HOW INSTITUTIONS MATTER: ON THE JUDICIAL REASONING OF INVESTMENT TREATY ARBITRATION AWARDS.

• Author: Jubran-Ballan, Suha

ABSTRACT

Comparison among different courts or tribunals usually involves different political regimes, legal standards, or legal expertise. However, investment treaty arbitration tribunals offer us a rare opportunity to isolate the institutional background and facilitate our understanding of the interplay between the institution and the individual: investment treaty arbitration tribunals are established in different institutional backgrounds but involve the same legal community, the same field of law, and a similar set of legal standards. This comparison shows that despite the relatively high control that tribunals have in drafting awards, institutional backgrounds play a significant role in shaping the judicial reasoning used by tribunals. This paper suggests that institutional arrangements and practices define the audiences addressed by the tribunals and shape judicial reasoning accordingly. Hence, this paper calls for devoting more attention to the institutional backgrounds of investment treaty tribunals, and judicial institutions in general, by acknowledging that those backgrounds may produce different outcomes.

1. INTRODUCTION II. BACKGROUND: THE PROCESS OF JUDICIALIZATION AND THE INSTITUTIONAL PERSPECTIVE III. INSTITUTIONS AND THEIR AUDIENCES A. Historical Institutionalism in Political Science and B. Institutions and Audiences C. Summary IV. INVESTMENT TREATY ARBITRATION AND INSTITUTIONS A. ICSID Tribunals B. New York Convention Group Tribunals C. NAFTA Arbitration Tribunals D. Summary: How Appointment Patterns and Review Mechanisms Produce Different Legitimacy Concerns V. THE JUDICIAL REASONING OF INVESTMENT TREATY ARBITRATION TRIBUNALS A. Case Law Reference B. Explicit Policy Considerations C. Summary: How Judicial Reasoning Varies Among Institutions VI. SUMMARY AND CONCLUSION A. Uniformity of Institutions B. The Centrality of Institutional Arrangements in the Moment of Change C. Public Law, Public International Law, and Private Law D. National Courts and Informal Mechanisms for Change E. A Concluding Remark I. INTRODUCTION

   This paper examines how the judicial reasoning of investment treaty arbitration changes according to the institutional background of each tribunal. In this paper, institutions are defined by considering formal arrangements in their larger political and social context and the informal norms of behavior that may have been established in light of those contexts. (1) This paper shows the use of case law and of balancing changes according to the institutional background. This paper suggests that institutional arrangements and practices define the audiences addressed by the tribunals and shape judicial reasoning accordingly. Hence, this paper contributes to three strands of research: the literature on judicial behavior; the literature on institutional behavior; and the normative debates on the appropriate dispute settlement mechanism for investment treaty arbitration.

   First, this paper shows that despite the relatively high influence of arbitrators on shaping the judicial reasoning of their awards, institutional arrangements still play a significant role in determining their choices. An analysis of judicial behavior that focuses on individual judicial actors is limited if the institutional background is not considered. This paper focuses on institutional arrangements such as appointment patterns and the review mechanisms for awards--the two main practices that define the dominant audiences from which arbitrators seek legitimacy. Usually, individual and institutional behaviors are intertwined, and isolating the institutional component from the behavior of judicial actors is unachievable due to methodological challenges; comparison among different courts or tribunals usually involves different political regimes, legal standards, or legal expertise. (2) However, comparison among different institutional backgrounds in investment treaty arbitration involves the same legal community, the same field of law, and a similar set of legal standards. (3) Thus, this rare opportunity to isolate the institutional background illuminates and facilitates our understanding of the interplay between the institution and the individual.

   Second, this paper captures investment treaty arbitration in a moment of change due to considerable legitimacy concerns, often described as a legitimacy crisis. (4) As such, it sheds light on the interaction between the judicial institution and its external audiences--the environment in which it operates--in moments of change; institutional behavior is neither a reflection of its environment nor isolated from its environment. In particular, this paper suggests that the interfaces between the judicial institution and its environment should be identified to understand how institutions respond to external pressure and adapt accordingly. Most significant is the understanding that these interfaces are shaped by institutional arrangements and may dictate how the institution reacts to its environment and related demands. For example, in the context of investment treaty arbitration, the change in institutions is not directly subject to the demands of the international community of states, the global judicial community, or the general public within states. Rather, the change in institutional behavior is mediated through at least two institutional variables: formal and informal arrangements that dictate the review mechanisms as well as the appointment patterns of arbitrators. (5) Since different institutional backgrounds have different review mechanisms and appointment patterns, they behave differently despite the common assumption that they share the same legitimacy concerns.

   Finally, this paper shows that consideration of the institutional backgrounds from which arbitrators act is relevant to understand the manner in which investment treaty arbitration develops. There is presently a considerable amount of debate about the implications of investment treaty arbitration on states' regulatory autonomy, the accountability of arbitrators, and inconsistencies within the field. (6) However, these debates address investment treaty arbitration as one general category--all tagged as "arbitration"--despite the different institutional arrangements of these arbitrations. (7) Few studies, if any, address the influence of different institutional arrangements on investment treaty arbitration; this paper suggests a deep look into the institutional arrangements, their particularities, and their audiences to shape the newly evolving regime(s).

   This paper provides a short preview of the normative debates of investment treaty arbitration and the process of judicialization within the field in Part II. These issues are reflected in a shift from the contractual, past-oriented, ad hoc dispute settlement mechanism to a normative, future-oriented lawmaking scheme. Then, Part III considers in its analysis two fields of literature: the neo-institutional approach in political science, known as historical institutionalism, and the literature on audiences as related to judicial behavior. Part IV provides a short overview of the different mechanisms of investment treaty arbitration. It identifies three different groups of institutional arrangements by considering both their formal and informal settings. The first group includes arbitration tribunals established according to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). (8) The second consists of various arbitration rules that are tailored to commercial disputes but also applicable to investor-state arbitrations. Common to these arbitrations is that they are reviewed and enforced according to the normative framework shaped by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). (9) Several arbitration rules are available to settle commercial and investment disputes, but the most common for investment disputes are the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules (10) and the arbitration rules of the Arbitration Institute of Stockholm Chamber of Commerce (SCC arbitration rules). (11) Finally, the third group consists of arbitrations proceeding on the basis of Chapter 11 of the North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States. (12) While a considerable portion of NAFTA tribunals follow the UNCITRAL arbitration rules, the resulting judgments of which are enforced under the New York Convention, they are excluded from the New York Convention group for specific reasons, which are explained later. Part V examines the judicial reasoning of awards rendered in these contexts to demonstrate--in considering case law precedent and the use of explicit policy considerations--that these tribunals follow different judicial reasoning. Finally, Part VI concludes by summarizing this paper's findings and underscoring its contribution to literature in this field.

2. BACKGROUND: THE PROCESS OF JUDICIALIZATION AND THE INSTITUTIONAL PERSPECTIVE

   Investment treaty tribunals, as a response to various critiques regarding their legitimacy, (13) started to depart from the "private" and contractual framework to a more judicial-style framework. Tribunals started to follow case law even in the absence of a binding precedent system, to accept third party submissions before formal adjustments, (14) and to express policy considerations in their awards. (15) Commentators noticed this process, along with formal adjustments that were made, and described it as a process of "judicialization." (16) The process of judicialization usually describes a shift in a tribunals' behavior from ad hoc, past-oriented dispute settlement to future-oriented lawmaking, characterized by a broader normative perspective. (17) Hence, this paper's analysis captures investment treaty arbitration in a moment of change that, as...