Building Legitimacy Through Interpretation in Investor-State Arbitration: On Consistency, Coherence and the Identification of Applicable Law

Zachary Douglas, Joost Pauwelyn and Jorge Vinuales, eds., The Foundations of International Investment Law: Bridging Theory Into Practice (Oxford University Press, 2013, Forthcoming

U of Melbourne Legal Studies Research Paper No. 670

51 Pages Posted: 14 Sep 2013 Last revised: 4 Mar 2014

See all articles by Jürgen Kurtz

Jürgen Kurtz

University of Melbourne - Law School

Date Written: September 12, 2013

Abstract

After decades of stability, there are now visible changes to the elasticity of state commitment to investment treaty law and arbitration. State disenchantment has grown steadily over recent years and is even beginning to dangerously manifest itself in forms of hard exit (albeit, at this stage, confined to a handful of parties). The causes of the legitimacy crisis facing the system run much deeper than the usual prescriptions surveyed in the literature to date. This paper begins by arguing that there are weaknesses in both the formal (consent) and substantive (functional) justifications that, singly or collectively, will typically legitimize international economic law constraints in the eyes of states parties. This framing of a legitimacy deficit is then used as an invitation to examine whether investor-state arbitral interpretation might contribute in some way to shoring up the level of state commitment to the system. Any tractable normative prescription in this direction first depends on identifying what states parties expect when delegating adjudicatory power over future disputes to arbitral tribunals. The paper draws on international relations theory in an attempt to accurately conceptualize that understanding. Using those insights, the paper examines both internal and external strategies by which arbitral adjudication can dovetail with this theoretical position and thus potentially contribute to building legitimacy over the regime. On the internal front, the paper first considers the case for consistency. It departs from the conventional assumption of a binary choice and explores instead the possibility of strict consistency in certain settings while allowing for bounded levels of differentiation in others. Ultimately however, it is the coherence and integrity of reasoning employed by arbitral tribunals that is of greatest import to states parties. In a diffuse and heterogeneous network such as investment law, this is necessarily a question of common but sophisticated hermeneutics. Unfortunately however, the state of play in investment arbitration leaves much to be desired. There is also little room for optimism when it comes to the external strategies canvassed in this paper. The identification of applicable (customary) international law is of critical import given the deliberate openness of the investment treaty regime. Yet in a disappointing parallel with the internal dimensions of fostering legitimacy, the surveyed arbitral tribunals have approached this key task superficially and with little appreciation of its charged systemic importance.

Keywords: International investment law, investor-state arbitration, consistency, coherence, applicable law

Suggested Citation

Kurtz, Jürgen, Building Legitimacy Through Interpretation in Investor-State Arbitration: On Consistency, Coherence and the Identification of Applicable Law (September 12, 2013). Zachary Douglas, Joost Pauwelyn and Jorge Vinuales, eds., The Foundations of International Investment Law: Bridging Theory Into Practice (Oxford University Press, 2013, Forthcoming; U of Melbourne Legal Studies Research Paper No. 670. Available at SSRN: https://ssrn.com/abstract=2325189

Jürgen Kurtz (Contact Author)

University of Melbourne - Law School ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
613 8344 4770 (Phone)
613 8344 9971 (Fax)

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