Adverse Inferences and Penalty Default Rules in International Investment Arbitration: A Policy Approach to the Production of Evidence

Abstract

Abstract Investor-state dispute settlement relies heavily on the production of evidence. Evidence is certainly a necessary condition for a fair trial, but is it sufficient? Instances of ‘guerrilla tactics’ and non-substantiated claims are increasingly common. In a world of costly litigation, the availability of appropriate and reliable evidence is crucial for avoiding accusations of ideologically-driven decisions and achieving a ‘fair and equitable’ resolution of a dispute. Against this background, the present article uses an interdisciplinary analysis drawn from contract theory and transaction cost economics to explore the potential of two evidentiary tools for the disclosure of material information: adverse inferences and penalty default rules. The article shows that penalty default rules can be a valuable complement to adverse inferences, as they allow for the strategic interpretation of inherently incomplete treaty standards, thus attaching concrete legal consequences to the denial of a party to disclose material evidence to the tribunal.