Ivars Mēkons on The Crucial Moment for International Investment Law and Arbitration

Ivars Mēkons on The Crucial Moment for International Investment Law and Arbitration

 by Ivars Mēkons


Legal practitioners, as well as global corporations have quickly perceived the positive remedial character of bilateral investment treaties ("BITs") against unfair sovereign conduct by host States. The caseload of international investment arbitration has grown exponentially and, now, international investment arbitration is a stable branch of international legal practice. Yet, rather loose substantial standards in the BITs coupled with certain other characteristics of the regime cast serious doubts on the legitimacy of the BITs regime as applied in practice.

If the so-called New International Economic Order movement in the 1970's was mostly based on emotions, this time, opponents of the existing BITs regime would be right. Back then, a large group of States (mostly, communist countries including the USSR) attempted to subject protection of foreign investments to the overall interests of the Host State and its people; they viewed any self-standing international rule for the protection of investments as obsolete. But now, there is indeed a genuine problem in the application of the BITs – the application is contrary to what could be sensibly expected. The present article presents four dangerous traits present in BITs and several suggestions for improvement. This commentary is particularly aimed at in-house counsel and professional attorneys representing sovereign governments. It aims to assist them in devising tactics that will protect their clients interests to the maximum extent.


1. Secrecy of the arbitration proceedings as a whole

BITs usually lack any express provision regarding the transparency or secrecy of the arbitration proceedings. This issue is determined by the provisions governing the arbitration process, such as the UNCITRAL Arbitration Rules (as revised in 2010); considering that such arbitration rules were generically developed for purely commercial disputes, it presupposes a confidential nature of the proceedings. While in private matters this is a sensible consequence of privacy, a different approach can reasonably be expected for BITs. The sovereign nature of contested actions and involvement of public funds require transparency, so that any interested member of society may verify the propriety of the decision affecting public funds.

Yet, even the International Centre for the Settlement of Investment Disputes ("ICSID") rules require transparency only in the most general elements of the proceedings, namely, the existence of the arbitration process. The arbitration award is public only if agreed by the Parties. A great number, if not the majority, of international investment arbitrations take place outside the remit of the ICSID. In such cases -- apart from sporadic exceptions -- the usual way to obtain knowledge of the fact of the international investment arbitration proceedings and their outcome is information leaked to the press. Practitioners can also consult specialist portals.

The current approach, in other words, is the "presumption of confidentiality". Due to involvement of commercial interests of the foreign investor, on one hand, and an unwarranted fear by the governments of negative publicity on the other, it may be predicted that such state of affairs will persist.

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Ivars Mēkons, is a founder and chairman of the international commercial law boutique "SUCCESS Specialized Advisory Services" (www.success410.com). Ivars Mēkons has been practicing international investment law since 2004 when he was entrusted to represent the Latvian Government in negotiation of commercial agreements with foreign investors and in investment dispute resolution under commercial agreements and investment protection treaties.