International Arbitration

INTERNATIONAL
ARBITRATION
CHLOÉ LÖFFEL
UNIGE | 2021
International arbitration Chloé Löffel
TABLE DES MATIÈRES
INTRODUCTION TO COURSE ITSELF 7
WHY YOU MIGHT, OR MIGHT NOT, WANT TO STAY 7

WHAT IS ARBITRATION ? 7
IMPORTANCE OF ARBITRATON 7
POLITICALLY SENSITIVE 8
PRATICALLY IMPORTANT 8
ACADEMICALLY INTERESTING 8
TRANSNATIONAL 9
WHAT WILL HAPPEN IF YOU STAY ? 9
CONTENTS 9
WHAT IS ARBITRATION MORE PRECISELY 9
DISPUTE RESOLUTION MECHANISM 9
BASED ON CONSENT 9
PRODUCINC BINDING DECISIONS 10
EXCLUDES COURTS 10
COMPARING CONCEPTS WITH ARBITRATION 10
ARBITRATION VS MEDIATION 10
ARBITRATION VS RECOMMENDATION 11
THIRD-PARTY DETERMINATION 11
NATIONAL COURTS 11
INTERNATIONAL COURTS AND TRIBUNALS (E.G. ICJ, WTO APPELLATE BODY) 12
WHAT ADVANTAGES IT MAY HAVE OVER ALTERNATIVES 12
ARBITRATION OVER MEDIATION 12
ARBITRATION OVER NATIONAL COURTS 14
SITUATING INTERNATIONAL ARBITRATION IN A WORLD OF DISPUTE SETTLEMENT 15
TYPES OF ARBITRATION 15
TYPES OF PARTIES 15
FIELD OF LAW THAT CAN BE INVOLVED IN ARBITRATION 15
GEOGRAPHY 17
INTERNATIONAL ARBITRATION IN PRACTICE (HOW IMPORTANT IS INTERNATIONAL ARBITRATION IN REALLY) 17
HOW MUCH ARBITRATION IS REALLY USED IN ACTUAL PRACTICE ? 17
PERCENTAGE OF ARBITRATION CLAUSES IN COMMERCIAL CONTRACTS ? 18
NUMBER OF ARBITRATION PROCEEDINGS FOR COMMERCIAL MATTERS, COMPARED TO COURTS ? 18
HOW IMPORTANT IS ARBITRATION IN GENEVA 18
ARBITRATION JOBS IN GENEVA 19
WHAT REGULATES ARBITRATION 20
NATIONAL ARBITRATION LAWS 20
INTERNATIONAL TREATIES 24
PRIVATE REGULATIONS 25
WHAT LAW IS APPLIED IN ARBITRATION 26
= LAW APPLICABLE TO THE MERITS 26
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KEY ARBITRATION CONCEPTS I : DECISION-MAKERS 27
ARBITRATION INSTITUTION AND ARBITRAL TRIBUNAL 27

DISTINCTION ARBITRATION INSTITUTION / ARBITRAL TRIBUNAL 27
WHAT AN ARBITRAL TRIBUNAL DOES 28
WHAT AN ARBITRATION INSTITUTION DOES 28
INSTITUTIONAL ARBITRATION VS. AD HOC ARBITRATION 30
ARBITRATORS 31
ARBITRATION CREDO : AN ARBITRATION IS ONLY AS GOOD AS THE ARBITRATORS 31
HOW ARBITRATORS ARE APPOINTED 31
WHO CAN BE AN ARBITRATOR ? 34
WHO TYPICALLY IS AN ARBITRATOR 36
KEY ARBITRATION CONCEPT II : PROCEDURE 39
ARBITRABILITY 39
MEANING OF THE CONCEPT 39
RAISON D’ÊTRE OF THE CONCEPT 41
PROCEDURAL IMPLICATIONS 41
SEAT OF THE ARBITRATION 42
MEANING OF THE CONCEPT 42
PROCEDURAL IMPLICATIONS 42
WHAT ITS PROCEDURAL IMPLICATIONS ARE NOT 45
COMPETITION AMONG STATES TO BE BETTER SEATS TO ATTRACT ARBITRATIONS 45
COMPETENCE-COMPETENCE 46
SEPARABILITY 47
IN-CLASS QUIZ 47
IN THE ABSENCE OF THE COMPETENCE-COMPETENCE PRINCIPLE 47
THERE IS NO LINK BETWEEN THE SEPARABILITY AND THE COMPETENCE-COMPETENCE PRINCIPLES 48
ACCORDING TO THE SEPARABILITY PRINCIPLE, THE REASONS AFFECTING THE VALIDITY OF THE MAIN CONTRACT WILL NEVER AFFECT
THE VALIDITY OF THE ARBITRATION AGREEMENT 49
KEY ARBITRATION CHARACTERISTICS 50
CONFIDENTIALITY 50
IMPORTANCE 50
NOT INHERENT 50
DIMENSIONS 51
TYPICAL RULES 52
PROCEDURAL FLEXIBILITY 53
PRINCIPLE 53
EXAMPLES 55
LIMITS 56
FINALITY 57
TYPICAL GROUNDS FOR ANNULMENT OF ARBITRAL AWARDS 57
CHALLENGES BEFORE THE SWISS FEDERAL TRIBUNAL 60
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EXCLUDING ALL ANNULMENT POSSIBILITIES 61
RECOGNITION AND ENFORCEMENT 61
NEW YORK CONVENTION OF 1958 61
ARBITRATION DECISION-MAKING 64
FORMALISM V. LEGAL REALISM 64

WHAT IS FORMALISM ? 64
FORMALISM IS A SCHOOL OF THOUGHT 66
LEGAL REALISM 66
LAW & ECONOMICS 68
IDEA OF LAW & ECONOMICS APPLIED TO ARBITRATORS 68
DECISIONS ON THE MERITS 68
DECISIONS ON PROCEDURE 70
THE SPECIAL CASE OF EXTREME DECISIONS 71
SOURCING NON-ARBITRATOR WORK 71
BEHAVIORAL ECONOMIC ANALYSIS 72
IDEA OF BEHAVIORAL ECONOMICS APPLIED TO ARBITRATORS 72
GROUP DYNAMICS 72
IDEOLOGY IN ARBITRATION 74
ARBITRATION CULTURE 74
POLITICAL ATTITUDE IN ARBITRATION 74
GROUPTHINK AND STEREOTYPICALITY 75
SOME REACTION TO FIX THIS 75
ISSUES OF COST AND TIME 77
THE COSTS AND TIME PROBLEM 77

WHAT ARE THE COSTS ? 78
COST BREAKDOWN 79
ACTUAL COSTS AND DURATION 79
CAN I MAKE THE OTHER PARTY PAY FOR ME ? 80
INVESTMENT ARBITRATION SPECIFICS 81
EFFORTS TO REDUCE COSTS AND TIME 83
SIMPLIFICATIONS OF THESE SIMPLIFIED RULES 84
HOW INTERNATIONAL ARBITRATION CAME TO PROTECT FOREIGN INVESTORS 86
THE ABADAN AFFAIR 86

BROADER HISTORICAL CONTEXT OF THE PROTECTION OF FOREIGN INVESTORS 87
ANTIQUITY 87
17TH CENTURY 87
19TH CENTURY 88
MIDDLE-AGES 90
18TH 90
THE LIMITATIONS OF THE TRADITIONAL OPTIONS FOR THE PACIFIC SETTLEMENT OF DISPUTES 91
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HOME COURTS 91
COURTS OF HOST STATE 92
DIPLOMATIC PROTECTION 92
INVESTMENT ARBITRATION 94
ADVANTAGES OF INVESTMENT ARBITRATION 94
BILATERAL INVESTMENT TREATIES (BITS), CONTAINING AN INVESTMENT ARBITRATION CLAUSE (FOR FUTURE DISPUTES) 96
MULTILATERAL TREATIES WITH INVESTMENT PROTECTION CHAPTER, AND INVESTMENT ARBITRATION 97
RECENT NEGOTIATIONS 97
HOW INVESTMENT ARBITRATION WORKS 98
ICSID AND UNCITRAL AD HOC ARBITRATION 98

1 98
2 99
3 “CONFIDENTIAL” VS “PUBLIC” 99
4 NO RULE OF PRECEDENT; PRECEDENTS SYSTEMATICALLY CITED; “PICK AND CHOOSE” METHOD OF FOLLOWING PRECEDENTS 100
5 SEAT OF ARBITRATION 100
6 ANNULMENT 100
7 SIMILAR ANNULMENT GROUNDS 101
8 ENFORCEMENT 102
9 CONSENT TO GO TO INVESTMENT ARBITRATION 102
ARBITRATION WITHOUT PRIVITY & THE NOTION OF INVESTMENT 106
ARBITRATION WITHOUT PRIVITY 107
THE NOTION OF INVESTMENT 108
SUBSTANTIVE INTERNATIONAL INVESTMENT LAW 110
EXPROPRIATION 110
FAIR AND EQUITABLE TREATMENT (FET) 112
STABILIZATION CLAUSES 113
INTERNATIONAL ARBITRATION AND ITS DISCONTENTS I 115
FUNCTIONS OF DISPUTE SETTLEMENT 115

SATISFY THE PARTIES 115
ENFORCE SOCIETAL VALUES 116
CONTRIBUTE TO THE RULE OF LAW 117
CONCLUSION IN ARBITRATION IN GENERAL 117
THE FAILED PROMISES OF INVESTMENT ARBITRATION 118
MAIN PROMISES OF INVESTMENT ARBITRATION 118
MORE RIGHTS, AND MORE RIGHTS ENFORCEMENT, IS ALWAYS GOOD 124
INTERNATIONAL ARBITRATION AND ITS DISCONTENTS II 125
THE SOCIOECONOMIC IMPACT OF INVESTMENT ARBITRATION 125

MAIN NEGATIVE SOCIOECONOMIC IMPACT OF INVESTMENT ARBITRATION 125
REFORMING INVESTMENT ARBITRATION ? 129
MAIN PROBLEMS WITH INVESTMENT ARBITRATION FOR STATES 130
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REFORMS HAPPENED/ING 130
REFORMS NEEDED 131
HOW TO NEGOTIATE INVESTMENT TREATIES TODAY 131
COMPARATIVE AIDE-MEMOIRE FOR INVESTMENT NEGOTIATIONS 131
THE FORMATION OF LEGAL KNOWLEDGE ABOUT INTERNATIONAL ARBITRATION 136
WHAT IS LEGAL KNOWLEDGE? 136

AWARENESS 136
EPISTEME 136
OPINION 137
EXAMPLES OF FORMS OF KNOWLEDGE 137
AWARENESS 137
EPISTEME 138
OPINION 138
DIFFERENT RULES OF KNOWLEDGE FOR DIFFERENT FORMS OF KNOWLEDGE 139
AWARENESS 139
EPISTEME 139
OPINION 140
NO KNOWLEDGE IS PURELY OBJECTIVE 144
OPINION 144
AWARENESS + EPISTEME 144
THE ARCHITECTURE OF KNOWLEDGE FORMATION IN ARBITRATION 145
WHAT IF ALL FORMATION OF KNOWLEDGE (JOURNALISM, RESEARCH, LOBBYING) 146
CATO INSTITUTE 146
VAST MAJORITY OF ARBITRATION TEXTBOOKS AUTHORED BY INDIVIDUALS WHO’S MAIN INCOME IS FROM ARBITRATION PRACTICE
146
MOST APPOINTMENTS OF ARBITRATION PROFESSORS DONE BY COMMITTEES WITH SIGNIFICANT REPRESENTATION FORM
ARBITRATION INDUSTRY 147
PROFITING FROM INJUSTICE : HOW LAW FIRMS, ARBITRATORS AND FINANCIERS ARE FUELLING AN INVESTMENT ARBITRATION
BOOM (DATA FROM 2012) 147
‘KEEP UP WITH THE JONES’S’ EFFECT OF ACADEMICS MINGLING WITH PRACTITIONERS 147
CONCRETE EXAMPLES 148
GENERALLY LOWERING OF STANDARDS FOR JURISDICTION AND ADMISSIBILITY OF CLAIMS 148
‘IN FAVOREM VALIDITATIS’ PRINCIPLE (IN CASE OF DOUBT, IN FAVOUR OF VALIDITY OF ARBITRATION AGREEMENT) 148
USE OF MOST-FAVOURED NATION (MFN) CLAUSE TO EXTEND ARBITRATION CONSENT 149
LEGITIMATION OF PRIVATE AND HYBRID JUSTICE 149
OPTIONAL CLASS – EXAM PREPARATION SESSION 151
INTERNATIONAL ARBITRATION EXAM : GUIDELINES 151

WHAT YOU NEED TO DO ? 151
HOW MANY QUESTIONS ? 151
EVALUATION 151
OPEN-BOOK EXAM 151
INTERNATIONAL ARBITRATION EXAM : EXAMPLES 152
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EXAMPLE 1 152
EXAMPLE 2 152
EXAMPLE 3 152
LEGAL CONCEPTS DISCUSSED 153
DIFFERENT TYPES OF ARBITRATION 153
COMPETENCE-COMPETENCE PRINCIPLE 153
SEPARABILITY 153
ARBITRABILITY 153
SEAT OF ARBITRATION 154
APPLICABLE LAWS IN ARBITRATION 154
ENFORCEMENT & ANNULMENT OF AWARDS 154
ARBITRATION WITHOUT PRIVITY & NOTION OF INVESTMENT 154
NOTION OF INVESTMENT 155
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INTRODUCTION TO COURSE ITSELF

This is not a course that will teach you how to practice international arbitration because 98% of you won’t
practice international arbitration.
So we’re going to know what is international arbitration as a legal phenomenon / as an instrument of dispute
resolution that we could recommend to our clients in the future. So the client will ask, what’s the best,
cheaper, faster, what does it change, does it protect me better, etc. And this course will help you answer these
questions.
We will also see what field international arbitration / what sort of people work in it, what sort of values do we
found, etc.
WHY YOU MIGHT, OR MIGHT NOT, WANT TO STAY
WHAT IS ARBITRATION ?
This would be a private judge. It exists throughout the world since Ancient Greece. It is older than courts at
least since Ancient Greece. It is used increasingly today. States express against arbitration. It is not a dying field
anyway. On the contrary, it is probably one of the most rising field.
It is used for a final resolution of dispute. It is an alternative to courts (excludes courts). You go to arbitration
or to court.
If you go with arbitration, the law is different. In arbitration, you may have the choice of law clauses in the
contract. Turkish law will be applied different in arbitration than by a Turkish judge. On paper, the same law
can be applied but in practice it is different.
An in all, arbitration can affect our right. It is important to understand arbitration even if we don’t practice it.
IMPORTANCE OF ARBITRATON
Why would I study arbitration ?

SOCIO-ECONOMIC IMPORTANCE
It’s an important field of practice, it has an important impact in society on the economy.
Dispute resolve by arbitration value: decisions worth 500$ - 50’000’000’000 $ (ex : Russia).
So it affects the economy of the entire country.
Usual commercial transactions, small consumer shopping online, determining quality of grain, oil
refinery expropriations, large constructions projects, decisions by states to curb smoking, phase out
nuclear energy, sports disputes (ex : Olympics)
There is a diversity of the type of dispute.
The typical case are commercial transactions (construction contract for example, where we can find an
arbitration clause in the contract, in particular with Turkey, because Istanbul constructs many buildings. And
we have a clause in every contracts). It also includes small consumer disputes (ex. Online Shopping, more
internationally). There are also arbitration for determining quality of grain (ex. Problem with the grains and
with the arbitration we can have a decision in a few days). Also, in oil refinery expropriations. Arbitration Court
have to decide if this is legal or not. Another area is constructions projects. Also the decisions by states to curb
smoking. In Italy, a few years ago, there was a phase out nuclear energy. And finally, we can have sports
disputes (essentially professional athletes).
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But we don’t really know much about arbitration, we don’t talk much about it in the press
POLITICALLY SENSITIVE
ROBS PEOPLE’S RIGHTS AND ACCESS TO JUSTICE?

For example, athletes complain that it is against human rights, to force them to go to arbitration if they want
to have a professional license. So athletes can’t sue this consideration.
Many people say that this robs people of their rights to justice and to have the law apply in the fashion that
would have been in Court.
So we can sue anyone anywhere with an arbitration clause. Ex. Cruise ship, in the contract we can find a clause
that says that the Panamanian law applies to this. So the crew members are robbed to their rights to be
protected in their work place and that safety standards are respected.
PARALLEL SYSTEM OF JUSTICE FOR THE RICH?
Some people says that arbitration is designed / works well for the rich because it is expensive. For instance, in
arbitration, we can’t get a free Court appointed lawyer.
ROBS STATES’ POLITICAL POWER TO RESOLVE ECONOMIC CRISES AND “IMPROVE LIFE”?
Some people also say that arbitration robs states power to improve life by curb smoking or to band the use of
curb, it is a way to improve life because it’s good for the environment and our lungs. But the States can’t say
that because if they do, they will be sued in an arbitration.
In particular, in African countries, big companies have put pressure in those governments to say they should
pass the law curbing reducing smoking without you to sue you that will cost you billions and they can’t pay
that. So the governments say : ok let’s the people continue to smoke.
But also to resolve economic crisis (ex : Argentina has faced a lot of economics crisis). One of the things that
those countries try to do is play with their currency. So that the debts a country holds is worth less. It has been
like 50 arbitrations against Argentina government saying that they can’t devalue the currency because this is
arming our rights and therefore, you have to compensate us to that. So some people think that it makes more
difficult for theses countries to protect the citizen and to get out of economic crisis
With that we can see the criticisms and they make arbitration political sensitive.
PRATICALLY IMPORTANT
There is an increase in number of cases which go to arbitration. Commercial arbitration is increasing by 10 to

15% each year. Over seven years, it doubles. It is a field of law which is competitive but a growing field.
More and more lawyers are involved in arbitration. They are more and more jobs. If you don’t work in
arbitration you will face an arbitration clause in your carrier anyway.
It’s also important for us to know whether it is good or bad to go to arbitration.
ACADEMICALLY INTERESTING
Dispute resolution is where the law bites, where it impacts society at the most directly. It’s a practical field of
law in the sense that we really have to understand arbitration practice and all its elements that are involve
including the psychology of arbitrators.
Decisions are taken and effects happen. We look what the law actually does in practice.
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TRANSNATIONAL
Transnational in the sense that we can work internationally as a lawyer anywhere in the world.
If we study law in Switzerland, we can work anywhere in the world because we don’t have to be admitted in
a specific place to the bar. It is better to be admitted somewhere to the bar but if we are admitted to the bar
in Geneva, we can work in Australia as well.
It’s important for our career to be free to work everywhere.
WHAT WILL HAPPEN IF YOU STAY ?
CONTENTS
We study a transnational legal phenomenon. We don’t stick to rules and cases. 98% of us will not practice in
this field statistically. Arbitration is not about technical but about common sense et the global picture.
We don’t particular focus on Swiss law (transnational phenomenon). Swiss arbitration law is actually not that
important because even if we practice in Switzerland, we won’t apply swiss law in the majority of the cases.
The law that can be apply may be a little bit of English, American and Turkish law). It’s much more the overall
principles that are important.
We focus on concepts and not on national idiosyncrasies. This is the concept as intellectual construct that
counts (ex: what is an arbitration agreement, the concept of competence-competence). It is more about
thoughts, ideas and concepts than it is about rules.
WHAT IS ARBITRATION MORE PRECISELY
DISPUTE RESOLUTION MECHANISM
In it’s core, it is a dispute resolution mechanism. It is a mechanism to settle disputes.

Incidentally it has a regulatory effect. It changes the way people behave, how people negotiate (if a client
comes and has an arbitration clause, we will negotiate differently). It changes how people understand their
substantive right. It changes the way how investors and states understand their rights and obligations and
their capacity to regulate (behave). Today, they would be a bit less climate change if they had been no
investment arbitration because countries fear arbitration. They refrain from regulating and protecting the
environment because if they do they are going to harm the financial incress of foreign investors and therefore
going to be sued in an arbitration.
Arbitration can also be a law-making mechanism because arbitral precedent/practice influence future
arbitration. There is a law developing out of case law in particular in the context of international investment
law. This dispute resolution has created law which has regularity influence in the sense that it changes the
bhavior of people.
BASED ON CONSENT
It is based on consent. No one can force us to go to arbitration if we don’t have consent it in theory. In practice,
we have to sign an arbitration clause.
Example : A professional basket player will have to sign an arbitration clause.
Legally, it is based on consent because we can choose not to sign it. In the opposite, we can sue someone on
court without his consent.
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Consent is given before a dispute arises (pre-dispute agreement). We can find an arbitration clause in the
contract, in a treaty between states. If there is an arbitration clause in the contract, we cannot ignore it and
go to court instead.
“All disputes arising by this agreement will be settled by arbitration”
We can also have a post-dispute agreement once the dispute has arising. It is sometimes called an arbitration
submission agreement (compromise arbitrage).
“ I offer you to go to arbitration for this dispute”
The majority of them are pre-dispute agreement because when we have a dispute it is difficult to agree on
anything including on where and how to resolve it.
It is possible to have a non-exclusive arbitration agreement. Mostly, we recognize the validity of a non-
exclusive arbitration agreement. Once we choose an alternative, the other one is excluded.
“A dispute can be solved by a court or arbitration”
PRODUCINC BINDING DECISIONS
It is producing binding decisions called awards. It is binding like a court decision and not a contract. A court
decision is directly enforceable against our opposant. In order to enforce a contract, we first have to go to
court and it will give a decision confirming that the contract is valid and breach and then we can reach the
opposant.
An arbitral award is enforceable the same way a court decision is enforceable. We can straight go see the
loosing parties without the need for a court decision confirming the validity of ana arbitration award.
They are also binding like court decisions because the majors that decides cannot be relitigated in court (res
judicata).
EXCLUDES COURTS
It excludes or replaces courts. The existence of arbitration itself is exclusive. One an arbitration has started
based on litispendance, a court will say “we can’t resolve this dispute”.
COMPARING CONCEPTS WITH ARBITRATION
Now we compare arbitration with other dispute settlement mechanisms to bring out its advantages and
disadvantages.
ARBITRATION VS MEDIATION
In mediation, the mediator is a person who facilitates a negotiations.

Example: If Dimitrios and Schultz have a dispute and they go to see a student as mediator, he’ll try to
bring them to agree but he cannot make a decision for them.
An arbitrator can make a decision regardless whether the two parties agree or not.
A mediator helps negotiations but cannot decide what the outcome of the dispute shall be. He cannot impose
anything on the parties.
If a mediation is successful, it leads to a mediated agreement (settlement agreement) which has the legal
nature and validity of a contract. Globally speaking, a mediated outcome is binding like a contract (not binding
like a court judgement).
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Example: If Dimitrios and Schultz enter into a mediation with a student as the mediator and he’s a
good mediator so they agree (settle their dispute), the outcome of the mediation is a contract. If after
they’ve concluded the contract (they’ve settled the case), Schultz doesn’t respect the terms of the
contract, Dimitrios cannot cease his assets. If Schultz promised in the mediation to pay him 1’000 CHF
and he doesn’t do it, he cannot cease his assets, he has to go to court to ask the court to recognize the
validity of the mediated settlement and that it has breached. Only then he can get to the assets of
Schultz.
In an arbitration, if Dimitrios and Schultz have a dispute and they go to arbitration. The arbitrator
decides that Schultz owes Dimitrios 1’000 CHF, if he doesn’t pay it, Dimitrios can go straight to cease
his assets through the enforcement authorities in Geneva. An arbitral award is binding like a court
judgement.
ARBITRATION VS RECOMMENDATION
The recommendation is used in the construction industry amongst others. Recommendation isn’t really the
technical term, some people call it neutral evaluation, the international chamber of commerce in Paris calls it
differently. It isn’t a term of art, but it covers a whole range of dispute resolution mechanisms where you have
a third neutral (the evaluator, recommender, etc.) hears arguments from both sides as in court procedures
and arbitration, then makes not a decision but issues a reasoned opinion on the settlement. It’s something
like a court judgement / an arbitral award where the third neutral says “I heard arguments from both parties,
here are the facts, the legal questions, here’s a discussion of these questions and the suggested outcome of
the case is the following”.
It’s no decision. It’s exactly like an arbitration procedure but it doesn’t end with a decision but a
recommendation. The parties can then incorporate that recommendation into their contract.
Example: If Dimitrios and Schultz go to neutral evaluation and a student acts as the recommender and
he issues a recommendation, this can form the basis of their agreement, the way in which they resolve
the dispute in their contract.
THIRD-PARTY DETERMINATION
It has many names, some institution call it dispute boards, expert determination, non-binding arbitration, etc.
A third neutral issues a decision. That decision automatically becomes part of a contract between the parties.
Example: If Dimitrios and Schultz have a dispute and a student acts as a third-party determination, he
issues a decision which ends the dispute between them in the legal form of a contract. Dimitrios and
Schultz agree that whatever he’ll decide will form part of their contract.
Therefore, the decision is binding like a contract, not like a court judgment / an arbitral award. If Schultz
doesn’t comply with the terms of his decision, he’ll be breaching a contract. Dimitrios won’t be able to cease
his assets, he’ll have to go to court to get a court decision which confirms that Schultz has breached a contract
to be able to get the assets of Schultz.
That’s not only a legal distinction. In practice, it may make a huge difference in term of time and costs.
NATIONAL COURTS
In principal, national courts don’t require the respondent’s consent. The court system in general works even
without the consent of the respondent. You can essentially always sue someone somewhere in some court,
the only question would be which court.
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You can go to arbitration only if the respondent has agreed to arbitration. Only then the claimant can start an
arbitration against her/him/it. Arbitration doesn’t have a doctrine of precedent (stare decisis, jurisprudence
constante, etc). By doctrine of precedent he means more generally speaking this formalized way in which later
courts have to deal with the decisions of earlier courts. Even jurisprudence constante is some form of
formalized doctrine of precedent, where in principal the courts have to follow prior decisions to some degree.
Arbitration doesn’t have a formal rule of precedent, which means that no arbitral award can be annulled
because it failed to follow a precedent. Precedent do however exist in practice. Arbitral tribunals do refer to
earlier decisions. They don’t have to, these earlier decisions are not binding, but arbitral tribunals refer very
often to prior cases (precedents). In sports arbitration, the case law, the body of prior decisions is extremely
important in practice.
Example: If Schultz is an arbitral tribunal in a sports or investment arbitration matter, the parties will
submit to him arguments based on earlier decisions taken by other sports or investment arbitral
tribunals. In his decision, he will most likely refer to these precedents. Some arbitrators have said that
there are all of those precedents, they don’t care and they’re better lawyers than all of them and that
they simply don’t want to follow them. They can do that. It’s not a breach of any rule to disregard all
prior decisions.
INTERNATIONAL COURTS AND TRIBUNALS (E.G. ICJ, WTO APPELLATE BODY)
Information: The ICJ is the principal judicial organ of the United Nations.
Arbitration is not permanent: each arbitral tribunal only lives for one case. It is constituted for just one case.
Once it renders its final decision (arbitral award), it disappears. It is ex officio, it no longer has any power to do
anything. You need to appoint a new arbitral tribunal, chose new arbitrators for each new case (lack of
permanence).
The international courts and tribunals are created once and they stay in existence until they are dismantled.
During that time, they resolve all the disputes that come their way.
Arbitrators (the members of the arbitral tribunal) don’t have tenure: they are appointed for one case at a
time. They don’t have a fixed job for a number of years. So if a new case with a new arbitration with a new
arbitral tribunal you have new arbitrators or the same are appointed afresh but you need to appoint them
again.
The judges of the ICJ have a tenure for 9 years, the WTO appellate body for 4 years.
This is important because arbitrators will do whatever it takes to be appointed again, so they behave
differently. An ICJ judge can say what she really thinks on day 1 because she knows that she’s going to stay for
9 years.
Both are based on consent and issue binding decisions.
WHAT ADVANTAGES IT MAY HAVE OVER ALTERNATIVES
ARBITRATION OVER MEDIATION
ADVANTAGE
Arbitration has a guaranteed outcome. It will lead to a decision. So if you go to arbitration, you know that your
dispute will be resolved.
Example: If Dimitrios and Schultz go to Mediation, they may fail and not be able to come to an
agreement (mediation failed).
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From a business perspective, if you’re a company and you have a dispute with another company, you may will
want it just to end, because as long as you are in the dispute this creates uncertainty and it is bad for
investments, the value of shares, etc. You may want to be certain that even though it takes a bit longer and
costs more this will come to an end.
An arbitral award is more binding (= judgment, ≠ contract) than a mediated settlement agreement.
Arbitration gives the parties a good corporate / political excuse if there’s a bad outcome (they lose).
Example: If Schultz is the CEO of Nestle and they have a big dispute with Danone (French Dairy
company) and he decides to authorize the general counsel to settle the case. His shareholders may say
that they want a new CEO because he should have never settled this case because clearly we would
have won.
If he goes to arbitration he can say that he hired the best lawyers possible and we lost (not his fault ;
likewise for politicians and presidents of countries).
If you negotiate or go to mediation and you settle in an interstate dispute you may will as president
be attacked and lose your job or not be elected again.
DISADVANTAGE
Arbitration is more expensive and lasts longer. Mediation is between 10 and 100 a times cheaper than
Arbitration.
Example: The typical average investment arbitration where de claimant claims 100 millions from the
state costs 5-10 millions in legal fees for each party. The same case can and has been settled in
mediation for 50’000 $ in legal fees on each side.
Mediation is faster in the sense that the average arbitration takes 4 years or more, the average mediation is
resolved after 3-5 mediation sessions which can be a couple months.
Arbitration is much more antagonistic at the end. An arbitration is a cause for divorce in the business sense.
Example: If you have 2 parties who have been collaborating for 20 years and go to arbitration,
everyone will be unhappy at the end, even the winning party because arbitration tends to bring out
strong emotions which will take a long time to fix. The business relationship your client is in is most
likely going to be ruined at the end. If your client is an investor investing in another country,
governments hate it when they are becoming the target of an investment arbitration.
If you go to mediation, the opposite may happen, it may improve and prolong the business relation
that your client has with the other party.
Arbitration tends to resolve disputes (= specific disagreement over a question of legal rights) NOT conflicts (=
general state of hostility between the parties).
Example: The lawfulness of the wall between Palestine and Israel is a legal dispute which is part of a
broader conflict.
Sometimes when you resolve a dispute, you exacerbate de conflict.
Example: In Sudan, the given dispute has been resolved by arbitration and the immediate reaction was
to inflame the hostility on the ground. It worsened the conflict.
Mediation is better to resolve the overall conflict, to appease the parties.
Med-arb is possible and used quite often (first mediation, then arbitration). You have a first phase of
mediation and if it fails you automatically go onto arbitration.
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ARBITRATION OVER NATIONAL COURTS
ADVANTAGES
Arbitration is said to be less expensive and faster. It is faster but not necessarily cheaper. It can be made to
go faster and to be less expensive.
Arbitration is confidential which is good for parties who don’t want the whole world to know that they have
a dispute over the quality of the milk that Danone has sold to Nestlé, for instance.
You can chose an arbitration and chose your arbitrators. You can’t choose your judge in court proceedings.
This is important because you can choose specialised arbitrators who really know something about the sale
of milk, some construction contracts, investments, IT, etc. You can choose hopefully more neutral arbitrators.
Example: If Danone is suing Nestlé in the Swiss courts, the Swiss judges will not be perfectly neutral.
Flexibility: in arbitration the parties can adapt the procedure to their specific needs (depends only on the
consent of the parties, they can do more or less whatever they want with their procedure). For instance, they
can opt for fast track arbitration (1 year). You cannot impose a given timeline on a judge. Adapting the
procedures
There’s finality and quasi word wide easy enforceability.
Example: If you get a decision from a Swiss court and the assets of the loosing party are in Argentina,
it’s difficult to get the decision recognized there to get to the assets.
If you get an arbitral award of an arbitral tribunal in Switzerland, it should be easy to get to these
assets because the arbitral award will be recognized by the Argentine courts much more than a Swiss
court judgement.
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SITUATING INTERNATIONAL ARBITRATION IN A WORLD OF DISPUTE SETTLEMENT
TYPES OF ARBITRATION
TYPES OF PARTIES
They can have States on both sides. So a State sue another State. It’s called interstate arbitration (public
international law applies). We will barely discuss this in this class. They do exist but not very often.
The classic situation, where we have a private party (company or individual) on both sides. That’s the majority
of arbitration (public international law doesn’t apply directly because there’s an international treaty which is
pretty relevant for this situation but at the enforcement stage. So in this case of situation, public international
law put obligations on States to do something about these arbitrations. But public international law doesn’t
directly apply to the arbitrators because the arbitrators aren’t States or State organs. In fact, we’re talking
about private arbitration because of the parties.
We can have a private party and a State. That’s called mixed arbitration (mostly investment arbitration) (public
international law applies because there’s a State involved but only if this is a foreign State, so if we are in an
international investment arbitration).
Here, we have an investor on one hand and in the other hand we have a State / government. It goes only one
way, from the party to the State. But this is the typical situation and not the necessary situation. In certain
situation, State can sue foreign investors. It’s extremely rare because states have many other ways to bring
investors to do whatever they want.
FIELD OF LAW THAT CAN BE INVOLVED IN ARBITRATION
COMMERCIAL ARBITRATION
The heart of this category is commercial matters between companies. But this can also be between individual!
Here, commercial arbitration means: relates to everything which is not commercial. So legally speaking, this is
the default category. So the word “commercial” really doesn’t mean much here.
So it’s qualified as commercial if it doesn’t qualify as anything else, such as investment arbitration, sport
arbitration, and a few others (see below).
It also means that nothing, in the sense of no legal consideration, follows from characterizing a given
arbitration as a commercial arbitration. The label commercial typically has no impact in anything. No particular
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rules apply to arbitration that is label as commercial, in principle, there’s a few exceptions that we don’t have
to know (ex. In the context of the New York convention when a State has entered a commercial reservation
to the convention which means that the convention only apply if the national law of the origin of the arbitral
award considered the dispute to have been commercial).
CONSUMER ARBITRATION
One party is the consumer and the other is a business. The consumer has a concept meaning in law. And
characterizing an arbitration as a consumer arbitration has certain legal consequences because certain rules
may apply.
Consumer arbitration is by in large not allowed and extremely infrequent in Europe but very much present
and allowed in the USA.
EMPLOYMENT ARBITRATION
Between an employer and an employee if it is provided in an employment contract, then this dispute would
have to go to arbitration. In Switzerland this would be admissible for contract between employers based in
Switzerland and employees based in Switzerland but only for claims which do not relate to non manatory
rights provided for an employment contract. For instance, we can have an employment contract in Switzerland
for getting a bonus at the end of the year. But we can’t have an arbitration over disputes relating to manatory
rights that an employee has such as to have holidays, to be paid for overtime, etc. So the core rights an
employee has can’t go to arbitration.
INVESTMENT ARBITRATION
We will see the difficulty to define this.
Here the underline transaction has to qualify as an investment, so a dispute between an investor and a State.
Therefore, what’s characterize an investor is that the investor made an investment, typically for foreign
investments.
Foreign international investment arbitration is really most important form of investment arbitration. We will
talk about that later.
SPORTS ARBITRATION
Typically, between an athlete and a sport federation. Typically, when the athlete is sanctioned for doping
offense. And then, if the athlete wants to challenge the decision that the athlete is exclude from a competition,
this goes to arbitration, more specifically go to the Court of arbitration for sports in Lausanne which is a
creation of the IOC. There, we have specific rules of arbitration. This Court is the worldwide Court for sport
disputes.
When we speak of commercial arbitration, means that we don’t speak of any of these specialize form of
arbitration. So we speak of general principles of arbitration, the normal situation and not something that is
specific. This also means that from a regulation perspective and a conceptual perspective, consumer
arbitration, investments arbitration and sport arbitration are subcategories of commercial arbitration. What
applies to commercial arbitration also applies in consumer arbitration, investment arbitration and sport
arbitration, unless otherwise specifies. So if we want to understand how investment arbitration works we will
first have to understand how commercial arbitration and then there are some particularities specifically to
investment arbitration. But the core thing is really commercial arbitration.
It also means it’s incorrect to put commercial arbitration and investment arbitration in the same conceptual
level. The concept of arbitration is commercial arbitration and then there are some specificities.
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GEOGRAPHY
This means that we can there’s a difference between domestic and international arbitration. We often speak
of international arbitration. But the word “international” is mostly rhetorical label to signal distance from local
idiosyncrasies. So that we’re dealing with a phenomenon that is disconnected from local, legal idiosyncrasies.
That the local legal reflexes shouldn’t relied to heavily, that the local bare shouldn’t interfere too much. People
should expect to found different cultures, nationalities, backgrounds. The word international has ferly rarely
a legal consequence. So, the fact that the parties are to different countries has ferly rarely a legal impact on
what’s happening.
More precisely, in some countries, which includes Switzerland, Belgium, France (but in minority countries)
they do exist two types of regimes for arbitration, one for domestic, internal arbitration and another regime
for international arbitrations where for example a party is in a country and the other one is in another country,
or where both parties aren’t in Switzerland.
When we are going to talk about Swiss law in this course, we’re only going to talk about the regime that
governs international arbitrations. The only exception is really for employment arbitration. Otherwise, we’re
only going to talk about international arbitration.
Switzerland has adopted PILA (chapiter 12 talks about the international arbitration). The criteria to distinguish
between national and international arbitration is at the art. 176 PILA (“at least one of the parties thereto did
not have its domicile, its habitual residence or its seat in Switzerland”). So if the domicile of one of the parties
is outside Switzerland, then it’s an international arbitration.
For investment arbitration specifically there is an important criterion of internationality. So it’s only for foreign
investors. So if we are a French investor investing in Switzerland, we can sue the Swiss government in
investment arbitration. As a swiss we can’t! It can be understood as a reverse discrimination as swiss investors.
We can’t sue our own state in investment arbitration.
In this case, the foreign character of the investor it’s nationality is determined by the rules of the law whose
nationality the person claims or a treaty if we’re talking about the nationality of a corporation.
INTERNATIONAL ARBITRATION IN PRACTICE (HOW IMPORTANT IS INTERNATIONAL ARBITRATION IN

REALLY)
HOW MUCH ARBITRATION IS REALLY USED IN ACTUAL PRACTICE ?
The conventional wisdom which we find in practically each text book which we find on the website of the swiss
federal administration in the context in the new law. What we will find is languages such as arbitration is the
usual mechanism for the settlement of international commercial dispute. Some person go even further and
say that arbitration has a monopoly over the resolution of international commercial dispute.
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But is it true? Is this arbitration self-promotion or the reality? We find very rarely statistics in these text books
which explain how dominant arbitration actually is in practice.
How can you know, how can we answer this question? When we talk about the predominance of arbitration
we need (en premier) to clarify what is predominance. Is it the percentage of arbitration clauses in commercial
contracts or is it the number of arbitration proceedings for commercial matters, compared to courts? We can
look at both.
PERCENTAGE OF ARBITRATION CLAUSES IN COMMERCIAL CONTRACTS ?
If we look at the percentage of clauses, it’s not easy to know. Very few studies have been conducting on these
because there is no, for most types of contracts, public register of contracts. The few studies which do exist
for example where they asked all the clients of a firm.
If we asked businesses what their preferred method of dispute resolution is, so we don’t look at the contracts,
between 29-56% of the corporation said they prefer arbitration (not med-arb where we have first mediation
and then arbitration!). Among the same interviewees, between 4-28% said they prefer court.
If we look at the contracts themselves, so if we have access to the number of contracts, studies find arbitration
clauses in 14,6 %, 15%, 18%, 20.2%, 21.9%, 63%.
The point to all of this is that this is not the sort of statistical figures that are most easily associated with
adjectives that called these figures “usual”, “predominant”, “preferred” or “monopolistic”. So that’s not what
the studies say.
NUMBER OF ARBITRATION PROCEEDINGS FOR COMMERCIAL MATTERS, COMPARED TO COURTS ?
These are once again difficult studies to conduct because many arbitrations are confidential. Even though most
of arbitration institutions end up reporting how many arbitrations they administer, it’s difficult to get the
figures. We don’t need to register commercial arbitration.
The figures which have try to look into came to the following results. In 2016, the 12 most prominent
international institutions have [joinly] registered 5661 new cases“.
These numbers were considered “stellar” and “record breaking” statistics of arbitral institutions.
By extrapolation and on average, this would have represented 276 million (civil cases excluding family disputes
filed in court worldwide in 2006). In the world in a year there would be 276 million court cases in compare to
5’661 arbitrations.
There was a research conduct in 2014 in the UK which finds out that in percentage terms, arbitration
(proceedings) were 0.28% of the number of cases for that year proceeding in the civil courts. We cannot say
that because of these low numbers, arbitration is unattractive or has no influence on the society. This is more
complex.
HOW IMPORTANT IS ARBITRATION IN GENEVA
CONVENTIONAL WIDSDOM
Geneva is one of the four premier places for arbitration in the world (along with London, Paris, NY). That’s
from a European perspective.
MOST IMPORTANT ARBITRATION INSTITUTIONS
• International Chamber of Commerce (ICC)

• London court of International Arbitration (LCIA)
• Hong Kong international Arbitration (HKIAC)
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• Stockholm Chamber of Commerce (SCC)

• Deutsches Institut für Schiedsgerichtsbarkeit (DIS)
How often the seat of these arbitrations was in Geneva ?
ICC
In 2016, ICC had 801 new cases. Geneva was selected as the seat in 41 cases (7%), it’s the third best (more
chosen city) after Paris (92 cases) and London (57 cases).
In the 1995-2012 period, there were 6063 cases. Switzerland was selected as seat in 1451 cases (23%), that’s
the second best after France (24%).
For ICC arbitration, Geneva is truly important.
LCIA
In 2018 (Quarter 1 + Quarter 2), there were 285 cases. 218 were seated in the UK. There was only 1 seated in
CH.
HKIAC
In 2017, all were seated in Hong Kong.
SCC
In 2017, all were virtually in Sweden.
DIS
In 2018 (Q1 + Q2), there were 118 new cases seated in Germany. There were 1 in Zug and 1 in Prag.
From the perspective of were arbitrations are seated, Geneva is actually not so important. Without perspective
looking at were arbitrations are seated, it’s just one perspective. Geneva is still important regarding to the
people working in Geneva in arbitration (paradox). If we still want to go to arbitration in Geneva, there will be
jobs.
ARBITRATION JOBS IN GENEVA
That’s not scientific what we will talk about here.

There are actually three types of jobs in arbitration in Geneva :
1. Those jobs for which people are needed to a good at arbitration law generally speaking. Someone who
knows the basics and the general principles and who can drill down into the specific law that is
applicable in a specific place. These jobs are for all cases when a Geneva-based firm is hired as counsel
or a Geneva-based individual is hired as arbitrator, for arbitrations seated anywhere.
This represents 80% of the jobs in Geneva in arbitration. For 80% of the jobs in Geneva, you don’t’
need to master Swiss law. You need to understand the principles of arbitration but not the specifics of
Swiss arbitration law.
2. Those cases when an arbitration is seated legally in Geneva which triggers the application of Swiss
arbitration law to the procedure. For these cases, we need someone who knows Swiss arbitration law
very well but the person doesn’t have to be qualified in Swiss law or even to have formally studied it.
This represents 18% of the jobs.
3. The work of those lawyers who challenge Swiss awards before the Swiss Federal Tribunal. If you are
unhappy with a decision, you can go to the Swiss Federal Tribunal and try to have it annulled. You
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need to be a Swiss qualified lawyer and admitted to the Swiss bar because otherwise you can’t appear
before the Swiss Federal Tribunal.
This represents 2% of the cases.
In the revision of Swiss arbitration this year, one point is that you can now submit memoranda to the
Swiss Federal Tribunal in English.
In arbitration, you need to master English. An exotic language is a bonus because you can read the evidence
in original language before the translation.
WHAT REGULATES ARBITRATION
Most people say that the sources of arbitration law are national arbitration laws, international treaties and
private regulations (soft law).
NATIONAL ARBITRATION LAWS
EXAMPLES
The first example is the federal Act on Private International Law (PILA called LDIP) in particular chapter 12
which deals about international arbitration.
REVISION OF SWISS ARBITRATION LAW
In Switzerland, the Swiss arbitration law is part of a broader act named PILA. It’s not a separate piece
of legislation. It has been revised in 2021. It was an initiative of the Swiss government. He wanted to
change the law in 2017. The point was to strengthen Switzerland’s position as one of the most
attractive arbitration seats. Switzerland tends to see a decline in the number of arbitration as it used
to be. There are a lot of competitors in Asia. One of the way to improve the business is a revision of
Swiss arbitration law or the arbitration institutions. So we wanted to modernise Swiss law and bring it
in line with the most recent developments in arbitration.
When does the new or the old arbitration law applied to a given arbitration ? The 2021 version applied
if at the time the arbitration agreement was concluded. The decisive moment is the moment of the
conclusion of the arbitration agreement (art. 176 PILA).
Article 178 deals with the form of arbitration agreement. All modern form of communication are now
included. You can conclude an arbitration clause with all current form of communication. It has to be
written to be valid.
UNITED KINGDOM
In England, there is a separate arbitration law which is called “English arbitration Act” of 1996.
FRANCE
In France, arbitration law is separated in different texts and decree (No 2011-48 of 13 January 2011).
The decree contains the French law on arbitration. In France, there is a distinction between domestic
arbitration and international arbitration. International arbitration is governed by Book IV of the Civil
Code of Procedure (Titre II).
www.newyorkconvention.org is a good portal to know more about the regulations of other
countries.
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UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION
UNCITRAL Model law on international commercial arbitration is a model law. It’s not a piece of
regulation in itself. Uncitral states for United nations commission on international trade law so it’s part
of the UN. Uncitral drafted a model law as a template for states to find inspiration if they want to
update their national arbitration law. Countries like Russia, Ireland and Austria have found inspiration
in the work of Uncitral. Uncitral is an international standard. Switzerland, England and France have
developed their own national arbitration law and not influencing by the work of Uncitral.
THEIR USUAL CONTENTS
& 176 PILA: it says when the law applies, it speaks about the scope of application of Swiss arbitration
law. The connecting point is the Seat or the arbitral tribunal.
& 177 PILA: it speaks about the concept of arbitrability which refers to what sort of dispute can go to
arbitration.
“Any claim involving an economic interest may be submitted to arbitration”. So claims not involving
an economic interest may not be submitted to arbitration. That defines the kinds of disputes that can
go to arbitration. In Switzerland, you cannot deal with child custody or criminal matters in an
arbitration. All kinds of disputes can be privatised by going to arbitration (private form of dispute
resolution).
& 178 PILA: it’s a provision on the validity of agreements to go to arbitration. It needs to be made in
writing (= anything that can be evidenced by text).
& 179 PILA: it’s a provision on how the arbitral tribunal is to be constituted (how it is put together). You
have a new arbitral tribunal, newly constituted for each new individual case (1 case – 1 arbitral
tribunal / new case – new arbitral tribunal). This article deals with how you appoint the arbitrators.
For instance, it says that in principle the parties can choose the arbitrators. If they fail to choose them,
some other institution / court will appoint one for them.
& 180 PILA: it’s a provision on how we can remove an arbitrator if we have an arbitral tribunal and we
realise that one of the arbitrators is biased (conflict of interest).
& 180a PILA (new): it’s on the process of that challenge, how challenging an arbitrator can exactly be
undertaken.
& 180b PILA: it refers to the removal of members of the arbitral tribunal.
& 181 PILA: it refers to lis pendens (litispendance), so the idea that if an arbitration has been initiated,
no other tribunal or court can have a jurisdiction. The same case cannot be submitted to arbitration
and to court at the same time.
& 182 PILA: it’s a provision on how the procedure is to be determined that the arbitrators have to follow.
The parties can decide how the procedure is going to be conducted. If they don’t, the tribunal can
decide by itself how it wants to conduct it. That provision also gives the parties certain fundamental
procedural rights that have to be respected in any way.
& 183 PILA: it’s a provision on interim and conservatory measures. If a bank account needs to be frozen
or evidence needs to be ceased or secured in some other way.
& 184 PILA: it’s a provision dealing with the sort of evidence that can be used in arbitration. It’s quite
lax, many forms of evidence can be used in arbitration (far more than in a civil court).
& 185 PILA: it’s a provision that says that the courts can be asked to help an arbitral tribunal under
certain conditions. The national courts can act in assistance / aid of arbitral tribunals.
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& 185a PILA (new): it refers to provisional measures (interim measures), how they can be ordered /
taken if a tribunal has to act very quickly in order to make sure that money isn’t hidden or that pieces
of evidence aren’t made to disappear.
& 186 PILA: it’s a provision regarding the arbitral tribunal jurisdiction. Who decides that an arbitral
tribunal jurisdiction has the competence to deal with de given case? The arbitral tribunal itself decides
whether it has jurisdiction or not. It also deals with objections to a jurisdiction (when they have to be
filed, how, etc.).
& 187 PILA: it’s a provision on what law the arbitrators should apply to the merits (not to the procedure)
of the case. It is the law chosen by the parties. In an arbitration, many different laws can apply which
is why it is such a transnational / international field.
Example: You may have an arbitration where the law applicable to the merits is the law of
Canada (some international treaties), the law applicable to the procedure is the French law
and one of the parties tries to make Italian law applicable (but it isn’t in the particular case),
etc.
It’s possible to have 3, 4, 5, 6, 7 different laws that come to apply to one given arbitration which is
why you don’t have to be a super specialist in one national law in order to be good as an arbitration
practitioner. It is far more important to be a good all-round lawyer with good reflexes who is quick at
understanding what the law says and not to know the latest developments and technicalities of a
given law. You can really move around the world and work in different places, the legal questions will
be more or less the same but you may apply completely different laws.
& 188 PILA: it’s a provision that says that an arbitral tribunal decide a case in increments / instalment
through different ‘partial awards’, one after the other.
Example: a partial award on the law applicable to the case. It didn’t end, it’s like a part of a
court decision / an arbitral award.
& 189 PILA: it’s a provision on how the award has to be drafted (in what form, by whom, etc).
& 189a PILA (new): it refers to the correction of minor clerical mistakes (typos, accounting errors).
Example: You can have an arbitral award which makes all calculations and says 10 times
100’000 dollars means 50’000 dollars and makes a decision. So there’s a clerical error (error
in calculation). This award can then go back to the arbitral tribunal to fix such a minor mistake.
& 190 PILA: it speaks about how you can challenge an arbitral award. In arbitration, we speak of setting
aside / annulling / quashing arbitral awards but NOT appealing.
An arbitral award may be set aside (annulled) only if
a. the sole member of the arbitral tribunal was improperly appointed (if there was a problem with
choosing the arbitrators)
b. the tribunal was wrong in accepting or declining jurisdiction
c. the arbitral tribunal rules beyond the claims submitted to it (ultra petita) or if it failed to decide
one of the claims (infra petita)
d. where de principle of equal treatment of the parties or the right to be heard in an adversary
procedure were violated
e. where the award is incompatible with public policy.
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There’s no mistake in law on that list. So if an arbitral tribunal issues a wrong arbitral award,
completely misunderstanding the law applicable to the merit, it is not a ground to challenge it (to
have it annulled). If you go to court and you get a decision which makes no sense legally speaking,
you appeal it.
If you go to arbitration and get an arbitral award which is completely wrong on substance, you can do
nothing, your stuck with that bad arbitral award. So there’s a huge risk, it is much higher, there’s much
less control of the quality of decisions in arbitration than there is in court cases.
Arbitrators are very much protected legally for anything that they do. There’s also no civil
liability. Even if they screw up really, you can’t sue them for malpractice.
This means that once you get an arbitral award, the case is over. If you get a decision from the court
of first instance, if you win, most likely the other party will appeal and appeal again (lasts very long
and costs a lot of money).
& 190a PILA: it speaks of the review (revision) of an arbitral award.
A review means any procedure in which a court checks the decisions of another institution / office /
court.
Revision is when the award goes back to the arbitral tribunal because of significant new facts or
because of some major problem with the arbitration (corrupt arbitrator), so it has to issue a new
decision.
Challenge to a court means that the court will annule the arbitral award and the parties are left with
nothing. If you want, you can start a new arbitration from scratch but you have no decision in hands
(restart).
& 191 PILA: it specifies the court that can set aside or annul an arbitral award. In Switzerland, it’s the
Swiss Federal Tribunal.
There’s an error of translation because the article speaks of appeal authority. Appeal means that the
appellate court will review the legal accuracy of the decision (check for errors of law) and will issue a
new decision instead of the decision which was appealed (like if you go to court).
In arbitration, the courts will not issue a new decision instead of the arbitral award, the only thing
they will do is annul the arbitral award. It’s only an annulment proceeding and on very limited grounds
(excluding an error of law in the decision).
& 192 PILA: it says that the parties can choose to not have any possibilities to set aside or annul an
arbitral award. The parties can say “whatever happens in an arbitration, we can’t do anything about
it, even if we find that one of the arbitrators was corrupt or had a big conflict of interest, there’s no
possibility to annul under any circumstances the resulting decision (arbitral award)”.
& 193 PILA: it speaks of certain formalities (where copies of arbitral awards can be deposited).
& 194 PILA: it speaks of the recognition and enforcement of foreign arbitral awards that have been
made abroad (an award rendered by an arbitral tribunal with seat in Paris). It refers back to the New
York Convention of 1958.
Essentially, the other national arbitration law has the same sort of provisions. It’s what you will find in any
arbitration law.
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WHEN THEY APPLY
When do these laws apply? When does the Swiss arbitration law apply?
The Swiss arbitration law gives the answer, it’s the same around the world : Swiss arbitration applies if the
arbitral tribunal has its seat in Switzerland (176 PILA).
The seat of an arbitral tribunal is essentially where it is legally incorporated / anchored NOT where it physically
takes place.
Example: you can have an arbitration with seat in Geneva and no one ever comes to Geneva. The
parties either meet entirely in cyberspace (videoconferencing) or they meet in Paris, London, etc.
An arbitration in Switzerland is governed by the Swiss arbitration law, an arbitration in England by the English
arbitration act of 1996, an arbitration in France by the French law of arbitration, etc.
INTERNATIONAL TREATIES
There are a few (not many) international conventions which are important for arbitration. There’s only really
one, the second one only into play for certain kinds of arbitration.
CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS (NEW YORK CONVENTION OF 1958)
It’s the most important international legal text of arbitration. It war negotiated under the ages of the United
Nations in New York. It came into force in 1958.
It has 168 member states (out of 190 states). The most recent countries to join were Malawi and Belize in
march. So it keeps expending.
It says that member states have to recognise and enforce arbitral awards made abroad unless one of a limited
number of grounds is satisfied in which they are allowed not to recognize a foreign arbitral award (Article V).
Foreign arbitral award means in principal awards made anywhere with the seat of the arbitral tribunal being
in any state. But in public international law states, when they sign and ratify a treaty, can enter a reservation.
The NY Convention provides for the possibility to enter the ‘reciprocity reservation’ which means that for those
states that have made that reservation, these countries only have to recognize and enforce arbitral award
made in other contracting states (so the Convention is not applicable erga omnes, applicable vis-à-vis arbitral
awards coming from anywhere in the world).
It can apply either to awards made abroad in :
(a) any state (for 84 states) or
(b) specifically in other contracting states (for 75 states who have entered that reservation)
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ARTICLE V
In the following situations, the NY Convention member states do NOT have to recognize and enforce
a foreign arbitral award :
§ invalid arbitration agreement (arbitration was not valid)
§ no proper notice of proceedings (parties were not properly notified)
§ due process violation
§ other jurisdiction issues (eg. subject-matter not covered by agreement)
§ award annulled
§ public policy
ICSID CONVENTION (WASHINGTON CONVENTION)
It is important but really specific, it applies only to investment arbitrations (ICSID = International Centre for
Settlement of Investment Disputes). It has a specific arbitration procedure for ‘ICSID arbitrations’ and a
specific enforcement regime for ‘ICSID awards’.
It has 153 member states and ICSID arbitrations represent the vast majority of investment arbitrations.
PRIVATE REGULATIONS
They typically govern international arbitrations. These are private rules which are essentially of a contractual
nature which the parties choose to apply in a given arbitration.
ARBITRATION RULES OF ARBITRATION INSTITUTIONS
§ Arbitration rules of the ICC (International chamber of commerce) for all ICC arbitrations : the parties
choose these rules by choosing arbitration under the ICC
§ LCIA Arbitration Rules (The London Court of International Arbitration) which apply only to LCIA
arbitrations
§ DIS Arbitration Rules (Deutsches Institut für Schiedsgerichtsbarkeit) which apply only to DIS
arbitrations
So by choosing a given arbitration institution, you choose a set of arbitration rules which apply as contractual
clauses to your arbitration.
VARIOUS PROFESSIONAL RULES (‘SOFT LAW’)
The parties can choose to apply them to their arbitrations in addition to the institutional rules of arbitration.
The two main sets of soft law rules are :
§ IBA Guidelines on Conflicts of Interest in International Arbitration (International Bar Association)
§ IBA Rules on the Taking of Evidence in International Arbitration (because most national laws are
very lax in regard to evidence)
These rules are applicable to any arbitration (anywhere in the world) if the parties agree.
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WHAT LAW IS APPLIED IN ARBITRATION
We discussed so far the law applicable TO an arbitration. Now we’re talking about which law the arbitrators
will apply to the substance of the dispute (merits of the case) which lead them to decide the outcome of the
dispute.
= LAW APPLICABLE TO THE MERITS
Which law do arbitrators apply to resolve the case? Which law do they apply to the merits of the case to decide
whether a conduct has been reached, to decide whether there’s liability, to decide who owes whom how much
money, etc.? How is that low chosen?
Mostly it’s the law chosen by the parties (eg. English law, German law, Swiss law). That’s the vastly dominant
situation. They can choose a set of transnational rules called lex mercatoria (<1% of cases).
If the parties don’t choose the law applicable to the merits, the arbitrators will select the most
appropriate law that is applicable to the merits. It will in principle be the law of the closest connection
(no duty to apply conflicts of law rules). Arbitrators do not usually apply the specific rules of private
international law which guide you to selecting a given law as the law applicable to the dispute.
IN INVESTMENT ARBITRATION
In investment arbitration (investor – foreign state), public international law also governs the substance of the
dispute. You can have investment treaties which tell you what substantive rights the investors have. You have
also customary international law (the law that comes out of the practice of states over time) which comes in
to play which gives the investors certain rights.
Arbitral precedents in investment arbitration : prior cases formally play no rule at all. In reality, they are very
important in investment arbitration. They are also quite important in sports arbitration and started to be
important in commercial arbitration. But there is no rule of precedent, stare decisis, jurisprudence constante
in arbitration which would say that an arbitral tribunal has to follow a prior case and if it doesn’t, the decision
is going to be annulled. Arbitral tribunals can completely disregard all prior arbitral awards. Most arbitrators
find inspiration in prior arbitral awards.
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KEY ARBITRATION CONCEPTS I : DECISION-MAKERS

In this and the next session we turn on the main legal concepts associated with arbitration, such as arbitrability,
the seat of the arbitral tribunal and the principles of separability and competence-competence. These legal
concepts, although can be found in every legal system, namely they are domestic legal concepts, they do
sustain the legal existence, importance and efficiency of international arbitration. In that regard, it will be
interesting to explore (at a later stage) whether international arbitration is indeed transnational and stateless
in nature. Of course, this discussion presupposes a basic understanding of the aforementioned legal concepts,
the arbitral proceedings, the role of arbitral tribunals (first and foremost of the appointment of arbitrators),
the role of the domestic courts and arbitration institutions in general. During this week, we focus on the
decision-makers and arbitration Institutions.
This week and next week we will be discussing about the legal concept that are specific to arbitration. With
that, we will understand how arbitration works.
This week we will be focusing on the decision makers, more specifically the arbitrators, the arbitration tribunal
and arbitration institutions.
Next week we will be talking about the concepts that mark procedure in arbitration for example arbitrability,
the seat of the arbitral tribunal, competence-competence, and a few more.
ARBITRATION INSTITUTION AND ARBITRAL TRIBUNAL
DISTINCTION ARBITRATION INSTITUTION / ARBITRAL TRIBUNAL
On the one hand we have three buildings, three arbitration institutions. On the other hand, you have people
(we can have 5, 3 or a sole arbitrator but the more common a three-member tribunal).
Arbitral tribunal are the actual people deciding the cases like judges. They are almost always an odd number
(1, 3 or 5, typically 3). We can see in the picture that we can have 5 arbitrators. This can add legitimacy the
decision. But it’s really rare. It’s something like a panel of judges.
But a panel of judges decides in the name of the Court. The Court decide that. We don’t usually say the judges
decided that. In arbitration it’s different. We never say, in a decision of the ICC because arbitrators never make
a decision in the name of an institution. We never say the ICC ordered the parties to pay something. Because
at the end of the day, an arbitration institution doesn’t have that power to order anyone to do anything.
Arbitration institutions are the supporting entities within the arbitral tribunal will give their decision. It’s
something like a Court
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WHAT AN ARBITRAL TRIBUNAL DOES
It is something which is specifically created and appointed for a given dispute. It exists just for the time it’s
take to decide. It is composed of 1 or 3 arbitrators. So it decides the case by majority vote (with 3 we can
always have a majority). In reality it isn’t quite a vote, but it’s the way to say that they need to convince two
out of the three arbitrators in order to win the case. They don’t need to make unanimous decision.
The third arbitrators, if she disagrees, she can issue a dissenting opinion in which the arbitrator say that he
disagrees with his colleagues and explain what he would have decided. It’s not a decision.
The arbitral tribunal decides cases in its own name (not of the institution). Arbitrators aren’t employees of the
arbitration institutions unlike judges.
It makes decision for the parties (not for the society). It’s a bit debatable, not everyone agrees that this is how
it ought to be. But most people would tend to agree descriptively, this is how it happens nowadays. The idea
is that the arbitral tribunal is mandating by the parties to decide a case and that’s typically who they
acknowledge / who they consider to be accountable to. I mean this in a position to judges who decide, arguably
at least, for society at large. In addition to the parties before them, judges usually are supposed to have the
interest of society at heart when they make a decision / what the effects on future cases, for instance, will be
(that’s typically what judges have in mind). Am I going to change the course of case law / am I going to innovate
jurisprudence, what is this going to mean for future? But arbitrators, usually, don’t care about that. They have
been chosen by the parties, they have a legal link to the parties and that’s who they decide for.
Examples of arbitral tribunal in action (videos shown). The sort of interactions we have between the people,
and the lawyer feeling out of place, not using the right vocabulary, not knowing what he should fell, who he
can call to testify where and to do what, etc is realistic. It’s a legal process but the culture is different, the
habits are different and it works differently, not only because the rules are different but because the way
people interact among themselves is at the end of the day quite different. It tends to be somewhat isolated
part of legal practice.
WHAT AN ARBITRATION INSTITUTION DOES
PROCEDURAL RULES
It provides procedural rules. If you choose an ICC arbitration, the first thing that means is that the arbitration
will be conducted under the procedural of the ICC.
Example : The ICC mediation rules, LCIA rules. So each
arbitration institution has it’s own procedural rules.
They do differ in some respects, not massively. For
example, the Court of civil procedure of Geneva is a bit
different from the Court of civil procedure of the canton
of Zurich. Differences are bigger than that because
some arbitration rules of some arbitral institutions you
can choose things such as fast track arbitration, which
has to be concluded within 6 months or a year and we
can not do that under the arbitration rules of other
arbitration institutions.
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Here we can see typical contents of such institutional arbitration rules. These are simply rules which apply if
the applicable national arbitration law allows some of its provisions to be up date out of. These come into play
through contractual mechanisms. If the parties agree to go to arbitration under the rules of the ICC, then these
rules become part of the contract between the parties to have theirs dispute resolve according to these rules.
We have an article of the effect of the arbitration agreement, when the parties have agreed to submit to
arbitration these rules.
Not all of these rules add something but it tend to clarify things.
In the article 18, the word “court” means the ICC arbitration court, which is not a court at all!
Effectively, it’s an arbitration institution.
Art. 21: fundamental principle of arbitration law. It’s simple repeated here to make it clear that the
parties can / get to choose which law governs the merits of their case.
Art. 32: it needs to be majority. If there’s none, the president of the tribunal can decide on his own.
Sometimes one arbitration institution can have different multiple set of arbitration rules. Example: the
American Arbitration Association which has different arbitration rules for commercial, for construction
arbitration, for employment arbitration and for consumer arbitration and for international as supposed to
domestic arbitrations. If you choose this association as the institution administrating our arbitration you get
to choose a more refine type of rules of arbitration.
ADMINISTRATIVE SUPPORT
So an arbitration institution does give you its own procedural rules to govern the procedure of your arbitration.
Then, an arbitration institution also organizes the logistics (administrative support). It finds convenient dates
for hearings, it can make copies of documents, they may set up electronics platforms (ex. Zoom). They provide
secretarial work.
FINANCIAL ISSUES (DEPOSITS, PAYMENTS)
They also deal with the financial issues (collecting the money from the parties and then give this money to the
arbitrators, keeping a little fee for themself).
LIST OF ARBITRATORS
Institutions often provides lists of arbitrators. They are two type of lists. They are open (optional. The parties
can choose their arbitrators but they don’t need to. This is the majority of the cases). They are a few arbitration
institution, such as the Court of arbitration for sports which have closed lists of arbitrators. That means that
you have to choose an arbitrator from that list. Which make it very important who gets on that list. There were
long debates around the Court of arbitration for sports because il y a deux fédérations en sport qui ont une
grande influence sur qui peut être sur cette liste.
PREMISES, USE IS OPTIONAL
Certain arbitration institutions offer premises, rooms, hearing rooms where the hearing can take place. These
are in principle optional. If you go for an ICC arbitration you don’t have to have your hearing taken place to an
ICC. An arbitration ICC doesn’t take place within the ICC usually. Usually an arbitration hearing takes place in
a conference room or a large hotel. It can take place anywhere (ex : Graduate institute, Faculty of Law of
UNIGE).
Finally, a specificity of the ICC only is that the secretariat reviews a draft of arbitral award of the final decision
before it is send to the parties. Sometimes they ask the arbitrators to fix something. Arbitration institution has
no rule on the outcome of the case. In the context of Investment arbitration, they are conduct under the rules
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of ICSID which is part of the World Bank located in Washington D.C. ICSID has no say at all on the outcome of
these arbitrations.
MOST IMPORTANT ARBITRATION INSTITUTIONS (OUT OF CA. 200)
The criteria is based on case law (2017). The arbitration has increased since then (10-15% per year).
• International Chamber of Commerce International Court of Arbitration (ICC) : it’s probably the most
important arbitration institution with 810 new cases in 2017.
• London Court of International Arbitration (LCIA) : 285 ne cases
• Hong Kong International Arbitration Centre (HKIAC) : 297
• Stockholm Chamber of Comemrce (SCC) : 200
• Deutsche Institution für Schiedsgerichtsbarkeit (DIS) : 160 (55 international) : it’s not that important
at an international level but it’s important for Germany.
• World Bank’s International Centre for settlement of Investment Disputes (ICSID) : 53 for investment
arbitrations only.
• Permanent Court of Arbitration (PCA) (the oldest): 41 new cases.
• China International Economic and Trade Arbitration Commission (CIETAC) : 2183 new cases (485
international) (2016). These are mostly domestic Chinese cases.
This list represents how international arbitration is. Arbitration is one field of practice when you could work
anywhere in the World. The rising places is Asia, Latin America and the next one is Africa.
INSTITUTIONAL ARBITRATION VS. AD HOC ARBITRATION
For every case, there is an arbitration institution involved. You can have institution less arbitration. An
arbitration without institution, it’s called ad hoc arbitration.
INSTITUTIONAL ARBITRATION
It’s an arbitration with an arbitration institution. Procedural rules are those of the institution.
AD HOC ARBITRATION
It’s an arbitration without an arbitration institution.
Procedural rules are :
• Borrowed from a public template – typically the UNCITRAL Arbitration Rules. UNCITRAL model law of
arbitration has nothing to do here because model law is a standardize legislative proposal for states
to turn into their own national arbitration law. UNCITRAL arbitration rules are rules for the conduct of
an actual arbitration which are at the disposal for anyone who wants to use them. UNCITRAL itself
never administer any arbitration. It’s not an arbitration institution. It only draft rules and
recommendations.
Typically, if you have an ad hoc arbitration, you would say “this arbitration is going to be
govern by the UNCITRAL arbitration rules”.
• Creatively drafted by the parties and/or the tribunal themselves (rare). The parties or the tribunal
agree on what the rules are going to be.
An UNCITRAL ad hoc institution is an arbitration without an institution but under the arbitration rules of
UNCITRAL.
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An ad hoc NAFTA (North American Free Trade Agreement) arbitration between Parties from Mexico, Canada
or the USA against the government of one of these other states. There are not arbitration institution. There
are ad hoc arbitration and govern by the arbitration rules of UNCITRAL.
Article I of the UNCITRAL arbitration rules defines the Scope of application. When parties have agreed
that disputes between them in respect of a defined relationship, whether contractual or not, shall be
referred to arbitration under the UNCITRAL. Arbitration Rules, then such disputes shall be settled in
accordance with these Rules subject to such modification as the parties may agree.
In NAFTA arbitration, the logistic and administrative part are handled by the NAFTA secretariat, but NAFTA is
not an arbitration institution.
The Yukos arbitration between shareholders of the Yukos oil company and the Russian Federation. In the first
instance, Russia lost which drove Poutine to throw things against the World because he was so pissed to have
lost the case. It was a large award and felt as a humiliation for Russian. That was an arbitration handled by an
institution but conducted under other rules than those of the institution (UNCITRAL arbitration rules).
ARBITRATORS
ARBITRATION CREDO : AN ARBITRATION IS ONLY AS GOOD AS THE ARBITRATORS
Choosing your arbitrator (which is what the parties usually can do) is possibly the most important move to do.
The outcome will depend on the arbitrator. There are different types of arbitrators, ways to look at fact, ways
to look at law, different positions, different competences.
What really matter in arbitration is who you choose as an arbitrator.
HOW ARBITRATORS ARE APPOINTED
There are 3 options with 3 arbitrators :

OPTION 1
Each party (claimant and respondent) appoint on their own. Together they attempt to agree on the third
arbitrator. They agree on who should be the president, the third arbitrator. Each party choose its own co-
arbitrator.
For option 1, it’s the default situation for ICSID arbitration (Investment arbitration) or for CIETAC arbitration
(Chinese arbitration institution) ?
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OPTION 2
Each party appoints one co-arbitrator. Two co-arbitrators then together try to agree on who should be the
third arbitrator, the president of arbitral tribunal. Very often in this case, the co-arbitrator who appoint the
president will sick advise from the party who appointed them.
For option 2, it’s the default situation for the Swiss Rules, DIS (German arbitral institution), UNCITRAL, HKIAC.
It says default because the parties can always by agreement opt out of that option. You can have ICSID
arbitration where it’s the two co-arbitrators who appoint the third arbitrator or when it’s the arbitration
institution ICSID which appoints the president of arbitral tribunal. The parties can together decide to opt out
of one of these options into another one.
OPTION 3
Each party appoints one co-arbitrator. The president of the arbitral tribunal is appointed by the arbitration
institution (for instance : ICC, LCIA)
For option 3, it’s a default Situation for SIAX, SCC, ICC and CAS Appeals division (quarter arbitration for sport).
In practice, that tends to be the more frequent option.
If you have a one-member arbitral tribunal with one arbitrator, he, she or it (company) is typically appointed
whether by two parties together or by the arbitration institution.
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For the option on the left it is when claimant and respondent appoint the sole arbitrator. For the option on
the right, some arbitration institutions make a list and preselect some arbitrators. The parties can rank these
suggestions. The one person who gets the highest cumulative rank is appointed as an arbitrator.
Arbitrators are appointed for one case at a time. As soon as they render the decision, they are considered to
be “fontius officio”. Their office has ended, and they no longer have any power to no anything. They are no
longer arbitrators. This create incentives for arbitrators to be appointed again and again. Much of the way
arbitrators resolve their cases turns around optimizing their appointability.
ARBITRATORS CHOSE WHEN ARBITRATION STARTS
The arbitrators should be chosen when the arbitration starts NOT when the arbitration is agreed (the parties
agree to go to arbitration), because if you agreed today to go to arbitration with your representing company
and you enter into a contract which contains an arbitration clause and you say “If a dispute arises out of this
contract, we’re going to go to arbitration”. If you do something like this, if you already specify the names of
the arbitrators in the arbitration clause and the dispute materialises 20 years later, it may be that these
arbitrators are dead or ill or unavailable.
So don’t: Arbitration clause in contract: “All disputes arising out of or in connection with the present
contract shall be finally settled under the Rules of Arbitration of the International Chamber of
Commerce by arbitrators Filipe Toledo, Gabriel Medina, and Julian Wilson.”
You do see sometimes in practice arbitration clauses which already choose the arbitrators when the contract
is signed. This creates very serious problems if 5, 10, 20 years later the arbitrator isn’t available. Even if (s)he
is available, you may have the problem that when the dispute materialises you may want another arbitrator
than the one you wanted 5, 10, 20 years earlier because the dispute is not the sort of dispute you had
envisaged. Chose an arbitrator who is the best fit possible for the dispute at hand.
If there is no agreement on who should be the president of the arbitral tribunal (or if there’s no agreement on
the sole arbitrator):
§ The arbitration institution appoints the arbitrator: it depends on the (procedural) rules of the
arbitration institution in question.
§ Court at the seat of the arbitration appoint the arbitrator if no institution: this happens if:
• the institution fails to appoint the 3rd arbitrator
• the rules don’t provide for that
• you are in an ad hoc arbitration where you don’t have any rules providing for the appointment
of the 3rd arbitrator by an arbitration institution.
In these cases, it will be the national court at the seat of the arbitration.
Example: if you have an arbitration with seat in Geneva, it will be the courts in Geneva which
are going to appoint the 3rd arbitrator for the parties.
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WHO CAN BE AN ARBITRATOR ?
= anyone as long as you don’t have a conflict of interest

ANYONE
You need to have legal capacity under the law to enter into agreements and contracts. In Switzerland, you
need to be more than 18 years old because as an arbitrator you’ll be contractually bound to an arbitration
institution possibly and definitely to the parties.
THERE’S NO FORMAL REQUIREMENT TO BE AN ARBITRATOR
In some countries, there’s a requirement (China), but in most countries around the world there isn’t.
§ No (formal) need to be a lawyer
§ No (formal) need to have a diploma in arbitration
It is the case (but rare) that non-lawyers are appointed as arbitrators.
Example: It used to be a bit more often the case that you would have engineers (or financiers) chosen as
arbitrators for construction projects because they really understand the technical part of it and the law is
not so complicated.
For many arbitrations, the legal questions are not so complicated, the factual questions are much more
complicated. It helps to be a lawyer and to have a diploma in arbitration.
ICSID CONVENTION
Some arbitration rules provide for formal requirements. The ICSID Convention says that all ICSID arbitrators
must be people :
§ of high moral character
§ with recognized competence in the fields of law, commerce, industry or finance and
§ who may be relied upon to exercise independent judgment.
In practise, this has never been a bar to appointing anyone.
REQUIREMENTS RELATIVE TO THE CASE AT HAND
NATIONALITY REQUIREMENTS
For ICSID arbitrations, the arbitrators must have a different nationality than the parties unless both
parties agree.
Example: An ICSID arbitration between a French company and the American government, the
3 arbitrators must not have French or American nationality.
Same with LCIA arbitrations, there is a specific prevision on the nationality of arbitrators. The idea is
that the arbitrators must have different nationalities than the parties, unless the party that doesn’t
share a nationality with an arbitrator agrees, unless the parties opt-out of that requirement.
The idea is to ensure impartiality. If you share a nationality with a party you’ll be favourably inclined
to rule in favour of that party.
Schultz has a strong doubt about the importance of nationality in the context of companies because
we may very well have a company which is formally a Swiss company (incorporated in Switzerland)
but it has all its activities in Venezuela. This requirement is strongly criticised in practise.
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CONFLICT OF INTEREST REQUIREMENTS
This is a more tangible and important requirement in practice.

The arbitrators must be independent of the parties. They must have no stake in the outcome of the
dispute.
Example: If I am a shareholder of a company and that company is a party before me then I
want this company to win the arbitration because the prize of the shares goes up and I become
richer.
There are different rules which tell whether a given situation is a conflict of interest. They list different
types (whole different typology) which are serious ones and not so serious ones. The main source of
rules is the IBA Guidelines on Conflicts of Interest in International Arbitration.
These guidelines offer 4 lists:
THE WAIVABLE RED LIST
It is for situations which give rise to justifiable doubt as to the arbitrators impartiality and
independence. The arbitrator is advised to disclose these situations.
Example: The arbitrator has advised one of the parties on the case before the arbitration has
begun. If someone comes to see Schultz and asks what he thinks about the case and he says
that he can opt for this or that (provides legal advise) and later the company would like to
appoint him as an arbitrator in a case. So Schulz has to refuse the appointment. The idea is
that if you have prejudged, preformed an opinion on the case before you are even appointed,
when you are then appointed it’s unlikely that you end up being really independent and
impartial.
THE ORANGE LIST
It is for situations which may (depending on the facts) give rise to justifiable doubt. They are advised
to disclose situations such as was I an arbitrator appointed by one of the parties in the last 3 years and
I’m being appointed again by the same party. If it’s the 3rd or 5th time that the given company appoints
me as an arbitrator, I should disclose it because perhaps it starts to mean that what they really want
is to keep being appointed by the same company and therefore I’ll rule in favour of that company over
and over again.
THE GREEN LIST
It is for situations which do not create an appearance of conflict of interest. There’s no duty to disclose.
Example: The arbitrator has expressed a legal opinion in academic writing on a question posed
by the case but hasn’t expressed an opinion on this particular case (academic article about the
application of international law as part of the given national legal system).
THE NON-WAIVABLE RED LIST
It’s about things that the parties cannot in theory wave, such as the legal identity between a party and
an arbitrator. For instance, if the arbitrator is the employee of a party.
Example: If I want to start an arbitration against the UniGE and the UniGE wants to appoint
Schultz as an arbitrator, that wouldn’t be admissible because he’s an employee of the UniGE.
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WHO TYPICALLY IS AN ARBITRATOR
USUALLY INDIVIDUALS HIGHLY SPECIALISED IN ARBITRATION

Arbitration has become a specialism. It wasn’t the case 20-30 years ago where there wasn’t enough people
working only in arbitration for the parties to chose someone who really has a speciality in arbitration.
Nowadays, arbitration is a huge field and there are many people who do nothing else than to practise as
arbitrators or counsel in arbitration. It is rare today that you have the chance to become an arbitrator if you’re
not specialised in arbitration.
§ Mostly partners in law firms (seniors) who have specialised in arbitration or have a practice in
arbitration. You don’t start by being an arbitrator. You start by being a counsel in arbitration.
§ Many barristers in English chambers (seniors): barristers are those who plead in court and solicitors
are those who draft contracts. Barristers typically work in Chambers. They are independents who work
for themselves. They are quite often arbitrators. They’re not partners in law firms because they’re not
part of law firms.
§ Some solo practitioners: quite often judges when they need to retire at the age of 65, they would like
to keep still doing something and they find arbitration to be an attractive retirement occupation. They
have experience in handling hearings, people, parties, etc.
§ Some law professors: in the past it was very frequent, it’s rare nowadays (investment arbitrations).
WHAT KIND OF PEOPLE BECOME PROMINENT ARBITRATORS? WHAT DO THE PARTIES EXPECT FROM ARBITRATORS?
It’s interesting because it tells you what the parties expect from arbitrators. What are the kind of people that
the parties chose as arbitrators? It will tell us what people are looking for in arbitration, in this form of
privatised justice.
WHO BECOMES A PROMINENT ARBITRATOR, NOW AND THEN
Yves Dezalay (sociologist) and Bryant Garth (law professor), ‘Dealing in Virtue’, 1996: it’s a sociological
study of arbitrators. They studied the profiles of the most prominent arbitrators. They identified 3
generations of arbitrators :
FIRST GENERATION OF ARBITRATORS (UNTIL 1980S)
§ The people who would become prominent arbitrators were grand Old Men. There were only
man, no female arbitrators. Old because they were very advanced in their careers (average over
60 years old).
§ Grand in the sense that they had a general socio-professional standing and aura. These would
be people like well-known ambassadors, presidents of countries, really famous law professors,
really professional business people, people who are well known in society for their role in
society and for their role in a profession which is somehow linked to arbitration.
§ Having an academic standing (being a professor), having prestigious academic degrees from the
most prestigious universities, to have a number of scholarly publications (any books not books
on arbitration), distinctions (prizes, being a member of the Institut de droit international) was
important.
§ The family pedigree was important. People who came from royal or well-known business
families in countries were considered to be upright people, people who you could trust, who
could represent society well (symbolic capital).
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§ It were typically people who had held high-profile, glamorous positions, but not necessarily in
the field of arbitration (judge in a higher court, adviser to a president, ambassador, president,
chairmen of a business institution, etc.), p.ex. Bernard Tapie.
SECOND GENERATION OF ARBITRATORS (FROM 1980S UNTIL 1996 [YEAR OF STUDY])
§ They were called technocrats. They were people who were really very good at arbitration
technically.
§ They had great arbitration expertise, they had specialised in arbitration.
§ Academic standing was irrelevant if not in international arbitration.
§ Publication had become irrelevant if they weren’t publications in international arbitration.
§ Speaking engagements in international arbitration (big arbitration conferences).
§ They were fighting for academic affiliations, even minor, if in international arbitration
(adjunct professor).
§ High-profile positions in the world of arbitration (former chairperson of the ICC court,
president of the London court of international arbitration).
§ People who had dealt with high-profile cases.
There was a shift from arbitration as a form of justice which you entrust to people who you think are
reliable in society because they have achieved grand positions in society generally speaking TO
superspecialism, to a field where you only want people who are really good at arbitration (because
arbitration was relatively new).
Thomas Schultz and Robert Kovacs, ‘The Rise of a Third Generation of Arbitrators? Fifteen Years after
Dezalay and Garth’, 2012.
THIRD GENERATION OF ARBITRATORS (TODAY)
§ It’s the generation of the managers.
§ Their distinctive feature was they were good at reliably handling a case as a business affair.
You may have technocrats who forget to come to appointments or are always late, geniuses
in arbitration law but don’t care whether it takes 3,5, 10, 16 years to render a decision because
they need to think about it and they’re only going to release the decision when it’s perfect.
The current arbitrators would deal expeditiously with a case, not trying to draft a perfect
award but getting things done, to move.
§ Proficiency in arbitration law and practice remains: they need to know what they’re talking
about, they don’t need to be the best technically.
§ Commitment and professionalism: being committing to handling a case efficiently and being
professional (answering emails, coming to appointments, being available, etc.).
§ Availability for hearings
§ Management skills: manage your own team, the hearing, the parties, the dynamics of 20
people in the room. It’s about managing people and projects (not about specialism in
arbitration law or practice).
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§ Sensitivity to cultural differences: talking differently to them based on their background (Asia,
Latin America, Middle East, Europe, USA, Canada, etc.). The cultural expectations of parties is
something that these leading arbitrators know very well to read and respond to.
§ Business acumen: people who are able to read budgets and various financial sheets, reports,
etc.
§ High-profile non arbitration positions have become almost entirely irrelevant: nowadays, if
you were a judge at the Swiss Federal Tribunal in the field of family law and you want to
become an arbitrator, it’s very unlikely that you’ll succeed. If you were a star ambassador and
everyone around the world knows you and you have done everything except arbitration in
your life, it’s extremely unlikely that you’ll be able to become an arbitrator.
§ Ok to delegate: traditionally an arbitrator has to the work himself (you chose the person).
Today, the chosen person is a guarantee that the job will be done well (guarantee of quality)
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KEY ARBITRATION CONCEPT II : PROCEDURE

These are basic arbitration concepts that we have to understand to understand arbitration. We will see the
concepts which structure the procedure on which the intellectual construction that arbitration is rest.
ARBITRABILITY
What kind of dispute can go to arbitration? Can we divorce in arbitration?

MEANING OF THE CONCEPT
What does arbitrability mean?

CORE MEANING
There are different meanings. These concepts are made by people and they don’t always agree, there is no
unanimous understanding of arbitrability. People define it differently and there is no right or wrong definition.
Some are more useful, and some are more prevalent. At the heart of these definitions is this definition:
Arbitrability “defines the range of subject-matters that can validly be resolved by arbitration”.
So a given dispute which who’s subject matter is not arbitrable, so the parties can never in anyway agree to
send a given dispute which is not arbitrable to arbitration. If they do and the arbitrators say that they will deal
with this dispute and render a decision, that decision would be invalid, in sense that it will be annullable. It will
be annulled by the Court if the losing party challenges the validity of the arbitration award.
Examples : Some kinds of dispute can go to arbitration and others cannot. Typical rough fault line :
economic matters these can be, others can’t.
Those disputes which are often economic nature can go to arbitration. And those who are not economic nature
cannot go to arbitration.
But what does it mean to say that something is an economic dispute or not? Different countries and people
are very different understanding of what that actually mean. Here are some general definitions, and then we
will see examples of how this understanding of what is an economic matter or not varies quite significantly
from one country to another.
• Arbitrable archetype : liability for breach of sales contract. An arbitration will breach of a sale of
contract, this is really not rare. This is something that will be valid anywhere in the world.
• Not arbitrable archetype : criminal matters, non-financial family law matters (paternity, child
custody, etc).
These are not matters that can be decide by arbitration, even if the two parties agree, as a matter of general
principle.
Then, there are a few more specific examples taken from specific countries that are not archetype. With these
examples we can see the diversity of understandings of what is arbitrable or not should be.
ARBITRABLE
• Competition (CH, D, F, USA) : many countries consider that competition matters are too
important for the overall public, society at large because competition matter or cartels may
be a whole problem for a market and therefore a problem largely beyond the small company.
So it is not only a matter between two companies but for the whole society. Therefore, it
should not be resolved privately.
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• Intellectual property (CH, D, US, JPN) : some countries think that is a problem for the whole
society.
• Employment contracts (CH, NL, USA) : not everywhere because of the typical disparity in
power because of the unequal in power of the two. If we have a big company (ex. UNIGE) on
the one hand and a professor on the other hand, the disparity of the power is enormous.
Therefore, these things should not be privatised.
• Consumer contracts (CH, USA, EU but no pre-dispute arbitration clause)
• Financial aspects of divorce (CH, UK)
• Tort (CH)
NOT ARBITRABLE : EVEN THOUGH IT FEELS LIKE AN ECONOMIC MATTER.
• Real estate / property (EG, RU, RS) : they are not economic enough to be resolvable in
arbitration
• Residential lease (G, AT)
• Individual labour disputes (D, JP)
• Taxation (F) : between a tax payer and the State
• Banking w. interests (SAU) : because interests are very problematic morality. Therefore, the
resolution of these disputes can not be private.
• Environmental damages (RUS)
• Validity of IP rights (F, AT, SWE)
• Privatization of a public company (RUS)
• Commercial agency (UAE): it sounds like something economic but in this case this is not
arbitrable.
The overall evolution is a growing tendency to allow ever more kinds of subject matters to be resolved by
arbitration. Over the last 20 years, more and more dispute subject matter have become arbitrable. The
territory of arbitration is expanding.
Why? It may be a sense of trust that States try to learn what is arbitration and begin to say that it works well.
Another explanation is that States that their Courts are overloaded. And permitting going to arbitration, it can
be a relief for the Courts because it will decrease the case law. But it is not a very strong argument because
the number of disputes which are resolved in arbitration are still a fraction of the disputes resolved in Court.
So it doesn’t really relieve Courts (not significantly at least but maybe in the long run).
OTHER MEANINGS
What we talked about is the core meaning. But we will find in some readings the concept of subjective
arbitrability. The prof think that it is a terrible concept. But it is out there.
“Person’s capacity to enter into arbitration agreement (e.g. sometimes in CH)”
Why is it a bad concept? Because if arbitrability define the kinds of disputes that can or can not go to
arbitration, how can this be subjective?
Subjective in the sense that it refers to what the parties want. The idea of arbitrability is that it is objective and
not subjective. Objective in the sense that the States define what kind of disputes can go to arbitration and
the parties can’t say anything about that.
Then there is another understanding of arbitrability. This is time is specifically American. In the USA,
arbitrability designate whether a given dispute at a given time can be submitted to arbitration. So anything
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that prevents the arbitration of a given dispute makes it unarbitrable in this American sense. For instance, if
the arbitration agreement was not properly executed (ex. Not signed), this dispute is not arbitrable.
Arbitrable Not arbitrable
Archetype : criminal matters, non-financial family law matters

Archetype : liability for breach of sales contract
(paternity, child custody, etc)
Examples :
Examples :
Real estate/property (EG, RU, RS)
Competition (CH, D, F, USA) Residential lease (G, AT)
Intellectual property (CH, D, US, JPN) Individual labor disputes (D, JP)
Employment contracts (CH, NL, USA) Taxation (F)
Consumer contracts (CH, USA, EU but no pre-dispute arbitration Banking w. interests (SAU)
clause) Environmental damages (RUS)
Financhial aspects of divorce (CH, UK) Validity of IP rights (F, AT, SWE)
Tort (CH) Privatization (RUS)
Commercial agency (UAE)
RAISON D’ÊTRE OF THE CONCEPT
What is the point of this concept? Why do we have arbitrability?

Some matters should be resolved in public, in official Court and not by private induvial behind close doors
(because most arbitration are confidential). Some subjects matters are just too important socially to be in a
mechanism that is more or less entirely cut off from the democratic system / State control. The idea being that
you can’t privatise anything and everything when it comes to justice in particular. Privatising justice in itself is
a concept which not everyone is comfortable with.
Arbitrability is the concept used by State to say that these kinds of dispute you cannot privatise them. The
public interest is too important in these subject matters to let private parties and arbitrators deal with it.
What kind of subject matters can be privatised and resolved in arbitration? It depends from one country to
another (cf. list above).
PROCEDURAL IMPLICATIONS
A given dispute is part of a kind of dispute which is arbitrable or not.

If a subject-matter is not arbitrable in a given country, it cannot be decided by arbitration at all; regardless
when and how the parties agreed to it (e.g. post-dispute agreements are also invalid).
Example : Consumer dispute are not arbitrable because under the EU law arbitration clause consumer
contract are invalid. This is wrong, this isn’t because the arbitration agreement in a consumer contract
isn’t valid that that consumer dispute are not arbitrable. It simply means that there is a specific way in
which consumers need to consent to go to arbitration for the agreement to be valid. It can’t be in a
consumer contract before a dispute has raised. If the consumer agrees after the dispute, that would
be a valid agreement to go to arbitration.
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What if a given kind of dispute is not arbitrable in a given state ? What is the law which governs arbitrability ?
If you have an arbitration with the seat in Switzerland and the law applicable to resolve the dispute is French
law and the arbitral award is to be enforced in the USA.
Which of these three laws is the law that governs arbitrability ? The law of the seat governs the arbitrability.
Not everyone agreed about it, there are exceptions. If a given dispute is not arbitrable under the law of the
seat, the arbitration agreement is therefore invalid, and the arbitration can be annulled. If it is not annulled,
the losing party may raise the problem of arbitrability in the USA by saying “the dispute never have been
arbitrated” so that the arbitration agreement on which the arbitration rest isn’t valid. Therefore, if it were
valid, it could be recognized in the USA but it cannot be recognized because the arbitration agreement was
invalid.
SEAT OF THE ARBITRATION
States compete in order to attract more arbitration. They compete among other ways by trying to be a better
seat.
MEANING OF THE CONCEPT
The seat also called a place of an arbitration is the “place of incorporation” of an arbitration. It’s the
geographical place of reference of an arbitration.
Seat designates a city (e.g. arbitral tribunal seated in London, Stockholm, Kuala Lumpur, etc). The clause will
refer to a specific city and not a country.
It triggers the applicability of the national law of the country where this city is. An arbitration that take place
in Geneva will trigger the applicability of swiss arbitration law.
Who chose the city ? The parties chose the seat (e.g. in the arbitration clause) and if they forgot, the arbitrators
are able to select the seat somewhere. Sometimes, it’s the arbitration institution who chose. The LCIA has a
provision which says that if the parties forgot to put the seat somewhere, the arbitration institution will decide.
If the institution dosen’t do it, the arbitrators will do it.
PROCEDURAL IMPLICATIONS
1. DETERMINATION OF LEX ARBITRI (LAW OF ARBITRATION)

Lex arbitri is the law of the seat. That is the arbitration law of the country in which the arbitration is seated.
In certain countries like UK, it’s British law and not UK law.
In principle, the seat determines what the law of arbitration would be.
Example: If an arbitration seats is in Geneva, we will apply the Geneva law because the lex arbitri is
Swiss law (Chapter 12 PILA).
What matters in a lex arbitri ?
Lex arbitri gives you rules on the conditions on which an agreement is valid. In other words, it gives the validity
of arbitration agreement.
It gives the parties basic procedural rights. If an arbitration is seated in Switzerland, the parties will have some
fundamental procedure rights guaranteed by the Swiss constitution law (right to be heard, right to have
independent arbitrators).
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Lex arbitri gives formalities on award. In certain countries, you can opt out of the requirements of reasoning.
The parties allow the arbitrator to give a decision without any reason. They just say you win, or you lose but
not why.
There is one country in the Middle East which requires the arbitrators to sign the arbitral award while
being on the territory of that State. If you have an arbitration with a seat in this country and a few months
after the end of the hearings, the arbitrators render an arbitral award. They have to sign it and in theory
they would have to go to that country otherwise it can be annulled. In practice, they fly into the airspace
of that country, sign the award and fly back. It sounds silly but if you don’t do it, the arbitral can be
annulled.
The lex arbitri offers a set of default procedural rules. These are the rules that govern an arbitration procedure
unless the parties have chosen other rules.
Example : If you chose an ICC arbitration, the procedural rules are from the ICC. If you don’t choose an
arbitration and go for an ad hoc arbitration and don’t choose any procedure, we will find rules in the lex
arbitri (law of arbitration of the country where the seat is).
2. DETERMINATION OF JURISDICTION FOR CHALLENGES
It says when you can challenge arbitral award. Arbitral awards can only be challenged / set aside / annulled by
the courts of the seat.
Example : If you have an arbitration with seat in Geneva, only the Swiss Courts will be competent to
deal with action and to annul it. In Switzerland, it will be the Swiss Tribunal Federal only because that’s
what Swiss law says.
Usually, there is only one or two courts (France : Court of appeal and Cour de cassation). In certain
countries, there are different level of courts. In Nigeria, you can choose with a local court where the
arbitration took place. If that court makes a decision, we can appeal that decision to the court of
appeal. Then we can take it to the Supreme court in Nigeria.
How many level of courts they are ? This is a matter of Govern determine by the law of the Seat (by the lex
arbitri). If you have an arbitration seated in Moscow and you want to know in which court you have to bring
challenges to the arbitral awards, you have to read Russian law.
ONE DEGREE OF ANNULMENT PROCEEDINGS
Some countries have only one degree of annulment proceedings.
• Seat in Switzerland : challenge before Swiss courts, namely Federal Tribunal

• Seat in Sweden : challenge before the Svea Court of Appeal (and before Supreme Court if leave
to appeal).
TWO DEGREES OF ANNULMENT PROCEEDINGS
Some countries (the majority) have two degrees of annulment proceedings.
• Seat in Netherlands :
i) District Court of appeal and then
ii) Supreme Court
• France :
i) Cour d’Appel and then
ii) Cour de cassation
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WHICH COURTS CAN HEAR CHALLENGES IS IMPORTANT BECAUSE
Why is that important where a challenge is to be broad ?

First, because we have to send a Brief with the right court.
Secondly, different court have different grounds of appeal. You can’t challenge an arbitral award on
the same ground in Switzerland than you can in England. If you put the seat in Switzerland, you know
that your award will be more protected against court than if it is seated in London. In other words,
there are different grounds for challenge, broader or narrower (=more or less insulation for the
award).
The question behind is : how much do you want to have if you chose the seat somewhere which
determines how many instance you can go to and on which grounds you can challenge an
arbitral award ? That depends how much control you want by court on what is going on an
arbitration.
The other reason why it is important to know which court may annul your award is that judges of some
courts are more proficient in arbitration than others. They are judges who tend to be more corrupt.
In Switzerland, the judges of the Swiss Federal Tribunal are very competent in arbitration law. There
are some countries where judges say “we never heard of arbitration”.
3. JUGE D’APPUI
If you put the seat in a given city, the juge d’appui of that city will be competent. A juge d’appui is a main court
that will act in assistance the arbitration.
He will assist by appointing the arbitrators if the parties didn’t appoint the arbitrators.
Example : in an ad hoc arbitration, we agree to a three member arbitral tribunal. We appoint a member
and the other party doesn’t. In this case, we will ask the court in Geneva to appoint the arbitrator. In
practice, it is often the arbitration institution which will appoints the missing arbitrator. If there is no
institution (ad hoc arbitration or institution fail to do it), the party can ask the juge d’appui of the court
of the seat.
A juge d’appui can challenge of arbitrators. If one party thinks an arbitrator has a conflict of interest or isn’t
independent, it can go to an arbitration institution, an arbitral tribunal or to the juge d’appui. He sometimes
rules on challenges of arbitrators.
He may give support for the procedure. In particular, for measures to see evidence, freeze bank account.
4. NATIONALITY OF AWARD IS RELEVANT FOR APPLICATION OF NEW-YORK
The resulting arbitral award will have the nationality of the country of the seat.
Why is there nationality on an award ? Nationality of award may be relevant for the application of the New
York Convention.
Art. I (3) : contracting states may declare to apply the Convention only to awards made in the territory
of (= have the nationality of) another Contracting State. When they ratify a convention, the contracting
states can make a declaration. The NY Convention allows states, when they ratify the NY Convention
to say “we enter a reciprocity reservation”. It means that the NY Convention will be only applied to
arbitral awards which come from other countries which are member states of the NY Convention.
Example : If you come to Bulgaria with an arbitral award which was render by an arbitral tribunal with
seat in North Korea. We assume that Bulgaria has enter that reciprocity reservation and Bulgaria won’t
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apply the NY Convention because it comes from a country which is not a member state of the NY
Convention. Bulgaria will recognize the arbitral award by applying the Bulgarian law.
If you put the seat in a non-NY Convention state, it may be more difficult to enforce. It will have the
nationality of that country so it can be difficult to recognize it in all those countries which have entered
this reservation.
WHAT ITS PROCEDURAL IMPLICATIONS ARE NOT
One important thing to be said is that the hearings have to be held. The hearings can take place everywhere :
Where the hearings are held, where the arbitration effectively takes place, where its venue is.
The seat is a legal link and not a material link. An arbitration can be incorporated somewhere but nothing ever
takes place in that city.
If you put the seat somewhere, it doesn’t mean that the hearings will have to take place there. The hearings
can take place everywhere.
CAVEAT 1
The right to hold hearings outside the seat of arbitration is “almost unanimously” recognized not
“unanimously”. There are countries (small exception) where you can put the seat in and if you don’t do the
hearings there, the court of that country will annul the arbitral award. It’s an exception.
CAVEAT 2
Even though you can separate the seat from where the hearings take place (called the venue), that is not how
it is usually done. You can have the seat in Geneva and hold the hearings in Monaco but that is not how it is
usually done. Usually, if you put a seat somewhere, that’s where the hearings will take place. Partial statistical
indications suggest that hearings are usually held at the seat.
Geneva and Zurich are two important arbitration seats among other reasons because of the infrastructure.
Indeed, we can reach these cities easily by plane and the hotel infrastructure is good. A seat in Lucerne will
be more complicated because you have to reach it, travel there.
COMPETITION AMONG STATES TO BE BETTER SEATS TO ATTRACT ARBITRATIONS
Because of the idea that if you put a seat somewhere, things will happen there. States are competing to attract
more arbitration into their country. They try to make their set more attractive. The Swiss arbitration
association represents the interest of the Swiss arbitration. It tries to attract more arbitration in Switzerland.
Why ?
It means more use of Swiss hotel, Swiss lawyers and more business.
Swiss arbitration association has been fighting because they are more competition coming from other
places (Paris, London, Asia – Honk Kong and Singapore).
If you put a seat somewhere, it means that the venue of arbitration will possibly be there (hearings).
Having a venue somewhere means the use of hotels, conferences rooms, arbitrators’ meals, night
clubs, etc. States have a commercial business interest in being more attractive arbitration seats.
If you are an arbitration seat, how do you make yourself more attractive ?
By facilitating the arbitral process and promoting the use of international arbitration. In other words,
it is by exercising less control over arbitration. Parties wo go to arbitration want little oversight or
interference by court in their arbitration.
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Over the last 50 years, it has led to a race. There is a race to the bottom in states control over
arbitration. Switzerland has deregulated (less control by court over arbitration) arbitration to attract
more arbitration seat in Switzerland because that’s good for business.
This has led France, England and other countries to reduce the lever of oversight and deregulate
arbitration so as to attract more business to award states.
COMPETENCE-COMPETENCE
It is the power (competence) of a tribunal to rule on its own jurisdiction (competence). Defined like that, it’s
a general concept which exists for the ICJ, WTO, panels and appellate body, for mostly any international
tribunal has competence-competence.
Specifically, for arbitration it means that an arbitral tribunal has the power to rule on its own jurisdiction. We
can distinguish two effects of competence-competence:
• Positive effect: it empowers the arbitrator to rule on its own jurisdiction.
• Negative effect: courts should decline jurisdiction if they see an arbitration agreement which
seems to be valid.
If you go to a court (Geneva) and say “I would like to litigate this case” and there is an arbitration
agreement in the contract, the courts will NOT ask the question if the arbitration agreement is really
valid and have a trial over the validity of the arbitration agreement and it they find the arbitration
agreement to be valid they will send it back to arbitration.
The courts will see that there’s an arbitration agreement and don’t know if it’s valid or not but that’s
for the arbitrators to decide. The courts keep their hands off any case in which there seems to be a
prima facie valid arbitration agreement, because someone else (arbitral tribunal) has the competence
to decide whether it has jurisdiction over the case which implies to decide whether the arbitration
agreement is valid or not. Only if it’s obviously invalid, the court will hear the case and first rule on the
validity of the arbitration agreement.
e.g. articles 7 and 186(1) Swiss PILA
What is the law which tells you how the negative aspects of competence-competence will exactly be
interpreted? In principal it’s the law of the seats. There are countries in which the law of the seats in
which competence-competence of the arbitral tribunal is much more limited (ex: Chinese law : the
courts will be much more willing to look into the question whether there is an arbitral agreement or
not). French law protects very strongly competence-competence.
It’s a matter of distributing the jurisdiction between courts and arbitral tribunals and who has the first say in
deciding whether an arbitral tribunal can decide that case or not. The answer that the competence-
competence gives is that the arbitral tribunal has priority.
How does competence-competence go together with arbitrability or how are they to be distinguished?
• Arbitrability is the question what kind of disputes can go to arbitration. It defines certain subject
matters that can or cannot go to arbitration.
• Competence-competence is the question of who gets in a given case to decide whether a dispute is
arbitrable or not.
Arbitrability can be understood to be the substantive answer to the question whether a given dispute can
go to arbitration or not because it is part of a kind of dispute which can go to arbitration or not.
Competence-competence is the concept which tells you who is going to make that determination. It’s not
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about substance but about which authority can say “this is a competition matter and competition matters
are not arbitrable” for a given case.
Which of the two following questions is an arbitral going to decide first: “who has the competence?”
(competence-competence) and “is a given dispute part of a category of disputes which is arbitrable or not?”
It’s only going to decide the second. The first thing an arbitral tribunal will say is “we have jurisdiction
to hear this case because there is an apparent consent to go to arbitration”. It won’t say “we have the
competence”, it will simply say “we seem to have jurisdiction” and then proceed. An arbitral tribunal
will rule on its own jurisdiction thereby exercising competence-competence without saying “I exercise
competence-competence”. The first question it has to answer is whether it has jurisdiction or not.
Therefore, it’s directly jumping into the merits of the questions whether it has jurisdiction or not,
which is an implicit application of the positive effects of competence-competence.
The courts however will straightforwardly discuss the negative aspects of competence-competence. If
you go to a court he’ll say “according to the principle of competence-competence, I can’t even say
whether I have jurisdiction or not, you have to first go to arbitration”.
SEPARABILITY
The concept of separability says that the validity of the arbitration agreement to go to arbitration is to be
separated from the validity of the main contract. Why do we need that? Otherwise, an arbitral tribunal
deciding that the main contract is invalid would disappear in a puff of logic.
It we didn’t have the concept of separability and the arbitrator comes to me with this fundamental question
“the contract we have entered into with the other party is invalid, because we didn’t have capacity or there
was a gun held to our head”. If the arbitrator comes to the conclusion that the contract is invalid and we didn’t
have the concept of separability, he would thereby also invalidate the arbitration agreement contained in the
contract which would mean that he doesn’t have jurisdiction to say that the contract is invalid. If he has to be
able to say that the contract is invalid but he nevertheless has the power to say that the contract is invalid
which means that the arbitration agreement in the contract (that bit) is valid. He validly has the jurisdiction to
say that the contract which contains the arbitration agreement is invalid.
E.g. Article 178(3) PILA: “The arbitration agreement cannot be contested on the grounds what the
main contract is not valid (…)”.
IN-CLASS QUIZ
IN THE ABSENCE OF THE COMPETENCE-COMPETENCE PRINCIPLE
• nothing would happen.

• The parties will have to establish that the arbitral tribunal has indeed jurisdiction before a national
court.
Even with the principle of competence-competence, if you go to an arbitral tribunal, the first thing you
will have to establish is that the arbitral tribunal has indeed jurisdiction. The first the arbitrator says in
the decision he renders is “I indeed have jurisdiction to deal with this case”.
If there was no competence-competence principal, if there was neither positive nor negative effect of
competence-competence, you would have to go to a court to get a court to make a ruling that the arbitral
tribunal has jurisdiction. You couldn’t plead “You have jurisdiction” to the arbitrator because he wouldn’t
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have the power to say “Yes, I have jurisdiction”. They would have to go to a court and get a ruling from
the court which says that he can go to the arbitral tribunal, it has jurisdiction.
• Any objection to jurisdiction would force the arbitral tribunal to halt its proceedings until the
competent national court of the seat would determine the validity of the arbitration agreement.
If you ask a court whether the arbitral tribunal has jurisdiction or not. The court says yes and you go to
the arbitrator and there’s a new fact coming up, anything which may jeopardise the validity of its
jurisdiction (validity of the arbitration agreement), you would have to go back to court and the arbitral
tribunal has to halt its proceedings. The arbitral tribunal cannot take any decision on that matter and the
court could make every decision with regards whether the arbitral tribunal has jurisdiction or not,
including whether the arbitration agreement is valid or not.
THERE IS NO LINK BETWEEN THE SEPARABILITY AND THE COMPETENCE-COMPETENCE PRINCIPLES
Separability is specifically about the fact that which arguments can be used to assort or decline the jurisdiction
of an arbitral tribunal. It is what kind of arguments can you use for anyone to say that an arbitration agreement
is valid or not. It could exist even in the absence of competence-competence. You could go to a court and say
that “the arbitration agreement is valid, even though the underlying contract is invalid, even though I am going
to plead before the arbitral tribunal that the contract is invalid. Nevertheless, the arbitration agreement itself
is valid, so please, court, allow us to go to arbitration”.
Competence-competence is who gets to decide on the validity of the arbitration agreement. Essentially, there
is indeed no link between the two.
If the arbitration agreement is invalid then the arbitral tribunal will not have competence-competence?
No, the competence-competence principal exists regardless of the arbitration agreement. The positive
aspect of competence-competence is to allow an arbitral tribunal to rule on its own jurisdiction.
Therefore, to say whether the arbitration agreement is valid or not. The invalidity of the arbitration
agreement does not prevent the applicability of competence-competence.
Only in the situation where it is absolutely obvious that the arbitration agreement is invalid (there’s
no prima facie valid arbitration agreement), the negative aspect of competence-competence not apply
that is to say only then will you be able to go court. In that very specific sense, the negative aspect of
competence-competence doesn’t apply. The positive aspect of competence-competence will always
apply and exist, regardless of the validity of the arbitration agreement. Always, in every case, will the
arbitral tribunal have the power to decide whether it has jurisdiction or not, which includes the power
to say that it doesn’t have jurisdiction on the grounds that the arbitration agreement is not valid.
The positive effect of competence-competence is not affected by the validity of the arbitration
agreement, regardless how obvious the invalidity is. The negative effect of competence-competence
can be affected by the validity of an arbitration agreement in the scenario in which there’s no prima
facie valid arbitration agreement. Then the courts will not be constrained by the negative effect of
competence, which means that they have jurisdiction to rule on that matter (not refer the parties back
to arbitration).
Link?
Thanks to separability, to the fact arguments regarding the invalidity of the underlined contract can
not be raised to discuss the validity of the arbitration agreement, make it easier for the arbitrators to
exercise competence-competence in its positive dimension. It can make it easier for the arbitrators to
decide whether they have jurisdiction or not. If there wasn’t separability, competence-competence
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would be more difficult to exercise, for the arbitral tribunal to rule on its own jurisdiction in case an
argument regarding the invalidity of the underlined contract is raised.
ACCORDING TO THE SEPARABILITY PRINCIPLE, THE REASONS AFFECTING THE VALIDITY OF THE MAIN CONTRACT WILL NEVER
AFFECT THE VALIDITY OF THE ARBITRATION AGREEMENT
NO, there may be the same reasons affecting the invalidity of the main contract may affect the validity of the
arbitration agreement.
Example: if he holds a gun to my head to sing a contract containing an arbitration agreement, that
same reason will invalidate the contract and will also invalidate the arbitration agreement.
An arbitration agreement entered into under duress is not valid. A contact entered into under duress
is not valid either. So the same reasons may invalidate both the arbitration agreement and the
contract. It is simply not because the contract is invalid that the arbitration agreement is ipso facto
also invalid.
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KEY ARBITRATION CHARACTERISTICS

The things which work differently in arbitration which don’t involve particular concept, which we did the last
two weeks. We are going to talk about things such as arbitrability, or competence-competence and the
concept of the seat.
We are going to talk about common things which play out a bit differently in arbitration.
CONFIDENTIALITY
IMPORTANCE
The first thing that always comes up when we ask someone why they want to go to arbitration is the
confidentiality. Arbitration institution, when they advertised arbitration, they systemically put out this idea
being that arbitration is confidential. Why does it help to say that arbitration is conventional, why is it a selling
point? It protects the reputation of the parties. We don’t want everyone to know that our company did
something incompetent, or you wouldn’t want everyone to know of the financial situation of your company.
Because this may have effects on stock valuation (price of your shares) for example, etc.
But he’s not trying to say that arbitration is particularly appealing to incompetent or other problems
companies or individuals. This idea is part of a diffuse idea that arbitration lives in a world of its own, that its
social professional ethical norms aren’t quite the same as for the rest of the society. It helps companies to do
their dirty things privately. That’s part of the anti arbitration slogan. He’s not saying that this is correct or not
correct. But there is a growing social backlash against arbitration for this sort of reasons. How can you do
justice privately, how can it be allowed that the rich powerful resolve their affairs without anyone being the
wiser. This is a sentiment, even in the professional literature on arbitration, there is something sensitive here,
which concretely has lead in investment arbitration for increasing transparency. The UN for example has
pushed for more transparency in arbitration. Partly to simply say that look, we have nothing to hide, you can
look at what’s happening in our procedures, we don’t do anything wrong. That is meant to make arbitration
more trans worthy.
NOT INHERENT
But is arbitration actually confidential? That is not always confidential. But it is indeed confidential unless
decided otherwise. To simply say, it would not be correct to say arbitration is confidential. Confidentiality
doesn’t define arbitration.
Public arbitration is definitively possible. But not in the sense of the public law. But in the sense something
which is public, which people can have access to. And that happen particularly when sates are involved (ex.
Investment arbitration).
So typically, it is confidential, but not necessarily! Most of arbitration would be confidential. In legal terms, it
means that the parties choose to go to arbitration and in the arbitration agreement typically, they make
arbitration confidential. How they do that? The parties make arbitration confidential by agreement expressly
(institutional rules) or by implicit agreement.
“Expressly” = by agreeing to the rules of arbitration intuitions that say that arbitration is confidential.
Example : if you choose ICC arbitration, the ICC arbitration rules will tell you, that they will make
arbitration confidential. So by choosing a given set of arbitration rules, the parties make arbitration
confidential.
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“Implicitly” = most Courts around the World consider that the simple agreement to go to arbitration means
that the arbitration is confidential. The agreement to make arbitration confidential is implicit in the agreement
to submit a dispute to arbitration. So generally, most Courts would considered that the arbitration agreement
implies a(n implicit) general duty of confidentiality.
DIMENSIONS
What exactly is confidential? Which aspect of an arbitration are confidential?

If the institution rules say it expressly, then it is clear. And that is the majority of the case. If you want to know
which aspects of arbitration are confidential, read the applicable rules which would be the rules of the
arbitration institution which has been selected by the parties. There are not here some particularly matters.
So far, they are very few mandatory rules of publicness which would override an agreement by the parties to
make a given arbitration confidential.
It is more complicated when the institution rules are silent on the point of confidentially. Or if you go to ad
hoc arbitration (=arbitration without institution), then you may have no rules which say that arbitration is
confidential or not. What then? They agree to go to arbitration, they implicitly agree to make the arbitration
confidential. In the absence of any specific rules, what does that mean? It helps to make distinctions between
these different aspects of an arbitration:
ARBITRATION HEARINGS AND THE MEETINGS
Are they confidential? Short answer, yes. The situation is pretty clear. All jurisdiction around the World would
find arbitration hearings and meetings to not be public affairs. There are confidential and can not be attended
by anyone, unless the parties agree.
Can we watch an arbitration hearing? No, unless the parties agree. So it is extremely difficult for students (for
example) to attend an arbitration hearing to simply look at how it is happening.
The arbitration video we say in class, one it was a movie and the other one was a mimic, so not a real arbitration
hearing. It is very difficult to find a video of an actual arbitration hearings, if it is a commercial arbitration
hearing. For investment arbitration hearing that is different, and that is possible. It is an exception because in
these situations, the parties specifically agree to make these arbitrations public (there is often the State as a
parties).
THE EXISTENCE OF PROCEEDINGS?
The very existence that we thread an arbitration against somebody, are we allow to say that? For Court
procedures you can. It is quite uncertain if we can do or not do that with arbitration. This is the general answer.
It is not necessary a breach of an employed duty of confidentiality to reveal the existence of arbitration
hearings. It is just a transnational principle. Generally, be careful if we want to talk about it.
The situation is a bit clear. It is more likely to be breach of confidentiality to speak of arbitration proceedings
when the public description of the arbitration includes biased information. The more neutral the publicised
description of the dispute is, the more likely it is not to be a breach of an implied duty of confidentiality.
It is not a breach of a duty of confidentiality to reveal the existence of an arbitration proceedings if a company
is under a duty to provide such information to their auditors, insurance, shareholders, bankers, stock
exchange. The stock exchange rules in some countries require every company to disclose ever legal dispute
they have with another company. Precisely because it affects the valuation of stock.
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THE MATERIAL DISCLOSED DURING AN ARBITRATION
So the accounting sheets, the exhibits of the evidence, the testimonials, all of the different elements of
evidence which are submit in the arbitration by the parties or by an expert, do they then fall into the public
domain simply because there were brought to an arbitration hearing? Short answer no.
There are confidential, it is simply an extension of the idea that the hearings are confidential and one would
circonvese (pas compris) the aspects of confidentiality by making the substance of these hearings public.
Most obviously, typically, every hearing lead to a transcripts, and if we disclosed that, that is a breach of
confidentiality. Beyond that, notes of evidence, the pleadings, written submissions, the witness statements,
all of these are confidential.
What is not confidential is documents submitted in arbitration which were not created specifically for the
purpose of this arbitration. For instance, historical documents (ex: The historic of a company). But the ones
who were prepared for the arbitration are confidential. So we can’t say that it should be confidential because
it is in an arbitration if it is not a document which is prepared for arbitration.
AWARD
It the arbitration award confidential? If I win for example the arbitration, can I post it? Can I do that if I remove
the name?
TYPICAL RULES
A few examples of provisions of confidentiality of arbitration institution.

LCIA RULE 30.1
“The parties undertake as a general principle to keep confidential all awards in the arbitration, together with
all materials in the arbitration created for the purpose of the arbitration and all other documents produced by
another party in the proceedings not otherwise in the public domain (…)”.
That rule binds the parties, not the arbitrators or the arbitration institution.
LCIA RULE 30.3
“The LCI does not publish any award or any part of an award without the priori written consent of all parties
and the Arbitral Tribunal”.
That binds the arbitration institution. If the parties agree and the arbitral tribunal agrees, then the award can
be published.
SRIA ARTICLE 44
“1. Unless the parties expressly agree in writing to the contrary, the parties undertake to keep confidential all
awards and orders as well as all materials submitted by another party in the framework of the arbitral
proceedings not already in the public domain, (…).
This undertaking also applies to the arbitrators, the tribunal-appointed experts, the secretary of the arbitral
tribunal, [and all the persons related to the SRIA].”
SIAC RULE 39 : CONFIDENTIALITY
“1. Unless otherwise agreed by the parties, a party and any arbitrator, including any Emergency Arbitrator,
and any person appointed by the Tribunal, including any administrative secretary and any expert, shall at all
times treat all matters relating to the proceedings and the Award as confidential.”
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SIAC RULE 39 : CONFIDENTIALITY – SANCTIONS
SIAC has the advantage of having a rule on what happens if you breach a rule of confidentiality.
“4. The Tribunal has the power to take appropriate measures, including issuing an order or Award for sanctions
or costs, if a party breaches the provisions of this Rule.”
If you breach a duty of confidentiality, the arbitral tribunal has the power to make you pay sanctions. A
sanction is usually something which only a public court would be competent to issue. But in the case of
breaching of confidentiality, if you try to play dirty in an arbitration, you may have to pay sanctions.
HKIAC ARTICLE 42
« 1. Unless otherwise agreed by the parties, no party may publish, disclose or communicate any
information relating to:
(a) the arbitration under the arbitration agreement(s); or
(b) an award made in the arbitration.
2 The provisions of Article 42.1 also apply to the arbitral tribunal, any Emergency Arbitrator (…) expert,
witness, secretary of the arbitral tribunal and HKIAC”
There is a trend over this last 5 years to make arbitration even more public. The ICC in particular (LCA as well)
more and more arbitration institution try to make more and more aspects of the arbitration public.
Why ?
Firstly, because it’s a prove that there are good arbitral awards, they are legally competent. There is
nothing shady happening. It’s a manner to improve the overall image of the arbitration generally
speaking.
Secondly, arbitration institution do that in order to compete with other arbitration institutions. They
want to show their competence.
Thirdly, it is too slowly start creating precedent. We speak about informal precedent, non-binding
precedent. Arbitral award are never formally binding. As an arbitrator you can completely disregard
any prior award dealing with the same legal matter. The arbitral award will never be annulled on that
grounds. Some arbitrators do refer to older cases, sometimes to follow them or sometimes to
disregard them. They can do that because there is no binding rule of precedent. However, there is a
growing sort of de facto rule of precedent which keeps getting stronger. Arbitrators should at least
pay some consideration to what other arbitrators before them have done. It’s a de facto rule, a social
rule. It shows what the expectations in the field are. They shape practice.
PROCEDURAL FLEXIBILITY
PRINCIPLE
The key idea Is that the procedure is controlled by the parties and not by the arbitrators or the institution. In
practice, they may be tensions between what the parties want and what the arbitrators want and what the
institution wants.
E.g. : The parties may want to hear more witnesses. The interest of the lawyers on both sides is to
bring the most possible witnesses because it increases the chance of winning.
The financial interest of the arbitrators is different. They are sometimes paid by hour, day and if not,
they want to have a decision quickly as possible. When the arbitrators spend another week, they won’t
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be paid more. Arbitrators have a sense of justice and they can say that they don’t want to hear more
useless witnesses.
What if the parties want more and the arbitrators want less witnesses ?
The result of that tension largely depends on the authority of the arbitrators. Very experienced
arbitrators sometimes say “I know that is what you want but I believe it is pointless so I won’t do it”.
Legally speaking, this would be a bit problematic because the procedure is controlled by the parties.
If the arbitrators refuse, it’s complicate. It’s better to answer this question not as a legal question but
as a practical question.
If you have to convince an arbitrator because you want to win the case and he says that it doesn’t
want it. You can insist so much that you will actually antagonize the arbitrator and he won’t like you
or you push a bit and then accept his opinion.
During covid, the parties couldn’t travel for meetings. Therefore, if you push back a case it’s more on
the interest of the respondent. The respondent can hope that the situation will change. During covid,
when there were travel restrictions and the parties didn’t agree because one party wouldn’t do an
online hearing. The arbitrators would typically say that he wants on online hearings because otherwise
he is out of the business and can’t be paid. If one party and the tribunal want an online hearing but
the respondent doesn’t want it or if both parties don’t want it, the rules are not clear. But if the
arbitrators really push for it, it ends up happening.
The parties can decide to have more arbitrators instead of the usual one or three arbitrators. The arbitration
institution typically will say “no I won’t allow you to opt out of the ICC arbitration rules which says one or three
arbitrators”. Legally, the parties could opt out of any rule of on arbitration institution because it’s all by consent
of the parties. But the arbitration institution often pushes back and say no, otherwise it won’t administrate
the case because it has a reputation to maintain.
The idea behind the parties shaping the procedure is that arbitration is there “for the parties”. Arbitration
started out as two traders calling upon a third party/arbitrator to resolve the dispute between them. If
arbitration is there for the parties (not for society at large), why not let them do it in whatever way they want
? Arbitration is not understood as a form of justice but something for the parties, which the parties control.
Shaping the procedure is done by both parties together. The consent of all parties is required to design the
procedure in a certain way. One party cannot change the procedure in the absence of an agreement with the
other party.
Can a party challenge the arbitrator that itself appointed ?
Yes, if you appoint an arbitrator and you want him remove. The reason is that you appoint an arbitrator
and then realize that he has a conflict of interest.
(Re)shaping the procedure can be done at any time. The lower the lever of hostility between the parties, the
easier it will be to reshape the procedure. It is easier to shape a procedure, to agree on what you want at the
time the arbitration agreement is signed for instance by choosing a set of procedural rules. It is more difficult
to do it once the arbitration has started. It is possible to begin an arbitration and six months after decide to
have a fast track arbitration and give the arbitrator three months to make a decision. If you try to do it as a
claimant, the respondent may refuse. So if you want a particular arbitration procedure, it’s better to deal with
that at the time of signing the agreement. The more you want to defend yourself against an arbitration, the
more expensive you should make the procedure. If you want to be the claimant in the arbitration, you will
make it as quick to resolve as possible.
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EXAMPLES
PUBLIC ARBITRATION
The partiey can make parts of the arbitration public and not completely confidential.
E.g. : Arbitral award, you can remove the name of the parties. Sometimes hearings can be made public.
This happens mostly in investment arbitration because they want to show the whole world that they
have done nothing wrong. The parties could theoretically every part of an arbitration public if they
agree.
A MORE EXPENSIVE PROCEDURE
They can make the procedure more extensive (more expensive) in the hope of getting closer to
arbitral/juridical truth. The idea of juridical truth is that in any procedure, you reconstruct the truth. This can
be far from the real truth.
E.g. : admit more evidence, ask for site visit of arbitrators. If you have a quick arbitration, which lasts
only two days, you are likely to have truth reconstructed in the arbitral proceedings, which is far from
the real truth. The closer you want to bring arbitral truth to real truth, the more you have to
investigate, hear witnesses, see evidences and therefore the more expensive the procedure will be.
To make an arbitration procedure more extensive, is good for the lawyers. They have an interest to pushing
the procedure to be more extensive because they will be paid more. Over the last 30 years, arbitration
procedure on the whole have become a bit more expensive. In average, an arbitration procedure lasts longer
and are more expensive than 30 years ago.
E.g. : One way in particular in which arbitration has become more extensive is the import into
arbitration of an American way of using evidence discovery. Discovery is this idea when a party ask us
or the tribunal to reveal every document in our possession, which has anything to do with the case. In
US litigation, this is typical. These documents cost a lot to produce. Discovery is a way to have evidence
and it has made arbitration more expensive.
E. g. : They can be more rounds of submissions. It is usually one round of submissions. In most cases,
the parties want another round. Over the last 30 years, the number of rounds of submissions has
increased. Often, there are two rounds of submissions (memoranda) and after that several hearings.
After that, there are post hearings briefs.
E.g. : In arbitration, there is no appeal properly speaking in the sense that you can’t in principle review
the legal merits of an arbitral award. You can in principle only annul an arbitral award on grounds of
procedural irregularities. In some situations, the parties can decide to have someone who check that
the arbitrators are not missing up and that they render a good legal decision at the end. The parties
can create an appeals procedure. The party that loses can appeal the arbitral award to a higher
instance of arbitration which act as a proper appeal’s arbitral tribunal. It’s rare.
E. g. : The parties can opt for a fast-track arbitration and give the arbitrators a couple months to reach
a decision. Arbitration is about getting a dispute out of the way.
Make the procedure less extensive.
E. g. : The arbitration for the Olympics games is called the CAS ad-hoc committee for the Olympics.
This arbitration renders proper arbitral awards within 24 hours because this are matters of the
exclusion of an athlete because of doping for instance. If an athlete is excluded during the semi-final
and he wants to challenge that decision, that decision has to be resolved before the final.
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LIMITS
Are they limits to the extense to which the parties can shape the procedure ? What the parties can make the
arbitral tribunal do ?
In a nutshell, there’s none. There’s almost no limit. Of course, the parties can always extend an arbitration
procedure (make it more complex, longer, more expensive). Some arbitration procedures have lasted 10 years.
The less obvious question is whether the parties can make the arbitration go so fast as to be inconsiderate
that it effectively breaches their fundamental due process rights (perhaps event the rights that they have under
a human rights convention)? They can waive essentially all of their rights, including the right to oral hearings,
the right to independent arbitrators (agree to any arbitrator and wave the right to challenge a corrupt,
conflicted arbitrator), and more generally the right to a fair trial (in return for the guarantee that the
arbitration will go very quickly).
WAIVER
AFTER THE FACTS
It is no problem at all, it’s clearly unlimited. It’s generally understood that if something happens during
the procedure, if your procedural rights are breached during the procedure and you don’t complain
immediately, you are considered to have accepted what happened regardless of what exactly
happened. Every kind of breach in principle is considered to be accepted by the party who does not
object to it.
Example: arbitrator is partial, if the parties don’t object: they are deemed to have waived the
right to an impartial arbitrator.
It comes to your attention and everyone knows that your arbitrator is conflicted and you don’t
do anything. Or if an arbitrator says that he doesn’t want to hear your witness, but he’ll hear
the witness of the other parties.
On that basis, we can say that a waver after the fact is always ok. The arbitrators can do whatever they
want, if after they’ve done it no one objects, once they render an arbitral award, you cannot challenge
the arbitral award on the grounds that there was a procedural irregularity since you didn’t object
during the procedure (if you knew that it happened).
BEFORE THE FACT
It’s probably unlimited too, or close.

Example: the parties select an arbitrator who is clearly partial and not independent (family
member, business partner of one of the parties) and put that in the rules (on the arbitration
agreement). If then the arbitration starts and you say that you don’t want the arbitrator, can
you say that you agreed to the arbitrator when you signed the arbitration agreement? Can you
object to that?
It’s less clear legally, but it’s ok. Even if you examine how the European Court of Human Rights applies
indirectly (a number of these cases have gone to the ECHR), so far no case has been struck down
because of that.
So in principle, the parties can shape the procedure in whatever way they want, as long as they agree.
They can waive before and after the fact all of their procedural rights in arbitration (which you cannot
do in court where there are a number of unwaivable procedural rights guaranteed by art. 6 (1) ECHR).
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SO WHAT? WHY ARE WE TALKING ABOUT THAT?
If everything is based on the parties’ consent, what if a weak party’s consent is ‘forced’? The political question
is if people should be left to make their own decisions or should the law interfere to protect people against
themselves? It’s a left wing / right wing political choice.
If you are a weak party (consumer, employee, athlete) and you are forced to enter into an arbitration clause.
Example: if you are an athlete and you’re forced to enter into an arbitration agreement because it’s
necessary condition for you to practice your sport and to compete in professional competitions. So
you have to enter into an arbitration agreement and it encloses a waive of some of your fundamental
procedural rights, what then?
The law doesn’t forbit it and if the consumer, employee, athlete accepted it, should we say that it’s not our
problem (free will) or should we say that the reality is that the poor/weak party didn’t really know what she
was doing and we have to protect them (consent is inoperative)? So we have to make some of these procedural
rights unwaivable.
In the context of the Olympic games, things have started to change. The ECHR and the Federal Tribunal starts
to say that sport arbitration, CAS arbitration is a form of mandatory arbitration. The athletes are forced into
arbitration and therefore they should be protected. If they’re already forced to privatise the resolution of their
dispute, at least there has to be some guarantees. So there’s a sing of evolving jurisprudence in that context.
That’s what the law says but you may agree or disagree (socially, politically, ethically, axiologically) and you
have the right to say that you think that it’s wrong.
FINALITY
Arbitration has greater finality than courts. Arbitral awards are more final than court decisions.
Great finality = limited grounds for annulment
Finality is essentially a question of grounds for annulment. The fewer grounds for annulment there are, the
more the final a decision is. If you get an arbitral award, is this the end of the story or are there going to be
many more appeals, actions in court?
• If you get a court decision (first instance in Geneva), it’s not the end of the story. There is likely to be
appellate proceedings and then Federal tribunal proceedings.
• In arbitration, it is much closer to being over than a court decision, because the grounds for annulment
(the grounds on which you can challenge and set aside / annul an arbitral award) are much more
limited than the grounds in which you can appeal a court judgment. The likelihood that it stops with
an arbitral award is much higher.
TYPICAL GROUNDS FOR ANNULMENT OF ARBITRAL AWARDS
The grounds on which you can challenge an arbitral award are:
• Invalid arbitration agreement

• Irregular constitution of the arbitral tribunal: the arbitrators are not those they should have been,
because they were conflicted or not properly chosen.
• Breach of due process: lack of equal treatment of the parties, breach of the right to be heard.
• Issues of jurisdiction: the scope of the arbitration agreement did not cover that particular question
which was decided by the arbitrators.
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• Arbitrability: the arbitration was over a subject matter which was not arbitrable.
• Public policy: if the decision is shocking the fundamental juridical legal common sense of a lawyer.
• Generally there is no review of the merits: you cannot appeal properly speaking an arbitral award on
the grounds that the arbitrators got the case wrong on the merits.
Example: so if the arbitrator makes a decision and he says that the contract was not breached
when it was absolutely obvious that the contract was breached, you can’t challenge the
arbitral award on that ground.
IN VALID ARBITRATION AGREEMENT
Examples:
• The formal requirements were not met

Examples: the agreement was not signed by one of the parties or the arbitral agreement was not
in writing
• Lack of legal capacity of one party
Example: Schultz can not enter into an arbitration agreement on behalf of the university of Geneva.
He doesn’t have that power. If he signs an arbitration agreement on behalf of the university, he
exceeded his powers and didn’t have legal capacity to enter into that arbitration agreement.
• Absence of consent
Example: if you can show that a gun was put to your head and you were forced to sign the
arbitration agreement (duress).
• The agreement has been terminated
Example: there was an arbitration agreement, but the parties terminated that arbitration
agreement and reconvened a bit later and entered into a new contract which said “no more
arbitration, let’s go to court instead”. If you nevertheless use the old arbitration agreement to start
an arbitration and the arbitrators don’t see it and render an arbitral award, that’s ground to
challenge and set the arbitral award aside.
IRREGULAR CONSTITUTION
Examples:
• Lack of independence or impartiality

Example: the arbitrators systematically favoured one of the parties (partial).
• The appointment or composition violates the applicable rules
Example: some arbitration institutions, in their arbitrational rules, require the arbitrators to not
have the same nationality as either of the parties. If, after the arbitration ends, you realize that
one of the arbitrators shares the nationality with the other party, you could challenge the resulting
arbitral award, because the composition of the arbitral tribunal did not comply with the applicable
rules. The arbitrator did not meet the agreed qualifications, even if the arbitrator was perfectly
impartial and independent.
LACK OF DUE PROCESS (OR PROCEDURAL PUBLIC POLICY)
Examples:
• A breach of right to be heard

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Example: a party was prevented from presenting evidence (the arbitrator doesn’t want to hear the
key witness), legal arguments or to rebut opponent’s case (on factual grounds, for instance).
• Breach of equality of treatment (parties subjected to different standards)
Example: the arbitrator gives systematically one party 1 hour to plead and the other party only half
an hour or he only takes questions from one party and not from the other.
• No proper notification
Example: if one of the parties (respondent) has not been properly notified of the existence of the
proceedings and perhaps therefore didn’t show up.
• A failure to deal with all presented issues
Example: the contract is invalid on 3 grounds and the arbitrator says that it is valid but he only
deals with 2 grounds and doesn’t even address the third ground which may have been invalid.
ISSUES OF JURISDICTION
Examples:
• Arbitrability: if the dispute is not arbitrable, you cannot consent to it. Therefore, the tribunal can not
have jurisdiction over it.
• Formal validity of the arbitration agreement (it wasn’t in writing) and substantive validity of
arbitration agreement (there was no real consent)
• Existence of consent
• Scope of arbitration agreement
• Partie’s capacity
They can lead to the arbitration agreement be invalid which leads to a lack of jurisdiction.
PUBLIC POLICY (SUBSTANTIVE)
The decision creates an intolerable conflict with someone’s sense of justice. It is a particular set of contents
that we use in arbitration when it comes to public policy. It’s an international form of policy and not domestic
public policy.
So a court decision which may be set aside on the grounds that it breaches substantive public policy. These
grounds may not lead to setting aside an arbitral award, because the grounds are part of domestic public policy
and not international public policy. Typically, something would have to be really problematic in order to breach
international substantive public policy. More shocking it would be, more grave than what is required to breach
a domestic notion of public policy which is the form of public policy which is used for court decisions or
administrative decisions.
Examples:
• Bribery, corruption on the part of the arbitrators

• Decisions dealing with forced labour or child labour
• Decisions which implement, create violations of human rights
• The lifetime professional ban (on athlete)

• Violation of res judicata: that matter has already been decides, it was decided again by an
arbitral tribunal
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• Serious breach of mandatory law (e.g. competition, securities, liability limitations): if these
mandatory law are not applied by the arbitrators, they may amount to a breach of substantive
public policy.
• ≠ arbitrariness in itself is not a ground to set an arbitral award aside. In itself it’s not a breach
of the international form of public policy which is used in arbitration. So arbitrators can render
arbitrary decisions and that is not a ground to set it aside. They are binding, final and
enforceable. If you agree to go to arbitration, you may end up with an arbitrary legal decision
against you against which you cannot do anything. So going to arbitration entails risks.
CHALLENGES BEFORE THE SWISS FEDERAL TRIBUNAL
Between 1989 and 2017, there have been 576 decisions rendered by the Swiss Federal Tribunal on annulment
matters (setting aside arbitral awards). 45% related to sports arbitration.
The overall success rate of an attempt to set an arbitral award aside in Switzerland before the Swiss Federal
Tribunal (the only court where you can try to do it in Switzerland) is 7.53%. So you have a 92.47% chance/risk
that the arbitral award you get is final and not going to be set aside. So arbitration is final to 92% in Switzerland
(similar in other countries). So if you start an arbitration in Switzerland, the award you get is the one that you’ll
have to live with in (more than) 92% of the situations. Challenging an arbitral award is pointless.
Only one award ever set aside for reasons related to merits.
Unlimited worldwide ban on football player because couldn’t pay damages to former club (breach of
substantive public polity) : it was a sports arbitral award in which a football player left a club and
joined another. That was a breach of his contract with the first club. As a consequence he had to pay
a huge fine to his first club he left. He didn’t have the means to pay it. The sports federation (FIFA)
excluded him for life (until he would pay the fine). That football player challenged the decision of the
sports federation in a CAS arbitration. The Cas arbitral tribunal approved the sanction pronounced the
sports federation. The football player then challenged the arbitral award before the Swiss Federal
Tribunal and won. So the arbitral award was set aside. It’s the only situation where an attempt to set
aside an arbitral award on the grounds of a breach of substantive public policy was successful in
Switzerland through the whole history of arbitration in Switzerland.
If our client wants to challenge an arbitral award, we can show him this. Here are the chances to win:
• 3.8% of winning if you challenge an arbitral award because of the irregular constitution of an arbitral
tribunal.
• 11.3% because the ground on which you challenged the arbitral award was a matter of jurisdiction.
• 2.9% if you argue that the tribunal went ultra ou infra petita.
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• 5.5% chances that you succeed if you plead equal treatment or the right to be heard.
• 1% if you argument a breach of public policy. 1 was successful on procedural public policy (breach of
res judicata) and 1 was successful on substantive public policy (football player).
EXCLUDING ALL ANNULMENT POSSIBILITIES
E.G. SWISS LAW
In Switzerland, there is an additional possibility (not only in Switzerland but in a minority of countries). The
parties can exclude by agreement all possibilities to challenge an award.
Article 192 (Waiver of annulment): “If none of the parties have their domicile, their habitual residence,
or a business establishment in Switzerland, they may, by an express statement in the arbitration
agreement or by a subsequent written agreement, waive fully the action for annulment or they may
limit it to one or several of the grounds listed in Art. 190(2)”.
So it is possible if the parties agree to have an arbitration in Switzerland which will always be final, which you
cannot annul on any grounds. The advantages are that there is more finality, it is quicker and there is more
certainty in the outcome. The risk is that the outcome is a bad award and you can’t do anything about it.
RECOGNITION AND ENFORCEMENT

• Recognition is a shield: an arbitral award will operate as a res judicata bar in subsequence national
court litigation. You can use it as a shield “you can’t sue me because that matter is res judicata,
because it has been decided by an arbitral tribunal and that arbitral award is recognized in this
jurisdiction where you want to sue me”.
• Enforcement is a sword: a national court will treat the arbitral award as something like a valid
judgment and for example execute it against the assets of a recalcitrant party.
NEW YORK CONVENTION OF 1958
The Convention on the recognition and enforcement of foreign arbitral awards (New York Convention of
1958) is the most important international legal text for arbitration. It has 168 member states (most states).
The Convention says that member states in principal have to recognize and enforce foreign arbitral awards,
unless the recalcitrant party successfully raises one of these grounds (largely the same grounds as the usual
grounds for annulments):
• Invalid arbitration agreement
• Other jurisdiction issues
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• No proper notice of proceedings
• Irregular constitution
• Due process violation
• Award annulled
• (international) public policy

In these cases, foreign arbitral awards may be refused recognition and/or enforcement.
INVALID ARBITRATION AGREEMENT
Examples which were raised in the context of opposing the recognition and enforcement of the New York
convention on the grounds of invalid arbitration agreements:
• Formal invalidity
Example: arbitration agreement not signed by one of the parties.
• Lack of consent
• Lack of capacity
• Issues outside scope of agreement

The same grounds as the grounds on which you annul an arbitral award typically are the grounds on which
you can oppose its enforcement.
OTHER JURISDICTION ISSUES
Examples:
• Subject-matter was not covered by the agreement, therefore the tribunal had no jurisdiction
• The award addresses a party not bound by the agreement:
Example: it orders the party to pay something and that party was not bound by the arbitration
agreement.
IRREGULAR CONSTITUTION
Examples:
• Lack of independence or impartiality

• Composition or procedure not in accordance with lex arbitri or parties’ agreement
Example: incorrect number of arbitrators or wrong appointing authority.
DUE PROCESS VIOLATION
Examples:
• Party prevented from submitting crucial evidence

• Party prevented from commenting or responding to other party’s evidence
• Decision based on facts not presented or discussed
• Unequal treatment
• Insufficient time to present case in light of exceptional circumstances (earthquake in Italy)
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PUBLIC POLICY (SUBSTANTIVE OR PROCEDURAL)
Examples:
• Criminal prohibitions (terrorism, slavery, drugs)

• Fraud, corruption, bribery
• Excessive damages or interest
• Award extra petita

• Failure to give reasons (as mandated)
• Violation of res judicata
The New York Convention has a ‘arbitration friendly’ spirit. It is restrictive in its grounds to stop enforcement
and recognition.
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ARBITRATION DECISION-MAKING
Example : An arbitrator is a human being and make decisions based on all of sort of factors. It is
important to understand because when we don’t know who the arbitrator will be, it has a major impact
even if the same law is applied. The outcome will be different.
Today we are going to talk arbitration decision-making. How do arbitrators make decision, render arbitral
award. What are the different factors that lead them to choose between the different options they have when
they render an arbitration award?
The super classical answer would be to say that they apply law to the facts and if the law is the same then the
judge would apply, then the result would be the same. Because its all-logical syllogisms applying law to facts
and coming answers. So if we don’t spot any real difference in regards to the applicable law, then there
shouldn’t be any difference.
Next step in the reasoning is to ask arbitrators if that is really true. So ask if they think like a judge, like a lawyer.
Some modern psychology would say that our own mind is not fully transparent to ourselves. We don’t entirely
know how we make decisions ourselves. So people other than ourselves might actually might be in a better
position to know how we think and what the likely decisions I am going to take.
And this would lead that we can conduct studies to know what really get factures into my grading in your exam
copies (for example). The exact same thing we can do with arbitrators. We can conduct studies to try to
understand what are the factors which influence how arbitrators make decisions. And that’s what we are going
to talk about today.
To make it clear, we have to start with historical back grounds. At first, we are going to make the distinctions
with two schools of thought. Regarding to general school of thoughts about how legal decision-makers
generally speaking (judges, lawyers in administration), make decision. The point is to tell how he comes from.
Then, we will look at a number of factors of arbitration decision making on part 2 and 3. He will group these
factors of arbitration decision-making into categories. The distinction between the part 2 and 3 is not
important for what he is trying to say, it is just a way to arrange this, to put some organisation to this.
In the part 4, we are going to see what sort of reactions are being contemplated, have taken place in the field
to try to fix this.
FORMALISM V. LEGAL REALISM
It’s a theoretical distinction.

Formalism is the way you have been thought how to think like a lawyer, how do we come to the correct
answer, that law is objective, based on reason. But it is only one way to understand how legal decision makers
make decisions.
Realism is another school of thoughts. It was developed at the end of the 19th century.
Then, we will see how this is going to help us understand how arbitrators and judges make decisions.
WHAT IS FORMALISM ?
Formalism, the core idea of this, judges and arbitrators apply law to facts. When we take the argument further,
we have this formulation: the judges apply the law to the facts of the case and, if this is done competently,
thus reach the correct answer.
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We have the idea that you need to find the correct answer in a case study, exam, etc. Intuitively, the idea that
there is one correct answer to one legal question, so we don’t make an answer be the correct answer, it is
already out there.
When we take that one step further, we have this: legal decisions are correctly inferred from rules and facts
through logical deduction. So logic is enough to come to correct legal decisions. Law is about logically deducing
answers from general rules applied to concrete facts.
In this understanding, adjudicative decision-making is a rule-based activity with external factors having no
bearing on the outcome of cases. So we apply the law to get the right answer, and that’s it, we don’t apply
anything else. Judges apply the law deductively and they come to the correct answer. Factors external to legal
rules and legal facts have nothing to do in adjudicative decision-making. They play no rule.
Once again, it is all about mechanically deducing answers from rules applied to facts.
Here is an example in which this has been used:
“As I explained that night, a good judge must be an umpire – a neutral and impartial arbiter who favors
no political party, litigant or policy. As Justice Kennedy has stated, judges do not make decisions to
reach a preferred result. Judges make decisions because the law and the Constitution compel the
result. Over the past 12 years, I have rules sometimes for the prosecution and sometimes for criminal
defendants, sometimes for workers and sometimes for businesses, sometimes for environmentalists
and sometimes for coal miners. In each case, I have followed the law. I do not decide cases based on
personal or policy preferences. I am not a pro-plaintiff or pro-defendant judge. I am not a pro-
prosecution or pro-defence judge. I am a pro-law judge”.
It is an example of how a given judge definite his own job. This judge has been accused of sexually assaulting
one of his colleague class-mates, with 30 years earlier. Therefore, he shouldn’t appointed as a judge if he is
the sort of person who sexually assault women. It would be bad to have someone in the Supreme Court whose
behaviour is morally problematic. Firstly, he said it didn’t happen. And then, he would came out that it
probably did happen, and said it doesn’t matter because as a judge I just apply the law to the facts. So his
morality plays no rule.
“Compel” means that you have no choice to come to this answer.
So he says that they think he is a bad person but it doesn’t matter because the legal decisions he will render
there are compelled by the constitution and the law. He just mechanically apply the law to the facts.
He doesn’t decide cases based on personal policy preferences, he might hate women, but it doesn’t matter, it
is not based on his ideology. His decision-making is only the law applied to the facts.
Then, we can also talk about Antonin Scalia, one of the US Supreme Court Justice judge know because he was
very conservative, in a very particular sense, very traditional, going back to old styles. He definite himself of
being too politically influenced by saying:
“[Interpretation = applying law to the facts] begins and ends with what the text says and fairly implies”.
So nothing else comes into place. So you guys, if you accused be for being conservative, it is because you don’t
understand the law. I just apply the law to the facts. I am not actually conservative, I only apply the law to the
facts. Stop accusing me for being conservative, it doesn’t matter!
But that doesn’t sounds quite right. Judges should have some sense of justice. When we elect, appoint judges
they should have some sense of justice when the make decisions. Do judges really only think about justice as
being a good mechanic. Shouldn’t justice try to inject some of what is right in a case when they make decision,
so that external factors have no bearing on the outcome of the case would be wrong. External factors such as
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a judge sense of justice comes into play when making a decision. Put on issue to a judge, you read the law you
apply to the facts and you say that doesn’t work, that’s not right. If I do that, I am going to imprison this person
for 20 years, that just doesn’t right, let me try again. Is this something you would expect from a judge? The
prof think so. Do the judges really do that? Most likely yes, there are human being after all.
You may ask, going one step further, do judges really have no ideologies, political preferences? We all know
that judges, as people, when they don’t act like judges, they do have political ideological preferences. Judges
in the private life, often express political ideologies. So when they do their job, they no longer have any
ideologies? That sounds just difficult to believe.
And, if it was true, that judges, when they act like judges, indeed, have no ideologies, why not replacing them
by computers? If it is all logical, can’t a computer, do it? Computer are far better than we are at being logical.
Would be happy with that? I guess not.
You might also asked, if it was true that factors beyond purely logical mechanical deductions from rules apply
to facts, there is nothing that matters, why do we have courses in legal philosophy (and not in formal logic)?
Why do we care about values, and justice, etc, if it doesn’t matter when we make legal decisions?
FORMALISM IS A SCHOOL OF THOUGHT
With that, he is trying to show us that formalism, is just one way to look at things, one school of thoughts.
And if we have been thought that this is the only way to be a good lawyer, to really be as mechanical as
possible, just realise that this is only one way to understand what being a lawyer is all about. There is different
people elsewhere which think differently about a certain thing.
But there are different schools of thought about what does it mean to be a lawyer, how legal decision-makers
actually make legal decision, about what law is all about. It is not only about rules, provisions and statutes.
Some people go even as far and say (for people who criticise formalism). Law teaching in most law schools,
focused on formalism only, makes law school like a school of divinity, as opposed to a faculty of theology.
What he means by that, is that the school of divinity is where you are taught to think as a member of a given
religion. We are taught a certain faith, you are not true to choose, you are not free to think by yourself, you
supposed to learn and reproduced. On the other hand, the faculty of theology is a place where you learn about
religions itself, the idea of religion, what the rule of religion is and understand that there are different religions
which exist.
LEGAL REALISM
It is just another school of thoughts, another way to think how lawyers make decisions. It is not the truth.
The core idea is this distinction between decision-making and justification. Legal realist said that the legal
formalist have forgotten a fundamental thing about how human beings think and how they make decision and
what they do then with their decisions. This key think is the distinction between decision-making and
justification of that decision-making. It can be a simple thing.
Example : I might to class and justify my lateness by saying I was stuck in traffic. But the reality is that
I just stopped because I wanted to look at the different colours of the trees. Or I might say more
realistically if I were a judge that I decided that the accused go 15 years in jail because I just applied
the law. But in reality the victim reminded me of my own sister who died very young. So I had to do
something and I had to be brutal, to put that person in jail for a long time.
Legal realist would say that what you find in legal decisions, the cases you have been studying, are only
justifications. When you read the judgment, you see the justifications for a decision. It is not the actual factors
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of decision-making, because the judges don’t know them themselves. You don’t know yourself all the factors
that influence how you make decisions. But you can control how you justify the decision which you have just
render.
To push things to an extreme, legal formalism (the way we typically taught law), we analyse the discourse that
lawyers use to justify the decisions that they make.
On justification, legal realists and legal formalists agree and say the way that lawyers justify their decisions is
based almost purely on legal logics. A judge would justify his decision by saying, well I applied the law to the
facts and this is what the outcome is. And legal realist would say that is true, that is correct if you look at the
decisions. Where legal realist and formalist disagree is decision-making. Realists want to be realistic. They say
that judges are human being. Yes, judges do take the law into account as they make decisions. No realist ever
said that lawyers don’t even look at the law. They say of course the judges are influenced by the law but what
legal logics tells them to do, but they are all influenced by a variety of other factors. By the fact that they want
to appear in a more positive light when they make a decision, by the fact that most of them hope for a
promotion to higher court somewhere. They are just human beings like any other.
To complicated things even more, there is a dialectical mutual influence between decision-making and
justification for legal realist. They say that decision-making influence the justification and justification
influence decision-making. No one say that justification that is the way a decision is justify by a judge, has no
relationship with what really lead the judge to decide. Certainly, the justification you find correspond to some
of the many perhaps elements that actually were factored into the decision-making of the judge. So when I
make a decision I know that I will have to justify it. So I can’t make any sort of wild crazy decision because I
know I will have to justify as a judge. So the justification which will come, constrain me as I make the decision.
And vice versa. When I justify it, most likely, I will try to reflect as much as possible the factors I consciously
applied to ma decision-making.
So it is wrong to say that legal realist say that law has no
rule to play. Many people accuse legal realist of this but that
is wrong, no one ever said that. Legal realist just say that if
you want to understand how judges make decision, to
understand traditional decision-making, how the law works
in practice, then you have to look beyond statutes and
cases and all the law on the books. Arbitration decision-
making, you have to look at what credibly what makes
arbitrators decide the case the way that they do.
Formalists tend to argue that there is a, a principle one correct legal decision. On the other hand, realists would
rather content that there is more than one correct decision. A correct legal answer is a decision who can be
justified in law. Typically, there is more than one decision that can be justified in law. There is a range of correct
legal decision for a given legal decision. You can justify a whole range of a legal decision. And all of them are
correct if you can justify them.
Which of the many possibilities within this range of possible correct legal decision, will the arbitrators likely
choose? All of them are correct legal decisions and that is what legal realism is all about.
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LAW & ECONOMICS
The choice of arbitrators among many different outcomes, many different legal decisions, the first theory who
answer that question is law & economics.
IDEA OF LAW & ECONOMICS APPLIED TO ARBITRATORS
The general idea is to consider that every person tends to maximize her self-interest and that’s rational. Some
economists says that every person tends to do it including every decision-maker (judge, arbitrator). This means
that when arbitrators make decisions, they have their own interest in minds consciously or not.
Arbitrators pursue and maximize their own interest. By interest, we mean economist self-regarding interests
(e.g. make ourselves richer). It is something that regards only ourself. It is an interest that benefits me directly.
We also mean another economist called other-regarding interests (e.g. make someone we like happy). The
idea is that if I like someone and I make him happy, that makes me also happy. This is an interest that benefits
me indirectly but directly someone else. To do something out of love for someone would be a rational pursuit
of my own interest.
When we say “rationally pursue one’s own interests”, it includes the pursuit of other people’s interests if this
is valuable to the decision-maker. Some might rule in favor of the environment because this is what the
arbitrators believe. It’s in order to pursue their own interest.
DECISIONS ON THE MERITS
HOW THE ARBITRATORS LIKELY MAKE DECISIONS ON THE MERITS ?

Arbitrators have a rational interest in applying the law applicable to the merits in a way that corresponds to
the parties expectations. As an arbitrator, I want to make the parties happy and try to meet their expectations.
What are these expectations ? The parties want the arbitrator to transnationalize the law applicable to the
merits.
Example: Turkish law is the law applicable to the merits because the contract says that. If I apply
Turkish law, I will apply differently than what the Turkish court will do.
Arbitrators apply the law applicable to the merits in the way that it fits the transnational environment of
arbitration. Turkish law is made less idiosyncratic, less locally peculiar. They interpret more according to what
would be done elsewhere.
If you have a certain clause in Turkish law about when the risk passes from the seller to the buyer,
arbitrator will reinterpret that provision in the way that is closer to say the unidroit principles.
We are no longer mechanically inferring decisions from law applied to fact.
Decisions on merits have a low market value. As an arbitrator, you are interested by making good decisions
on the merits (justification is understandable). You don’t gain much by rendering good decision on the merits.
WHY THE ARBITRATOR DON’T GAIN MUCH BY RENDERING GOOD DECISION ON THE MERITS ?
NO DIRECT SANCTIONS
There is almost no direct sanctions if an arbitrator renders a bad decision on the merits. It happens
almost nothing to the arbitrator because the award is extremely unlikely to be set aside on the ground
that it is a bad legal award, wrong with regard to the law applicable to the merits. The ground for
annulment do not include a mistake in law so it is barely possible to annul an award on merits. As an
arbitrator, I can almost make as many mistakes as I want. It won’t change anything because the parties
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won’t be able to challenge it on that ground. In essence, as an arbitrator, you can render almost any
decision that you want on the merits. Nothing will happen at least on the perspective on the faith of
the decision.
LITTLE REPUTATION SANCTIONS
Then, there is little reputation sanctions for arbitrators if they render bad awards because most
awards are confidential. Almost no one will know that the arbitrator has messed up. Only the parties
will know it.
Don’t lawyers talk about themselves if they render decisions and say “don’t apply this lawyer”?
Yes and no. If you are a lawyer in an arbitration and you win the case, you won’t speak about
the other lawyer. Lawyer who keep render bad decisions are still appointed because the point
when you select an arbitrator you don’t want a good lawyer, but you want to win. Even if you
know the arbitrator is a bad lawyer, she/he may be still our best choice.
In ICC arbitration, the ICC secretariat is going to make comments to the arbitrator on the draft of the
arbitral award before the award is rendered. This happens only in ICC arbitration. The secretariat will
know that an arbitrator keeps rendering really bad arbitral awards. The ICC itself is going to appoint
the “bad” lawyer less often but many arbitrators are not appointed by the ICC but by the parties. So
yes, there is some sanctions, but not much.
PARTIES TEND TO SAY THAT THEY ARE ONLY INTERESTED IN WHETHER THEY WON OR LOST
Even If you build bad reputation on merits, it seems to make no difference. Appointment of arbitrators
appears not to be based on reputation for decision on merits. Arbitration is usually perceived as a
business thing for businesspeople. Parties (businesspeople) tend to say that they are only interested
in whether they won or lost. The criteria for selecting an arbitrator is “how likely is it that this arbitrator
is going to make me win the case?”. It’s not about justice, but about winning.
If you have only one arbitrator selected by both parties, if they agree on the arbitrator it’s
because they both think that he will make them win. In a sense, one of the parties is
disinformed.
THE EVIDENCE
Many star arbitrators who have rendered decision with a reasoning considered ‘manifestly contradictory
inconsistent or practically non-existent’ keep being appointed.
That is from an article written by Federico Ortino, an excellent investment arbitration scholar. He has reviewed
the number of arbitral awards and say that the legal reasoning in them is extremely bad and these are people
who keep being appointed.
CONSEQUENCE 1
There is a little incentive to make efforts to produce good decisions on the merits because the
objective of rendering legally good accurate awards on the merits doesn’t seem to be particularly an
important factor for arbitration decision-making.
On average, there is probably a lower quality decision on merits in arbitration than in many courts.
This is indeed the case. The prof. has never heard someone telling that decisions of the ICG was based
on manifestly contradictory inconsistent and practically non-existent legal reasoning. The criticism of
the legal quality on the merits of arbitral awards is far greater than the average criticism once it’s
addressed to comparable supreme court decisions.
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CONSEQUENCE 2
If it doesn’t matter to make good decision on the merits, why not let someone else do it for you ?
In practice, this means that the arbitrator decides who wins and how much they get but the drafting
of the decision is sometimes left for someone else to do. In other words, there is delegation. This
practice is called a problem of the 4th arbitrator. In practice, some arbitrators have a reputation for
delegating the legal reasoning to the secretary of the arbitral tribunal. These arbitrators defend
themselves and say “by appointing me, you chose something like a brand”. After all, if you go back to
the perspective of the arbitrator, if you render a bad decision on the merits and it doesn’t count, why
don’t delegate ?
CONSEQUENCE 3
Following prior awards of important people might be more important. There are people who can get
you appointment or keep you in the dark. There is a peer pressure. As an arbitrator, in particular in
investment arbitration, when a decision is going to be published, and you make a decision saying, “I’m
going to follow what the arbitrator X has done 5 years before”. This arbitrator could help us to have a
carrier.
DECISIONS ON PROCEDURE
1. HIGHER MARKET VALUE OF GOOD DECISIONS ON PROCEDURE

There is a higher market value of good decisions on procedure. Why ? It’s the opposite then what happens
with decisions rendered on the merits. There are reasons to that :
There are annulment actions mostly on procedure. There are direct sanctions for bad procedural decisions
because the ground phenomenon are essentially all on procedural rights. As an arbitrator, if you mess up the
conduct of a procedure, you may will formally be considered not to have done your job properly which is what
having your decision annulled really means.
There are much powerful reputation for procedurally messed up arbitrations. Mistakes are much more
discernable by the community. Derailed arbitration is easy to identify by arbitration community. Messed up
procedures lead to all sort of moves by the agreed parties.
CONSEQUENCE 1
There are probably most arbitrations fairly well conducted.

CONSEQUENCE 2
There is little delegation of the procedural handling of an arbitration. When you select an arbitrator,
you can expect to get a real day in court with her/him and a good procedure during which you can
really make your case and it doesn’t necessarily have much of an impact on the outcome.
2. PARTLY COMPETING INTEREST : INCREASING THE ARBITRATION PIE
The first interest of the arbitrator is to make good procedural decisions. Good in a sense that the procedure is
conducted in liking of the parties respecting their rights. The second interest that arbitrators faced when
making procedural decisions is that with procedural decisions, they can increase the arbitration pie.
Some procedural decisions may create more jobs for arbitration.
For instance : If arbitrators assert jurisdictions and admissibility over certain kind of disputes if they
make up, create theories about non signatories. If they issue interpretation of arbitrability, if they
create new theories about the validity of arbitration agreement, this may lead to more arbitration
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agreement being valid and therefore more parties going to arbitration, more jobs for arbitrators and
councils.
CONSEQUENCE
The consequence is for arbitration and justice generally speaking. Over the time, the number of
obstacles for individual arbitrations that take place have decreased. Far more disputes can go to
arbitration today than they could 30 years ago thanks to decisions of arbitrators.
Example : In the US, the supreme court allows someone to bring an appeal to the supreme
court. If the supreme court issues far more “leaves” for appeal, it will have a lot more jobs on
its hand. It is bad for the supreme court because they have unlimited number of people and
time. If it’s unlimited, if you can simply build more hours and more people to join the court
and more work, what is your inclination to say “yes I all of you, you can all come to me”. This
increases the pie, the business. If you look over the time, this is exactly what happens.
THE SPECIAL CASE OF EXTREME DECISIONS
Oscar Wilde: ‘The only thing worse than being talked about is not being talked about.’
This means that it is worse not to have a reputation than to have a bad reputation. It is worse not to be on the
map than to be known as an unsavory or incompetent character.
This does apply to arbitration. Why? If you’re known to make really bad decisions on the merits (clear and
systematic bias in favor of one type of party), is valuable for appointments. You’re going to be great girl in
their camp. You’re going to be likely appointed by that type of party.
In an investment arbitration for instance, if you systematically rule in favor of states, you may will be
the star in the camp. You may be the worst lawyer there is if you render crazy decisions to rule in favor
of states or investors but then you’re going to be a star in their camp.
Even derailing an arbitration (if you render a bad procedural decisions) benefits the respondent. This is
attractive for those who want to derail an arbitration.
Example: a friend of Schultz was counsel for a state in a big investment arbitration and the arbitrator
they had selected had to resign for health reasons and they were looking for the appointment of a
new arbitrator. So the friend asked Schultz what he thought of a certain arbitrator. And he responded
that he’s terrible, he will antagonize everyone and render one bad procedural decision after the next.
He will render dissenting opinions on procedural questions, he’ll mess everything up. So he’s friend
smiled and said that’s exactly what they wanted. They wanted the worst lawyer they can get, because
he’s going to derail the arbitration and that’s what they (as a state) want because they know that
they’re going to lose the case. But the more they can push it back, the greater the chance is that
something good will happen to them (that the adverse is going to go bankrupt, the funding provided
by a third party founder to that investor is going to run dry and the claim is going to be withdrawn).
So even really bad arbitrators on the procedure may serve the interest of certain parties in certain situations
(strategy who’s objective is simply to win the case).
SOURCING NON-ARBITRATOR WORK
Nothing which plays a role rationally when they make decisions is to source non-arbitrator work.
Arbitrators have a interest of using an arbitration to make/keep a name for yourself in certain cercles
(business, NGOs, etc.). They have a rational interest to please certain communities (ex: diplomatic
community), because they act not only as arbitrators for the majority of them. Because of that they have an
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incentive to be positively seen by the community so that they’re likely to be given more work by them. In
practice, this is more the business community than any other, because there is more money.
Example: if you’re the head of a law firm advising pharma companies and you’re appointed as an
arbitrator in a series of pharma disputes, you can really make decisions against the pharma industry.
Otherwise your whole firm may lose appointments by that whole industry. If you not seem to be pro
the pharma industry, then you may no longer be chosen as their counsel/advisor in a whole range of
things (double-hating: acting as an arbitrator and as counsel in alternation in different arbitrations).
So if you want to be hired by commercial law firms to do consulting work, you can’t really
systematically rule against business actors. That doesn’t send the right signal.
BEHAVIORAL ECONOMIC ANALYSIS
IDEA OF BEHAVIORAL ECONOMICS APPLIED TO ARBITRATORS
What is behavioral economics? The whole thing is about bounded rationality. It means that we know very well
that we’re not always rational. We don’t’ make purely rational decisions. Rationality is always in fact limited,
many factors interfere with rational decision-making, including information limitation (we don’t know
everything), cognitive limitation (we don’t understand everything) and emotional and identity based factors
(we decide based on how we feel in the moment and how we perceive ourselves, our own identity).
This is recognized by some legal decision makers. To go back to Justice Scalia, later in his career he said: “all
sorts of extraneous factors – emotions, biases, and preferences – can intervene, most of which you can do
absolutely nothing about”. No one is ever purely objective, impartial, logic and rational.
What are the likely factors which intervene/intervene with the rationality of arbitrators?
GROUP DYNAMICS
Central idea: who you are is defined (among other things) by the social roles you inhabit (I’m a Singaporean
citizen, I’m a Buddhist, I’m a student, I’m middle-class, etc.). You’ll be the unique nexus among these different
social roles. Who you are is defined to large extents by your religion, membership in a tradition and a
community. Your ‘self’ is ‘encumbered’ by its social roles. Social psychology would say that people tend to
incorporate their group membership into their concept of themselves and their promotion of themselves.
To apply this to decision making, that means when you make decisions, if they’re meant to favor your own
interests (which you are as a rational being), your own interests are in part defined by who you are. And who
you are is in part defined by your social roles. Your decision-making is ‘encumbered’ by your social roles.
Your decision-making is group-directed to:
o promote the group, and thus yourself,
o ensure your belonging to the group: you think like them in order to be one of them (peer-pressure
on the values you hold).
Judges / arbitrators aren’t Kantian autonomous rational (= perfectly rational) individuals. No one is,
arbitrators aren’t either. They are strongly tied up with their communities, social class, gender, race, and
other conditions of life. What judges really seek to do unconsciously is to protect their community, etc. They
seek to maintain a certain equilibrium, a certain arrangement conducive to social peace (to protect
themselves).
This has led to feminist legal studies (e.g. male judges tend to favor men and values considered ‘male’, mostly
unconsciously, and therefore more women are needed in the judiciary). This is an important movement in
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scholarship which is based on the idea that embedded in legal institutions are instruments to maximize de
power of men an minimize the power of women. Men tend to favor men. Women will tend to favor women.
This means that male arbitrators would tend to favor male values.
ARBITRATION ETHOS
Arbitration decision-making is influenced by the particular characteristics of the arbitration community
(group of arbitrators). Arbitration decision-making is influenced by the arbitration ethos, the set of values that
are prevalent in arbitration.
What is that ethos? The way it is typically described is that the arbitration community is ‘pale, male, and
stale’.
‘STALE’
‘Stale’ means that typically the arbitrator in arbitration is not so young (> 50 years old). Older people
(above 60-65) are more conservative than the general population (young people). If all judges were
young, they would create more liberal, progressive law, simply by changing their age. So this plays an
political, ideological and axiological role. So conservative, politically right-winged values are quite
strong in the arbitration ethos, only because of a question of age.
‘MALE’
The vast majority of arbitrators are men thus more ‘male’ values than in the general society. This
leads to a tendency to favor men and values typically considered as masculinity. The prevalence of
men in arbitration is far greater than the prevalence of men in the judiciary. Overall, in Europe, there
isn’t a great majority of men among the judges, but there is very strong dominance of men among
arbitrators. So by opting-out of court and into arbitration, you opt into the more patriarchal zones of
society.
‘PALE’
The vast majority of arbitrators are from Western countries (global north). Arbitrators from other
countries, for instance developing countries, typically were educated in Western universities and were
‘contaminated’ by Western culture. This means that arbitrators have a certain ideology of justice (idea
of what dispute settlement is all about), and are susceptible of favoring parties from Western
countries. There is a clear difference between the ideals in dispute resolution in the Asian cultures and
Western cultures. The Western culture/ideology of dispute settlement is far more confrontational
than the Asian ideology of dispute settlement. More concretely, arbitrators are often accused, in
particular in investment arbitration, to favor parties from Western countries. It’s difficult to proof or
disprove this.
So the whore arbitration industry is infused by these values. Simplified, the arbitration community is
a very conservative, macho community. Even those who are not technically pale, male and stale
behave as if they were.
These are the 15 individuals who in 2012 have decided 75% of all the big investment arbitration cases
(amount claimed above 4 billion dollars). These are the dominant people who make justice in
arbitration. They represent a certain way to look at the world.
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IDEOLOGY IN ARBITRATION
There are a few ideological attitudes that dominate in the arbitration community which influence decision-
making:
ARBITRATION IS GOOD, LEGITIMATE
There is a clear pro-arbitration ideological stands in arbitration. You wouldn’t go into arbitration if you think
arbitration is bad. It means that a number of arbitration concepts are interpreted in this pro-arbitration way.
The idea that a community necessarily has a positive self-referential attitude may not be correct, it’s not
always like that. Probably many judges believe that it is not a good thing that everything ends up in court.
Many judges believe that many disputes have nothing to do in court. Judges don’t all have a strongly pro-court
attitude.
SUB-IDEOLOGIES WITHIN ARBITRATION LINKED TO NATIONAL LEGAL CULTURES REGARDING THE ROLE OF THE JUDGE
The role of the judge culturally tends to change from one legal system to another. The role of a judge in the
UK is very different than the role of a judge in Germany which is different from the role of a judge in Spain.
Example: a judge in Germany is far more supposed than in other places to try to bring the parties to a
settlement (to make the parties settle their case). German arbitrators, far more often than other
arbitrators, led the parties in an arbitration to settle their case.
One explanation of their practice is that arbitrators think of their role as dispute resolvers by mimicking the
role of the judge in their culture of origin. This has been shown by some studies, not many, but there is the
idea that there are ideologies of proper dispute settlement, of justice which arbitrators follow, which they take
from their home culture, more specifically of the role of the judge.
ARBITRATION CULTURE
There is strongly a corporate culture in arbitration (cf. movie clip: Wallstreet).

POLITICAL ATTITUDE IN ARBITRATION
Last time we spoke about the values in international arbitration / what sort of community this consist of. And
how these values may translate to decision making which is a way to understand what sort of justice we have
when opting to arbitration and how it differs from the justice provided state courts around the world.
Today we will finish that and then turn to something very different.
Now we will talk about the political attitude in arbitration. Brutally simplified, the idea is that the arbitration
community is political on the right side of the political spectrum. What is wrong with that? Is it something
positive or not? It depends who we are. If you are a consumer / an employee / a developing state or simply a
weak party, the dominant political attitude is against you. Indeed, in investment arbitration, there are many
accusations which are not really proved statistically / disapproved either because it is difficult to prove these
things statistically. But there are many accusations that investment arbitration favours developed countries,
the global north and investors from developed countries over developing countries and over investors from
developing countries. So that would be one more element of the bad side of globalisation where the global
north gets richer and abuses developing countries and keeps them pour too.
So arbitration is an instrument which serves a particular political role. So arbitration is not simply a thing which
makes dispute go away. It is something which exercises a certain political influence. So that is not a purely
mechanical way to apply the law to the fact and mechanically come to an outcome. So the fact that it has
some political effects is a fundamental thing to understand.
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GROUPTHINK AND STEREOTYPICALITY
We are going to talk about social psychology. These are concepts from social psychology. In towards, the idea
of groupthink is that a group that is too homogeneous in its composition is to say that if all of its members are
too much alike, then the group, collectively, loses out in thinking quality.
The idea that decision making groups are composed of different political colours or ideologies, this makes the
group work better is ferly fundamental in this entire idea. So heterogeneous groups think better collectively
than homogeneous groups. The point is very simple. If we all think alike / in the same way, we will never really
challenge one another’s core assumptions or ideas. If we just cling on to establish the ideas, then humanity
would barely make any progress. If you don’t think outside the box, the amount of progress we can make will
be a lot more limited.
The problem in arbitration is that arbitration seems to be a very homogeneous community. That is difficult to
measure. If you look at arbitration as a group, you do realise that people are very much aline to one another.
Judges are not like that. If you go to conferences involving judges, you would see people who already look very
different / think differently / have different values. If all he says is true, then this would tend to mean that
arbitration community, as a community probably doesn’t think terribly well, less well than it would do if there
were more diversity.
Things are starting to change, now you find publications out there on things such as : what would it be like
with a Buddhist arbitrator.
If you go a bit further, groupthink theory is more sophisticated than that. Member homogeneity of the
members of a group + insulation of the group from the outside + provocative situational context, the idea that
there is a lot of stress in people daily lives. All of this leads the group to first of all, think invulnerable. That is
something you find quite often in arbitration. It also leads to closed-mindedness. There are not particularly
crazy, joyful, etc. Within such a group, you also find strong pressures towards uniformity. So people do like the
others because they think that there is unanimity. They think that we ought to behave in a certain way, certain
values. And I feel the pressure so I will behave like everyone else. It leads to the idea that you have to self-
censor yourself. So even though I think it is wrong what they are doing, but I am not going to tell them because
of the self-censure and because I think that they are all unanimous in the perspective that what they do is
great. That leads also to an incomplete survey of objectives and alternatives. What are alternatives to get
there / what are we trying to achieve?
Arbitration as a field hasn’t progress all that much, very inventive partly because of all of this.
In short, if group homogeneity is too high, the reasoning of the members of the group decreases, which leads
to poorer outcomes in what the group does and in individual cases as well. Ultimately, the combination of all
these forces results to a low probability of reaching a successful outcoming. That too might explain the
relatively low quality of arbitral awards overall. There are lots of criticisms of the quality of decisions in
arbitration. There are more criticism of the quality of arbitration decision than the Courts.
SOME REACTION TO FIX THIS
What can with do about that? What is the field trying to do about that? He is not the only one who says that.
In the field, there is something well-known, even though you don’t usually find that in the books about
arbitration.
What are the reactions that the field is playing with? One possibility / initiative that some people pursue is
that the idea that all arbitrators should be appointed by the arbitration institution and not by the parties. But
is it going to happen? He is not sure. But that is one idea to fix these problems. This would be good for each
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individual arbitration because then you don’t have party appointed arbitrators would think, so we have more
impartial arbitrators. And beyond that, the advantage is that there is a much better control over arbitrator
attitudes that are to be promoted. There are a number of things that need possibly to be fixed / a number of
attitudes and you can fix that more easily if only the big arbitration institutions appointed the arbitration. In
fact, it is more simple to control what is happening in the field. This would for instance allow to positively
enforce diversity, which is not only good for underrepresented minorities but it is good for the group itself. It
would become a cleverer community.
Another idea is to replace investment arbitration with an investment court. This is already happening to some
degree / in some investment treaties. There are provisions for the creation of permanent investment Courts.
The idea here is that it would have two main advantages. The first one is that the judges of that court would
not need reappointment all the time otherwise there are out of their job. And therefore, if these judges would
not need to be reappointed all the time, they would not need to particularly please the parties or one type of
party. In the long run these judges would be reappointed in a few years so they would have to please the
parties to some extend.
The second advantage is that the arbitrators would be appointed by the states and not the investors and not
the parties of the dispute. That would inject some distance between the arbitrators and the case at hands. So
if you are appointed by the government of Switzerland to be on the Court and in the Court you have a dispute
between an investors from the USA and the Belgium government, then you will be more distance from this
situation because none of these parties have involved in any way in getting you into the Court. So this would
be more one reason to put some distance between the parties and the arbitrators.
Some people fear that these judges appointed by states only, would be overly loyal to States, they would no
longer be impartial, they would be partial in favour of States and that is a bad idea because at the end of the
day you have investors and States and people should not be neither in favour of States nor in favour of
investors. They should be neutral.
This has been the case around the world for administrative judges. Administrative judges are appointed by
States and they resolve disputes between individual and States. Is this a problem? It is hard to say. The prof
thinks that this would only change anything if the judges of this Court if they have a different ethos. The ethos
if far more important. So if that does happen, it would barely change anything. The risks are lower than people
think. The advantages would be far more limited than what most people tend to think.
The all point is that it matters very much who make the decisions. As much and perhaps more than what rules
they apply and what rules constrain how they apply the rules that they apply (for instance the rules of
interpretation). So law is about people more than it is about rules.
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ISSUES OF COST AND TIME

Arbitration has initially been sold to lawyers, to the political world, the parliament who passed laws to make
arbitration possible. Arbitration has been sold to the world by saying it is going to be faster and cheaper
(neutrality is also important) than Courts procedure. That has been the core advertising element of arbitration.
Is it true? More and more complain about cost increase.
THE COSTS AND TIME PROBLEM
ARBITRATION OVER NATIONAL COURTS : LESS EXPENSIVE AND FASTER ?

People have been telling you / the world that arbitration is much cheaper and faster. The reality is that this is
no longer quite so easily true. Arbitration has become much slower and much more expensive than it used to
be. But they don’t have to be slower and expensive. That is inherent in arbitration that this is expensive and
longer. The parties (who control the procedure) can make arbitration quick and cheap but they don’t normally
do.
Why is it important to know that? Because even you, as a lawyer, can make it go faster and cheaper.
This has to be contrasted with a study conducted by Queen Mary University.
QUEEN MARY UNIVERSITY OF LONDON SURVEY OF ARBITRATION USERS, 2015
A group of people there conduct a number of surveys arbitrations used almost every second year. They tend
to ask the users of arbitration. In 2005, they ask the users of the arbitration what they thought about different
aspect of arbitration. In 2015, it was specifically focused on customs money.
2% of individuals surveyed say that low costs is one of the three most valuable characteristics of arbitration.
Indeed, in the advertisement we saw that the chore advantage of arbitration is that it is cheap. In reality, only
two people out of a hundred will say it’s what attract them.
The same users of arbitration considered these three worst characteristics of arbitration:
1. Costs - 68% complained about it : The users considered that costs is in fact one of the greatest problem
of arbitration.
2. …
3. Arbitrator efficiency - 39% : The users considered that arbitrators are not efficient. Arbitrators are
slow.
4. Slowness - 36% : Users found arbitration is slow.
In reaction to this, 92% are in favour of simplified procedures in institutional rules for smaller claims. We want
simplify rules for smaller claims. Arbitration institutions (ICC, ICA) should adopt another set of arbitration rule
specifically for small claims. Simplified procedures are on average good for clients but bad for the council’s
time sheet. Those who draft the rules usually are part from the same community, precisely from the council
and not the parties. The people who draft the arbitration rules are the lawyer who the make money with
longer and more expensive rules which is one reason why it doesn’t change so much so far.
33% are in favour of making such simplified procedures mandatory. These simplified procedures should be
imposed on the parties. In small claims, the parties can’t choose to have long and expensive arbitrations. A
third arbitration users consider that a procedure should be imposed on them to make them save money. These
users seem feel insufficiently protected against themselves (their own council).
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WHAT ARE THE COSTS ?
Arbitration costs, average list of items :

FEES OF THE ARBITRATORS
The arbitrators have to be paid by the parties. Some are paid by the hours, some by the days, some by a
percentage of the amount claimed. Some arbitration laws put a cap on how much arbitrators can make.
VALUE ADDED TAX OR SIMILAR TAXES APPLICABLE ON THE ARBITRATORS' FEES
The taxes can be an additional cost (7-20%).
EXPENSES OF THE ARBITRATORS (EG TRAVEL, ACCOMMODATION, COURIER SERVICES)
The expenses of the arbitrators have to be paid. Arbitrators tend to like to be treated well, as important
people.
Example : Serge Lazareff an arbitration lawyers used to say publicly that the one book you always have
to have with you when you go to arbitration hearing is not a Manuel on arbitration, but the Michelin
guide about the best restaurants.
ADDITIONAL EXP. OF ARBITRATORS (EG HEARING ROOM, COURT REPORTING SERVICES)
They are expenses without which an arbitrator can’t do their work properly like hiring hearing rooms. Every
hearing leads to a transcript so you have to pay this person.
FEES OF ANY SECRETARY TO THE ARBITRAL TRIBUNAL
Example : the cost of the fourth-arbitrator.
EXPENSES OF THE SECRETARY, IF APPLICABLE
The secretary has expenses for its own.
REGISTRATION FEES OF THE ARBITRAL INSTITUTION
There are fees because of the registration or to file a claim.
ADMINISTRATIVE COSTS OF THE INSTITUTION, IF APPLICABLE
There are administrative fees of the institution. Part of the money has to go to arbitration institution.
FEES OF EXPERTS APPOINTED BY THE ARBITRAL TRIBUNAL
There are experts who appear as witnesses for the arbitral tribunal on technical points (construction projects,
financial assessment, legal matters).
Example : If an arbitral tribunal has to apply Turkish law and none of the arbitrator has studied this
law, they may call on a Turkish law expert.
EXPENSES OF SUCH EXPERTS
The experts have expenses too (flight, etc).
FEES AND EXPENSES OF LEGAL REPRESENTATION
We have to pay for our own legal representation, our council.
FEES OF PARTY-APPOINTED EXPERTS
The parties may appoint their own experts who are supposedly neutral.
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EXPENSES OF THESE EXPERTS
The experts have expenses too.
TRANSLATION OF ORAL TESTIMONIES OF FACT WITNESSES OR EXPERTS
Translation expenses are possible if the witnesses or the experts don’t speak the languages of the procedure.
EXPENSES RELATED TO WITNESSES (TRAVEL COSTS FOR ATTENDING THE HEARING)
COSTS ASSOCIATED WITH THE PRODUCTION OF DOCUMENTS
COSTS OF A PARTY'S IN-HOUSE RESOURCES (LEGAL, TECHNICAL, OR MANAGEMENT)
This is an indirect cost. Sometimes CEO appear on the hearings, so they have to be paid.
SOME OTHER OUT-OF-THE-POCKET EXPENSES
COST BREAKDOWN
What are the things that cost much ? and what are the things that don’t cost much ?
THE “82/16/2 BREAKDOWN”
82% of the overall costs of an arbitration go to covert the parties costs to present their cases. It includes the
parties lawyers, the fees, expenses related to lawyers and witnesses and experts and other costs other than
those of the two categories.
16% go to the arbitrators themselves to cover their fees and expenses. In conclusion, you only pay a small
amount to the arbitrators.
2% go to the arbitration institution (ICC, ICA). It’s a small portion as well.
Some arbitration institution come up with their own statistics.
STOCKHOLM CHAMBER OF COMMERCE (DETAILS NOT FOR THE EXAM)
A sole arbitrator, 35% of the costs go to the arbitrators and the institution. 65% of the costs go to the legal
representation. If you have a small arbitration, the portion which go to the arbitrators increases.
If you have three arbitrators, 19% of the costs go to the arbitration and 81% for the legal representation.
ACTUAL COSTS AND DURATION
If it takes in common law countries, it’s 1,750,000 CHF. It’s the amount paid by a party on average. It’s a total
cost. If it takes place in civil law countries, it’s 2,000,000 CHF.
There is a difference of nearly 13%. The difference comes perhaps from the culture. Maybe the small cases
bring the average down in the US and UK.
WIPO SURVEY ON PATENT LITIGATION
These are statistics compiled by WIPO on how much a procedure in court costs. It’s patent litigation. It may
not be fully representative of overall commercial litigation but it’s the best comparator found. It’s hard to
know how accurate these studies are. So far we can say that arbitration is overall cheap.
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WIPO SURVEY ON PATENT LITIGATION

Arbitration seems much better regarding to the duration of the procedure. If you go to the HKIAC, it’s as fast
as court litigation in Germany, UK and Spain in the first instance.
Overall arbitration is relatively faster and cheaper than most court procedures.
CAN I MAKE THE OTHER PARTY PAY FOR ME ?
Can I shift the costs for the other party? Yes. If you win the arbitration you can get an order for costs shifting
asking the other party to pay your costs.
MOST TRIBUNALS ADOPT A “COSTS FOLLOW THE EVENT”, OR “LOSER PAYS” APPROACH
Most arbitral tribunals award costs to the winning party, which means that the loosing party has to pay the
costs, or at least the reasonable costs of the winning party.
Arbitral tribunals do this according to an ICC study irrespective of what the rule on costs say (whether there
is or not an express, rebuttable presumption that the successful party will be entitled to recover reasonable
costs). So you may have rules on costs in the arbitration rules of the respective arbitration institution. Some
of them say “costs follow the event” and “loser pays”, some rules are silent on that.
So is arbitration going to be expensive? If you win it no.
LOSERS ARE TO PAY ‘REASONABLE’ COSTS OF THE WINNER
That’s again irrespective of the approach chosen, irrespective of what the rules say. The vast majority of
tribunals will follow this approach to say: only reasonable costs can be claimed by the winning party.
Reasonable means different things to different people, but overall it depends on the procedural conduct of
parties during procedure. If the party systematically makes frivolous claims, it will typically have to pay a
greater share of the costs of the other party. If you lose an arbitration and you lose it despite having played all
sorts of dirty tricks, you’ll have to pay everything. If you win an arbitration playing all sorts of dirty tricks, all of
your dirty tricks will not be reimbursed by the other party (ex: try to make the weirdest arguments possible in
order to win the case). So your client will have to bear himself these costs, you can’t shift that to the other
party, because these are not reasonable costs.
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In 45% of the cases in that ICC study, the losing party had to pay everything (full apportionment of costs), so
the losing party is ordered to pay the full costs of arbitration and all costs of legal representation. This means
in 55% of the cases, some costs were considered unreasonable. In all of the other 55% of the cases, the costs
of the winning party were only partly paid by the losing party.
ON WHAT BASIS IS THIS APPORTIONMENT OF COSTS DECIDED (DIRTY TRICKS)
ü Whether the parties efficiently conducted the proceedings: if they didn’t rack their feet, if they didn’t
make unnecessary complications
ü Whether the claims were frivolous: as a party, don’t encourage your lawyer to bring any sort of weird
claims because you’re likely to loose on these weird claims and you’re going to have to pay for these
costs yourself (even when you win the case).
ü Whether there were late jurisdictional objections, excessive document requests of failure to comply
with tribunal’s orders’: this plays a role in who has to pay for what. Don’t anger an arbitral tribunal,
otherwise you have to pay more of your own costs or more costs of the other party.
ü Whether excessive time was spent addressing issues not properly framed (if the lawyer did jobs
floppily), rejected by the tribunal or subsequently withdrawn (I make a claim and then I withdraw it
and then I make it again and withdraw it again): so don’t anger an arbitral tribunal by playing these
sort of simple dirty tricks, because it’s going to punish you by making you pay for more of the costs.
INVESTMENT ARBITRATION SPECIFICS
Investment arbitration is arbitration between an investor and a foreign state. They are typically disputing over
a foreign state regulating something which affects the investors investments. Typically, they are fairly big
arbitrations with a lot of money at stake. This also means that the cost and the time are pretty high.
Cost, duration and size of claims all show a steady increase over the last 20 years. So the claims get bigger
and bigger and they’re taking longer and longer and they are more and more expensive to resolve.
2017 FIGURES
They have increased a bit in the last four years.
AVERAGE TIME
The Average Time from the Request / Notice of arbitration to the final Award is 4 years. An average
investment arbitration takes 4 years to resolve.
AVERAGE CLAIM
The Average Claim, the average amount that the investor (claimant) wants is over 1,2 billion USD (up
from 490 million fives years earlier, i.e. 140% increase). What drives this increase in the claims could
theoretically be that investments themselves get ever larger. The flow of investments and each
individual investment tend to increase. Schultz is not sure if that is actually true because if we look at
the overall investment flows, they rather seem to be stagnant. It could also be that states become
more and more aggressive vis-à-vis foreign investors and expropriate them ever more. It could also be
that the investors get ever hungrier and that their lawyers push them to file ever bigger claims.
AVERAGE AWARD
What may also has fed the hunger of investors to ask for ever more is the fact that investors are
awarded ever more. In investment arbitrations it’s always the investor who files the claims, it’s almost
never the state. If someone wins the case and gets awarded money, it’s always the investor. The
Average Award payment being ordered to investors are now on average 486 million USD (up from 76
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million fives years earlier, i.e. 540% increase). So if you are in the field of investment arbitration and
an investor comes to see us and says if we can file a clam against this foreign state, how much money
on average can we recover? We could answer: close to have a billion.
AVERAGE PARTY COSTS
The claimants on average spend 6 million USD on their own legal defence (fees and expenses of
counsel (lawyers), experts and witnesses).
The respondents (states) put in a bit less money to defend these claims, on average 4.9 million USD.
There has been an increase of 68% for claimants and 13% for respondents.
If we are an inhouse counsel for a company and we want to bring an investment arbitration claim
against a foreign state, we have to proceed on the base that we will have to pay 6 million USD for our
case. This means if you work as an lawyer in investment arbitration, there’s a lot of money to be made.
AVERAGE TRIBUNAL COSTS
The costs of the tribunal (three members) and the arbitration institution amount to 1 million USD on
average (increase of 30-50% over five years). This means that on average, an arbitrator in an
investment arbitration case gets paid something like 300’000 USD for being an arbitrator in one case.
Some arbitrators have up to 20 cases in parallel.
All of these figures tend to increase.
ANECDOTES
Australia passed a plain packaging law, which means that the packs of cigarettes can no longer have the logo
of your favourite brand of cigarettes. So if you buy a pack of Marlboros in Australia, it will come in a blend
white pack of cigarettes with Marlboro written blend standard fund and a huge ugly picture of someone dying
of cancer on the back. The idea is that if you smoke a cigarette of from such a pack of cigarettes, it will taste
subjectively less good than if you smoke the exact same cigarettes from a pack of cigarettes with the brand
and the colours of Marlboro. Because it tastes less good, you’re going to smoke less. Therefore, the cigarette
companies are going to sell less and therefore they’re losing money.
This led Philip Morris to say that Australia can’t expropriate them of their intellectual property (use of their
brand, colours, logos). Therefore, they’re going to bring a claim against Australia to be compensated for the
loss they’re going to make because of its law.
There was an additional problem in this case which is that Philip Morris Hong Kong bought 99% of the shares
of Philip Morris Australia just at the time when that law was passed in parliament. Investment arbitration is
for international claims (for an investor suing a foreign state). Philip Morris Australia could not have sued the
Australian state in investment arbitration. So Philip Morris changed its nationality by allowing itself to be
bought by Philip Morris Hong Kong and then Philip Morris Hong Kong brought the claim.
Arbitrators, after 4 years of thinking about it, said that it’s an abuse of the system, you can’t change your
nationality just for the purposes of bringing a claim and they rejected the claim. In the meantime, Australia
spent 29 million USD defending its cigarette packaging laws against Philip Morris defending its claim which
was a frivolous claim based on a clear abuse of the system.
Australia then asked the tribunal, since the claim was clearly an abuse of the system, to pay its costs in full.
The tribunal refused Australia’s request for full cost reimbursement, ordering Philip Morris to pay probably
about 4.5 million USD (15% of Australia’s costs).
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So as a county, if you try to protect the health of your citizens, you get slammed with a bulbous claim and you
still have to pay some 20+ millions just to defend yourself. This are by far not the worst effects of this case.
THIRD-PARTY FUNDING
There’s a financial company and an investor, but the investor is not terribly rich, he’s on the brink of going
backwards. But he would like to bring the claim and doesn’t have the money to pay his lawyer. So he asks the
financial institution to lend him money to bring the claim. If he wins the claim, the bank gets 10-30% depending
on the arrangement. So the idea is to lend money to someone. Some of these financial institutions do nothing
else than lending money to investors and they are paid a portion of the win if the claim succeeds and they get
nothing if the claim is lost. This effectively makes the cost problem largely go away for claimants (investors).
So if we are a lawyer working as a counsel for claimants in investment arbitration and we have an investor
coming to us saying he would like to bring a claim but that we are to expensive, we can say that we find the
money somewhere else, we’ll ask a third party funder to lend us the money and it can pay the lawyer and we
bring the claimant. If we win, the third-party funder will be reimbursed parts taken from the money awarded
to the claimants.
That’s good for small investors, for investors that have a lot of money, it’s bad for states because they increase
the number of claimants.
EFFORTS TO REDUCE COSTS AND TIME
Efforts are being made to reduce that problem of costs and time. Only 2% of arbitration users say that
arbitration is great because it’s cheap, 68% of users complain about the fact that it’s too expensive. This led
the arbitration industry to say something about it. The International Chamber of Commerce has released a
number of recommendations meant to help the parties, arbitrators, everyone control time and the costs in
arbitration a bit better.
Means proposed by the International Chamber of Commerce to control time and costs in arbitration:
EXPEDITED PROCEDURES FOR SMALL CLAIMS
There should be faster (different) procedures for smaller claims. Most major arbitration institutions have
adopted fast-track arbitration rules:
o International Chamber of Commerce
o Hong Kong International Arbitration Centre
o Singapore International Arbitration Centre
o American Arbitration Association
o Stockholm Chamber of Commerce
o Swiss Chambers Arbitration Institution
o Kuala Lumpur Regional Centre for Arbitration
o World Intellectual Property Organisation
o Court of Arbitration for Sport
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In arbitration, one of the things which is developing is fast-track arbitration procedures for small claims. These
are simplified procedures applicable to small claims. What is a small claim? It depends on how the arbitration
institution defines it. Different institutions put the thresholds and different places: below USD 250,000 (ICDR)
to USD 4,400,000 (SIAC).
The ICC has proposed more things to control costs and time in arbitration (cf. readings). The core idea we
should remember is that there are efforts being made to create new arbitrational rules for small cases.
SIMPLIFICATIONS OF THESE SIMPLIFIED RULES
• Appointment of arbitrators within short time-frame: the appointment of arbitrators can be sped up,
because while it is important to choose and arbitrator, the decision can be overdone and there’s no
good reason why it would take month to choose an arbitrator. So under the rules of some of these
fast-track arbitrations the arbitrators are to be appointed within maximum 14 days for instance. So
you have as a party 2 weeks to choose your arbitrator.
• Limiting the length and number of the parties’ submissions: there is the usual limitation on how many
rounds of submissions the parties have and possibly how long these submissions can be (for instance,
30 pages for a memorandum should be enough for most small cases).
• Document-based only, no oral witnesses unless necessary: there are some rules which exclude oral
hearings and the default position becomes that there’s no oral hearing unless it really becomes clear
that an oral witness is crucial to the case.
• Single arbitrator: so we can reduce the number of arbitrators to just one sole arbitrator which is a
straight forward solution.
• Two arbitrators, appointment of a third one only if disagreement: it’s more interesting. The majority
vote is difficult in a group of two (even number), but the idea is that the third arbitrator will be
appointed only if there’s a disagreement between the two initial arbitrators. So it’s trying to force the
two arbitrators to come to an agreement and therefore to reduce the costs. If the two arbitrators
don’t agree, a third one comes in and the fees of the arbitrators have to be shared by 3 instead of 2,
which is an incentive for the 2 initial arbitrators to come to an agreement.
• Swift rendering of the award (e.g. between 90 and 160 days): it’s to force the arbitrator to render an
award within a reasonable time frame (3, 6 month). There are stories of arbitrators sitting an award
for several years which can hardly be justified.
• Recoverable costs capped (e.g. at 30% or 50% of sum claimed): you can expect to bear most of your
own costs at the end of the arbitration which should lead you to be more careful about spending
money in the first place, which should lead you to use fewer dilatory tactics which in the end is meant
to speed everything up.
Are enforcement and recognition costs considered separately from the figures we have here?
Yes, they’re not part of the compilations of costs that Schultz has shown us. These are the costs for a
given arbitration procedures. For some of these very big investment arbitrations, the enforcement
costs were huge because the states were hiding their assets and they had to chase the states around
the world to find them.
The enforcement procedures can become expensive because in Turkey they are a percentage of the
value of the awards that you try to enforce.
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In investment arbitration, you’re trying to make a state pay you and states typically don’t want to pay for an
investment arbitration claim. Where do you get the money? How do you force a state to pay you something?
Typically, if you have a big arbitral award against Russia, the Russian government is going to say that it’s not
going to pay. If you go to a Russian judge, he will find some reason not to recognize the arbitral award. So
claimants have tried to find Russian money (assets) elsewhere in the world. How can you find money?
There’s one small law firm in Paris which is specialised in going through the trash of embassies. Under
French law, the trash is put out on the pavements, it’s in the public domain, everyone can take it. So
at night, people from the law firm would collect all the garbage, would bring it to the Law firm, would
open it up and try to put together shredded documents to identify a bank account through which some
money will be transmitting and then grab that assets (freeze that bank account). This is to enforce an
arbitral award.
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HOW INTERNATIONAL ARBITRATION CAME TO PROTECT FOREIGN INVESTORS

He will be turning into investment arbitration. So arbitration between an investor (company or individual) and
a State. Today, he will give an historical introduction into how it came to be and how we have this system and
how it has developed historically. How arbitration which we have discussed until now, came to be used to
protect more specifically investors?
Next week we will be talking about the procedure in investment arbitration. How exactly an arbitration
procedure enfolds / how is it different from commercial arbitration. Then, we will talk about substantive
standards of protection. And this would be the only time that he will be talking about substantive law.
International arbitration is a procedural topic. We have talked a little bit about substantive law / how
arbitrators applied the law differently and trans nationalising the applicable contract law for instance. So we
will see what kind of substantive rights does investment arbitration protect. We will talk about the prohibition
of expropriation for instance.
THE ABADAN AFFAIR
In 1950ies and in Iran, more specifically the city of Abadan. In this city, there were and are oil refineries. And
in 1950, this was the largest oil refinery in the middle east. That oil was Persian petroleum. But, it had been
discovered by the British. Taking that oil out of the Earth was done using capital technology developed by the
British. So this whole oil was developed by the British or thanks “through British skill and British ingenuity”.
Indeed, in 1933, there have been a concession given by the Iranian government
for the exploitation for that oil (in red in the map, which includes Abadan) to
an English company (anglo-iranian oil company – AIOC). The AIOC changed its
name in 1955 to be “bp”. And in the 1950ies, the AIOC, was the UK’s largest
overseas asset. So it was the one thing that belong to British citizens which was
located abroad and had the highest value. Understandably, for the UK (English
people and for the UK as a country), it was a source of national pride. So for
the UK, that Persian petroleum wasn’t Persian but British petroleum. So the oil
belong to them, even though it was in Iranian. But it has been exploited and
discovered thanks to the British.
And then, here is what happened (he showed a video). So governments were toppled, the CAA interfered
killed lots of people and all of that because the Iranian government had expropriated the assets of bp and a
few other companies. And because these companies didn’t know what else to know than to turn to their own
government. The CAA, do what he usually does, do nasty things abroad.
So investment arbitration was developed to avoid these sort of situations. At the time, investment arbitration
didn’t exist. What he would like to take from this video, is the part where Mohammed Mossadegh considered
that Iranian oil should be returned to the Iranian people. So he nationalises British oil holdings, mainly the
AIOC and American oil holdings. And these British and American companies were therefore, legally speaking,
expropriated of their investment in Iran. So theses investors were legally speaking, helpless against Iranian
government.
Effectively, what could they do? Go to Court in Iranian? Good luck, because the Court is Iran would have had
jurisdiction to hear this matter. But as a foreign investor you would trust the Courts of a country whose
government has just done something which was extremely popular. Probably not. What else can they do
legally speaking? They can go to the Court of the UK. But they would not have jurisdiction as we will be seeing
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later on. And they couldn’t have gone to the international Court of Justice because there are individuals and
individuals can’t go to ICJ. So there were legally speaking a bit stuck and could not do much.
So this problem was one of the important cause the video clip showed. So with the
system we have today to protect investors against this sort of government actions
and political risks, much of this would not have happened. Possibility, the
relationship between the UK, USA and Iran would not have been harmed. And the
oil company would have been happier.
This is a letter from the CEO of the AIOC to General Counsel of World Bank. Saying,
bank help us. You are there to protect / help developing countries develop
economically, so you are there to help investors to make good investments abroad
and make sure that capital flow internationally. And so do something because this
isn’t right.
The World bank wrote back and say, let’s try something and mediate the situation. So it offers to be the
mediator between the parties. But it didn’t work out, largely because both parties insisted in their part of the
story and history. But this lead the World Bank to think about the need of a new solution. And said that we
need to protect these investors because if we don’t protect them, they are going to invest less and it is going
to be bad for developing countries. The fundamental idea behind that is to say the international flow of capital
is good. If we push investors to invest abroad to build things, this is going to helps these countries develop
economically and this is going to be good for the entire World. So that is only if I protect them, that they will
invest more. And mediation is not enough and is not a form of protection. And mediation is not there to protect
rights. It is there to resolve specific individual’s disputes. So we need more. And the thing we need is
investment arbitration. That is what leads this letter. That lead to the development of that treaty and itself
provides for investment arbitration.
BROADER HISTORICAL CONTEXT OF THE PROTECTION OF FOREIGN INVESTORS
Now we are going back in time and talk about the rights that investors have when they invest abroad. And
what they were able to do until we had investment arbitration. So what could they do as they were investing
abroad.
ANTIQUITY
Foreign investment is not something new at all. It dated back at least to Antiquity. As for instance, Egyptians
were building and operating mines abroad. And there were building mines to search for tin, because you need
tin to forge bronze. So they were building and operating them, which is the core idea of a foreign investment.
So you build something and you control it.
The Phoenicians were building and operating harbours.
17TH CENTURY
Foreign investments started to really grow and quite drastically with among other things.
We may have heard of the East India Company, which was a huge business controlled by the Britain’s
essentially. And it was meant to control large chucks of India (he showed a video to show how big and
important this business was). The East India company rows to account for half of the World’s trade. It came to
rule large areas of India with his private armies. It was a government within India privately controlled and
exercised military powers. That summed administration function over these territories in India. And again,
building and controlling.
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It is the raw power of that investor in India. It exercised real governmental power which later was absorbed
by British India when the company was dissolved.
He insists on building and controlling because many of these businesses were FDIs (=foreign direct
investments). What is the difference between indirect and direct investments? TO understand why and how
the protection of foreign investment developed and it came to over protect investments nowadays.
• Indirect : loans, shares in foreign companies, portfolio investment. It is when as a company you owe
5% of the shares of a foreign company for instance.
• Direct : company from one country making a physical investment into building a factory in another
country. Typically, by building a factory there (ex : A mine, a harbour, etc). So building it and controlling
it. It is a reference to building, machinery, equipment, which is very in contrast with making a portfolio
or a banking investment. The key is this idea of controlling and exploiting it. The company didn’t just
build something in India and pulled out. It builds and controls it (ex : Exercised governmental or near
governmental powers over the territory of another country).
19TH CENTURY
This led back to a push back against FDIs. In the 19th century, there was an increase in the push back against
FDIs specifically. The point is that FDIs involves projects which are not simply financed by foreign investors but
things which are built and controlled by foreign investors.
WHY IS THAT A PROBLEM?
With the rise of technological innovation, FDIs expanded to new fields, ventures such as railroads. But imagine
if what happened between Lausanne and Geneva, if the whole swiss trains system was controlled and owned
by foreign investors. How would we feel about that? Probably not so good. And telegraph systems came to
be controlled by foreign powers. If you control the telegraph system, you may also intercept communication
travelling to that system. The foreign investors extend then to cultivation of export crops (=when you grow
something, for instance cereal and then you take it and export it directly). That happens quite often nowadays.
So the local population doesn’t benefit from it. Another example is the exploitation of natural resources (ex :
Oil, minerals).
Others examples : telephone systems, electrical power systems, bridges and roads, automobile
factories, power plants, water distribution, agriculture, street lighting, pharmaceutical industries, etc…
That shows why government reacted and expropriate foreign investors. Sometimes it was felt among the
politically conscious in many of these countries where this took place and that something was wrong. And that
any of these sectors are vital to the welfare of the population and the security of the State. More and more
people thought that these businesses should not be in the hand of foreigners but controlled by governments
or national of the hosting country.
And people of this politically conscious Strada essentially convinced the governments of these countries to
expropriate these foreign owned projects. Expropriation is an action based on the principle of territorials
sovereignty. A government has a right on the sudden conditions to expropriate a foreign investor.
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WHAT EXPROPRIATION MEANS?
The classical form of expropriation was simply nationalization.
Example from 1917 : The soviet Union decided to nationalize all banks (domestic and foreign). The
government said “in the interest of our ideology, to protect our own citizens”. Therefore, he is going
to nationalize these things controlled by foreigners.
Example from 2012 : It is about nationalization in Latina America. It indicates in Argentina and Bolivia,
about nationalization of foreign companies.
Nationalization in these regions by the presence of these countries with what argument this oil belongs
to us.
The problem in the 19th century was the same back then as it is today. There was no proper legal framework
to protect these foreign investors.
WHAT WAS THE REACTION OF INVERSTORS ?
They turn to their own governments which sent ships along the cost of the countries which had nationalized
their interests. States indeed were sometimes quite vigorously behind their own investors, protecting the
investors as they were expropriated.
Protecting the east-India company abroad lead to war. Protecting foreign investors which had been
expropriated lead to international conflict.
Historically, foreigners tend to their own governments which sent military force (gunboat diplomacy) up to
the cost of the countries.
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This image shows an attack on China by French warships in 1884 because China had expropriated some French
investors. Historically, this was allowed by international law. Gundboad diplomacy sending warships to
threaten a city abroad so that the city gives a foreign investors backet.
MIDDLE-AGES
Under the Middle-Ages, the rights that foreigners had were none. Foreigners had no rights at all. As a
government, you could do whatever you wanted.
Progressively, after the Middle-Ages, it was recognised that foreigners had a right to travel and trade.
18TH
The situation progressed thanks to a Swiss lawyer called Emer de Vattel from Neuchâtel. States have the right
to set conditions on the entry of foreigners :
1) When entered, a state has duty to protect foreigners as it would a national. So I have a duty as a
state if I allow your foreigners to enter my territory, to protect you as I would a national of my country.
2) Foreigners retained “membership” in the home state. If you have an investor from France coming to
Switzerland, that French investor, under the international law, retained “membership” into the home
state.
“Membership” includes property which means that the foreigner’s property was part of the wealth of
the home state. The property of the French investor (company) belongs at the same time to the French
state. Foreigner’s property is foreigner’s home state property.
In what sense ?
If you harm the foreigner’s property, you harm the property of the foreigner’s home state. If
Switzerland expropriates a French investor, you don’t only harm the French investor, but the French
state. An injury to a state national become an injury to the home state of the foreigners. This will led
to the principle of diplomatic protection.
Example : France can step into protect the French investors. If I’m the swiss government and
I expropriate a French investor, I expropriate the French state. An injury committed against a
French individual become an injury against the French state. The French state has a right to
defend himself and to attack me.
In civil law terms, a debt to a foreigner created for instance by an expropriation is a dept to the foreigner’s
home state (to the state of that person’s nationality). This is when the concept of nationality become salient
in international law. To collect that dept, we could indeed use the ships.
THE DRAGO-PORTER CONVENTION (1907)
Until 1907, when the Drago-Porter Convention was concluded, it was quite simply the case that if a French
investor invests in Switzerland and he is expropriated. By that same action, I expropriate the French state. The
French state want to recover the dept I owe. Therefore, it taxes me to make sure that I pay the dept. In the
late 19th Century, people said that it is not a good idea. They negotiated and ratified the Drago-Porter
Convention :
“The Contracting Powers agree not to have recourse to armed force for the recovery of contract debts
claimed from the Government of one country by the Government of another country as being due to
its nationals.
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This undertaking is, however, not applicable when the Debtor State refuses or neglects to reply to an
offer of arbitration, or, after accepting the offer, prevents any ‘compromis’ from being agreed on, or,
after the arbitration, fails to submit to the award.”
Example : The French state has to make an offer to go to the arbitration to the Swiss government. If
the Swiss government says yes, France can no longer attack Switzerland. If the Swiss government says
no, France can still attack Switzerland because “not to have recourse to armed force for the recovery
of contract debts” is not applicable when the debtor state confuses to reply or accept an offer to go
to arbitration.
The Drago-Porter Convention prohibited the use of force for the recovery of state debts unless the debtor
state refused to submit the claim to arbitration. So the use of force perse was not prohibited.
THE KELLOGG-BRIAND PACT (1928)
These historical aspects of investment law are not for the exam (only help us to understand how the system
developed).
The prohibition to the use of force for the recovery of state debts only become prohibited in 1928 with the
Kellogg-Briand Pact. People said there were still to many aggressions, wars justified by the recovery of depts.
In 1928, the parties signed and ratified the Treaty :
“ARTICLE I : The High Contracting Parties solemnly declare in the names of their respective peoples
that they condemn recourse to war for the solution of international controversies, and renounce it,
as an instrument of national policy in their relations with one another.
ARTICLE II : The High Contracting Parties agree that the settlement or solution of all disputes or
conflicts of whatever nature or of whatever origin they may be, which may arise among them, shall
never be sought except by pacific means.”
The act prohibited the use of force and required states to resolve dispute only by pacific means. Since then,
there were pacific dispute resolution methods.
Which were they ? There were the available pacific methods to protect investors investing abroad, to seek a
sanction for the breech of the rights of investors which had invested abroad.
THE LIMITATIONS OF THE TRADITIONAL OPTIONS FOR THE PACIFIC SETTLEMENT OF DISPUTES
What forms of litigation can an investor resort to when the government of the host state does something that
harms the inverstor’s interests ?
HOME COURTS
Could the swiss investor working in Venezuela and getting expropriate in Venezuela turn to his home courts ?
No because of the immunity. You can’t sue a foreign state (unless it agrees) before the court of any country
outside of the territory of that state by and large.
So you can’t sue the Venezuelan state in the courts in Switzerland unless Venezuela accepts.
Even if you find a judge somewhere who thinks to help with international law. If the Swiss investor the
Venezuelan state/government before the court in Switzerland and the judge renders a judgment in the favour
of the Swiss investor, then you will have a problem of enforcement. The problem is that the judgment will not
be recognized anywhere outside of the Swiss territory.
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Venezuela is going to pull out all of its assets in Switzerland. Then you have a judgment valid on the
swiss law. You can’t do nothing with it because you can’t get to the assets of the equatorial state and
therefore it is worthless because of problem of enforcement.
So the home courts of the investors are usually out of the picture. What other courts can you turn to ?
COURTS OF HOST STATE
Can you turn to the courts of the host state ?

Yes, the swiss investor investing in equator who is expropriated (something happens that is illegal) you can go
to the courts in Equator to sue the equatorial state.
Is it a good idea to do that ?
No because the courts in Equator or anywhere including in Switzerland would not be perfectly neutral.
A Swiss judge employed by the Swiss state is asked to make a decision with a foreign company. He is
not going to be neutral because he is a human being. Even if he is neutral, that’s not how it will be
perceived by anyone else.
If you were be pee (the AIOC), would you want to sue the Iranian state ? No.
If today Switzerland expropriated a French investor, would he want to sue the Swiss state before the
Swiss courts ? No because judges are not neutral.
What else can you do ?
DIPLOMATIC PROTECTION
You can ask for diplomatic protection. There are two forms of diplomatic protection:
INFORMAL FORM OF DIPLOMATIC PROTECTION
It’s a non-legal form where the investor’s government (ex: Swiss government) negotiates with the government
of the home state (ex: Equator). It can exercise a manner of pressure, exchange things. It can threaten to take
military actions (illegal). This is non-legal form. These discussions and negotiations are not really regulated.
ESPOUSAL CLAIMS - PACIFIC DISPUTE SETTLEMENT MECHANISM
Even investors from small state have some power against this bis foreign state. This is a legal way to exercise
diplomatic protection in case where an investor is harmed.
Espousal claims is when an investor’s right has been breached and the home state of the investor (of the
nationality of the investor – ex: Switzerland) espouses the claim of the investor, making the claim of the
investor his.
Example : I take the claim and make it a claim of my own recall Vattel’s idea of the property of the
foreigner being ultimately the property of the home state. The property of the Swiss investor is my
property (Swiss state). This is the basis for espousal claims in diplomatic protection.
The rights to exercise diplomatic protection was recognised in 1924 by the PCIG (Permanent court of
international law – predecessor of the ICG) as an elementary principle of international law.
With this claim, the Swiss state against Equator goes to an international court (ICG, tribunal for the law of the
sea, etc).
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PROBLEMS
As the Swiss case, I make espouse the claim of my Swiss investor and I want to sue in an international
court the Equatorial state. What problems arise in this context ?
EXHAUST LOCAL REMEDIES
It’s on of the problems. It’s the need to exhaust local remedies. According to art. 44 (b) ILCIS, state
responsibility for the injury to foreign nationals may only be invoked after local remedies have been
exhausted. It means that the foreigner (the investor) has to go through all the courts of the host state.
Example : If the Swiss investor investing in Equator and the Swiss state want to step in, it can
only do so after the Swiss investor has gone to all the courts in Equator from the lowest to the
highest.
Is that a good idea ? No because that is going to be expensive, long, and unlikely to help because the
courts there will most likely be partial.
INVESTOR LOSES CONTROL
It’s the second problem. Investor loses control over the claim. The espousal claim is not something
that the citizen can control. The protecting state can do with the claim whatever it wants.
The Swiss government can do whatever it wants with the claim. It can drop it, waive it, offset it against
some counter claim (ex : Equator owes Switzerland a billion so they will settle the claim). The investor
is at the mercy of the protecting state.
ONLY BIG FISH
It’s a material problem. Only the big fish can really get the attention of the protecting state.
Example : If I invest on my own name in Equator and I ask Switzerland to protect me in Equator,
Switzerland will be busy with other more important fish. It won’t get the attention of my
protecting state neither. Only big companies and wealthy individuals can get the attention of
the protecting state.
So espousal claims don’t help most foreign investors.
FOULS INTERNATIONAL RELATIONS
From a different perspective, espousal claims fouls international relations (relation between the two
states). The protecting state may have other problems with the state that committed the injury. The
state may need the international cooperation of another state for more significant matters. Espousal
claims are a burden for international relations, they foul international relations. When an espousal
claims is fouled, it ends in a very reduce settlement.
Example : The Equators owes me 100’000’000. If the Swiss state files a lost on behave of the
Swiss investor, it will most likely settle the case for 5’000’000 or 10’000’000 at most.
So the investors says “the Venezuela owes me 100’000’000 and I get 10’000’000 ? It’s not a
good solution”.
Sometimes the states top up the amount received from the foreign state.
Example : The Swiss investor investing in Equator believes that he has a claim for 100’000’000
and the Swiss state settles the case for 5’000’000. The state could give the investor the
remaining 5’000’000.
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Is it a good idea ? For the investor yes but for the Swiss tax no because the Swiss tax are paying for
what the Equatorial government has done.
There were a number of such claims between Germany and Italy and between France and Italy were
the investors turn to the French respecting the German government saying “you have to sue Italy” and
the government responded “No, we need Italy cooperation for matters such as immigration,
environment so things that are more important than your economic interests”. So the government
won’t help you. Even if the government helps you, it will be just a little bit because otherwise the
foreign state is going to be unhappy with the claim and this is going to foul international relations.
POWER PLAY
There is some degree of power play involved in espousal claims. Is that really working for small states?
It’s possible but difficult to imagine a small Caribbean state with a population of 50’000 habitants suing
the US department of state. It’s possible but rather unlikely and doesn’t happen very often in practise.
CONSENT IS HARD TO GET
Legally speaking, that’s where the biggest problem is. Espousal claims can only be filed if the two states
agree, consent to submit the dispute to an international court, such as the ICJ. The ICJ only has
jurisdiction if the two states consent to bring the actual, specific dispute at hand to the ICJ.
Example: a Swiss investor investing in Ecuador. The Swiss state wants to sue Ecuador before
the ICJ. Will Ecuador say “let’s submit the case to the ICJ”? Most likely not and say “we have
done nothing wrong”.
ANGLO-IRANIAN OIL CO. CASE
The UK had tried in 1952 to take Iran to the International court of justice. The British government stepped in
and said that it would file a disposal claim with the ICJ against the Iranian government. Mossadegh, the prime
minister of Iran attended the hearing. It’s called the Anglo-Iranian Oil Co. Case (AIOC) which was filed by the
UK against Iran (judgment of July 22nd, 1952).
The court is bilingual, that’s why part of the hearings were in French. In essence, that sentence at the end of
the video clip says it all: “What we do on our territory is a nationalisation and is none of the UK’s concern”.
The ICJ dismissed the case for lack of jurisdiction because the claim was based on a clause contained in the
1933 concession agreement. That clause referred indeed to the ICJ. It was signed by Iran and by the AIOC but
not by the British government. So it wasn’t clear whether the British government could avail itself of the right
to go to the ICJ which arguably the AIOC had created by signing that concession agreement. The court said no.
The AIOC could have brought the case but not the British government but even the AIOC couldn’t have brought
the case because the ICJ only hears interstate disputes. So the dispute settlement clause in that concession
contract between Iran and the AIOC was pathological, invalid. The attempt to find an espousal claim before
the existent investment arbitration was indeed attempted.
INVESTMENT ARBITRATION
In the absence of investment arbitration, all other pacific dispute settlement mechanisms feel insufficient,
unsatisfactory for the investors. Investment arbitration was meant to fix most (all) of the problems mentioned.
ADVANTAGES OF INVESTMENT ARBITRATION
Investment arbitration can be filed by the investor himself against the host state. It isn’t filed by the home
state of the investor. So the investor remains in control of its claim. Thanks to that, the investor can even
negotiate with the whole state based on its possibility to file a claim.
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Example: a Swiss investor is about to be expropriated by the Ecuadorian government. He sends the
general councils who work for his company to the Ecuadorian government say that if it expropriates
the Swiss investor, he is going to sue it directly. He doesn’t need anyone else’s permission (e.g. Swiss
state).
This gives negotiating, bargaining power to the investor against foreign states. It has led investors to be able
to block legislation which was about to be passed in foreign countries which would have harmed the interests
of the investor in question because the investor said that if the foreign government passes the legislation it is
going to cause harm to him and going to do something which is on the international law allegedly illegal and
he is going to sue the foreign government. The foreign government said if that is the case it is not going to
pass that legislation.
Arbitrators can order states to pay foreign investors. Arbitrators (private individuals selected by the two
parties) can order a state to pay up to a foreign investor. The arbitral award is enforceable against the assets
of the loosing state.
The investor doesn’t have to ask its own government for permission to file a claim. The government of the
home state therefore plays no part in the dispute. Thereby, no international relation is fouled.
Example: a Swiss investor invests in Ecuador. Ecuador does something he doesn’t like. He sues the
Ecuadorian government. It shouldn’t create any problems between the Swiss state and the Ecuadorian
state. So they can continue to collaborate on the COP 27 agreement.
So no international relation is fouled thanks to the removal of the home state from the equation. In fact, the
ICSID convention says explicitly at art. 27 that once there is an agreement to arbitrate, diplomatic protection
is no longer possible. It is no longer possible to pursue diplomatic protection in the form of an espousal claim
as soon as there is an agreement to go to arbitration.
Even the small fish (small investor) can file an investment arbitration claim against a foreign state because
even if they don’t have the money they can find that money elsewhere from a third party founder which lends
money to an investor for the sole purposes of filing an investment arbitration claim.
There’s no need to exhaust remedies. There’s no need for the investor to go through all the courts in the host
state before it can file a claim in investment arbitration. It can go straight ahead to investment arbitration
because investment arbitration was precisely meant to avoid the courts in the host states.
As opposed to the courts in the host state, it is a neutral international tribunal. Neutral in the sense that
investment arbitrators / investment arbitral tribunals have no inherent interest in ruling in favour in one or
the other of the parties (in theory). In practise, there seems to be a bias in favour of the investors.
Relatively easy enforceability of arbitration decisions by virtue of two conventions with 150+ member states
(today):
o ICSID Convention (1965): it says that states have to treat foreign arbitral awards as if they were final
decisions of local courts. So a Swiss court would have to treat a ICSID arbitral award as if it were a
decision of the Swiss Federal Tribunal. A state has essentially no choice but to comply with an ICSID
arbitral award. It has no legal reason to object to it.
o New York Convention (1958) : Investment arbitration decisions are enforceable thanks to one or both
of these two conventions.
1864 SUEZ CANAL ARBITRATION
Early on, there were a few important historical arbitrations such as the 1864 Suez Canal arbitration. The Suez
Canal company which was a Turkish company sued Egypt because Egypt had passed a law that disrupted a
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concession that it had given to the Suez Canal company to work on the canal. In that case, Egypt agreed to go
to arbitration and the Suez Canal company agreed to go to arbitration as well. The company and the
government agreed to have Napoleon III as arbitrator.
Some view high profile historical arbitration. These were all ad hoc arbitrations in two ways because they
were not part of any institution and also in the sense that they were all based on post-dispute agreements.
There was no international treaty providing for investment arbitration in which you would find consent to go
to investment arbitration. It would mean that there would first be a dispute about the end put to the
concession agreement to work on the canal for instance. After a lot of pressure and arguments, at some stage
the parties get together and agree to submit the dispute to arbitration.
These arbitrations attracted a lot of attention but they were one-time arbitrations, there was no framework
to govern them. The parties had to agree after the dispute had occurred which is much more difficult to agree
to than to agree to go to any form of dispute settlement before you have an actual dispute. So it’s much easier
to agree in advance and therefore a treaty was needed. For instance, in the Abadan affair Iran would have
never agreed to go to investment arbitration with the AIOC.
So a treaty was needed through which the parties can agree to go to arbitration before they have an actual
dispute. There was a need for international conventions with pre-dispute arbitration clauses to protect
foreigners, in particular investors.
This led much later to the development of Bilateral Investment Treaties.
BILATERAL INVESTMENT TREATIES (BITS), CONTAINING AN INVESTMENT ARBITRATION CLAUSE (FOR FUTURE DISPUTES)
This is how the world looks like from the perspective of the existing BITs. The blue dots are states and the lines
are BITs. You should have about 190 dots on that slide. This is meant to show the web of bilateral investment
treaties we have today. Most of the protection of foreign investment is based on that web of treaties (BITs)
between 2 states to protect foreign investments and to allow investors from the other state to go investment
arbitration. Today we have more than 3’000 bilateral investment treaties.
These are the annual statistics / counts of BITs, the vast majority of which contain a investment arbitration
clause which were concluded each year. The cumulative number of international investment agreements (IAA)
is 3324. The number of new treaties signed each year. If we look at recent years, very few new bilateral
investment treaties are being signed. Why countries today and since 2010 are reluctant to sign many new BITs?
The spontaneous reaction by most people is to say that there’s no need to sign any new BITs because we
already have 3’000. Is 3’000 a lot of treaties? How many treaties could there be? There’s 190 countries. Each
of which can enter into BITs with all other countries. So it could be close to 19’000. 3’300 BITs isn’t that many.
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It means that the vast majority of bilateral relation between states, the vast majority of investment situations
are not covered by a BIT. Why do states no longer sign new treaties if there are so many situations which are
not covered by a BIT? Probably because of discontent with investment arbitration because it actually doesn’t
work all that well.
MULTILATERAL TREATIES WITH INVESTMENT PROTECTION CHAPTER, AND INVESTMENT ARBITRATION
There are a few multilateral treaties:

• NAFTA / USMCA: it is a free trade agreement which contains an investment chapter between the US,
Mexico and Canada (note: no investment arbitration in USMCA with Canada)
• CAFTA: that’s for central American nations.
• Energy Charter Treaty
RECENT NEGOTIATIONS
There are a few recent negotiations (we don’t need to know the details of these):
• “Trans-Pacific Partnership (TPP)” (defunct)
• The “Transatlantic Trade and Investment Partnership (TTIP)” (semi-halted)
• The “Regional Comprehensive Comprehensive Economic Partnership (RCEP”,
• The “Tripartite Free Trade Area (TFTA)”
There is no one big investment protection treaty something like the WTO agreement, something which would
be more or less worldwide protection investments. There are a few regional agreements and most of them
are BITs.
Why no vast multilateral investment protection treaty? Why are there few new BITs? Why have countries
become reluctant? Apparently to enter into new treaties protecting investments coming from another
country. Because you could think after all an investment treaty is a no-brainer. As a country I want more
investments flowing into my country. So if you’re not a country, the first thing I am going to do is to negotiate
with you saying “I’ll protect your investments if you invest in my country, I’ll respect the rule of law, I’ll treat
you fairly”. Because if you invest into my country that’s going to be good for me.
So why do states no longer really do this very much? Partly because of a very strong push back by some states,
population, NGO’s saying that investment protection isn’t such a good idea.
The negotiations have become secret concerning the Transatlantic trade and investment partnership (TTIP)
between the EU and USA for a huge treaty which covers many of the world’s most important economies to
protect American investments in the EU and EU’s investments in the USA. This has led to very strong reactions:
“We need TTIP like a fish needs a fishing rod”, “TTIP is a trojan horse”, “Hands off democracy”. There have
been demonstrations of people saying no, among other things, to one form of international dispute
settlement, people who are against investment arbitration.
The person speaking in the video clip is Joseph Stiglitz, a Nobel prize laureate in economics, who says that
essentially investment arbitration, investment protection treaties, most of them don’t make much sense or
the sense that they make is a bit weird. We are going to deconstruct, systematise, put questions to what
Joseph Stiglitz said. We’re going to talk about the discontent that people express about the effect that
investment arbitration has on society. Joseph Stiglitz said something very interesting that we don’t privatise
the judicial process. Well, we did with arbitration. It has good and bad sides to it. It has certainly effects on
society. These are the ones we are going to discuss. So these systems have some political, economic impacts
on society.
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HOW INVESTMENT ARBITRATION WORKS

We are going to see the specifies of investment arbitration, mostly in regard of commercial arbitration. But
we are not going to compare these two things.
We will be talking about the procedure, so how arbitration works, and how is it different from commercial
arbitration and when you find consent to go to arbitration and on what legal basis it rest. And then, we will
talk a little bit about what sort of protection investors investing abroad are granted, mostly by lateral
investment treaties.
ICSID AND UNCITRAL AD HOC ARBITRATION
UNCITRAL ad hoc ICSID
1 Ad hoc arbitration Institutional arbitration

ICSID is part of the World Bank group
2 UNCITRAL arbitration rules + lex arbitri ICSID Convention and Rules
govern procedure govern procedure
3 “confidential” “public”
4 No rule of precedent ; precedents systematically cited ;

“pick and choose” method of following precedents
5 Normal seat of arbitration No seat of arbitration
6 Annulment : courts of seat Ad hoc annulment committee
7 Similar annulment grounds
8 Enforcement like commercial arbitral Enforcement like local court judgment
award
9 Consent : not in ICSID Convention (though required for ICSID arbitrations),
but in contract, national legislation, or treaty (e.g. BIT)
He is going to list many features of the two. These two represents 90% of all investment’s arbitration. But
there are a few other forms. You can have investment arbitration handled by the ICC, by the SCC and a few
other arbitration institutions. But these two are the two mains’ ones.
62% and ad hoc: 15-20% of investments arbitration.
1
AD HOC ARBITRATION
15-20% of investments arbitration
UNCITRAL ad hoc are ad hoc arbitration which are arbitration without an arbitration institution.
Importantly, UNCITRAL ad hoc arbitrations are not handled by UNCITRAL. UNCITRAL is not an institution. What
UNCITRAL is a part of the UN which draft rules which can be then used by other actors (for instance economics
actors) or it has drafted the UNCITEAL model law which we have discussed and which is a template for a law
which the national parliaments can enact or not. UNCITRAL administers know arbitration whatsoever.
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INSTITUTIONAL ARBITRATION
62% of investments arbitration
ICSID is an institution arbitration. That means that he is handled, administrated and managed by an institution
being ICSID. And that ICSIC applies his own rules of procedure. We are going through these things after. ICSID
is also a small international organisation. It is part of the World Bank group and it is based on Washington DC
(where the World Bank is located).
2
UNCITRAL ARBITRATION RULES + LEX ARBITRI GOVERN PROCEDURE

More specifically in the context of investment arbitration, what UNCITRAL has done is draft a set of procedural
rules which anyone can use. And this is what happens in UNCITRAL ad hoc investment arbitration where the
parties take the rules of UNCITRAL arbitration rules and apply them to govern their procedures. So UNCITRAL
ad hoc investment arbitration are govern by two sets of rules. By the UNCITRAL arbitration rules and as any
arbitration the lex arbitri, so law of the seat of the arbitration. So if you have an UNCITRAL ad hoc arbitration
with seat in Switzerland, the Swiss arbitration law will govern the procedures in that case along with the
UNCITRAL arbitration rules.
ICSID CONVENTION AND RULES GOVERN PROCEDURE
ICSID is not govern by any lex arbitri in the sense that is not govern by any national arbitration law. It is a purely
and strictly international or transnational procedure. It is governed by ICSID own rules which are in ICSDI
convention. Why? Because ICSID they have no seat, so no national law which can govern that.
3 “CONFIDENTIAL” VS “PUBLIC”
One significant difference between these two is that UNCITRAL ad hoc arbitration tend to be less public than
ICSID arbitrations. But it is a bit more complex than saying one is confidential and the other one is public.
UNCITRAL ad hoc are very rarely fully confidential in the sense that we don’t know nothing about them and
no one is allowed to say anything about them. And entirely public in the sense that everything related to the
case is public, so every element of it. Most of the time it is somewhere in between that. But in a nutshell,
UNCITRAL arbitration, generally speaking are more confidential than ICSID arbitrations.
Why does that matter? In matters, for instance, to know what exists out there. So you know of the existence
or you can know of the existence of every ICSID arbitration that has ever been fell because ICSID itself has to
provide a list of all the cases that were find with the names of the parties. That means that you know which
countries have been targeted by an ICSID arbitration claim. Which has led some people to say, that with that,
we know which state misbehave and have been sewed in an ICSID arbitration. And you can know which
investors, typically companies, are suing which countries. But with UNCITRAL ad hoc, we know that there are
many cases we don’t know anything about because they can be completely confidential. So both parties have
decided to keep it secret and this protect the state.
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4 NO RULE OF PRECEDENT; PRECEDENTS SYSTEMATICALLY CITED; “PICK AND CHOOSE” METHOD OF FOLLOWING PRECEDENTS
A similarity between the two is that in both there is formally speaking no rule of precedents. That means is
that an arbitral tribunal has no legal obligation to follow any priori arbitration decision. If a tribunal does not
follow that, nothing happens. That is not a ground to have it annulled.
But if you look at the decisions, they all side prior cases. So there is what we call a de facto rule of precedent,
but not a de iure rule of precedent. So there is like a social convention / informal rule that arbitrators are
supposed to check out prior cases and to make some reference to them. So they can side them and do then
whatever they want with them. Arbitrators are allowed to say there were 100 decisions before me but I just
think that they are all bad because they are bad lawyers so I am not going to follow them. But I am not going
to tell you why.
What is an investment legally speaking? On this notion, there are different lines of precedent which have been
running for the last 20-30 years which an arbitrator can pick and choose from. So I can find precedents which
can go different ways and support my arguments. So there is a picking choose method of following precedents.
5 SEAT OF ARBITRATION
NORMAL SEAT OF ARBITRATION

In ICSID there is no seat of arbitration. As opposed of all of the other forms of arbitration, including UNCITRAL
ad hoc which have a seat somewhere in a given city which leads the application of the national arbitration law
of that country.
NO SEAT OF ARBITRATION
In ICSID there is no seat of arbitration. There is no place but it takes place somewhere, so there is a venue (=
place where arbitrators, parties, experts, witnesses get together). But there is no legal seat. So no national
anker point anywhere.
6 ANNULMENT
How you get rid of an investment arbitral award?

COURTS OF SEAT
If it is an UNCITRAL ad hoc arbitration, the resulting decision, you can try to have it annulled, like any other
arbitral award by the Court of the seat of that arbitration. For instance, if you have an UNCITRAL ad hoc
arbitration which seat in Geneva, then it will be the Swiss Courts (specifically the Swiss federal tribunal), which
will have jurisdiction to annul that arbitration award.
AD HOC ANNULMENT COMMITTEE
But not so with ICSID arbitration. An ICSID arbitral award you can not try to challenged it, so you can not have
it annulled by any national Court. But there is a possibility to have it annulled but that is within the ICSID
system. So you will turn to the ICSID institution and request it to set up an annulment committee. They are
called ad hoc annulment committee because they are set up at new. So a new one is created for each new
investment arbitral award. These committee are composed of3 people taken from the list of arbitrators of
ICSID itself and they are appointed by someone of the ICSID system. The people on that list, are put on the list
by the member state of ICSID. So all of the member state have the right to put 2 people on that list. But there
is a problem with that because a number of countries have not taken that seriously and have put someone
who has helped them back then but these people don’t know anything about arbitration. So there are never
going to be selected by the ICSID to seat in these committee. With the result that these people who seat in
these committee tend to be always the same and tend to be people from the global North. Which has lead to
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further accusations that in realty the World Bank and the Global North are controlling ICSID arbitration. So it
is used by the global north to oppressed countries of the global south.
How it is legally expressed in the ICSID convention.

7 SIMILAR ANNULMENT GROUNDS
On what ground can these decisions can be annulled? The ground are very similar. We have to remember that
which we saw in another course.
TYPICAL GROUNDS FOR ANNULMENT OF ARBITRAL AWARDS
§ Invalid arbitration agreement
§ Irregular constitution
§ Breach of due process
§ Issues of jurisdiction
§ Arbitrability
§ Public policy
§ Generally no review of merits
ARTICLE 52 ICSID
Here are the grounds of annulment for ICSID arbitral awards. The categorises are drawn out differently but
the overall set of grounds for annulment are essentially the same.
In ICSID arbitration to a wrong application of the law, the arbitrators follow the procedure correctly but then
the decision they render make barely any sense legally speaking. But that is not a ground of annulment. Even
an arbitratory arbitral award is quite unlikely to get annulled. So you do get ICSID investment arbitral awards
which make barely any sense what so ever and which are extremely purely drafted. But they stay there
because you can not annul them because of a wrong application of the law. And an arbitratory award
continues to live. Neither in commercial arbitration nor in ICSID and UNCITRAL ad hoc. So there can be bad
decisions out there.
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8 ENFORCEMENT
ENFORCEMENT LIKE COMMERCIAL ARBITRAL AWARD

About enforcement, in UNCITRAL ad hoc follow the same procedure then all other forms of arbitration we
have seen. That is to say, typically commercial awards. Concretely that means that you would try to have it
enforced on the New York Convention of 1958. The same convention applies to commercial arbitration and
to UNCITRAL ad hoc arbitral awards.
ENFORCEMENT LIKE LOCAL COURT JUDGEMENT
For the ICSID Convention, arguably you could use the New York Convention of 1958 as well. But typically, you
wouldn’t because you would rely instead on the CISDI convention itself which makes it a lot easier to enforce
an arbitral award then what the NY Convention would do. It is easy in the sense that all ICSID member states
have a legal obligation to recognise an enforce ICSID arbitral award as if there were a judgment of the highest
court in the land. So it is very difficult to oppose the enforcement of an ICSID arbitral award, even more difficult
than to oppose the enforcement of a commercial award (cf. art. 54 ICSID Convention).
9 CONSENT TO GO TO INVESTMENT ARBITRATION
ð not in ICSID Convention (though required for ICSID arbitrations), but in contract, national legislation,
or treaty (e.g. BIT)
Where do you find consent to go to investment arbitration?
For commercial arbitration, usually you find consent in an arbitration clause, so in a contract. That is how you
usually consent to go to arbitration.
In investment arbitration it is a bit more complex than that. There are more possibilities. The possibility of
including an investment arbitration clause in a contract is possible, but there are more possibilities. But by
being a member of ICSID convention, a state does not consent to ICSID arbitration. Being a member only makes
ICSID arbitration possible if both parties have argued to go to ICSID arbitration. So it is not a necessary but a
sufficient condition to go to ICSID arbitration.
So where do you find consent if you don’t find it in the convention itself?
A. CLAUSE IN A CONTRACT
You find in an investment contract between a government and a foreign investor. So you find a clause in the
contract. ICSID has model clauses.
Clause 1 :
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The name of the contracting State could be Switzerland and the name of the investor could be Danone in
France.
A contract between the host State and the foreign investor would be typically a concession contract.
Example : I am a government and you want to exploit a mine on my territory. You would need my
permission.
As a government, my permission will take the form of a contract. The investor may enter into a concession
contract by which I will tell the investor how much money you will make with the Mineral, how much you have
to pays and how much you can keep, what are the conditions. As part of the concession, they may be an
investment arbitration clause. If the investor thinks that I (government) breach the contract, he can sue me in
an investment arbitration directly.
B. LAW OF THE HOST STATE
OFFICIAL JOURNAL OF THE DEMOCRATIC REPUBLIC OF CONGO
That’s a provision. There aren’t that many countries which contain an investment arbitration provision
allowing foreign investor to go to investment arbitration against their government.
Example : The DRC has an investment code from 2002. It’s a provision. It looks like an
arbitration agreement in a contract that says “you foreign investor, if you invest in my country,
you have the right to sue me in the investment arbitration”. This is how I (state) express my
consent to go to investment arbitration with you (foreign investor).
How do you (foreign investor) consent to go to an arbitration with me ? By filing the investment
arbitration, you express your consent to submit a dispute to arbitration.
C. TREATY
It’s the dominant option. Today, by 80 to 85% of the investment arbitration are based on investment
arbitration dispute resolution clause contain in a treaty. Most of these treaties are Bilateral Investment
Treaties (BITs). That’s the majority of the cases.
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A BIT is concluded by states because treaties can only be entered into by states. Only states or OI can be
member states of international treaties and not the investor themselves.
The BIT concluded between two states contains a unilateral offer to go to arbitration with the investors of the
other’s state.
Example : If you’re an investor of state A and state A makes an offer to go to investment arbitration to
all investors of state B. So long as you are corporate citizen of state B, have the corporate nationality
of state B, the offer to go to arbitration is addressed to you. You can accept it by filing the claim.
You can accept the offer to go to arbitration by filing the claim. The investor files the claim thereby accepting
the unilateral offer to arbitration made by the other states.
The clause may look like it :
If the dispute cannot be settled amicably, the investor may decide between a, b, c, d, e, f.
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a) The investor can choose to go to the court of the host state.
Example : A Spanish investor investing in Switzerland, if that were the clause in a BIT between
Switzerland and Spain, the Spanish investor could choose to go to the swiss court under option 2. (a).
b) The investor can choose arbitration.
c) The investor can choose an investment arbitration administered by the Regional Centre for
International Commercial Arbitration in Cairo.
d) The investor can choose an investment arbitration administered by the Regional Centre for
International Commercial Arbitration in Kuala Lumpur.
e) He can choose the ICC.
f) He can choose an UNCITRAL ad hoc arbitration under 2. (f).
FIGURE 1 : TRENDS IN KNOWN TREATY-BASED ISDS CASES, 1987-2020
These are a few statistics to show how investment arbitration has become significant. The statistic
speaks about ISDS, the investor state dispute settlement. It’s a different acronym for investment
arbitration.
These are all the known cases. The number of cases has gone up significantly in the early 2010. Now
it is more or less stable. You have roughly 18 new investment arbitration each year. Overall, we have
1104 cases. These cases have an impact on what sort of policy governments are willing to follow, what
laws they are willing to pass and it has led to a quite strong worldwide outplay against investment
arbitration.
FIGURE 2 : MOST FREQUENT RESPONDENT STATES, 2011-2020
These are states which have the most often be sued on investment arbitration. Spain is at the top. We
can notice that these are mostly states of the global south. On one side, they are the target of
investment arbitrations. On the other side, we can’t say clearly that only states with unstable political
regime or countries known to have little difference for the rule of law have been targeted here. Some
democratic states have taken mostly reasonable policy decisions to the target of investment
arbitration claims.
Clearly, we can’t say that investment arbitration is only used to target these states or protect investors
from crazy dictators or wild populist. Indeed, it has been used for well behaving government on that
list.
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FIGURE 3 : MOST FREQUENT HOME STATED OF CLAIMANTS, 2011-2020
This is where the claimants come from in the last decade. Most of the claimants come from the USA.
Most claimants come from the global North.
This ain’t the accusation that ISDS is mostly a thing to protect the economic interest of the North
including the public interest of the South or there is a post-colonial regime so a way to continue to
exercise control over colonies of the North.
Another story that the data would seem the allow us to tell is that most investors come from the global
North so it is normal that they sue more often. If I invest more often, it’s normal that I sue more often.
Countries from the global South often are less stable politically and economically and have less
capacity to analyse all of the different impacts that a new policy would have. Therefore, they take
more often measures which are not ideal.
They may be in each of these stories (post instrument or normal) a little bit of truth. On one hand,
investment arbitration seems to be serving some good fundamental purposes to object to a crazy
dictator, but it does a lot more than that. It can be understood to be empowering a small group of
economic actors (typically of the global North) instead of being used to control corrupt reckless
governments for the great or good of everyone.
ARBITRATION WITHOUT PRIVITY & THE NOTION OF INVESTMENT
In investment arbitration, a foreign investor can directly sue sovereign state in an attempt to trigger that
state’s international responsibility. Investment arbitration prevails diplomatic protection. The international
court of Justice noted that the role of diplomatic protection has faded on the wake of investment arbitration.
The three ways in which a state can give his consent to investment arbitration :
1) Through national legislation
2) By concluding a contract with an investor
3) By concluding a treaty with another state.
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Consent is important. We can’t force the state to appear before an international court or a tribunal without
having its prior consent to it.
ARBITRATION WITHOUT PRIVITY
NO CONTRACTUAL RELATIONSHIP
Arbitration without privity relates state’s consent as it describes the nature and scope of it. It also describes
the relationship between foreign investors and states, especially when there is no contractual relationship
between the investor and the state.
Privity comes from the adjective “privy”. “to be privy of something” means to cern the knowledge of. So
arbitration without privity is arbitration without knowledge of it, more precisely without knowledge of who
you agree to go on arbitration with. It something like a blind date. Privity is a doctrine of contract law that says
that contract is only binding on the parties to it. The contract can’t confer right or impose obligations on any
person who is not a party to it. Arbitration without privity refers to situations where someone has a right to
go to arbitration even though he/she/it was not a part of the relevant contract or agreement.
In simple terms, an investor can directly sue a state without having any kind of specific agreement with it so
regardless of whether any specific agreement has been concluded with the particular claimant/investor.
This differentiates investment arbitration from commercial arbitration. In a commercial arbitration setting, we
have a contract between party A and party B. In that contract, there is an arbitration clause and party A can
sue party B, he can use the arbitration clause. He can do so because it is privy to the arbitration clause. In
investment arbitration, investors are not privy to any kind of contract. They don’t have to. Of course, this is
possible that there is contract between an investor and a host state. If it’s the case, we don’t have arbitration
without privity, investors use the arbitration clause in the contract. This explains how arbitration is conducted
when states give their consent to arbitration in the BIT (treaty with an other state or multilateral treaty) or
through their national legislation.
What will be the legal consequence of that ?
STATE CONSENT
The first important implication relates to the nature and scope of state consent. State give an open-ended
unilateral offer to arbitrate. It’s an invitation to arbitrate. They give that invitation to an undefined number
of investors who are unknown to the host state. When he signs a treaty, the host state doesn’t know who the
potential future claimant ad future investor will be. The investor can accept that invitation anytime they want
by filing their claim. It’s possible to have a state that is unaware of an investment related dispute or an
investor. He becomes aware of the dispute or the investor when that investor files the claim, when the state
receives the request for arbitration.
STATES CANNOT INITIATE INVESTMENT ARBITRATION PROCEEDINGS
An other implication is that states cannot initiate investment proceedings against an investor. They can’t sue
an investor because they don’t know who the investor would be and because the investor has not consent to
it.
States may bring counterclaims (under specific conditions). States can limit their consent (e.g., material
scope). They can give consent for specific type of dispute for example expropriation. This doesn’t alter the fact
that states can’t initiate arbitration, he can’t sue in an investment treaty arbitration.
Traditional investment treaties don’t contain obligations for investors. They contain substantive standards of
protection. Investors need to meet certain requirements when they want to have an investment, but it doesn’t
alter the fact that there are no obligations for the investor.
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This point has led many authors to argue that the system is one-sided in a sense of a one-sided system.
THE NOTION OF INVESTMENT
WHY IT MATTERS
Investment arbitration is about the resolution of investment related disputes. Investment tribunals are called
upon to decide investment disputes. By defining what an investment is, we define the content and the outer
limit of Rationae materiae jurisdiction.
By defining what an investment is, we define at the same time what an investment is not. We need to do a
distinction between investments and legally protected investments. In that regard, not any transaction is
automatically a legally protected investment under international law.
ARTICLE 25 OF THE ICSID CONVENTION
There is a distinction between ad hoc and ICSID arbitration. In ICSID arbitration, arbitral tribunals need to apply
the ICSID Convention. Article 25 of the ICSID Convention refers to the jurisdiction of the tribunal under the
ICSID Convention.
The jurisdiction of the centre shall extend to any legal dispute arising directly out of an investment. However,
this is the only reference to the notion of investment. There is indeed no definition of investment in the ICSID
Convention.
There are three different approaches that have been emerged and used by tribunals in order to determine
what an investment is. The tribunal have the “competence-competence” power. They are legally empowered
to exam that they do have jurisdiction. By examining whether they have jurisdiction, they examine whether
there is an investment.
OBJECTIVE APPROACH
This is the first approach.
The notion of investment has been treated as a Terminus technicus. It’s a technical term, as a transaction that
has certain features that are inherent to its meaning. These characteristics allow us to distinguish between
investments and purely commercial transactions.
SALINI CRITERIA (SALINI V. MOROCCO)
The tribunal describes these characteristics. The Salini criteria have been emerged. An investment
contains four characteristics :
1) Contribution of facets and manning
2) Certain duration
3) Contribution to the host state economy
4) Element of risk
These are the Salini criteria.
Under the objective approach, party autonomy is limited because the states cannot go beyond the
outer limit set out by the Salini criteria. The notion of investment is objectively determined.
The objective approach has been mainly used by ICSID tribunals.
SUBJECTIVE APPROACH
We give priority to party autonomy (party autonomy prevails). We only focus on the definition of investment
in the relevant treaty. Only the relevant BIT matters.
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Example : In the treaty between France and Switzerland (bilateral), there is an article that gives a
definition of investment. In that article, the states (parties) determine what they consider to be as
protecting investment. In that regard, they can protect anything they want under that treaty, they can
expend the protective scope of the treaty even if they decide to protect purely commercial
transactions.
This approach has been used by non-ICSID arbitrations so arbitrations that take place outside of the context.
It’s easier because we don’t have article 25 to apply because when we apply the ICSID Convention, we need
to apply it. This is what the Vienna Convention suggests. When you don’t have to apply article 25 that led us
to the Salini criteria, it’s easier to use the subjective approach.
DOUBLE BARRELED TEST
It’s a combination of the objective approach and the subjective approach. It rests on the intersection of the
two definitions. In order to establish jurisdiction, the tribunal has to satisfy itself that there is an investment
both under the objective approach and the subjective approach so both under the Salini criteria and the
definition of investment in the relevant BIT. This has an important implication.
What are the legal consequences of the double barreled test ?
It says that the parties (states) in the relevant treaty cannot expand the protective scope of the treaty as they
want. They cannot go beyond the alter limit of the objective approach because the tribunal will say that it
needs to have an investment both under the objective approach (4 criteria) and the same time an investment
under the definition of investment in BIT.
Example: if there is a transaction that falls within the definition of investment in the BIT but does not
meet the Salini criteria, it cannot be considered an investment under international investment law.
The double-barreled test has been mainly used by ICSID tribunals because we have article 25 but also the Salini
criteria have been used by tribunals outside the ICSID context.
Example: the tribunal in Roma vs. Uzbekistan case examined the Salini criteria in order to establish its
jurisdiction.
If you are in a ICSID context (ICSID arbitration), you need to apply both, the Salini criteria and what the parties
have said in the BIT. But if what the parties include in their BIT does not meet the Salini criteria, it might be
possible that the tribunal will say that it’s not an investment. The parties can put anything they want into the
BIT as a protected transaction but then there is another threshold that the tribunal has to pass in other to
satisfy itself, that there is a jurisdiction. The object and purpose of the ICSID Convention (see preamble) is to
protect foreign investments. This excludes purely commercial transactions. So this puts a limit on the parties
autonomy. So they cannot decide whatever they want in their BIT. They can do so if they are outside the ICSID
context.
There is no binding precedent in investment arbitration but it’s important to remember that the Salini criteria
have been emerged through case law. So the first time a tribunal referred to these criteria was in Fidax vs.
Venezuela and then the tribunal of the Salini case decided to follow that and then many tribunals have
followed that, not because there is a binding precedent but they do it on a case by case basis.
EXAMPLE
Schultz is a Lebanese investor investing in Switzerland. He wants to bring an ICSID arbitration claim
against Switzerland. He needs to find consent and needs to make sure that the ICSID Convention
applies because he wants to go to ICSID arbitration.
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WHERE WILL HE FIND CONSENT?
In the BIT between Lebanon and Switzerland. So he needs to make sure that the BIT applies to his
situation. The BIT covers/protects investments.
WHAT IS AN INVESTMENT?
Quite likely the BIT will define it. That is one of the aspects of the barreled test. His investment needs
to qualify as an investment under the BIT between Lebanon and Switzerland.
Why? Because only then the BIT applies and only then will he find consent of the Swiss state to go to
investment arbitration. So he has consent to go to arbitration.
CAN HE GO TO ICSID ARBITRATION? WHAT IS REQUIRED THAT THE ICSID CONVENTION APPLIES?
The ICSID Convention applies to investments.
HOW DOES HE KNOW WHAT AN INVESTMENT IS?
He looks up what the ICSID Convention says. It says nothing about what an investment is. So he doesn’t
know to what business ventures the ICSID Convention applies.
How does he find out? He looks up the case law, the Salini criteria, etc.
Not every tribunal follows the Salini test but if we have to recall just one test it is the Salini test.
Question: the right to go to arbitration is a derivative right. What does that mean?
If we have a BIT between State A and State B. State B has acquired a right under the BIT to sue state
A. The investors of state B derive their own right to start the arbitration from their own state.
Nowadays, the other view is to say the BIT even though it is concluded between two states not with a
investor, gives directly a right to an investor. So the investor derives his right to go to arbitration from
the BIT directly or through the state of which it is citizen. In practice, it doesn’t make a big difference.
So a treaty can give directly a right to someone who is not party to a treaty.
The BIT may give a right to State B to start an interstate arbitration against State A. If State A breaches
the BIT, either State B can start an interstate investment arbitration against State A or investors of
State B can start the arbitration. It depends on what the BIT exactly says.
SUBSTANTIVE INTERNATIONAL INVESTMENT LAW
EXPROPRIATION
The first thing that international investment law deals with, tends to prohibit is expropriation. It’s not that all
expropriations are illegal but there are certain conditions.
TYPES OF EXPROPRIATION
What is an expropriation? There are different types of expropriation.
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DIRECT EXPROPRIATION
It’s the example in the Abadan affair of Iran taking away (nationalising) the assets of BP (AIOC). It was
what happened in the 1950 in Cuba where Cuba decided that all of these American oil companies
uprooting on Cuban soil, now they’re theirs. They are going to take away what is theirs and expropriate
them. This is a form of nationalisation (formal taking).
Example: the USSR nationalising foreign banks.
It happens rarely nowadays.
INDIRECT EXPROPRIATION
It happens much more often. It measures tenth amounts equivalent to expropriation.

METALCLAD V MEXICO
Metalclad was building a hazardous waste landfill in Mexico. He wanted to build a landfill where you
can dump toxic waste. To do that, it needs authorisation. The federal state in Mexico gives its
authorisation (federal permit granted). Metalclad turns to the federal governments and says that they
have every required authorisation, and the federal government responds “yes, don’t worry you will
need some local permits but don’t worry about that, I assure you that you have a green light to go
ahead” (assurances by federal agents). Metalclad starts to build the hazardous waste landfill and at
the last minute, as the construction works had already begun, the municipal permit was denied. The
local municipality tells it to get out of there because it is going to pollute the local environments and
make people sick.
Metalclad says that the state above it said that he can do it and that it expropriates him of what he
had built, of the field he had bought. It has taken it away from him not by actually taking it away but
by making it impossible for him to use his property the way he has intended to use it. So Metalclad
starts an investment arbitration against Mexico. The tribunal said that it’s an indirect expropriation.
Mexico “depriv[ed] the owner (Metalclad), in whole or in significant part, of the use or reasonably-to-
be-expected economic benefit of property.”. Metalclad cannot use his property in the way he wanted
to use it. It has become essentially, economically worseless. The value of his property has been taken
away (form of expropriation).
ONE-GO EXPROPRIATION
CREEPING EXPROPRIATION
It’s when a state passes one set of legislation after another or one decree after another over several
years which eventually leads to the loss of value of the property of the foreigner. It’s not just one act
but a series of small steps none of it which in itself destroys the value of the property but which all
taken together destroy the value of the property. It’s a progressive indirect expropriation by a series
of small things.
EFFECTS OF EXPROPRIATION
When an investment arbitral tribunal finds that there has been an expropriation, there measures are not
reversed. The things that were nationalised stay nationalised, the laws that took away the value of the
foreigner’s property stays. The expropriation cannot be annulled by the tribunal.
The tribunal can order payment of prompt and adequate compensation. So Mexico had to pay Metalclad,
compensate him for the loss of value of his property.
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CUSTOMARY INTERNATIONAL LAW
International law is part of customary international law. If there is expropriation, prompt and adequate
compensation is due. Customary international law applies even if there is no treaty. So as an investor investing
abroad you always this right simply because you invest abroad.
MINIMUM STANDARD OF TREATMENT (SKIPPED IN CLASS)
1) Denial of justice: serous inadequacies in the state’s judicial or administrative system.
• formal denial of justice (ex: refusal of access to court, undue delay in court proceedings)
• substantive denial of justice (ex: clearly improper and discreditable court decisions)
2) Lack of due process: due process re administrative acts.
3) Lack of due diligence: due diligence in protecting foreigners.
• Context / component 1: from injurious acts of private parties, including mobs and insurgents (i.e.
protection from physical violence).
• Context / component 2: in the administration of justice (ex: prevent crime, arrest and bring
culprits to justice)
4) Arbitrariness: “a willful disregard of due process of law, an act which shocks, or at least surprises, a
sense of juridical propriety”. Illegality is not sufficient: “Arbitrariness is not so much something
opposed to a rule of law, as something opposed to the rule of law.” (ICJ, ELSI – USA v Italy). Catch all
provision with very high threshold.
catch all provision with very high threshold
5) Discrimination: illegitimate distinction between people or situations that are in a similar situation
FAIR AND EQUITABLE TREATMENT (FET)
It’s the most important standard in BITs. FET is not part of customary international law but it is included in
mostly every bilateral investment treaty. It is the key principle on which the vast majority of cases turns. In
almost every case (90%), the investor will say that the host state (respondent) has breached its obligation to
offer him FET. What does that mean?
MAIN PROTECTION: INVESTOR’S LEGITIMATE EXPECTATIONS
FET protects the investor’s legitimate expectations. If the legitimate expectations of the investor were
breached by the host state, it’s a breach of FET and that leads to an obligation to pay compensation to the
foreign investor.
“LEGITIMATE”
There has been some case law which explains when a expectation is legitimate. Not every expectation
on the part of the investor is legitimate.
Example: Schultz is a Lebanese investor investing in Switzerland and tax rates go up from 20%
to 21%. He didn’t expect the tax to go up but it did go up.
Or he invested specifically in Geneva and all of a certain there is a minimum salary in Geneva
which makes it more expensive for him to operate his company. Is that a breach of his
legitimate expectations?
What makes expectations of the investor legitimate?
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CONDITIONS HAVE BEEN OFFERED BY STATE AT THE TIME OF THE INVESTMENT
The idea is that you make an investment because certain conditions are offered and then the state
cannot take away these conditions. If you invest first and then the conditions improve and then they
worsen again, that’s not a breach of legitimate expectations.
THE EXPECTATIONS HAVE TO BE BASED ON SPECIFIC AND UNAMBIGUOUS STATE CONDUCT
Simple encouraging remarks from government official may not be enough.
Example: the government in Geneva tells the Lebanese company “don’t worry, the law won’t
pass”. That’s not enough. That’s an encouraging remark and not a formal guarantee that things
will not change.
Or an investor meets with a minister somewhere and over dinner says that he would like to
invest into his country and asks how things are going to evolve. And the minister says “don’t
worry, we won’t apply VAT to you because we like you and want you to invest”. It’s not a
specific and unambiguous state conduct. When you invest somewhere it has to be something
official.
THE EXPECTATIONS HAVE TO BE JUSTIFIABLE AND REASONABLE
Example: if you get a formal guarantee by a government “no tax will be applicable to your
investments for the next 20 years”, it’s doubtful that it will be reasonable. It is unlikely that
this will create legitimate expectations.
You invest somewhere and the minister in charge sends you a formal letter saying “in your case, no
labour law conditions will apply, you won’t pay any taxes”. That does not lead to legitimate
expectations.
LEGITIMATE EXPECTATIONS CANNOT BE OBTAINED BY FRAUD
Example: if you bribe officials somewhere to give you certain specific official guarantees, that
doesn’t create legitimate expectations.
THE EXPECTATIONS CAN BE INCONSISTENT WITH LOCAL LAWS
Example: if you get three years ago the government in Geneva issuing a letter saying “you can
invest in Geneva, there will not be any minimum wage applicable to your investment and if
there is a new law it won’t apply to you”. That’s inconsistent with local laws, that’s an illegal
promise. Still, because it is justifiable, clear, unambiguous, etc. it nevertheless creates
legitimate expectations.
STABILIZATION CLAUSES
Stabilization clauses freeze parts of the law.

USED WHEN
§ investor: doubts about future regulatory and political changes
§ states: give host states an economic advantage in attracting foreign investors
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WHY USE STABILIZATION CLAUSES?
EXAMPLES OF STATE MEASURES CHALLENGED IN INVESTMENT ARBITRATIONS

§ giving a concession agreement to company X which (involuntarily) terminates exclusive concession
agreement given earlier to company Y (indirect expropriation)
§ increase of corporate tax from 30% to 50% (during economic crisis) (indirect expropriation, FET)
§ Unpegging currency A from USD (during economic crisis) (indirect expropriation, FET)
§ Banning a chemical product considered harmful for health used as component of products indirect
expropriation, FET)
§ Preventing tobacco companies from using their logo on cigarette packs (indirect expropriation (of IP
rights))
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INTERNATIONAL ARBITRATION AND ITS DISCONTENTS I

This week and next week we are going to spend on discontents with arbitration. What people say doesn’t quite
work out in arbitration. The point is not for me to be against arbitration. The point is to take a step back and
think critically about this. Which we should do in every area of the law.
It is only by being critical that something can be improved. If you like arbitration, you have to be critical.
Arbitration is inherently in itself a wonderful thing, but it is not unvenerable and if does to many things wrong
it may will be made to go way. And the wonderful idea of the heart of it right with it.
Here, we are going to see discontents with arbitration in general. After that, we will turn to the discontents
with investment arbitration in particular which is much clear situation. In order to frame the discussion that is
going to come, he is going to do a bit of theory.
FUNCTIONS OF DISPUTE SETTLEMENT
There are many ways to think about the different discontent with arbitration but he would like to do this by
taking a step back and talk about the discontent of a theory on why we resolve dispute in the first place. Just
to make him go away? There is something more to do to why we resolve disputes. What are the functions of
dispute settlement ? What are we trying to do when we resolve disputes ? What are the points ? And how
arbitration interfere in this regard ?
Clearly, the point of dispute settlements is not simply to make the dispute go away. Because if this was the
case, we could simply have a rule that says the claim always win. But that is not what we want.
Here is an idea. Dispute settlement have 3 functions. What does it mean and how this apply to arbitration?
SATISFY THE PARTIES
The idea is that it achieves to the greatest degree possible the promotion of both parties interest. At the end
of the procedure, both parties are happy as possible. Of course, in many forms of dispute settlements, at the
end, one party is likely to be happier to the other. But if you combine the interests / satisfaction of both parties,
you can of course obtain a higher or low global som. In the best-case scenario, both of formal winner and loser
will be content with the dispute settlement. And in the worst-case scenario, both won’t be happy (ex: I win
the case, but it didn’t work out the way I wanted because I wasn’t listening to).
Satisfaction can be here translated simply as interests. Both subjective and objective interests.
Here the problem with arbitration is some of the things we discuss when we talk about cost and money. The
idea that arbitration is becoming increasing expensive and complex and slow. Of course, if you go to arbitration
and even if you win, it costs a lot of money and you can’t shift all this costs to the other party. Well, you won’t
be as happy. With the same procedure and the same result but if it costs less, the satisfaction of the parties
goes up. Over time, costs and time in arbitration are going up. Which mean that satisfaction of the parties in
arbitration over time goes down because they have to pay more and to achieve the same thing.
And there is in some extend a structural problem. Of course, the interest of the parties and of their lawyers
are not aligned. Longer and more expensive procedures are better for the lawyers, but they are worse for the
parties. And whether you are in arbitration, in commercial Court case, a divorce, or any other dispute
settlement. That is the same everywhere. But in arbitration, there are fewer counters’ forces to lawyers pulling
its all-in-one direction. Courts have interests oppose of those lawyers. For Courts, fewer and shorter procedure
are better than more and longer procedures. Whereas in arbitration, the arbitrators often are accomplices. In
the lawyers’ self-interests in longer and more expensive procedures. If arbitration takes longer and if there are
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more arbitration, then the arbitrators get payed more and the lawyers as well. The arbitrators won’t push back
against the interest of the lawyers who want longer and more expensive procedures.
Most judges have to many cases on his hands and Courts will rather try to avoid getting yet more cases.
Because there are not payed by the case but they have a fix salary.
ENFORCE SOCIETAL VALUES
A dispute settlement mechanism is there to enforce societal values. This is one of the things it can achieve. It
means that every instant of dispute settlement / every Court procedure and every arbitration procedure is an
occasion to bring the law to bare on society, so to get the values that society has put into the law to come
back out and to shape society. That is the purpose of law, to have real world effects. And that happens in the
occasion of the resolution of a dispute. Not only, but typically.
Law is not to be just on the books but actually to translate into something that guides behaviour in practice.
According to common rules of the game that express common values. And a dispute resolution mechanism is
expended to promote these values, that the society has collectively agreed to embody in authoritatively legal
texts. In the final analysis it aims at bringing reality closer to the democratically chosen ideas. That is one of
the rules of Court and arguably one of the rules of every instant of legal dispute settlements.
How in arbitration? This is what we have seen when we talked about decision-making and legal realism. We
have to remember the argument that arbitration tends to promote sectorial values, a certain political
orientation. Simply, a set of substantive values which are not necessarily those of the society in general. Judges
are meant and achieve largely to the implementation of our collective values to bring them to bare on society.
Arbitration where that tends to bring to bear on reality specific values which are not the values of all of us. Yet
arbitrators apply the law.
Many people say that arbitration has created a parallel system of justice in which the law is applied differently
and where different values are promoted. Because axiological scepticism (ex: Max Weber) which is the idea
that you can’t rationally say that some substantive societal values are in themselves better than others
because of the axiological scepticism we can’t really say that this promotion of sectorial values by arbitration
is in and of itself good or bad. But what we can see is that the promotion of different values makes those who
favour other values disgruntled. It is a form of society discontent with arbitration. When arbitration promotes
different values than those of society generally.
The next discontent is that confidentiality in arbitration makes certain values more difficult to enforce. As you
may have heard, at Google, there were certain harassment claims from employees. And there were kept secret
because of arbitration. What happen if that in their contracts, there was a clause that says if they had
harassment against other Google employees, they have to go to arbitration and not to Court. So going to
confidential arbitration. So that means that if you are the victim, you don’t that others are victim because it
doesn’t end up in public Court. What happens typically is that you feel that you are the only one who is in that
situation. You feel that there is unanimity against you that everyone else is living a good life and you are the
only one who has problems. So what are you going to do? You are much less likely to stand up to sexual
harassment. Which mean that a company policy with the help of arbitration made sexual harassment more
prevalent. But this ends up in New York Times and Google changed policy. Things have been fixed. But this
type of things certainly continues to happen at other companies.
Then there is also discontent with arbitration in that it supresses from values enforcement another type of
behaviour and that is what happens in the context of consumer arbitration. In countries in which consumer
can use collective action (=group of identify individuals) or even class-actions (=for unidentified individuals
who fulfil the same conditions of having been in the same situation), arbitration is often used to make this
impossible. Consumers are for instance, subject to arbitration clauses which exclude jurisdictions of Courts.
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And thereby, they extruded jurisdictions of those disputes settlement mechanisms that could hear the
collective claims or the class-actions. If you go to arbitration you can’t class in Court. And doing this, arbitration
effectively prevents the law from applying to this situation and the values that law expresses. For instance,
consumers should be protected against dangerous objects such as faulty motorcycled. IN the USA, there was
one company who was producing carters which exploded and created accidents and killing a number of
people. But in the contracts was an arbitration clause. So the surviving members and the members of the
victims, they couldn’t do class-actions against this company and they had to go to arbitration. And many of
this families were poured so they couldn’t do it.
CONTRIBUTE TO THE RULE OF LAW
You can think of law as a value neutral framer that allows people to predict and plan. Law is a type of
guideposts for peoples owns self-orientation. That is one thing that law does. Law tells you if you do this, this
is what is going to happen. Within the zone of freedom, you can live your own lives. But for that, you have to
know what the law exactly says. If the law is unclear, then you can’t self-determined because you always fear
that law is going to hit you.
Dispute settlement mechanisms are meant to contribute to that. Contribute to making the law say reliably
what it says and allowing you to predict and plan effectively. Instances of dispute settlements can and are
supposed to clarify the law to fill lacuning.
But in arbitration the awards are mostly confidential, so arbitration cannot clarify the law. At least, not for
others (=anyone else apart from the parties of the case). The law, as guidelines doesn’t improve over time
through arbitral awards because they are confidential and don’t creates or specify dependable rules for self-
directed action.
And again, some people argue that if this goes too far. In doing this, arbitration prevents the development of
the law by courts. The view is that arbitration incapacitates Courts in their law-making functions to
progressively clarify the law.
CONCLUSION IN ARBITRATION IN GENERAL
Arbitration is a potent idea of a justice beyond the narrow strictures of the law (less formal, more adaptable,
etc).
Arbitration is a potent idea to reach into territories in which the law doesn’t work well. Because the law is
meant for normal situations. But of course, there are situations in which the law isn’t really adapted /
appropriate. Situations which are arguably without law even or without good law, but certainly not without a
need of justice. And that was the initial idea of arbitration. Remember this idea of 2 traitors calling on a third
on a market because involving the local court, the normal legal system will be too long and complicated and
will lead to bad results. And you have to think about what arbitration was meant to achieve in the beginning.
But arbitration has come quite far from this initial idea. Right now, it serves the interests of arbitration industry
very well. But it serves the interests of other people, certain business parties. But the problem is that
arbitration, as an industry, doesn’t quite serve the interests of the people who support. Arbitration in not
invulnerable.
If this goes too far, it will lead to some backlash against arbitration and that has started in investment
arbitration.
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THE FAILED PROMISES OF INVESTMENT ARBITRATION
Investment arbitration is special because it was developed for specific reasons. It came with specific promises.
How do people feel about investment arbitration today ? We see a Video of a situation that happened years
ago in London in front of the offices of one of the world large firm. It is one of the firms that does the most
investment arbitration.
MAIN PROMISES OF INVESTMENT ARBITRATION
Investment arbitration came with two promises.

1. DEPOLITICIZE INVESTMENT DISPUTES
In a nutshell, the idea is that investment arbitration should avoid situation such as the Apadana Affaire when
Iran expropriated English and American oil companies and the CIA was sent in. Everything became a big mess.
Professor Michael Reisman (Yale) : “The central achievement of investment treaty arbitration is the isolation
of investor-state disputes from the caprice of sovereign-to-sovereign politics”.
Professor Andreas Lowenfeld (NYU) : “Controversies between foreign investors and host states are insulated
from political and diplomatic relations between states.
The host state is assured that the state of the investor’s nationality will not espouse the investor’s claim or
otherwise intervene in the controversy … for instance by denying foreign assistance or attempting to pressure
the host state into some kind of settlement”.
That’s the idea of depoliticization. The home state of the investor doesn’t send in the CIA to mess up things.
It doesn’t deny for assistance to attempt pressure of the host state of the investment in some way. Investment
arbitration would remove the home state of the investor from the equation. That would be good for everyone.
It will pacify the relationships. It would eventually pacify the word.
Does investment arbitration actually depoliticise (reduce home state intervention in) investment disputes?
For us, the question is not what the literature says but what the wisdom in the field says.
EVIDENCE IN FAVOUR OF THE IDEA
Brazilian investors cannot go to investment arbitration. Brazil has not signed any BIT containing an
investment arbitration clause. Brazil tends threaten of economics sanctions to protect its investors (ex
: stop paying for gas exports, block development loans, support secessionist movements). Brazilian
state is quite active in its intervention in the protection of its investors.
Is it corelation or causality ? We don’t know.
EVIDENCE AGAINST THE IDEA
USA
Thanks to WikiLeaks, it seems that US government only rarely threats of sanctions to settle investment
disputes. The USA has signed many BITs so American investors typically do have access to investment
arbitration.
Is it corelation or causality ? It seems that it is purely corelation. It’s a non-causal corelation. The no
access to investment arbitration has led to US less restrained international behaviour in the context of
investment dispute.
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The statistics suggest that the US over time decrease its own intervention in investment dispute. This
decrease has no statistically significant relationship with the presence of an investment treaty. In other
word, the presence of investment treaty had no impact on US choosing to escalate the dispute.
Overall, the US has become less aggressive in his protection of its investors regardless whether these
investors can go to investment arbitration or not.
It appeared that the US government does what it wants. Sometimes, he intervenes to protect investors
and sometimes not regardless of international law or the presence of the BITs.
There was one case (Occidental against Equator). US did threaten equator of all sort of things even
though there was a BIT in place and an investment arbitration was about to start. USA did not intervene
because the investors did not have access to arbitration. It is not clear in this case the fact that there
was a possibility to go to investment arbitration which did not held the USA back.
Investment arbitration has no effect on depoliticizing investment disputes. The depoliticization of
investment disputes happen for other reasons which we have not completely been studied yet.
USA, CANADA, RUSSIA, VARIOUS EU STATES
The evidence suggests that these governments on a number of occasions have done in fact the
opposite. They have purposefully politicized investment disputes bring them up at the interstate level
intervening as home states but not to protect the investors. They have rather used investment
disputes and the possibility of investment arbitration by one of their corporate citizens in order to
promote foreign policy agendas. In other word, they sue of investment disputes as a token in
negotiations to promote foreign policy agendas with host states.
Example : We can imagine that there is on one side the US government representatives talking
to Egyptian government representatives telling that American investors is about to file a
damaging claim against them. The US government representatives could stop it all and talk to
the investors if only Egypt give them some crucial information to the CIA in Kairo for instance.
On the other side, we see a CIA corporative talking late at night to the general counsel of the
American investors convincing her drop the claim to not file the investment.
If we come back to the promise of investment arbitration to depoliticize investment disputes, it will seem that
no it didn’t come true. It is supported by the empirical evidence we have so far. There are rather against it and
suggest that investment dispute do not get depoliticize by investment arbitration.
Textbook will still tell you that investment arbitration depoliticizes investment disputes. They believe that
sometimes a researcher is supposed to go beyond what textbook say. Textbook don’t owe the ultimate truth.
2. ACCELERATE ECONOMIC GROWTH
There is the promise that investment arbitration is good for the economy more precisely that it is good for
the state consenting to go to investment arbitration with a foreign investor. The host state is the state that
becomes the respondent when an investment arbitration is then filed.
Is investment arbitration good for both states ? Does it make sense economically for a host state to agree to
go to arbitration with foreign investors ? First, what is the idea behind the promise ?
In the 1950s, people thought that crises such as the Abadan-type crises were bad for the economic
development of poor countries. The idea was that who would invest in a country and run the risk to face what
happened to BP in Iran in the 1950s. People thought rather not.
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To help developing countries, the Word Bank for long time thought that we need to have investment
arbitration in order to protect investors. If investors are protected, they would invest more and if they invest
more, this will help economically states.
Political risk is indeed considered to be a disincentive to invest. If you reduce political risk, there will be less
disincentive to invest and more investments. We reduce political risk by allowing foreign investors to sue a
state in arbitration. It makes sense in theory. If there is a risk for the state to be sued, he will think twice before
doing some things (ex : expropriate the foreign investor). The state is less likely to do that things. This should
encourage the investors to invest. In theory, there is a connection between arbitration and economic growth.
Arbitration
= less political risk
= less disincentive to invest
= more investment
= economic growth
Does that causal chain (arbitration -> economic growth) work ? For this to work, you would need the following
to be true :
a) If you give foreign investors more rights, this creates a disincentive for state to act on political risk.
As a state, I won’t act with political risk otherwise I will be sued.
Arbitration = less political risk
b) If there are more rights to foreign investors, this attracts more foreign investments. If I think that
the state is not going to expropriate me because he knows that otherwise I will sue it so, I will feel
protected and I invest more.
Less disincentive to invest = more investment
c) If there is more foreign investment inflows, it translates into economic growth.
= more economic growth
GIVE FOREIGN INVESTORS MORE RIGHTS CREATES DISINCENTIVE FOR STATE TO ACT ON POLITICAL RISK
POLITICAL RISK TRIANGLE
It’s a model developed by the professors. This categorizes the different form of political risks that
investors face when they invest somewhere.
ECONOMIC HARDSHIP
If you are an investor, one political risk that you may face is economic hardship (economic crises).
Because of that the state slams you and is going to raise taxes and expropriate you because he needs
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to find money somewhere. You would be protected against that with the BIT or with an investment
arbitration.
Example : If you are a government and are facing economic hardship, they are revolt on people
are hungry. I will try to find money where I can. I will give people houses and food. Investment
arbitration is unlikely to protect investors against the consequences of economic hardship
leading government to take measures to protect itself.
IDEOLOGY
Ideology is the second form of political risk. It’s the idea that a government says that my oil is mine,
Iranian oil belongs to Iranian people, Bolivian oil belongs to the Bolivian people which is exactly what
Bolivia has done. You are a newly elected government / president somewhere and you realise that all
of your oil, diamonds, minerals, rare resources go out off to foreign investors because they have
received nice concession agreements from previous governments. You were elected on a populist
basis or socialist basis that you’re going to protect the poor people in your country. The first thing you
want to tap into is your own resources. You want to get your own back to your own people. This is an
ideological commitment when you ran for presidency. Now you are president, are you really going to
say that if you take the diamonds back (change the share of profits that the investor gets), the investor
is going to sue you, so you shouldn’t do it? No. If you have an ideological approach you’re not going to
be stopped by that. If you’re approach is one of economic nationalism, you’re unlikely to be stopped
by some rights that you have given to foreign investors by the prospect of a potential law suit /
investment arbitration. Investment arbitration is unlikely to protect an investor from a government
acting on its idea to pursue a certain political, economic ideology. You don’t change anything to the
government’s actions.
BAD DOMESTIC GOVERNANCE
Example: a Georgian government gave an exclusive concession for building and operation of
oil pipelines throughout the country to one company. The next government, a couple of years
later, gave the same exclusive concession to another foreign investor without knowing that
there had been a first exclusive concession. This was just a mistake (bad domestic governance).
The host state Georgia didn’t’ mean to harm, expropriate, to do anything bat to the foreign
investor. It was simply because the Georgian political system at the time was a bit of a mess.
Sometimes central governments cannot control local governments and then these local governments
do something to foreign investors which harm their interests. Will this situation change if they give
more rights to foreign investors? No, because it isn’t any sort of rational approach in the first place
that led to the central or local government to take any action. The central government either can’t
change anything because it can’t control its smaller bits and political constituents or the government
simply is to disorganized to know what exactly it is doing.
So if they give access to investment arbitration to the foreign investors, it is not likely in these
situations (which are meant to represent the most important situations of political risk) to change the
government’s behaviour.
If you give foreign investors more rights, does that create a disincentive for a state to act in a political
risk? It’s rather unlikely. The first element in the chain (that needs to be true for the whole chain to be
true) already seems rather unlikely.
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MORE RIGHTS TO FOREIGH INVESTORS ATTRACTS MORE FOREIGN INVESTMENTS
Let’s assume that everything that Schultz said is completely wrong and indeed states very seriously
take into account in these situations of political risk the rights that foreign investors have. Does that
make any difference with regard to investments strategies? Do investors invest more if they have more
rights?
BARGAIN “RIGHTS FOR INVESTMENTS”: DOES IT WORK?
There is this so called right for investments bargain. You give investors rights, they give you
investments in return. Does it actually work? To answer that question, we can look at the role of
investor rights in the investment strategies of investment firms.
What they found is that there is some direct and indirect evidence against the idea, so that it doesn’t
work.
LIMITED DIRECT EVIDENCE
The direct evidence is limited.
• Rule of law at home makes investors seek rule of law abroad: there are many countries in this
world where law isn’t really important in the way you conduct business because you’re not in a
rule of law country because you can corrupt, bribe your way through. If investors come from such
a country where the rule of law, rights aren’t so important, if they invest abroad, why would they
all of a sudden be so interested in law there? Indeed studies have shown that only investors who
have rule of law at home seek the rule of law in the place where they invest.
• In-house lawyers of large US multinationals: for the second study, someone has interviewed the
general council of the top 50 US multinationals which invest abroad. He asked them: when you
invest abroad, do you look at the presence of a BIT, do you look at the possibility of going into
investment arbitration to allow your company to make that investment? The answer was no, the
presence of investment treaty not a criterion. The general councils essentially say that they look
at a whole range of factors but the presence of a BIT, the possibility of going to investment
arbitration makes no difference in the investment strategies from a legal perspective of their firm.
• Japanese investors only ever filed two investment arbitrations: Japanese investors come from a
rule of law country. In Japan, the rule of law works very well. One could assume that when
Japanese investors invest abroad they would only invest in places where they can get the rule of
law too. Japanese investors are investing all over the world. Most likely they run into difficulties
just like any other investor. So do they defend themselves systematically using investment
arbitration? No, over the entire history of Japanese investment abroad, they have only ever filed
two investment arbitrations which means when Japanese investors invest somewhere and they
run into trouble, they don’t use investment arbitration to defend themselves. They find some
other way. So why, if they never use investment arbitration, would they look for investment
arbitration at the time that they invest?
QUITE CLEAR INCIDENTAL EVIDENCE
There is incidental evidence (indirect investments) which makes us understand what the rule of rights
in the investment strategies of investment firms likely is. It’s indirect evidence.
• Signing BIT with France does not increase share of investment form France: one study has shown
that if France signs a BIT with an investment arbitration clause with another country, then that
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other country will not get more investments from French investors. But French investors thanks
to that treaty have no access to investment arbitration against this country.
Example: France sings a BIT with Senegal and not with Cameroun. Senegal thinks that it gets now
more investments from French investors because they signed that BIT because by signing that BIT
with France they are offering more rights to French investors. The conventional wisdom will tell
us that the French investors will say that they have a BIT with Senegal and would be able to go
into investment arbitration with Senegal if something goes wrong, so instead of investing in
Cameroun they are investing in Senegal or more in Senegal. It doesn’t happen. The fact that
France sings a BIT with the given country does not lead to more investments coming from French
investors.
• No statistically significant overall relationship between investor rights and aggregate FDI flows:
people looked at the map of investment flows around the world and the map of BIT and saw no
statistically significant correlation. There are no more investments in the places / situations
covered by BIT. They are not caused by the BIT according to these studies than in places where
there are no BIT.
WHAT SEEMS TO ATTRACT INVESTORS IS FINANCIAL AND TAX INCENTIVES
Much more than giving them access to investment arbitration.
So the idea that more rights given to foreign investors lead them to invest more seems to be largely
contradicted by the evidence.
MORE FOREIGN INVESTMENT INFLOWS TRANSLATES INTO ECONOMIC GROWTH
Let’s assume that everything Schultz said so far is wrong and that investors invest more because they
have access to investment arbitration, is that actually good for the economy of the country in which
they invest?
INVESTMENT FOR GROWTH: DOES IT WORK?
Development economists have studied this and tell us that we need to make a distinction between
indirect investment (portfolio investment, loans, bank shares, etc.) and direct investment.
INDIRECT INVESTMENT AND GROWTH
Development economists tell us that for indirect investment, it is quite clear that it is in general not
the cause for growth. So if a country gets more indirect investment from foreign investors, it doesn’t
translate into growth. If you give foreign investors rights to take it to investment arbitration and these
investors are investors who make indirect investments, perhaps they will make more indirect
investments. Most likely not, but if they do we can assume that this will not contribute realistically or
significantly or not at all to economic growth.
FDI AND GROWTH
There is no systematic relationship. It works only in certain conditions.
• Some FDI don’t contribute to growth at all.

• Other FDI create a short term bump in the economic growth, in the long term, a slow down of
economic development. Because not all inward investment is good (sustainable) investment.
Countries may be worse off after an investment and after a temporary spike of the economy
because the foreign investor has created pollution, has led to useless movement of population,
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has built useless infrastructure, has destabilised local market, etc. In the short term, this may be
good for the economy, in the long term if it’s not sustainable investment that may rather backfire.
• The mid- or long-term costs may exceed short-term growth/benefits.
Example: land grabbing. After the last food crisis, investors realised that land in Africa is very
valuable and started buying land knowing that there will be a next global food crisis. When it will
hit, everyone will want these lands in order to grow more cereals. So you buy the land now for a
low price and when the next food crisis hits and it’s going to last for a number of years, then you
can sell that land for a much higher price. It’s foreign direct investment. You buy the land, you
control and operate it. That leads to a short-term growth because all of sudden the state gets
money because it sells land to foreign investors. But the only thing they really want to do with
the land is to sell it later on. They don’t really operate, harvest it. It’s the equivalent of a very rich
person buying a Picasso and putting it into a volt in the basement and not event looking at it and
just waiting for the price of Picasso going back up.
You can also think of slick water fracturing where the environmental harm in the long term may
will cost more from an economic perspective than what the host state gains from the foreign
investors activities.
So more foreign investment inflows translates into economic growth sometimes, but not necessarily
so.
MORE RIGHTS, AND MORE RIGHTS ENFORCEMENT, IS ALWAYS GOOD
Let’s forget that economic analysis. The point is because we are lawyers we believe that more rights, and more
rights enforcement, is always good. That’s necessarily a good thing. As lawyers we should believe in rights.
But can we really believe that giving people rights can’t have any downsides? Our lawyerly natural reaction
would be to say that it depends on the rights but rights per se and access to a dispute settlement mechanism
per se cannot be bad and have downside.
So if a state gives foreign investors rights, it should think of what rights it gives those investors. It’s a bit like
deciding whether VAT should be 5% or 15%. Of course, it makes a difference what rights you give but it is a
calculated difference. The problem is not that individuals have rights and that people can then enforce these
rights to be taxed at 5 or 15%, it cannot be bad to give a right to foreign investors.
Can investment arbitration per se have downsides for the states consenting to it / giving foreign investors
rights?
It cannot be bad in particular to give access to remedies to foreign investors. That’s why giving a VAT
at 5% or 15% a substantive right and makes a difference. If you set the VAT to low for foreign investors,
it is bad for you.
But how can giving access to a legal remedy (procedural right NOT a substantive right) be bad? How can it be
bad to give access to pacific mechanisms of dispute settlement to foreign investors?
Perhaps giving access to foreign investment doesn’t help you as a country. But it can’t have any
downside because the only thing is more law enforcement. By giving access to investment arbitration
you are giving more substantive rights to the foreign investors.
When we remember the Abadan affair, the AIOC felt defenceless and legitimately have had some form of
remedy (access to some form of dispute settlement) to protect its rights. See video which shows a totally
different way to look at all that story.
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INTERNATIONAL ARBITRATION AND ITS DISCONTENTS II

Today, we are going to see 3 things. Last week, we ended with the idea that investment arbitration doesn’t
really help in attracting more investments, doesn’t really help in pacifying international relations. So the idea
fundamentally is, if as a State you agree more to go to investment arbitration (because both parties have to
consent to go to arbitration), then you won’t have more peace in the sense that they won’t fewer interferences
from the State of protecting the investors. And in principle, by large statistically, you will not get more
investment flowing into your countries, and if they do, they won’t necessary translate into accelerated
economic group. So as a State, if you consent to go to investment arbitration, rationally, It would not seem to
be terrible rational for a State to enter into treaties providing for investment arbitration. Again, it doesn’t
really further the interest in any way which has been scientifically documented.
So last week we ended by saying, does it really hurt? After all, you could consent, as a State to go to arbitration,
it won’t really help you but what? It is not so bad. And the industry says it likes it. And some individual company
make their preference known very vocally as we will see today, so why not going with them?
Today, we will talk about the downsides about going to investment arbitration. Last week we sae that there
aren’t many advantages. But there are disadvantages. We are going to talk about that under the rubric of
socioeconomic impact of investment arbitration. So what is the impact on the government capacity /
regulatory capacity, so the capacity of the state to pass regulation. We will see that agreeing to go to
investment arbitration makes it more difficult for the state to pass regulation.
Part 2, there is in the field, a backlash about investment arbitration. More and more people say investment
arbitration, there is something wrong with it. So we have to change something about it. And people who work
in investment arbitration say that they would like to continue to work in that field. So how can we keep it up,
how can we keep the system running so that we still have a job? By in large, the reforms continues and the
backlash as well. Largely, because the reforms don’t quite match what states are unhappy about. We will be
seeing where this mismatch comes from.
Part 3, what should be the points that you emphasis in negotiating in an investment treaty?
THE SOCIOECONOMIC IMPACT OF INVESTMENT ARBITRATION

This is the main negative effect of investment arbitration. So the main negative effect of giving foreign
investors more rights, so investment arbitration is the remedy to enforce this rights.
MAIN NEGATIVE SOCIOECONOMIC IMPACT OF INVESTMENT ARBITRATION
1) DECREASE INVESTMENT FLOWS

The main negative socioeconomic impact of investment arbitration is that it decrease investment flows. So as
soon as a claim is against a State, the flow of investment to that country drops immediately and takes a long
time to recover. So if today, you are an investors, you fill investment arbitration claim against Zimbabwe, the
number and volume of investment flows flowing in Zimbabwe in going to decrease immediately. You may will
be punishing economically Zimbabwe regardless how bad your claim is. Simply by filling a claim, you tarnish
the reputation of the host state. Because the reputation is tarnished, fewer people / company invest there.
Because if your company invest there, this may cause a harm to the economy.
Once a state is hit by an investment arbitration claim in order to initiate investment proceedings (not the
successful claim, so even if it is a made up case, or abusive case) the overall flow of foreign investments to that
country tends to diminish. This effect is immediate in the sense that the claim itself affects the reputation of
the state as a place to invest and potential investors take note and take flight.
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That happens regardless the merits of the claim. OF course, when the case if filled you can not really know if
it is a good or bad claim. The lawyers who are filling the case, will always make it look like a good claim. So
other investors can not actually go through the claim and read the claim. The only thing an investor can really
see and judge is: is there a claim or not. In ICSID, every claim is documented, so the existence of a claim is
public. And the majority of investment arbitration are ICSID arbitrations!
CLAIM DENIED
A couple of years later and if the claim is denied, so if the arbitral tribunal says that the state has done
nothing wrong here, then the investment flows go back up progressively slowly. But in the meantime,
the state will have lost investment flowing into his country.
So you are an investor, and the other is a state and you are not happy with what the state does. So
you are going to write to the state and say that if it does that, you are going to sue him. And the state
will lose an investment flows.
CLAIM UPHELD
But if the claim is upheld, so the arbitral tribunal comes to the conclusion that indeed, the state did
something wrong, then the investment flows continue to go down. So this is the confirmation of what
the investor perhaps the state is a bad place to invest, and the tribunal says yes. At least, on this
occasion, it infringes on the investor rights.
But at some stage, it comes back up, so once the reputation and tarnishing effect have passed.
That is based on a study. These effects have been reduced a bit. The effects right now, is that this only
really seriously happens if what the investors alleges is expropriation. But in the majority of the case,
there is a claim of indirect expropriation.
2) SHRINKS POLICY SPACE (POLITICAL STRAIGHTJACKET)
More importantly, investment arbitration shrinks the policy space of state. It makes it more difficult for State
to regulate. It acts as what political scientists call a political straightjacket. So you are locked up in a
straightjacket and you can’t move much because of external pressures put on you.
It makes more difficult for state to regulate it.
The concept of political straightjacket comes from IMF. So when the world bank makes a lawn to certain
countries, it often accompanies these lawns with very strong conditions. Some State say: does it really help to
get a lawn from the IMF, if we have to do all of the things that the IMF ask us to do?
Investment arbitration, we have the same straightjacket but without the lawn.
Then, he showed a video. The facts are pretty correct. One of the fundamental thing that people are unhappy
about with investment arbitration is the focus of pacta sunt servanda. At this level, pacta sunt servanda, is the
core of the conation of the new liberal agenda / ideology. You may think it is a bad or good ideology. But those
state which don’t think it is a good ideology, push back against investment arbitration on that ground. But he
will come back to that later.
THREATS
What is the core message of the video? It is not only that Togo and these other countries fear having
to pay something up, it is also that they fear losing investment flowing from other country to their
economy. So threats of claims scare states which then indeed renounce regulating a number of things
which are in a public interest. It has been demonstrated for instance, that the lakes in Ontario are
more pullulated now because of investment arbitration. So because of a fear of investment arbitration
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specifically, they renounce passing a number of regulations of laws which would have claimed up the
lakes on Ontario. So before the claims materialised, this lead the state to renounce protecting some
public goods.
Also the plain packaging cigarettes which were discussed in the video. A number of threats were made
against a number of African countries and they all either completely renounced passing plain
packaging initiatives, protecting smokers. Even in the UK this happens. Even the UE were treated of
investment arbitration claim if it did certain things in the context of protecting public health against
smoking. So it doesn’t only happen in poor countries.
So threats of investment arbitration claims leads state to think twice. Either they don’t enact these
regulations or they enact it later on. And in the meantime, harm is done to the population of state.
Threats of claims scare states, which renounce regulating environment, health, minimum wage,
human rights, etc.
So this is the first cause of the political straightjacket. But there is another cause which is the relative
lack of predictability of investment arbitration decisions.
Law is never fully predictable otherwise it would not be any need of lawyers. You can not really know
what the court is going to say. Decisions in law are always to some degree predictable. But that
predictability may obtain to a smaller degree. Investment arbitration decisions are considered to be
far less predictable than the decision of most courts around the World.
Why? On the one hand because of the substantive applicable law. Substantive law is pretty vague,
there is no rule of precedent. And the advantage of a rule of precedent, is that it progressively, makes
the law more predictable. And on the other hand, in investment arbitration, you have a number of
arbitrators who are rock stars and disagree with everything that everybody else did. And sometimes,
they even say openly that the other lawyers are so bad. So he is going to reinvent the entire field and
this ends up to a really unpredictable decision.
So why do states sign BITs and consent to investment arbitration ?
Rationally it doesn’t make much sense for states to sign BITs or at least bilateral treaties containing investment
arbitration clause on average. There are of course exceptions. There are maybe specific circumstances and
considering all the specificities of a given situations, that BIT is a good match.
In particular one political scientist (UCL) came to the same conclusion : why do states do that ? He finds out by
going to talk to the people and interview the people who sign and negotiate these treaties. The most
interesting things he founds were :
1) Photo-ops
2) Diplomats “working hard”
3) Foreign relations
These are not the only reasons why states sign BITs. In a number of situations, these were the reasons.
PHOTO-OPS
Sometimes, states have signed BITs because there is a leading factor for developing countries to sign BITs
called Photo-ops.
FRIENDSHIP BETWEEN COUNTRIES
Diplomats sign these treaties not after a careful examination of the treaty but rather as a sort of work
of diplomacy, as friendship between countries. It’s a symbol of collaboration with other states.
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Example : if I am a negotiator for Togo, I meet in Geneva with a negotiator from France, it is a
good idea to show friendship and to do something together. At the end, we are going to have
a photo-ops, shake hands in front of a camera and the picture is going to appear on the press.
People will see that they are in good terms.
To do something together, the best excuse was thought to be sending a BIT. It’s an easy treaty to sign.
Mostly, it’s a short treaty. Its substantive provisions are the same and with a simple text.
Usually, the richer states come with a full proposal and the poor one has to sign it. This is how China
nowadays signs treaties.
Example : China sends negotiators to a number of African countries and say “this is the treaty,
sign here”. There is no negotiation.
That’s not a new practice. Many states have done that in the past. Powerful states use it to make the
small one sign it. The small sign it because they want to be seen in a good light by their own population
and the world at large.
For many of these negotiations and treaties, the negotiator wouldn’t even bring a drafting expert, a
lawyer who knows the rules. The diplomats can’t know the details of how investment arbitration
works. The negotiator themselves conduct the negotiation and don’t seek the advice of experts.
NEGOTIATING A BIT LOOKS AS A PERFECT PUBLIC RELATIONS MOVE
For government, that is keen to show that it is a good international citizen or for a minister traveling
abroad to showcase their country on a larger stage, negotiating a BIT looks as a perfect public
relations move. Everybody wants more investment.
TREATY FOR THE PROMOTION AND PROTECTION OF RECIPROCAL TRADE AND INVESTMENT = ACT INTENDED TO MAKE
THINGS BETTER IN GENERAL
For a long time, a BIT that is a treaty for the promotion and protection of reciprocal trade and
investment was considered to be something like an act intended to make things better in general.
Why not protect investments ? For many governments, they say “we have no intention to harm you
foreign investor” so why not putting that in a treaty and everybody will be happy ?
It’s a no-brainer to sign to a BIT. Even today, the professor has a friend who advised the president
of Senegal with regard to the conclusion of BITs and he says “don’t do it or if you do it, don’t
include investment arbitration”. The president said “I here you but if I don’t do it, it looks bad on
the international scene so I am going to sign”.
How countries look on the international scene is often more important than the actual content of the
treaties. This has been particularly seen in the context of investment protection. This has been
documented.
DIPLOMATS “WORKING HARD”
Diplomats in particular in developing countries tend to have a low salary. At the same time, they have very
hight per diem. This is the money you get when you travel abroad. Some have a salary of 200 dollars a month
and you get a per diem of 100 dollars if you travel abroad. If you can keep your costs small, you can easily
double triply your salary.
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I GOT A GOOD PER DIEM WHILE TRAVELLING, SO I WENT SIGNING BIT’S
It has been documented by particular scientists who ask diplomats why they sign BITs and they
responded that it’s the only way to get enough money to pay for their family. Some need to go abroad
to get enough salary.
Diplomat : “I got a good per diem while travelling, so I went signing BIT’s”. The easiest treaty
to sign for a long time were BITs because they are understood by the most as a way to say
“who doesn’t want more investment ?” Of course everyone wants more investment.
DISPLAY THE NUMBER OF TREATIES DIPLOMATS SIGN : BIT ARE EASY, A NO-BRAINER
In almost every country, diplomats want a promotion. To show that they do their job well and are
willing to receive a promotion, it’s by showing how many treaties they negotiated and signed. Some
signed BITs only to receive a promotion and show their boss that they signed a lot of treaties. The
easiest one is investment protection treaty. In some countries, there still have no-brainer.
FOREIGN RELATIONS
MAINTAIN GOOD RELATIONSHIPS
Some countries use BIT’s to maintain good relations to other countries. In particular, the US does that.
The best predictor of US BIT signing was intention to establish/nurture foreign relations (strategic
countries).
Example : The US wants to have good relations with the UAE because in that way it can control
to some degrees the Golf region. It collaborates in many way. One way to collaborate is to sign
BIT’s. This has nothing to do with what the US really wants.
Countries collaborate with certain countries in order to maintain good relations or control a new
reserve of minerals. Minerals are really rare and in 20 years they will become more important than oil.
These minerals, when you find them as a government, you want to have good relations with that
country so that you can arrange to make a good collaboration and make sure you can have access to
these. This has nothing to do with the actual investment but simply to maintain good relationship.
NOT CAREFUL EXAMINATION OF THE TRADE-OFFS
Even for US negotiator, they have the best lawyers to look at the content of BIT’s. On many occasions,
they don’t make a careful examination on what exactly the BIT’s says. They want something different
with the BIT’s and simply to showcase the good relationship with this other country.
That doesn’t explain everything. Not everybody is signed like that. It’s just a number of BIT’s that have been
documented to had been signed on that basis. This is one way to explain the overall situation.
REFORMING INVESTMENT ARBITRATION ?
Some things have led to backlash against investment arbitration. People were on the streets against
governments pulling out a number of international treaties, outcries. There was a strong push against
investment arbitration. This led countries and the industry itself to say “we hear you and we will reform
investment arbitration”. One of the most visible attempts to reform investment arbitration is the work
conducted at UNCITRAL. Many people from many governments and representatives of the arbitration industry
come together to talk about what should become investment arbitration. They have been other developments
a bit early one. They are developments in Geneva at UNCTAD.
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By and large, the more reforms they are, the more push back there is. At least, the push back doesn’t seem to
decrease thanks to the reforms.
Why is that ?
MAIN PROBLEMS WITH INVESTMENT ARBITRATION FOR STATES
IT IS NOT OR BARELY IN THE INTEREST OF STATES

It doesn’t boost the economic growth on the overall and it makes more difficult to govern in the public interest.
On a rational perspective, states should not enter into BIT’s. If they have entered into these treaties, they tend
to pull out or at least the express on happiness.
IDEOLOGICAL MISMATCH
It’s the content of this regime built by the BIT’s but also by the caselaw with the accumulation of cases
rendered by investment arbitrators. They have advanced certain political values which can be explained as
neoliberalism. It’s the idea of treating states as if they were private actors. States sign on to the BIT’s just as if
a company does a promise. The legal equivalent of that is pacta sunt servanda. It’s a concept when a state
promises to do it, therefore pacts have to be complied with and promises to have to be lived up to. This
advances some political values.
There is a mismatch with what many people and states want. Not everybody likes new liberalism. Perhaps
more and more people and states push back against neoliberalism because they say “that’s not getting us
anywhere”. The rich become richer and the poor poorer. There is growing social inequality, far right and far
left, populism. Much of this is caused by neoliberalism. We need to rethink our fundamental political
orientation. Investment arbitration is making it more difficult to do that. It insists on pacta sunt servanda. It
makes difficult to rethink what we want to do as a state.
REFORMS HAPPENED/ING
What do the reforms do ?

MORE TRANSPARENCY
The procedural rules have changes. UNCITRAL ad hoc investment arbitration have begone to be far more
public than they used to be. You can see more what is happening and have access to the claims. There is less
confidentiality, you know the decisions and what the claimant and respondent said.
The problem is that the lack of transparency is not on the list of the problems. You can make clear what is
happening on an investment arbitration, it doesn’t change its political ideological output. If you know what
the effects of an institution are, you can look at how the institution exactly works. If you can only look at it, it
doesn’t change the outcome. To make arbitration more transparent, it doesn’t solve the problems.
BETTER PROCEDURE, MORE PREDICTABLE AND SMOOTHER
There is a strong push to make the procedure work more smoothly, to be cheaper, to work better and to be
more predictable. We try to streamline the decision-making of investment arbitrators so that they are more
predictable. There is more consistence, coherence. It’s clearer to know what an investment arbitrator is going
to say.
The idea is not to change what values advances with investment arbitration. The idea is just to make that more
predictable. It doesn’t address the fundamental core problems.
CASE LAW HARMONIZATION
It’s part of making the procedure and the outcome more predictable.
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These are some of the core objectives of the reforms which have happened and which people are
working on. They won’t address the problem which is why the reforms don’t lead to a decrease in the
backlash.
REFORMS NEEDED
What would be needed is not an immediate answer. Schultz doesn’t think that anyone right now has the
answer.
MORE IMAGINATION IN THINKING ABOUT THE SYSTEM
What we need is to be able to think about these answers openly, creatively, with more imagination.
Right now people in the investment arbitration industry say is “if you don’t want to go to investment
arbitration, the alternative is to go to state courts”. These are the only two alternatives. Do you really want
state courts? No, you don’t. Therefore, you’re stuck with investment arbitration. That’s the end of the thinking,
it doesn’t go further than that.
The thinking is very constrained in the field of arbitration. People all think alike. There’s very little creativity in
thinking and arguably we need to think crazy, wild things which may not work in the first place but will then
have to be translated in something which works.
NEW UTOPIA
Commercial arbitration was largely based on a utopia, on the idea that we could build some form of
transnational society in which people from different countries collaborate more and in which there is
more international commercial exchange. It was meant to be something good and positive.
So more creative, wilder, more open thinking, more dreams. That eventually will get us to really rethink the
system and to be able to change it.
HOW TO NEGOTIATE INVESTMENT TREATIES TODAY
Today, if you were to negotiate an investment protection treaty, (not) including investment arbitrations, which
would you insist on?
COMPARATIVE AIDE-MEMOIRE FOR INVESTMENT NEGOTIATIONS
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There’s advise for :
o Negotiators who represent the home state of the investor.
o The investors themselves. They don’t negotiate a treaty. A treaty can’t be signed by an investor but
they can lobby, have an influence on governments.
o Negotiators who represent the host state of the investment.
So these are the things that state should want.
AS A STATE WHO WANTS TO EMPOWER ITS INVESTORS (CAPITAL-EXPORTING STATE)
Starting with the home state, assuming you are a state (France, Switzerland, US, China), what you want to do
is protect your investors investing abroad because you think they need it. You are mostly a capital exporting
state. Every state imports and exports a capital but some export far more than they import. What would you
want to insist on?
INVESTMENT ARBITRATION, IF POSSIBLE ICSID (PUBLICITY OF CLAIMS MATTERS)
Why ICSID arbitration? Because of the publicity of the claims. Which allows your investors to threaten
the host states of sanctions if they don’t’ do what the investor wants. If you, as a country / government,
want to protect your investors, go for investment arbitration because this will empower the investor.
INVESTMENT TREATY RATHER THAN CONTRACT
We can have an investment contract which covers all the points that the investment treaty would
cover between the investor and the host state. As a state wanting to protect your investors, you would
insist on concluding an investment treaty because it protects all of your investors and not just the one
which is part to the contract.
BROAD AND NUMEROUS SUBSTANTIVE STANDARDS OF INVESTMENT PROTECTION; IF NOT BROAD THEN VAGUE
You would try to have in the BIT as many and as broad substantive standards of protection.
If you can’t achieve having broad standards of protection (which protects the investor against more
or less every kind of behaviour of the state), then at least have vague standards. Why vague? Because
investment arbitrators, on average, tend to interpret investment protections in favour of the investor.
Over the last 20 years, the meaning of the given investment protection standards broadened
by the decisions of the investment arbitrators. What was an indirect expropriation 20 years
ago, is only a fraction of what indirect expropriation is today.
The investment protection standards have become more protective of investors over time because
they were vague and could be interpreted in a pro-investor manner. They were interpreted in this
manner by the arbitrators.
LOW REQUIREMENTS ON CORPORATE NATIONALITY (ATTRACT INTERMEDIARIES, COLLECT TAXES)
The idea is that if you are a big company you can built up a complex corporate chain in which you have
subsidiaries in different countries and then each of these subsidiaries can launch an investment
arbitration claim against the host state in which this whole group of companies has invested. You can
go treaty-shopping. You can rely on the treaty of the nationality of one of your subsidiaries.
Example: You are Swiss company. You have a sort of subsidiary in the Netherlands / US /
Guatemala and you invest in Australia. You Swiss company or your Dutch / American /
Guatemalan subsidiary, all of them could file the investment arbitration based on the BIT
between Australia and Switzerland or Australia and the Netherlands / US / Guatemala.
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If you’re a state wanting to protect investors and if you want to play that game (set low requirements
on corporate nationality) because it attracts intermediaries of other investors and that in term allows
you to collect taxes from these companies which simply interpose an entity in your country in their
corporate chain to increase their own protection.
CONSIDER POSSIBLE CHANGE TIDE IN INVESTMENT FLOWS (EX: NO STABILISATION CLAUSE)
The thing we should pay attention to (what happened to the US for instance) is the changing tides in
investment flows.
Example: For a long time, the US was a radically capital exporting country, its companies were
only investing abroad. Then, progressively, more and more companies where investing in the
US. The tide of investment flows changed. There were more and more investors investing in
the US which meant that the US became a target of investors which had invested in the US
and were unhappy about what the US government has done and then sued the US government
for changing tides of investment flows.
So be careful, as a country, not to overprotect your investors because (that’s what happened to the
US, they wanted to overprotect American investors investing abroad) but in a BIT, the rights you get
for your citizens, you also give to the proper citizens of another country.
Example: If you have a BIT between the US and Australia, the rights between the US and
Australia, the rights that the Australian government gives to American investors investing in
Australia, are the same that Australian investors have when they invest in the US because the
BIT gives the same rights to the investors of both parties.
AS AN INVESTOR WHO WANTS TO MAXIMISE ITS PROTECTION AND NEGOTIATION POWER
Assuming that you are working as the General council of an investor and you have the opportunity to lobby a
government. The government signs a BIT with the country in which you want to invest. You’re the investor,
what should you insist on?
INVESTMENT ARBITRATION, IF POSSIBLE ICSID (PUBLICITY OF CLAIMS MATTERS)
ICSID arbitration because of the publicity of the claims, the damaging, the reputation of the host
country effect.
INVESTMENT CONTRACT IN ADDITION TO A TREATY IS MOSTLY OK (STATE MAY GIVE IN MORE)
You should lobby your government to include to have as good a treaty as possible. But in addition to
that, to enter into an investment protection contract with the country in which you invest. Why?
Because the host state of the investment is likely to be more generous to give you specifically more
protection than it is to give protection to all the corporate citizens of your nationality.
Example: You are a Swiss investor investing in Guatemala. You will be likely to get more
protection you just yourself by negotiating with the Guatemalan government through a
contract than the protection you would be able to achieve for all Swiss investors thanks to a
BIT.
IF SPECIFIC RISK IS EXPECTED, PROVISIONS TO TARGET THESE RISKS, OTHERWISE BROAD AND NUMEROUS STANDARDS,
IF NOT BROAD THAN VAGUE
Example: You are a oil company. You invest somewhere in slick water fracturing in new forms
of oil extraction, the likely risk you face is environmental protection. That a government is
going to say “No, we’re going to protection the environment, you’re going to stop that form
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of oil exploitation or we’re going to raise to make it more difficult and to make it more
expensive for you”.
If a specific risk is expected then you should include in the treaty or the contract specific provisions for
that. If there are no specific risks that you expect, try to have broad and numerous standards of
investment protection. If you can’t get that, try to have as vague investment protections as possible.
The more vague the contract is, the better it is for you. Why? Because the arbitrators are likely on
average to interpret the contracts, the substantive protection standards in favour of the investors.
STABILISATION CLAUSE
You can include a stabilisation clause which is a clause you include in a contract, possibly in a treaty,
which freezes the law in the host state as it stands on the day of the ratification of the treaty or of the
signature of the contract. You can enter into an investment protection contract for instance.
Example: A Guatemalan investor invests in Switzerland. That clause would say “Swiss
authorities, any change in Swiss environmental / contract law will not affect this particular
relationship”. Switzerland can, of course, change its law but any change in the law will not be
applicable to this particular contract. The law is frozen as it stood on the day of the signature.
It’s used quite often, in particular in instructive industries.
INCLUDE INTERMEDIARIES IN DIFFERENT COUNTRIES IN CORPORATE CHAIN
As an investor include intermediaries in as many countries as possible in your corporate chain (ex:
Swiss investor investing in Australia, subsidiaries in the Netherlands / US / Guatemala). Because all of
them possibly could be the vehicle for filing an investment arbitration claim against Australia on the
basis of a BIT between Australia and each of these respective countries.
AS A STATE WHO WANTS TO ATTRACT INVESTORS WHILE KEEPING ITS POLICY FREEDOM
If you are a state on the other side of the table of negotiation, you want to attract investors but you don’t’
want to overcommit, in particular you want to keep your policy freedom, you want to make it possible for you
to in the future pass legislation to protect public health, the environment, human rights, whatever. How do
you do that? Assuming that entering into a BIT will indeed attract investors. If you work for a government, you
want to sign a BIT but you want to keep your hands as free as possible.
INVESTMENT CONTRACTS INSTEAD OF AN INVESTMENT TREATY
If you really want to attract one investor, enter into a contract with that particular investor, try not to
get a treaty. Because with a contract you can only protect one investor, with a treaty you protect all
the investors which have a nationality of the other member states. By playing with your corporate
chain, you can acquire new nationalities, an investor can acquire new nationalities. So all of a sudden
you’re protecting investors by entering into a BIT.
Example: If Switzerland entered into a BIT with Guatemala, it may be protecting American
investors. Because the American investor interposes a Guatemalan subsidiary in this corporate
chain.
NO VAGUE SUBSTANTIVE STANDARDS OF PROTECTION (DEFINE FET, FOR INSTANCE)
As a state who wants to keep its hands as free as possible to govern, be careful with vague substantive
standards of protection. Ideally no fair and equitable treatment. Or if you do need FET, define it
precisely. Be as precise as possible in what protection you offer to foreign investors because every
standard is likely to be interpreted in a pro-investor way by investment arbitration tribunals.
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NO STABILISATION CLAUSES, OR ONLY NARROW
Try to not include any stabilisation clause that freezes the law as is stands on the day of the signature.
If you do need it, try to make it as narrow as possible.
NO INVESTMENT ARBITRATION
Try to not include any investment arbitration provision. You can offer alternatives, such as political
risk insurance. That something that some insurance companies offer you if you invest.
Example: If you are a Guatemalan investor investing in Switzerland, the Guatemalan company
is afraid that the Swiss government is going to do something, then the Guatemalan company
can have political risk insurance which means that if Switzerland does something which harms
the right of the Guatemalan investor, the insurance company pays / compensates the
Guatemalan company which takes the host state out of the picture.
The host state can regulate as freely as it wants, they only entity which is going to pay up in the end is
the insurance company.
Or investment facilitation measures. If you really want to attract investments, there are 1000 ways to
attract foreign investors which harm yourself as a state far less than agreeing to investment
arbitration.
IF ARBITRATION, THEN SECRET
If you do agree to arbitration, try to keep it as secret as possible (UNCITRAL ad hoc arbitration).
Transparency is bad for host states, it’s good for the investor. As a state you would rather want an
investment arbitration filed against you which no one knows about it because it won’t Harnish your
reputation as a place to invest.
LOCAL EMPLOYMENT AND TECHNOLOGY TRANSFER PROVISIONS ; ENVIRONMENTAL SUSTAINABILITY
These are things which turn the investment that you get into something which will be good to you as
a country.
Example: If you negotiate a BIT on behalf of the Guatemalan government. What should you
insist on ? You should insist on things such as environmental sustainability, that all
investments which come to your country have to be environmentally sustainable. You will
want to insist on technological transfer provisions, that whatever new technology is used by
the investor, then becomes public and can be used by local companies.
This shows us the different interests that the different parties have in context of negotiations.
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THE FORMATION OF LEGAL KNOWLEDGE ABOUT INTERNATIONAL ARBITRATION

In this last session, we explore the intellectual battles arbitration as a legal phenomenon entails. We
examine the different types of legal knowledge regarding arbitration along with the architecture of
knowledge formation in arbitration.
Throughout the course, he had taken the approach that they are not only here to help us deal with law in
practice but also to think about law. So the critical side and questioning about the values. Today we will be
looking at ourselves, and how we learn / teach and understand legal knowledge. But for him, it is important
to think about what and why we do.
So we will be questioning what it is we know and why we know things and what does really mean knowing
something. Because the starting point here is that teaching is always (to some degree / extend), a form of
indoctrination. Indoctrination is defined as teaching people to accept a set of beliefs uncritically.
Ask yourself: are you encouraged to be critical? how often have you been encouraged to be critical about what
you are being taught? And how the prof makes you think. He is not talking about how useful what he is
teaching you! Be critical about ideas!
Afterall, is it not an insult to our intelligence that you are simply being asked to know things, and not to think
about things?
Today, he will be focusing on : how critical are we about we came to know about legal matters, about legal
knowledge?
WHAT IS LEGAL KNOWLEDGE?

What he is going to say is just one thing to look at things. It is meant to be a structing ideas.
We can distinguish 3 types of knowledge regarding arbitration:
AWARENESS
= knowing that something is the case; produced by ‘journalism’ (ex: Case law journalism, legal journalism,
legislative journalism, etc).
So when you try to inform someone that something is the case. For example, the law has changed and you
have to be aware of it, and you may have to read paper about that. The point here is simply to make you aware
that something is the case.
EPISTEME
The word episteme (‘scientific knowledge’) comes from Greek philosopher.

It is contrasted to doxa (common beliefs). Doxa is the popular, uncritical belief about something. Episteme is
a belief about something which emerges after that belief has been submitted to rules of critical thinking. So
what we are supposed to produce in University, is episteme not doxa because they are supposed to produce
proper knowledge so knowledge which have been validated by critical thinking and a certain method of
analysis.
Episteme is also something which is produced by scholarship (in a narrow sense). In a broad sense, it would
be everything that everyone writes about in arbitration. So here, strictly speaking, it is something which is
really meant to advance a certain form of knowledge (episteme).
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OPINION
A subjective perspective on something; produced by advocacy.

It involves a bit of judgment / choice, choosing a side / a view / a perceptive. Opinion about legal matters are
form by advocacy as an author arguing in favour of certain positions, pleading for a certain perspective and
hoping that this perspective will spread and will be accepted as widely as possible. This is the proper way to
think about it, why? Because I am the prof, for instance. Or because a certain Court said so.
All three forms of knowledge are part of what people in the field know or think about the law in our case,
arbitration. But some other arbitrations or other law writing may follow within more than one of these
categories. These 3 categories tend to overlap.
EXAMPLES OF FORMS OF KNOWLEDGE

We are going to take the same three categories. And we have to think about what we have been made to read
during our law studies? Was is rather opinion and trying to form you opinion, so that is the right to think about
because that is how every lawyer think. So there is nothing scientifically correct here. Or is it simply that you
have been informed about things without taking sides (= awareness)? Sometimes you have been offered things
to read which are really based on more rigorous analysis.
AWARENESS
LEGISLATIVE JOURNALISM
You certainly have read a number of articles and books which states the law somewhere. So it tells you what
the laws says in some question and country.
Example: paper about latest arbitration law in country X. Recently, Switzerland has adopted a new
law about arbitration and here is what it says.
So that is in fact a form of journalism. And may or may not come with some light analysis. Since we have the
new arbitration law in Switzerland, there has been a lot of commentaries on that new law. And this is what he
called here legislative journalism. So it is when you inform people about something.
CASE-LAW JOURNALISM
Then, you have the same sort of discussion about a particular case.
Example : paper about latest court decision / arbitral award. For instance, the latest Swiss federal
tribunal decisions on arbitration, or the latest arbitral award.
Such discussions take the form of the court / tribunal said that. This is great because, etc. So this is a form of
journalism, reporting on different developments with some relatively light commentaries on the
developments.
COMBINATION OF BOTH
And then, you have writing which essentially combined the two.
Example : which would be typically arbitration textbooks. There are not here to make you think, it is
definitely not meant to be cutting edge knowledge in a field, which is produced after very rigorous
analysis. So it is very important to know what sort of knowledge they consist of.
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EPISTEME
Law can be a science depending on what the word science means. So we can talk about scientifical knowledge
in law. Science is to be understood like a system of thoughts held together by particular rules of validity for
these thoughts. Which is the case in legal cases. There are particular rules which validates our legal thinking.
Example: Law as scientifical knowledge can for instance take the form of “if…then…” statements. So
if you interpreted this provision in a certain way, here is what happens. If you sign an arbitration clause,
here is what follows. And if you initiate arbitration proceedings, this will have the following effect.
What makes this “if then statements” valid is the fact that they comply with the rules of critical
thinking which can be reduced to logics. That something logically follows from something else and
those proper reasons are offered for discussion / conclusions. That is what makes this “if then
statements” valid.
These statements may be validated in one of two ways:
§ One way is to validate them through empirical evidence. There is growing work in law, but
this has not come into legal teaching yet here. This is not about what the prof or the Court
think but this is actually work in the real work. So how do we know? We can know how the
law really works through empirical studies (ex: Statistics, case studies). The socioeconomic
effects of investment arbitration which we have seen are part of this empirical based
understanding of how the law really works. Most statements in law are the sort of theories of
the world which can be validated through empirical evidence.
§ So there is another way to validate scientific like legal thinking and that is what socio- scientist
call rational assent. This is the idea that you can rationally assent / agree to something. That
being rational, you can agree that something is quite the way it is. For instance, if you tell that
if an investment arbitral tribunal now comes up with an entirely new definition of the concept
of investment, this will increase inconsistency in the field. I can’t prove that empirically, but
you can rationally assent to that.
OPINION
Then, we have writings about arbitration or about law in general, which really only try to form opinions and
to shape perspective and convince people to choose a certain perspective. Reduce to an extreme, writings
shows the better view to that. But does it tell why it is the better view?
Example: “the better view (on how provision X is to be interpreted) is the following …”. ”The better
view is that we should reduce the multiplication of international proceedings by facilitating the
consolidation of international tribunals”. That is purely opinion. Or, “We should construe the
requirements for the validity of arbitration agreements extensively because no one should be forced
away from national judges”. That is a matter of choice / opinion. Last example, “Art. 45 of the ICSID
convention should be construed narrowly because everyone deserves an uncourt”.
A lot of what you read are things which try to shape your opinion. And if enough people express their opinion,
the law effectively changes.
Example: “decision Y is bad decision because it doesn’t sufficiently protect the weaker party”. It is
an opinion because it is subjective. It is subjective because there is no clear standard of how much
weaker parties should be protected.
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DIFFERENT RULES OF KNOWLEDGE FOR DIFFERENT FORMS OF KNOWLEDGE

These forms, when you write them in your paper. But the knowledge you express has not been validated.
When people say that this is not correct knowledge. And that failed to pass the rules of knowledge validation.
To point here will be to say that the rules for producing valid opinions, awareness and episteme are not the
same. If you want to prove scientific knowledge, you will have to argue differently then if you want to shape
opinions.
AWARENESS
FACT-PRECISION
What makes awareness kind of legal knowledge valid, are things like fact-precision. When you are trying to
rise awareness about something, so that something is the case (ex. The law says something), you have to
follow the same rules that journalist have to follow. For instance, you have to be as precise as possible when
it comes to fact. A thing you probably have heard over and over coming from law professors is that you have
to be precise. But why? If you are trying to pull awareness, that is correct. But if you are trying to produce
something else, probably not.
CLARITY
Then, you also have to be clear. If you what you say is precise but can’t be understood, then you cannot raise
awareness properly. So that it is clear what exactly you report on is essentially in the category of knowledge
formation, awareness.
‘EXHAUSTIVENESS’
Another rule, is to be exhaustive in your discussions of whatever you want to discuss. Perhaps, how often
when you have written a paper, has the prof told you, you were not precise enough and missed a certain case
which means your discussion was not exhaustive.
These are very specific rules of validation of that kind of knowledge.
‘DON’T MAKE THE LAW SAY SOMETHING IT DOESN’T SAY’
Another form of rule of validation is that should make the law say something it doesn’t say. That makes sense
if it is your only purpose to state what the law says, you are engage in case law of legislative journalism.
EPISTEME
KNOWLEDGE FILTERED BY CRITICAL THINKING

The point is critical thinking, you have to think logically so in a correct manner. If you have ever watch movies
where they portray pleadings in court, what the lawyers say to convince the judge of something, very often is
not logical. That does not mean they are not good lawyers. Often, not being logical help us because you are
using rhetorical arguments to convince to do something. But if you analyse what you are saying, it is perfectly
illogical, you are contradicting yourself or you are using a definition of a certain concept differently through
what you say.
We will talk about that when we are going to talk about opinion where you try to make a judge see the case
the way you see it. That is a very specific form of thinking. It is very different from logical thinking.
EMPIRICAL EVIDENCE (VERIFY/FALSIFY) OR RATIONAL ASSENT
If you are trying to produce scientific thinking, your knowledge is subject to the rules of critical thinking, as he
said, logics. And then, it is subject to make that form of knowledge valid that it is either supported by empirical
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evidence where you can verify or falsify the theory that you make or through rational assent so that your
argument is logically coherent and correct.
LOGICALLY CONCLUSIVE ARGUMENTS
This leads therefore to logically conclusive arguments.
Example : If you engage in producing awareness (journalist), you are not going to be subject to logical
thinking (describing what you saw) because there are no change of logical causation.
OPINION
It’s a type of legal knowledge.

PERSUASION
The idea is to advance and defend an opinion.
What is it that matters ? Is it logical thinking ? No, what matters is that you are persuasive, that you can
convince someone.
Some people say that law is an art of persuasion. It has nothing to do with logical thinking. Law is a matter of
persuasion. If you think of law as only the thing that is happening in court or in arbitration (legal procedure),
indeed it’s a matter of persuasion only. We should train us to the art of persuasion. However, not even in the
Bar school we are thought all these rhetorical tricks that we can use to convince someone (strategies).
It’s important to understand that I can be entirely persuasive without being logical. I just have to present my
arguments in a way that it doesn’t get to obvious that it is not logical.
Example : Professors can use their authority. Professors will grade us so they decide. If you disagree, you
will be given a bad grade. It’s a way to force an opinion. We have to think the way the professor thinks
otherwise we receive a bad grade. We may take that as a proper knowledge but it’s not because we think
like the professor that it means we think right because there is no logical arguments. It’s only an opinion
based on persuasion. It can take any form including the use of authority.
ADVOCACY SPIN
In this situation, the formation of legal knowledge really hasn’t advocacy spin.
Example : A politician selling a policy sheers to be persuasive and not logically correct. She has to be a
good advocate of her own policy. She doesn’t have to be properly correct.
An advocate in court doesn’t have to be correct. When he states the law to the judge, he as to
persuade.
Many books and papers which we have read have a strong advocacy spin. They argue in a way that will
persuade us but if we look closely at the argumentation, it’s not logically conclusive.
CLOSER TO “RELIGION” (THINK “DOCTRINE”)
When this happens, legal doctrine becomes pretty much closed to religion. The word “legal doctrine” would
appear to acknowledge.
You will find this happening in argument that you should think in a certain way to be a good lawyer. You have
to think like a lawyer to be a lawyer because it’s how they think there. It’s the same in the religion, we you
have to think the same way as people in the religion think.
There is the argument that you have to follow the majority of opinion or the dominant view about something.
When we say dominant view, it’s illogical.
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Since when it’s true that because of the majority thinks a certain thing, that it is true ? Knowledge is not
democratic. It’s not because most of us think something that it makes it true. So when we say that we follow
the majority of the doctrine, it makes no sense. It’s even worst. It’s an encouragement for us to not think
critically and tell the parties lies. It’s an encouragement to have a certain opinion not because it’s logically
conclusive, but because it’s “religion” to think that way.
As a lawyer, we tend to think that by thinking the same way that the majority thinks, we think correctly.
Most of the disciplines don’t do that.
LOGICAL FALLACIES ACCEPTED
Justifying knowledge by way of majority of opinion is a logical fallacy. In this form of legal knowledge, logical
fallacies are accepted. They can be used.
EXAMPLES
These are a few excerpts from legal writings. These two excerpts are well known in law professors.
Both happened to be American and make fairly fundamental logical mistakes if they were trying to
make logical arguments. The professor doesn’t think that they were trying to make logical arguments.
They were trying to engage an opinion and convincing us of something. Therefore, they were able to
use logical fallacies.
THE POLITICS OF INTERNATIONAL INVESTMENT ARBITRATORS
The argument here says that investment arbitrators apply either law and appropriate policy
considerations or extra-legal factors. It can’t be a combination of the two. Either a judge is an
arbitrator and makes the decision based on the law or on extra-legal factors. In the paper, the author
goes on the shoe that arbitrators in fact do apply law and appropriate policy considerations which
means that therefore arbitrators do not apply extra-legal factors.
No lawyer ever applies only legal arguments to come to decisions. Because they are human beings,
there will always be other arguments, reasons, ideas, values which come to the play and which
influence the decision-making of the judge or arbitrator.
Here, when we say it’s one or the other, therefore if I can show that law is being applied that means
that the other necessarily doesn’t apply. That is a logical fallacy.
The vast majority of the lawyers who read the paper say that it’s a great legal argumentation. That’s a
sort of argumentation what you will use in court to convince a judge or an arbitrator to make a decision
in your favour.
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DEVELOPMENT AND OUTCOMES OF INVESTMENT TREATY ARBITRATION
It was published in the Harvard International Law Journal which is edited by Harvard law students.
The author says that investment arbitration is tilted to the developed world, it favours the developed
world. Developed countries are investors for developed countries. Therefore, it is unfair. She shows
that statistically investment arbitration is not tilted towards the developed countries and therefore
there is no problem. It functions fairly.
Here, the problem is that critics of arbitration say it is unfair for many reasons. She isolates one of
them and says “it’s because it is tilted towards developed countries that it is unfair” and then shows
you that it is not tilted towards the developed world therefore there is no problem at all.
BLACK-OR-WHITE FALLACY
This is equivalent to the videos. In the videos, we can see the Black-or-white fallacy which is a logical
fallacy. A black-or-white fallacy is presenting, or implying, that two alternative states are the only
possibilities, when in fact far more possibilities exist.
Example : “you are with me or against me, there is nothing in-between” “we had victories, we
no longer have victories”.
Here, the word “instead” does that. There is nothing in-between. When we read the
statement for the first time, it sounds persuasive but it’s not logical.
It’s the same problem when the author Susan D. Franck says that arbitration is either tilted
towards developed countries or it is fair. It’s one or the other. It can’t be both. One is the case
and the other one is not so the author must be correct. That’s based on the logical fallacy.
SOURCEBOOK ON PUBLIC INTERNATIONAL LAW
It’s another example of classical form of legal thinking which is logically incorrect but is persuasive.
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Here the argument is “the prevailing view”. That’s the only thing that justifies why that interpretation
or meaning given to Article 38(1)(c) is correct. It is because most people think like that.
BANDWAGON LOGICAL FALLACY
It’s similar to the videos. Here the point is to say “play the videogames because everyone is doing it”.
It sounds silly to make that comparison but it’s the idea in the text too.
That’s a logical fallacy known as a bandwagon fallacy. It works in the following way :
• An argument is valid because a majority of people accept it to be true.

Example : If we all came to believe that the earth is flat, then the true knowledge is
that it is flat because most of us say it. What matters is that everybody thinks that
something is true.
• Substituting threat of rejection by one’s peers for evidence in an argument.
Example : if you don’t think like that, you won’t be one of us. If you don’t think like I
tell you to think, you won’t be a good lawyer which means you won’t be part of my
group.
The prevailing view is that it is exactly how it works.
ALEC STONE SWEET
He is a formerly professor of law at Yale Law School and currently professor of law at National
University Singapore. He did a PhD in political science. His first job was assistant professorship in a
political science department. He has written a number of article theories and an important book about
arbitration which lawyers didn’t like because it contradicts many of the fundamental believes that
investment arbitrators have. It tends to be very critical of investment arbitration. He offers a theory
about investment arbitration.
How did the lawyer react to the book ? “Yes, yes, but he’s not a lawyer so we don’t need to listen to
him”. The same happened in the video where the economist said that arbitration makes no sense
economically and lawyers said that he was not a lawyer so it’s opinion doesn’t count.
AD HOMINEM
This exclusion of a certain argument in a certain author based on its personal characteristics is similar
to the video (point of view of a man or woman on absorption or military service). What happened in
the video is ad hominem logical fallacy. It’s attacking your opponent’s character or personal traits in
an attempt to undermine their argument. This happens often in legal argumentation. These are
notions of rhetoric. It’s persuading someone even though the illogically flow. In much of the legal
thinking, we accept as long as we don’t see them openly illogically wrong argument. This is typical in
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law. If it happens to us, we can expose the logical fallacy behind it which usually then leads the judge
or the other party to take a step back and to say the logical fallacy cannot be to openly displayed (cf.
list on internet about logical fallacies).
In law, we accept more easily logical errors as long as they come in an argument which is rhetorically
persuasive and convincing. What makes an argument convincing has often nothing to do with logic of
the arguments (ex : politics) but with other things.
NO KNOWLEDGE IS PURELY OBJECTIVE
The professor is not saying that proper scholarship and episteme is all good and opinion formation is all bad.
We shouldn’t be naïve about the objectivity of true knowledge and of episteme either. The point is that no
knowledge is purely objective. There are always some choices involved.
What matters is : who produce knowledge ? If there is always something subjective to knowledge, the identity
of the people who produce knowledge becomes important. Who produces arbitration scholarship ? How
knowledge is not purely objective ?
The difference is that opinion is meant to be subjective whereas awareness and episteme are meant to be
objective.
OPINION
Opinion is meant to be subjective. Subjectivity is obvious. Opinions are not meant to be objective. They are
different from facts. Everyone can have an opinion on everything. The subjectivity of opinion is not to be
discussed.
The subjectivity is less obvious when it comes to our efforts to state the world as it is which is what we should
do in the different forms of journalism and it’s what we do when we engage in scientific knowledge based on
critical thinking and episteme.
AWARENESS + EPISTEME
Awareness and episteme are meant to be objective which is not purely completely 100% objective.
We become absorbed in a certain perspective and distort phenomena to fit under them. Ludwig Wittgenstein
says “it is like a pair of glasses on our nose through which we see whatever we look at. It never occurs to us to
take them off.” We always look at the world through glasses which represent a certain perspective. He argues
that we don’t realize what we wear glasses so we never take them off.
We never have direct access to reality. We always apprehend it through preconceptions of the world. Maurice
Merleau-Ponty (phenomenology) says “true philosophy consists in relearning to look at the world.” Every
phenomenologist say that we can never know the world as it is. We always reconstruct the world around us
through a combination of partial sensory input and preconceptions about what the world already contains.
We don’t see and hear everything (ex : black spot in our eyes). We rebuild an image of the world from what
we do see and even from our memories and then we fit everything we find into what we except to find in the
world. We mentally build a world that makes sense. It might be different from the world that our neighbour
sees.
WHAT IS ‘TRUE’ DEPENDS ON THE CENTRAL EXPLANATORY PARADIGM
To look at all of this from a third perspective, we could look at it from a scientific perspective, called “true
knowledge”. We find people like Thomas Kuhn and his idea of paradigms. A paradigm in Kuhn’s approach is a
central idea at the heart of a scientific discipline which determines what is valid / true knowledge and what is
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not. Until Einstein’s Theory of relativity, it was understood that time and space in physics were linear. They
could not be bend, changed. Any theory that assumed that time could be compressed or extended was
considered scientifically wrong (not true / invalid). Then came a new paradigm, Einstein’s Theory of relativity,
and theories that premised on the flexibility of time and space now can be valid / form true knowledge. The
conditions of truth and knowledge (paradigms) change over time. Therefore, to a certain extent they are
subjective.
AFFECTS INFLUENCE OUR THINKING , AND THUS HOW WE MAKE SENSE OF THE WORLD, WHAT WE FOCUS ON AND SEE
Our emotions clearly influence our thinking. All our thinking goes through the bits in our brain that deals with
emotions. We cannot think entirely without emotions. It’s not possible physiologically.
Affects are bodily responses triggered by individuals’ encounters with the materiality of the world (ex:
emotions triggered by our daily lives). So affects, which are the emotions that are triggered by our daily lives,
change how we think, what we focus on, what we see.
Example: if you spend your day with certain people (nice and generous people) in a certain place
(down-to-earth setting), you will think differently at the end of the day. You will see a different world,
regardless what it is to precisely think, than if you spend the entire day with liars and manipulators in
a high environment stress. If you spend too much time surrounded by liars and manipulators in a high
environment stress, you will look at the whole world differently. Even, if you are actually trying to see
the world, produce objective knowledge.
The soundings of our thinking are not just distractions, they actually influence the thoughts that we have. Our
cognition is always ‘situated’. We never think like a computer. Our thoughts are influenced by our culture,
our emotional state, the past in our lives, the built architecture around us and the stakes of how we think. If
the realizations of some thoughts we think are bad for us, we tend to avoid them.
THE ARCHITECTURE OF KNOWLEDGE FORMATION IN ARBITRATION

Because of this idea that our situatedness (who we are, our emotions, etc.), because of how that influences
how we think, it may be interesting to look at the situatedness of arbitration thinking. In what situation are
those people who produce knowledge about arbitration (who produce the three forms of arbitration: opinion,
awareness and episteme)?
Example: let’s look at an example to make it clear where at least one socio-professional situatedness
matters for the knowledge we produce. It’s a video about what we just discussed but talks about
motorcycles.
Motorcycle journalists are bought by the motorcycle industry. What these journals say about the
bikes, the review will have a direct consequence on their comfort. If they say something positive,
they’ll be invited to nice places. If they say something negative, they won’t even be lent back to review.
We don’t do much motorbiking at arbitration conferences but the wining, dining, socialising and
smoothing sounds extremely familiar.
Why is that a problem? Why is it a problem that we gather when we talk about arbitration in lavish
conferences where indeed we are showered in nice things by the arbitration industry? At these
conferences we talk then talk about the future of arbitration and we produce some of the knowledge
about arbitration. Let’s look at other fields of knowledge.
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WHAT IF ALL FORMATION OF KNOWLEDGE (JOURNALISM, RESEARCH, LOBBYING)
o On road safety were done by car makers? Imagine that all formation of knowledge (all three
categories that we’ve seen) were done by car makers or other representatives of the automobile
industry, that the only people who produce knowledge about car safety are people who work for car
makers, who make money by selling cars. Will you be uncomfortable the next time you get behind the
wheel?
o On medicine were done by pharmaceutical companies? Or what if all professors in the medical law
faculty were all paid by pharmaceutical companies? What if the greater share of their overall income
came the pharmaceutical industries and not from the salary as a professor of medicine? Would you
therefore be sceptical about what they say and write in their papers? The professor supposes that we
would.
o On lung cancer were done by university professors earning more money from consultancies for
tobacco companies than their university salaries? Do you think that’s ok? Of course not.
o What if some of the key knowledge formation on the regulation of financial markets were done by
university professors earning more money from consultancies for banks and other financial
institutions than their university salaries? It would be bad. There is a documentary which came out a
few years ago, showing that the key people advising the US government on the regulation of financial
markets (people who are professors at Harvard, Yale and NYU), all made far more money from
consultancies for banks and other financial institutions than they make as university professors. It’s
problematic. The same happens in law.
CATO INSTITUTE
Imagine that a significant part of knowledge formation about policies in

general were done at an institute (CATO Institute which is important in the
US) which is funded by tax-deductible contributions from individuals?
Guess what sort of people have the greatest interest in making tax-
deductible donations and how this influences the sort of knowledge the
CATO Institute produces. Indeed, the key values of the institute are the
reduction of political society. Their key value is to be against governments.
Of course, a small government would mean less need for taxes. Technically,
the CATO Institute is not a lobby group because lobby groups talk to
politicians directly. Here what happens is that the CATO Institute creates knowledges for no one in particular,
rather for everyone. It is powerful enough to change how various people think which might be more effective
in the long run than direct lobbying which has to be started anew with each new government.
How about the arbitration industry?
VAST MAJORITY OF ARBITRATION TEXTBOOKS AUTHORED BY INDIVIDUALS WHO’S MAIN INCOME IS FROM ARBITRATION PRACTICE
If people who live of arbitration tell you that arbitration is great, should you trust them? If you make money,
yes. If you want to understand arbitration as a social institution, if you trust them blindly, it is the equivalent
of trusting people who make money from selling cars or motorbikes.
Many of the people who write these textbooks are law professors too, but the income individuals make from
arbitration practise easily and typically is greater than a university salary.
146
MOST APPOINTMENTS OF ARBITRATION PROFESSORS DONE BY COMMITTEES WITH SIGNIFICANT REPRESENTATION FORM
ARBITRATION INDUSTRY
Another dimension to this is that many appointments of arbitration professors are done by committees with
a significant representation from the arbitration industry. Schultz has been on a couple of search committees
himself, appointing the professor and there was quite explicit pressure from the arbitration industry or not
(“please appoint someone who is not critical of arbitration”).
PROFITING FROM INJUSTICE : HOW LAW FIRMS, ARBITRATORS AND FINANCIERS ARE FUELLING AN INVESTMENT ARBITRATION
BOOM (DATA FROM 2012)
Here is another study again from a different angle which came out in 2012. The publication is called “profiting
from injustice”. It was realised by an NGO.
That report discusses the composition of editorial bords of academic journals in the field. The journals in which
knowledge about arbitration is produced. Who sits on these editorial boards? The percentage is the percentage
of practitioners sitting on these journals. For some of these journals, all of the people who control the
production of knowledge about arbitration, are people who live from the money they make in arbitration.
There’s a valid argument to say that those who practise arbitration understand arbitration best. Yes, fair
enough. Just as you could say that those who sell cars are those who understand cars the best. Yes, of course.
But it shouldn’t be the only perspective. For all of these journals, except for the Journal of International
Dispute Settlement, it’s far more than 50% of the editorial bord members who have a direct financial interest
in the knowledge that they produce (Schultz is the editorial chief of this journal and the figure of 50% of
practitioners is no longer correct).
What is to be remembered is the dominance of people who earn money from the knowledge they produce,
from what the knowledge they produce actually says. If you work for the automobile industry and produce
knowledge about cars, you can’t be critical of cars (otherwise you’ll be shooting yourself in the foot). Is that
an acceptable way to produce knowledge? Schultz doesn’t think so.
‘KEEP UP WITH THE JONES’S’ EFFECT OF ACADEMICS MINGLING WITH PRACTITIONERS
There’s again another dimension to this where you ask legitimately why academics in arbitration or more
generally in international law spend so much time working as practitioners when they have a job already as
professors and a salary. In the field, you would hear very often professors say things such as “I cannot write
this or that at a conference, I can’t say this in class, because this would interfere with my law practise”. Because
if they know that the professor is critical of this or that, they won’t give him new cases.
147
What is happening here is that academics are willingly giving up their right to say what they think is right, their
intellectual freedom, which is one of the hallmarks of academia, one of the things which makes this job
interesting and make it attractive to be a professor. They’re willing to give that up in exchange for the money
they make as practitioners.
In other branches of academia (universities), it isn’t necessarily so.
Examples: Physics professors don’t dominantly work for the industry, political scientists don’t all work
for large political campaigns, chemists don’t work predominantly for the pharma industry, etc.
This phenomenon which is knows as intellectual capture, this idea that it is fine for academics to have a clear
conflict of interest because of their side job, is quite specific to law and within law most strongly so in
arbitration.
Why professors are happy to do that? What we saw in the motorcycle video is part of the answer. The
arbitration industry makes efforts in inviting academics to conferences and various events with the effect that
more or less consciously many academics end up wanting to keep up with the same style of living as
practitioners have.
Example: if Schultz is invited to a conference with very high flag practitioners or even average
practitioners, they make a lot more money than he does. Is he jealous? To some extent. Would he
therefore want to be part of their group which leads him to not say anything negative about arbitration
ever, otherwise he won’t be in the group? The temptation is there of course.
CONCRETE EXAMPLES
A few concrete examples of how the formation of knowledge by individuals with conflicts of interests in this
knowledge has changed the world. Why is it important?
GENERALLY LOWERING OF STANDARDS FOR JURISDICTION AND ADMISSIBILITY OF CLAIMS
Over time, and most likely under the influence of the general formation of knowledge in the field, as opposed
to specific political decisions, if has become ever easier to file an arbitration claim
If as an author you write in favor of law barriers for jurisdiction admissibility to allow more cases to go to
arbitration, you increase the possibilities that you can make more money with it. Indeed, the standard for
jurisdiction admissibility has come down. It’s easier to file an arbitration now than it was 20 years ago.
‘IN FAVOREM VALIDITATIS’ PRINCIPLE (IN CASE OF DOUBT, IN FAVOUR OF VALIDITY OF ARBITRATION AGREEMENT)
This is also concretely due in the context of the development by arbitration practitioners / scholars of the
principle ‘in favorem validitatis’ that is to say that in case of doubt, we’ll say that the arbitration agreement
should be valid. Where does that come form? What does that serve? It comes from people who write about
arbitration.
Example: Schultz was an arbitrator in a case a year ago. Schultz was facing this case where he was far
from certain that the arbitration agreement was valid. That this case could come to him. He was very
strongly tempted to say “Yes, it is a valid arbitration agreement”, because if he says so, he’ll be paid
quite some money. If he says “No”, he will loose all the money. In addition, being an arbitrator is fun.
So if his interpretation of the legal principle here is to say that it is perfectly valid, it will earn him fun
and money. That temptation was pretty strong. He gave in to it and said that it is valid arbitration
agreement. That overrode his own doubts about the validity of the arbitration.
148
How can he then justify that decision? With this principle. He’ll say “If I have doubts, it’s not enough,
in doubt I will apply the in favor validitatis principle” and say that in case of doubt he considers the
arbitration agreement to be valid.
Other people to the same thing and it has become an established principle in the field.
USE OF MOST-FAVOURED NATION (MFN) CLAUSE TO EXTEND ARBITRATION CONSENT
There are some cases where it has been accepted that you can use this so-called MFN clause in one treaty to
inject consent to arbitration into another treaty. An MFN-clause is that If a country grants some rights to
individuals from a certain nation, then the same have to be applied to other countries if there is a MFN clause
in these other contracts.
This was meant clearly to cover substantive rights but it has been extended to mean to include the right to go
to arbitration which of course means more arbitration and thus more income for the arbitration industry.
LEGITIMATION OF PRIVATE AND HYBRID JUSTICE
More fundamentally, the legitimation of private and hybrid dispute settlements (ex: commercial arbitration,
investment arbitration, international commercial courts) is a key-purpose of knowledge production in the field
of arbitration.
Starting from the 1980s, legal entrepreneurs started to build a field of practice and to legitimize it. Many
people in arbitration write about the defense, the legitimacy of arbitration. One reason why they do it is, if
you defend the legitimacy of your source of income, you’re more likely to keep that source of income.
It’s a fundamentally important for the arbitration industry to maintain and expand their perception of the
legitimacy of their job / arbitration. It is done through good journalism.
THROUGH GOOD ‘JOURNALISM’
Normal journalism usually always talks about the things don’t work out (ex: trains that are delayed). That’s
what journalists usually do. In arbitration, arbitration journalists only talk about the great things about
arbitration (ex: a great new law, more cases, more parties are happy with arbitration). So good journalism
which is in favor, which reports only the good sides of arbitration.
THROUGH POSITIVE OPINION
Forming positive opinions about arbitration and arguing here and there, using all sorts of rhetorical tricks in
favor of arbitration.
THROUGH RESEARCH FOCUSED ON TECHNICALITIES
Or indeed, developing research focuses on technicalities. More technical, epistemic kind of knowledge on
technicalities which makes it easier for arbitration to take place (ex: things like the in favorem validitatis
principle).
A real discussion of the legitimacy of private and hybrid justice / investment arbitration which really looks at
it from both sides does a bit rather defend it but which asks real, hard questions, regardless where the answer
then lies, is quite rare in the field.
SINCE 1980S: ALLIANCE OF LAW FIRMS AND ACADEMICS
It has also led to a growing alliance of law firms and academics, in particular in the 1980s and 1990s, when
arbitration really had to be developed. Some studies have shown that there was an alliance of the big law
firms inviting academics to them and collaborate with them so as to influence the academic discourse /
perspective on arbitration and to take in the academics on board because the academics tend to have a
149
symbolic capital which is your capacity to be credible in a certain rule. Academics tend to credible as people
who say what real knowledge is. So the law firms hired the professors / academics to speak on their behalf, to
defend arbitration.
MORE RECENTLY: UNIVERSITY TEACHING PROGRAMS, PROGRAMS PROMOTING ARBITRATIONS
There are more and more university teaching programs (LL.M) which train students but the other thing they
really try to do is to defend / promote arbitration itself, so that more arbitration can take place.
SCHOLARSHIPS FOR STUDENTS FROM THE GLOBAL SOUTH, WHERE MOST NEW MARKET OPPORTUNITIES ARE
Sometimes, scholarships to study arbitration go to students from poorer countries, sometimes with the
express justification that it’s a way to get into the market there, to promote arbitration in countries where it
isn’t that much developed yet.
What Schultz said today, he wasn’t critical about arbitration itself, he was critical about how arbitration
knowledge is formed. Nothing what he said was to say that arbitration is bad, there should be less. That’s not
what he’s trying to say. He’s trying to say that the knowledge about arbitration, just as the knowledge about
law generally speaking, should be more nuanced and independent from those at the end of the day make
money with the thing that they’re defining.
Arbitration is as an idea a fantastic way to resolve disputes. It is the good answer to a number of legal problems
/ situations. But Schultz thinks that it’s not right that it is used for things such as consumer arbitration.
Investment arbitration is overused for situations for which it was never made / designed. He thinks that there
is a real risk that by expanding to far its territory, that it’s causing harm to itself. Schultz is trying to defend
arbitration by saying “People don’t abuse it, don’t go too far by using it almost speculatively”.
150
OPTIONAL CLASS – EXAM PREPARATION SESSION

Exams : Open book and multiple choice with short explanation in English.
Book : Arbitration short book Frank / que sais-je : arbitrage ?
1. The essential difference between arbitrator and a mediator is that the arbitrator is chose by the
parties: NO
2. It would be bold to assume that a vast majority of international disputes are resolved through
arbitration : YES
INTERNATIONAL ARBITRATION EXAM : GUIDELINES
WHAT YOU NEED TO DO ?
• True / False
• Substantiate your answer : Why is it false ?
HOW MANY QUESTIONS ?
• 30 questions in total
• Substantiate 10 out of 30
EVALUATION
• Two points for each correct answer (true/false question)

• One point for each correct and relevant substantiation
• No negative points
• Minimum number of elements needed
OPEN-BOOK EXAM
• Use of computers, tablets, and phones is not allowed

• Only printed notes, books, etc
• You don’t need to substantiate all answers, it’s indicated when we need to
• You will be provided with three different papers
151
INTERNATIONAL ARBITRATION EXAM : EXAMPLES
EXAMPLE 1
EXAMPLE 2
EXAMPLE 3
152
LEGAL CONCEPTS DISCUSSED
DIFFERENT TYPES OF ARBITRATION
COMMERCIAL ARBITRATION VS INVESTMENT ARBITRATION
• Disputing parties
• Disputes
• Ad hoc vs. Institutional
DOMESTIC VS INTERNATIONAL
• Commercial arbitration
COMPETENCE-COMPETENCE PRINCIPLE
MEANING
• Tribunal is empowered to ascertain its own jurisdiction
LEGAL SIGNIFICANCE
• Positive effect
• Negative effect
• Proceedings are not halted ; efficiency
• Tribunal may render an award declaring the invalidity of the arbitration agreement
SEPARABILITY
MEANING
• Concerns the validity of the arbitration agreement, which impacts on the tribunal’s jurisdiction.
• The arbitration clause is considered to be separate from the main contract of which it forms part. It is
legally autonomous, independent, and distinct from it.
• The (in)validity of the main contract does not affect the (in)validity of the arbitration agreement and
the parties’ obligation to arbitrate.
SIGNIFICANCE
• Tribunal is empowered to render an award declaring the contract invalid.

• Validity of the arbitration agreement.
• Law governing the arbitration agreement.
LIMITS
• Not absolute
ARBITRABILITY
MEANING
• What kind of disputes are to be submitted to arbitration (objective)

• Person’s capacity to enter into an arbitration agreement (subjective)
EVERY NATIONAL LEGAL SYSTEM HAS ITS OWN RULES
• What is arbitrable in Switzerland may not be arbitrable in Greece
153
WHY IT MATTERS
• Annulment
• Enforcement
SEAT OF ARBITRATION
MEANING
• Procedural law
• It applies by virtue of parties’ choice including its mandatory rules
• Not necessarily where the proceedings will take place
MEANING
• Arbitration law of a particular country (including its mandatory rules)

• Arbitration legally anchored to a particular legal system
• Judge d’appui
• Annulment
• Possibly, enforcement
APPLICABLE LAWS IN ARBITRATION
ENFORCEMENT & ANNULMENT OF AWARDS
ANNULMENT
COMMERCIAL ARBITRATION AND NON-ICSID INVESTMENT ARBITRATION
• Courts of the seat

• It may impact on the award’s enforcement in another country (Article V(2) NYC)
ICSID INVESTMENT ARBITRATION
• Ad hoc annulment committees

• Self-contained regime
• Impacts enforcement
ARBITRATION WITHOUT PRIVITY & NOTION OF INVESTMENT
CONCERNS CONSENT INVESTMENT TREATY ARBITRATION
• Foreign do not need to have a contractual relationship with the hose state to commence investment
arbitration against it.
154
• States, by concluding BITs, provide them with a unilateral, open-ended offer to arbitrate.
CONSEQUENCES
• Offer to an undefined number of investors
• States cannot commence investment arbitration against foreign investors
NOTION OF INVESTMENT
• No definition in the ICSID Convention – article 25

• Three Approaches
o Objective
o Subjective
o Double barreled test
• In non-ICSID arbitration (article 25 ICSID Convention does not apply)
o Subjective Approach
o Double barreled test (by some tribunals)
• In ICSID arbitrations (article 25 ICSID Convention does not apply)
155

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INTERNATIONAL

INTRODUCTION TO COURSE ITSELF 7

WHY YOU MIGHT, OR MIGHT NOT, WANT TO STAY 7

SITUATING INTERNATIONAL ARBITRATION IN A WORLD OF DISPUTE SETTLEMENT 15

ARBITRATION INSTITUTION AND ARBITRAL TRIBUNAL 27

KEY ARBITRATION CONCEPT II : PROCEDURE 39

KEY ARBITRATION CHARACTERISTICS 50

FORMALISM V. LEGAL REALISM 64

ISSUES OF COST AND TIME 77

THE COSTS AND TIME PROBLEM 77

HOW INTERNATIONAL ARBITRATION CAME TO PROTECT FOREIGN INVESTORS 86

THE ABADAN AFFAIR 86

HOW INVESTMENT ARBITRATION WORKS 98

ICSID AND UNCITRAL AD HOC ARBITRATION 98

INTERNATIONAL ARBITRATION AND ITS DISCONTENTS I 115

FUNCTIONS OF DISPUTE SETTLEMENT 115

INTERNATIONAL ARBITRATION AND ITS DISCONTENTS II 125

THE SOCIOECONOMIC IMPACT OF INVESTMENT ARBITRATION 125

THE FORMATION OF LEGAL KNOWLEDGE ABOUT INTERNATIONAL ARBITRATION 136

WHAT IS LEGAL KNOWLEDGE? 136

OPTIONAL CLASS – EXAM PREPARATION SESSION 151

INTERNATIONAL ARBITRATION EXAM : GUIDELINES 151

INTRODUCTION TO COURSE ITSELF

WHY YOU MIGHT, OR MIGHT NOT, WANT TO STAY

Why would I study arbitration ?

ROBS PEOPLE’S RIGHTS AND ACCESS TO JUSTICE?

There is an increase in number of cases which go to arbitration. Commercial arbitration is increasing by 10 to

WHAT WILL HAPPEN IF YOU STAY ?

WHAT IS ARBITRATION MORE PRECISELY

DISPUTE RESOLUTION MECHANISM

In it’s core, it is a dispute resolution mechanism. It is a mechanism to settle disputes.

COMPARING CONCEPTS WITH ARBITRATION

In mediation, the mediator is a person who facilitates a negotiations.

WHAT ADVANTAGES IT MAY HAVE OVER ALTERNATIVES

ARBITRATION OVER MEDIATION

SITUATING INTERNATIONAL ARBITRATION IN A WORLD OF DISPUTE SETTLEMENT

FIELD OF LAW THAT CAN BE INVOLVED IN ARBITRATION

INTERNATIONAL ARBITRATION IN PRACTICE (HOW IMPORTANT IS INTERNATIONAL ARBITRATION IN

HOW MUCH ARBITRATION IS REALLY USED IN ACTUAL PRACTICE ?

• International Chamber of Commerce (ICC)

• Stockholm Chamber of Commerce (SCC)

That’s not scientific what we will talk about here.

WHAT REGULATES ARBITRATION

WHAT LAW IS APPLIED IN ARBITRATION

KEY ARBITRATION CONCEPTS I : DECISION-MAKERS

ARBITRATION INSTITUTION AND ARBITRAL TRIBUNAL

DISTINCTION ARBITRATION INSTITUTION / ARBITRAL TRIBUNAL

WHAT AN ARBITRAL TRIBUNAL DOES

ARBITRATION CREDO : AN ARBITRATION IS ONLY AS GOOD AS THE ARBITRATORS

There are 3 options with 3 arbitrators :

= anyone as long as you don’t have a conflict of interest

This is a more tangible and important requirement in practice.

USUALLY INDIVIDUALS HIGHLY SPECIALISED IN ARBITRATION

KEY ARBITRATION CONCEPT II : PROCEDURE

What kind of dispute can go to arbitration? Can we divorce in arbitration?

What does arbitrability mean?

Arbitrable Not arbitrable

Archetype : criminal matters, non-financial family law matters

RAISON D’ÊTRE OF THE CONCEPT

What is the point of this concept? Why do we have arbitrability?

A given dispute is part of a kind of dispute which is arbitrable or not.

SEAT OF THE ARBITRATION

1. DETERMINATION OF LEX ARBITRI (LAW OF ARBITRATION)