Investor State Dispute Resolution and the Value of International Arbitration
Professor of Law and Butler Scholar in International Law William Park discusses his introduction to arbitration and the challenges of his field.
Professor of Law and Butler Scholar in International Law William Park began his career practicing in the areas of international finance and tax. However, over the years he has developed a strong focus on international arbitration, a field in which he has become a prominent figure. Park now plays an active role in investor-state arbitration, a specialty which has drawn attention in connection with proposals for trade agreements with Asian countries (Trans-Pacific Partnership) and Europe (Trans-Atlantic Trade and Investment Partnership).
Investor-State Arbitration
In accordance with investment treaties and free trade agreements, investors from one country can bring claims against a foreign government that has unlawfully expropriated their assets. Such claims rest on principles analogous to American Constitutional law prohibitions on “takings” without just compensation in the 5th Amendment, as well as deprivation of property without due process in the 14th Amendment. The treaties provide recourse to international arbitration as a means to remedy discriminatory takings. These treaty-based dispute resolution mechanisms replace the “gunboat diplomacy” of the past, in which one country threatened military and diplomatic action against another to obtain compensation for seizure of its citizens’ assets.
“The antecedents of investor-state arbitration in the United States go back more than two hundred years,” Park says, “to the 1794 treaty with Great Britain negotiated by John Jay, later Chief Justice of the US Supreme Court. To avoid new hostilities between British and Americans, the Jay Treaty (as it came to be called) provided for arbitration of claims by English creditors after the Revolutionary War.”
Investor-state dispute settlement (ISDS) is now closely associated with rules issued by the United Nations Commission on International Trade Law, as well as the World Bank affiliate, the International Centre for Settlement of Investment Disputes (ICSID), to whose arbitration roster Park was appointed by President George W. Bush. Investor-state arbitration also takes place under rules of other institutions, including the London Court of International Arbitration (LCIA), for which Park now serves as president.
Early Experience
“On a hot August afternoon,” Park recalls, describing how he became involved in arbitration as a young lawyer practicing in Paris, “the senior partner at my firm rang my apartment. He told me to catch the night train to the south of France where one of his clients, an Israeli shipping company, had been sued by a local shipyard.” The case was being heard before a commercial court in a small provincial city, and the Israeli company, whose managers spoke very little French, expressed concern that local courts might possibly be inclined to favor local interests. “After much cajoling,” he continues, “a client who was understandably skeptical of someone just recently out of law school finally turned over the contract documents, which contained an arbitration clause.” As a result, both the Israeli company and the French shipyard nominated arbitrators to a tribunal that proceeded successfully to address the controversy under the rules of the International Chamber of Commerce.
This early experience impressed on Park how cross-border arbitration can be used to promote a relatively level playing field for dispute resolution. “No playing field will be completely level,” he says. “However, some playing fields will be less level than others.” According to Park, international arbitration enhances economic cooperation by permitting players from different legal cultures to feel more confident that their differences will be resolved fairly. “The arbitral tribunal will almost certainly be chaired by an individual who has the nationality of neither side,” he says. “That person will conduct hearings in a commonly understood language, and apply rules that give neither party an undue procedural advantage.”
Today, in addition to teaching at BU Law and service as arbitrator, Park is a member of the Governing Board of the International Council for Commercial Arbitration, the Vorstand of the Swiss Arbitration Association, and the Board of Directors for the American Arbitration Association. His books include Arbitration of International Business Disputes, International Forum Selection, ICC Arbitration, International Commercial Arbitration, and Income Tax Treaty Arbitration. In recognition of his influence on arbitration scholarship, Oxford University Press established the annual Rusty Park Prize in International Arbitration, awarded each year to an article judged the best in this field.
ISDS and International Trade
Investor-state dispute settlement is built into many international trade agreements as a way to arbitrate disputes without creating state-to-state conflicts. United States Senator Elizabeth Warren (D-Mass.) has spoken against a clause for investment arbitration in the Trans-Pacific Partnership. In a Washington Post op-ed, Warren argued that such arbitration favors multinational corporations by giving them a way to affect US laws and policy without participating in the US court system.
On the other side of the issue, many international law scholars have argued in an open letter to congressional leaders that “investment treaty arbitration does not undermine the rule of law. It ensures that, where a right is given, a remedy is also provided. It permits foreign investors to hold host states to their obligations …and offers a forum for states to vindicate their policy choices.”
Senator Warren’s op-ed asks, “So what’s wrong with American courts?” “Nothing,” Park says, “as long as you are an American. However, a company from Japan, Germany, or Russia might feel less sanguine, just as an American investor might not feel entirely comfortable facing state agencies from those countries before their own courts. The problem is amplified when one considers litigation in countries without the tradition of judicial independence which we take for granted in the United States.”
In the past several decades, global experience with investor-state arbitration has been “overwhelmingly positive if judged from the perspective of the traditional American values of fair play and procedural justice,” Park says. To illustrate, he cites the Yukos Oil Company settlement, an arbitration brought by foreign investors against Russia following what many considered a politically motivated takeover of an oil giant controlled by Vladimir Putin’s former rival Mikhail Khodorkovsky. Following many years of international arbitration, Yukos shareholders were awarded $50 billion for Russia’s actions.
With respect to the pro-investor bias often cited by arbitration critics, Park notes that investment arbitration by its nature involves the same number of arbitrators appointed by host states as are nominated by investors. “The presiding arbitrator will be appointed with the consent of both sides, or in default of agreement by a generally recognized international institution like the Permanent Court of Arbitration or the International Centre for the Settlement of Investment Disputes.”
For his part, Park has presided over a number of high-profile investor-state cases, including actions against Argentina, China, Congo, India, Kazakhstan, Poland, Romania, Slovenia, Tanzania, and Turkey. In addition, he regularly sits in commercial and financial cases implicating disputes related to insurance, energy, construction, and patent licenses. “International arbitration,” Park says, “with all its imperfections, has not yet faced any realistic substitute as an adjudicatory mechanism agreed to by diverse segments of the global economy.”
Reported by Sara Womble (CFA ’14)