Western governments should establish an international investment court to replace the current system of investment treaty arbitration, says Gus Van Harten, legal researcher at the London School of Economics and Political Science.
States have ill-advisedly delegated key public law powers of the courts to private arbitrators, in a series of obscure investment treaties concluded since the 1990s, Van Harten contends in a new book, Investment Treaty Arbitration and Public Law. The treaties allow companies to bring claims directly against governments to a greater extent than in any other international regime.
'The outside observer may understandably see this system as biased in favour of investors and against governments', says Van Harten. 'Its key flaw is that, because arbitrators do not have security of tenure, investor claims are decided by private adjudicators who win appointments only as more claims are brought. Thus, the 'judge' has a financial stake in how the law is interpreted and in how the dispute is resolved.'
The research found that, for developing countries in particular, the liabilities can be serious. By 2006, for example, more than 30 claims were pending against Argentina for an estimated (US) $17 billion, amounting to nearly the entire annual budget of the national government. In 19 publicly-available decisions to 2006, investors were awarded an average of $90 million. All but three of these awards were against developing or transition countries.
In 2003, the Czech Republic was ordered by an arbitration panel to pay $353 million to US cosmetics billionaire Ralph Lauder. This amount was equivalent to the country's annual health care budget. Remarkably, Mr Lauder had lost an earlier claim heard by a separate panel, established under a US treaty with the Czech Republic, but still managed to recover compensation by winning a parallel claim (in relation to the same dispute) which he brought through a Dutch holding company, under a Dutch treaty.
Commenting on the award, international lawyer Nigel Blackaby said at the time: 'Any system where diametrically opposed decisions can legally coexist cannot last long. It shocks the sense of rule of law or fairness.'
According to Van Harten: 'Consensual arbitration is broadly suitable as a means to settle disputes between companies or between states, but it is simply inadequate as a substitute for the public courts in the regulatory domain. The courts and only the courts should have the final authority to interpret the law that binds sovereign power and to stipulate the appropriate remedies for regulatory measures that lead to business loss.'
Van Harten recommends the creation of an international investment court of tenured judges to provide an open and accountable, and above all genuinely independent, system to resolve investment disputes in a global economy.
Contact: Gus Van Harten, tel: 020 7955 7689, email: H.H.Van-Harten@lse.ac.uk
To request a review copy: Oxford University Press, 01865 556767, website: http://www.oup.com/uk/catalogue/?ci=9780199217892.
12 April 2007