Judicial Supervision of NAFTA Chapter 11 Arbitration: Public or Private Law?

Abstract

THE NAFTA investment chapter, Chapter 11, relies on an individualized regime of enforcement for violations of the treaty's investment standards.1 A NAFTA-based foreign investor may initiate a claim directly under Chapter 11 for compensation for losses caused to the investor by a NAFTA state's breach of the rules. The claim is submitted to an arbitration tribunal constituted under the rules of either the Additional Facility of the International Centre for the Settlement of Investment Disputes (ICSID) or the United Nations Commission on International Trade Law (UNCITRAL).2 If a Chapter 11 tribunal concludes that the NAFTA host state violated the relevant treaty standards, the tribunal may award damages to the investor.3 The award is given the force of domestic law through existing structures of international commercial arbitration – represented primarily by the New York Convention – which adopt the principle of judicial deference to arbitration tribunals.4 A Chapter 11 award is not the same as a typical commercial arbitration award arising from a dispute between private parties. At its root, the authority for Chapter 11 arbitration comes from the consent of state parties to NAFTA, not from a contract. Thus, the consent of one of the disputing parties in a Chapter 11 arbitration – the host state – is made via an instrument of public international law. Moreover, the general effect of Chapter 11, like bilateral investment treaties, is to regulate host states' exercise of public authority in relation to foreign investors. In this regard, NAFTA standards could be viewed as analogous to rules of domestic public law that protect individuals by limiting state authority, although in the international sphere. On the other hand, Chapter 11 imports rules and structures of international commercial arbitration into investor-state dispute resolution. As such, the arbitration of a dispute under Chapter 11 closely resembles classical commercial arbitration between private parties. This contradiction in the public and private law aspects of Chapter 11 reveals a basic tension in investor-state arbitration under modern investment treaties. Is investor-state arbitration more like public law adjudication or commercial arbitration? Or is it a hybrid, and if so should public or private law principles take precedence in a particular circumstance?