I am the (proud) editor and a contributor of the book and am delighted to have the opportunity to bring it to the attention of this group. I think it will be of special interest to arbitration practitioners.

The book examines the main existing international dispute resolution bodies in a systematic, comprehensive and accessible way.

To the extent possible, chapters are structured similarly, and each chapter explores a specific dispute resolution forum.

After a short introduction of the forum, each chapter provides essential information of the institution examined, including its composition, seat, operation, costs, applicable law, and detailed analysis of its jurisdiction.

This introduction is followed by a procedural overview, which includes rules of procedure, the structure of the proceedings, role of third parties, interim measures of protection, languages used and available remedies and enforcement procedures.

Uniquely, each chapter also includes an extensive review of the essential jurisprudence of the institution examined, which will be particularly relevant for academics and practitioners in international law alike.

Additionally, the similar structure makes each forum both easily accessible and comparable with other fora included in the book.

International courts and tribunals analyzed in the book include:

- Courts and tribunals of general jurisdiction, such as the International Court of Justice and the Permanent Court of Arbitration;

- Fora of specialized jurisdiction, such as the International Tribunal for the Law of the Sea, the International Centre for the Settlement of Investment Disputes, and the World Trade Organization’ dispute settlement system;

- Human rights courts, such as the European Court of Human Rights, the Inter-American Court of Human Rights and the African Human rights system;

- International criminal courts and tribunals, including the International Criminal Court, the International Criminal Tribunal for the Former Yugoslavia and the International Criminal Tribunal for Rwanda, as well as hybrid and internationalized tribunals;

- Courts and tribunals of regional integration agreements, including NAFTA, the European Union system and by other regional economic integration agreements.

The book also includes a chapter reviewing the administrative tribunals of international organizations, and chapters on the United Nations Claims Commission, the Iran-US Claims Tribunal and the Claims Resolution Tribunal.

The complete table of contents is here.

Many well know practitioners and contributors to this blog have contributed to this book, including the blog’s general editor, Roger Alford, as well as Laurence Boisson de Chazournes, Brooks Daly, Timothy Feighery, Carolyn Lamm, Andrea Menaker, Sean Murphy and Jeremy Sharpe. A complete list of authors is available here.

My hope is that this book will fill a vacuum that I identified when teaching an introductory class on international courts and tribunals for a simple but comprehensive review of the rule and practice of international courts and tribunals.

I would love to hear feedback from readers!

Chiara Giorgetti
White & Case LLP

The background is as follows:

To build a golf course in Moscow, a Russian company (the “Russian Borrower”) had borrowed 22 million Swedish Crowns from a Swedish bank (the “Swedish Bank”) under a loan agreement entered into on 24 January 1990 (the “Loan Agreement”). The Loan Agreement included an arbitration clause providing for arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”).

On 19 December 2008 the Swedish bank requested arbitration against the Russian Borrower seeking repayment of a certain capital amount under the Loan Agreement. The Russian Borrower rejected the claim and argued, inter alia, that the Loan Agreement violated then mandatory currency regulations in the former Soviet Union and that the dispute was therefore not arbitrable.

The SCC decided that the seat of the arbitration proceedings should be Stockholm.

The sole arbitrator held in the award, inter alia, that the Russian Borrower had not proved that the Loan Agreement violated then mandatory currency regulations in the former Soviet Union or in Russia and the Russian Borrower was ordered to pay a certain capital amount with interest thereon and compensation for costs.

The Russian Borrower turned to the Svea Court of Appeal and requested, inter alia, a declaration that the award was invalid on the basis that the award included the review of an issue which is regulated in mandatory currency regulations. Hence, the Russian Borrower argued that the issue was not arbitrable and the award should therefore be declared invalid. In the alternative the Russian Borrower requested annulment of the award on the basis that the arbitration agreement was not valid and binding as it violated mandatory currency regulations.

The Russian Borrower argued as follows: Rigorous currency regulations were in force in the beginning of the 1990s, both in Sweden and in the Soviet Union. Import or export of currency without authorization from the proper authorities was not allowed. Nor was the reduction of a loan amount or granting a respite for payment. In Sweden this followed from the Exchange Control Act (Sw: valutalagen (1939:350)) and the Exchange Control Regulation (Sw: valutaförordningen (1959:264)). The provisions were sanctioned by penalty and any currency could be forfeited. Since the Loan Agreement violated these provisions the Loan Agreement was invalid.

Further, the parties could not before or after a dispute had arisen “heal” the invalidity of the Loan Agreement. It was not amenable to settlement. Hence, issues arising out of the Loan Agreement were not arbitrable and no dispute under the arbitration clause could be referred to arbitration. This in turn meant that the arbitration agreement was invalid. The relevant point in time for assessing whether an issue is arbitrable is when the arbitration agreement is entered into.

The Swedish Bank disputed that the award was invalid or that it should be annulled. The issue tried in the award – whether the Russian Borrower had a payment liability under the Loan Agreement – is arbitrable. Further, the question whether an arbitration agreement is valid and binding has to be tried separately. The arbitration agreement is valid and binding under Swedish law which is the governing law of the arbitration agreement. Even though the main agreement may be invalid (which the Swedish Bank disputed) this does not mean that the arbitration agreement is invalid. The currency regulations are of no relevance for the validity of the arbitration agreement.

The Svea Court of Appeal held as follows:

Since the arbitration proceedings had been held in Stockholm it was clear that the arbitration agreement was governed by Swedish law. The question whether the dispute was arbitrable was therefore to be tried under Swedish law and under the Arbitration Act only disputes in respect of which the parties may reach a settlement may be referred to arbitration.

An arbitral award is invalid if it includes the determination of an issue which, in accordance with Swedish law, may not be decided by arbitrators (lack of arbitrability). However, the fact that there is mandatory legislation in a certain area of the law does not automatically mean that disputes in this area are not arbitrable. With respect to international disputes which involve foreign legislation it has to be decided on a case-by-case basis whether the foreign law is such that a voluntary settlement of the dispute before a Swedish court would not be accepted. With regard to economical-political regulations in a foreign state there is often no reason why the mandatory provisions should affect the possibility to settle in Sweden and, hence, the arbitrability under Swedish law. This view is in accordance with an international trend to accept that an international dispute may be settled by arbitration although a corresponding national dispute would not be arbitrable.

The relevant point in time for assessing whether the dispute in question is arbitrable is when the Loan Agreement was entered into, i.e. on 24 January 1990. At that time the parties should be able to foresee the consequences of any lack of arbitrability.

When the Loan Agreement was entered into, Sweden as well as the Soviet Union had mandatory currency regulations. The Swedish Exchange Control Act and Exchange Control Regulation included restrictions on the import and export of foreign currency and securities. The same applied to the purchase and sale of foreign currency and foreign claims. However, there were no restrictions for a Swedish legal entity to enter into a loan agreement whereby a foreign legal entity became indebted. The currency regulations were not aimed at disallowing a creditor-debtor relation as such; but concerned the making of payments cross the borders.

The parties’ claim and debt under the Loan Agreement could not be deemed subject to mandatory legislation in such way that this undertaking was not amenable to settlement. Hence, the parties could reach a settlement regarding this. The issue tried in the award was the debt undertaking; not how any payment should be made. The dispute was thus arbitrable.

Since the mandatory currency regulations did not mean that a non-arbitrable issue was tried in the award the arbitration agreement was valid and binding. This is regardless of whether said currency regulations may entail that parts of the Loan Agreement were invalid.

The ruling of the Svea Court of Appeal seems quite arbitration friendly and is in line with the international trend to maximize the scope of application of an arbitration agreement. The restrictions in the previous currency control regulations in Sweden were narrowly interpreted and the doctrine of separability was firmly adhered to. The currency regulations in the former Soviet Union were not analyzed at all by the Court of Appeal. However, the Court of Appeal seemed convinced that the issue in dispute – whether there is a payment liability under a loan agreement – was not subject to any mandatory currency regulations. Further, the Court of Appeal did not expressly address whether the Swedish law test for arbitrability – that the dispute must be amenable to settlement – should be determined under Swedish substantive law or the lex causae. It has been suggested in Swedish legal doctrine that the question whether the parties are capable of settling the dispute should normally be assessed under the law governing the main contract. If the governing law is foreign law the outcome of that test under foreign law is decisive for the question of arbitrability. In this case it is unclear whether lex causae was Swedish law or any foreign law. The reason why this was not dealt with by the Court of Appeal might be that it had no relevance here as the previous currency regulations, both in Sweden and Russia, did not prohibit debt undertakings per se.

Leave to appeal was granted by the Court of Appeal² and the Russian Borrower has appealed the judgment to the Supreme Court.

A typical corporate veil piercing case involves a controlling shareholder that sets up an undercapitalized corporation to incur obligations to third parties; the shareholder then siphons off the proceeds of its corporate borrowing received from those third parties. When the company’s debts become due the company has insufficient assets to meet its repayment obligations. At that point, the controlling shareholder relies on the principle of limited liability to avoid personal liability. The result is that the third parties end up bearing the exposure.

In such situations, a court or tribunal may intervene to prevent the obvious injustice by piercing the corporate veil so as to hold the controlling shareholder accountable.

Despite various theories justifying corporate veil piercing, the presumption is – however – not to do so. Piercing the veil remains an exception not the rule. Approaches differ not only from one jurisdiction to another, but also within the same national systems of law.

For example, the general rule in the Civil Code of Russia is that each company has separate and distinct legal identity. On the other hand, the 2008 law on foreign investments in strategic sectors of the economy relies on the concept of group of entities. The law applies to investors and groups of companies that want to buy stakes in Russian companies working in one of strategic sectors, such as television broadcasting, defence and the telecommunications industry. In accordance with this law, a ‘group of entities’ is seen as one economic and legal actor which includes offshore subsidiaries. In effect, this amounts to piercing the corporate veil, i.e. disregarding separate legal identity of corporations.

The ‘proper’ approach to piercing the corporate veil and outcome is even less predictable in the context of international commercial arbitration.

Unlike national courts, arbitral tribunals do not have enforcement mechanisms of their own and need to resort to national courts. If a tribunal renders an award against a party which is not subject to the underlying arbitration agreement, problems will likely arise at the enforcement.

Article V of the New York Convention provides five procedural defects, on which national courts can rely to refuse recognition and enforcement of arbitration awards. These are (1) lack of valid arbitration agreement; (2) denial of opportunity to be heard; (3) an excess of jurisdiction by an arbitrator in deciding matters beyond the scope of the arbitration submission; (4) procedure contrary to the parties’ agreement; and (5) annulment of the award in the country where rendered.

Arguably, an award rendered against a non-signatory can be challenged on the basis of any of these grounds, especially if there was no explicit arbitration agreement. For instance, a company that has not signed the arbitration agreement may not be present at the hearings, and is, thus, denied an opportunity to be heard. Local courts might annul the arbitration award against the parent company if the arbitration agreement was not in writing.

However, UNCITRAL noted in its report on written form for arbitration agreement that national courts increasingly adopt a liberal interpretation of the requirement of a written contract.* They construe it in accordance with international practice and the expectations of the parties.

Despite these new developments observed by UNCITRAL, the unpredictability with respect to arbitrations that involve piercing the corporate veil remains a serious problem. Not only is it unclear whether a particular tribunal would be sympathetic towards piercing the corporate veil under applicable domestic law, but the parties must face even greater challenges at the stage of enforcement.

Piercing the corporate veil may help to give a concrete practical meaning to the object and purpose of an arbitration agreement. However, there are downsides of such piercing which negate many of the benefits which the corporate form offers. Creditors will be in a more difficult position to monitor assets of the corporations they are dealing with. And corporations will be unwilling to take business risks which may result in their shareholders’ corporate or personal assets being exposed.

Therefore, as a practical matter, it is better to make arbitration agreements as inclusive as possible. This will help to avoid dealing with piercing the corporate veil altogether.

The full text of the draft paper “Piercing the Corporate Veil in International Arbitration” to be published in Global Business Law Review is available here.

* U.N. Commission on International Trade Law [UNCITRAL], Working Group on Arbitration, Working Group on Arbitration, Working Paper: Possible Rules on Certain Issues Concerning Settlement of Commercial Disputes: Conciliation, Interim Measures of Protection, Written Form for Arbitration Agreement, ¶¶ 11 and 12(m), A/CN.9/WG.II/WP.108/Add. 1 (Jan. 26 2000).

In the Midgulf case, the Court of Appeal issued an anti-suit injunction restraining Tunisian court proceedings brought in breach of an arbitration agreement.

The English courts’ ability to issue anti-suit injunctions in respect of proceedings overseas is found in s.37 Supreme Court Act 1981 and s.44 Arbitration Act 1996. Article II of the New York Convention obliges contracting states’ courts to uphold arbitration agreements by, once seized of jurisdiction, referring disputes to arbitration unless the underlying arbitration agreement is found to be “null and void, inoperative or incapable of being performed”. The jurisdictional aspects of this within Europe are of course now well understood following the ECJ’s decision in West Tankers, but West Tankers does not affect the position as regards court proceedings commenced in apparent breach of an arbitration agreement outside of Brussels Regulation states.

In Midgulf, three sets of proceedings were brought in the Tunisian courts. Two were substantive claims seeking damages. The third was for a declaration that there was no arbitration agreement. The High Court granted an anti-suit injunction on an interim basis, which was then upheld (pending the appeal to the Court of Appeal) when the court subsequently found that there was no valid arbitration agreement in the underlying contract. The Court of Appeal found that there was a valid arbitration agreement, and therefore reinstated the anti-suit injunction. The Court of Appeal rejected the argument that it would not be a breach of the arbitration agreement for the declaratory action to be pursued because it would not involve the foreign courts determining the parties’ contractual rights and liabilities. When there is a valid English arbitration agreement it is repudiatory for a party to ask a foreign court to declare no such agreement exists. Furthermore under English law the court may restrain a party over whom it has jurisdiction from instituting or continuing proceedings in a foreign court when it is “necessary in the interests of justice”. The Court of Appeal equally rejected roundly the suggestion that it could not grant an anti-suit injunction where the foreign court concerned is in a New York Convention state. The English courts have long taken the view that anti-suit injunctions and Article II of the New York Convention are compatible with one another. This case does not make any new law in that regard, but is nonetheless a useful reminder/confirmation of the English law stance in relation to the New York Convention notwithstanding the position vis-a-vis the Brussels Regulation post West Tankers.

In the Shashoua case, in 2009 the High Court issued an anti-suit injunction restraining proceedings in the Indian courts challenging certain pre-existing interim arbitral awards. The distinguishing and unusual feature of this case was that the injunction was issued in terms so as to extend to any attempts to challenge the recognition or enforcement of the awards in the Indian courts under Article V of the New York Convention, rather than dealing with the hearing of the underlying case itself. The Court of Appeal has now granted permission to appeal on two questions, namely:

• whether it is permissible for an anti-suit injunction to restrain a party from resisting the recognition or enforcement of an award under Article V of the New York Convention; and

• whether it is permissible to impose a successful application to the English court as a condition of resisting enforcement under Article V of the New York Convention.

This short blog certainly does not permit a full airing of the issues. We understand the appeal is due to be heard in April 2010. The result will plainly be of interest to successful parties in arbitration who are concerned that the unsuccessful party will seek to deploy Article V of the New York Convention to avoid the consequences of the award.

The fact that the case involves the Indian courts is of particular interest following their controversial decision in Venture Global Engineering v Satyam Computer Services Ltd & Anr. There, the Indian courts decided that Part 1 of the Indian Arbitration and Conciliation Act 1996 (including the ability thereunder to remove arbitrators and to set aside awards for being contrary to public policy) applied to foreign arbitrations as much as it did to Indian-seated arbitration. This case has been widely criticised on the basis that it represents an undue level of interference and has led to an increasing tendency among contracting parties to exclude Part 1 of the Indian Act from arbitration agreements.

Anti-suit injunctions have ended up very much in the spot light of late. We should expect that to continue, not just as a result of the continuing fallout from West Tankers but also as a result of “more interesting” (double meaning intended) cases such as those mentioned above.

In Neer, the General Claims Commission was concerned with determining when a State can be held liable under international law for failing to provide adequate judicial remedies to protect the personal security of a foreigner. In numerous other opinions, however, the General Claims Commission commented specifically on when States can be liable under international law for impairing the contract and property interests of foreigners and thus, resolved claims more factually analogous to those arising under modern international investment agreements. Some of the most interesting of these opinions are those in which the Commission examined State responsibility for breach of contract under international law. Although these opinions are few among hundreds generated by the mixed claims commissions of the era, they provide guidance to modern practitioners attempting to distinguish between breach of contract claims that give rise to treaty violations and those that do not.

In Illinois Central Railroad Co. v. United Mexican States, the Commission considered Mexico’s motion to dismiss a claim for non-payment of monies owed on a contract for train engines on the grounds that claims for non-performance of contract obligations were not within its jurisdiction. See Illinois Central Railroad Co. v. United Mexican States, Doc. No. 432, Opinion ¶ 1 (Mar. 31, 1926), reprinted in OPINIONS 15 (1927). The Commission expressly disavowed a general rule that “mere nonperformance of contractual obligations by a government in its civil capacity withholds jurisdiction, whereas it grants jurisdiction when the non-performance is accompanied by some feature of the public capacity of the government as an authority.” Id. ¶ 4; (OPINIONS at 16). Instead, it interpreted Article I of the General Claims Convention as containing a broad grant of jurisdiction over “all claims” of an international character, including contract claims by a citizen of one country against the government of another country that are governed purely by municipal law. Id. ¶ 6; 17-18. Therefore, notwithstanding its decision to exercise jurisdiction over contract claims, the Commission expressly rejected the notion that international liability will necessarily follow from a government’s decision to exercise some sovereign prerogative when breaching a contract.

Against this backdrop, the Commission considered a claim for loss and damage flowing from Mexico’s alleged non-performance of a contract for dredging the port of Salina Cruz in North American Dredging Company of Texas v. United Mexican States. See North American Dredging Co. of Texas v. United Mexican States, Doc. No. 1223, Opinion (Mar. 31, 1926), reprinted in OPINIONS 21 (1927). The Commission found that it had jurisdiction to consider breach of contract claims based on its holding in Illinois Central Railroad, but dismissed the claim without prejudice because of the existence of a Calvo clause in the contract. The Calvo clause expressly deprived the contractor and its agents “of any rights as aliens” and prevented requests for diplomatic protection in relation to the contract. Id. at 22. Most international authority rejects the Commission’s conclusions regarding the validity of the Calvo clause, but the Commission’s insistence that the clause did not deprive the claimant of all international law remedies is instructive. See 1 ROBERT JENNINGS & ARTHUR WATTS, OPPENHEIM’S INTERNATIONAL LAW 931 (9th ed. 1992). The Commission reasoned that such clauses could not eliminate a national’s right “to apply to his own Government for protection if his resort to the Mexican tribunals or other authorities available to him resulted in a denial or delay of justice as that term is used in international law.” North American Dredging, ¶ 14; 27. With this, the Commission recognized that if a State fails to provide foreign nationals with minimum procedural guarantees for resolving breach of contract claims against it in its courts, international liability might lie.

The Commission reexamined the validity of the Calvo clause several years later, and in so doing, commented more directly on when a State can be liable at international law for contract claims. In International Fisheries Co. v. Mexico, the Commission considered a large claim arising out of Mexico’s cancellation of a concession contract for canning factories and fish markets. See International Fisheries Co. v. United Mexican States, Doc. No. 625, Opinion (July 1931), reprinted in OPINIONS 217-18 (1931) (upholding the validity of the Calvo clause notwithstanding a vehement and wide-ranging dissent by the U.S. Commissioner, Fred K. Nielsen). Mexico cancelled the concession by administrative decree after concluding that International Fisheries had failed to establish these factories and markets within the contractually agreed time-frame. The U.S. Agent urged the Commission to hear International Fisheries’ claim on the grounds that the decree constituted an arbitrary repudiation of contract and maintained that the only lawful way for Mexico to have terminated the contract was through its courts. Relying on a 19th Century note from the U.S. Secretary of State to one of his “Ministers,” the majority of the Commission held that the administrative decree could not be construed as arbitrarily repudiating or nullifying the contract, because the cancellation was pronounced in conformity with the contract’s terms. Id. at 218-19. In the Commission’s view, an “international delinquency” could not arise from a plain and simple notice by a government to its concessionary that the contract had been breached, even if that notice was communicated by fiat. Id. at 219. Thus, the Commission insisted that a State can rescind a contract by decree, according to the contract’s express terms, without creating a cause for international action.

Oppenheim’s International Law explains that “[i]t is doubtful whether a breach by a state of its contractual obligations with aliens constitutes per se a breach of an international obligation, unless there is some such additional element as denial of justice, or expropriation, or breach of treaty, in which case it is that additional element which will constitute the basis for the state’s international responsibility.” OPPENHEIM’S INTERNATIONAL LAW at 927. But identifying precisely what “additional elements” turn a State’s breach of contract into a treaty claim is not always clear. Some suggest that international responsibility should lie when a State exercises its sovereign power to repudiate a contract. See OECD DIRECTORATE FOR FIN. AND ENTER. AFFAIRS, WORKING PAPERS ON INTERNATIONAL INVESTMENT, No. 2006/3, INTERPRETATION OF THE UMBRELLA CLAUSE IN INVESTMENT AGREEMENTS 8 (2006). The opinion of the General Claims Commission in International Fisheries Co. suggests otherwise, at least when that repudiation is effected according to the terms of a particular contract provision. The General Claims Commission opinion in North American Dredging merely articulates the rule that international liability will lie when a sovereign breaches a contract with a foreign national and then denies the foreigner justice in its courts. While the Commission expressly disavowed its ability to draw a bright line between contract breaches that give rise to international responsibility and those that do not in Illinois Central Railroad, its subsequent opinions provide some guidance as to where such a line might be drawn.

Jennifer Thornton
*The author, Jennifer Thornton, is an Attorney-Adviser in the Office of the Legal Adviser at the United States Department of State, Office of International Claims and Investment Disputes. The views in this article are those of the author and do not necessarily reflect those of the U.S. Department of State or the U.S. Government.

The practice is rather strange given the usual allocation of roles in dispute settlement: witnesses provided evidence; experts opine on technical issues or facts; and counsel make legal submissions based on the applicable law.  Yet, many of the expert legal opinions on international law that parties have submitted to tribunals in investment treaty arbitrations (see here) are used by counsel as legal submission in everything but name.

The Interim Awards on Jurisdiction and Admissibility in the Yukos cases (PCA Case Nos. AA 226, 227 and 228) present rather striking examples of this phenomenon.  The awards present a veritable battle of international law experts on issues that, based on the summaries of the expert opinions in the awards, involve legal analysis of matters of pure public international law (i.e. matter for legal submission).  Yet, at points in the awards, expert opinions are referred to as “evidence”, an expert statement as “testimony” and experts are included under the heading of “witnesses”.

This terminological blurring is probably harmless and, given the difficulty of the issues addressed in the awards, it would be petty to criticize the tribunal or counsel.  Indeed, in the Yukos cases, the parties submitted a veritable cornucopia of 23 different witness statements and expert legal opinions, which addressed a range of issues—factual statements with respects to the travaux préparatoires of the Energy Charter Treaty, statements of national law, opinions on the implementation of treaties within national legal systems and opinions more generally on the application of the Energy Charter Treaty.  Given this overlapping mélange, it is understandable there was some blurring of distinctions.

More generally, what objection can there be if a party, wishing to ensure that its legal submissions have more gravitas, chooses to support them by relying on an expert legal opinion, rather than bringing on the expert as co-counsel in the case?  Further, not all counsel and not all arbitrators are experts in public international law.  Expert legal opinions can serve an important function in ensuring that relevant legal principles are fully briefed.

Although there may be no principled objection to the use of expert legal opinions, as investment treaty jurisprudence develops and matures, I think we can expect less reliance on the expert legal opinion on international law. With the exception of the Yukos case, it may be that trend has already begun (and, in any event, the expert legal opinion on international law only appears in a minority of cases). In the future, counsel in investment treaty arbitrations will presumably do what counsel in most legal systems do—brief the law and make legal submissions without submitting opinions from legal experts.

In July 2009, the United Nations submitted to the Ministry of Foreign Affairs of Israel a claim for reimbursement for the losses that the United Nations sustained in a number of incidents that occurred during the Gaza conflict between December 2008 to January 19, 2009. As a result of discussions that took place between the United Nations and Israel regarding that claim, last month the Government of Israel paid the United Nations $10.5 million as reimbursement for those losses.

The settlement follows an inquiry that began on February 11, 2009, when the UN Secretary-General convened a UN Board of Inquiry to review and investigate the following incidents that occurred in the Gaza Strip between December 27, 2008 and January 19, 2009:

“(1) Injuries occurring at and damage done to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) Khan Younis Preparatory “A” Girls School on 29 December 2008 and the subsequent death of the person injured;
(2) Deaths occurring at and damage done to the UNRWA Asma Elementary School in Gaza City on 5 January 2009;
(3) Deaths and injuries occurring at and in the immediate vicinity of, and damage done to, the UNRWA Jabalia Preparatory Boys “C” School on 6 January 2009;
(4) Injuries occurring at and damage done to the UNRWA Bureij Health Centre on 6 January 2009;
(5) Small-arms fire affecting an UNRWA convoy in the Ezbet Abed Rabou area on 8 January 2009 and related damage to a United Nations vehicle;
(6) Injuries occurring at and damage done to the UNRWA Field Office compound in Gaza City on 15 January 2009;
(7) Deaths and injuries occurring at and damage done to the UNRWA Beit Lahia Elementary School on 17 January 2009;
(8) Damage done to the Gaza compound of the Office of the United Nations Special Coordinator for the Middle East Peace Process (UNSCO) on 29 December 2008;
(9) Damage done to the World Food Programme (WFP) Karni Warehouse between 27 December 2008 and 19 January 2009.”

The Board of Inquiry found Israel responsible for damage sustained in six out of the nine above-listed incidents. The Secretary-General observed that the Board’s report was strictly an internal and confidential document. He decided to release a summary of the Board’s report nevertheless because he considered that the incidents that occurred in the Gaza Strip between December 27, 2008 and January 19, 2009 gave rise to considerable public interest. The summary of the report may be viewed here.

In his summary, the Secretary-General emphasized that the Board of Inquiry “is not a judicial body or court of law: it does not make legal findings or consider questions of legal liability.” Nevertheless, the Board of Inquiry’s conclusions all had a legal basis, namely, the principle that the United Nations is endowed with privileges and immunities in order to ensure the organization’s independence by protecting it from interference by governments. The 1946 General Convention on the Privileges and Immunities of the United Nations, which sets out the scope of privileges and immunities of the United Nations, provides in Article II, Section 3:

“The premises of the United Nations shall be inviolable. The property and assets of the United Nations, wherever located and by whomsoever held, shall be immune from search, requisition, confiscation, expropriation and any other form of interference, whether by executive, administrative, judicial or legislative action.” (available here).

The privileges and immunities basis of the Board’s conclusions was clear in the Secretary-General’s summary. For example, in respect of incident (2), deaths occurring at and damage done to the UNRWA Asma Elementary School in Gaza City on January 5, 2009, the Board of Inquiry concluded:

“…that the IDF carried out a direct and intentional strike on United Nations premises. It considered that this amounted to an egregious breach of the inviolability of United Nations premises and a failure to accord the property and assets of the Organization immunity from any form of interference. It noted that such inviolability and immunity could not be overridden by demands of military expediency. The Board found that the Government of Israel was therefore responsible for the deaths of the three young men who were sheltering in the school and for the damage to the premises caused by its actions.”

With Israel’s payment, the United Nations has agreed that the financial issues relating to those incidents referred to in the terms of reference of the Board of Inquiry have been settled. While the financial issues relating to those incidents have been resolved, the publication by the Secretary-General of a summary of the Board’s findings will undoubtedly lead to further discussion in the international legal community about the legal implications of its conclusions or the absence thereof, particularly in terms of international humanitarian law and possible tensions between international humanitarian law and the law of privileges and immunities law during armed conflict.

In addition, the publication of the summary raises questions about what standards of proof are applied by a UN Board of Inquiry, an investigative body that is not a judicial body. The summary indicates that the Board of Inquiry relied on reasonable inferences rather than a higher standard of proof such as clear and convincing evidence or beyond a reasonable doubt. For example, the summary indicates that the Board of Inquiry concluded that the IDF would have known that one of the schools was functioning as a shelter for civilians based on the fact that on the day of the attack the IDF dropped 300,000 warning leaflets in the area, urging civilians to move to city centers. The summary noted that several hundred Palestinians had been gathering at the Asma School seeking shelter the day prior to the incident, and would have been easily visible to aerial monitoring.

The publication, in and of itself, of the summary is also significant for questions of transparency and the public interest in international dispute settlement. The Secretary-General’s decision to publish the summary is based on his view that there is a unique public interest in Israel’s settlement of this claim. However, the Secretary-General also emphasized that “the Board’s report is an internal document and is not for public release. It contains significant amounts of information that was shared with the Board in strict confidence.” The Secretary-General did not state whether Israel objected to the publication of the settlement of the claim, but he noted that Israel had not embraced all of the summary’s findings: “[t]he Government of Israel has informed me that it has significant reservations and objections to the attached summary, which has been shared with it and to which it intends to react.”

The notion of a public interest is among the factors currently driving demands for greater transparency in all kinds of international dispute settlement, particularly in international arbitration. Indeed it is no longer unusual for the settlement of claims, even those that are politically sensitive, to be made available via the internet. The recent decisions by the Eritrea-Ethiopia Claims Commission (on which one of the authors served as a Commissioner) as well as the Abyei Arbitration concerning the Sudan border were all published and available via the PCA’s web site (available here). In addition, there is a current movement among civil society groups seeking greater transparency in investment arbitration to claim that there is a human right to access to information triggered in all investment disputes involving governments. These developments add to the vibrant debate on how much scope remains for confidential international claims settlements by States—an issue the authors submit can only be resolved on a case-by-case basis.

Lucy Reed and Ruth Teitelbaum

The terms jurisdiction and admissibility are not used consistently in investment treaty arbitration (or for that matter by international courts and tribunals).  Pleadings and awards often refer to objections to jurisdiction and admissibility without distinguishing between the two.  In his recent treatise, The International Law of Investment Claims, Zachary Douglas presents a taxonomy of preliminary issues distinguishing between the existence of adjudicative power (jurisdiction) and the exercise of adjudicative power (admissibility or the merits).  Admissibility goes to the question of whether a  tribunal can “exercise its adjudicative power in relation to the specific claims submitted to it” (para. 297).  See also paras. 306-312 for further discussion.  In other words, the distinction lies in whether the objection takes aim at the tribunal or the claim (para. 311).  For a succinct and edifying analysis of the issue, see Jan Paulsson’s article “Jurisdiction and Admissibility”.

Perhaps the clearest articulation of the distinction in an investment treaty decision is that by the late Keith Highet is his dissenting opinion in Waste Management, Inc. v. United Mexican States, where, in discussing the issue of waivers under Article 1121, NAFTA, he stated:

International decisions are replete with fine distinctions between jurisdiction and admissibility. For the purpose of the present proceedings it will suffice to observe that lack of jurisdiction refers to the jurisdiction of the Tribunal and inadmissibility refers to the admissibility of the case. [para. 57]

… Jurisdiction is the power of the tribunal to hear the case; admissibility is whether the case itself is defective—whether it is appropriate for the tribunal to hear it. If there is no title of jurisdiction, then the tribunal cannot act. [para. 58]

In a footnote, he provides the example of where the “claim is time-barred or where there is a similar substantive defect on the face of the complaint which does not, however, invalidate or depreciate the Tribunal’s jurisdiction as such.”

Of relevance to the issue of investor misconduct, he noted that the matter of admissibility is also related to the question of severability (para. 61).  Mr. Highet asked why the entire claim should be dismissed on jurisdictional grounds where only one part of the claim might be inadmissible.  In his words, the Waste Management tribunal “has heaved the baby, enthusiastically, out with the bath-water: the entire NAFTA claim has been undone.” (para. 63)

The status of the concept of admissibility remains unclear in investment treaty arbitration.  Indeed, at least one award suggests that there is no power to dismiss claims on the basis of inadmissibility.  In Methanex v. United States, in response to a challenge by the United States to the admissibility of Methanex’s claims, the tribunal stated:

… There is here no express power to dismiss a claim on the grounds of “inadmissibility”, as invoked by the USA; and where the UNCITRAL Arbitration Rules are silent, it would be still more inappropriate to imply any such power from Chapter 11. [para. 124]

It is unnecessary to develop these materials further. This Tribunal has no express or implied power to reject claims based on inadmissibility… [para. 126]

The tribunal’s statement should, however, be viewed in its context.  As noted by Jan Paulsson in his article, “Jurisdiction and Admissibility”, the US argument was that Methanex’s claims were legally hopeless, not that the case was unhearable.

The terms admissibility and inadmissibility do not appear in the UNCITRAL Rules, the ICSID Convention or the ICSID Arbitration Rules.  Further, the indices of leading treatises on international commercial arbitration (such as the new edition of Gary Born’s International Commercial Arbitration and Fouchard Gaillard Goldman on International Commercial Arbitration) do not refer to admissibility or irrecevabilité as distinct concepts or principles in international commercial arbitration.   And although the distinction between jurisdiction and admissibility is recognized in Art. 79 of the ICJ’s Rules of Court, care must be exercised in drawing conclusions from the ICJ’s jurisprudence.  Since its decisions are not reviewed by other judicial authorities, any distinction it draws between jurisdiction and admissibility does not have the same consequences as for arbitral awards subject to review by national courts or annulment within the ICSID system (see Jan Paulsson’s article on this point).

Although the distinction between jurisdiction and admissibility is often hard to draw, the concept of admissibility has a long-standing place in the international law relating to claims of diplomatic protection.  Issues such as nationality, exhaustion of local remedies and delay have been viewed as issues of admissibility (see Article 44, Admissibility of Claims, ILC Articles on State Responsibility).  Although care needs to be exercised in applying the law relating to diplomatic claims to investor-state arbitration, I would argue that the principle that there can be impediments to the bringing of claims can be drawn from general principles of international law.  For example, laches—or unwarranted delay in making a claim—might appropriately be viewed as a bar to the admissibility of a claim.

Similarly, I argue that abuse of process and egregious forms of investor misconduct can be the basis for denying the admissibility of a claim.  Although the tribunal has jurisdiction, the claim may not be heard because of a procedural or substantive impediment.  This is exactly what happened in Plama v. Bulgaria, where the tribunal found that the effect of the claimant’s fraud and illegal conduct was to “preclude the application of the protections of the ECT” (para. 135) and that the “[c]laimant is not entitled to any of the substantive protections afforded by the ECT” (para 325).  In its reasons, the tribunal states that granting the protection of the ECT would be contrary to the principle of nemo auditur propriam turpitudinem allegans—no one is heard when alleging one’s own wrong (para. 143).  The operative idea is that the claim cannot be heard because of the fraud and illegality, not because the tribunal lacks jurisdiction.

As a final point, it is interesting to note that the recently released interim awards in the Yukos-related claims under the Energy Charter Treaty (Hulley Enterprises Limited (Cyprus) v. The Russian Federation, Yukos Universal Limited (Isle of Man) v. The Russian Federation and Veteran Petroleum Limited (Cyprus) v. The Russian Federation) are each titled “Interim Award on Jurisdiction and Admissibility”.  The three interim awards confirm that the disputes are admissible and within the tribunal’s jurisdiction, subject to two issues; first, they defer the “decision on the objection to jurisdiction and/or admissibility based on Article 21 [Taxation] of the ECT to the merits phase of the arbitration”; second, they confirm that the “decision on the objections to jurisdiction and/or admissibility involving the Parties’ contentions concerning “unclean hands” and Respondent’s contention that “Claimant’s personality must be disregarded because it is an instrumentality of a criminal enterprise” is deferred to the merits phase of the arbitration” (see the final decision in each of the interim awards).  It should also be noted that in the Yukos claims, the parties treated the denial of benefits provision in Art. 17 of the Energy Charter Treaty as a question of admissibility. It remains to be seen whether the tribunal in the three Yukos cases views allegations of unclean hands as an issue going to jurisdiction or admissibility.

Introduction

In a recent decision related to the ICSID case Perenco Ecuador Limited v. The Republic of Ecuador [1], the Secretary-General of the Permanent Court of Arbitration at The Hague (“PCA”) has upheld a challenge against a leading arbitrator, Judge Charles N. Brower, on the basis that from the point of view of “a reasonable third person having knowledge of the relevant facts”, the comments made by the arbitrator in a published interview constituted circumstances giving rise to justifiable doubts as to the arbitrator’s impartiality or independence [2].

The PCA accepted jurisdiction to decide upon the challenge made by Ecuador, based on a previous agreement executed by the parties in dispute, thereby seeking to side-step the regular disqualification procedure established in Articles 57 and 58 of the ICSID Convention. On the basis of the same agreement, the PCA also applied the test set out in the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”), rather than the standard provided for in Article 14 of the ICSID Convention [3].

However, this is to overlook the fact that the provisions of the ICSID Convention regarding the challenge of an arbitrator are, by nature, mandatory international law and parties are not free to resile from those provisions even by agreement. From the point of view of ICSID procedure, the PCA’s decision has no effect. Indeed, arguably there was never a valid challenge to Judge Brower in this arbitration.

The PCA’s Decision

In September 2009, Ecuador challenged Judge Brower (the arbitrator appointed by the investor Perenco Ecuador Limited), alleging that his statements during an interview later published in the Metropolitan Corporate Counsel in August 2009 gave rise to a strong appearance of bias. The two main arguments were that the interview gave rise to doubts both as to the arbitrator’s impartiality and as to whether he had prejudged the case.

The PCA considered that the combination of words used by Judge Brower in the article and the context in which they were used had the “overall effect of painting an unfavourable view of Ecuador in such a way as to give a reasonable and informed third party justifiable doubts as to Judge Brower’s impartiality”. The reference in the article to “recalcitrant host countries”, which was to be considered pejorative, should reasonably be taken to be referring to Ecuador. Further, the comments which followed in relation to Libya, suggested an unfavourable view of Ecuador. In particular, if investors in Ecuador are considered to be in the same position as investors in Libya in the 1970s, they are considered to be investors subject to expropriation.

In response to Ecuador’s argument that the comments made give rise to justifiable doubts that the arbitrator had prejudged the case, the PCA did not accept that Judge Brower had prejudged the binding nature of the tribunal’s requests for provisional measures: “Rather than prejudging the question, Judge Brower was merely repeating what the Tribunal has already judged”. However, the PCA was not convinced that a distinction could be drawn between an analogy as to liability for expropriation and an analogy based on possible investor reaction, such that the juxtaposed references to Ecuador and Libya would lead to justifiable doubts as to the arbitrator’s pre-judgment on the issue of expropriation.

Leaving aside any comments on the reasoning of the decision, there are two important points which should be noted.

(1) The procedure that the challenge should have followed

According to Articles 57 and 58 of the ICSID Convention, a proposal for disqualification should be made to the tribunal itself and it is for the remaining members of the tribunal to decide on such proposal. Where, however, they are equally divided or in the case of a proposal to disqualify the majority of the arbitrators or a sole arbitrator, the Chairman of the Administrative Council shall decide on the proposal.

The PCA has been involved in a number of previous ICSID arbitrator challenges. For example, in cases where the unchallenged arbitrators submit separate and dissenting opinions concerning a proposal for disqualification, the practice has developed that the Chairman of the ICSID Administrative Council may, in cases where there may be a conflict of interest, ask the PCA to provide an independent opinion on the disqualification. Such decisions are in the form of non-binding “recommendations” to the Chairman, whose ultimate responsibility it still is to decide requests for disqualification. In some cases, the PCA has not even provided reasons for its decision.

The decision in Perenco is, however, not simply a recommendation. It is a decision made by the Secretary-General acting in his own capacity on the basis of an agreement between the parties.

While the parties can make any agreement which they wish, it should be clear that the mechanism for challenging an arbitrator under ICSID cannot be side-stepped by agreement. Unless otherwise stated, the express provisions of the Convention are mandatory. The proposal to disqualify Judge Brower should therefore, in the first instance, have been submitted to and heard by Lord Bingham and J. Christopher Thomas. To the extent that the PCA became involved, it should only have been, after arbitrator disagreement, to offer a recommendation to the Chairman, if so required.

(2) The Standard that should have been applied to the challenge

The parties also agreed to apply the IBA Guidelines to any arbitrator challenge and the PCA followed this agreement in making its decision.

According to the second general standard contained in the IBA Guidelines, conflicts of interest arise when “…facts or circumstances exist, or have arisen since the appointment, that, from a reasonable third person’s point of view having knowledge of the relevant facts, give rise to justifiable doubts as to the arbitrator’s impartiality or independence” or when “a reasonable person and informed third party would reach the conclusion that there was a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties” [4].

In interpreting these Guidelines, the IBA Working Group decided that the proper standard to be met for disqualifying an arbitrator, as reflected in the Guidelines, is an “objective appearance of bias”. Accordingly, a challenge to the impartiality and independence of an arbitrator depends on the appearance of bias and not actual bias.

This does not, however, precisely reflect the test under the ICSID Convention. Article 57 requires a “manifest lack” of the qualities required for an arbitrator in order for the challenge to be successful. Such qualities under Article 14 of the Convention include that the arbitrator “…may be relied upon to exercise independent judgment” [5].

Thus although, under the ICSID Convention, the test is also objective, the mere appearance of bias is not the standard. It is qualified. The lack of reliability as to the arbitrator’s independence must be “manifest”, not just “possible”, “quasi-certain” or “apparent”.

As the unchallenged arbitrators of the Tribunal in SGS v. Pakistan [6] and the remaining annulment Committee members in Vivendi v. Argentina [7] decided, mere speculation as to bias is not sufficient to meet the ICSID test. Facts must be established which give rise to a real risk of a lack of impartiality.

The requirement that the lack of qualities must be “manifest” imposes a relatively heavy burden of proof on the party making the proposal [8]. Obviously, there is no need to prove a “manifest” lack of independence because, the mere lack of independence is sufficient to remove the challenged arbitrator, whether it is manifest or not. What should be “manifest” is the lack of reliability as to the independent judgement, not that the arbitrator is actually or partially dependent. The manifest absence of reliability should be discernible from the facts.

This standard contrasts with the arguably lower standard under the IBA Guidelines which provide only that there must be “facts or circumstances” giving rise to “justifiable doubts as to the arbitrator’s impartiality or independence”. Arguably therefore a challenge under the IBA Guidelines may be successful if based on circumstantial inferences. Further, the Working Group’s explanation that “doubts are justifiable if a reasonable and informed third party would reach the conclusion that there was a likelihood that the arbitrator may be influenced…” suggests a lower standard than a “real risk”.

Thus, the challenge to Judge Brower was not only decided by an authority different from the competent one (i.e. the unchallenged arbitrators or ultimately the Chairman of ICSID Administrative Council) but also by substituting the ICSID standard on disqualification for a lower one.

Conclusions

It is clear that the challenge to Judge Brower was not a proper one under the ICSID Convention. From an ICSID perspective, the decision of the PCA is a nullity. Indeed, the fact that Judge Brower had to resign voluntarily from his appointment as arbitrator after the PCA’s decision was rendered speaks volumes as to the validity of such proceedings. In fact, to the extent that Judge Brower had refused to resign, it is difficult to see how Ecuador would have had any remedy other than to start again and to propose his disqualification in accordance with Articles 57 and 58 of the Convention, which in turn would have provided a higher hurdle to overcome.

While this decision highlights that parties can make whatever agreements they want as to arbitrator challenges, and that such agreements may in practice be effective, it does not set a precedent for an alternative procedure and standard to that under the Convention. In terms of ICSID procedure, Articles 14, 57 and 58 of the ICSID Convention (together with the relevant Rules) alone set the standard and the procedure to seek to disqualify an arbitrator. In terms of the ICSID procedural history of this case, the Claimant’s appointed arbitrator has simply resigned [9]; there has been no valid challenge in these proceedings.

* Federico Campolieti is an Associate at M.&M. Bomchil, Buenos Aires.

** Nicholas Lawn is an Associate at Simmons & Simmons, London.

[1] Perenco Ecuador Limited v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador, ICSID Case No. ARB/08/6. While the Tribunal is yet to rule on jurisdiction, it has already issued two preliminary decisions as to provisional measures which Ecuador has ignored claiming that they are not binding as a matter of international law. The original tribunal consisted of Lord Bingham, Judge Charles N. Brower, J. Christopher Thomas Q.C.

[2] PCA Case No. IR-2009/1, Decision dated December 8, 2009.

[3] On October 2008, Perenco and Ecuador had agreed that any arbitrator challenges would be resolved by the PCA, applying the International Bar Association Guidelines.

[4] The first general standard of the IBA Guidelines provides “Every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and shall remain so during the entire arbitration proceeding until the final award has been rendered or the proceeding has otherwise finally terminated”.

[5] English version of Article 14 of the ICSID Convention. The Spanish version states “inspirar plena confianza en su imparcialidad de juicio” (Inspire full confidence in their impartiality of judgement) and the French version demands “offrir toute garantie d’indépendance dans l’exercice de leurs fonctions” (Offer every guarantee of independence in the exercise of their functions), both of which versions are equally authentic. While the language used in the three versions of the text is different, it is accepted that no difference in meaning was intended.

[6] SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Claimant’s Proposal to Disqualify Arbitrator (December 19, 2002) 8 ICSID Rep. 398, 402 (2005), “…The party challenging an arbitrator must establish facts, of a kind or character as reasonably to give rise to the inference that the person challenged clearly may not be relied upon to exercise independent judgment in the particular case where the challenge is made. The first requisite that facts must be established by the party proposing disqualification is in effect a prescription that mere speculation or inference cannot be a substitute for such facts.1 The second requisite of course essentially consists of an inference, but that inference must rest upon, or be anchored to, the facts established. An arbitrator cannot, under Article 57 of the Convention, be successfully challenged as a result of inferences which themselves rest merely on other inferences”.

[7] Compañia de Aguas del Aconquija S.A. & Vivendi Universal v. Argentina, ICSID Case No. ARB/97/3, Decision on the Challenge to the President of the Committee (October 3, 2001), at paragraph 25: “…The term [manifest] must exclude reliance on speculative assumptions or arguments… But in cases where (as here) the facts are established and no further inference of impropriety is sought to be derived from them, the question seems to us to be whether a real risk of lack of impartiality based upon those facts (and not on any mere speculation or inference) could reasonably be apprehended by either party. If (and only if) the answer is yes can it be said that the arbitrator may not be relied on to exercise independent judgment. That is to say, the circumstances actually established (and not merely supposed or inferred) must negate or place in clear doubt the appearance of impartiality…”.

[8] Christoph H. Schreuer, The ICSID Convention: A Commentary, Cambridge University Press, Second Edition, at page 1202. See, also, Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17, Decision on a Second Proposal for the Disqualification of a Member of the Arbitral Tribunal, (May 12, 2008), at paragraph 41.

[9] Following the resignation of Judge Brower, the Tribunal was reconstituted and Neil Kaplan was appointed as arbitrator.

This blog note reflects the authors’ personal opinions alone and not those of YIAG, their firms or their firms’ clients.

The need for such a court, Golden argues, stems from the need to “…ensure (1) that courts stay up to date with global financial market developments, (2) that judges have the requisite competence to unravel facts and apply laws that often pre-date and did not anticipate current practices, or that were too hastily drafted in response to political pressure and (3) that the risk of a wrong decision contributing to systemic risk in a global, highly interconnected marketplace is mitigated”. Common standards and legislation to be adopted by all international financial players is not sufficient because “…it could amplify any mistake that a court makes in deciding a term’s meaning”.

Yet, the fundamental reason such a new world court is needed is because “…[t]he reliance on national tribunals of general jurisdiction and ad hoc arbitration is unsatisfactory. It is too decentralized, too inefficient and expensive and, perhaps most importantly, it is failing to produce a settled, authoritative body of law or the predictability that the markets crave and on which financial stability depends”.

Golden’s criticism of arbitration is, per se, nothing new. The problems created by the difficulty of finding and researching arbitral awards, oft their secrecy, and the difficult of establishing true and reliable precedents from the congeries of awards, have been discussed at length, including in this blog. One could quip that the jurisprudence of international courts is often no more predictable than that of arbitral tribunals and that international courts case law is no less balkanized and full of small and big contradictions.

However, international courts and tribunals, the permanent ones of the kind advocated by Golden, have one crucial advantage over international arbitration that is generally ignored and should give us pause. While arbitration is a private exercise in justice, adjudication by way of international courts is a public one. In economics, permanent international courts and their decisions are public goods, global public goods to be precise. They meet the two basic requirements to be classified as public goods: they are non-rivalrous and are non-excludable. This means, respectively, that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good. Arbitration is a club good, as it is non-rivalrous but excludable.

This is not the place to go into the details of what the simple but crucial distinction between public and club goods entails, both in economics, law and politics, but suffice to say here that the key insight that lies at the core of Golden’s op.ed. is that “the market could have a greater interest in the outcome of a case than two private parties who are litigating it.” Since global financial markets are global public goods adjudication of disputes arising out of it should be entrusted to global public goods such as permanent international courts. As Golden concludes “Think about it … World trade benefits from the existence of the WTO tribunal and the dedicated bar that it has nurtured. International financial market law is no less global or systemically relevant than international trade law”. The point is straightforward and of sure public appeal.

Add to this that, while considerable progress has been made in ensuring a satisfactory degree of transparency of the processes of selection and election of international judges, international arbitration is still the domain of a rather closed and often unknown-to-the-public guild. In this respect, permanent international courts enjoy greater legitimacy that ad hoc arbitral panels. They are more suitable to take decisions that in the end affect millions across the globe.
To the extent international courts and arbitral tribunals are considered substitute goods (like tea and coffee) and not complementary goods (like hot dogs and buns), these considerations spell trouble.