By empowering investors to sue states, the world’s web of 3,000-plus investment treaties has made arbitration the dominant form of dispute resolution involving states. Supporters make a strong case that it has promoted the rule of law and the flow of investment.
The greatest weakness of the treaty system is the appearance of bias. Alas, the critiques of arbitrator independence have gone unheeded, and they are only growing louder. A study by the system’s leading academic critic, Gus Van Harten of Toronto’s Osgoode Hall Law School, concluded that treaty arbitrators find in favor of investors on key jurisdictional issues about three-quarters of the time.
The charge of bias rings true, because arbitration as it has evolved in the private realm is poorly designed for public law adjudication. Ad hoc ­arbitrators depend on future appointments to make their generous living — and many are drawn from the ranks of counsel, who are paid to take positions on the same few recurring issues.
Insiders argue that building a just system is the arbitrators’ greatest self-interest, and that conflicts can be cured by full disclosure in a system with no (formal) rule of precedent. But whatever one thinks of these trusting arguments, legitimacy is a matter of appearances.
Van Harten has long argued that no system of dispute resolution can maintain public confidence while mixing the functions of advocate and adjudicator. Even Jan Paulsson, a legendary arbitrator who built Freshfields Bruckhaus Deringer’s top-rated practice group, thinks that wearing two hats is highly problematic.
Paulsson tells of one case in which he felt compelled to offer his resignation as arbitrator three separate times. "On almost every issue that arose, before you know it one of my partners was arguing before me on the same issue in the halls of my law firm," he said. On the third occasion Paulsson went so far as to resign, but the parties begged him to stay, and he did.
The easy solution would be for institutions to require arbitrators and counsel to be drawn from separate pools, as does the Court of Arbitration for Sport and the model treaty of the Southern African Development Community. Failing that, arbitrators and counsel should make such a commitment voluntarily.
Leading arbitrators Bernard Hanotiau and Albert Jan van den Berg have done precisely that. Their Brussels firm, Hanotiau & van den Berg, declared that it would decline all assignments as arbitration counsel in cases arising out of investment treaties or laws. The firm will still write expert opinions in a treaty arbitration and act as counsel in a related court proceeding — but in the current landscape, its policy qualifies as a laudatory best practice.
Hanotiau has conceded that there is little ­interest within the arbitration bar to follow suit. But if the community dislikes being caricatured as a greedy industry, it may wish to adopt this most basic conflict rule.
Michael D. Goldhaber is senior international correspondent for ALM and The American Lawyer. E-mail: firstname.lastname@example.org.