Perspectives on State Party Arbitration: The Future of BITs - The Practitioner's Perspective

Abstract

The practitioner may applaud recent developments in BIT-based arbitration or bemoan them. But whether as an advocate for the State or for the investor, the next few years of BIT formulation, negotiation and arbitration will be crucial. Among the procedural issues which future BITs will need to address is the question of whether most-favoured-nation clauses (MFNs) apply to procedural rights allowing a party to avail itself of the international arbitration mechanism contained in one BIT entered into by the State adverse party, even if not contained in the BIT applicable to the substantive dispute. Furthermore, there is the informed choice between ICSID and UNCITRAL ad hoc Rules arbitration by means of a ‘fork in the road.’ The current proposals for amendment to the UNCITRAL Rules are notable here. These developments may influence the role of future BITs in shaping decisions respecting ‘umbrella clauses’ and the reach and content of ‘customary international law.’ With respect to future concerns respecting the substantive protections in BITs, a new generation of BITs is partly meant to replace pre-existing BITs between the same two countries, but which will in future exist side by side with old-generation BITs. On another level, namely the legitimation of transforming a contract claim into a treaty claim, the message for future drafting of BITs is to use greater precision in scoping out the obligations to which treaty arbitration is meant to apply. The same drafting issues and uncertainty affect the conflicting decisions regarding Fair and Equitable Treatment (F&ET), and whether an international minimum standard is meant to apply or a plain meaning approach. Finally, what does the future hold for costs in investment arbitration? There is a lack of full harmonization between legislation allowing for party agreements stipulating cost allocation, arbitration rules which afford tribunal discretion to allocate costs, and legislation or decisional law of a subsequent enforcing court which may point in yet another direction. Ultimately, absent party agreement, the arbitral tribunal should or must achieve greater transparency toward the parties respecting the tribunal's understanding of its own rights, duties and discretion, and not simply ‘rest on’ the discretion or latitude which may be built into the rules or legislation. The drafting of a particular BIT may not be able to address the issue of cost recovery. However, the absence of any rhyme or reason in cost awards may make States think twice about entering into such agreements. And it may make investors think twice about invoking them.