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Calitornia, B~A~ 2004 . .I am '\f,ery It,a~efu!1 to the m,alwy generous people who, have prFo,vlded,

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Laurence R~ I 'e'U_t John Y., Gotanda, Stephan S~hin, B;(ll'ZU Sabaai, James D'" ICOX~ Joan , .• ' 'aga~ .. Andrei . ,_ amolea, Adam SC'hUPI:ck, 'K!3~e M. S:upnik! Ari Cuenin, Karen IOU,g. 'and. aU of the D[~~'k:e ,LeI'w Jo,t~Ftm'lu{ editors,

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This Note addresses t(h,e treatment ot legal costs in, investor ... state

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re esignmg the mvestor-state arbrtranon system '8, most tundamenta

mechanics,' the question of how lawyers I'D,d, arbitrators are paid may seem peripheral, But the treatment. of legal COiS, s plays an important role ,0;'0,'- th ,I~: investor-state arbitratio n ~,y.- ..... ,I't· m, Certainly the sums of

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Judge Richard P ··'o···.'~,'n-e'r·' and many other wri ers have observed, the

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a. tocati on, 01,1 iegai COSt.SI 1'0 any tspute-se .t emen system mt uenees

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tne c .. arac er 01 ." ,8l, system, IUC,U,,:_ I.D8 !l",:_ types '0, ,'CJl,31mS .. ron,gr·· 1 ne

claimants who bring them and the 'manner' in which they are

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reserve .• ,', '. tne investor-state artntranon system O':_' ~I~, rewors ng ,01'

L See g,enerall, Stephen M. Schwebet, Judge, The Overwhelming Merits, of Bilateral Invest ment Tre aJl[ les 'Remarks; at Su ~f:o~ k Uni vlersm,~y' 'La w S'cho ol (OIC't., 3 '~ 2008),., In 32 SUFFOLK. TI,ANS;NATL L~ RE,V~ 263, "200~') "pr,a,~sht,l, the bene ru,~, 0:£ i'm'Jj\"yesihJr, .. si:arte ,a:r:'bi'~:lTat~ollll fo(rr btl J, capi~IJ"'ex:porH . g and Ica:pw'lal=':~m!polft ~'ng, oOW1nt~i!cs .• '"

2" 'see' Itl'Ul'rtaii'y UtE BiACK.' AS," ,AGA.1NST t- ,f,ESTM::ISNT AR arrA.A- _ U ON':: P', - RCEPTU)"-: S AND REALITY (Mi.lch:a!sl Waibe e,'~ al, eds., 2010) fc,a~:al'()BUing the. criticisms o;f investor .. state l'l;,bi.~ratrn.o:n,~ including i nstitu tiona I, biases, ~ be hlegi timacy de,:~ci",~,J~ an d inconsistent j urisprudence); M, Sornaraj ah, The R,el,e,(~t of Neo- L.ibe,~U.snl in .l'n veslflUZ;l t T,ft,{l~y A.rbil_'"{J'ti()r~ i,,' THE FUllJR'E OF l VESTM'E_.J~ ARIUTRA,TION 273i f' 'a:therine ,A .. 'Rolg,e'rs, &. Roger 1"',. Alford eds., 2'009')1 (~:fll!l'ru'mlg, that o~e[,liea,chin,1 b:y' "neo .. Ubera~s '- has '~e,d ~IO dl'i5SaUisfa,c,~,i!on '''~~t:b mn"eSm:O(f'''' state ,a,rbitr,tUi,on and the slowing do'w.rn of '!rea,l,yma.ting).

3~ See g,e',~erQ.',IIJ~ Gus 'Vi\" HA RTE'_,~ F'N'VESTMJ:NT TREA IT' A,RBI _ RA,_ ION AND P UB,l~,C " A'W (2007) (.argu~llg 'th,a.'~ !om:Dlly the sec lUlly of tenu re can adeq uately ensure that judges p'rop,erly

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Ippwy 1.11 erma,lol.On,iI,~ ~ II vest merh, I!!!i w ano P'll'OP O:Slng '" ne crea I,On;O an mtema _ ona inves .. me III '

court): Patrick Juina:Fdl~ The .L'(3JJ~J' ,of Ilftl!'rMlu'io,t~(J,llnveSI"Wi'€nl;' ,ell'" tI~e' In,I~lJtdQ,,'f;ce' Be ,R.e.tl:fie'Ss;etl,?,~ in Y':EAnE:oloIK 0:·, :nn'ER.N A 1]0 -,.- A L I ,'. VBST,MlE:_ T LA \r, ,It, .f',OLICY,:, 2JOO8F-2'OO9'", at :2'73 (KJ)d P',.

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SliHJUld 3,'1, some 'POh'llt eome under n~a,:ppr,arnsar~); Tod.d Weil1er,!, BitlldtlCing Hl;Ufl11tl R'igh,ts Q,na ln vestor P'rof.e,ctilo,n ~ 2,7 H,.le. I Nl"'L &. ,OOM.P m L, R.'EV,. ,429 (2004) (pn)pasi ng a, "counterclaim mechanism ,,~ una er '\~t:bich nati onats of host countries could lui ng c~~dms under invest meat

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treanes against 'or~:lgn mvestors :i.or 'VIDOll,a:bons Oo:L t[]i8utt alma numan n,g~.wts, ..

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(IOcti' 8, 20(9) ~ bt~pl:J/~r:s;id .. w,~ddbafllk"of,gf[IC:S;lD'/f[iOnl[S cnf~et'?'rlelq.'lJesrrype,=ICa!'u~'s,R,'H'&,lcl~ i,on V~jlt~=s-b!Q)wD'OC',&d,o&Id~DC'I215; E,n.&ca5i!~ldt~,CS;7 I(ooo!ering nb.lt Id,aimanl, [10 '[Jay $6 mHI.'on of

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A ward, 1I 353 I(J an,., 1.'9~ 20(7),~ h'l ~p':llh:s:id,. \v'oddbiank: .orglI CS D/FrontSe:rvlet?req uestT_ype= Ca'SesRHI&ac~ioln Va.l~showDoc&docld-D'G630_,ED&case, ,d:=C212 (order" fl,g Turkey ~o ];Di,ay ,gdn,ru,ost' $14 mi~Uon in ~egal. oosts);: Ceskc:do"lf;msk,fi O'bchodni Bank.s A.S,. Vi, S~O\l'llll!~: R'epiublie~ I'CSID' ,C3JSie ":"0'. A.RBf9f1J4.~, A\Mard", , 3,74 (D,ec'. 29"l 2JOO~.), 13 I'CSI.D' Rep,", U~il. ('2008) (orde,(ng I ~Ie, S~,ovak. R,ephlblic Ito pay saol mi ~ Ili,o_~ !l),_' Ule tbtiOllliOJ't "s ~'ela'- oo~t\~).

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(~.9~6);, :Ke~th ..... 'to H:~dto..n", ~e'fJ Sh(ftitlf Cllnl Prctlt:r.Ulbilil)} of ,Llnv 71IC~n,.-KENT :L. REV'i 427'" 444~ 4,' (199';:);, J. Riobe r~ S, Pricb.ard,! ,A, Sy;sUJ'm:ic ,A,pproQ,c/1 to COJ'n,P,fJ'7;a;tiw,e La;~'Y,: T}~e Efftx.t ,01 ie 051,

201.1 ]

fine-tuning, its rule on legal costs is a promising instrument of reform,

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1 ndeed amOlng' -,he growing literature on redesigning the investor-

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S, 8,1 e ar urrauon sys tem, I, e e , ave arrear ,y reen ,WIQ prommenr

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proposals directed at rethinking the system's treatment oi legal costs,

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application o!f the American rule.' whereas Professor Stephan Schill

ha 's 'a' -g' ue' d ,. "h-' at ';i!]1 . ,,'C' '-"0·' j"io~ ~:~ - - 8' -'if' ,-- ~ ~e' -W' '0· - ~ 'Id" be -.- 0'" -e" ~,~ 'p"i -0" ~., .-.~ - teo :s A'~" s·

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does this Note, both 0;-' those prioplos3l S I raw extensively from the numerous studies" 0, e- legal costs 'written i ~I the United States in respon se t 0·"1 the 'I ate tw zen ~:l" eth -cenn iry "~'11~t' ig atio "0- b o 0" rn ",Ul

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Unlike IGo tanda and Schill, however. this Note argues tor the application of the English rut e. L "oldie" 'hie English rule the unsuccessful party ,~D, ,3. dispute must indemnify the prevailing party

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or ]1l.S jl!e,g,.IJl CO'S'!l.s,~, ,. oug 1DV'CSi. or-state tn una s see m !I.,O appiy

eithe - the Arne -!-c'a"D" rule or ;iijj de facto v e' rsion of the p··---o claimant

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ru ,e I.n . e m,8Jorl y 0" cases." rl . un,as , ,I,ve u,naml.g,uOUSJlY "o.~owe.· ..

tb E········'ll .. sh -_-,'11- "'" ., ,··,;",1 decisin .. ,, md .. hs ",~. ···fF 'I·· .. tst __ '''-,.- ared ', ... do

. e I ng,JL1S fU,lle m $ie,vera.J1, I ,eC,ISlons an, .. Lave a,~ leaSI_ appa,rel~, 10 I ,01

Fee; and ,Fin.a"i~ci''',r R,ule:s:' D'~ the ,Developme,flt of the S.~lbs.ra~'ui've Law. 17 J. 'LEGA,L STU[t 451" 463~4 < 1988).

6., Stephan 'Wm SditUl~ Arburatio« Risk: and ,Effectb;e Com:plitllu:fJ,t Cost.,Shlfli,,'B .i'n lIZ ~es-fJ"'1ent Treaty ,A roitrlQiion,! 7 J. WOR lJI) ~NVEoSTM E'NT 1& TR.AD:E 653 (:2!006 ):; J ofu 0 v. Gotanda, ,A,,~I:o'n~J'91' Fee:f, Ag.o~~'is,lle;r.:· Thle' Iln:IJI'i1c,'(J"'io,ns of I~.u;ons;f.~l'enc:t ;1'11' ~/~lfl' ,A,lw,ar:tii:ug' of Fees '~R€I' ICru"S' in' 1~1',ten1'I(jlioluJ'l, ... ' f'ibi,fraliaf!iS 2; I( V'Wlhlnoi"l/,a, U:m:~ s, Scb~ o,f'Law Pub, Law '& Lega.~ Theory W',orlkin.g Pape r Series, Paper ,> ~ o, 2J011.0-cr " 2(09).j' a vQ',ii.CJ'iJ.,ie at bup:lIS's:rn~oomlabunlc'~= 14:9 m 155'.,

7., Glo~atida" s't~l'ra' note Iii. a,~ 11-1'9,. Under' the American rule, both parties 'pay their own ].'ega~ costs regardless of wlric'h, party pre,vai~s on the merits, Site i'n/ra Part l1.,I\, .

.8" Schill, supra noee 6, at Ifi90, Under the pro-claimant rule, the respondent. pays its own ~"cg~l~1 costs regardless <of whl,crn party prevails on the merits. A el aimarrt r:n:my recover h~s legal costs, however li if ~'[: preva ~ls Ion '~:he ,",Ier~ts,. See i~~fra ParI Il. B.

'~it 801'11: SJCbiU~,~, g'.'prtt note 6~, and Gotanda, ~~'~')t.r~ :Illot,,~ 16~ dr.~I"\Y' ~xtleDsru'v,ely ffOn) the shlldffi.!esl Or,' '~eg.a'~ ICOB~S produced in ~'he U'n~ted States in 'rn-cspom!s~ te the ,tate twenti:e'tih.-centlJi.ry j,lli~ig,a~ion boom," The, w',ay :in 'wbmcb the' increased, fr,eqruency of' America n :1 ~ tiga linn and ~b8 i ncreased freq uency of in vestor .. st ate arbitra t lon an! in variably de-sed bed in the academic ~i'tet,a. ture=-es a "Iitigadon boom ,,' and an '!~,elp'looion o,f tlainu;,ji~'-s~ggest~ a para leI b e~'ween '~h.e; h~IO ~,:DeD,o.m!eo:a", :RJe~e:re[l;oo ,t~J. the 1998 '! icxpilosmon 0:[ ,c],ai rnll'S I,! in Ii nV'e5tO'f-S~:,fI,m:e ,af'brnt[',a,l~ ion .is ",elY :fre,quen't, ,Sele~ !f.,'c .• 't M" SORN'ARAJA.H = HE 1-' - 'RNA,TI:O,'AL LA'\\~ 'OF FIOREIGN N'VI~STM,IENIT 309' (20101)1 ("rw:~Uh the '6x,p:-,(JsioDJ ():f ,cJlaiims taJgaimt st!~I'~e5,;, 'sllCir~e5 'bc,g:a,n, '10 e).t"p~or~~ ,_l'ie's:b a:~,e"'tles 01:[ defending 'lhe clum!) " n)~: 1ge1 Blac:k,aby &. 'Lhllis P3JF~de~ II! ,ltl ves'tlnenr' , 'flat-' A "iJiit'ralivn'1, i'~' ~ :BE'R.NSTEi:'::_'~S HANO:80'OK ,OF ARBITRATON AND ·D~S.:f! TE RESiOl.:UTrn:,o ".' :'" RACTICE H]l"ijO'ill,~ ..1006 (J!Ob:D. Tac'kaberry & Artbur M:m~(oU eds~, 4'~h ed~ '2(03) (~'~[T]lle ex,pl,os,io:n of [investorstate~ arbiUat]oD is ~ reoent :phenomeno:rn. ")~, Jo:nathan C" Hamilton" A Decade of La,r.'in A Ine,rita~~: .ll'1 v!e:St;'l~'en r: A ,b,iI ftltion" i'f," LA'l'~ N AM E'JRICAN '"N V ~STM'E'NT TIt Eli.' V ,I\. llD ~TiRA nON:

THE CONTR,OVERSi ES A~' Ii) CON ,1.1C'fS ,61g '1' (M.ary H:~ MOtu',a '& Thomas E,. . .. arborullea,u eds "., 2008,) (:re£erli'ill\1 '(10 '1~,Wf]J. e,xplOis~o'n i!nl La'~m ,A'01~~i'~:n i,D v~:st m,'en:t IJi"bi~'[[31tion": ),.

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I[V" ::' ", - 60""·'9:77'

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so in many more." Unfortunately, these, tribunals have failed t,o articulate adequately their reasons for applying the English rule, This lack, of explanation is curious given tbe strong doctrinal and public PIOI~.i~y justi -'i,le' tions (10(- '(-I e English ru e's app ication particularly :in

light of the backlash 'that currently threatens the investor ... state arbi t~ ~~~ ,- 'I' - n system a b ~ ckl ash - - an "'f" st ed .. - the f 0 '~m of" stat es'

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wit hdrawals from :i n vestmen t treaties, refusals to hoi or awards, a Old, the reemergence of the "tc othless' investment treatv,"

Indeed application 01" the English rule would help investor-state

ib '11 '.'.' - h ~ ited f hi

tn ounais mmgate tne two most commoruy Cit ",,:_ causes 0' , us

troubling backlash: t re system's allege d proinvestor 'bias and its chilling effect on host states legitimate use of police power.f Much like the tribunals themselves tbe academic litera ure has so, far failed '_,0 identify this connection, This Note clarifies both . he doctrinal and public policy justifications for the English rule's application, Parts, I and II provide the necessary background. Part describes the mechanics ot investor ... state arbitration and details the system's short

histo ry incl ud '~"n" 'B' 't-', e e' '/vPII o'C";;O'D' " '0" f C' ,11'8" im s sin CC'"·Q, I '9·" '9"1.' ' h e m 'U- ch-

'-L>' .. lL . .:-. 1'1 I.: _,I .. , .:...... j Oi .I.i: nl&l~:·.~ .. _.~~I,I .. i.l,~., 1 .. 1 f .. ~J,~_llll_ ,-::; ,aulL.,.I .. ~, ~- y_".I ;;,_,].:_:,_._

publicized backlash since 2007, and the allegations '0':" bias and regulatory c l~lt Part 11_'h!en describes the, inconsistent and unpredictable treatment of legal costs in investor ... state arbitration,

The' ~e,afte{r, P-arts II, and IV' explain the arguments in, favor of the English rule. Part III addr esses doctrine. When advocating for the application IJ the American rule or the pro-claimant rule writers and r 'ibnnals primarily emphasize case la.w~~~-alth,ough bot], concede 'that this approach is inadequate, Because the investor- tate arbi ration, system lacks a formal rule of stare decisis, case law is not binding upon tribunals in, subsequent C,BJs,'CS,,1,5 Therefore, I:'!a~rt I I, looks beyond

case law and addresses all of the sources OIl' substantiv anc procedural law applicable in the investor-state arbitration system: tb

~, I" 'self!' il!'fr'~' Parm, n .c

12. See il1ftcI Part tELl. ll. See' i,""fra :Plr~s lII-I:V.

14, 'h is is conslstent wi ~ b lega l reasoning in. in V~S~O~'- sta te arbi tration ge'me:[;lJJ U,Y co See' 0 lie

K ['ms~i~n!l Fa uchald, Tl~f!' Legal ,Relr;ISOlr!'il~,g of I CSI D Tribunals.:' ,A,l,j' ,Empi',.icnJ A ",a lysis. . 1'9 E U R." J', 'I NT~L :L., 30 1 ~ ~l5 6-519' (2n08) {rev1.ewi n,g almost one hundred investor-sta 'e ,arbru tral arw,ar(]cs, ,a,nd ~lem.onstra'tbJJJ, e'llill];a(iiriC'aUy th:a! investor-state tri nmals re'~ly on "precedent" in :fioug'hJy gO percent 0 ,- deel stons, more than 3'l:ly o,'t:he:r means of ,d~ternll ining till e law) ..

15. August ReiinIscb~ Tile Rol" of Precedent [rr ICSll) ,A,,.biit:,aliol~,! 2008 ,AUSTR.IA'N ARB. v B 49' 11<:' 5~1[}'1

;1[ '. • ',J'II ' .•

2011.]

A- r P'L' 'Yl' N' G'- TH' - 'E EN"'G" . LlS'-'H R U' LE

r ' .' , ...... " :. ," ,.[ ... I .... ~,-: : .. _.' . ,'. " '. .. ~ :···"1" ,': I' ;" : '., ." ." I' •. ~·:·:.I '. .', '.:" I,:" .,'. . I'·' .

host ~·t!Q1 ·e·· I." d om estic . '9'{W- rnl~ '~':'g'I' neral P rin ciples 10" f' 'Ia'-"'w 'GIS, recr ··go':z·' d '-by"

=' .. 0;:111_ oJI' a, _I ", _, .. _ .. ",,!!Ii;,;.o,g!I~. ,!'i;,.o ,,~)_, _ ., •. - _ ·v ~ .. , .' I . .11.11. , ".11 . ~ :.._- '_ '.', ,~_ . !{J!L-, .... ' ._._-' ,--" I'~_, . __ .-.

civilized nations --17' and the te '. ts of investment treaties and other e'x

a· , - te a-~ g~lre-'~m~'-- mts 18 Th" -~IO:-fUI,ah-'~" the '~I. -. ':8',:0:U' r-r' S··.· 1'-10'- '-. not necessarily require

,-__:,_ .' _" ., :.._"""'~~ _' !_'~~o; ,_"_,. ',' ,10' '---, '."~'. r.· ~ "'\..;r _,' I __ , .', " ". ,1--" " ""''i;".< _,~ ~,., ~~ , .... :__ .' ~ ,".,:__

tribunals to apply tb,e English rule, they provide substantial S'UPIPO:rt for its appliea tion ~

Finally Part IV' presents public policy justifications for applying

the E·_- i ,,:II"',·_-'h rr '~k::, C'" .'-, 'I: id '."1-1' iti . '( 1,.-, . "If " .;11. 'b·J·' '" ,- .'. '~~ ' •. '." :f- .'.\- .- 'j . th ,- ... '1:.1 ".' ':

.e , ng!~ ,8, ru~e," ., onst .e,[,8 [O.ns 0 ,pu - l~C ,POJlllCY requ.en, ,_ ,P,l,aty ,3

- I-I .. , h d- ,",., k ~ - f--'~ . n _. - . , '" b - '-I-!' Ad"

- - ..... , " '. ' ,.. . "I .. -... .. i-I ", . ,- ,- .',. ,'.' 'f , . ,- --,' . 'I ' ._'. '- I" '.', ._' ',' -- .' I' 'I" . - ,'. , .,' .... --, .

ro e m tne '.' ecismnma nng iO, investor ... state, tnt una s. ··,-.··.C,8,·· ennc

com m .' n tarie »-Incl uding pro .. IP---:O----: sais enco urasin g.' tribunals to ap ply

~I .. " ~_!.!!!!!![ _.,_ . ...:,_0_ ,:..._:, '~ .. I·... . ,;V I ~ JJ.~ .~'_, .:....:.. ',~ "." .. '. gl·,. _~ 1.._ ... 1 ~.", .. ~_ l"-'I~I __ ,'" .:. "_,,,', . __ , ,[~,J.", _ .... ', ~.,. [ ll~''''

the American rule or the pro-claimant rule-soften have the same emph asis ~() A~ ft er reex amining the fin ancia in centive ~ that these tw '0'

_ ~ ~ _ .' '., I·· .. : .,jj:J.I),(lili!l .' .~.~ . _ .. 1. .:..._" •. ~ • ':_. '_, l .~ ._ .Jl "JL _ .~. :'. . , .. I .. ~, . J __ ' :: :.II.I.Jl,~.1I1.-:_~ _,.; til "I 1 •• _: ~. , •. _. Il ' :i) 1 .. ~_ IL . l .. -. ~I... .' ", .'. r: I

ru j5!;!t.'" create h owever this 'N"j ote lemonstrates th i'Jii'. both th ~, Am' eriean r 1,1~,d! create. -_ 1- '. ·· ... ',-',r'~IIL:·~,',< -e I,_ ,~ I. ,-.-:' . 1,1' .d r 1!1~~, . U 1),11' U II~ ....". 1,1''- I"',

rule and. "he pro-c aimant rule exacerbate the most commonly i dentifi ed causes of the backlash against ~ nvestor-stat ':_ arbitratio n ~ Therefore beeau se the contin '-ue"'d"- application Q" f ':f.'h·e Am: nerica n r ule or

.. =1""",,--, .• ,.',.,1, ',,-"~,-I, ""","y. ";;:"" ..e •. _ '\;.,o,_ ... _oIL, ... ':__I:e;, 'U-·.', _ ,'.'_ ,I.~, .... , '_ II.. .. " , ",I,--.,I".:__" _ .. "~ ,l:, '- ,',

t- h ,_-.,--. :-. . -.11 . ,~, _ .. - . nt -,- '11·. ,- lid' be h --. I: I t .'. th . ' .. '.-.' . .,) -, '. "' b 'il" !!!! t " "f'

_ .e pro-tC,J"Blman. rU,Jle, W1oUJ, ··"e , ,tlrmJLU" 01 l, Ie, o.ngo,]n,g \',],8.·.·· .y 0

i' __ ,flo ." .' ··t ''iF rbit . ti -.' ,-,'" b , '-" ~I . t, - '-d'- ,,-.- .. -. tlu "', dir - .-.,If;,~ " . "ii- .. -.'.

mvestor-s a re art ura ],0 1,f~,'U,[],a~.s ,s'~110U, '., use l __ eir znscrenon '1l.10

,8, .iplly' the English rule.

The investor-state arbi ration system is a network of approximately three thousand bilateral and multilateral investment treaties that first emerged '~n 19157' and 'prlolifi_:rateld £',3,p'l,dly from 191,801 tlo 2001~,2" To, Americans, the most famous of ,- hese investment treaties is probably the North, American Free Trade Agreement (N'AFf A)21_, hough NA'FT A is, better known in the context of' the free trad - debate, In addition fo creating 18 'br'I08Id framework ror

1 '6.. See infrtl Part I:~ LJB,. 1'7., See i"~ff(J Part EIl.C. mEt See iJ~f"ra Part ~I l.,A.

mgl. Se.e;I:a!l.u;b,a~,d~ sl!~prQ note m4,~ at 356 l(demolQ;straing em:pwrii,lcaHy that ru[:l'vest'or~.s~,al:e ~'r~burnlalsl re,'lly tOn p.' bUc po: icy Oli "~:Feason,able 'r'esul:~sJ' in jiUJS~ L'i.nd,er' 410 :percel1i'~: Ol~' d~ch;,~,oim:s)~

20., Se,e" ie~8.'!! <,ebiliU!, St~P'M I1Nlt-' 161~ ,a~ 690=91 (;al'lrglldrng nfl,at Uu,:, 'pro-cl~iman 'rlJ[e 'wou.l!d. hlcenttivize COmpUBl1Ce wi'~h j,nternmli,ona iuvestJnent ~,a,w)~, G,o~and,a,~ sil,p'ra m,t)te 61, at 17·- '18 (.argu~Dg that t:he consist,ent a.pp~ kat ion of the A:nlerican ru~e wou. d ru n1proive p,:red ictabru litty).

21 ~ U:fIl.ruted NIt w<llns Conference ,on - rad.e ,&" 'D,ev,.! Wo'rld In vestlrnlEl1. t ,Report 20(}6: ,FD I /101n

,D',ftrw,e{(jpl'tlg Q,n'(} TransUi(),n ,Ec{),n'o'1~'J,i'es:' ,llnp'licar'ions iv,' Devel{oIJI11:ftf,,,t', 28 [i g. I., 14 ~ '~). N'~ 'D'oc~ UN'CI".ADI: _ ~ RJ2JOO6 C2JOO6).,

2'2~ 'orl h Amer.i,ca.n Pr,ee Tr,ade Agr.eemeIilt~ U .S~&'Can. & Je.x~~ De£~ IIi :~ g~ 2" 32 l,:L.·~, . 28'9

I( 199.3).,

19._18 .. :' . .<2.'.

_", I" . .:....1 ,"

DU····K· ... /E- L' A' 'W':' ···:· .. J .. O····IU .. R······'·'A··· L·

. ,_' . - ,', . _','., .: ,_. ,', .... ',_', " '.':_,_ . ,., "I _'

. V·:·:··· ·o;~ 16·····01:·,19'17.··7·:

. . .~,,1Ii _ -,_ ,I, . . I

1,., Substantive Riehts and Protections. Most investment treaties

,10

con - ain a sta ndarc , set ot substantive protections for '(;01 reign investors

including :'1 ~oltJelct~,oln from expropriation, protection from

d ~ !' ~ d f f' ~ d ~ '-b~

ls'cr.lmlD,ar-'o:ry treatment. an a guarantee 0,.' rair 8:DI_ equita ne

treatment," American writers have frequently compared these treaty protections 'to the Fifth and Fourteenth Amendments' restraints 0:0

~-:V.-j"- - .- .. ,'-- t ,~' 11:'- :~' .(., iO, • -1--.11'1 ,t ,~. ". ~ fl ,-- .. (--." .. : - - i - .'" 1-::' ,.,, ,~. t ~ 1::-' - --.. '.', .. '; - - '1]1.-:-::::\ the

go _ ernm,en, a,c ~,O.n.,. pro_ec_ ~,on, "ra.m, e.x.,proprl3_Ion r _ se.m, Jl_ s __ .=_

Takings Clause 27 protection from discriminatory treatment resembles

the EI'-I,-:-'~I,\-" 1~,··t'''I··· - I ~'. -,-~. 'Z~ ). "d-:- I~~--·. '~I_·";""·-.i:.· . ··f:- f--'- ",_, '.'" d ""1 uitable

. e . qua~. ro eel ton '. Jlia1lJ,8~, ,a,n,. ,gulara.n~le:_s O,,81l an!., ,equlL8[

treatment resemble elements of the Due Process .••. la,use~,l~ These

21. Sell G uw llermo ,Ag,uila'm" A '\~ar,el & 'W'iUJam W ~ Park", 1:ltE '.'~ e W ,PtJ'Cf' (Jfl'lv,esl~'l:'ie'nt ,A Ftbifrnfion:' '-,_ At FTA C/!tJplre'r JJ'.. 2" Y A ikE J~ r: T" L t, 3165! :365 (2iQ~)3)1 f'J n 1. 994 '~be' 'o[ah A'Jne'!fWiCaffl Free Trade Agreement I( N AFr A) entered rn 11 to ~o[foe~ brmgrun\g, W~'I. 1] rut. ,21 n ,adj udi.cato:ry regime that gives investors the right 'h) require arbitration. of disputes arlslng Oll~ of iavestments in another mem ber country 'in conneetlee 'with matters sueh as e:x:prop'r'm,a,:ticHl, d iscri l1'n~:Il a t ion, ,iI nd unfai r tre at ment.' (fo otnote omi ~ted»)..

24,. Schl1w,ebe~~ 311.p'.rfji note I. a', 2,16c'. 25.. u. SJ't, 267,.

2!6.. See; e. g, .. ! Di~rv'·d Sclimeide.nfi,an,. .1,r v,e:s.fr,ftfe~~ I' R'ldes al~'d t,he New COI!!:Stif,riu,{o/~,(,'r~",~·,. 25 LAW' '& SOC~ :r·O,UIR.Y '157,767 (2.0 0)1 (describing the, ~'·r~,gjn1.,e 0'£ investment m"1lIJ1,es'n .a:~ the, heart (]f Ute new' ~~co"[1sdtut~onaln order).

27,. See e.g.~ 'Vlckrn, Been 1& Joel IC. Beauvais, The Global Fi/lh' A,m;ej.'l,lJm,enl:'? .NA,.FTA ~s I'H"es.IJ'nen!i' Protectkms OJnd the M'is:;t:~i.aed Ques't fo',,. .tU~' .1;1 I'{!rn',a tio IlJ (1/' hIRtt.r,~lloIO'Y Tak""'g'S ,~, Docmne. 78 .- \ y',.U., L, REv ~ ]O,~ 59-' ~6 (200[]) (e:x:aJ'[ifBJ'j niim.g, Ute. [f~~~~lnionsbip' between the, -,' . .- . · ,'It tribunals' deciisj,on~ ,on expropriation C'~:il~lms; ,and U',Oj domestic h~J~f ,on !~'"re,g,ula.'t.o,ry takings"); Edwurd J. Sullivan &: Keny D .. Connor, ,M;{:,kir.;i~g tl~lft ,Cor:l,tinenf Sate fer lnv. 'Slor~ . A,FTA l(Jn'~' tIle: T:akln,gs CIQ~(,.'1f of the ,Fifth A J'1 (t,f'ulnl en t tJ/'the An'zeriCUll. COJUtitlllio'll- 36 URB., LA·W,. '99i-, 100- 0(2 (2004) (s ame],

28~ See, e.,g .• , Vrucki Been NA:PTA 's .11~'l)eslme.nl P"'O'''t'C~'lons 6'fI,d the Dlill'i~'i(Jn (Jf.A~d'horil, lor . (J'nd Use and' ,·I'I~i'OI'!',"'II,e'n.I'~I,t C(Ji~i'rD,I""~,, 20 PACE' -·TIL. ,L., REv., 'lli91~ 23 (2002) (Colupllrr,ing ~'i[I]J'tlesnO(f proteet iOrFJ'S:~j' to 'I' the .S, Cons 'l.~ ution 's EI_,I ual Protect i!l)tlll ,~llnd .P'l~·vile:ges and I: mmunit ies Clause s"),

2'9,. The '[~j'ir and equitable ~n~'· tment standard mcludes a guarantee ie provide tnvesters Wl'~'h due process, of ~ aw i n admnrissrative and j udicial proceedings, A seoofald maJor comp onent

20 1]

treaty benefits, however, ar ~ DID' ,. made available 'to leV'er_' one=only to, foreign investors from other treaty slates, and only in. disputes arising from foreign investment, Neither the host state's nationals noi the

- ,-- ,'iP-. _" - ,t, ' - ~ f -, ~,~ ,~,'" '-' - - ' --- , JO

average roreign rounsts ' ece ve snnnar assurances,

2,,, Binding Dispute Resolution: B,Y acceding 'to a'D investment treaty, a state gives ex ante ICO'DSlen·t '(01 bii ding a.r'b'i, ration of any investor's claim that arises trom the state's 'breach of the treaty's substan ive protections, Investors bring their claims against host state governments 'before, tribunals of neutral arbitra ors, selected either 'by an appointing authority such as the International Centre for Settlement of Investment Di outes (lc_ _ ID) 'O':£' ad hoc by tae parties , h emselve C!! J~ 'I nl ik e most '~II ~ ,t' ! ga ,t !i! on- un d er ;; n"'- ern· ati 0 n '>eill 11 aw P' ri '!IlIa t e

- ··1-.1: dyllio#dl'" ' .. - JL,Jl',.' : nose ~~I .. :m,=-"uIL"·._' 'I'.' ~ ~ '11 . .11.', ·!Ul'~,i a 1,'1.:" :~=l~'_ ,I

investors can initiate investor ... state arbitration without the need, for any Ie-03': 1 0- "r' dip 0" marie a ctio m by their hom 'e st ates' so ve "r"n'- m ents )~,

'-11.-1.,_' ,,:,~_. ,_,', ,.II. "- .. ,. £1,1·· '_ """,,, ,,_,,:, , -":: ..' . .1:. ",,:, I" ',,: ~"", .... (J' C" "-,,, , . ,,:' I "~~

For example, in .PSE'G Global Inc. v, Republic of ~ttrk,ey11 an American power P ant developer brought its claim directly against the "u: - .. ' cish government '-;o( ncgligentlj tailing t.IO ,., sclose 'key

information during the implementation 10" a, power plant project," '~ he 'U~.'S~ ,golver.nmen, dld D'O'( intervene or have any role in the dispute, The parties=-the power plant developer and the Turkish governmem jointly appointed a, tribunal of three arbitrators pursuant ' 10 tbe 'ICSID' ,3. ~b'i:tr,a.tioln provisions 'of a bilateral investment 'I"r- eaty b etwe 'n- th e Uni t- ed S· ,-, tate "C! an d T' urk ~'U' .15 The rib nm '8'

__ . ~b._ ,~, _,' "> ' I ,,1-:- " .. ' ,I,'-J,~lllI.dJ.J, dl ,eI, I, , ' , !~, . IV,)' ,I, .111. ,I __ ' ,,_I.

ultimately found tba·t,'urkey"s fa ilure to disclose certain key

in form '8- "'t' '0-' .n con stitu It,Qd 3' ,- re 'a" c--·[u... of ,,- 'he ','e~ fair "",8," nd-eq U' 'J! tabl A, •• ,:iI' rea '. m , te nt

.1111'"'-,, ,_,I!. ,_, ~,';;J! .ll -'- _'!i;,.o:_-, ,-,-_, ,,' :__'.::c,,:__,ll. ',', .', .-,'_ ' , __ ,., " ",.I!.'Q,-~,!!!i..O ILulI..,1 '.,

of 'I be st',and,ard~ ruJIm,e~ at!ed, Ito due process of ,3'l-;V ~ j'lllcllUJde-¥, 't he prIDt~c~ion. IO,~' i [i1V'es:tO!Ni." ~£,~'~i.ma,te expeetations at the '[ lme the i nV~SII meat 'was :n])8),de.. lI"he;~h.,er cn::a:fed 'b,Y 'co.lnl~r3JCnu,aJ

a - -,;'!i,. ageme ',ni'Io't""_ [-I oHii g .. ,~~]- ~'I"~''V'!~, .... om , mitments, 0' ,'r specific assursn "'~'I?~ Fo.r .8 SUD1!marv and analvsis of

aflron . n, 1111 .. .;;), '" iii,", nLl ~ Ii;;r VV. UJ _ ""'U"'"";!l ..;II - - ,~ _ . .;JI - -- """~~- - ---- -] --~-~- ----- .J

rhe jurisprudence ~n 'Ihws area, see Rudolf Delzer, Fair and EQ'uitalde Treatmens: . .4 Kit)! Standard i" Investmen: Treaties. 39lNT'iL LAW. 8i-, 9~106, (2.005)1,

30., ,S ee gtuu!:r:ally Juli an Da vis Miorl ens on s The .M,e,(J'I~ in,g of jf, I" WtSI1fU!!f1t I ': 1 CS 1 D 's T'F3,VtaJU.X It:I:,l;d tbe nOl~~'ai.'i' of,lftl:I'er.nal:'lo.na,I.ll1r11e£,tr,n'e'Jf LdH ,! 5l HAR.'\I" I'N "~l L .. l257 (20:~,O) (descllibw~n,g the It~31d,i'tiiona:llJI:y narr OW' scope ol.f t he terms c ~'D_ ester" and ~ 'invest ment" as ,a~'p.~i,ed in ~'nle:r:n,ati~)nal tinvestulen'l: ~,al;Y a nd tplliese.:lt't~ ng ,Blrg,Mmle:n ts :for bre ademlru ml,g those dJeu.m,'foDs)"

st. Schwebel, S.'i,,~p'rQ Dote i, at 2,6'7. 32., u.

33. PS,E'G Globel Inc" v. Republic of Turkey, .[,c-s]:n Case :N'o., .ARBf02}fl)~, Award (Jan. 1.9', 20(1)... hUp:lJicsi d" wOlr:1 dbank .o:rgfl CS IDtFrontServlet?rleq IJcsfType~ICa5e':d;~,H&,a,t~i(l'J1l Val=sho,w' Doc&:docmd;;;;;; D .. ·J630~Eflhif(caseld:=C2l2.,

34. la", '2~6-l56~

35. ,l'~ffi' 2.,

DU' KE LAWJ'O'--' U·· -R-~"N-- 'AL

'. . .·'1::: ,., i ' ..... I'," "

.' 'c'__ _-' _' - '-" __ I~_:- . - , . .- '. -. :_-'-,_ '_'~.~ '.

'''''V, '. r , '~- 6'_---' O· ~'9·'7· 7

',-' I I] ~ .

0, "ii :..: _'~, '---',~ ~

standard of this investm .nt treaty 36 and it awarded compensation 'to, the power plant developer," Simila:r:-y-, in Cesk,os'lo'v!t'n.'Sk'Q' Obchodni

B k A·-, S'l'- k: R" bti 38 'C"-' h .- __ .. -_. '~' ~ b -- k -

,'I,:! .' .... ,1 ,'°1 "." .J •.••. , .. "I"I}" .. _ .... ,.". I '"j .. · .. 1 t' -:."'1····_· _"""1'" _. " ~·.'t. "Il-:] / .. '.' ", ~'I

an", a "",,1,., V",I,lo~!a "~pU'I,,lC ,I .... - zee I c~omm.e,I'IC~,1 ,a,D" WOD, ,at

c aim directly against tl e SEOiV3,k govemment for its failure (:01 repay ,I loan." There too, 'the I zech government ihad no role in the

P'r-'-Io' ceed ing .. ·, which rem ained th e"- claim an t's 'to' -', 'pc'I'u' rsue f-' rom initia .. uion

.. ·.V!i;;,;;o,· ... ",_, ' .. " ,,11." I", " .. 1,1,(;1,,,11,, .,~, I!. , .. ,. ,ULIL ... 'itl, ,_ Ii:l' .' .' -, I~ ... '\;;;i , 'C'", ,.Ii,.Jl .. ,1,- ,

tOI conclusion,

,A' tel' arbitration has concluded, ,8, successful claimant ,- 'I,y

f - h t ~ b '1'- d '"'.. '-h h .a . .- -, - d'

..•... -., ," .-. ,", I. -. ,-- -.r- 1-'[1 '(- -.,--,-,- --I' I'," "]1 I! - ~I~ I -, - ..•.•. -'j '1','[ .- -:- . ,", .'.' -1-'[ -'1 • I .,1- .. ·.·

len, lorce tne _rl _c' .. U,D,SL ' ,s, ,8 w,a:rl'_, against t .. ~,_' , =IOS~, states assets run.· er ORle

of two mu tilateral trea ies=the Convention on the .<e,eolgnition and

E' 'f --c.' - -'.~ ." .- '.' ,- t, . f'" For --/1::';-' A··-····, ·-b·-·:i'·l· 'al A·-·-·· ".". -'~':---'" ~'d"-!'" (-'-·N:··· '-:".:: y '-.---:. --k-'" 'C- .. - :--c " ' . .' , .:.,'" ,-- ) 4U

_D ,orcemen_, 0 __ ' __ orel,gn, :-rlr,a~ "w;ar,- S .... ". ew ol.r, ... ··onvle.n,ll.lO,D .

or tbe Convention 'O'D the Settlement o:f Investment Disputes Between States and '<' ationals 0'- Other States (W'a.s. dngton

Conventionj'l=in the domestic courts If any nation that is party to

th . t'" 412 E- . f" th bi t'" d ,0;

tnose convent lon,s".:n orcemen 10'1 tnese ar :I.~, ra ion aware S I.S

- 0 -,~ d - d ~,', ,g,- t - - at .' ",43 ,- - - - - - - -I- - 1 - - t- id th -

IC'DSl- ereo "automanc '. ecause OO'U, .ts may omy set asioe tnese

awards O'D very narrow grounds such as fraud, corruption or 'Ut£J'18, vires acti on Ion the part 0: -- the arbi rater .. 4~

.361,. ,/d .. 1] 1] 24-&=·256~ ,3"1 . .Id~ :I~ 90..

'"

38. Ceskeslovenska Obchodni Banka .A~S. v, Slovak Republic, lc~:n:D Case No, A:R1B/91J'/4,~

Award (Dec,. 29,! 2t()Q4)~ u I CS:I D Rep, ~ 81 (2008).

391", 1:(..1.. 1 223.

40., IC'Ofl1VemUon on the :RJBcognrul,li(r.n and, Enforcement -0,:[:_ 'on~ign Arbitral ,A'\ ards, June - 0- 11958, 2] UlOS,.,T~ 2::.Sa,'- :330 U';, ,:~'~T~:St 31,~- ereinatter 'N',ew YOilk ICo.Dvlenfo.n].

4l" Convention on the Seulemeat ,of :['oves.tment. Dispu,~,e;s, Between S.'lates and ,'atioD~ds o,f Other States, op',e'rutd lot' J;ignatUf'E Ma,r. m8~, 'm,965~ 17 U'.:$;.,'T .. 1.210~ 575 U,,'< '~T .. S~ "15'9' [bereinafter WashIngton Convent ~ on],

42., Under t.he Washington Convention, ,3, state bind8 ruts, domestic, ccurCs to enforce awards rendered by ~'CS:~D~app-o~'m.~ed tribunals, aga:runsi[: respondent states' assets 'within its jl!1cisdw,c~'ion", S;~'m:Uarl'~l .. under '[hie N,ew' Y,odt IC'olJ"',eo'l:i,;onl, a state binds, ~'f;s, dorllD,e'sUc COU'Ii~S 'i,o! ,en'f~)tfce 1,100- ~:ICS'ID tre a~y 11''''',H[ids, rendered blf ,adl hoc trii.'bUD.9Jls. The convent mODS are r,a~ i'filed by oeer '~50 states each .. See ICHRISTOPH'ER F~ DGAN,~ Do, WA:LLACE~ JR. .. ! NO'AH RU.BU4S, '& B,ORZU SA'BA'Hl~ l'Nv ·ST'OR .. SV,ATE AR'B,ITRAT[ION 6,",5-700 1(2008) (describing the rn,nves~'ment law enforcement mec hanism).

,43., Christoph Sehreaer, Tl~If!' WClrltl B'lj,~j!kJ:/'CSID D,i-spl~t:e Sett'i'e"uJ:Tu ,PI':o cedures ", in

S''Ce - E iiii.!II 1!71~;i:'iiF' 0'-';:; 'I'lilf" I!,)," '~c ]'d' T· -.~ v T\w". 'E:'- TV III' - ''!f:U- 5-1fii CO '1- t iN.j',: L 'il if' ... Ji!!'-:.. -M' .' -Z'" .AI

,~ , -,~:¥IIIIDllf:;" ,W ,1'",1I~r.'U ,II ,.G.o:], Ji':;" ftAW, K£A.: ,LA,w ", .~I,., ~'C' '!I;,!v"u'C'm,ae,1 .I6-i1iMllg J~ 1_. ano , uger eus.".

1002) (L' The ['~ ashw:n,~lton], COJ] wC'I1'li.on ofEers, ,8 systenn of ,automll.'ti,c' e~~orcemen'[ UU~"( is, DO't subject '~O' lany re'll1 £\V o,r the -'ll'w,8r1di tal't the sn:a,g:e of' enforcement, !i!] •

,44,. Shelby R. Grubbs & Esther R" 'DeCa;mbr,a~ Ut,j'led s."a.res" i", ' NT-=RNAT~ONAL C]V1L P,RO C.ED U RE 78 m. 801 (Shelby 'R. G ru bbs ed., 2003) .

985

I. .199,: to' 2'0'07:' DIV rwhelming Prais .. : Although these '1- 01 complementary obligations unavoidably restrict states' freedom of ac ion in dealing wi .h foreig -' investors, states were for several decades qui e willing tlO I mdertake these obligations '-".y -~tifyin,g, it "'I~'S,i ment tr ati .. :8".! Durins J-.I~· 19'90ts, as the D'U" bl. .' f effer .:I~v·.

'~'f1-1 ve st me ·IO··t·_ tr .. : ... _ tie .'.: to,-'!. ·W·.· in to the thous a n ds .·s inte .. r-n-- 8't- ;11,' loa. 11 a'· 'W,'"

!I!..1 .lJ '.. ~I_ .IL.lIL I .o~ '. .. 'ii. . _._ .. _ /)., , ~I, I .c_. __ •. .IIi '.'. I ·.1 ,'_.,

scho ars reacted eup aorically, They called the investor-state arbitration system "a revolu .ion, 46, a " .ransformation, ,47 and a "sea.

- ,- 018 (. OJ .' .. helminz' ,~9 d 'j .

change, ts merits WI~,'~':_ "Iov',erw' .,e min.; '. . ao ... l._S ··ucces.s was

:, I.: n .. itigated.?" After r .. :.,1 .ieth-century e··,:p .. er enlce:,: with the

1011 ler'na~' ional I I ··U ·t· •. · fl.· J_. ·UI. sti 11•• . _:b'I, . , .. -, . -I-r-'-g:-:-' 'D'c'e' of .' h-)'·,·· -·e'·-·- and

• .•• ]' II":' __ .lL .'__.' ~ '_'_lll ',' ..... 1__ " _ _ I .' 1",." ':__.I, I • J ..••. I, • ..... ',-. -. • 'I ",....:_._ . r J.,'.

I .-='(e'ctive international legal proc ·:·:"S W'3S a si tificam change. Sinceit founding seventy years :~ .. '0 the IiCJ lu I' decided tewe :~'a. . .50 cases" and I as awarded n onetary damages only ono ~Il~in its very first case." That award was paid in full, out no until fifty ... ~. ven years

'.5... n~~ ~dl '"aJ'tlrQ S onier,enCB • _II!] Trade '& Dev, ,l~p,.a I1.01.e 2']. ;a.l 26-29'_

,46i. Joe] I.:". 'B, auvais Student Artwc~' .. Regu,la'.tof1' .EJtproprltllion.'., Under NA FT A" .. mer:ging' Prin'c'ip,les'" Lin A£.·"if~.B' Doubts, 10 N.·Y.U,. ENVTL .. L.'-'~ 245. .. 25,3 1(2,001) (describing tbe conventiona ru wis om that "'[ t [he [' i~ atera ~ investment tr eaty] revol unon has b~ _ n aecompenied by . , .. , an explesion in capital imports ~: . :'-1 veloping countri ') ..

-1~ Je5W I· .' Sslacuse TI, Tre,fltifi,ca'lion o.f J,j'l,fnmall,ou,d In. es.rf',lii'en" - Q~iV.I 13 LA.W &

'Bus- R w.. <_~, 1<:)-, U)3· 1(2001) 1(-' ':,'C _ al.ure a -.d sourees ot wlfl~ernat-ion,al L_,·-'_·,lm .. D'1 ~,a'li' 'have undergo 'JC·8 si, ~8,c· nt ~aJrnsform IU. 'n in a '._·bui:,·e:~.y,h'o[t time,' ).,

48., Ian .". Laird. .A. Conrn,_,~:t"ill oJ' De' tiny- The Barcelona Traction C« e a-,!,d the.

Developm en f ,of Shareholder ,R (g/~ IS to B'.ring In vestlne,n:l.· Cl'aims:~ in I NT7' -aN ATIONA'L I ::VESTh1E-', .~W AN-D ARBl_'RAT10N:: '1\])[.0. ··_A,: .': fR'OM TN. 1;:10, N'AFT,ABl.1I RAID... r R.~A j- ts A, D CI srou r . RY 1-·.1 ra RN,,1r1l0 ' AL LAlV 71 9> _ (Todd Weiler ed, 2(05) (obs erying that. ,!~ W. ~ th respect h" · nl rnat ion.al in estment ;'I11'·.'t rUlments, tb f' . il no doubt .: h Bit ~,e '.' has be - ,a,'3J change 3'1,_3' ,- fro - - ~I.lfevm,ous inter _'_:~li na .~;alt.· .•

49 .. Seh· ebel 'upfa note 'I ,·,'t ~61 fThe merits, o,f 'lbW]"1ie'ral :'w:v:-~tm .nt treatles are

s ubstantial i Q ~- e . d ,I o verw he~mg .. ~),

50,. Thomas 'W~ Walde~ Impr-ov'.ill' the Me.chQ'n.i;,'rl!' .. ·: [or , r.e-a,tY' Negotiatio'l and Investment Dispure '" Co,mp:t'it,ion and Choice a. In Path to ,Q,[Ul>Uty l(lna Le'glriJ1ulcy. 117 Y'I - AlmO'OK ON

m:N. 'R ". " . ,1".10;_ A_ "N' .1::0.5 - ... .c .; .' T.A W &, POILI.CY. supra note ,1, at SOtS I 50.:. (caUing "the

uaexpeeted .~uwp.~d and 'CXle.Rsi.·e de.lopment. of invest.m,_nt arbtt ation . 1.,e'F '[be, past ·_I·fh~.·m, ·).fea[s . an Lumi'milgcl d success ).,

5r]~ See ,Ad~i~o,y' Proceedieg '~ 1-' ". : '_'. OiF Jus. ,'" bU :1I\Y\\-fW~,icj=c"~j.o·r_ d eke' . ·de·x.p,b_p? pl-3&p2.-4 ( ast v~swted Nov. 24. 20mO) (listing twenty-six advisory opinions issued since 1.'947);, Comentious :. ase«, :INT-L cr~ OF JUS' .. , u:p~lIwww,icj-cij.,· rgldockctlindex.php?pl:3&p2::::3 (last visited <·av. 24, 2010) Jis,'ti"-ng 122 contentious cases decld d si ice 1.947)~

52,. s« C, rfu' hanne] (U.K~ '_'. ,-1b.)I~ 1949 I C .. J'~ 244" 250 (Dec, m.5)1 (,awlrdin.g damages, to Uu;.~: U.R~t!e~ K~jjl, - don1. for damag!_ dr ne . '0 one 0:' U., I .. els (liom a mi'De6_ -d bOI ,Alb.miaD wa.'ler.s }1m

5:.3. CHES,- ~' BRO'\! I" A rCOII' '1_' tAW OI'f'INTER. 1,0,'· AL ADlU.ElW·. A III 1,9~: (2{J~Ji'j'.

9· 6"

, ,.

( .... ) ••• 1

after the ruli -',[,_ ~,SA The 1·.J bas .not-~wa-r,ded. da ,8.,g:S, since, By on rasi in investor-state arbit at! on " claims are heard, damages are ~_ -, arded a: id awards a e enrorc '.~ !:- ~ S'~ nee ~ 19~-·'81 in estc 'I'~ .... 'i tate t .ibunals

have decid. d [I ore than S- c '_,i es," aware ing damag - '-, in ole. rly hi lf of t 1.·em,,56 T-:·-· :-,0 awards ar ~.' paic in. full in an estimate .. :' 90 percent 0['-'

cases," At the time of writing, more thar 100: iew disputes 'W·-.·, .' , =.- HI ~ - ing. 5g

2~, .·,rO,H! 2'1007 to' the Present: Signs of Backlash; Since 20017', , towev r the systen ha :,J suffered a cri : . .1,'" of confid ence sugge sting 'that states interests a-.:' not -.1 ing adequately nrotected under internatio ra investmen t law, A, Oc' nall but growing numbe r of national over nents have begun to reject and denounce investor-state arbitration "'-'I':~n[g . ith their feet .•• nd leaving the system.?" Fir example, Bolivia withdrew from the Washington Convention." Ecuador termina ed nine of Its investment treatie ",.61 he Russia' Federation withdrew from, th .. mul ilat .. eral Energy t ha rter Treaty,"

:5 , ~ Laureneet ,,'. ,," aher Hiatt f' Ju Belween ~. r ,(J',lrl Peace: Herber: Vtr:, .~ 'va'"t, [titl ' R&d of Inter.nafional' L"w, GIld the Corfu Channel Case, 9 Au ,TRA - fAN 1. LE'uAL' nsr, 47' 80 (2005).

55. .L is t: of Concluded Cases, NT' iC,ENTR,E fOR:,ETILEM NT OF l'·:v~ D[]$ U1ES httf)':1l icsid.wortdbank.org j foUo.w 'Cases" b'yp~'rHnk:; th n f,!~llo\v " ',is1. ,f,-a, ~. ~ hyperlink: then fo]~o'w "Concluded .. - ases h,er1wnk) .13JS~ vis,ited 'Nov. 2·· .20U).·· (],i'St~ng, 171 . ase decided in· e 1:·: )!

56~ See Susan D,. Franck, mpi"~c(dl, ,E~al:~ul'i'l, 'Ila'til'l-?s Abar~'f In'JtI'es,'I,nu!'I,U Treat» ,A"rb,itrafio1tt ',0:.-. .: . RE ,. L 04'9 (2007) "surveying fij' ~y-two i svestcr-state rbltral aWiu'di me f nd i,ng that i It vestors had won eompen S ation ~n .38.5 p~ rcen t of ~ hem),

57. DU!GAN 'E'" AL., supra note 4,21 ,a~ !615 n.l,

58,. list.' of P~-n.d;n:g Cases. 1:_ ' -,',ernE, F, IR -I ' 1~,LE 'JE [OF 1':-·' '. :Oll,;P' - - '~-S~ bttp=1J

:i,csrud.'w,or~dbaflt.Jn'li, (~o 10' "Case 'l' l(pediinl{,·' Ihe: _ S s" , yperlm[ ~ ~h_n

:~onO\ . P!ending!' IIS_S' h.yperfnk) lb~··~' ',bd"ed .. ::'o'v~ 24~ 2(10). This 6, ur .docs nOil 'inchade n.I11,·' 'Ies _ treat' ,ctim, pe nding b ~'fOF non- ~[:. S. DI tri unals,

S9, Mk~h,a, = 1 'Wat' ,e~ Ashe K, usha OJ Kyo-Hwa Lnz .'. h _ ng &. C air, :___','-Jchin- The ,B,ack/a,'he

Agains,~' Investmen; Arbitl:aS'ion'" Perceptions tllu;i ,RealUy in 'TH BAKLASH ,Ai(j-'·r.·· ,T

I· VEs.Th1:E~: _ ,A'RW-RA: , 0 . , ';!',lplra' nO"I, - 2~ . t IXX vi i. xlii,

,I, ,Pres.', RJ-'ilS" lOll. 1 - entr 'r. Settlement of br ,iSP1UB.:S" :',oH jal Su'mi~' a' Q"UC~

'. Jnder .Ar ic~e 71f th llCS," .'! Co[n'~ entioa ( -r fa:y 16 .. 27) ,t! oila[, It til ht,p;Jli.:. id.,: urtdbank ~ or,g"~'ICSlilFr-:-'lnJ ~ .• -. ~e ~'?"[eq,lle" ,_ . ype = Ca ses -. ., & aClk~n Va ~=OpenPaige ~.' P,a,le Typ :,- '~Ann[ounlc 1.,me.n'rsPm"ame:·· - ro Pag[e~ .•.. ,ewsR[ _ t~a: '. '5.1 .. pageN ame-, ..... · nou ncementa I( ann eunci ng BoH v la s I ffc~a~ y./thd-rawa~ trom the Washington :. onvention],

[61. Lu ke Eric fie terson Ecuador Will Denounce {u ,Lensl Nine B iial,e ral ln veS'lnzenl Treaties.

I_:VE';TM':ENT TR -A~' N':EWS (P,.Ib. S, 2008l~ hup:Hww\'YJos- .lolfgl'pdfJ20ll/~~n._,felbS=200·:.p,r ,(de.'crihiog, Eeuad if' : j'[,hdr,a~"al from ,ait least ine h,\' _sm'mem:t r _ '~_'Iwi '. ~·[[,a.lmidl gru\.in', '. -Ii' 'con'ten'n :amOQ( ,It Sou~'h An] _ rican'_ "O'f. 'mme [t'·~~jllliJ U\e ::y -~em Oi int -rn tional in ." tme'llll pre :ect ion" )I~

162. Franc ~ see AJ - . ert & ,R' bert :R.othkopf'- ,R'ts~7i,Q R .if _ cts ,En"ergy Chorl'e" Treatyz A N e~v Er'Q for lnvestment Arbilra·ti'Q/1?- T .... T~L L. OFfICE (Oct, 22. 2009[) .. hUp:l1ww\v~in~!ernatio'nallaw

2tJ!11]

APPLY/N' TH,E EN',G'LISH RUL,E

Argen .ina n :'li'U"J,:S .. 0 ho or leer, ain categorf -:' 10' I rbitr ~II 18Wll-ds".,6.1

, oreo er, the conclusion '.': DI·::W· investn ent treaties has S l.e' •• ·e,ld. to rl __

crawl," .IV',,_" a." .ong, develo .. i .. , le,tOI' ornies such ,as 'the"" ·it .. d States, A'''' stralia ,8 d Japan toothless trea ties icontainins tll._~·tanld,a d substan ive ,-::r·· .. tections but lacking ex ante consent to! arbitration have rei mrfaced,'

Thi:, ,a,.1 oarent backla h asains inte - ." ... ' ional i · vestme t la: has becom .. ·' he ' .. ibjcct of tremendous attention and debate, ';' 'riters attempting 0 identify the causes of the backlash free uent 'y point "J .... two defects in th .• investor-stat •. ' arbitrs tion system: firs t, th .. ~ system is allegedly a flieted 'by a proin v·: stor bias:" seer md, ' he sysn rn C8JlS,eS

I'. regu q," o' 'r ch ffi III 6:7 . ". eith _.. of" h· 'S ~'r't; .- ,;; c' "l~ 'm"·· . 'as b

ill, ::." rU,:.I~' ." .YI I,. ..... 1.·~.iII. ,1._ I,!I .. 1' .. 1 .. ' 11!i;,#,Ij"JI ~,~, ':.',' I _". ..... .',

,,<f" ve or disnrove but biOI'. I., -,.C-~.' been pervasiv ... \

The proinvestor bias theory 01" invt ~stOI-'-S tate arbitration arises

f- '0" un S·· e' vera " d .i f fere nt u n I: -'. rly in g" C',O' m cern 's·., F' ·'I·,r-~· S·'· o un ' .. e 'S: ,c·c·,h ....... I . lars h 8' v·" e .. ·

" .' . -.' _ _. _ _ ".II.. . . ~ I I ,~, ._', . ",' ',. . '.. .' Ii] ,.!iJ! ~ '.', I.' , ._ l ' __ I _' ,... I

criticized . he treaty-negotii tion ... :'rocs: ,'l,pSll~,~d ,. because

o:ffic .. ,COlm/ne", lu: 'r d,ertal.asp'" ?g-~, '~_'"" c c-c55e.n' ~r 1, d .. e56J11 ·fd3bd·· (notln J ~~U\ ia's reluct anee to provlde in ve . tmen t prote ctions OD its o\vn tern n~i)ry ).,

63,. See, e.g. Luke. Eric Peterson, Ar,gentine Crisis A,birr:atlon Awards PU, Up .bu: Investors Still Wait' [or ,I. Peyo« r, :LA W . COM ( une 25 2(09)" 11 up':llwww..1a Vi .comJj'sp/~ a:w/in ternation aU 'La w Article In~ l.jo, p ~ L == 12024- 173. 731 (dr scribing A, g =- nt~fl " fail te to pay 8w,nrd, arisin 0' from UlIC' emergency m ... ,I'SU . S i.~ took in re " nse t10 Ute 2002 fi.rllanc.'·,a.~ crisis],

'., >Ie'~ Anl_' .. ' ,. am .' aken, ,·· .. i's o:f Suceess? ,',b' - < ase .of ,111'lemtJli. 'UI'I' lsvestmen:

';'Q,fe,ctio!f!', '. 1-· 'It. B ,. O'RO., . R .\1.. L 2, (2.00' ')1 (ob er m,g tWla.n the 'r' te . r n .\Y investmen

flea' ies coadud ~ d has dropped Qlrf c inc' .. 'he explosion O~ lnve tor-state claims),

65,. See, ... -·gll'e,eme.nt 81'·w·:· n Japan, tr d the _:." public of the PhiJip'pin 5, for Ian.

ECOJJoutic Partnership Jap\~lD-Phi] .. art. l07\" Sept. '9 2,. "',6~ av,(;I:ila'bl.e at bttp:llwww .. lnofa.go.jpl wegionlas;i.a-p,aci/-hi~ip . :ineiepa06 9/m. in.pdf (per nitti -Ig but not comp Ili ng~,i~ natory states to eonse ut to, ~(,rrbi.il r 'lion ,,~ith hlVest . rs':; Australi a-U nited States ' ree Trade Agree RU~ r, U .,s,.Au .. ' I. ;1. t, 11.11'.', M, ". 18'N' 2l004,~ QV .,iI;(;I,' ··1 . rf,l,' b'U.p:/h. '\'i/r\ .us tr !.go,-vl'tr,ade-agrleeime l :. free-uad .~' agfeemenlsl'au :t r,aUal1-fnaJliF.l3/1,·'I,e:1(.n (' .. me],

66~ See ge' ,. retl» GILl an .. ' .arten, Perc ~i~le.d' Bias ii" J/~'Ve: ,tl'n'tIU'. rre,{J\ry .' :rbilra,t,'j.oFh :;,~ n[E

BA:CKLA,S1~, A.OAJNST NVES~lE'NT ARBITRAT[ON~ ~:ul'nl' nolle 2~ at 433 (tlnding t:hra~ a [(ey problem i' n. ,t '-h .. t persons invol ed rull inve tment tr .-.,'ty arbit ation are bias ... ~-., but that issues of st ruetu . C31S~, doubt on the system),

61'~ See. I. ',: ,.,~,." RAH ...... R:O-·· & S.ARA

I'.JIV -.1fO·R. R. lE: .. , O'W THE '\"O'RJLD :8,A.·K"S, RADlE

,'.:::GREE:' -"!' .,-'.10 B,IIL ,'l~ RAL Ii. .,J .-, '1 'EAT .': ~. V.E U: LEA.· "ED, I.' ~ E,RA. or

ICORPOJR_:·'flE POWER·'" [)J WHAT TO D10 " ~.B,OUT ['1' ~ 1(2 (1), (1~!a'iIQble IQ.I hU'p:#\\fW~'iWP''"' de .. Qirgl:n!por~s/ich,l~ le:n.,g~ ng___,corpora t, __ investor _rul.· ( .. [[ ,][he .. b re a:' .. ' . masslv .. · darn ges a w,ard .

can put a 'ehillln effect' 00. resp msihle policy-maklng,"); AARON ICOSSEY- HOWA'RD MAN '.~ lUKE ERmC P . 'ER·ON &, Kor RAD VO' .... .. OL'. · .. _E~ I":-VES ····ENl' A-D·.:,~ :-STA~ ••. AB'LE

DiE'VELO:P __ .. N"f:.A 10' ~DE TO H'·'D pml!N AL Of h~TER"·'A .. ·rnONAL I' 'VESTMENT

. GREHi .. '': 2_1 (2' -) ( ;A secondar concern is, ~ba,' re"dators w'bo are etd ~i.~ . .'b~ :Ior dlJe:,ir

'wiU not re._·LlJ' I. '[:'0 the e~:' ent 'tha,l ~lLle. S ould i(l'he ee .·.,~~/n'!r(J'r chilrl

FV:·, 10"~' 1(;.,0"1;;;9'" '117·

~, ..... 1 ~!l U .. Eli _". •

",[ Ijeveloping countries are p -·.SS'UrCI', to' give U"· 1'.'[', i~ interests, and C'Oln,cern::, in _ xchange ,-:r zreater incentives to inves tOISIl ,,-68. Second .. commem at 0' -\., has criticize d the substantive treatj ria ts the .... clIILJIHU.'_ :'" '--', lag, I. " and ,: ooen-end c""t'-- and :~-~cfl"fo"re'u,-'l ct t. being

ICO-"st ued in ways that the hos states could Dol possibly have expected · t the time th ey entered into t "1.' treaties, I Third, I an.d m. st

t --0' - tbli '" the p -es'·'d· .', ··'f·- Bo ivia a d tho er-e hav accus d the

.'.":.: III , .. IR,g'y Il..'-: I; r ~'T:..-::...' : 1_. ',1' II,:, .Ii '¥-,I__ I_::~ _', . 'I.. I., dl ,g.,:_ accu :>', .',- j Ilk, I,~

. - ~ - - -. .. b'" d i f' ...

Id': PIU,tl ' .... SI .. :_ ttl .. ~ - ient PI- oces .• , It.' ,elf of heh _. g m as-J' m a _' or '0 '0\1, . st· I -r. 'i

alleging tha "''[[g]I, •. ·· ernm mts in Latin·mle.ri.ca '. ~ .never win 'the c,ases ,:, and that the investors "alwas S ~-jn,.,"'7Q E,: piric 1 >:. udies suggest

that this last accusation is unfounded ,71 but hie ove all perception has

, - , .. -, .. h - 72

r onetheless ~. een idlff ,CI lt . 0 sner ,,~

.. ~ arl th 1- .. hill" h - - ~ '~ffi-'" cultt p'r'" v .

11L~' ,31-~' 1.1'.-' regu atorv cmu u 1,.;;1-'" rs ,8, ',0 ,-':I. __ ~~'_',lll '1'1,1 ,.I ave .lle

disprove, According '-1" :~"'m:~·· OOI.'m .. entators, the threat 0':-.' ,) i

i ~ vestmet f 1", ispu e hai rend r- red raditie mal govern ne ntal pro ection 0" health- safe 1.. and human righ - s prohibi tive y; x =1_ nsive, One writer has argued that inv es or-state arbin '8'- ion ~ 'bas, gone from being a, protectiv '::h]e.l.d for I~'.,: 'e,I·."',:og investors u gains . t untair and discrimi I., I':. r treatmer to a : <.,lJI' d us d -; ~ _~~IOSle, i 1"~I',,'III:,r'~ to attack legitimate government reeul tion pursued in the pub ic interest.?" Another re oorts that "practicing lawyers do ai, mit that they hear ru,mo,nfS of 1'=- .. , .r stors applying informal '~:r',~ssu"le up(·.n host states-sw',hi~, ~ brandishine an i (.',1 >'_ me :0:_ treatx as a potential legal sti ck, "-?'~

'8~ Ol~i\.fia " hung~ ",,' ote, TI~,e . 01"" ,1:,1 d lM'e.'n{u"r~,tll J'nJf- .. tIJU!/J11 ta'w R, . ~.il't~ , and 113 ~fect' on tl.l.e .F,;~',f~I~rej oJ II,r~e~tl:(}'r~SIQ',~'e It"fb'li'riJ',t'io/,f" ,47' 'V,A~ J~ ]': "L t, ~lS\l 19.5",·' (2001)..

n ,'I'd - I .

. i-7'.J 11[', ~ [al .,1'." .. 'i

70~ Leslie M',a ceh ,Cl.z(Jl}e,:. Take: Cool View Towards IO'AS~ Says' ,Lalin An1 rica Better Off With,Qut World Bat-lie." H'. _ ,','T'Q" ,~'OT'(A'pr. -;-0,2007. 11;09M) htt::llwww.b.uffingto':n:,··t .eolnlhuff-wires/20070430f~,a=g,e:n-v~n,~zuehl-1e, tist-al~ern,a~iV'el (q oting Eve Moral es, Preside u. -:, ,~iyja. ~

7] ~ See Franck, 3,;t,P'ffl note 5., ~ t ,5:"1 (s:ur_ .. / img rwf'ty~I'W()! a ; IlIds, ,;lU1;" I eonelu ling 't_at ,~, t]h,e " eentage I{]I .' ultimate . ianers do .. n ,'E spp .ar 0 .:. meanmgidly diJfJ eren ~ [o.r investors and ,: ovemments, - ).

72. See, '.f.g. ~ '., /',210 Harten, sl·,l.prtl note 66~, a 13 ('Ii1.'vestmernlt tr _'sty arbitration is

c]a( acterized . y an . pparent bias in fa·. or of claimants and ,Hga~n, t respon . m states.").

'1.3~ Aaron t '(.'IS' :ey The Roo'it ,~'o. ,H:elfl inllle's.to',-·rO,t,'e,r:I"ion's ZIt, ; .AFTA~· C/~",pler.l l' tn

rJT,ER: '. :~T 0;, AL , -_ .. IES,T, E" 'FO,R,', sr r. n AB.LE D ' -IL P ~ '"NlT: .~.. .' " ~J_ lUG, ·:,·.D,

R WA RoDS 15'0" ] 51 ( yubl Zarrs'k)f ed, 21005).

Luke : ' - fit, ~ e - erson A II' Ro,aQ I Lt;ad IO',~I' ,of Rome: Di» ,e"8"'~' ~f1II;l . of Dispu te

S ulemen: in BUau!"ral. '/'unJ!stme.nl Treaties, ill I:NlrlERNA'~I:ONAL] .. VEST,MEN ~'U'R SUSTAINAB,L' "VE :OPM:E_' rr, supra note 73~ at 12 ~ ~ 1.3 i.

2011]

A,PPLYING TH'E E'NG,LISH R'ULE

Though lit - le ~ mpi .ical ei i,:' ence e" ists 11, c .,- 'irm the rl.'· , J. ator : ' chi I

theo v. it is, 'nOIDI,' . hie, I .'S'S ,8 fa -, I. i e of he i: stern's eri ilCS,~7'

Informed by these criticisms an extensive literature has . merged over the last few years addressing how 't-I',· - mch-beloved am much-

m· '~I ign d . Y' i . can' e fix d 76 Many pr-' posals S'UC1'1 a . '1 b ~

, . 'u' '~i .~. ,.:.,_':.- ':,.' :.._ _~ I. . iii.': '. ,,' - " '::'·:·'cJl:~.-:..· f ~r a, g 0' :,a.~,

investm e 0-1'''' I'J"'I'r't o· ,- appe als w,· ;t' h ~I tenurec iud .. icia ry n ,:-:- -,-: m t 0·: ,0-:'

!l!l ., . '.. ' .. I 11 _" . I~ . lUI ' .. _I:_. [IIJ . l~, I"_, _ • _ 1 _," _. _' ~. _~ -1 r .' _, , ,'.'

- ~ .'

ambitious to b poli 'ic;am-," feasible ,at p' sent- Multilateral trade

reaties anc the WOI Jld Trade Org nizatu In (.,., '_':.)1 disputesettlement mechanism may provide some hooe . Of" .! establishment of globs ~'t· .... down" solutions in, the . utur C:', but attempts at drafting multilateral treaties bave I'_~X _-.I~ rienced glc orny 'eight de cades of fai ure" in the i':n,'v(_s'_'nl"ent law cont .. ,:xt~I'· For :00'·' , mt. app .ars that effectii e chanzes to in. ern tional in ·-,est.men't la __ ca.n om ~,_b'r'lo'Ulg~ t about m a, piecemeal, cas .. -by-casi fashion 'by tribunals th .. · .mselves,

As Part I explains the two most commonly i,,: len ifiec causes of the backlash against investor-sf te arbitration a,:F'C the system's alleged proinvestor - '. ias and its C ,I iIF'- g ffect ,on, host states' le giti -.1,-,-: te use ",-.

'police power, A~ Part IV' altin a ely shows 'th: English rule on legal C1t)S,·.S IC",n he lp t( mitigat _ - ioth Of-'I .' ese factors, But befor .' this can hie exn ,mB .d, it i. necessari 'I ,,: I e: amm ,,~, nd r nde -stan d I-~ ~ svs em S

I _ • I_,:

inconsistent trea ment ,0" l .. -J costs.

Wheth r domes .ic or international, I lispute settleme .. D'- systems allocate :'-I,leg,aJ'osts'~ur costs ~ ttorneys - fees, experts' flees" and rbitratorsfees-c-accordins ' 0 t iree distinct oractio s. the American rule, 'r ,I,' Enzlish rule anc the pre-claimant rule, Under "h,:-: Arne rican

I • r I

rul ~., _. ,'I" e costs . ie W ie ,.' 111- I~,' .. ,'~Iar ii1 I L I hat ".:~ 'bIiO(_II_ the re /' ondent and

clai 1".]11 . i- ay heir O'W,D 1_ gal costs, regardles of which party is

75. Se -' su . ~(J n O-'I€.: 6:7' and aecompanylng te .1:

76" Se J eOlg. U~in3,rdl~ ~!',t,p',m note 3, ;;u 16 (PI! posing that the "e r,. d.le' :e~Oipnl,ent 0,,(

inter -_;atiO'Jla~ ID: ,'\,_ I : ',Doul: at some poim ,:0' e under rea 1·1 • ar').

11 m Mich,a;e'l D. Goldhaber, Waru,e''{I.: A, WOfld IM""eS't'~,tull ICf}~,t.r' ~ A ~~" . A.'~l. . ··.Iummer 20()4. at 26.,

78. See Charles H. Brower ~ I I ~ Re fleCl,~O'!S on th e R'oad A luu:u:l: Living with Decen tTaliza-r.ion in Investment Tr tlly i4,rbitrolforl, in us FUTURE OF INV :g, ._' NT AIUUTRA IN,U[J1',u note 2, at 339 . .34,8 (caUhlg ns~mp~e top-down solutions' unteasibl _ and d ,;a,wing, 011 ~el. h.~ decades 0_ fallu[\ . 1[0 Il' gottate Icomprchens~' _ ,e multilateral. I reaties om, ~-_·i" D investment . '.- __ -, . --'on,.

7 '., ,Arl hnr 'I. JM]~~e.r 111' AdV,t' ',Q'f\.:'.--"te1n': D'i'~l'(J,,{J[:r or Pil'oe,,.dx. 16'9 ,~m'· ... _., . RE; .' ,. '1, . 01

1.1'9 '. ~

D.···,IU~ K~"" . L- 'W,r_:JO":-: 'UR:' r, A' L

= .... ,. __ .. ' ..... '. l·' ,<I", I.

success 'U on the merits." There is no shiftlng of legal costs," except when one 0 _ t ie two' sartie is penalize , ~O'~, litigating '~n bad faith, 2,

HI' contr :_:1-, under the '·ngIis,h 'r'ule, I . the costs follow 'the event.:"

That i·.' he parry that is unsuccessful on the merits nust alwa-

= '

· d ify L ., • f ]1 f·' '~ ~

inuemmrv the :p l'lev 131, mg party . or part or a. .. l 10, its tegai costs even

h b th id .~~ ~ .. d f "-h~ FOi '1111 d- th hvb II< ,-,. ,-

'W ~ en ·:ot. I :'·:1· .·.··1 litigate )1 .gooc attn ~' - nar y. unc er tne . -y~'r'l 'Z::-:':-

.. ro-claima nt I, ule, 'Pi revailing claiman t ' alv 'ays lleCOiV[ ~- thei - :t '. ":, __ 1 oO·:_[tSI. a." unde _. 'the E:n .. _ :[.: h rule, but pret ailing r :_.' spondents mu st al i '-'ay~ be a- thei r [0 ~ zn l[e,': ,13 J cos s as U' d - the Arne r ~ can rule,

tn domestic : itigation hie prospect [of having to pay one's own 19,a] costs Of an oppone it's legal costs can have a - - i·,·t· ial effect on

he d·" ~ :·1 ., •.... , to .,'.' . .' ···-_··t· ,'t - _ I "C'""t-'I _. -' .. ,' , ... " : .. 1--' "- .... ~.' .", . ,·,t·· I

I, e uecision t pur :u:e" con~e-~ ~ or Sr_ ~ ·,l[':: la, Ie .3].m,., . n ].n,VI_s,._[or-,s ali. .. ~

ar tli'-rat~[on,,-~h(~ sheer e pense of th _' '\'~S,tl:~'" 'j .-1_' amplifi _ .,: .,. ~

[1:-; ct On ' .. v erase. r ~ '···P:IODI·· .- nts 'i'- cur annual legal costs ranging fro 1-

_' .' [110 •• • ••• 1 __ f _. • ._. " ,,"_ , _,_. ," [ __ ' _. J._._._ ' __ . . .... '_' _ . _:' . a., . __

IOD,e tOI two million dollars tor a single dispu e 1M though costs can car ceed this av r-age- In one case the "1 im n·t an' tho resp 0-' ident

I: . .: '\;;,i. " . I..., .' .. I_.~ ~. ~ . ' .. ~ .. I~:. :! ';.' ~ , :.- . 1:- , '_:'. _. 'I:' _. I I':._.~ ';,,;~ _.:... I ,I I,. :. ' . [·.1_:...:~ _:., Ll', : . . ...• ,I,' __ I.: . ,I~

I "I.. See, fD8'. • le iscb mann I r·t H~i Ig .. _ orp. v ~ _" c 11_ r ~\r '., \ ~: ,g,- 0[. - :-:-<': U .s, 714 1 "]'-1 ( ~ 961) I(dtwsc UlS '·,ing th::- Amer ~ can [rUt e aad the p o~icies IlUl1derplj:D'r~'~n8,]I)~ A.relJlm:b ~ . v. Wj,se.m,ln 31 ,.'. 3 Da L '. - 0'" ~'. _', f' 79[ .) [( .c·:gniz'i,ng the. merie n -L1~e to b _' ~ (it]bf:' g De: _ I praetie . ! If Utl._ United Stat« ~ ".

S I. The comma n law except ion· 'h) this gene ral rule, such as the common benefi t dOCE,r] me are applied very r' rely. For' the ·U.:I~ S,upreme, Court is .,: escription o.f the common -cen,_ it doct ~ ill ne .. see Alye ka Pipel ine Se m'¥, - o. v .. 'W'Hdernf S Soc y. 4-2:m U,.S., 240- 24 .-46 I( 19rJ'5).,

• 2., td. ·Th,[· ' praet miCe 0'£ a wardilllg, cosr ~,o :pl!l.ni' b bad-fa ith U'I'" -~'t ~oo has ~J5JO been incorporated im,t _I Rule 11. oC t ie e dl. nl~ Rules 0[,' I .• ivj[ ocedure •. ,-ee ~-·~:I)., R, crv .. P. 1 (p I mitting .' - .S, l_.' _,:,~al ccurts to sanetlon HrgaDfls, , or pleadings, motions, or other papers tb~, are "presented for any ifllP oper purpose, sueb as te harass, cause unn _ 0,_ ssary delay, Of ne dlessly Increase 'th'~ cost of LiHgae,o IJ; or ~hal are cas d on frivolous facts or legal theories).

"3 M' 'I'e!'_]' A 'L 'A . --D'ER C- A. ('I [E' .iii;' n t. A"F~I!l""ALS;- .-'. """HE C'N-Ol: - -"-H- -Le A' L svs I E ~"1,,)

" ':r, r " t .' 'n~ri I " .... I' I:. - .:, .:. 1'9i!~1 .: ,R : I ,IL'l I • l I ~ ~Pii.lI,· ~:: !..... lI, _ L '] 1 ~ ': .:',' ~ "'~"~;- _l~' -'~., .:) .~ .... [I, -', J j' j

I. lOl,h ed, 2U 7).

~"~ 'O'H' H .. ·,' ... ·:.·ERRY·,···.- D':,' m s, CLAR,': i'·· Jr-IH' IO~ H .- -y,. THE C ",r

TR nrrn» ':~ :EUIIt. ..'rE~ LA;J· .···-.-£~JCA, A.:' [)I :EA8T A':l-'·. U12~21 (1994),.

,5,., This is n _. m, the generally ,., [p!wcable lui· in amy domestic jud:. diction.- bum several juri diction ~-.inc]u ing the. nited Stat .s-apip~y it in certain exceptional case" i See Harold J. K~ _ nr. Explainin.·;f One- Way Fee Shifting, 19 ·VA., 'L .. REV. 2039'-, 20~1 f~ 993) .

. 6[. See' Seererariai, - -ni~ed '·~~!L ms, ' .. · .. ·.Illference 'On rade & D,e .. ~ Issues Re'lal'ed t·

IJ',lter~ll,a'li'olrt;r,' . -,"Q,r." ement»: Inrve "1'0' .... ItI'U! D',isPl'l:t:fJ' (J'I1'd' oNly .lmpli,CQ,;;'om, [' .,,', t ~'J., DIOC~ '''fDlBl[C[O[, :.2162 (Ja,n,. 1'1·, 2r()OS) (mi .. ~'i -.I fbat tl e !C'X eeted I·. 'I' .a:~ fe s ineon, (II b~'. the [' zeeh Republic for 0: e Ic:e_ lere o\I'er:- " ~ _< mi.~mo.[I, i"D OBe ~ 'I,::, ar)..

20, .1]

9'91

eae -, reporter incurring mere than $ ,4 million in Ie' . ,I] costs." .n another case.the parties reported a, shared total of $2.1 million,"

Regardless of the relative merits 0" each party's case, it is difficult to' predict with certainty which party will ultimately bear these COS'~'S".' Arbi tration rules accord arbitr ators broad disere tion in allocating legal costs and tribunals exercise this discretion ineonsistentl "~"o;tb, tribunals and commentators ,a.grl~e that the

P-: ,- - a c ,t·; C" 'e' I'" IC' '.' 'f.lll r bi t --'3·" . ry Iil), nd 'U- 'lin, p-:' red . j"' eta b 'I, ", ", 'iirJ

_::" ',' " .... , .. 1,1 :l.... ~I ell]. ," JL.~ . ' 'IU. I... ·-_!~.dJJ" V· .. '_· ~'."" '," .. :_' ii

A,~ Application of the A,.meric,an Rule

In :.' '2' .'. 0" 0, "7' - a' n em P iri "",6;;'1- st u d-'-y"'" show :~e, ",d'" th a if. invest or-st ate trib U" n a.' ~if'i'

" J :________,' ',_ •• I," .- . v. _" .. 41. ,l'~~l~ I·}I . ,_" . [ .... j .. ", •••• " " -,_' _'___:L,I __ IL ."_. ' ..... ~j ..... , '~_I' __ I _ _: .. ~. ,IL. ',_ '_ I ' Jl.~

. '-'

had followed the American 'rule and ordered parties to pay their own

legal fees in a, -IQU't four-fifths 01" disputes," Tribunals have noticed this, general trend but they have not yet explained the reasons for it, Respected arbit .ator and advocate Arthur Rovine 'wrote simply in. his

disse ED''- F' ("S ~ ) .. L d R ~ 9'1 th t ~ii: [1 h id ~ b ..

. :]sseo_ 1,0:-,,:/·" t Servtces . r ~ .. to ,I 'V ... ···.···o',manza .: '1.81'1'.--' Ie JI'a.c', sic ,e .. ,Iearlng

its 'own. costs has been ,8,0 ICS: D tradition.'?" Likewise, :0 his dissent

'_"0 lntemationa! Thunderbird Gaming orp. 'V~ United Mexican

States .9.1, Professor Th -. omas ·W·a~·'I-'d,e- recozn ized a principle ,0' f

, U. I![;,..;J' ~ '. '. Jl.~,Qi'" ". . .·=,a,~ '_ ',.~." ,,-_!II;.; ·C,· .. 11 '!i...o , _, . 'c_: ~ _ ,,,",,' I·l·. .' .'.

"established NAFT A and I' .S~ D jurisp udence" requiring that . .each party, winning or losing bear its own legal iex,~~'ense's, and share the

,87.. 'CeskosloYe:rrn;k,a Qlbchodu:i B'~Hlkm A.S~ v, S:~o'\fa!k Republic,J I.CS1D' Case '~,(t A~RB,J9'7'/4" A'w',a[d~" 314,'( D'ec. 29. 2004), 13 ' .. C:,s, D Rep, 181 (2D()8)~

88. fSE,G fHoba~. Ine, v, Republic ,of Turkey ICS.fD Case 'N()~ A.RBJ02/0o~ Award'i' '353 (J an, t9, 2n07)" hU:p:lli!csid. worldbank .oI'gflCS] DlFront Seirvleflreq:uestT:ype =:CBS~S,RH& action V aJ.=:sho"" Doc&d'DCI.d=D'C&30:..,.E'['J &caseld,~IC2,l2..

89~ MO(F.l.d~,r lnrl Ltd," 'If. 'U:fttiJh!dl States, ICSID' Case ~- 0" AR:BfAF)/9912 Award, '1 1,59' (IOct 1 'ru - WC\2,~ 16 I'CSID! Rep, ill 92 (2004,):; :D'UGA'" , ,T AL ,,~, S,~tlj"Q: note ,41~ at ,6,14:, S,f,'€! also, CH~Rlsr'OP1Hl [,' .. '; .: HllEUER ,l.OR.ElITA M,A.IL.l ' •. TOPPi1, AUGUST ' ··.,--:n~wsCf:ll It ,A:~oJ " 'Y' s,~' ..... GIL.An~:., THE ,ICS[D CO'. VENT~'O;: ,A C'OM.M'I!NTA.JRY I229' 1(2d ed, 2009') (''"The· :p!ractic_' 'Of ]:CS:ID' tribunals wn apportio ing costs 'is neither clear nor uniferm .. jj):, Steven Smith, Benjamin Sn:w:ietan.a,! Grant Gelberg, Ivana, Cingel, Kevin Rubi [I,O! Spencer J ones, Frederic Sourgens & Sean. 'N'ewell, ,/ntrJ'n1'cl'#onal COffll'Ju],f1ciai' Di~pu.te Resolutton, 4.:2 I'NT'L LAW" 3!63.~ 393 (:lO[}8) (de.sc,r.wbirn,g the American rule as ttl _ "traditional apprcacb" but noting, tribunals' Wllcn~;asm:fl,g 't:,e:rndeJlc~t '~o d epart from 'lr,adli' ion )I~

'90 c"iii""lII"nc~ll" sun iJ'fn'lf] ote '5'£· m.' ,~n,

'.' ..• 1 ,w:.~I,.rI~~I· ,lfi..~1 -; 'liIl'~~" l~i~ 1 ]IV .. I~ .: IIJJII~ alii U:j1111

'~n .. , ED" (SerIiVS),) Ltd, v. ,RO:IMa'Ifi~,a~ '~ICS,ID Case ~\,o ARB,j@5l13" Award (Oct 8\, 201]9)" hUp',:/l~csid, wiorldbm,nk..orglI.CSIDffrom'[ Servlet?req_tles~'Type:iii CaS'els,RH,&,ac.Hon Val~s,how':Doc&. docid:=;DC1215,_En&caseId,=CS7.

92" ED.F (Servs.) Ltd. 'V,. Romania, ]'CSID' Case No" ,ARB/o.5J~3, Dissent Regatdru:ng Costs, ! 4l (Oct, 8; 21(09),- hUpdfi,cgid.", .1odd.b3Jnl{ .. ,orgl]:anDff,nl\U'~S etyl,et?req ue:stT')'p,e=CasesRH& ac~'i~):n'V,al~&h.'o'~i "'oc&,docld::;;;::D'Cl'2 [6_En,&c3Jsleld:=,C51'..

93.. Int'lTl ,Wlld!erbiird, iGami.ng !COrp'., v, '.'ni~ed M'~licaJD S:ta.'b~s~, Arbitral A:~MaId (' .....• A'Fr A.

ICh. 11 A,FIb. Trib.. Jan", 26, 2006), h:tt.p~lfi~3J,.law·.uvf.c.caJdocruJme:Ill~8I1ltuluj~~I"b~'FdAw',af(tpdl:.

B,! Application ofthe Pro-Claimant Rule

In, an attempt ' 0 explain the 20 percent of cases, in which the costs, do not simply "', ,ie where they fall," a second line of ,E\'D,a'- ysis suggests that tribunals donot ,a,'e' JJ,all:y follow the American rule - '-IU,t rather the pro-claimant rule=without Ie,: IeI' saying "'10 explicitly. -r'lo:fess'or IS,C:hi~:, makes this argument in ,3 21006 article," A,naly,zin,g what tribuna s do, rather than what they say, Schill asserts that t ribunals consistently award legal costs 1.'0 prevail ing claimants 'but DO,t to prevai ing respondents, resulting in, a "e 'one -wa,y, pro-investor cost -shi fting

1- [-' '

approacn,

Schill acknowledges that 13 number 0', cases do, not immediately ,B,ppiea.r to support his th eory, but hie, argues that these cases Brie nevertheless more compatible 'with, a pro ... claimant rule than it would

ij1~'

first a ,-rp'e,ar~ . Schill argues that the majority 10'( legal 'COS'! awards

requiring unsuccessful cla imants to, p',ay prevailing .r1e',po:n·· Ients. legal costs, have ,n'O'I, resulted S': lely from the merits of the case, as would h appen und "f'- the E-n" g' J~~hl rule' C', R·::I,a.; ther :,'UI~'b' 3', iwards ha v I b e en m a '~

.Q. "', '~I' ._" ,] •. ,1.,., L ~ I" ...•. ,.IL~ . ...; I-,·!I!! ..... ,". J'_ ;;. '," _'_'!~'~" __ .•••• g, ~._l~ •..•.•• _" I ,I. ",". l l'Ul"-.~

with the intention of punishing clai .. :- ants' "'fr!VOI,~,OI'US and spurious claims or more generally, bac faith litigation,' ~ "U,'- simply, Schill proposes that tribuna s b,a,. ',, actually 81'_: IIPi' ed a de facto pro-c aimant rule and that other comments ors have simply misinterpreted a traditional penalty for bad faitb~a,'waf'ding legal costs-c-as SP'O[,3,dic,

1 ill ," f h E' 'II '. h . 1

appr cation O~ t,- ,e engnsn ru e.

MO'.Ir-~"o:.· ver Schi "~J'] argue that the d e fact 0:1 PH r o-clairnant rule '1;:, ,<01

- - ~ - _- ~ 'I . ' __ -t Ji 0,1. . _ '._.- . It· .. ~_~ _ .:_ ._. _1', __ - .'._ -. _ .• ". !IJir.IlJl"aJlJ' It (.I. " " !U~J.~ It '_ ~

._- . "

normatively appropriate :ru~e for the investor-state ar ~/"trati,o:D system ,

and that this rule shou d 'be made de jure. . He envisions 'the investorstate arbitration system as "8 mechanism for' the r nforcement of

'4~ . D.'r'~, Thluu.deFibw'lfd 'G,nmimg Ie, rp. v, 'U:m'ted =_ ,~,!S).dcaQ, SI[,a~'e·Sj, Se:pIJaJ'~:,e O~p~:l1i,OD" at .1 6, (N A.FT A, 'Ch '. [ 1 A rb, T,rib~ Dec, 200:5), bupd~i.'nm. ~I,a'~:v ~ov:icJC ald,ocu m,lentsrrhumde:r.ibirdlSe:par,8It,e O'pi.nmon,.p df

9'5'" SchiU, sl.$:p,ra note 6, at: 657~ 9ti Jet

r;)"'1'. ,Id,

'gEt ld~~ see ,01$0' .i'd., a,1 665 1(1"ApaW'lt ([",om; [al ~inBJ·· I. ~o.:-p"~iorn1,! in'\"cs'·ment '~ri,bUJIiIJ,a]s, ;ilpp,ly,i:ng, either ~:CSlD' CNi [U'ni,' 'ed .. ,< ation~, . omnlission on ! irn'te'Fn~rti!on;rtd Trade Law] ,arow'lr,atiom, fu[,es JUl ve not clearly' endorsed a "loser 'pays'! ap'J)~()aJcb :w:n o':Jder' te sbj ft costs in fa,'\'oif' o,~ the prevai ~ins government unless the cl alms brought were spurious or otherwise frivolous, ''),

'99, See id. at 6'74"

2,01.1]

AP",P' ·,·L:· Y·'·'/IN'."'··"G"··'·- T'H"" E"-O'- E""'N""G:' ""L':' l'S,:'H" 'R:' U' "LE"

" ' .. ' "':'" . ,:. . '.- "'.: ', .. " _. .' ".1':- -,-,",,'.1 .. :." .' ::."

993

obligations, ',- tOO which is well suited 'by a legal-costs rule that contributes 'additional de terrence o,f poti ntial defendants' and "induces com oliance" 'by' incentivizing investors 'tOI bring more claims for larger amounts, un Schi 1 's proinvestor proposa 'was likely very convincing in 2006, lone year before Bolivia withdrew from the Washington Convention when the legal regime seemec ':0 'be on, firmer flollol_;i,ng'_,~lm Today, however, the, bac clash against inves .or-state

I· ,l_ l

arbitra ion pros ides sufficient r'eaS'OID, tOI rethink Schill's normative

arguments, Because ,3. uniquely proinvestor procedural advan ag:,e disincen Ivizes host states from participating in the investment arbitration r~'· time, the overall aim of investment protection would be better servec by a more balanced approach .. , After ,aII1 investor-state arbitration cannot protect any foreign mvestments if > tales, simply withdraw from the system,

,C':' A·" pp lie ation 0' 'f-~ the English Rule

','_ <iii ,',. ,::_., -:-'" '~._:.I~·_·irrr . .'.', . '/1'.:' TI~[ .. - . 'i_ :~. irtiJl[.[< , ~

ill 00., u. at 16 79,

i ,01., .1(1. at 16'-9 '-92",

102m See' Press, Release, Int ",~. ,Cent re ~O(F' SeU]e:m.e~ t of I rnv" Disputes, s~~:plr-a n~~)'te ~[}I (noU'D,g, BQli:vi~:t"s denunelation of the M,CS,ID Convention").

to). :EDIP' (Servs.) Ltd. "1/" Romania, I!CSIDI Case No, ,', RBJOS/l3.; Award, . 329' (Oct, 8, 2009)! hUp:llicsid,. wo,rrudbank.o:rgfI CS,MDlFrontServlet 1teq u.,e5:L"T-y'pe~ Case s R '&!iC~i(Hl,V w=snow Doc&do c,Id~D'C~, 21,5_En&case.Id=CS".'

'Ul4., bllf1 Thunderbird G.amjl,g ...•. orp, 'V~ United '_~e:~dcl9Jn States, .: rbi,llnd A'w'ard~ 1: '210 f.-'AFT A eh, 1-1 Arb, T'liib~ Ja:IfL 2,6" 2(06).1, bu,:p:Jl:itaJJaw'"u!v.ic.c,ald.'ocum.en"ts_rr~ llulderbi1rdAw;a:r'd. .pd[

994\·

misconduct by' 'th,e claimants during arbitration.!" Nevertheless, both tribuna 11~. award ~,'- 'II eg al cost ~ ·It-·O·· the respond 'e" nts ba sed '. n th .'-'. merits

11,1. ,I,,··' ~ _L-Ull~ Ui' '";~ ,"._ ~i .... Jl: < .. : ,t.",· I .,' .J ••••• Ph]!,~ .. ~ I t ~ ~ . '," ~ . ,1.,_), ... :._ .1 ..... 1 .t~ .. ,,_,~ .. " 1.:...__ I, '_-! __ ,,_. ~ Jj,._ 'I

,'" "'f th :;', d';'·-;:-: -:'U" te I' r ' "d-' '1"'· _-',o '.~.,- both trib ,- '.: Ie , ··b···:·· .. " ed th .,:., '"t "':':'., the

". _ .. ,I,e- ~.sIP· ... ~',~, .!___.n.- ,OID',bl ,s, lOt. , I. r u"na,d;, 0 ... er.· e __ !u. _la, m.1 .~$ " '.~

practice in internationa commercial arbitration to award ICO:S'ts based

, h ", f'} h d "'- . 1~

on t re merits 0; .. , Ie .... ispute.

There are also a large number of ambiguous cases, such as Link ...

Tradi J- S k C - of. C C ~·1·L

J: rading Jolni Stoc .,'~' 'O~, 'Y., Department for Customs (,_ 'omrot ,0 -. tne

R b J - ill M' '~d' 107 ~ - h C' -, .r ., . '" d S-I ] -. ..

. _epi,~t',;i,(;' OJ - •... 101" OI'Vtr' ano mea ·tl'n!e.x Corp. J),., unue. Stases. 1'0

which legal costs are awar ed to respondents but there is, no! explicit

.. f b d f ,., h I h h S" hi I ~ inced b

mention 0": -,IEl' taith, . n these cases. nowever, "IC. t I IS convmcedby

the "genera] tone' of the decisions'" that the claimants' misconduct

h '8, i :?I material influ .. ,Q;'n,~e-I '0""0." the result, ]~O vevert heless - the ' tribunals :8;"'1'

I ~ __ ' _ 10" ",Q .__ IglJl, ' __ A_'_'._ ~ I~' .' .' I~ I ~ 11~! _ ~ _ ~.. ' .. " . _._. I IL:._ _. t ... _ . , _~. __ tL

le ast pu rported *',0: base th .';ir· Id,· ecisions on the respon ,d'-I. ··0···· _~'!lI $····,·UI' O.·Ii;"";'~'~!~' 0' n

II .:. I. 1, .•. :..JI ·· .. ·aIL. ~.:_. l, .IU,il1._.' _'.:_ II._: ._ !'.~. ~.Iili_ : ~ .. , .. ! !~_,~ ~~. " ,_, I'. I ~I ·.I._ 1IJ..p~ili!iJ '.:' I

'the merits.!" Moreover in numerous cases In which tribunals award costs, in favor 0',_) prevailing claimants they generally declare ,i~n neutral terms that 'the successful party should receive reimbursement from

h f' '( - c·112 'If") . 'b- . ib '; 'II'"·· h . .- h

the unsuece s u pa.rty,,,·" r tn ese tnbunats reanze t -,at r aey are

a,p!-p'} .y,~~np'~-'his, rule onlv 'tOI the detriment of hie states, they '_:,0 not sla~

"~ _ C IJ' 'I.""

'So Ie xplicitl y,~

'~05., See E'D'/j'~ Aw,ard~ .: 328 e~]'n the TdbultU!lf'sl judgm,emlllllJ the ru'll1'SUIJOI, dis,pul[:iB was famly' bfiOU,lh~ by C~,aim,ant and good fwt b 'was evidenced 'b,)f each si,de\"'~'):: ",11' ~:, T~ll'I',!ule,rbird,! Arbit![',a,~ A'l"aJrdl,~ 11 2'U3 ("~[[T]'he Parties here presented their case in an ,ef~·,ei _nt and pro:lies,sion~d manner. 'n).

'~G6;, See EDF~ Award, 1[ 327' C'!.In. the i.DSUtll.t case" arid gen.6[,ally.l tile: Tribunal's preferred a pproach '1:10 costs is, Cb"n of i n~'e,[;n ational commercial arbitration BJ'Iil,d ~t5: ,gJ',owiro.,g aJpp~jca'[:iOD tal h:rves I m.eQt ,8 rbilt trll'ti:OQ., Th,a is\;, 't here should be !~Ul1. 311Io£3J'~ion 0:[ costs nll at refleets in some measure .~ he 'princm:ple tha:t the ,~min.g pa'm"1l.y :pays., biu not ne(.1e.ssa'Filly a 1 of the ~OI~S of I'hc. a rbru:I,~3ItiDIi:I. or of Ute pre'v3l'i[iug. p:arF'ly ."); ,1,d'!:I' Tlu~'"ulerl),irtJ',~ Arbitral Award, " 21,4 (noHrrug that io·'the same rule: should app:~y to international ru'll\{ __ S~me;Q~. arbitration as ,a.pply in other ruluem,ationa] arbitra t ion proceedi [1,8,8'1'0) ,.

~,01., Lin k _: rading J' 01 nt Stock. Co, Y ~ Dep't for Customs Control of the Repu blic of M,oldl", Fruna1 ,Award (U.,::: ,,-M.'o~!d,. Apr, U3,.~ 200(2).~ 1.3 I'CS:[D RJ!$h ~,4, (2,OO~,),.

1. Oit 'M'e~h,anex I." orp. v, U nIl 'ed :S~::a,~,es\!, :F'ru:~l~l A. -,- ,8 r-dl (ll:f 'I:he 'TI~.b!llln:~dl on J I!1dsdruc~iO',111 and

M' . - '('" A. ''Ii]''T'' A ·C·.... 'il -1 .It, '..... T j'b- A- 3' "OO"!II::) ... ~ A 11' '=L M '!I ';], oi\ll'" f2' 00-)

I e us 1'._ri.J:,.II,,~ I ,Iiil .. ,il,. firu., _ rl~I",u.g.,~, ,tJIj,,~, '"it"1" ,IL., ._\ ". ,W,J"'lIi.,)1 I~,.I> ,:).

'~09" S.cbill,~, .s~~p,r:Q.' note 6~ at 6S 9~6{t

}, 10.. See id. at fij'9=63 r(~' [:'C]I05~ shriiH ng against the ~os'i.ng i nvestor C~l1. be 'seen, as a, reactien ro . ri V.O~OrulS, claims or' 'bad 'fai~b ,~i tigation,").

ll l. M:ethal'Ulx' Fi:na~ Award of the Tribunal O(1l. JWJr,isd_~c'lwo:n a;n.d :Merit:S~ pt. V',,~,' lOt;, Li'fJc~, Tr~'d'/n'g"i' F-hla~ A,wa'f\d,~, 19,1.

1l~~2., See, e, •. ,.·:~'D'- ,':ffUia,l:e LI,d. v, ,:H'UD,g~'~,f'" I'C"') ~I Case '-'10;; A.RBI03Jru6i. Award, I' S3J (Sept. 2.1, 2006] ~ h~ltp:;lIita,.~aw'"u,vic,~caJd,ocu m,ent\sl A,---:,·. V'= _.ullg~'IlJ',A.wa.rd. d f (. ~.n the present cas;e,~ 'I he Tribun a~ call find no re aSion '10 dep3r~ :E~j'U,fll the st a,rti ng pohrl,'t, t:h,at t:i1Je su!coessfll~1 'par~y ~hou~d receive re~'nl'burse:mentfr'Om, ~be unsuccesslful p~rty.,'~~)~

99.5

In, ,E'DF and Thunderbird when tbe maiorities unambiguously applied the:ng~'ish :. ule I they provoked vigorous dissents by' arbit . ators Rovine'" and WaJde,lru t4· respectively ~ Strikingly, both of them directed 'the ~ r dissents at the respccti ve maj orities' die,' iber,a tive methoc ology , rather than a,~ their final ! _ eeisions to award ], egal costs, ,··· .. either dissen defended the American rule or the pro-claimant rule

'O:[], tbe bla,sli~ .. 0'( any partjcular benefits conferred byeithcr rule. Rath er the c issents ob serv ed that following the A'-'" merican I'U'II~I 'W' '~I·S'

." ,Ill. I, ... ' . !!!i..o I ,,~- .... !iOJIi . ...IL) '., . . I.... u •. '. IIi. JLI .. Ul' r . .• , ~ I,'. .' I.,. ..:,' . . I., ,II .. - .'. _, I . I_ iii \,00 .. ~,.

the usual practice 'in, investor-state arbitration and. objected 'I 0, the maj orities '-< 'departu -, e"US from ~I~I'CSID tradition?' ~,6 and ~ 'established

NAFf,A and. eS,ID jurisprudence"!" without articulating adequate reasons tor such a departure, . lndeed Rcvine acknowledged the possibility 'that there :m.ay be 'good un.d,erlying reasons" for a'ppl:ying the English rule but argued forcefully that fhe majorities should either' identify and, evaluate these hypothetical reasons air else adhere to '-.he standard practice."

I' I. IOIlCTRm'NALJUSTIlFlC_ATJ'IO,NS =- ·'R·prp·LY[.,Q TH'--' E:N'GL:ISH RULE,

This Note follows Rovine and. Walde's prompting and identifies the 'goo .. ··d·.· unde rlying reason s" 'f' ound in do c trin e~··· an I' d·: public ·p.-:··O··I,~C· 'y~'

£ " _ ••• '" ._: •• '_' '_ 11_: __ ._ ._' 1_ • JI. .. _.I ,.', .g~. '.' .,' '.' ' . .:_' _ t ,._ ':R "_'. ',_ ." _ ._ ',- _ '~\' ._ 1 ~ .. _ :..._~~." ."l.ll,. _."

that sU:PP'O!f. application 0' the English . ule, From a doctrinal standpoint, i,'t, is not obvious how legal costs should be awarded in inves tor-st ate a rbitrat " on ' aut t nere are persuasive re 8'.,-:,010'8 Ior

applying the English rule,

Rovine and W'al.d,e~s, dissents in E'DF and Thunderbird are based on a presumption that 1···.··S1D' tradition shou d control unless adequate reasons can support departure from it~ Even in. the absence

[13.. EDF (Servs,.), Ltd .. 'V~ Romania, I'CSID' Case No. .ARB/05/13, Dissent Regarding 'COSt:S~ ~' 4 (Oct 8, 20(9)'1 bUp':llics;jd.·w'oddbank.orglICSIDI.i'rontSe.rv~,e~?requcst._. y_- e.:::·CasesRH,& action V,fd:;;;;;,showD,oC&do·cId.=DCm 2116 8:11 &easeI d=JC5i ~

.. . . . - . ..... . . _. .. ._. - - - - . -

ll~t ~'nf,11 1ihu.lmde[blrid Gaming Corp" v, UDi'~ed Me:d"can States, Separate IOpinilon~ ,. 124

1-.' A,' .... ·fE!1T'",A'-. I. C" -~ ~ '1- A""'"'! T' =.~ ii!..,_ D·.· •.. ·,. '.00'. l'i'l rt.. . ,- ~." ,r/·~·t ._ II Vllrf a, I V·" ,''''' lA .' I . . .' ?:l'iIl"'h·. . dei 'Ii.,." ......... 19 . '.,,' . r iii·

\ ~ r.w.. . . u,. 1I, '_ _ ,_I~ 'IJ. . nlU~ . ec~ _ ~ . ..J} 'I' uU JLi.. ~. ,aJ .Ia ~ ~ . U ~ U::.Cw U!O ClUJ men ~ ~ un er!JJ~ W Uil ep ara.l!J.e

Orpi·Ill'· on .. pdlf.

m 15., .ld.,· 126,:, set· tlls'(} .E'D.F ... Dissent Regarding ICosts;,~: 6 (i~'mn tig'h~ of the; determiuations made bythe Tribunal , ... , there is a, question whether there is, I, sufficient or I'n.y' reason run this case no depan from -'he approach o:f e,sN:h side be,a'ring :ruts, ,own costs," (emphasis addedj),

li 116~ .E:D F Di'ss _ nt 'R,e:gardi:[I,g 'Cost:-S, 1 4,.

ll Li • h~t~,i Tlm''Ull;de'r;/Ji,rtl, Separate O'pi nion I " ~ 24"

118\0 E'D',F~ :D~SSl ... nt R,egardlhl"g ICOS~~", 'I :~ 2, I( "!'T,!1,er,e Imlay \!~e'l ~ be 300d und!er'lly ing. IreaSJODS for 3]ppl,ring the loser 'pays doctrine .. ~ ' .. ,n).,

['-V' - '~ s: 0 9'77'

IO.lt., yl ~,_:/ , - _

f (- '-1 'II f d 'I, ~ .e h ~ . f' . .- "1 d I ~ d .'"

o a ~ orma .. fU,JJ"e 0_. stare i~ eC'I.SilS; the existence 0 sett e .1 regai •. aoctnne

might demonstrate that previous tribunals have a ready identified, evaluated and reconciled the '~,S5U,C!,. ·.o':rthy' of consideration in resolving ,8 specific '_."Y-I_ of legal problem!" 'I' conomist and.

nhi ..... -: ... ','" ;·,'h··' F,A'· Havek ',',-'. ed 'tho, 'II' '~I ,d' ""i,ll I", .d . '·t ,."'." f'i~, .... ~:-c-··-~'i··-:·~. p .1. Osop, . er ~ . ,~ . ,8 ye 1\, 8, rgue Il, all, .J U rcia ~ precea n sa e g ua r ,S

I 'the experience gained 'by the experimentation of generations," which "embodies more knowledge than [is. I possessed '-'Y' anyone."!"

J'D' 'R' '. 'o""IL1I'~'n"'e-' and W::',gl' de's . "1" '-''Wl:'!I;J' b ecaus ']1-' th e E-·"-D·F~~ a nd Thun d erb ird

1·· .. \1 ..... '?if '.' Un. I,.. _. _ Un I. J.' ~I _. 1 ... :-. .. I'f,¥ J.' .' IV~!U _ " .. ' :'_.' ._-:~._ .. ~. ..' .:_' :./ J '.- : _ • "jlf~1. ~ .. _ I~" ' .. ' ,~, .. _:_

majorities did ,810t support their decisions with. orecedent, the decision s w'.· ere presu mptively contra ry " '0' estat li shed la 'W-"~ III

• J' -.' I .. I I." ' - ... ~ I 'I' ,. , . ' ' . I ' , . .' I - '.- " I· -, . . '. '

• : .... " ., : I. '. . ,:. . .. , , . , .'. ' ... :'.'. , '. . . '.... ,_.... . '.' .. '" .' ,.': '. .... . . " , " . " .", .. :-. . .' '... II;

Departure from the American rule therefore, carne with the methodological burden 0"( providing a rationale for the departure, ,",8:d the majorities simply followed the American rule there w',ou'(,d have been no such burden and '010 need for additional justifications,

But it is unfair to, give such cmphesis to nonbinding precedent, because investor ... state arbitration recognizes ot rer sources of law and gives them equal or greater doctrinal weight Under Article 42(1) or th .' , W···' '3'· shing to 10- ·C····· '0" nven tion trib unals a r ," '~'O"-' ap p~'ly' '·W'''-~IO·I sources '0' f '1-"8" '-

111. ~",_'., . '_ I I.' I,~! ill 11,1 'JILl" '_'_ ._' ,.) .. ' ILl' . I. I I~ ,.W. ' ... ' l_!I....:U;I~ J '._, I <-_'. Ii ... · !.':_' :. :..... ILl '_. _ ' .. " ..... g, , <_ ~~l '.' I _, __ ' ,

when 'the Convention. the investmen treaty, and parties choice-oflaw agreemen ts leave ,8 q uestion unsettled. First, arbitrators "shall 'g, p'''p' '11.y' th Q, 1- g 'W' 0- "f~ th e C'" on' tractin g" - S'~ -, t ate p' a rty , 0" t h ~I d i sp 'U 't- e ,,·,,122 'S" e j9'O" n d

Y'" r . Jl- I,~ ,u,.. 1 .. 1. I, i.... ...'." ,- "".i,.. . .I!:,' ,> I!!;.,. , _. ,- _/ _. ,; I ~ __ old, • '" ._, _I:... '" >..._ I~. 1_ .

arbitrat 0" 'Ii"'S . h '~1'1'1 apply "n tle '" o f" in tern SI't-1:O""n"-' 81 1 aw ,~, 123 This seconr

',- 1,,_.. . .I,J[ .~. _1_ ." ,Ji,1 ".',' _.'lIl.. 1.-' _I, I ',1 : '. ,[ _ .. u J. _.:l! ..... ' ,11 .• ,~.Il.I ...... ".L" _, _ ;Ii," ....• ~.~ _1, .I lui,: .~' 'II' .. , •• .11.;;) ~,_ i~ ... _.:,_ ,

S,o'"Uf'CJe" 'rules of international aw '~'j) is the wi.D.'d,ow t - rough which investor-state arbitral precedents may affect future disputes, As Waldie himself observed in, Thunderbird precedent properly applies in an investor-state dispute only because it is a traditionally rec . 0" 'g' - '0,'1" ZQd'- su b comp o n e n '. or p' ub '·'1'; ro' inn m a tio n a- 'II '11"'.']1 ·W" -. [2;4

.~ _ ',' ~' ,",'_ '_, .'~ .",,, . 1.1 .. I_,c._ ._ ___:_ ~.i _ ,'):,:,11.1"';' ,iL .. :._:. .. j,,!j.!I." ,_=.Jl Jh;;.I.:: a

But precedent is DOlt the only eomponen of int ernational "S,W, n .. or is, it given the :0110 '. t deferencer Tn fact, both the ED',P 8'D,d Thunderbird majorities also 'based their use of the 'n,glish rnle on Ian eq ually valid subcomponent of public int ernational law" "general

11'9'~ Seeiotr_ HE"R.1f MERR.YMAIN '& ,R,OGEiUIO PitREz-P~IER.OOMO',~ 1iHlE CrV1L ,-I ,1\\" " RAJ[)rlfIO:N~ AN INTRO'O'UCfll.O'N '-_ 0 THE l.[E'GAL SYSTEMS Of' EU,R;OPE AND l.A'TIN ANfER.JCA 41' (3d ed, 2007) (comparing the use of precedent in civil ~,m,w and. common law systems),

120.. :~ :f'.A., HA'YlEK1 :LAW',lEGISLATION AND LmB· -RTY: :RULES AND ORDiER 119' (1973),.

12M,. E·DF.,'issJent Regarding .••. "O&~S1 . _, 6" 10.: ,It!I~I' TI-,~'U[i'(_lE,rhir[d .. Separate Opinion, ,: 12{i,~, :1291•

122. ~ ,8sJU'llgJlOm Convention. Si"prtJ note 4l~ art, 42'('~)1 l'1' ··'~S .. T. m'l. 1286~ 51'S 'U' .. :.'_.T~:::. ,alt.

l~"",

IOU.

1 ,23" ,IId'.

124" In t 'l Thunderbird" Separate 0 pm n~()n) ~ 1.29.

19 •. 19,- r 7."

. .,

principles of law recognized b,y civilized nations." '125 The, ,.ED,P' tribunal .. for « xample I ann ."'U need tb,8.'t--' :~:.n, the instant case, and generally, the Tribunal's preferred approach to costs is that of international commercial arbitration and, its growing application to investment arbitration."!" Though the majorities did. not make this doc . rinal link explicit, ~" uch a. statement abou in't ernationa - commercial arbitration Clan onl Y' be interpre led. as a re -I .re I ce to ,3. "general principle of law ~ ,,~27 That is the '0' ,-ly' basis OlD which a

reference 'to international commercial arbitration, an. entire - y distinct form, of dispute settlement could 'be meaningful in an investor-state arbitration, Indeed, at least one writer O:l1, legal costs 'has concluded that commercial arbitral practice :is; evidence of a vgcncral principle" S'U ~rpo:rting application 01'( the English ru~,!~~,W28 "General princij .. i'les, of law recognized 'b,y civi ized nations" are also a. component 100f public international law and are doctrinally granted more weight than, precedent, ] 29

Therefore, because the majorities id mtified a suitable doctrinal basis for their decisions ,8, general principle of law as evidenced 'by international commercial arbitration=Rovine and 'W'lld,:_' were wrong tOI insist ' hat the burden rest ed squarely wi- h the majori ties to identify additional reasons sup,:plor ing application olf- he Eng ish rule, The majorities ikely could have articulated the link between commercial arbitration and investor .. sta e arbitration more clearly, if only "0 insulate their decisions from dissent. Likewise, the maj •. orities could

h a- !1:~le·· d ra "'W" . n ,'0, "0" se v .. e· era ··11 oth , '~'r' ap .. ··!'p}II' IC' '3'·" b e "-""'1'0'· ." urces 1"0' ·If·· II a W" th ·8'- ··,t' '11,'1"'10' uld

, I,". "" '0". ."; '. _, •• ' '," ",_ ~" ," _ .... ..1 '," -.il I' -. , .. It,. ...1 ", .. 1. _" ",' ,',". ~ - .. ~I ', .. - I ,- 1 _ ," '. ~ " ~1t. -e .••• ,":___ • I

h ave unam biau o-"'UC!'I,U supp orted a"PP'I- ication of the 'E:__" nglish r mle A· .. ·'··· n

,CJJ, .. ·.1. . ':_l ._/:',__ ~ • ',JLo, -_'. . .- ... ~I,j· ~. _' .... ', ,,'j' )"."" • I ..... '-_. , ..... .". : .. Jl"~'.' '_." _"~I .. : ..... . '., _" _~ J .~~'. l.l~1 . -_l.· Ii! .' ~

examination ofthese sources follows,

125., lot 1 Thunderbird G,a:mrn:ng Corp, v. United 'M:f!;~dcan States Arbitral Award ~ 90 (N,AFf,A !eb., 1. ~ Arb, T'rib~ Jan, 26, 2006)0. '!;U't.p:/J:ruta.la,\'J"urvwc"caJdocumentsffh:undefb+'fdAwa,rd ... p£U:.

i 216,~ E'D;[f" I~S ervs .. ) Ltd. v" ROlm:aU'f:a,~ '[ CS'[ D' Case N 0" A,~- B.f05lI31, ,AW3 nl, " .321' (Oct, I~L 20091)~ hUpi:/li,'csiJd. wor~dbank.,or,gI]'CS 1.,lfFm'o:n.'~S'erv~e~'?'[n:~q,rnJestT:')JP e;;;;;CasesRH &; aclion Val=:sb~i\1f D'oc&docEd.=D'C 1215'_En&ca~eId- CS7 ,

121 ~ .s ee infr:(J Part I I.,C,.

128" See John Y ukio Gotanda, A ward ing Cos Is' a,tul A tiomeys l' Fees in ,1,2 ternaliD'nal Comttu!,rclicd A ,rbU r~',ri,(J,ns, 21 :M.l(;H., J., H_lI'L ,L~ "1 ~ 34 !&. n, moo ( 999) I( 11''!['f]Jh.e pin nci pl,e Uu~.n. costs ~oU,ow "he event is almost '~,n~.ye.Flian,)t r,eco,l)n~ed. fndeed, it is !O we,l=ac-aep'i:ed 'lh,,111 :it :mla~t be

- _i'mi.-iii";I!i!,d- ~,~ ;]j OAll'Iara~ erincinle n,lF ii"",rII·e;;;rn~Iii"·loHg"j~ ~1~HillJI '~II 1''€O·OlillJ'!ji;if'iil;;m. nm- ;,iI!·;t·ad'I'

"'~i!;;;;''f1l'~.. as 'Q, ,~'!Oi-, ers I~ r-- ,I,IJI, ..... ~.:I:": ' u'l 1I111i~ .'~, U,I~ r- :illl tJll W""'I!~' ~ ~ I" 'n , '" !II~Y'~""" V 1i,I!I.'"I~'.} ,},'

1291, See "","(J' P'aJr~ ~:ll.Ci

D UK'E LAW J'O' U' R'NA L

I.- ... ·""'·~,··- . .:.:':.1 ... ::' ,,' ' .. 11 ••••. =- .. ~',,-,':" ,:'_',-.

A~ Ex; .A,nte Agreements Are' Generally' Silent as to How Legal C:O,S,CS Should Be A,vvt/,,rded

As a. preliminary matter 1 it is important '1101 riecioignize that the sources or invest ment m,Q,W specified in Article ,,2(.) of - he Washington C .on .. ivention are 'DC 0"'-'· a1'1 0·····(' eq ual weight 'T' 'aking its ba s . iic

" I ... ," I" _ .,/_." . '.:_.·II. .... _. "._ . ,. '. ~. J1· .. :....:.· . Q._,'::':': J .". Il.. . JI..I, . "". <:_' . .:_ .. :_: IU), ..... .1'/" .'i~l _' . I. .•.. ," ' ... ,: " • '.' ,".. l~1 .

structure from commercial arbitration, the •. investor-state arbitration system giv __ S priority 't01 sources oif law chosen by the parties to the

dispute _R30 'he •. refore. tribuna '~'S, first look ·t',·O'1 '~' .' W',· ashington

.. _h.illl~' _,_,!!I __:_., i._"w-,·_: .. "" .. _. L~,lI.·._J.~,. __ Jl·, _.:.'L...:,··i l~'_"_:"'l" _ ...• I'~~,_. .1(:4_:"'_"L"':.:=",_l' ~

Con ventio "n th e' in vestm ient trea Y and anv other ch oice of 11~W'" rules

_:1. ,1,:"'1, I., ~ I,': ,JJ. ,'If:~ ~I~ •• : ~. ,-- 'I..;-,u. " ,U, •. I cJj,:. IJ I 't,. f' I~ ':',JJ",~,-I ,_ Jla'.'. . ,,:Il~,~

selected ex ante by the parties, It :18 only in, th,e absence of ex ante agreement that tribunals are obliged to consider the two gap ... fillers-> that is, "the ~,a,w of the Contracting State party '110 the dispute ,'l ~ ,~ and such rules ,0,( interna i,oiD,a] lew as may be il.'ppl ieable." UI

Unfortunate y'" ex, ante agreements rarely provide guidance 0'0 the distribution of legal costs. 'The Washington Convention which governs the procedure of lCSimD~app,o[in.'-,ed tribunals gives arbitrators complete discretion under Article 161.(2) 'tOI determine h,IQW legal COI,'tS should be awarded: .i' [Tjhe Tribunal shall except as the part ie t. otherwise ,agrlee ~ .' ~ decid ~ how and by' whom those expens1es ,~ ~ ~ shall

b ,. d ,- en O· .'. - h ts of 1- 1 d d - '-1· '

'e p,aJ~ ,., ~',. . •......• t ~ er sets 0'. common 'y selected ,plroce,~ urai ruies grant

equally broad discretion, I -or example though the rules authored 'by' the United Nations · •. ··.,olmmiss:i,on on International Trade Law (U'I··· .. "C'T:\'A,L) hint at a presumption that r __ rbitrators should a ppl y' the English ,~'U~,~ to a portion of the costs" arbitrators m,B,Y' apparently rej ect this, presumption for wha ever reasons they wish, ]~l

~,30., See ALA.' :REDiFER: '" M:A:RTL H'I 'ER,,, NIIGEI. B,LACltA'S:Y ,_ Co,. S.'f'A--TJ.' ,

P'ARTA~UDI,ES,= lA:~W ,I\:',D' 'PIlACfII'CE O,'f' ,['ITE,RNA -rn 0 _~A,:L 'C'O , .. m ,_~ ERC'I'A -'. 'RB rrR.A TIOI'I [94· f .'U~ ed, 2!OO~) I( "I ~ h~ ,G,en,eraUy :[[eoorgn i1z, d 't hat parties '~O :an i nu~;w.:Il at iOiF:l al cemmereia l agreemem are 'free to choose fali ~ bern se:1 ves th~ l~w (Of the ~eg3Jl ru ~e.s) applicabl e to Il hat. agree ment, ~! (foot'l1o~e ominedj).

li3-,L 'W,3'shing :011 Convention, supr« note 41; art 42{ ~), 11 U . .s.T'~ at ],2.86, 51,5 'U'.'N'.T.S. ar mS)6~

[],2., ,ld. ,art 1611 (2) .. :~,7' 'U'.S .. T~ a1 l2g~,~ 515 U',., ..•... .r.s ~.I 1'g8,

~,3,3,. Rep ort 01" I, I:iU! U [dt[ed c:: aiUO(I:UI, CommrnssiOfii on 1:0 ~:erna'mion al Trade Law, 43 d S ess., J un ' ,2~I-Jul_y 9,. 20 m 0" I rmex " art, ,42 'U J' .' D 0&. AJ65' m t. Q,A,IQ R 165th Sess., Supp, >_ o, m, l' (21n O).! tt vailabl« tu 1J n,ci,'I: ral,(),rg/pd:~/ellglli,s h/t,extslarbi~ra tWonlarb"rtll:esl=n~vised/afb-[f Ld.es-[n:!~;vj8ed-2>O 10- e" pdf. Article 4,:2(2.) of the 'U-'-C'ITR,A L Rules gives tribunals, complete discretion, wi 11 respect to, auorneJs,~fees," ill. annex 1, a.rt4·2(2,)i, although -, ~ic'te 42,(1,) 'provides, tha,~ '!I[t]be, costs o,:f 'the

,BJr'ibrn tr,llll,o.· 'il?:!i'_m- - ean ~ ng· ladln9il;m,·'~:iii"Ii.g'11 ~ v!"" <ii"iii"'iiC Iil~' gilT'll d arbl ~''ij'O]jII[-,n~,I' '~""@Ii,"O_'.?i'~'I:..IjjI] m ,j lii'il P' r' i [nl .... m'p~ ~Ie be !io.nl]j-'n- riP·

~_ _. ~ __ ~~ t&l~, ~ "_' 1 '" ~_~~.J!! ~l~ J ~Idl! _ 'W' 'I!r.'~~~r!ill gIIL.f-. D llYJ llJ.ll U IVll ~ ,1L'~v~ ~IIJAp.J_W bllU . ,_".d'r~~~ W _' U - IILJu _~

~, ,

I '1.,..... . I" I ·'-1 .J. 'III'. 4"2' '1"

-Yu)t:: unsuecessnn p\afly~ ,~'tl., annex JL\,~, art, ':': .' ,~

'T,h.e eurrent Article ~,2 was lorigin,any' Art ic~e 40 'wh,erru '(he U N,' ",'TR A L. rules were fil'sil adopted" Arbitration Rules o.f the' Unwted Nations Commission on International Trade 1.3'Wi G.A,,, Res, 3 J98; U,.N" Doc, AJRES/31/9'S (D,ec. 15'1 '~97[6)~, but was rennmbered when the, rules

201 ]

ikewise investment treaties and choice-of-law agreements are almost inva "i,ab'~y silent ,on legal costs, leaving arbitrators with an

'unfettered and arbitrary" discretion that makes both tribunals and commentators acutely uncomfortable.?' Professor Schill, has pointed 'O'U_- the irony of this. broad discretion, given that any discretionary exercise o:f cower without a reasoned basis seems somewhat contrary to the spiri of i~ ternational investment law, nti After a'n. investment

, '

la:w does :0", t nermit states to tr eat foreign investors in an arbitrary

manner. Rather, investor-state tribunals require judicial and administrative organs of state governments to base all of their decisionmaking on, adequate and articulated reasoning." and they U,- animously agree t . at arbitrary treatment constitutes ,3, breach of investment -'trea:.ies'· substantive - protec .io'ns~,rul" Admitting that their OIYl,n decisionmaking 'with regard to le"g,a,'- (;)08tS is arbitrary Olf unfettered would place an, investor-state tribunal in a position of hypocrisy ~

To dispel the discomfort surrounding their . 'unfettered and arbitrary" discretion as '0 legal costs, tribunals, frequently go beyond the ex ante texts in search ot legal principles 01,0. which '_'0 base their

decis io "n' " hl~ 'S' ~'e"=lll "rich' draw ,~!C' ,- rib I'll' n' '\'li ls 'to' " ,Q; =X !!!:iii -on' - iine t he law '0' tf th 'e' '

" . ," ,I.. ' .. I , .~.I,~ilill '. Ii::." IiJIr .. 1(,_!L.IL .. :"', .. . .. )' a',·: ~I .. JL ",' _.10' lUI. .. " ,_'." W.' '1!tA .. ~.. ~ .. ,": ~ l~" l" ~. . ":. .. [ .

d ..., ~ - ,- ;;; ,,'. d - ,- E-" .., - ,'~ - - - 1-' '[- I d d , Ii' b ]:

I omestic juns tenon a 'n': 'IP"'U '-'1 rc n rte rnationa aw 1'0' e I~ ',- tn nina 'S'"

",', "" ',,", _.I _" j,~' _, v.!J. :', '''C' _,,_, ,I',' - .-, ,ii., ",' _,. __ :, ·=,_C _ ' , ',' 'C' ,_c,I!iiA!,,' ,", ,1_, _""",, '~ !!,"', ' __ ::' I 'a, "

,-_. ,-',' ," "",,,.,gl..,j A"'-',~~"-",,,,,- R"'I'~'" ' 'h' '~U"-"iiI' 'd- 'N"~' ,~""",, ,C' ,'!"--"",- 'Ii"" , I-'~-i '1 'T- "0""

were, 3LmenUe~"i ,~ _II _.1,11I1I3,( ,ODI ""I!l.IIJe.s, 0, ~,l e ' Dbe ,.,3JI~~o,ns. ',- O'mmJjl.~e,e 0.11. Jjml~en!nUU1Da, ,ra e

LQ iii, .. " "'lI,",,' D, ii;!o"~J';,e!l!i».II ;; Fii ''''!II 0' 'I,ii'll '0- ,~, '1[)' 1IF''ili1 litt Res U" N Doc A" J-e'" Is:. iI6,~j' II:: '(' 'O~ ""' .. ' "'6-' 2":0 'II 0)1

tll".'- ~I.il! .~~ '~',W3~U .W I!~ ~ . ~ Y~I " .• ~'.l. . lIj. ~ lil. . ,_" _~~.J", ,U .~. ;.' ":_ JiIU~j ~ IJ~ _ .Jl . _ ~ll. ,4;. " " '. III _ ,iii

1.34-. See Int'l Thunderbird IGa:rning Corp. v, United : .'.~ exican States, Separate Opinionl, '125 (N'AFfA Ch, ~ '] Arb. Trib, Dec, 2005)" hUp:!lila..1 a w ,U vie .. ca/doclU:ments/l1runderb,irdSeparate o pinion .. pdf (an.a1y.zi,ng the tribuna I, ~IS discret ~Gm under the U NCITRA L rules): SchUll~ st~p'ra note Ifil at ,ti;,~59 (H",[l1ie disc[,eUO,DI eonferred U,PO'1iJ arbitral ~'!i"':b~lJ,ua,~s accounts fil_ ,I, oonside;ra'b'l.e ,amOUI1l,~ of III neertain ~J bl the :aUocat" 01111 0,:1 ,oos,t· 1 in invest mem trea t.y arbitration .,'"~).,

[J-S., See Sch m II] ~~n~p'7la' note 61" 3'( 664 -165 (~' [T]lhe ass,unrpUolll. of ,an unleuered d ~ scr,et'won nrna~ \J.yould ~]l1,ow teibunals toO decide the issue of' costs 'w.ithou:n re,8;1'rd 1:0 pt"IDO[i' p:r3ctice in investment

't.,. - :1 b" d - ,. deei . ki r:;;11 ,. '" ,.

hi,e;aty- 3Jru]~raUO!1:1 comes erose Ito 2H"Ur~'I:'Y 30.'_1 inconsistent '" ecisroa-masmg O~: a,ummnwsUatlve

, -,,' - .' -, , ,,- Iii!" that ' , ' ' ';'!!~'~"" v!,~:,." , f' " d· d~ auit b~e tres t, "t IUJ' der Bgenc.le;G" a practice ~,,: a'~ can consnrute a vtotarron o tatr an, equuaere treatmen _ Do ,_,:

i'n~~rJla~iona' investment treaties i,'f entertained by domestic adnnnistrators, !'~ (footnote omiu~d)I).

ii~". S"'" T".iC, -,~,- M" , ..... ""1 .. " 'Ii..,'· ,~ 'T" ,-, ',' d- ':s',~ V -U-'- "'-"- d -M" ,i~ '~Y'-I" ifC~ID'"

\l.JI'U.. . "ee~ e:.g., ~ --' I~Cfil teas . ,_, :C!!J.J ~oanl1,!U~enf.a'l'es ,1f/C,miC! "n," ~ "Dll!CJ i' lex'_.'_ an ,oJ; I,a les" :It ,;)

Case I o. ,A RB (A )/00/2 .. , ~ -_:\Y,Brd~' 154, (:_ 3,Y 2,91 2,00(3)'1 '~,O I CS]'D Rep, 1.34, (2004) "emp,bas;oorn,g the need fo consi teney ~111 the decisiomnakiag ofa ,lulitiol[D'Ulillg\en~Jf under tbe guarantee 0,' fail" and eq HIli ~~b~,e 't [fEM'I,~me,n~) ,.

137.. See:~ e.g. [HanU'S Gold, Ltd. 'V" 'U'ni~ed States, of .A'mer ric ,a, A,ward," (2)-626 (NAFT.,A ell. u Arb, Trill. June 8, 1009).. hU"p:lI-itaJa:w.uvic"ca/do,c'IJ:meru.ts/G'lennis._AwBrd_OCn. <p(l' C!'Pre.vio'U5 tribunals have indeed, :foun.d a certain ~_leve~ of arbitrariness to violate Ule o'blig,a:~ioD;s o( ,3 State under [be ifaj'll' ,Ind .~ql!l'ilable I~n~atmen! standard, Indeed, ,ar'blnrann,ess tba.-I:

Qont:r.o.'\rene.s, "h,t I lode otf la,w',~ 'ra:n~,er 'b,a,n Q. 'liu~.e, of ~.a'~J'~ ~~f'O 'ld !occas.iolll: S~ltPfj __ nlo~, ,on ~y fro:lll1i, :in'"es;f.ors,-, bUl a'l5,0 'fr!l)m 'l:ribll1n~ils. U).

10001

, U'KE L'AWJO::C' 'R'N"dL

. '~~"I.:~ .. · .... ~ ..... - .... :.: .. ,~ _:~.···'·rl.·'·~·"~'I.. r. ... ~:I_, ..... ~~, .u

may even 'be ob igated to ,d,Q, so. After all, if tribunals' discretion on

t "',' .. .. ,. t '..... '. !', : '. '-' .... '.' :, .. :-, '. ~1',. " "I:' fe ··t· .. (····· ..... 'd'" th ~"" R·····,··- .,' ," ':- ·W','·':· ·d· ", ',': . '~- 'd'-

,~Ieg,a cos, 8 werle ,ac u,a.Jl~'y u,n Ie .. 1 erie.,., ~" en OVID,e an,. '. ,a. I. e W,OUL

have had '010 basis 'for their objections in ED'F' and Thunderbird.

Despite th ~ co '0" fid e '""P ", wit h whic h ,.' he d issenters defen d~ e·,·d,: th e

1 ..... 131_, . ,li ... '. . I 1 ~ ~ ...•. I .1_1, ," I .• a~I.~· - .. I] ,IJ, = • .~,. _ ,~ • ,Jt~. _i '," • IL· _-"tIL 1.:'1' :_I ," ,·.lILI. ' •. _' .. " I L, e- '.

doctrinal correctness of the American rule" an examination of the

ddi Ii '1 f 1'" bl ~ d ''"'~ d '-b'-lii

. " .. I .l[ .-, ,I - - ,_ ' •. ".r- 1--1.". 1'- " - ,", ", - t' ," ," -:- . ~.' -'1 ~" '-, ---,- I"" -. , " ",-:' . _".1""' ~I '-,'. • .:. -'-1'- .-:' 1,- ,",-,'

,a, _ drtional SO'u'Iloes 10· ap,p,,,lca._.e . ,aw~- omestic . ,aw ,an·· .pu .. ,J,e

,~, c,t··,· .... " " .. ···t'~·· ..... -._. al 'It w ,.-. , v'" ' .. ' ~. " ib "'*"I ,_'''-. tti .' . I ·,t' h .'. --'!"""I ~ ~ 'f" - .. --c! - I'" .. ,- ...... , "·1'" ... ti .... --

10 rerna ionat raw=revears ~o.U·S Lan,. lEI. au. _ . 'OflL·Y ravonng ,3,P,P ica non

of the English rule,

B~ Domestic Law Supports the' Eng'lisI1; Rule in All Disputes in whicn the United States Is Not ,(J Party

In. nearly every investor ... state dispute, application of "the law of .' 'be GOI- tracting State party" supports ',,'pp :~.,ca'ti,on 01,' the English .. ru'~.; '!' The te -m "English rule is a, misnomer made ',~:D Ame .. rica. ' .. early ever:y domestic legal system in, the world whether be longing to 'the

co' 'mm' .- .... o-"n law'" '0" r' c·,11!'--'''1 la 'W traditio - ])9 "f"0"110"" ,.it." - . riatio of the ~-~,

_ . i L " .ci.', .. ".... '.!,':lV .. ", 'c' '_'. L_'~_·_~, _Lin" ........• '-',W~ ,a, V,a:rllD 01 !J,.! e, rU.JL:

that vcosts f:::o·1]O···IW1 •• , •• th .e' event -,~, 'T"h',e- sing e~' obvious exception 1:S' f"Ib."

l I CJIl.Il. '-IU~. !i:J . '11 J -. " ••• - ",,' ~ '¥ ~ II •• 1Il . ',,,, . ,-.I.,., ,"; '._. ","" .. 1 .. _ IJIi ~,A, _ .. ~.' i.ll. ," ,.]. )., til _.

United States, which follows the American rule.!"

Some jurisdictions oodify_'h,~ )n.,gl~sih ru e in statutes Ol~

regulations.!" In others the English 'ful,e is a, judge-made ·p'ractice,.~4l Some jurisdictions follow the Welamson doctrine, which awards legal COISlts tOI 'the prevailing . -' arty based Ion the proper .ion 01':' its successful claims to •. , its unsuceess 'u .1- 1F";~I'~I';'mi :~, ~'4'],e" ':':P"I~'t,~' t hese .• ·· 'Il.~" '(--;;'8'·' tio ns ;:0- '~,'h·· .. ·

-._, g-=. - ~ . . l~ Q ~~ =~ .. _ ~~ . ~d _ ~.~UI~ ~~J , '_ ~_ .1 _ ~ .._ . ~ _. y ' 1. __ -_ .Ii, .. '" .~l I Jl~, ,~ .. _.-

overwhelming majority of' jurisdictions worldwide ICO'U'f'ts JS[W,8 -cod reasonable legal costs to the prevailing party, Though several

t3B., S,e'e:t :LO,RJl JlUS1'~,CE JACK:SO'N~ RlEv .. :ew 0 ' I: mvr L'ITIDG'lflfW',Q ,:_ .···OST.S': PRlELrn'~n I_A V :RIE rO:RT 2 j ~22 (ana ~Y2m D,g the rules Ion ~O~Us in the' ,n ~ ted ,Kj n.gd.om): 2; id~ ,all 5,4,5=(1,39 (2009) (,3'f!1,aly,zirn.,g 'I'he rules O:1ll. costs of other major common 13J'W jurisdictions in tbe wodd., inc~udl;n1g AI[uu.ralia~ Cal1:3dls,,-_. ',ew' Zealand. and Scotland, 1'l1dJ o:b.se;rvi.ng that only the United S~:a,~~s fellows the American rule )I~

:~.39. See' :MERRY,_AN ET Al.,,~ SEl.p'rQ' note 84." at U]2~2,7 (observing that ,a~l civil law jurisdicnons £O~~Oi~f :SOI,m,e yersruej'lll Ol:~ 't~!e EngHsh rule, 'lho'I]Jgb :r~'IIe. civi~ la:~liI juriSlcMcU.a[u~, ·only' appi:lly nleEn,,~Ush R.IlJ,~e ih) Ute !DOS~S ~'ha~' the oO'[ljr~ Dr ,adml~n~8tlia'I.~ .. ve 'tfibuna]' j,ncUJfs" rather than to 'both 'nbe tri.'b U lUI: is costs and ~ 1ll e !par~,iie!f a.'nt,orfu~ys ~ eosts),

],413. See, e . g., .. Fleisehmann Di s:ti Irn,g, Corp. v, 'Ma ler :Bllewing ICO~~ 386, U,,8,. 714, 717 ..... .1" (1967) (eonsideri ng the policies underpinnd!Elg 'the American rule); Arcambel v, Wislema.n" 3, U' .S, (3 'D~lL) 306" 306 (1.7961) (recognizing the American rule to be: U[t]li.e general practice of the Y,J ited Sl;~tes~').,

~,41i See Gotanda S~~p'rJ note M28~ 311 6=7 ,(,citing, n~h,e legis~a.~~i:on. ,of fr,aDQe.~, G,e[m;any,~, ~S'~~den,. and B,[Jzn)~

M42. See ,id. (e~U'l1\g jud,ge~made ~<JfW in CaD,adl. ,and A,us;tndim)"

l4J.,. J ~ G,~] is, Wet 'e~ " 'Cba,[f'], Pri _ m~ ICosts a'~~ d Thei, A Ilocafiol'l, iJ1~ hl, "enU:llioli a'.l'ConJ:nJ'e~~,i(J',1 . ..4 rJiilrat'iOJ1s -= 2, AM, REV. ill:NT'.L AJ~ B" 249 ~ .273-74 (.~ 991.),

APP'ILY-l' NO···· 'T1uE' E'N-' 'G" LIS'- H' RULE

.:.... :_' :.:. , .. <', ,._.: " rj ::-_ '", .- ..... :.: ... i1., . ',. . ••• :::' .:. J" • _',

1001

theoretical justifications for this, ' iractice exist," domestic C.-:"U,[ x most wi. ,e:y adhere to the rationale tat a claimant should 'e made financially whole -or a legal wrong suffe d and should not be sa isfied with a lesser amount because 0, the :-1' ecessity Or' suing.!" Likewise one who succes sfully defends himself against an 'U :IJustifie,d, C' aim should come out of th '::_ ... perience without :-ina:nciallo:_:.~l46

"0 at II'_' __ ' n tnree ca .'. ; ore in "e: tor-stat .. .ribunals arbitrate Sf

h ii" d 'b- '11 ith d ~ .. , 'I! II

ave iooxec to a ,01Slt state's law' either ,t support a I: I·:'CI-'IOID OD .• e63l1J

- .. - t 1.41 .' - di _ . - ,t' f'- .. .. . - ]~ Tbi= de '-- '_ <1+, - . i> th . at A' --t'-~' 'I' 2"-"('-)·

ICOSUi or tOI .:. ,ss~nl ... 'om O'Dr:_'" .. :5'- '·-mn:~·IIi:r,at.les .. '_8_ " ~rlIC e ,.', .

01 the Washi taton Convention is not a dead letter render . d irrelevant

. -., .. rbit '. t t, - ,. • - ,-- '" .',-' • '. 'f~' -- .. ' ~" T··L. - "'f'- .. bee . '. tln U" ited

ry ,ar r 1. .ra. ,or-> pre e· encl_. 1 . .[ case lla.W,~ _ uere ,ore': Ica,u.;' .. 1.-.: .. ' ·ru!J.1e:.

S,--,3' ,es is 'th~I.J·I.- jurisdiction tl at does not ·~-·.I~ 10 .. ' thre English rule the

Ia 01-' :': b:. Contracting _la.te~.lart· should ,oonsis,tl ... ntly support

applying the . 1 : nglish rul.e W,'-I , .'- ever the ,f"- spondent Is not th.' United

States,

C.' ~ 'T,L E- . I'!' h- ,. l- ~ . 1.1 ,i I' • I

~ J ne ~ng'f; ~:I'- tuue in r-',r)'"lC ntemauonat .- W

T.h.iOIU.g,h arbitrators - ia ' .. 'I::_ 11'.01 ced :_ ,:. . .. :: omestic ir certain decisions ab .. ··ut· 'm. 'g~111 eo 't'.. tb y have r . srred tc 'PU'-'b11,;,c. inte mati aal

.. ,~, .. ';,!1.'_. I, .•... '. ' '. : .. ' ,_ II -e :_ '. i'-'li,JI. !. ...1 "',- IIJ,. i::, .. ' '. ,.;. ":' 1:- ~_'J. .. _. ,Ii,'.... "". I:__: . 1.111,': . ,Il.~, i rUl .. II. .. 1. " ... 11

law in many more. Indeed, as 'Waldie rec ~'" znized ux Thunderbird

l44,.,te Th nUlI.''-, ~ ga,l' Tllt!o,_' ,of ,A.trf'ome . .' Fee ,ldftilr., -.:' A ,Cri(c(Jt'

101 Y,e'flI ie w ~ 19~ 2: 'IU KIE :L.J~ 651 'N' 653 I( elM n . i· '. 'U ecretieal ground. fo(1i' the pr _ c~'ic\. ).

, 45 ~ 'We:rner' Pfe nnigstoef TIMt ,,·,"'0' ·an Ex.perie~l C' . '!NUh' A . .tt.orn;ey Free ... " ift,"ig 41' .A \V '& '. ONTE. p~ PRO' :" 37 65-~eo' (Wi.nh~r 1, .• '84) (cibn,g, Italian, . "", rman" and Fre ~c'b authorities).

1 6.. Id. at 6~'.,

141.. .s~f!'._ M- I. zeeh RepubUc c:, v. I': NeUrl~) . Czech R,_ P1J.bUc~, Final A w',ard, 0:0 Damages, I,r, 648-64.91' ... ,,"I :ITRAL', 'rb, ~', ,or., L- ,~OO3)~ 9 '~CID Rep, 264 (2\6) . referring to Czec

:aw)", see tJi','O, Ki ~ uma C'afforni,a -=·n'~ rg~ . "'I" [Berm} " ,. Yf (P 'rser,o),'e . !'ah,lsiin Lmstr Ik ·N·,egaJr3. Indon.), ,-""mu)j~ A'~\fardt,,'- 3{. (' -:_ Cr.-c-:--. - _ L, A rb, May' 4" 1'99')" re;p,il:t.terJ' i~!~ . j. Y JJr.. COMM~ ,A:R.8. 13 1(2000) (referring 'to Indonesian ~,a'.~ "be host state's ~aw1_ nd II.. . .. .-:~ Ilo\\{, the law 0._ the investor' , home 'state). In. ,llimp'unuJ .. the t ·,i,bunal.-ecided Dot to 'ward costs inpart because: it found lhat litigants ''0. both the Unite _. States IDd . ndonesia 'broadly j bear their attorneys fe ss, (. yen t hougJlj lID dO'D<. si.-: does bit fact re q uj re uns ueeessful partles to pay the costs thatthe court. 01" dminis'ftativre tribun.;d 'i'IlCUf',. MERR.YM-· ". zr AL"j ,'~J;PTitl·1ll,o.'!.c' "-'" 1'_ H)r26-27.

l !'m Pro essor '--:-Ildc'- separate '01 Ii '·'ol,m WD. lluIMldr:bi'rd. rCOiRd eted a. comp '-, "live. ~uuL1ly; is 0(( d.olm. ~,tW.e a w across the ,con~ip:~f: ~ ~o 0 iog br'oladly' to. ~~p :81,(1 ice hIli - OF~'h, -.m, _ rican r~:jgJ:iop an. arbitration, -- 'see' IliIrl'~ ThUI11, , erbi rd Gaming C rp, v ~ U ·1· ted M.e· ",C, n'l ~ tes j! Separate 'Opinion '.~ 124 f'" AFf,A en. 11 Alb. Tdb. Dec, 2005). '~lltp·:IJ~ta.1a.'w.uvlc.caldo'Cum. ·.DIs} Thun.der'bwrd': epa ra,telOpinion .pdf I(!>·' I In N orth American litigation and ar bit ration ; , .. m - [,~lee shnting' is :'.' a rule only allowed ~'Il else 01' m~soo:n,' luct-oontempt of' 00 _ rt, incompetent or uaaeeeptable ~irUg.arl'io,n conduct, bar ~ '[aw~h, :in arbitratk rID or fri~ ·olo'llls claims," (footnotes oained;) )1., P'JrI'Ji . ·:SOfr ~.~~ ','··Ide 8; fi' din; " do not see J'IJ e a j ~y reeo c~able \\Vj th Lord J U1s~i,ce J aekson s des crru ption ~" of Ca adi,eu'iJ practice ~ see 2 J A' ., ··.0 ' !, ,sup,rt~' 'not~· l~'" aJi I·· 5 or wilth Professor !GOrtan.da-~!, descriplHoDS o'f M,: ;xic.a_~ :practioe,. ,-~ -. Q,_tada, . ~lp,r:t2 'DO ',e t',~ ,ii' 8.

10012

[V' 10: I 6'10' ';;;9'-77

',' '. !! ..... ·,':iIi ,', ,

public international law i the only cha mel through which precedent

. . ~'b 'Ie d 11\~- , .' - - d -,,", 'I. 1112--:"'('1) [4'9

," ,a.y ente r i.:. tribunal ~'I .'c, ,~.~, ["I:-:'E",8,tl,C-,- '_, P'l'Ot,. ~: .. J u,n, I. ,I • r . ,' t, -- l,e,II .. ' '''f:' I .1 ,I~I

he content I~)'f oublic international law is D .. ' I de .. fined :(0. the Washington :010 rention, but it, is wel unl erstood 'tOI consist of the

iVI.~· components described in. A tic e -'8( ) of tne sra ute ot the International Cor rt 0' Jus ice, t50 A two ... ti ~ re d hierarchy .: xis s within these five components .: he three sources ot public ,~ iternational law

" ~I d · - II I., ~ - '. II ,- d

tnctuc I:,. 1- ',~ II: 1.- nanor ,3,. IC··· .. n .1=-nUlons .' mtern .. nonat custom, anc

1(, .... -- _."'. "-I ""~-, _ .. ' ~ 'd b- , "': ••. ed t ti - . Th' '['-'-'

~-ge'I' ,ea, :lrt:DClp e Ol 11,a,_' recognizee .'~ CI,V1IZ. I,_ n _~I.~:C" .. :_j 1_ W. '

subsidiary means of den rmining inte rnational law include .' ju licial I ecisions," such as tb _. awards render ··d 'by investor ~:', tan tribunals,

d b hi f h hi hl liti d ".,,. I h

1&01 t ae tea cmngs 101, t -I: most n igJly' qua" :~'~ _'I': pu ':1 "IICI.I·tsl' a. Pi " rase

which ref 'T.' g~ meralh -. tc academic commentar ..-_. inti' .. , ati 10: ~

,-"" ' , ..:_..' II .. ', .. I.,.. '.' , _: . I .' "'. I.. ! .. I ',-- __ .... . I " ..... " ~':, .. , ., ", .".. . ._ .. ~

raw. U2 Doctrin ally, when . ,~rl.~ cedent or academic commerr ary is in conflict 'with .. my of tl e primary :,O'U.:rCI~·, of in,' ernational law. courts and tribunals should follow "hie, '-'rimary'ou.[<c .. s~ m public

~ .', 'I'd Ii - - .

u ternatio - ,8 taw, prec :' .. en t ano acs _1:_ ennc commentary I.~ 01 n t

I . 11 -I. 11 •. .. ,. h

_::rl ate ru,_~>< I', J!3, "C" IC-'U. I .. DJ! ' S ~r 'e ,ar, 'm,e,B'ng ll'O--' I .. l.~rm1nl'og S,UI~._,

rill :11]- .. s ..... lj'

lU " [.!!

CO-:IS"'!_' ering the almost universal accepta ice ot the English rule 10:11l legal costs in domestic law Dean ..... otanda has 'pr'I-~:.OI8' '.:- that t:ru ,e ':"C10'- sti ute ,8 general principl of inter a, io ,8 - law" recognizee '.' ci 'j ized '0'1'.· tions.!" '-".' - ":£'18 - prh ciph i.,. I:. f 1ar:. -, m .. - '8'-·'· ae idet uifie [.

'. ..,. ,,~, •• , [ _ ~ ~ _ _ _ 1111 • __ ' • _ ~'____! ,I " I . . I .' "_ •• • • •

J ,.

when t ,~~I=' natioi a laws of many doi ... estic systems converge though

'" ... :-- .. '--1- , ,. rld ... ide con . -- ..... :' -.' .It ', .. 'I " .. : lSS·' .. rticul ",

U·. ammous won WI_ .1_ converge nee IS not requi ec ~ n pa.rl CUJ1ar I

these princi oles frequently he pi intern tional courts settle questions or procedur _~,~.

19. bul Th£lnd'erbird. Separate Opinion ~ 129.

150 .. Statute of the Intemational I QUIt of Justice 3J_It 3'1)1 June 2fh, ]-·'4,5' S9~"J:'., _l[31, u:ro.

tSl.. lA' :'_)R,IO ·,'L1.E P'R,f·.'C-":LI!'S:· I.f' PU',l.IC ~':'., . R, A 1 ~O' A,l L ',:_;. 4 5 . ]998) {qllll~d:ng, : ta -lU· of 'he Int ernational Doorn 0 - ,J USII ice, SUplf'CJ' note 1,5U,! art, 381( ) ~." I' ':: UU. at l0.60).,

1.-'-2. Id:" a'~: 1'9~ 24.

l~ 1. B,IN C-l' ' .': G G.ENER.A PRJN. t: .LES OF LA W' AS' PP~E.D BY INTER - : A TIONA.L ICIOIU RTS A '., .' TRUlU : A . ': 23 (2. ····6)~

1, 5~t 00"1 anr . ~I ~,,~"pl"Q. note l2' .. 4 n.J.: o.~ B t~t~e€ [-: o't and a" s'~;l:p.m DO~ , 6\ , a" 11 I( ci Hog } 111 _ --:oHcy r,at.L;qat 0' I -e j.,ct,H I i~j:lt' , rather than, doc rine, a th - ba sis £Of ,ad· pll~mg the Arne iean ul '. on l'e:ga~ ICO . ~ .•

155. Emmanu C'I: aHla:rd, Us of ( eneral P rin ipl.' s of Inrerriatiolil,al t Q'~1 ill J'l'l,erlZ(Jfi.01!'tl'l Long-Term iCOJ1,t'{I,ct,~ 27' NT ,l':R'·. J\W,.21.4 216 (1999).,

m56, l'AN 'B,RO'WNLIE,. THE au . ,0' LA.'W IN INTE.RNA -~O·' AL AFFAIRS, 23 1(~99.8)"

2101.1 ]

APPLY/N':':, THE ENGLJ.:·H·RULE

1003

all commentators and tribunal agree h,. that

comparative domestic practio is th1e onh factor in i " ntifying a gen eral principle of law Som te writers insist that exami ration 0:-

. . u II "_ ,_ ~ I _. . _ . . ~ \! _ r, _ ! .~. !~ .1,., &. I' .... ~. _ •. .•

comparati ve ~.' .ernat ~ onal practice is also ,8, necessary st ep, IS Sharing

'this view the Thunderbird and EDF tribunals 'based part of their respective d .•... ,~ .. ' ions Ion ,8 n .'vi. ~'W 01' the tr ~ a anent of legal costs in '._ ariou ~, rorm ".1 ,. ntemati . nal liti gano i. , ;lllo't' majorities 1.0. :JIleled to 'i nematiom 'I com merci a" arbitration, 'which in a . :1' mse is ,a.n int rnational practice" though it governs private legal :- els tionships rather than public ones, I~R Th •. ~ E.D. tribun .,.1 a so considered what it

ambiguously called "the public in .. e national rule,' which, rrom hie context me :., . .'1: likely referr ~I.~·, 'to cases before be lei ." Professor './'5.11:_ ."~, Idi.· .~ n't in hunderbird broadly '~IU.-' zeyed ·I-·~· practices of the

WT'OI :_ ispute-settlement 'body 'hie European Court of Human Rights (ECHR) and 'the Iran- U.~S~: ··[aims. Tribuna ~ 1,60

.A'S a whole, international litigation presents a more divided and complicate d picture th,a.n~I':I~·:'~, dor estic I"":~, Althou h permitted

U··o··-:- d e"r'-' ;' •. ':'" tute "'0 ., - 'r-' , lega <ll"'!iO······:·· '-:. '1"'1 litiga ;1'IFiIi,g·.·· at - 0:: at its

_ . .I... 11,'11.'. . _ _ 11,.' !J). . ,I, .. ,-,u, rw,.... 1_, I,. . JI. .. 'jUi _u.iI!. _!U. , -. I.!J,. .Il.,.

discretion, 1.6~1 th,e Ie]' ha always folle: -. ed 'th . American - IJ e=-whicb s

unsurprising given 'the 'I 'J's difficu ties with enforci I~,.:·-'ward,s of ordinary .. ion etary damages." The WTO 1_.' ispute-settleme nt body likewise follows the American rule=which is even '-'_: .. :, surprising because f-', , "I'O's uemedies are Inj,-I.J~_. nonmonetary." 'B,Y Ie: .1-' trast, the E •.. HR a -I:,', j, 's analogue the ' nter American Con ·,t 01

.. uman Rig.'hts.IAC.'· R), both. follov the pro-claimarr rule 0

l51., IC'H T " ' 1-~prQ no~e 1. 53~ Ii: I,t 2-'.

5.'~ E,DF"~~erv.:.)1 Ltd, v, Romania, I, - <'10 Case' , ··0.. "', .• ~ lOS/JIl31 326 (Oct, e,

2009')~ http~1I i.csiid.,woddban·k.,orgi,I:'CS l ..lFro'n~S,erv~.,e~? req ues ,t 'yp e=Cases R '. aeri on V,a.~.=sbO'w Doc&docld.=D': ·1215._En&caseld=: 57': Int'I Thunderbird .. rning Corp, Vi . nite M' xican Staaes, Arbi'~ra:1 ' .. ward, ,. 218 (. .'. A Ff A Ch, 1· - rb, Trlb, J', _ ]1,,, 2.6 2006)" 'hU:p·:II~t· . ~a'w .uvi e, e;al dOCUI- eLLffh.un e I-i'rd/',' an:l.p~ [.

'~ 59., ED F~ AWl' ,d~ 1] :322.

Lr I., _"U mnf~'~ Thus derbird Gs m~n,::-:-', .', I xic,an; tatesSeparate O'pinwo-"

14ll= 141 (:. ,- A -, A 'C L. '. 1 m Arb, ,'rib. ' n, 26 2006 )I.~ bttp :nita .1, ,W.1Ll Y ic,c;aldocuD~ ~. nt:sfllhu Ide.·rbird ':. eparatefspiuk n.pdf (observin . tho ~ in the' WTO' an I un er the Eure ,: ea - Convents m on Human Rights, prevailing par i : are not awarded cosn whereas in '[he Iran. .. ·U .. S,. Claims Tribuna] cost~ h_ ve 'been ,a\vard,::-d ln r' .:n1), a f_ action of the cases],

I 61~ Statute of the Internatk nal . urt CI.· Justice : upra note 15'O,~, art ~'4~~9 ' tat, a.'n 11063 I( -: lUllles~ oth ~'wi ,'e decided ' .. _ the .. ··OlllFit each p8Jr~,y shan - .. a', L ,0 __ n costs,").

162. B,R y,-~,. ' .. suprQ note .53~ at [< -.

1163. Jd" It 21,6.

K LA-W'IOO-C·U 'NA' L

.' I..' '.~ !. . ~ '. ':.',. I .. '. ..' .... .: • ',' .

accommodate claimants who may b "indigent social outcasts, or mar ginalizec .' ,~,6a,

.' e ~ .:1'1 heles -:' int ~ r atio a~. Iegal prs c Icc soir etimes fOI.~. I . ',,::' the

. :-ngli.sh. rule. International comr .. ercii I arbitration, in particular, follows the English ru '. ,~_-2' the·.1tunderb.ird a', d. _~·.DF' tribunals observed." S,OI does th Iran-Ll.S. Claims Tribunal in -.IO'8t of tts cases." Ther ore. th II.g-. ta from, unanimous, international legal prac ~,c~ ;:tir -If". ides an - deq U,8 tie doet tna'~ basis for the applicati '.1 -. I .. f the Eua ·i,:···t~ rule Ion Ie ,:.~,J costs.

i

From a. ooc final standpoin .. , it 'is! not obvious how legal IC,.~:,t;'

I ~d- b d d '" ,i b ,~ " 'b-' h 'I' )-

':.:,I,O-IOUJl(.·C ,: ... ,. arc I:_'~ In:' rvestor-: tate ar _]'t~,a:tfn' ·U.' .' I ere l· at east as

'much su .. port for' the English r ,11 as fo ~ either alternative. Though

. IC' - S,· ID.· C'B' s ] aw ten d s·· '-'0 8:U-I'-' ·· .. P·,'·iO·· r t e I"'t' her the p-: o-claima nt rule o:.r if~:- ~

• .' "".' .1 _ •. l.:._ __ '_ ._ .' ", L '. • ' '. '. I • ..:... _ .•...• ~. ~ _ -'. • . . .1,Q,1l ' ... __ r , -, r ',. .• '. - ~.

, ,

American rule tribunals h ... ve applu '- .. , ,or purpo ted 'tOI apply the

. -·og1is,h. rul .-:c. in many cases, .·:o:mes ic law' almost alw 'y ... , supports the

. nglish ruk .. : ~ ~ xcepi when the '.' nited S~.-- ,~.S is la, par~- ~ to 'the I.' Isput 'i Domestic litigation prcvidesevidence thar the .E:-- g i:,.·"h rule is a, general pri iciple 0'" haw. but 'the practice in In: emational litiga .ion is more mixed,

I herefore, because doctrim does not settle tho que stion e:- . tirel r. tribunals are justified in moi:ng past 1'10 lr~.ne tOI consider public policy and pr actical real iti _ s,

Tb- O ~"IU -:-h-" . h .. le 'g .. al I :-'1 etrine pres " .. ts ". '· .. ·,0: m'-Ie"w' ··'ha:· 't- divided pi IC- 't- ur- ;

, . -,'. --. -'.. It _- ,t.' J.. . IL I 1'. ',: __ ' 1." - L Ii':"":" ,'_ .. _' _. .. .. . I· :_ .. :__. " ._. . ... ' ~ I' . '[-

-. I.::... '_' .

public polie considerations support :<·~·-,I:IC:.·tiIOin I.~f tne :ngl~:sh rule,

This is particularly true in t he :p,os't-2I007Jo]i tical enviror ment, Today the investor- state arbitra tic n system is regularly ace r Sled 0(' both

-64,~O t. - -~ ·::111 LTO' " 'R, MEDI'-S., IN ItfrER:"'AT~OI AL H MA··. R.I" ~i . ..\AY· 368 (2,d] ed.

~',' '5') B"; .'Iil' 'i'..o.'& ~: ... J' 'ii'iIO·III'··, 'L.r!I;lIi'UO'ii.1f ,_ ,[IIl;;;-t t· e -IA'" "-'HR L.. 'd' ,fnI110· .. ·d r.-:lA.I.·· ·-"",·m " 'I' , . ~,:iii

,L·~ .•. ',l ... , 0lI!~1j;. lU,. I. LI.' . I"mg l.h .... ~T""l.- r~ c~la_. ..,_.. ua· lilv..IIJ.We, ~ !o!1 e .A.me.rb"'1~.n ru ,e liInl~1.JIi

'(998)

'-.1'-"

,_' .' .: ~

1,65,. See Gotanda, s,u:pra note. 12:.·'~, at 34 n.·~6fJ (Iexp[~aini:ng ~bBil. most 00 ntri' s award C:~. ts :_od a torneys' e. '.~ which sugge ts that 'the aracuee IL a "general prin cip~e' of' .rn.lll~enTI,alt~o.lni: '[ ~.a~ _ ... ,).

l· .. ~ STEPHI .'. J, 10 OPE, _'. '~':' D m:., ~ER; AI: [·'A - - A ,'. rt '. ~I·O··· 3:· .. f 9:)Ii(nO'Hog t lallbl

, ran-i I.S C alms . ribunal, :iD Sy/~'al~'iQ Telcllnical·.y"l' I,H'S~, Inc: '~. IGlover'Ufle',li' of fhe /'sial'nic .R' -,)ubU lof l,.,CUll," Iran-U .S, CL· ri~ '. lep .. 29'8 (IS) "'I}_ observed th t the tribunal co -ld aWIJcosts only if ~h,ey we _ . rea ·<O'D3 ble),

1005

sho iinvestor bias and [of prot .[C~'I ':'. ,8 chillins ct [on, iost /.81 .es' I, ,,' gitima ,use of ' , olic ~' power. IIi? h,. pro-claim;lDt rule and th "

American ru e only exacerbate thes harmful effects by virtue of the financial incentives they provide to claimants and ~espond,e,nt' .. By comparison, 1'-]. '.' financial incentives tht .. English rule creat - S ,are fairer and m.orlf} (.[ -, nsi . :,1_' 'i'

This Part first describe he various i' ra acial incentiv ~'; each rule creates, Then it -"0 es the C' -_Jl'~'CI'''[o:n'S betw ' .. '[._-1} the pro ... claimant rule

ano the alleged Ypro-investoi bias,' with reference 'to[ Schill' argument ba this bias is ,8 positive fe at ure [of the investor-stan ". arbitration :"y" em .. h')f} 'inally this P' ,rIO ,an.a.I:y.ze,·_h:_· connection between application of the .",:~nlefi,can rule ;- 'old, n .e, regulatory [chi .~. that critics of 'the s,_ stem } ave observed a ad explains ·wh,.,-' tbe

". ,i, ~ hizh III] ~ ..

, - l'erlC'D r'_IJl.'_: encourages vmgr .... V JlU, "1 .~ w-i nUl~2nf;.e S'U' ts

against host states,

. 'IiI

aeh rule I. n legal costs oroduces a uni que . e'_ 0.' '~nIC'-",' ives for prospective par ies, The English rule e 0.- urages c aimants to brine stronger small. r claims." : _-:'Y contrast, the American rul e encour ges claima nts "[0' bring 'W'· ··e· aker, larger c a .. rns r~o ThQ pro-claim rant rule

~11 . .& I I. 'r_, _ _ ._.... .' L I: _~ .. '].. J! ~. / .. ' . I 'I . '. ~ . r" ~ '_.' .' • .:_ II I, '. . .lL . _ -11 .. __

encourages the 'bringing of all claims :001 matter how small or weak."'

.' . nder t - [.-c Arne .ican rlui,e because ~'. ·.'I_,'D ,8 'U'CC~' s ul IC',~ imant is .. d . b '.' . . h ' ~ 1 'II ,i, ,'.' di d requireo to b :.: ~. r 11 ,S, town costs, tr ',Ie :rat .. :' nai CI']ma:n't ts ursc ouragec

from 'bringing, a claim or : 'n, amount les s than the cost . ,If Iitiga ing

67'., :.:ee :w,~,p[ra' notes "'r3-.;,'5, and_.cco[m.pan;- ~'ng, text ..

6 :'~ < Jitm.t s 'l:P'.ro' .. ote 6 at 65 l' .

16'9. In Ut".s d ise U55 iOD" the st ength or weak ness, o:f " el im 'i s defined a's t'h ~ pro babili ty of irs success at trial,' claim may be [ad· weak or strong," vi rtue 'Of its. factual or ~e,·al basis, The s.~ze of a claim, by contr,~,'5t, refers to tb . moueUu:y amount .. ··lLgb~ by the claimant in damages. 'el! e.,g.,!, A. ',el}' I/,RI z, , . "easu"ring tl,z . ,.L mondfor ,Lif,[igQf,i(J'~ 1'-, the . ,: nglis~1 ,R.',ul, ~ ,Rf!l€llhJ Ch[eapt;!'r? 3 J..L. :EICC,· ~ &, .'. '.RG., 14.:J[ 156 0.987) (.;,[ .'1_" 11aiolifl \'. i:Ul a ~!O\\f ,es~ima;t.e 'o[ bi~r chances '1Yill :ghr,e a rela,(~v,el,-' h'~I-h ~ eigt ~ . ~h. ptCe pee of mdem_I1'if~1im ' her opponent and will - .~ 1·,,· lne 'med to sue, For analogous r"aSiODS however '[he. lEt1gU.s1ll rule [_Doourrag-s, plaint~· fs '\ illl r'e'~ili.'~i,ve:lly ~,ow ratios 0[,; 'rota Ls , . kes to ~o'l:l"I[ cos r nnd re ,ativ,ei.y hi zh pr ba bilities 0 f ViCi~'O ." f 00[001:. omi tted] ,.

170.. See e,.g .. , Prichar . supra n te $. at 460=6,1 (notin .tl ,[ 'th· . meri ~aJl cost rules aUowing IFOUP. and elas actl[olO lrut~gaf.on; e;x_' a,nding the scope o:f ~ifgatrno.n, and 'pro'v~w~g minimal fee ':hiftjn,g do DO - en ate rns;mi.nrlol:a~ba lers to rtiga'hng Ill .. _Ie~ ~" gtd t ' eorii ..

111., See; e~'." H lbo[1ll1 SUPfiQ '[rile .5.., ,at. 445 (~". [ e inc _'lU~'VI~ (0' brio'.' j~ i :, re at _ r under 'U e Pro-pJain.'h(f. ru~ . iha ' und·.'" .ltherr the AD1eric:arn or 'B'I]"' ~I'" 'rule, "),

··06

• i_.

'" f h ,I I ~ ,. . O· . -' I'll 0··'··'

I:_V,:n :[._ tne pr - _ venng on t .:' c aim is It percent, ··0

the ot ner hand" the rational c aimant is encouraged to ... ring a claim if ,- be amount I.'. - the claim discount ed i-:y 'f e probability of losing is sreater . han the clai I--a.--I s 0;':' n legal CI,'I~'I s, ,ev,_ n i~ ('1.1 -~ robability ot

losing 'is very high.!" . 'herefor ~ a claimant under the American rul is encouraged to bring a weak, large claim but discouraged from

. t' I" I: . f •

bringing a. stn .. ng, small c aim.

co--' 'as· ... der 'the Bnglish

I .. J f',_t'j _, UD'.,- '_ - I,.C:-: . : I ...:1.1'; '---

.neoi [1i:Ji1D'e· d- .' 10 b,'- ing :3]:' .: m 3' u claim

._ ,I!,II .. """" '. tUb '-. _ . .11.. • " .. ' '. _. '.··~IUI, ""'.1.1 .. ill. -. ,

enough that the elaii nant ia satisfied wit ~I its proba oility 01 - winning, because a, prevailing claimant wit, 'not bear its own Ieaal eosts .. ,174 On

he other hand the rational claimant is discouraged from bringing a 10' .. "P obability claim .". ~c. if the a ·I-OI'U.DL I:. f the clai 'I, :";'" verv great, because a fail, ed claim comes wit J .: -II e additional '-:.'ur(~ er of bearina the respondent's legal costs."

Finally, t ae 'P:rIOI-C air a t rule cr ~,- ites ,8. financial incentive for ,b=-: b, 'inging of an c aim, .-~. 'I matter how small or .ho··. ".~-(~"k'_I' "t:· out any

C·· .. orresponding disincenti .. "'_-" .' o· m'-~I ter how small ''''-1.' claim m·'··,8·'····.· b ...

" ". ," • , _ ~~ '._. >. __ 1 ~3" ,lL...!Ii [, , __ ,_Ju, . . , "_ LJ ~ . ~.II, IL ,._. ~,1Il ~ ,..... ,I

.·,lllioces·' Ion tt .'~' m.··· its' _ j~" , ... :. -OI.---·ICt. th .. claima .. " from II. eing an:y of its

recov red. damages to legal costs, •· .. 1_0 matter how weak the claim, no possible result wil require th .. ~ claimant to pay the respondent's legal costs .. ~ll~ ... .Jnlike the English rule 01( me America .. ~ rule, the pl,r(':~ claimant rule ' ilt J th _. pla ring file d ,pt}, lul-." in fav .. ··;·- of 'ODle 'p,ar_·· ~I a~:' it ,-' n.lam, ... ' ". dica }.~s~

172. See' ··ll _ ... ' -' .. n Sh a vie II.! Sui'" .'. flt:ftm,e,nl~ 1(l~tJ 'Tr:iQI,~ ,It Theo1.'iel'ical A.,~u.l,sis Unde,r A,IU'n:uui'!ie Met'ila,ds for {11!e Allocation of Le ... (J',I Costs, 11 J~ LEIGA:L STUD., S.5~ 58 (I' .,82'1 C [Ujnder the American sy" tem, the plaintiff w~l~ bring suit if and only if his, expected j '. gment wou.ld b : at 1,_ ast as ~,arge a· . hi· eg~l costs. '(.··m " ha-·,"'· omitted»).

~ 73,., See i.d.. 8'm 5;' .591 (expla ~ III iin' ,~ha~ assumin " the claimant is, :tis· nent f~~l~. a.od no fee ':J1~ning is im:\f,ol_ed~ und,e:r Ih - An eriea rule a. cl,Q,'ma -It c 'Ic'u~a:~es, -.'-bell r '10' bri ",an arch ._'_ '..1rrm:pl, by di . coun~L~ Ilh e orob ·-biU~· of' winning by n11t1~; expected legalcosts).

,~74. ',ee la. at ~~'9 e~lU]t ~s a - par. ,it d at tJ~'f! jre,qllen·c .. ' f' . uit win be g1'i ater under the Srit' ·h systern w'hi(~n the' plain'flff believe» the' lU{elih"ooti of p'rev,QUin,g ts sl~f1Tcielu'~y high .. ~ 5 ~ because wh n the pl :intUf "j. relatively I .ptimi·Uc about prevailing .. ,.,:he wHl thin I·ing aboin the 'P ossi bw I j.~y' of not h 1,'11" ng, to :P'~f 3'OY , ., " costs ., ~ .' ~ ~.') i,

115.. see il/.I'!, : '9-61 I-:Ielpl~ i:rni ' . that suns viLI_ it bJ",_ probabiti'ty' of :,-,LJI;Cre., :itn .b·,' B.r"r-11I ,~fs:t,enl . re, '0:1- ,8 . e .. g,t;;, , more eo ,n,' Ittl a []I :~n the "I - dean So 'S,le:m 'bee-SUSie a n illllUUOC6' (u ~ j __ imant is. res onsible mr o._ p sing legal costs).

:176.. See rd. R~)iJ (noting that th only' :fa;c( · "liS a claimant considers in a pro-claimant syst em are the expecte d legal costs anr - the ,- r ~.-ba'bi1Hy of success),

2011]

A- P,i,DLY""'lN" G-': - T-'-H" E-- E' 'N"'G",-- LIS"H'" R'-U'L-' E'

. . r',' : .' '; ........ ' '" ~ . I ..", ~. l ;' l'~: . • ,: '. ,'. • .": .'. • ....: I, . ,,', . : '". ~I"":

007

B~ The Pro-Claimant Rule and Proinvestor Bias

Tilting the :PI' aying field is exactly what motivates jurisdictions to deploy the pro, .. claimant rule, That is, when a jurisdiction perceives a, preexisting power imbalance between certain c asses of potential claimants and respondent .'~ thejurisdiction may adopt he piroclaimant rule for certain types of litigation 01 correct this imbalance.!" For example, because employ ers ,3,' most a~,'w,a:y:--'s have g, treate .: access to

~ , ~ , ..

financial 'resources, than do 'their employees, numerous American

st ~a"" tutes ,~11'I,O-'" ,W'-::~' pm- rpl 0,'" ,y"~e,.', es . 0:,", re 00 .• "v-':Ie, ':r- '!i'.) t tor ney ~ ~ fees l'~ f t hey '_: pre V,'-': ai 1 in

IJiJi .. ' _ .... '!.1i a.JUl. ~ _ ~l J .1 .. ' "_ ._.~ _' '_l "_"~" ", • a 1.1 _' .1 l~_" ~l " ,"."_ ~ ,. ," .I·~ ...

suits a g:'-' _ tain ~tl' th eir e,',,'m- iplo Y'" 'e rs 1'1'1 LJk'. ewise the B-Ie, '-HR-' .:. fo :'1110- '-W"~ he pro-

C'_·lL'g :.:'.:JlJ_~. '. ~',_ .. !IL _.",,1'.1'" _'I>_"'~ . J.,'~'" .I.;]i~, _'IV ..... 1 ...•. ··· ... - ..• 1·· "w!dl • , .. , ····1··

c aimant rule because the victims of human rights abuses lare "often

ind '1Jg' I "e- "DI't' socia ,,'~I O""U' tcasts 0'-' "r-' m a rain ~I~';Z"-"'-' ".,- "",~79 -

Ji" '_ ,11,1" .IIi •. , i'J1_ 1I!..;o,ll" iIl_I._ ,,,,",,,iitlli~' !!J!i', ,I '", ,b' ,I, 'Ui,JllI; ,_.! ';0

In. his, 2:00'6 article endorsing the pro .. claimant rule, Schi '( argues , h ra th e investor-s ta te C,'-O-'.--,'O-r 't'--e, xt is a' nalogou Isrl' A:'\ ccord in g' - t'- 0';'1 S: chill th e'"

..•. 'c' ,". III . 1',.:_." ! "J ' .. ",.' ~·IA·.-, ~l~ I ... , I ~ ... "_ "' __ !Ii ~ ,. ~ i1'v,·.·. ',,' '::" ~ .. ". -'·· ... :.:c·, .I.IJ.,1 11.,\. "."

"equality paradigm' followed in ordinary litigation and commercial arbitration should be discarded in. disputes betwlee:n~- ates and. investors because the states and investors are in a. "hierarchical relationship '!~I rather than lOin equal Iooting, ~8'1 S _ ates may "unila erally

impose binding obligations on .3. foreign investor in the form of

ad lm inist ra t, -I'" 'V-": e 0, c, rd ers ,0- :r-- 11e- ' g':-' 'I'" 'S-, '1- at I! 10' m ".1.&-2 F' u .rth er 'UI 'n'd- ·13r' --' g .. -Ie' n e ra 11

UI'" J. ~" jlJ~ ," . _ ',_,' .. _ ._: ',_ ~ _,,_. 1· .. _-,,' Ii...:., . - " 'Il . I • " l\, ,'", .IJ. l, .' . ..':_~ I :. :1" 11',. I 1··.1

international law ,3, State is even entitled ~ 'i' ito change the national

law - . , th at 010:. v',,' 'e,"'(--n· ~ in 'iil:.l1e· stor ·, .. ,S··.·· tate IC' '·0,' nt raets _,,~83 -

J!ILI, . '_ ',I .. _ Ilk.", ~. . _.,..iil! ,Jl, ~ i~, .• ill , .... / '_', IU Y - .... ' ,", IUI¥ 11,,1" !I!

But Schill is wrong to imply that tbe state is therefore ,aJw'iYs, in [a, position of 'powe.r' over the investor during dispute sett ement, Though Schill correctly points out that the investor-state relationship is not like a commercial relationship, n.O[U~. of the sovereign powers Schill identifies has any effect O:D~ the outcome 0:( arbitra tion. It. is unclear '~_ -'b.y ,~'Ol- -ercign :P'O'W'lS ,- ecessanly create a dis nue-settlement

environment that does not fit an equality paradigm especially when

m 77- Rowe" st€.pfia not e 144,., at 1663,_65,

~ "8" See, e.g.; Fa] r Labor Standa ds Aet of m 938 § ,16(bl, 2.9' 'U. s.c § 21,6(b) (2006) (~"Th,e court in, such ;m,ct ruOlil sttu[~l~ in addi,Hon to :a,DJ~1' jiud,gme~n~ i\'\vsrJ'ded to ~bJe pl,ahn ru ~f or plaintiffs, a'l[ow';I. reasonable 3Jil~o(me.:,~':s :Jee to be 'paid by the, delend.ant,~ ~und costs of '£ll,_ :lellion~'!;!').

17"9,. S,HELT-ON\I. s~~~,nJ no'te 164" at 368, (·"'Att:norllleys, who 'bri:ng, human '1r"_gh'IS, cases need to be paid because fee awards encourage them 'h) represent victims Who are often indjg,en~" social ou toasts, or m2llrgina li zed, . . ~ W~thout, fi nancial recompense, attorneys in. repressi ve states have litrte incen U"'~ 'I 0 provide services for those 'most in need" ~,! J.

1. 80~ S chiJt sti.pr;a ,I] ote 6.i at 619,.

'M81., ,/:&.

'nl g, .. "l'~~''''~ - ~""lI' ,

JIl. lOlL.. !~'U'i' ,a~ I!IJ I .. "

183.. .ld.

DU~ -:K·'·E···· L'.·A:·- 'W~'~··J·-'O·/····'U---:·~R~·N-···.·-A·····.' L"

.... I!!!; . ._ .• '. '. . _. .' .. . . ". '. i .

['V' ] 6.' 0'" 9' '77'

'. '" '. I " " i!! .. I r .

',",10 ,Il t.. :..I._.~,:c .. i

abusing seven igrr powers is how states incur liability, The only sovereign power that would. be useful in t _. is context immunity from 8U:~.t is. already waived by accession tOI ,ID investment treaty.None of

th .. ··· he t .'. t . 't·· "",-'1-' ... ·t- 'b" .. ,--, " . .... . '.,- t • ~ •. ," ' •. "'.''', •.. "C .. '.-'.. . .. ',. ' .. -. ." ...... :ii ···t' ,'Ii t d"-' " r, ,.. .... .s., . " .. , "'. t . '.,--

,II e, ! ()S ' 8181 Ie S, 01., •. e.r sover,em,gn. pOWleIS, Ican ,ass.~.s I ... '. ur~n"gnves or, ...

bi '"

state arb tranon,

,'. 1- '.' b 'II d '. i; . .. b- ,i., . ,i,

Aetna .. power unnatances c 'u:rln.g investor-state ar ortration are

'III- k '11 '. f h '~ d

'more, Ii .. ~e,Jly 'to anse rrom anot er SOI'Uf,ce 0: power, unrelated 'tIO

national 801- ereignty: financial resources, The partj with. greater financial resources C,8'D hire superior (legal representation conduct factual research ':0 great "'r~' depth and present its case in a more

]ll", ... :. ,"_.!u.J. , ".:." .:.~Q~~, I" ,1I._ _ ,', '.:_: IQ.'. -e .. __ '~. l~,. '_, .... =-', J ,',' "".' .1 J ...: _ ", .:_. _:_._l~!.:.__·, -e .:_:. ,'.. • ... 'I. ,'.

. .

El' .' ash 'I 1M T"h h 0; - - - . h h . ,-.' - _. . h - - -

enecuve :·18s, .. ion. . nougr m some C,a.S,CS the ,"OIS,t state may ·"a.V'I~"

. ' cO! ~ , . h d . ,- '~I i' . 1.&S . h ~ ,I'

greater access 'tOI financial resources than noes the ctaimant I 'l~IJ,S, ~

not always th .• ·, case '.- T- "he vast majority ',.1' claimants are transnational .. , -' ": .. -~. ith '. '. ',,' '1 b I. 'd~' ... :::. 'I . ,- - -12--0'~7' =. dl ... '. fo , d . h-: 2~'O'~

corporations Wit ~ :S,U ~'.s: annat t uogets, ",:·',ur stue ,Y' : -OIU'OI_, 1', art ,~'. 'I

percent of investor-state arbitration 'was initiated by corporations that 'IIi" iOi n k ed in Fo .r '''·II!'I:..,O''S·: Global 5::0' '0.1181 10'-' f a ct in sev ren 0"C -f those ca ses 'th" e'"",::

.Il a. .. ,.", .!t ... ,r,1 .... , ,~~c;.lil'l!l;;r .' ..... .' '.' - ~, , ... ". ffJ .. .. ' '.' t" ... ;;J"""'" _..·1 . !iJ!~ '. . .. il'. ·.I() , .' .

claimant s corporate revenues exceede '-, the 'GDP' of 'the defending

country, W' .

Th.I' most notorious example of ,3, claimant outspendi .. ng and O'U.t~

'111·'" .,:, ..... -.~.- ... '-' .. :,·-_·· .. ond ,,-, "-:- the ::::-, ....... , of C···D'· C/O G<"-", .... ,: P'''L- 'C':'-" R···:·'· .... blic . it

~awyler.1]g a I'leS,p,on. ~ .eo_- 1$ , ..... " c,ase '01 .... , ·,,1 ..... '" ·,rou_p .' .' .... -. Vi, ~· .. e,pu:·.· l.lC OJ

. h- S h l~'l-' U~,~I T' h R - - b 111 ~. - f- S'" - - h 1111 . - - '~' 11 . - d - - .' _. . f

tne seycneues. .ne Repubnc 0-,- oeyenei es an israno country 0

approxima t .ly 1-:" g. :1" I,ty_.' thousand people." many of them illiterate ~ ~~,191ln,

. , i. l I' I J I

was represented solely 'biy its attorney general, whose office had an

_- , ,'._. , ._ ',_ ~= _."_ ._ J • ~,_ • " J. ., i. '.', . •• _ .' _" ,. £ , " '. • •• '.. '., _. .,

~ " ._

1" b'l '( EO ~ W . 'I L-'~ d'

unreliable ' nternet connecnon :001 a,coe:",s. to .' _ estlaw ,or . ··e.lr~s, ,s,n.·

184~ See Kate "~ i S;upn:i.k., :N\~~e, _= 'o'k.i'~:g- A,'11',e1,Ujl,.;" A n,I,endir,rg the IC'-:I D ,e O"n)el~'f,irO'I1f ',0 R~CtJJlc,ile' ICOJnp -tillS ,1,I"eresls ,i" ,/~tU!n~(lf,i(Jn,dl. Ifi"'Ie~l;n~r.lr; L!(lw,! 59 :DUK..E L.J~ 34-3.. 366 (2009) (observing that "developing m •• states . , .. often lack sufflclent r,eSiou:rees to 2H:h~q,uate]y represent themsel yes, in procee dings '),

18.5., IF,CJr' example, t:he United States rus one of th.:_ ,I1JO,re [nN~lUei1l,~ :Fespo:f:lde:ll~s~ See Franek, .:nl/lf:a lI:1IJoh~' 56" 8)1[ 8()....8~ CW,I!]s:I,(,:ui:n' . Hl0lt on~.:y' AJ,ge:mlilin,a and :':: '~xru,co welTe more fleque,n~ respondenr['5 nUllo was the U nit.ed SUtl~eS'i ,alnUJu.gb CaJD,ada" the Czech R.e:pubHlc~ a nd ,E"\lYp~. 'were respondents i:n arm ,eq[l,al aumbes Orf' cases ,3]8 the U',nli~ed: S£I'f;'es),. With an ,ao'[jl'utd federal b!Jldg!e~ estimated be' ween :$3 and $4, ItriUjonH~ the United 'S,~a:~es is, a.150 the wealthiest frequent respondeat, O:FFI,': Ii OF :l'vI'GMT. &; BUDG'ET, E,XECi O'FF[CE OF TilE .P'RIESU)lE'NT OF THE 'U'"S.", :B,UDGET OF THE U' . s. (jOIV.ER.NMEN1~,~ Fl$:CAl'YEAR 20m i. t '1:46 ~bl.S.-l (2!OHJ).

U~ti ANDERSO~N' 1& GR'USKY~ supr« note 6,7, a,p.p., a;t 3m-J,:2~ '~g1'. 10" It ,ix.

~ 88., 1(1. ,aU s,

~8,9~ CD'e Grp, P1LC w,., Republic 'of the Seychelles, I'CS,=D ICm'se: O. ARBJ()2114" Award (Dec., 17, 2003 )1, 1 t I CSD Rep, 21.] (2007).

190. 'Walde" supra 'note 50, at 51$9,.

AP···P'L·· vtno .• ····· T'u'E':'~ E'NG/·;,LlS,··.··.lll· R··:,·,U,:LE'

I .' n _, '_ _ • i-J:. _ '_. = '=' . ,~i, . _ '

1"""" ',' ·!t·,',I·:I:\· I':'" itd : te d'i Enzlish 't- -, ',' 1i"~"""'(" 1'-" '"".,' ,.,~.,-...;, ",'f I,. , , 1'91 T'h(-l'·' ~I-:' ' .. : t-

on y II.,WO DU, aateu .. ngns I eanses on, com act raw, "C aimant,

"'-h " I'e.··" " " -;" .. ,-, II' '-, -.,-. -I' '. '~" h D"·',·I ",: ·.,'11' ·'1' C::'.,-,::- -'( " -, t 10'" "-':" -'" (, ' .ii, •. ti ", ' ; th I'" ,', ,'h-I.· ri I' . "b-~" .-, ,"' ',~'.' 1l~I' .~'

me ommonweai ,. . eveiopmen or,p ! anon, I. IQU,g ec . n.IC3.JuIIY

" 18·n. investor" covered 'under the treaty, was not 'pur. ]Y' 18 private party, but an instrumentality of ~t'b,e British government.!"

R···· epresent ed: by "'=Ii, m ajor int ern ationa 'l1~W" firm based in Lond 0'" n "W', /ith

.,1",'. ,';;]; : ., "I,. '~.' 0, " I ~" ".' I,_', .... ,,~~I ,I,." . ,I,,(li,":, I",. I, 'clli:). ... : . "C"'d, ,c'. "":"'11.. .. ,

.' ', tltv m , ctic .. :'.' ,,:, .'''-''', , , bitratior 19J,th" ,~ .. ,"',,, -"- •. ,~,, ted

,8, speciar Y P',f,I:C icem mves nr-state ar "I fa. Ion", e ciaunam rou eo

the respond ent and recovered a total 01.'.: $14i6, million"

F '1'"'11 -, '" ~ - .-, - d- Ia '-"l" _ .... -' - .", - .. -, - -., .- I'-~II ,~,-- _ ." ch ~ .. -. !.' d - .. tt xt

ouowmg a 1_ racto pro-c annam ruie m :S,UI(;I .. iopsiae COiD,_e,X,I_S

only provides fuel for critics and uncooperative governments, who already protest that "the rules are rigged" In favor of investors, 195 A, system :]11, whi ch iaD arm of the :. ritish government Ican, mobilize the Magic I .~rcl,e tlo retrieve millions lof dollars from a tiny island republic I~'? HI b I"a, 'I r-,d· ,II Y: -Ie·' ch aract e·c ." r -';:z/:,e,d, I :OI_S·.'c"' . r ~U-I;("I''''UI r a '~llly' i; m ,'b-"!:ai '11 a r · '0' ced I in favor 10' f the

~PLljll, . ~ ", ,',_ ,~,_. ' _ .' _po' ,0., .. ,1Il1 _ '_ ',_ 1 ". _' _' • _",wi., "'_ ~,.w,(_ .. Il., _ a.~, _, .. ~ . III i _ '. JL Ii .. ~

'-' .. : ,,", -" d"I"'"''''11- 'S··-'···' 'I'" h '. ""' .,- .. =,'.,,,. ,'":, .. ' not at '~I '~"'k' -, . .",. ''''1,,1-' :, ' .. ,fro litis tir ., ~.,

r,es,p'On,enll. .. , 'JUt· , a, ,s,ys,cm IS, niDI ,a.~, ,8 [ Il ,Ie e.Dlp ,oym!e,n,t. l~,~Jgat.]Oln, In

the United States or human rights disputes before the 'ECHR., in which . hie claimants are frequently at a financial disadvantage, Thus,

th .,' :~ .. , , .... t - .•. ~" ... - bitn ti . '11't· ..... " ',', -., -. 'r"'k-" . b - d .~" -', idate f ,I!. , e mvestor-sta e ar I~, ranon system seems nxe a nan canoir .. ate .1 or

th _ PI(O -clai mant rule,

C

I

"

Th . b '.'" "1 b d d ~ d f

ie investor-state a,r ntranon system, rs a so a oao canenc ate ',0;[

··'b. Q Am erican ru 'I~ because of its particular vulnerability '~O.,~"· n 'U' isance

t~_.l'~ ,~."III_" 1 I l,w ..... _l._.!I:J.. ..LI. ,J1 ... _1 _ .... _ ~ a .ulJ_ ., .. _~~u _1 __

, "

suits '._,' :<, 'U';'!I:."''!lIIDICA suits' are '. suits th 8'· 'm~ ~'Y' - hi '8""V'IQ. .~ ittle ch an ce 0"(" success

,!il, .' _ ."!J!i',. ", _1a.~,U ' .. ~:._ .. ;JI! IcI._, _ '.::._ II. I 1-,=,)1). . I, 1(Jl,~ '-,~~ _ ~ llll, lib 11l,1. . .0, <:..' .. ..., I . "-"v illiZI

but that ~,:, ··~~(,d·· !~;r''''~I'll b ..... ··'b c··~. ,-- 1("':1-' '-.-"<:-.1.'1-' d 1,.-*:' 'if-I·I.';~"'iII' I, thai tr .. ,

g,1 IL_L3t W U " SI!!.._.~.Jl .~e C._c_, _ aper .. or res.pon en.lLs II!.O Sf! til!. e. l, ,a.n .. 0

litiga te I~'~ Economists have shown that '8 responde nt .'I·:~ m '0" st lik ely '('0"" lh;:~~cll,'! 'ii, . ~:'ln,),1.i:HL':- ,·'I,tIl'· IJ' 'c': I . ."., I!!J!I.,I! I .".:,!,~ ',~ ,"I~ 1 ':'1 •• ' I_I

settle a nuisance suit under the American ru le and least likely tOI settle a nuisance suit under the English rule." In, the investor-state

":. r. ,,' •. '" ',' " t '.' ,- I ''_!S a' ,.- ,"">", '" ,- ,'" Iii:" ~"O" "'U ~ .', • fo ,- -;'I'e 'i'll h '0' . if!Il 't' If!!I'+!§Ii te ,t· 01 I!PlP'" e' 'n d p" ;:]j rt 0'" f" .~ 'if'~

c,on!!.leX,I" DU, I.::_n,ce ,SlllU, I ~, v __ .,W.!_, .. 1 ero 1j[;:JJ, ,,':_~I_ '~lli.,a, I. . I .' '~I.I: I. , " "UIII,.. JJ,[l.~

., .~ I" d >',', ,"t 't, '; I '! ,d'; ~1",1,I'", (,I' ..... f~, .'. I.· •.. I" '1,-: .... ~.,'"" I" .,-.' ~ ; - '. _ .. -,-; ',b _. 't'b- :,.- 't~1 . -:i ,-;'1' ,rfft;

,D,ge Il.O nee ~.e:ss y se_llbll_ ,~O\\ me,lll!, c 12ums~ [,a, . ,er '." ,a.n IL pro.m.o,l!.c

l'SrM. , ' . ric Go;~ t\'Viald ~ Leve,Un', th'e' Pltiyi,1,g F.it!td.~ .Is It Ti,ne JOT a Legal A,.tsicSf:n,,~:cle Cer:uer lor

Delt,eJol)in,g Nations in lnv,es,rmenl Treaty AriJi"r:atio'l?, 22 AM. U,. INY'l. t" R'-=v., 231!, 261-62 (2007)"

192. W,a, d .. e] su.prt'j :llloiIJe 50~ a.1 .5 64,."

1'9.~,., GoUwJ.~d~,,' 1~~~,P·'o no~e 1911~ 3'1, 26:~,," :1.'94,. ,CDIC ,Orp'" ~ ,A w,ard. I .' 6\2..,

1'95, AN[)E RSION &, !G'RUSK Y, s~~'pr'(J n.o~e 61, a:t 24~

196. :D,. :R,osenberg ,Ii. 8., Shave l~ At Ma:del i~tl: 'Wldc/~ SuUs Are Brought' for 111fi.r .Nuis,clnce; Value"i' .5 rNT~L R . v.' . & ECON", 3" :; (] 9,85 ).,

] 91"1'. S~e! lel.:. ,at. 5 (lex,p'~Jaj'niD,g, ~Iull nuisance ;sl!I.'its, sUlcooed w heol the defen da I1t 'IS, Ut !,gaUoD IOO.st;s, lex.oeed the OOS![ orl' sen _:ing bn~ fbat il~urndJer [be .B,riUsh :s,ystem the wiUin,gn.es.5, ,of the phll!il[rn.t~ f~r '~Ol ~ill~g,ah~; ~uldl 'toO :fi~e a c~!aim '\"i)~ 'be '~e:ss Ithall under ~'Ils ~ ~'"~er.Lca:ml s:ysle'm '~' 'Ibe ~'ik,e't~b.ood of prey~'il~'n.g: [O,D, Ul"' me:rruts,]! is, :Iolw"!' (enr.l,pha :iSI omit ed»~

,.- he he '~'t'h-'--:' -.: '-. - .]- 'f"}~' . -", ". '.,:; 'd"'- '-:-: .. 'fo. et " ." ,f,7} :" t,·, '. ,:!' .,:" , , .. , ,,19S Th··, -. - ,! eh .. - '('" fc - -'. [ ..

tne neat '" wei are, ano sarety 0 I ,S cmzens .. , .ney mig a, so rorce a

state's, government to refrain from legitimate "uses of it's, police PIOIW'I er

ths ,it, ..,' '1Id'- "~"" '-I .... --,t,~}1 :~I, :', ::-:;-, ,-- ,- "j-;' ~ ~I- --,:ft"-,- -- itv '1"0' .'. b .. · -:~.-.~. -:-,. SI

., at ICO'lLh,I grve a potenuai ctaunam ,S,D ,OPPOI,I"IIl,UO]I_Y 1_"III,[~,n,g ?,

nuisance suit." TOI limr this a ven ue --;or "legalized blackmail" of host states." investor-state tribunals should apply the English rule 0:0, legal cost S", rather than the American rule,

Theoretically, the investor-state arbitration svstem 'is already

' .. " ;al',.·~. llr_" , ,'. l ~I,. __ ,' , • _- ,',_ 1 __ • '-' __ "_ ,_, '.: !_..:__: J ' __ ' ~._ '_ j '_ " •• ",,_1:.:

particularly vulnerable to nuisance suits regardless of .;.·h'~,c,b, legal OO·.t award rule it applies, Eeonomi sts bave demonstrated that respondents are most vulnerable tOI nuisance suits when they are

~ h hi" ~ di 11 20] h - h -

uncertain as 'to whether 8, C, arm IS erie i-'Jle," 10:r wnen the cos'! 0:'_

resp ending 'to a claim ']S-' higher than the cost 01 ~_. settling ._400

I' ',," ],~.',..:..:_' '. ~.·,.l~ _,,' , •••• ,'. _,". _ ~-'~~ '--'-~ ".-.-" • -..... . .. ·I!!I

, . ._. .' -

Unfortunately, uncer ainn and e,xpe,n,se are 'tW.1 hallmarks of

"'. b II' . . ,I, 2m, Th 'h-I ~ d f '~ 'I -

investor ... state ar ntratton. . t r IO'U,g: I,' using awarns '0 iegat COSt'S as a

, ., ' 'It for frivc 11. - ',' . :)1 . ,~'- - .' . . nd b d 'f" . ~ 'f- h ,:0;, ~ ,iii k - ~" ,if ..... )- ,::-, :;- . -; .. ' the t h '. "~ - ., ~ . t

penai ,y 'or fIVO,l'OUS, C aims ano ,181" ·SD.!L ,],S n ,1,~JlyLO _SS:. n Il" ae 1_ . rear

'f ' - r-,' ~ - . "-, ,1- it - .his ",:i 11- ,- ot b , ..... .. ffi ,"' .. ,- ,t, d' ···,t·, - ,-' , - .. ,.~,- '. 111 ''''-'' • '. -- .. r • "' ••

0, n uisance S UI_S - ,ce. rs WIJ, D'O.,. re ,8, SU, ncten ' ..... ,e. -e rren ~ m au mstances,

A respondent 'must spend a, great deal of money determining for i self whether the claim is frivolous before :~,.~ 'C!8'n even begin to prove as

,. r

much to the tribunal, Unlik . sanctions for bad-faith litigation in some

domestic systems;" with which judges may punish misconduc at any

. -

time after the filing of a claim, investor-state tribunals cannot award

ICOI'Sits to .... ither 'party' except as "part of the ,a.W,8 rd -;=3'-_ hat is, after 'th,.~'

.. -, ib 11 . k flO '11 d-I ~ iii - ~ '1- -" f' .- ' d ~ 21)1(5

tn nmai makes a ~ mai '~ ,e,CISIO;" 01,0 at 't· lie issues 01,'. t ie ispute, -

'E' ·.,f(~~'C:~I·"" I: elv unless a r 'ec spo .. ··.,D,d·' en t is, c rtain that a, 1~!1I,a'·'I'~m- \~:

l.'~" .. 111 _ .. l,_.: . _ jJIJ.I .. l~ ~ . _ .. a .. 1 ~ • • ~ "_. _, 'll.u.1: . 'iLl . . ~I. . ~ . I

frivolous, :i" must 'be, ca. eful at the ou tset to research, analyze and argue all potential legal and factual issues or lose its opportunity "0 address those issues during arbitration, Consequently before t ae tribunal ever has, the opportunity tOI 'p~~ nish a claimant for bringing

1918. See, e4J',,! ANDERS,QI'_ &, GRUSKV"supra note 61, at 4 'e'TT]he threat of massive damages awards can put ,I "chinin_g, effect' on responsible policy-nul k ~l1\g. jI~J,

L 99. See; e~g., COS,(U;:Y 1ST A !~, ,."'plrQ note 61,~ at 20 CU,A second ary concern is tbat regulators 'w'llio are held 1~,a.·. ,:Ie fo~' '~:beiF tmlpac~s OIFi 'i.p ves'(,ors 'w~U 001'1, li,egll1~,a~e 1:0 the e XI"'IBn'~, 'Ul2d: '~b.ey :s:lIould (It h.e r:egutalo~y r/dlt' a rg,umeJrll.'t ) ."),

'lOOt ANDERSON & 'GRUSKY, 5,l,lpra note (:;,,7' .. at tl

2{]t1 ~ Lucian Arye Bebchuk, S,~i12g Sole,ly to '- xtrac: a Seuiemen: IOffeT, 17 J. ,LEGAL STUD~ 4,37'" 43.8 1(1988)~

202. Rosenberg &, Sba vell, SLi:pfQ note ~f 96~ at :3.

20rt See, ,f.,,!. ,~, S usan ,D!, F'raj'n~~!, Diev,elop'melllt Of.r.d' O'l'~/c(}J!n',es' of Jl1 'e~lll.nen't 'Trent" I,I,rbifl'Q.,tio,n'~ .50 HA,R:'~ I'NT'!'L l.l.. ,4,3;$~ ,4"" (20019)1 (,n,l~i~g tbe co:rnider,able, r;~cos~s ,Bind 'tlU)1,OOr t ailll[ie'g'!'~ ,of '~'n,ve-snO(I!-s~:a:~e ,arbU:l",a:UcHl'"

2l14. E.g~~ :F, _-D. R,. C~.v. P., 11.,

205. Sc H REU ell :E,l' A ' '; s.upra no,~:e .89'1 ,at 1241.

APP'L'YING TH:E' ENGL,lSH RULE

1011

nu dsan ce c aim th "e respo m d .. - n- t m 'U' e' I irst pa ". ;"'00' '.' '1lJ' nsel ·0···· suid e .;'

11_.11, .. .:1_.. _: "itI . .II, , .. : • 1._ •. I"",~. ,,'-- i _}_ r_._,J_ _ 1._. _.,ji; _- ,,-._.;Ii. 01_ ·JU.· 11!i;..o .. ' __ '=~' ~~, -'. bUJI., _.'. 11..

i'b-' 'ough ~I" least the .:(.-,1111,0 ..... '; .... -__,- "'-·Ih·.- .,.',('" constit I-~,--. 1-''" t'e ','-, arb .. tral

.1' , ','.," ,0, " J:.,~S " ilo __ Ie . O,Jl ' W D,g p, a,ses.. Cnl~I-u.!l.IOn OJb ., e 3 r, r ,illl-r,a

P"s- no, eo, II 200 a,'Ii[!II,SUeC'C!m'-:' e"IIF1I'tl '0'- If' th e- ,!ill'. 'b . .,.'I',~. -"t-I·O·····~;' 1 :"C_. I - "1 :', -_,t,-;- --. d id:-''"'::I,.. ':-- 11 ~ ,jl;':., <, -' ti '.,:'

'-' --' lll..,,_ (), '_ - i,l'~' ._ JdJ.l '.' t.~. ':. g rJ lb[ H, _.r5 Ii: ,n ~ c l~-S' an, _ ,~s '~ 11J8 JL I. C8,1 o'.n

,proc,e,eldings,,-2©1m,emorm,a.Is and hearings on provisional measures,"

memorials and hearings ,on jurisdiction and admissibility;" memorials

, .' ,- d 1::----." -'" '.",' ::::'. ',' - .. - ~l't. - 'Ii:: 1- .~'" 210 .' _' '. d- -'-I' --:t· .:"' '.' ., .. d- -.' ~'.- ',' . f'-

anc neanngs on ancinary c aims P',IIOI _,UC lion 3.01,- review 'Oil

docum ents '2]~ and' m-'em' oria i~ and . earin 10' 0- ,r"O'o -e !II C'U' c_;. 2m2 D' ',"'-- -'" -

I 1.-' _', I!li.#· I , ~'.; ,-I, ' I_lJ ,i ': _ II, ': I, ~, ,b:.' :. 'I<',ii.: ., - I',b,:.: 'J1, ,..;rl ~i. ci, ':'~;~"!' _'I'U r~,ng

this Ieng thv pro 'C'-'C"'e'o the responden .. ICIlp····-·C'--- d· e 0'0-' avera ge'" betw reen on e'"

,I I) ~,.,.l./I, ,J " 11.1.,.!io:J!.:J', " ,II.'~ ,,!!!;,;,,;Qj _I .. _I.I, " J.I!. !i;]i.:- 1.,",,1 'U"~"'" ._,_.' ,I!, .. , .. 1 . ,' .. 1

and 'tWO' million dollars per year, and. potentially far more.i"

Because investor ... state arbitration is, already particularly

I ble to nui ~ - -- h A- '" 1 - h ,. ".

vu nerar e ro nuisance suits. tne Amenean nne serves ,t ,IS, regime

very poorly, The American rule exacerbates the threat 0'( nuisance

'.' - d -I henacl ," .~ "", ,I' .-

I···~'- -'I'.' - :. "J~-', ._ ...••.• "fr---Il.: 1-('- ,' .. 1 1':" ',]' " J • -:-;-.-: ." -·.'i -]",.': _. 1.-:- ,.,:--,-: ~ .. -:-' .. ' .,:=-:-. I'· -.. ..';;": '.-: . ". s= ,-. ,: , l.

SIDltS, ano encourages settlement even wnen ,3 c aim ],S frivolous 'or, ,at

I- . I'·' I . d C'- ,,' . '. d '.'. !!!, f . b A-' ii' ']

.• [. '·,.)t II ' .. ' .. ' .. _"J I... .'. ' 1 I '. .., ·1--' 1- -:-. I' '. . , '.' - _'1 1- • '.1---' .'. '.' I, . '.J -_ .. -. [I -- .~.-;- - .. - - '.

east, un ~ ce ,'I to succeeo, '_on,tlD,ue.1 a,PP ,~ICltl'O',D 01, . tne , : mencan ru .. Ie

-,--1,·" confirms th .~-. 'I"~' "~--e' ~·-·ti! -." ,,' ·l·h:··· :t' , •..... - stc -- st ue .' bitratic - ... ~-., '.

onry con irms !l. ne percep 10o_"",=;(1._ mve 81 O'f-S ,8 te ar I~, _'= a. Ion IS 3.

mechanism for the legalized . olackmail of 'host states, impeding the ability of governments to protect the health safety and human rights

"11<'1

of their citiz ··'n·::··1 ,"" ' UT'I'!·o,,· correct this in vestor-state ., ,-;"'biu-'n'a'I~,-,,'h-' -;" '~lld'l

~, . -- ,L,ol, .,IIJ, J,:.::_ _ !i ..... ~ ",', ~ 1 __ .I.~jJi~ ~. ,~_r ,.~,a. e . I,~, c_: '.: _IS S, ou.~,--:::

abandon the American rule and appty , he English rule instead,

,CONCLUS10N

In, the last several :Ylears, investor-state tribunals and eommentato -s have cantiot led with increasing frequency that . a balanced approach" iSI the best 'W',3JY o,_( interpreting an investment

206~ Since prii'vat€ parties are In1 Hke y to have work Ed wifh intemation al ,8 rbltrators i OJ t be 'p'lsn ~h"er oftlen ITH~ed ~eg~l ICO'IllJfi1I!i,eI, '~o h,s['p them make :1, ,I.0-od selection Oi[ a rbit ra,~,o'r,s\. United , , .at ions 'Con.ference on Trade i& Delf .'", D',tJP~'~',fe Seu.1en)ifl,,,rt: Il~ r'e't.Jal,io'~3''(1:/IC e'U',~e jor S:el~/el'lUt:';rl o] II~vle:tftt,1;~e~1t· Diispu,tt~,:' 2 .. 1' P:r{J'c-:ed,~lim't IS!f'~'~eSi", all: I 1-,:~2, U .. ,'~',. Doc. UN'Gr AD'/ED _._ ,,' ·wSlc'.232. IAdd..6 {M:ar. ]1.! ;2,OOB') (no'Hng '(hl.t partie' retain freedom to choose t:he;~:r own arbitrators to sit on the tlri.bun,a.W)I~

207;. ld. at t5 .... :~8. 208~ ts. at 27.

20~l Lucr REED! JA', PAJJLS~O---,'& NU.1HEL B,.LACKAD!V." I 'U~DB'1iO ICSIDi A,R'I11'fRAl' O. 8S (20l14) (l.'Ot'iJ'£ilg, ~: h.a,l[ parties 'mliJi.'Ust' obj!ecJ, as sooa as 'pOSil.biJe 'ID jiu'[~sdic'I:~on 0'1" lose the :a.'lbiIU-y to address: the lssue),

210., U'-n'rut,ed' ations Conference on Trade . .& Dev .. ,. ;sup'ra DO'he 2106~ at 23~ 211.. la. at. 22.

212~ .ld. at 2J-22.,

213.. S'ee. S,e;cret.aJri,at, Un~ted :NatiioDS; 'Oonf,efe.m:u~e 'O~I 'T'l'ade &;, D'ev.~ 5tq')I~Q -note -86, ". 14, (:n,oU-ng, that ~~~3l] cttJrsory :[1ev~ew' of' oos~ declsi,O(ns, 'in rec-en:~ 'a'waj'fld~ s,ugge,$l:5 th:a~ dll.' ;1:ve:rag1e lelal COS:tSI :incoT.m:edi by Gov_ram.ents, ,are :$1. 10' :$2, :11IUUioo,"l,

2.14;, AN.IDlERS,O; ::~ It. G'RUSK.Y ~ s!~~,P'Q nOite. 1611." a'l illJ. ..

1·- 011?'

,',' ... 1

D',U'K····.·.·,C'" L··.A····, ·W"· J:O.····:·U· R:····\·A.··:·· L"

"~ , ~. . . ,."..

treaty" S substantive protections, and that t .ibunals should "temper" their "'Jl:fIO- investor incli nation, ,,:2]5 Thi sis, b ecause "an interpretati on

which, 'e, .' aggerates the:l[.o·te,ctioiD 'tol b ~ accorded 'to' foreign investments may serve to' dissuac e host 8,'-_ a: es from admitting forei go investmen ts ,8'Fl,1 S'O undermine the overall aim" 0: the investor-state arbitra jon system." Though these cautionary statements refer genera :ly' to the textual interpret S,', ion 011 investment treaties substantive protections rat her t " a.n tiOI the exercise of discretion un r Article 16 (2) '0,,1 the Washi igton Convention with, regard to

1'1 - h ' 'h '.' ,., '" th th

egai costs, these statemen S S . are ,8 common spirit wit ,', 'tl' e

arguments advanced in this Note, Professor Sch-II 'W,3'S able tOI argue viably in 2006 that conferring a. special advantage OlD. claimants was

._ ,'. 'r' 'i" r··."< "'I-"~ -,' tl' - ,., "",' ",-, tha 'Ii' t' h " ", " . bie "it! " I': ,'" - - .. 'L,' of ,~,,- " " .... ,.'. -- c . -'j'-' "'(' ff,-" '-: 'r ~I:

,Q,p,propruJJ, e, ,g,~ve,n IL iat I, e oeject an , ' purpose 0 mvestmem rrea ies

d·' ·'ill b ' '.' (-. h 1- ~ . "rul T d

seeme ' pnman Y' to II:_" protection 0: these It a mants,' ,01,- "a:y',

h 0"" ',-, -', ''-. -, " Sch "'~'~I' it' -: .,:: ,- -, :: - e" - ,t, -:'ee'" ,- -, d -:- '. ,::' g' ,A "0"- 'i' ' A',' ft ,,-,-. 'n th - ,'.' ",' .. ,.-:- "0"--

,c_. Iwever,i .....• ~ _In. ~ urgu,m:_DIL S :_I:_ ms ,an,'~l;;#rUs. .. , ~:-'. !er aUt- I", e In,VeS,!l,,I.[,,",'

ts t a- , _. b ~'Ii' --, 'It"~" -, " "\ nem c- ,~'n be - .-,.,- ble ~"'" ~ '-, 'to " :I~ .-,- ,-- 'C- -', '. - ..... 1 --..-·1····· . :~:t- '. "1--

'S_8. e aronranon system wur ne una .. ie 11.,10 protect anyone un ess 1_ CH,n

first ensure states' willingness to participate in it. .. he growing array

f - - - d- . - - - ,i, 'l- isl ti - '] t" - - - '., - ht h '1- ·t - - - - - h ,·tL - --

I' .. ' , ., • I "'"f l ', .... i' "',' ' , ' I' 1 -: " '. l _ J!...." ' .. '[ . '", ..... I " '.',' .,.) I ", Ii. i . [.' 1 ' ," ":I[ "'1 ,.:1 '.:' '. [.;" ," r ,', .. " I":;"· .

0.1 ,p.rO,POS '_ .. - q,u,as~ .. legEs ,a,rve, so D, 10,1 S m~,g,_= Ie ,P .10 s,a,v" t ' e sys, [ em;,

b - .~ ~ f' - h b 'I '.' - '.' 'II· II' ~ - d·' ~13

_ I l on .• ,y r tney can I~,~ pom u:!a~. y nnplemente ,~-

In the meantime .the best safeguard of the system is the wisdom 0:1 the tribuna s themselves, When text 'is silent, as text typically is

" '," " th " .' c . c, :: ce·.,·- t tc I - _. I ~-=-, .-, ,t,·- '., " ~ . " ,.... 'Ii' - .. 'i', I·t .'. . " - b , .:" ·t· "I·t"" 'it I e- iii b ' , , .' ,"1 lj'

WI!)'" respe c . ,'0 [,Ie"gal cos S 10, mvestor-sta .. e an 1 .f,8 ~,Oln.!rl. unais

principled application ot law relies OtD their consideration of "W'O

2l5~ ANDREW ,.·'EWCOMfj,E " LLU,fs PAR,ADELL. LAw AND P,RACfICE IOf INV~STM N] TRlE.A,TI ES,: STAN D A.RDS 'OF TREA ':rM ENT l,- 5 (2009):; see 01:0' Azuri x ICorpi., v. Argent ~ ne Republic, ICS'[D COJse: ,'~). A, ,. ' '/0 - J12~, Award, 307 (. une l412)006:) 14 [CS;ID Rep, ,3'4 (2009)1 ("'~:T]lhe: 1[,B.jLl~l'Jt,er,a~ Investmem .: e,m;ty]1 i~self is a docunrl,en·t t'ba.t requires certain treatment Oi: i nvestment '~~rhich It he parties have considered neeessarv to s~'imlul 3J'[,(! ~be fllo~f lor ~(Fffi'"ate cltpitad., " " '.' [ 'herefere '~]he Tribunal, in int·eijlre~,iD,g the [agreement] mliUJS-, be mmdftd of the

'b" '" ill.. . • '. d A - L 1- d-· "- '~~ C';" '~I ." ~I~ "', ,..al)

o ~~I(}ct~ve tne parnes mtenc eo to pursue IV', cone u lng it, ,'~n:~e.:ma.~ quctanen m.ar~.s, o,m~uelW . '.~,

Saluka Invs BV I(Nle:th.) v, Czecb 'Republk, P',a.rtruJaJ Award, ~ 300 [Perm, ,et.. Arb, Mar, ~1' 20(6)~ 15 .ICSlD Rep. 27'4 (2010) e"Th€ protection o,f. foreign lnvesemeats is nor the' sole aim of 'the' '-~ FCa,(y .,btU rather a, necessary elemem a~oDgswdehe; ()lye:~aU m~m of er:u:ourj1,~ D,g :fore;iSID11 investment and extend ing, a:llldl hie Ii1 tt'i fJb~,g 'I he :parttties' , '_coon~j)':llDi,c relations, Th 3l![. in ·t:urn caUs [CUi I, bal anced approach to IU[U~ :i!n't,erp~e.~a,I,i.'on or the Tre,a1f'~s substantive previsions ftl'lf the ~:nrot.lecUon !of :i[IJvle~~me;nls~ since ~n1. ~.n;-·'e,rp',ret3J'1 ion which eXlall~r,a:~e:.s the :pn.li~ecHon ~o be ,accorded ~o for,ei,go i.nvestm.'e;nts 'm,ay serv,e to d~ssuade host S',a~es fn)m, admitHng :follei,gn investments, ,and so uudermin,e ~ h.'e ove[raH aim, of e;x~endiDg ,and :intensi fying ~l1H~~ Ipa fit tes" 'Mut ual ,econO'lll'i c

'I ,. 'II~)

re ,aUODS.'.,

2Ui, ,,','EW 'O',MB::E &, PARAID~LL,~ Sl.lprtJ 'Dote; 21,S~ ,iU 1 t5-.U'i,

2- 'III 7' C.;f!h' "I" All 'it"oII,II'P'lIi"ni 'I'IIilon..~·~ "6', !:!Ii~' 1£' .. 9,::;:~~n~

.IlL , "' ~.Ii,.o I W ~ .;J!,~,~ .'11' l!iI, ~!!!.!j.,II'I~,,,,,,,, oi, ,~I!l., !U! .' oJ ;;l!'U.

, '

2m.g. See 'Browenf',~ S'lp,ra' .nO'[:'6 1',8~ ml 34·S. (ca~nng '~~:simp~e .. 'top-dCi~VD sol,[Lt~ons,"!' uD.fea:sible and d ra:wh:1"S;, 'Ornll .'i'etg1~ ~ decades 'of faj tu we '[I -. :n.,egoli ate ,co:mpreb enswv,e 'mll~ ~~U,a;~e r,m I, t liea~ies o,m, ,~o,lieign run'vestme"'n~ "'" as proof),.

1013

essential factors=first doctrine then ·pIOI]!C= .. ·~ Because the : -'n.!gl~.s·h. rule 0'0 legal cot" ·~."CI supported b':y doctrine and would S';fVI esser ria policy goa S~I the Eng ish rule is a promising instrument for fine-tuning tile investor-state arbitration system, Doctrinally, - he English rule on legal costs is available because ex ante agreements d,o not forbid it,

. b d" d . II, '" ~ Ii b ~ ".. d ,~

tne respondent's ··' ... omesnc ,,8.'W almost mvanably requires it, ano rts

'.' I"'· ~ d' t·;i; ~".'"' . '"' d ~ 11 b'·'· ti

near umversa '~'~y m I,' omes: .J:~ nuga non an I ICQ'm'm erciat a ~I-',~' .. r.3110ID

~ 0' ~ [ 'i' ~ I f' ~ , bli ,,. t 0' 1-

may g ve nse to a gel1,Ie.:ra" pnncip ie lor' .ll.,Q,W unc er P'U~l),C m .ernauonar

law,

From a public policy perspective the English rule posse'S'S:es two ad,v3.'ntages over the alternatives. First, the pro-claimant rule is openly a old, deliberately biased agains states, which is bound to, discourage

,i iI ~ ~ d~ ~I S'- d h A' ,. 11

states parttcipauo "0 I, ispute setuement.: eICODI" t aeAmencan ruie

creates financial incentives that promote low-merit, high-value claims, including nuisance suits 'that deter host states from legitimately 'using th .. eir police powe .. ···r--. By contrast application of t b ,e· , Eng lish rule 10'0'"

IL,·· .. "' i'···· JL .. ~ ," ',', 'Ii " ['," V..:_., 1_11g.·_,~LI' _ ... ·1 .. _'_~.""J _",- . ',', •.• _._,._:_:IJt._...::_ _,,_ ,,_,' ','

'-[ 1- d- h ,i, d '1 ~ ," , b d h

iega costs reduces these economic ane pounea buroens on host

states and helps to ensure their continued ' .. artieipation in investoruate arbit -at~lon,~ This ~I in turn protects a ,d promotes foreign investment, Therefore, by applying the English ru ,Ie on legal costs in investor-state arbitration tribunals ca. .. n reach 'the wisest and most re asona b e re sult s

I .... ~ ~i<'i ,'.,1 I .. ~I. ci,.'··".,