International Investment Arbitration and the Rule of Law

Today, investment arbitration, as the main form of investor-state dispute settlement (ISDS), has received much public attention and criticism, in particular in regard to its possible inclusion in investment agreements between OECD economies such as the EU and Canada (CETA) and the US (TTIP). The public debate focuses on the potential threat to sovereign decision-making in the form of a regulatory chill that affects the regulatory freedom of host states. An objective assessment of the advantages and disadvantages of a system of direct dispute settlement between private parties and states in the field of investment relations will very much depend upon the degree to which the studied form of dispute settlement integrates and embodies rule of law-requirements, thus leaving the necessary regulatory space while at the same time providing a rule of law-corrective against any form of abuse of power by a host state. The rule of law in international law, in general, and in international investment arbitration, in particular, can be studied from different perspectives. The notion of the rule of law itself is not sufficiently clear. In particular, the demands of equal enforcement and independent adjudication of legal rules and principles as well as fairness in the application of the law, legal certainty, the avoidance of arbitrariness and procedural and legal transparency seem to be particularly relevant for investment arbitration. Nevertheless, there is also a growing debate about the rule of law in international law, as evidenced by various attempts to integrate rule of law concerns in the work of the United Nations and other international organizations. This research project builds on the research conducted within the framework of two previous FWF projects (International Investment Law in the Practice of Arbitration and International Investment Law in the Practice of International Arbitration II) and will now focus on a the critical evaluation of the role of the rule of law in modern investment arbitration. The current proposal will develop the existing mainly descriptive assessment of the content of investment law and turn towards a primarily critical evaluation of its ability to cope with rule of law demands. This research project has been developed by the project leader in consultation with leading investment arbitration experts and practitioners in the context of the International Law Associations work on investment law and other scholarly co-operations in the form of joint conference organizations or co-editorships of books and journals in the field. A number of prominent investment law experts having expressed their willingness to continue co-operating with the project leader in the proposed project, it should lead to transparent research outcomes in the form of conferences and preferably open access-publications.

In the past few years, international investment law and investment arbitration have come under public scrutiny, especially with regard to its possible inclusion in trade agreements between the EU and Canada (CETA) and the EU and USA (TTIP). In the controversies about international investment law and policy, the 'rule of law' is developing into one of the principles that both supporters and critics use to evaluate the investment treaty regime. On the one hand, the concept of the 'rule of law' has been used in order to criticize the functioning of the international investment treaty system. On the other hand, investment law has been interpreted as contributing to the 'rule of law' in an international and a domestic context. This research project aimed at conducting an analysis of investment law and investment arbitration against the backdrop of the 'rule of law'-debate. It focused on a normative assessment of the extent to which investment law and arbitration can meet rule-of-law requirements, whether the rules of investment law can be understood as an expression of the rule of law and how investment law and arbitration can itself contribute to the rule of law in an international and domestic context. During the course of the project, academic literature as well as decisions and awards rendered by investment tribunals operating under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) and other institutionalized and ad hoc arbitrations were analysed. In various workshops with experts and academic publications, the research project could identify both a positive and a negative relationship between rule of law and investment law. The research project highlighted the importance of a 'rule of law'-analysis in order to understand the achievements and shortcomings of the existing investment law regime. The importance of such a rule of law analysis has also been recognised by investment tribunals, which have recently started to explicitly link investment law and the rule of law.