Mass procedures as a form of 'regulatory arbitration' - Abaclat v. Argentine Republic and the international investment regime.

Author:Strong, S.I.
Position:I. Introduction through IV. Regulatory Arbitration, p. 259-300
  1. Introduction II. Abaclat v. Argentine Republic II. Regulatory Litigation A. Regulatory Litigation Defined B. Transnational Regulatory Litigation IV. Regulatory Arbitration A. Class, Mass, and Collective Arbitration B. Regulatory Arbitration in Practice 1. Concerns Relating to Arbitrability 2. Concerns Relating to Party Autonomy V. Regulatory Arbitration in the Investment Context A. Intent B. A Substantive Norm C. A Rule or Remedy 1. Issues Relating to Novelty a. Procedural Inquiries b. Risk-Related Issues 2. Issues Relating to Silence VI. Conclusion I. INTRODUCTION

    Although final determination of the merits of the dispute is still several years in the making, Abaclat v. Argentine Republic (1) has already been declared one of the most controversial arbitrations to arise in recent years. (2) The proceedings address several noteworthy items as a matter of first impression, including the question of whether sovereign bonds constitute an "investment" (3) under the relevant treaties. (4) However, much of Abaclat's notoriety is due to the unusually large number of claimants in this case, 60,000 Italian bondholders who were seeking to join their claims together in a single proceeding. (5) While both the claimants and a majority of the arbitrators were quick to note that the arbitration was not brought on a classwide basis, (6) the framing of the procedure as involving "mass" rather than class claims has done little to diminish concerns that U.S. litigation techniques, most particularly the dreaded class action, are currently making their way into international investment law. (7)

    Although Abaclat marks the first time that an investment tribunal has accepted jurisdiction over a proceeding of this nature, (8) it is not the first time that a large-scale claim has been brought in the context of treaty-based arbitration, (9) nor is it likely to be the last. Two other group claims against Argentina are currently pending, (10) and commentators have speculated about opportunities for mass investment arbitrations in other contexts. (11)

    While there is still a long way to go before the jurisdictional awards rendered in Abaclat can be considered final, (12) the majority and dissenting awards will doubtless prove groundbreaking on a number of important issues. Certainly there will be extensive analysis regarding the arbitrability of sovereign debt concerns, the interpretation of silence in an investment treaty, and a variety of related matters. (13) However, this Article focuses on perhaps the most challenging and controversial issue, namely the question of the propriety of mass procedures from an international regulatory law perspective.

    The idea of investment law as a form of international regulation is not new. (14) Indeed, a growing number of commentators have framed the international investment regime as reflecting a type of "global administrative law" (15) or "global governance." (16)

    However, most of the analysis has centered on the way in which the various treaties and international agreements are said to constitute a type of "international legislation." (17) While there is a continuing need to consider the ways in which international investment law constitutes a form of traditional regulation, this Article brings a new critical perspective--that of new governance theory--to bear on the question of mass procedures in investment arbitration. (18)

    New governance analysis reflects "a widespread movement away from a top-down approach in public governance to an increasingly hybrid interaction of public and private actors." (19) One area of inquiry involves the concept of regulatory litigation, which arises when a "diffuse set of regulators," including "private citizens, public regulatory bodies, nongovernmental organizations, and private market agents[,] ... regulate social harm" (20) by "us[ing] litigation and the courts to achieve and apply regulatory outcomes to entire industries." (21) For years, regulatory litigation has been considered primarily a U.S. phenomenon, given the widespread reliance in the united States on private attorneys general to enforce various public laws in an otherwise highly deregulated market environment. (22) However, other legal systems have also begun to consider the potential usefulness of this sort of regulatory device, and it may be that Abaclat has brought regulatory litigation techniques into the world of investment arbitration. (23)

    One of the best-known forms of regulatory litigation is the U.S. class action, which uses large-scale representative relief, often combined with punitive or treble damages, to achieve a variety of goals, including those of a regulatory nature. (24) However, the correlation between large-scale relief and regulation is not exact. (25) For example, while a number of common and civil law jurisdictions have adopted procedures roughly similar to u.S.-style class actions, these jurisdictions "are not in unanimous agreement as to whether" regulatory goals "should form an overarching principle of class litigation." (26)

    This raises the interesting question of whether the use of large-scale litigation techniques in Abaclat constitutes an international form of "regulatory arbitration" that is similar in nature to domestic or international forms of regulatory litigation. (27) This is a novel issue, for although the concept of regulatory litigation,28 including transnational regulatory litigation, (29) has been considered at various points in the past, there is little or no existing analysis regarding the concept of "regulatory arbitration," even though several observers have suggested arbitration as a possible solution to certain problems associated with transnational regulation. (30)

    The concept of regulatory arbitration in Abaclat is particularly intriguing given recent suggestions that investment law constitutes a type of international regulation. (31) If the investment regime constitutes an internally stable, relatively closed legal system, then it may be possible to consider whether the use of techniques commonly found in large-scale regulatory litigation is consistent with or perhaps even necessary to fulfill the objectives of the purported regulatory regime as a matter of institutional design. (32) This type of inquiry is particularly useful because it appears unlikely that standard treaty analyses will result in a universally acceptable determination about the propriety of mass procedures in investment arbitration. (33) The hypothesis to be tested here is that if the use of large-scale litigation techniques in Abaclat constitutes a form of regulatory arbitration and if regulatory arbitration falls within the institutional design parameters of the investment regime, then the use of mass procedures in Abaclat can be legitimated without having to rely on difficult questions of treaty interpretation. (34)

    The structure of the Article is as follows. First, Part II introduces the basic facts and analytical framework of Abaclat so as to set further analysis in context. (35) Next, Part III describes the parameters of regulatory litigation and analyzes the way in which regulatory litigation operates in an international legal environment. Part IV puts the concepts of regulatory litigation and transnational regulatory litigation into the arbitral context so as to develop the notion of regulatory arbitration. In so doing, the discussion draws on recent developments involving class and collective arbitration in the United States and elsewhere, so as to put Abaclat into global context. Next, Part V uses the principles developed in Part III and IV to determine whether Abaclat constitutes a form of regulatory arbitration and whether that mechanism is consistent with the investment regime. Finally, Part VI concludes the discussion with some closing observations about how regulatory issues and mass claims procedures can and should be considered under international investment law.

  2. Abaclat v. Argentine Republic

    Abaclat v. Argentine Republic arose as a result of Argentina's default on approximately $100 billion worth of sovereign debt in 2001, a move that made the investments of thousands of Italian bondholders worthless. (36) In September 2002, eight major Italian banks formed an associazione non riconosciuta under the name l'Associazione per la Tutela degli Investitori in titoli Argentini, or "Task Force Argentina" (TFA). (37) The purpose of TFA was to "represent the interests of the Italian bondholders in pursuing a negotiated settlement with Argentina." (38)

    After several years of negotiations and other proceedings, TFA concluded that further efforts to resolve the matter with Argentina were futile, leading TFA to seek and obtain a new mandate from individual and institutional bondholders allowing TFA to file an arbitration with ICSID. (39) The so-called Mandate Package was initially accepted by over 180,000 bondholders, although the number of claimants subsequently dropped to 60,000. (40) After the tribunal was duly appointed, the parties and the tribunal agreed to bifurcate proceedings into a jurisdictional phase and a merits phase. (41) At the time of writing, only the jurisdictional issues have been addressed in the majority and dissenting award. (42)

    one important issue involves the way in which the tribunal defined and justified the use of mass procedures. Rather than characterizing the arbitration as either class or collective in nature, the majority framed the dispute as involving a "mass proceeding" that used a "hybrid" of two different types of group litigation techniques, namely aggregate relief and representative relief. (43)

    There are several benefits to the majority's analytical approach. First, it allowed the majority to set aside certain potentially problematic case law from the united States concerning class arbitration. (44) While it is always difficult to identify the extent to which investment tribunals can refer to principles of national...

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