussed question as to whether and how the international investment regime should be organized normatively. In short, advocacy

end p.1158

of an appellate system can indirectly partake of the call for a multilateral investment agreement, given that the appellate system would operate as a ‘multilateral quasi-legislative body’. This is granted of course that the legislative impact of such an appellate process would depend on its character—namely, its composition, locus, and powers etc.

Secondly, and in the same vein, it is not possible to engage in constructing dispute settlement mechanisms—without reference to the nature of the underlying normative structure. The case for an appellate facility must be set against the objectives and purposes of the provision of dispute settlement in the international investment sphere. It is not possible to de-link institutional building from its substantive sphere and its underpinnings. The objects and purposes of the international investment order inform the institutions that govern and serve it. In this respect, it needs to be noted that the objects and purposes of a normative framework in international investment, along with conflict management system in the field, are not confined to the investors' concerns alone. Thus, ‘consistency and coherence’ in dispute settlement may be significant reasons for institutional reform for both States and investors—but there are other concerns which may seek to trump these considerations—for example, human rights, environment, and of course the development objectives of the host state.

(2) The Choice of Appellate Process?

The discourse for an appellate process is not unconnected with the kind of appellate process and its locus. There are in this respect a number of options: appellate processes included in existing dispute settlement mechanisms in BITs; an appellate facility in ICSID; the availability of an appellate process in the framework of the WTO along with the inclusion of appellate processes in existing trade agreements dealing with investment; and finally a Supreme Investment Court (SIC) and/or the International Court of Justice (ICJ) functioning as such. However, the main focus amongst the ‘investment fraternity’ appears to be on ICSID, as a logical extension point in the arbitral process it offers in the investment sphere. The locus of the arbitration process has a bearing on the question of institutional uniformity (or conversely fragmentation of appellate processes); and indeed nuances in approaches stemming from the location of the appellate process—for example, with investor, trade/investment liberalization, development, and internationalist orientations respectively.

end p.1159

(a) An Appellate Process Added to Existing Adjudicative Systems in the Investment Sphere Ring-fenced from Other Systems?

The case for such a system is grounded in transparency, fairness, and a move to rule-orientated systems of adjudication. There is general support for such a move including investor-state disputes. Certainly it has been canvassed in UNCTAD. 17 Promoting the inclusion of appellate processes in existing or new BITs has the advantage of simplicity—in that it simply augments existing dispute settlement mechanisms and practices—and leaves the choice of inclusion to the parties to the respective investment agreements. Such an approach is also to be found in the sphere of double taxation agreements (DTAs) wherein the OECD has recently suggested the introduction of a kind of an ‘appellate’ arbitration system added on to the existing Mutual Agreement Procedure in DTAs. 18 However, such a step has drawbacks and this is reflected in the degree of support for such a proposal. The shortcomings have been aptly pointed out as follows:

It would in this context seem to run counter to the objectives of coherence and consistency for different appeal mechanisms to be set up under each treaty concerned. Efficiency and economy, as well as coherence and consistency, might best be served by ICSID offering a single appeal mechanism as an alternative to multiple mechanisms.

(b) An ICSID Appeals Facility?

The ICSID proposal is to set up a single appeal mechanism 19 (the ICSID Appeals Facility) under a set of ICSID Appeals Facility Rules to be adopted by the Administrative Council of ICSID. This would be as an alternative to individual appeal processes that may be set up in individual treaties. The Appeals Facility is to be available for ‘both forms of ICSID arbitration, UNCITRAL Rules arbitration and any other form of arbitration provided for in the investor-to-State dispute- settlement provisions of investment treaties’. 20 The introduction of such a Facility would necessitate amendment of ICSID.

The principal features of note of the proposed facility are as follows. first, the availability of the appeals process would ‘depend on the consent of the parties’. 21 Thus, the

end p.1160

option to opt for arbitration without recourse to the appeal process would remain. 22 Secondly, it is proposed that an Appeals Panel would be established ‘composed of 15 persons elected by the Administrative Council of ICSID on the nomination of the Secretary-General of the Centre’. 23 Each appellate member would be from a different country, and ‘be persons of recognised authority, with demonstrated expertise in law, international investment and investment treaties’ as per the WTO Appellate Body conditions. 24 The WTO, however, has a smaller appellate panel. Each Appeal Tribunal would comprise of three members from the panel of 15. 25 Thirdly, the grounds for appeal would comprise of ‘clear error of law’, or ‘any of the five grounds for annulment of an award set out in Article 52 of the ICSID Convention’ or ‘serious errors of fact’. 26 Fourthly, the Appeal Tribunal would be able to uphold, modify, reverse, or annul the award concerned. 27 Finally, access to the Facility would be subject to the approval of the Secretary-General of ICSID. 28

A number of points may be made about this proposal. First, the appointment of the judges on the panel at the sole behest of a nomination by the Secretary-General without further ado needs more justification. In the WTO, it is the members who nominate individuals for consideration by the WTO for judicial appointments in the Appellate Body. Secondly, there is no mention of any geographical distribution, or developed/developing, investor home/host state constituencies within this panel. In the WTO, a kind of representative formula has been found in practice. Thirdly, the appeal process seems not to be compulsory but to be based on its consensual user. In the WTO, the appeal mechanism is automatically available to the parties without further ado. Finally, BITs are international agreements entered into between states. An appellate process allows a non-governmental investor entity to affect the nature of the agreement entered into between two state entities, through the interpretative appellate process—not to mention the fact that such an appellate interpretation could impact upon other bilateral agreements. Thus, whatever may be the merits of this argument, it needs to be pointed out nevertheless that such an appellate process may have a further limiting effect on sovereign foreign policy decisions—in particular to engage in ‘efficient breaches’. On the other hand, the proposal appears to be silent with respect to the submission of amicus curiae briefs. In contrast, such submissions by NGOs are possible in WTO appellate proceedings, although this is not explicitly stated as such in the Dispute Settlement Understanding (DSU). 29

end p.1161

(c) The Relevance of the Appellate Process in the WTO

The focus here is mainly set against the choice of the dispute settlement system in the WTO against the background of (current and/or future) investment rules within the WTO. However, such a focus raises both fundamental as well general questions. Can and should conflict resolution mechanisms for investment be located in the WTO alongside investment rules or in their absence? What impact would having conflict resolution mechanisms for investment disputes in the WTO have on litigation strategy in investment disputes? What impact would the WTO dispute settlement mechanism for investment have on furthering the development objectives of developing countries? What lessons can be learnt from the conflict resolution mechanisms in the WTO?

Under the Doha Ministerial Declaration, the membership of the WTO recognized the need for a multilateral agreement in the investment sphere, and its role in expanding international trade. 30 However, agreement on actual negotiation and its modalities were deferred until such time as an explicit consensus emerged for this after the Fifth Session of the Ministerial Conference. Meanwhile a Working Group on the Relationship between Trade and Investment was mandated to consider inter alia dispute settlement procedures in the sphere. 31 The prospects for negotiations on trade and investment have now become an even more remote possibility after the suspension of the whole Doha Round negotiations.

The Working Group considered both the availability generally of the WTO dispute settlement system to service a future multilateral investment agreement, as well as the use of the WTO dispute settlement system in the event of the integration of investment regulation with international trade. In the circumstances, some insight into its deliberations is apposite here.

On the question whether the ‘existing WTO dispute settlement mechanism should apply to investment disputes among parties to a multilateral framework, or whether some changes would be needed for its application in this context’, one view was that it could apply without the need to make major changes. 32 Indeed, a

end p.1162

number of mainly developed members made submissions to the Working Group which seem supportive of the use of the WTO Dispute Settlement System in investment matters—including its appellate system. These included the EU, Japan, and Canada. However, although the majority of developing members did not specifically focus on this issue, it is to be noted that India in one submission made the following general observation: ‘Developing countries must never subscribe to any doctrine that would limit policy flexibility in this important area’. 33

However, an appellate system could also safeguard policy flexibility, depending on the kind of appellate system envisaged. Certainly, in so far as trade conflicts are concerned, the Appellate Body has repeatedly affirmed member sovereignty to the extent that it has not been constrained by WTO Agreements. 34 However, an Appellate System in the investment sphere that is secured within the WTO and its trade liberalization culture may well suffer from the imprint of a trade liberalization regime, and therefore could hinder national policy flexibility in the development sphere. Thus, it has been observed that ‘the situations in the investment disputes are different and the priorities are different’. 35

The following questions would however need to be addressed if access to the WTO dispute settlement system were to be made available for investment disputes. 36 First, whether to allow investors standing in the dispute settlement system. Secondly, whether to allow the provisions on compensation and suspension of concessions in the WTO to investment disputes. Thirdly, whether the relationship of the WTO dispute settlement system needed to be coordinated with existing bilateral and regional agreements. With respect to investor standing some delegates argued against it given that the WTO is an inter-state organization. Thus, the mandate of the Working Group on Trade and Investment was to consider dispute settlement between members. Therefore, some members, for example Japan, went out of their way to mention their preference for a state-state system. However, others, for example Taiwan, have been open to an investor-state process as well. In relation to remedies, one current Appellate Body judge, albeit when working in UNCTAD, took the view that to maintain a development-friendly investment framework, there should be a stand-alone dispute settlement system without the system of cross-retaliation currently available. 37

Finally, with respect to the relationship between the WTO dispute settlement system and others contained in bilateral and regional investment agreements, some

end p.1163

members of the WTO ‘pointed out that the use of WTO procedures should not preclude recourse to provisions of bilateral or regional investment agreements if the parties to a dispute so decided’. 38 However, in this respect it was conceded that there would be the need to ‘design specific rules to avoid inefficiency and duplication’. 39

The conflation of investment in trade agreements, along with the multiplicity of conflict resolution mechanisms in international agreements dealing with trade and investment, do indeed open the doors both to litigation strategies, as well as to potential jurisdictional conflicts. Thus, it will be noted that in the recent Mexico—Tax Measures on Soft Drinks and Other Beverages , 40 the Appellate Body upheld the Panel's conclusion that ‘under the DSU, it had no discretion to decline to exercise its jurisdiction in the case that had been brought before it’. 41 Mexico had invited the Panel to decline jurisdiction and invite the parties to subject their grievances to an Arbitral Panel under Chapter 20 of the North American Free Trade Agreement (NAFTA).

The Working Group also considered the differences between the WTO disputes settlement system and those provided for in international investment agreements (IIA). 42 The main and relevant differences identified are shown in Table 28.1.

More specifically with reference to the differences of review procedure these are described as follows: 43

Table 28.1 WTO and IIA Dispute Settlement Systems Nature Procedure Applicable Law Remedies Standing WTO Institutionalized Detailed Rules WTO agreements Set remedies/ no monetary compensation Members IIA Ad hoc Determined by tribunal Wider sources of law State responsibility/monetary compensation/restitution Investors/States end p.1164

There is also a significant difference as regards review procedures. Under ad hoc investor-State arbitration, the arbitral awards are normally final, although a losing State may request that an award be set aside or annulled on procedural grounds before municipal courts. The ICSID Convention goes beyond ad hoc regimes, by requiring that ICSID awards not be subject to any appeal or to any other remedy except those provided for in the Convention. Under the WTO system, on the other hand, the DSU allows the disputing Members to request for an appellate review of the panel report concerning issues of law and the legal interpretations made by the panel. 44 The main difference between ICSID's annulment procedures and the WTO appellate review is that, while under the former an award can only be annulled on the narrow procedural grounds set forth in the Convention and the parties are thus free to submit the dispute to a new tribunal, the WTO's Appellate Body can not only nullify a panel decision for procedural defects, but it can also modify or reverse the legal findings and conclusions of a panel and substitute its own decision for the panel's recommendations. 45 (Footnote numbers changed)

The differences in the two systems of dispute resolution do provide some useful lessons for the construction of an appellate system in the investment sphere. Thus, for example, it has been pointed out that some of the ‘diplomacy orientated’ practices in the WTO dispute settlement system may have a bearing in investment disputes; as would the institution of legal support by lawyers in the Appellate Body Secretariat to the members of the Appellate Body. By the same token, the practice of consultations amongst Appellate Body members with respect to a particular dispute may prove useful in the investment sphere. However, the need for caution in borrowing practices from the WTO without further ado needs to be borne in mind. Both spheres of dispute resolution come from different traditions. Thus, it may be observed that the WTO dispute settlement originates in the diplomacy-orientated approach to the settlement of disputes. On the other hand, in the investment sphere, this has not been as critical as other considerations.

(3) A Supreme Investment Court?

A Supreme Investment Court (SIC) could be set up as such, or as part of a chamber in the ICJ. However, whatever the institutional modalities, there are interesting parallels here between the case for an SIC and the general question of the role of the ICJ in an appellate context in the sphere of international economic relations generally. 46

end p.1165

In an international economic order that is increasingly becoming fragmented both in the context of its disparate fields, as well as in terms of regional developments, the ICJ has an important constitutional role in this order, alongside its normal adjudicatory function.

First, at a very fundamental level, the ICJ serves in a number of ways to guard and facilitate some of the principal substantive and procedural pillars upon which international economic relations rest; and which are founded, inter alia, upon general international law. Thus, the Court has a role in ensuring certain basic freedoms without which international commerce and investment would not be possible. For example, the ICJ has frequently been instrumental in clarifying the circumstances in which international communication and navigation systems ought to be unhindered. 47 Similarly, the Court has an essential function in clarifying questions of basic state economic sovereignty—particularly in the context of rights over territorial and maritime resources. Thus, the Court has frequently been asked to clarify competing claims of sovereignty over natural resources 48 and the demarcation of boundaries, especially maritime zones, with important economic significance for states. Furthermore, the Court has a role in identifying the circumstances which entitle a state in the economic sphere to make a claim on the international plane on behalf of different national and transnational entities. An SIC could arrogate to itself such a constitutional function in the investment sphere—guarding and facilitating some of the principal substantive and procedural pillars upon which international investment relations rest—including the development dimension.

Secondly, the ICJ, despite the presence of other mechanisms of conflict resolution in the international economic sphere, is still an important judicial organ of the international economic order, as much as it is of the United Nations; and in that context also has a constitutional role in international economic law (IEL). First, the Court services many international economic treaties, which refer to it in the event of the need for conflict resolution, as well as international economic organizations for advisory opinion. 49 Secondly, in an international economic order that is characterized by different bilateral, regional, and multilateral legal regimes, the existence of conflicts and tensions arising from the different sources of obligations is inevitable. The ICJ has an undoubted role here. Indeed, there are examples of its role in this context. 50 Thirdly, the Court has a function in the resolution of disputes that draw from the rights of states under general international economic law. Thus, there is

end p.1166

evidence that states have resorted to the Court for the resolution of economic disputes falling outside treaty provisions. 51 An SIC would be the principal adjudicative organ in the investment sphere, and could facilitate conflict resolution between different investment regimes, and the application of general international law in the sphere.

Finally, the ICJ has a law-determining function in the context of general IEL. Thus, the Court has been instrumental in confirming certain fundamental principles of IEL, for example the right to development, the right to environmental protection, and the principle of sustainable development. 52 Further, this law-determining function, in the context of determining whether treaty norms serving different spheres of IEL have transformed into customary IEL, is more authoritatively performed by the ICJ than those disparate and specialist international economic judicial organs servicing such economic regimes. An SIC could contribute to a law-determining process in the general international law of investment.

In conclusion, an SIC could perform a fundamental, overarching, and above all constitutional role in international investment relations. This constitutional role is particularly evident in its guardianship of fundamental principles and procedures, in its function in the development of international investment norms, and in its advisory and conflict-resolving role for and between different legal regimes—as well as its function as a judicial system for residual international investment problems, not adequately covered by existing multilateral, bilateral, and regional investment agreements.

This constitutional role of an SIC could facilitate the airing of different perspectives in international investment relations. First, the SIC could provide a forum for outsiders not part of the existing investment regimes. Secondly, the court could act as a reservoir for the nurturing of new perspectives in international investment relations not otherwise effectively catered for in existing regimes. Thirdly, it could facilitate the trumping of the existing investment regimes—where there are sound external reasons for such trumping—in terms, for example, of development priorities or the fairer management of the power ratio that may sometime be encapsulated in bilateral investment bargains.

In summary, generally there is a discernible consensus for an appellate process in the investment sphere. Arguably, there may also be a case for a supreme investment type of court. An appellate process of whatever kind would contribute to greater transparency, accountability, and legitimacy in the adjudicative process; deal with the asymmetry in the manner in which different types of investment are currently dealt with; and provide certain safeguards.

end p.1167

(4) The Development Perspective

Certainly, there is a development perspective in the establishment of an appellate process in the investment sphere. This involves ensuring inter alia that:

• the review process facilitates the development objective;

• the review process reduces or alleviates the burdens that accompany investment liberalization through the interpretative process;

• there exist independent, fair, and transparent processes in the appellate structure, through for example ensuring effective participation of developing/host countries in the appellate process;

• the power of multinational corporations is not unduly strengthened through the abusive use of an appellate process. The availability of the process could result in frivolous and vexatious claims paralysing host state action;

• the national legislative ‘policy space’ developing countries need for their development objectives is not undermined through the introduction of an appellate process. If investor-state appeals are permitted (and in particular where they are successful), then this would empower private parties to engage in legislative activity in a sphere where there may be sound national and public policy arguments for preserving the power of the government;

• the appellate system does not lead to the multilateralization of bilaterally negotiated agreements; and thereby compromise the flexibility afforded by a bilateral system along with the collective decision of developing countries not to engage in a multilateral system that is not development friendly.

The need for an appellate system from a development perspective is informed by the type and location of the appellate process being advocated. The different types of appellate systems may call for different responses from a development perspective.

Concluding Remarks

A number of points may be made in the form of questions. First, is the justification for an appellate system on the basis of ‘consistency and coherence’ in judicial outcomes not really an argument for incorporating a particular kind of ‘consistency and coherence’ into the disorganized international investment system—given that interpretation by an appellate process is a form of law-making? Is the objection to ‘inconsistency’ not really a call for normative uniformity? Secondly, should disparate investment norms necessarily be interpreted identically on the basis of

end p.1168

equality, fairness, predictability, and reliability? Thirdly, if investment involves and is about ultimately ensuring development—should development not be the overriding consideration in the process of interpretation? Should there not be consistent striving at better facilitating the ‘development objective’ and better decisions all round, rather than pursuing a fetish for identity of interpretation? Fourthly, will a non-ring-fenced appellate system, set against a disorganized bilateral investment normative framework, not add to uncertainty and complexity—given that the beneficiaries of and parties to bilateral agreements will not be clear as to how ultimately their rights and obligations will be ‘coherently and consistently’ interpreted—not to mention the added complexity in interpretation arising from such a system? Finally, will an appellate system not lead to further investor bias in relation to weaker host states, by augmenting the capacity of multilateral companies to pursue an appeal?

In conclusion, the need to place ‘consistency and coherence’ as sacrosanct—as the basis for an appellate system—needs to be considered with some degree of caution. I would not put it on such a high pedestal as other objectives—particularly the development objective. From a development perspective, until there is agreement on a multilateral investment agreement, a treaty-specific appeal system is favoured. A principal concern about the effort to introduce a non-ring-fenced appellate system in the investment sphere is that it seeks to add to the coherence and development of international investment law via a somewhat non-transparent route. Further, the need to inject the development dimension into any proposed appellate system is important. A development-friendly appellate system requires in particular a focus on its apparatus of interpretation, on participatory rights, and on technical assistance.

Select Bibliography

Bishop, D, ‘The Case for an Appellate Panel and its Scope of Review’, in F Ortino, A Sheppard, and H Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, BIICL, 2006)

Crawford, J, ‘Is There a Need for an Appellate System?’, in F Ortino, A Sheppard, and H Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, BIICL, 2006)

Ganeson, AV, ‘Strategic Options Available to Developing Countries with Regard to a Multilateral Agreement on Investment’, UNCTAD Paper No. 134 (1998)

Goldhaber, MD, ‘Wanted: A World Investment Court’, The American Lawyer/Focus Europe (summer 2004)