Confronting Complexities in Fact-Finding and the Nature of Investor-State Arbitration

Abstract

Reverting to the Annual Meeting theme--Confronting Complexity--I will focus on fact-finding in investor-state arbitration, especially on the state side. One must recognize that there are overarching complexities in investor-state arbitration. First, there is inherent complexity in having a commercial entity (primarily interested in profit from a commercial venture) on the international law plane with a state (whose interests are broader, broader even than attracting investment). Facts for states are very different than facts for individuals and companies. Second, investor-state tribunals are, by definition, ad hoc. There is only one three-member panel at a time. This means there is not the opportunity to develop consistency in standards of proof that we see with standing tribunals such as the Eritrea-Ethiopia Claims Commission (EECC). Third, one must also recognize specific fact-finding complexities in investor-state arbitration. To mention just a few obvious ones: --Who is the investor? What is the investor's nationality? --Who is the state when you have an allegedly state-controlled entity? --At what point do measures that fall short of outright nationalization constitute an indirect expropriation, unfair and inequitable treatment, and/or discriminatory treatment? To recognize that there are fact-finding complexities in investor-state cases should not be to succumb to them. The often unruly state of fact-finding in investor-state arbitration awards is not necessary. My submission is that tribunals and counsel can do a better job in such cases by following basic practices to control and mitigate complexities. After identifying certain of these practices, I will focus on inference-drawing about state motivation by looking to the 1949 ICJ Corfu Channel case. (1) BEST PRACTICES FOR MANAGING INVESTOR-STATE FACT-FINDING First, which fact-finding mechanisms are available in investor-state arbitrations? They are obvious and not necessarily complex: standard of proof and burden of proof. Investor-state tribunals can and should be proactive in setting out both the standard of proof and the burden of proof--issue-by-issue, claim-by-claim, and defense-by-defense-earlier and more clearly in proceedings. The tribunal should police counsel to adhere to standards and burdens of proof. The tribunal should apply them rigorously in its deliberations and awards, including by dismissing claims or defenses for failure to meet the standard or burden of proof. A holding in an award based on failure of proof should be sufficient to withstand an annulment or setting-aside process. As someone who only serves as counsel in investor-state treaty arbitrations, not as an arbitrator, I most admire awards that have a clean, lean--and to use David Caron's word--elegant architecture on standards and burdens of proof. As counsel, of course we often do have to postpone or avoid taking final positions on the standard of proof and who has the burden of proof, as part of the adversarial process. As counsel, once these issues are determined, we must abide by the tribunal's determination and plead accordingly. The issue of state control of an entity poses particular challenges. Foreign investors regularly deal with state-owned and state-controlled entities, created for the very purpose of entering into commercial contracts, joint ventures, and administering public services. Some such entities have separate corporate personalities and exercise purely commercial functions and, therefore, would not fall under Article 4 (as an organ of the state) or Article 5 (as empowered by the law of that state to exercise elements of governmental authority) of the ILC Articles on State Responsibility for purposes of attribution to the state. Tribunals then must ask whether an entity may be said to be controlled by the state within the meaning of Article 8 of the ILC Articles. …