3. International Investment Tribunals and Environmental Counterclaims
3.3 Environmental Counterclaims in Practice
3.3.2 Counterclaims and de facto Authority
The previous section focused on the way in which IIATs address the question of jurisdiction, and thus the issue of determining their de jure basis of authority. It became clear that often, the treaty interpretation moves beyond the written consent of the parties and thus beyond the tribunal’s de jure basis. Seemingly, by referring only to the positivist theory of authority, the developments occurring in the context of environmental counterclaims cannot be explained fully. We are thus left with the question how this particular development has not impacted the authority of IIATs in the context of environmental counterclaims. By further applying the approach to authority constructed in chapter one, this section will focus on determining the de facto authority of IIATs, in order to create a clearer picture of how the concept of authority should be understood in this specific context.
In the sociological approach to authority used by Zarbiyev, the focus lies on the perspective of the audience of a specific court or actor. In domestic law, the audience consists of the subjects of a specific state, but in international law this question might be slightly more complicated. Subjects of international law can clearly be states themselves, but arguments have been put forward that the concept stretches much further and includes national citizens.139 As determining this question would be beyond the scope of the present thesis, it is safe to assume that the most direct subjects of courts in international law are at least the parties to the dispute.
In order to determine the de facto authority of IIATs, the marks introduced by Zarbiyev will be used. The first mark to be analyzed concerns the mark of process, whereby it has to be determined if the process that generates binding decisions can be considered neutral and impartial by the parties bringing their disputes. It thus depends on the perception of impartiality and neutrality. IIATs in the context of environmental counterclaims are mostly composed either on the basis of the UNCITRAL or the ICSID rules, whereby both parties appoint one arbitrator and the last one is often determined by agreement.140 Furthermore, in the selection of arbitrators and their further functioning, general requirements of impartiality are guaranteed by both sets
139 See ie. Armin Von Bogdandy and Ingo Venzke, "In whose name? An investigation of international courts’
public authority and its democratic justification," European Journal of International Law 23, no. 1 (2012): 7-41.
140 Chiara Giorgetti, "Selecting and Removing Arbitrators in International Investment Arbitration," Brill Research Perspectives in International Investment Law and Arbitration 2, no. 4 (2018): 9-10.
26 of rules.141 The involvement of the parties in the selection of the arbitrators is seen as a factor that increases their trust in the impartiality of the process.142 Considering the above, it is reasonable to assume that in the awards discussed before where environmental counterclaims were brought, the parties’ perception of the process was one of impartiality.
The second mark to be discussed is superior knowledge. The question to be answered here would be whether the arbitrators of a tribunal deciding on an environmental counterclaim are considered by the parties to possess superior knowledge. Under the ICSID Convention, no law degree is required for an arbitrators. However they should possess a “competence in the field of law”.143 In practice, arbitrators are often individuals with advanced degrees, lawyers with a specific knowledge of the field of the claim.144 What has to be kept in mind however, is that knowledge of the principle claim does not necessarily translate to knowledge of the counterclaim. Therefore, even though the appointed arbitrators might be experts on the topic of the principle claim, they might possess limited knowledge of the issues brought up in the environmental counterclaim. Interestingly, it is also with regards to this specific mark that a lot of the critique on the development of counterclaims can be observed.145 This possible shortcoming of arbitrators is certainly an element to keep in mind when considering underlying tensions in the further development of environmental counterclaims.
Thirdly, the mark of reputation has to be explored. This mark can be relevant both with regards to the arbitral institution, as well as the reputation of individual arbitrators. Concerning arbitrators, the record of the individual in the field of international arbitration is extremely important.146 Often, the backgrounds of arbitrators are scrutinized with regards to their previous decisions, and their work ethics. In this respect, the main difference with conventional litigation becomes apparent, as (state)parties influence the composition of the tribunal and will base their choice on earlier awards that favor their potential objectives. Conceivably, the fact that the (re-)appointment of arbitrators will depend largely on their reputation might influence their behavior and choices in a particular case.147 To emphasize their interdependence; not only is the reputation of an arbitrator a key factor in the rate and weight of their appointments, these appointments in turn also strengthen the individual reputation.
141 See ie the nationality requirement (Arbitration rule 1 (3) ICSID, Art 7 UNCITRAL Rules) and the
qualifications of arbitrators (art 14(1) and 40(2) of the ICSID Convention, Art 11 and 6(7) UNCTIRAL Rules)
142 Giorgetti, “Selecting and Removing Arbitrators,” 30.
143 ICSID Convention, Art. 14(1).
144 Giorgetti, 33.
145 See ie. Bjorklund, "The Role of Counterclaims," 479.
146 Giorgetti, “Selecting and Removing Arbitrators,” 33.
147 Sergio Puig, “Social Capital in the Arbitration Market,” The European Journal of International Law Vol 25 no.2, (2014): 399-400.
27 For instance, Mclachlan, the arbitrator of the respondent in the Urbaser award, has been identified as one of the most authoritative arbitrators in the field, based on the number of times he has been elected by colleague arbitrators to serve on a tribunal.148 Furthermore, Christopher Thomas and Pedro Nikken, the arbitrators of the respondent in the Perenco and Aven awards respectively, are recognized influential arbitrators but have only ever been appointed on the side of the state.149 Both professor Gabrielle Kaufmann-Kohler, the president in the Burlington award and Brigitte Stern, arbitrator on the side of the state in that same award, are recognized to be at the very “core of the social structure of investor-state arbitrators”.150 It is possible to infer that in almost all of the cases where the, sometimes substantive, requirements regarding the jurisdiction to hear counterclaims were interpreted, influential arbitrators with recognized reputations were members of the IIAT. Furthermore, some of these arbitrators have recognized views that seem to be beneficial only to the state that appoints them, as these individuals are never seen to represent the side of the investor. Although this link between the reputation of arbitrators and their relations to the state are merely an observation of correlation rather than causation, it does provide further food for thought with regards to the development of environmental counterclaims.
Interestingly, the list of arbitrators created by institutions such as ICSID themselves seem to be less effective in determining the number of appointments of those individuals. It is argued that “being on the list is not sufficient to achieve appointments”, thus suggesting that individual reputation plays a bigger role than institutional reputation.151
The last mark to be discussed is that of authorship. With regards to IIATs, it is clear that the arbitrators in general are not concerned with interpreting their own text, as it rather concerns the BIT, the investment contract or any other legal instrument. However, as the arbitrators deciding investment awards consists of “a small number of socially prominent actors”152, the question of course becomes to what extent these decisions are autonomous and to what extent arbitrators rule on previously determined issues. One could argue that because this small group is responsible for interpreting most issues brought up in investment arbitration, they are the authors determining the direction of the law in this specific area. Think here of the arbitrators in the Aven award basing their decisions on earlier comments made in the Urbaser award.
148 Puig, “Social Capital,” 417-418.
149 Puig, 418.
150 Puig, 416.
151 Puig, 416.
152 Puig, 423.
28 Lastly, Zarbiyev argues how these deference properties might be diminished if they are spread among too many different actors. For that reason, competition can often be observed over gaining and maintaining these properties. Professor Tom Ginsburg is one of the authors that has illustrated how this culture of competition might be observed in international investment arbitration. According to him, there are significant barriers to outsiders of the arbitrators’ network, as to ensure the position of the insiders is safeguarded.153 This observation raises some doubts with regards to the suitability of the international investment system as the arena for environmental norms to further develop.
3.3.2.1 The Limits on de facto Authority Potential
As proposed in the framework in chapter one, the theories of Joseph Raz are capable of determining the boundaries of the potential of de facto authority of IIATs.
Analyzing the dependence thesis in the context of environmental counterclaims is rather complicated, as the reasons for action for both the state and the investor might differ per case.
However, one can assume that reasons for action for both a state and an investor would be the protection of their interest as well as establishing that certain obligations have been breached.154 If a tribunal is able to address these underlying reasons that would otherwise lead the parties to undertake action through domestic courts, by establishing what duties are owed and what obligations have been breached, it thus replaces these reasons as a consequence.
What can be observed with regards to the normal justification thesis is that investors and states generally are better off with complying with the awards issued by an IIAT than determining the outcome on their own. For the investor, their alien status in the host state leaves them vulnerable to influences of the national powers.155 Submitting a claim to arbitration provides them with at least one optional avenue in case their rights are infringed.156 For the state, it is generally in their best interest to respect investor rights and offer investors a chance at dispute resolution, in order to protect their attractiveness as a host state. Neither the state nor the investor have the qualities to create a neutral acceptable determination of the dispute, making the work of IIATs indispensable.157
153 Tom Ginsburg, “The Culture of Arbitration”, Vanderbilt Journal Transnational Law 36 (2003): 1337.
154 A discussion of all possible ‘reasons’ is beyond the scope of this thesis, but for references to duties and interests see Joseph Raz, “‘On Respect’, Authority, and Neutrality: A Response,” Ethics 120, no. 2 (2010): 291
155 Gustavo Laborde, "The case for host state claims in investment arbitration," Journal of International Dispute Settlement 1, no. 1 (2010): 89.
156 Stephan Schill, “The Virtues of Investor-State Arbitration,” EJIL:Talk! Blog of the European Journal of International Law, November 19, 2013, https://www.ejiltalk.org/the-virtues-of-investor-state-arbitration/.
157 Schill, “The Virtues of Investor-State Arbitration”.
29 However, allowing IIATs to gradually hear more environmental counterclaims might have other benefits that serve the state’s policy goals. For instance, by allowing tribunals to hear environmental counterclaims, the state circumvents the national court procedures and is able to address environmental issues directly on the international stage.158 Additionally, it allows for the focus of the system of investment arbitration to be shifted partly from its own obligations towards the obligations of the investor.159 The fact that it might suit states to address these issues in the international investment system does necessarily translate to it being a desirable development. By circumventing the domestic system, both the balance of powers as well as democratic principles in place are bypassed in favor of international law governed by actors that themselves enjoy no such checks and balances or democratic justification.160
The third thesis, the pre-emptive thesis, was specifically mentioned as valuable in determining the limits of the potential de facto authority of IIATs. This thesis flows from the previous two and relates to how the actors treat the specific decision. As long as both the state and the investor actually consider the award given by a tribunal as authoritative, meaning that it represents those reasons for action better than they could determine themselves, the tribunal will not be at risk of losing its de facto authority.
Turning to pre-emptiveness of reasons with regards to environmental counterclaims then, it is clear that the ruling of an IIAT on the claim cuts off further deliberations on the issue.
Furthermore, the general pre-emptiveness of certain recognized international environmental norms might strengthen the authority of these awards in theory. However, especially with regards to the question of the obligations of investors under international law, the pre-emptivness of an award such as Urbaser or Aven can be questioned. Because the pre-pre-emptivness of the award depends on the pre-emptivness of the law applied, when that area of law has not yet been recognized as such, the award will also be considered less pre-emptive. In Aven it was suggested that investors have positive obligations under international environmental law, but this specific argument has been criticized by experts in the field.161 It thus seems that in order for the progressive interpretation of the IIAT on the issue of applicable law to be followed, it is necessary that the pre-emptive capacity of the law they apply is at least somewhat established.
As long as the pre-emptive capacity of environmental law obligations on private actors is not established, it is questionable whether the de facto authority of tribunals will be sufficient to
158 Bjorklund, "The Role of Counterclaims," 475.
159 Bjorklund, 476.
160 Delores Bentolila, Arbitrators as lawmakers (Kluwer Law International BV, 2017), 2.
161 See ie. Shao, “Environmental and Human Rights Counterclaims”, 161-162.
30 sustain further progressive interpretations regarding environmental counterclaims and their surpassing of de jure limits.
3.3.2.2 Conclusions on de facto authority
All in all, there are some interesting conclusions that can be drawn regarding the de facto authority of IIATs in the context of environmental counterclaims. Although based on positivist theories defining de jure authority, the authority of IIATs should be diminished once they overstep their mandate, it was found that in terms of de facto authority, those same tribunals actually do not seem to be considered less authoritative. Rather, based on the marks by Zarbiyev, the de facto authority of the tribunals deciding on environmental counterclaims could be regarded as rather substantial.
This suggests that when IIATs go beyond their de jure mandate, their authority can be sustained if they possess strong de facto recognition. By identifying the marks of authority in the context of environmental counterclaims and the specific awards, it becomes clear that especially the reputation of arbitrators and the perceived neutrality of the process are of key significance to the authority of tribunals and the awards they issue. It is also interesting to note that the marks where tribunals seem to score lower in the context of environmental counterclaims, such as that of superior knowledge, is also the area where a lot of criticism of the development is directed.
Furthermore, the findings suggest that a strong sense of de facto authority allows for more opportunities to turn to creative interpretation of jurisdictional requirements, both procedural and substantive. The paradoxical result of course is that when the de facto authority allows an IIAT to resort to creative interpretation, also referred to as arbitral lawmaking, with regards to its own de jure limits, the tribunal essentially broadens its own de jure authority. This thus suggests that the de jure authority of tribunals does not define arbitral power, but arbitral power defines de jure authority.
However, the de facto authority of IIATs is not without limits, as the tribunal is bound by how well the awards they issue are capable of being pre-emptive. It was found that awards addressing environmental counterclaims are capable of replacing the practical reasons to further consider the issue. Especially for states, there seem to be incentives to increase the number of counterclaims being brought to IIATs. This might be considered as a way to rebalance the system of investment arbitration, but it also raises questions of impartiality and inequality. At the same time, the pre-emptiveness of environmental obligations binding private investors is
31 not yet established enough in international law, and for that reason constitutes to be an important limit on further creative interpretations on the topic.
32