Investment Treaty Arbitration's Contribution to International Commercial Arbitration

Dispute Resolution Journal, Aug-Oct 2005 by Legum, Barton

Investment Treaty Arbitration's Contribution to International Commercial Arbitration

This article is adapted from a speech delivered at the "Young and International Seminar" sponsored by the International Centre for Dispute Resolution of the American Arbitration Association, held in Vienna, Austria, on March 19, 2005.

This article addresses three questions. Has investment treaty arbitration contributed to the practice of international commercial arbitration? If so, what has that contribution been? And what accounts for that contribution? My answer to the first question is yes. Indeed, not only has investment treaty arbitration had an impact on international commercial arbitration in the relatively few years since it arrived on the scene, that impact has been significant. The balance of the article will look at those impacts and the reasons for them.

Historical Context

Investment treaty arbitrations arise under multilateral and bilateral investment treaties entered into between States to encourage foreign investment. These treaties usually provide for arbitration of disputes between a private foreign investor and the host State under public international law.

Although investment treaty arbitration is a relatively new genre of international arbitration, arbitration itself has been used to resolve public international disputes since the beginnings of recorded history. From the ninth to the fourth century before the Common Era, for example, contemporaneous accounts describe some 110 arbitrations between the various city-states of ancient Greece.1 The modern era of international arbitration is generally thought to have begun with the arbitrations between Great Britain and the United States under the 1794 Jay Treaty (of Amity, Commerce and Navigation).2 The 19th and early 20th centuries saw dozens of arbitral commissions, modeled on those of the Jay Treaty, resolve tens of thousands of international law claims arising due to wars, insurrections, revolutions and the like.

During this time period-what could be called the heyday of the international arbitral commissions-private international arbitration (by which I mean international commercial arbitration) was in its infancy. At that time, the courts of most countries did not look favorably on private arbitrators ousting them of their jurisdiction to resolve private disputes. Indeed, a person seeking to enforce an arbitration agreement or an arbitral award in a national court during this time faced significant obstacles.

This suggests that for much of the 19th and 20th centuries, public international arbitration was the locus of most of the activity in this field, while private international arbitration was, at best, its poor cousin. All this changed after the second World War. Perhaps as a result of the Cold War and the changing dynamic between developed and developing countries, States established few arbitral claims commissions in the post-war period.

By the 1950s, '60s and '70s, public international arbitration had become a relatively rarified, and highly specialized, field-so much so that in a 1978 lecture at the Hague, Professor Richard Lillich, a specialist in international claims law, described those as the "sunset years" of international claims adjudication.3

In the meantime, the postwar period saw the ascendancy of private international commercial arbitration. A key development was the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards, coupled with a significant change in attitude toward many national court systems. These factors created fertile ground for the growth of international commercial arbitration, as evidenced by the steady increase in caseload at the major international arbitration institutions, like the International Chambre of Commerce (ICC) and the American Arbitration Association and its dynamic International Centre for Dispute Resolution.

Development of Treaty Arbitration

As this brief summary suggests, the appearance of investment treaty arbitration on the international scene is a recent phenomenon. At the time I joined the State Department in early 2000, the number of awards in investment treaty cases could be measured on one hand. Today there seems to be a new award every week. Despite the growing number of treaty arbitration awards, from the perspective of the contemporary arbitration community, this type of arbitration is still in its infancy.

Indeed, for most international practitioners today, private international commercial arbitration is the only form of the genre they have ever known. The private international arbitration model, thus, has naturally become the default template for all kinds of international arbitration today-including investment treaty arbitration.

Given how the two fields have evolved, it would be easier to identify the impact of international commercial arbitration on investment treaty arbitration rather than the other way around. But that is not the subject of this article.

The Impact of Investment Treaty Arbitration