Public Perception and Legitimacy in International Arbitration

By Jesse Van Genugten

Photo: The World Bank, Creative Common License

The practice of international arbitration continues to develop in complex ways that sometimes address discontent with the legal system as a whole. It thus remains useful to gauge the experience and expertise of practitioners familiar with the growth within and around the field of international arbitration. Only then can we explore the intricacy of the changes afoot. 

Hosted by the Center on International Commercial Arbitration, at the American University Washington College of Law, a panel of lawyers convened on a cold day in November 2017 to do just that. Three attorneys more than capable of holding their own in arbitral proceedings sat down to discuss current salient issues in Bilateral Investment Treaty (“BIT”) and International Centre for Settlement of Investment Disputes (“ICSID”) arbitration. Professor Susan Franck opened the debate by describing the speakers’ qualifications.  There were legal representatives from both sides of the typical arbitral proceeding with experience in fields from infrastructure, mining and energy corporations to sovereign states. Each attorney, when asked, highlighted the interplay between public perception and the legitimacy of the institutional framework. 

The variety of different actors and interests has produced a difficult interaction for international arbitration lawyers to analyze, particularly in ad hoc BIT and ICSID arbitration proceedings. This list of actors includes the parties to the arbitration – most commonly international corporations and a sovereign state – as well as the citizens of that state and other states. The current environment of international investment law was crafted largely with the intention of ensuring the protection of international corporate investments, a one-sided affair that, in case of arbitral awards against the state, can lead to the perceived lack of legitimacy in the system. This systemic structure has recently come under scrutiny in a search for the protection of state sovereign interests in enacting relevant regulatory protections. 

Nevertheless, that push can fail to gain legal traction in international arbitral bodies, which are forced to rely on black-letter law rather than public interest in making determinations, leading often to disastrous results. In the paradigm cases, particularly the cases readily available to the casual newsreader – e.g. Philip Morris and Australia's plain packaging laws – corporate interests clash with the international normative construct of comity, which favors the ability of a foreign jurisdiction to legislate as it wishes. In the Philip Morris case in 2012, Australia banned companies selling tobacco products from displaying their corporate logo and brand on cigarette packages, drawing immediate backlash from the tobacco industry. Philip Morris initiated arbitration proceedings against Australia under the Hong Kong-Australia BIT, and although the three-arbitrator panel found it lacked jurisdiction to hear the case in December 2015, the dispute prompted toxic reactions in the national and international press. 

It has often been left to three panel arbitrators to decide the clash between public health, environmental, or human rights interests and the legal obligations states owe to international investors, which had led critics to question the one-sided recourse settlement process set out in bilateral treaties and by the World Bank’s ICSID. 

Moving forward, the speakers discussed the attributes of several proposed systemic changes, yet failed to agree on one solution. The first, and perhaps the most ambitious, is the creation of an external multilateral court designed to create legal precedent and ensure the equality of representation. A second alternative proposes that reforms to the current system, though no less significant, be achieved by a more piecemeal strategy that encourages adopting transparency provisions for arbitration proceedings as well as creating an appellate mechanism. Whether the international arbitration and bilateral treaty system will adopt any of the above changes remains to be seen, but the stimulation of the discussion by organizations such as the Center on International Commercial Arbitration provides a vital foundation for such modification.