Independent and impartial? Re-thinking the adjudication of trade and investment disputes

Krista Nadakavukaren Schefer
1 May 2014

Over the past twenty years, the dispute settlement systems of the international trade and investment protection regimes have been criticized because the adjudicators often decide that domestic laws passed to protect human rights and public safety violate international economic laws. For example, a decision declared restrictions on selective additives to cigarettes impermissible under trade norms of non-discrimination; another required a government to compensate a multinational corporation for lost profits because it cancelled a contract on account of the company’s refusal to provide water services at prices local populations could afford. Critics argue that democratic accountability is lacking when international adjudicators - far removed from the impact of their rulings – make decisions concerning domestic laws that protect citizen interests. Perhaps there is a need to think more deeply about the fundamental requirements of a just legal system, and in particular the qualifications of those who make the decisions.

Adjudication panels at the World Trade Organization (WTO) and tribunals hearing investment disputes are appointed through processes that lack any public participation. Indeed, they are designed to avoid any link to the populations affected by their rulings: adjudicators should not be of same nationality as the parties to the dispute, and, at the WTO, the Appellate Body members are to be “unaffiliated” with any member government. The anonymity of WTO reports is a second guard against governmental influence on judicial decision-makers.

The underlying ethical consideration is the general norm of judicial independence and impartiality. To allow for an objective application of the law to the facts of the particular case, judges should not be, nor perceived to be, influenced by their personal feelings or relationships. Perceived objectivity leads to more acceptance of and adherence to the decisions made – and ultimately to a more effective legal system.

For scholars of international economic law, discussions of judicial ‘independence’ and ‘impartiality’ focus on promoting objective decision making in systems with ad hoc proceedings. For example, in investment arbitration, there are concerns about the intermingling of roles, with some arbitrators acting in multiple disputes or acting regularly as both counsel and arbitrators. With a limited number of claims and a high level of uniformity of treaty language, analysts wonder whether the intermingling of roles might not be an inherent bar to independence or impartiality.

Yet, such discussions might be missing an issue of deeper concern to those who see the trade and investment rules (at least as they are applied) as threats to human rights and democratic principles - the content of independence and impartiality. By this I mean the fundamental question of from whom adjudicators must be independent, and to what should they be impartial?

Under traditional judicial principles of independence and impartiality, the bias to be avoided relates to the parties and the subject of the dispute. The International Bar Association Rules of Ethics for International Arbitrators is clear on this. Rule 3 defines bias as “when an arbitrator favours one of the parties” or “is prejudiced in relation to the subject-matter”, or it might arise from “relationships between an arbitrator and one of the parties”. The 2004 Guidelines on Conflicts of Interest in International Arbitration are more explicit, stating  “…each arbitrator must be impartial and independent of the parties”.

No doubt, removing bias towards the parties is important. However, where states are parties to the dispute and where the subject matter is law protecting the human rights and well-being of their populations, impartiality thus construed is arguably too narrow. Experience has shown that the interests of the global public can be ignored not only by private actors pursuing their commercial interests, but also by governments looking to further their many sovereign priorities.

One partial solution to this would be to look beyond the parties’ immediate representatives before the court in assessing the impartiality of the adjudicators. Given that at least one party in these disputes is a state, the tribunal members may need to show their even-handedness between the claimant and the affected population (between the water company and the villagers, for example). Thus, the arbitrator should consider not just the claims put forth by the parties as represented, but also those claims that are in the interest of the broader population. To the extent that a truly democratic government sets out claims relating to the public good, the decision-maker may be justified in relying primarily on the arguments the parties’ representatives set forth. Where, however, a significant community within the state is silent (or silenced), wouldn’t a truly impartial tribunal need to search out and consider the community’s likely claims before it sought to apply the law?

This would make it possible, for example, for adjudicators to consider what impacts a particular decision would have on human rights even if the respondent state did not invoke its obligations under these rules in defending a particular law.  As political and legal reasons lead states to leave out such arguments, enabling tribunals to broaden their attention would make it more likely that relevant human rights are considered and balanced against competing claims.

A more demanding version of impartiality might even require adjudicators to be impartial between the parties and the global public interest. The parties’ arguments would be but two aspects of a multifaceted problem to be resolved. The theoretical underpinnings of such a claim could reside in a Rawlsian view of justice, whereby the judges place themselves behind a ‘veil of ignorance’. They would determine the results of each claim as if unaware of who the two parties actually are, giving their narrower claims no higher importance than those of other stakeholders; possibly even going all the way towards evaluating the impact of the resolution of the dispute on the public good of the global community.

Such an expanded view of independence and impartiality cannot be achieved within the current international legal frameworks for adjudicating trade and investment disputes. The tribunals’ terms of reference are too limited and their competences too minimal. Nevertheless, greater accountability, truer democracy and deeper justice may require re-thinking current practices; we need a more encompassing understanding of independence and impartiality than seems possible today.

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