When Is Law Really “Law” in International Arbitration?

 

By Kassi Tallent (Counsel, Crowell & Moring LLP, Washington, D.C.)

In general, an international arbitral tribunal does not sit in the same situation as a domestic court, or even an international court, when it comes to the determination and application of law.  To begin with, a court undoubtedly has the authority to apply the law under its jurisdiction ex officio, and even in many cases to actively participate in the development of the law.  On the other hand, an arbitral tribunal is generally constituted only to apply the law to the specific dispute before it, and subject to the confines of the parties’ agreement on the submission of their dispute to arbitration.  Furthermore, international arbitral tribunals, unlike national courts, do not have a particular domestic forum; and their members, unlike the members of most international courts, are not ordinarily required to meet a minimum threshold of expertise in international law.
 

This situation of international arbitral tribunals as ad-hoc entities with no particular required legal expertise leads to a number of interesting considerations with regard to their determination and application of law.  For example, the lex fori in a commercial arbitration may stipulate that the principle of iura novit curia applies to international arbitral tribunals even though such a tribunal generally “will not have the culture and formation which will permit it to find the same application of national law that a national judge would instinctively discover.”[1]  In practice, this situation often creates a burden for parties to put forward “proof” of the content of the law, which in many cases will include legal expert opinions, to ensure that the tribunal has sufficient information to confidently apply that law to the resolution of the parties’ dispute.  In some respects, then, the tribunal’s determination of the content of the applicable law is treated like a point of evidence, even though in terms of nomenclature it is consistently affirmed as being a question of law. 

Furthermore, the situation described above is further complicated in investor-State cases where the dispute before the arbitral tribunal may involve more than one potentially applicable law, including the public law – as opposed to the commercial law – of the host State.  Two recent ICSID cases involving actions taken by Guatemala in the context of its electricity sector illustrate just some of the issues that can arise in this context. 

In December 2013, an ICSID tribunal issued its decision in the second of these cases, TECO Guatemala Holdings LLC v. the Republic of Guatemala,[2] in which it rejected a jurisdictional objection that had been raised by the respondent State on the basis that the dispute was fundamentally concerned with issues of domestic law – namely, the setting of tariffs in the electricity sector – which the tribunal was not competent to resolve.  In issuing its decision, the TECO tribunal explicitly refused to rely upon the findings of another ICSID tribunal which had previously accepted a jurisdictional objection made by Guatemala on the same basis in the first case, that of Iberdrola Energía S.A. v. the Republic of Guatemala.[3]  Notably, both the TECO and Iberdrola cases ostensibly arose out of the same basic facts; and both tribunals were constituted under treaties that, under the relevant circumstances, limited the States’ consent to arbitration to those disputes that concerned breaches of treaty provisions (the Iberdrola tribunal was constituted under the Spain-Guatemala BIT, while the TECO tribunal was constituted under DR-CAFTA). 

More than the fact of their having resulted in different jurisdictional outcomes, what I find particularly interesting about these two decisions is the seemingly different manner in which the two tribunals appeared to view their roles in relation to the relevant domestic and international laws. On one hand, the Iberdrola tribunal indicated that it was “not competent to take up and resolve” any matters of local law, since it only had authority to adjudicate disputes related to breaches of the treaty.[4]  In fact, the claimant in the case had alleged violations of the Spain-Guatemala BIT based on regulatory actions taken by Guatemala which it characterized as, inter alia, “arbitrary conduct;” and “a violation of due process.”[5]  However, the tribunal found it could not “enter in the debate on the domestic law … and point out the link, in the context of the international law – which the Claimant has not established – between the acts of the Guatemalan regulator … and the standards of the Treaty.”[6]  

The Iberdrola tribunal thus not only disclaimed competence to resolve any issues of domestic law where the instrument of consent did not include disputes about such issues, but it also appeared to deny that it had the authority to follow its own initiative in determining the content of the relevant treaty standards such that it could apply them to the conduct that was alleged by the claimant.  In other words, it apparently viewed itself as closely bound by the terms of the State’s instrument of consent (the treaty), as well as by the claimant’s specific articulation of its claims in relation to that instrument.

In the TECO case, in contrast, the tribunal actively engaged with the claimant’s assertions that Guatemala’s conduct in relation to the electricity tariff procedure failed to comply with the applicable domestic regulatory framework.  In this regard, the tribunal appeared to have no problem reaching its own conclusion as to the required “link” between such an alleged failure and the State’s treaty obligations under DR-CAFTA, considering in particular that, “a lack of due process in the context of administrative proceedings,” inter alia, would breach the minimum standard as enshrined in the Article 10.5 of the treaty.[7]   Furthermore, the TECO tribunal affirmed that it had the authority to independently apply Guatemalan law to its evaluation of the issues pursuant to ICSID Convention Article 42(1), even though its ultimate finding on liability was – consistent with the instrument of consent – to be made on the basis of the provisions of the DR-CAFTA.[8]     

The decisions in TECO and Iberdrola highlight the persistent complexity and ambiguity in the treatment of law by international arbitral tribunals, including with regard to the scope of authority of such tribunals to make their own determinations about the content of legal standards, rather than merely accepting or rejecting the specific position(s) advocated by the parties.  Particularly in the case of investor-State arbitration, matters can be further complicated by the applicability of more than one system of law; and by the need for the arbitral tribunal to consider itself to be an “instrument” of the applicable domestic law even in cases where the relevant rules are not merely commercial, but instead involve the use of the host State’s public authority.

Until such ambiguities are resolved, is it incumbent on parties to these proceedings to plead their cases broadly, and to provide ample “evidence” of the content of all the relevant law, whether domestic or international?  That certainly seems to be common practice, although one may question how much additional time and cost it adds to proceedings that already tend to be burdensome for both parties.

 

 

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