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

• Author: Strong, S.I.
• Position: V. Regulatory Arbitration in the Investment Context through VI. Conclusion, with footnotes, p. 300-324

5. Regulatory Arbitration in the Investment Context

   Before considering the extent to which Abaclat v. Argentine Republic constitutes a form of regulatory arbitration, it is necessary to describe briefly the current debate regarding the extent to which the international investment regime constitutes a form of global regulation. (270) Differences of opinion appear to exist at both the practical and theoretical levels.

   Practically speaking, there seems to be some disagreement about the extent to which international investment agreements are substantively similar. While commentators universally agree that there is a significant number of instruments concerning international investment, (271) people frame the content of these instruments differently. For example, some observers claim that the various treaties share "a surprising pattern of common features," suggesting that "a common law of investment protection" is in the process of developing. (272) Other experts believe that "there is so much divergence in the standards in bilateral investment treaties that it is premature to conclude that they give rise to any significant rule of international law." (273) While this Article does not focus on issues of substantive concern and therefore will not delve further into this debate, the amount of similarity between the various treaties and international agreements is relevant to this discussion to the extent that such similarities affect (1) determinations about the extent to which international investment law constitutes an independent regulatory regime (274) and (2) considerations regarding the viability of multinational class, mass, or collective proceedings. (275)

   Differences of opinion also exist at a theoretical level. Some commentators espouse what has been called the "liberal internationalist" view of investment law, which holds that "investment arbitration should be treated as a unique, internationally-organized strand of the administrative law systems of states" because "[t]he subject matter of investment arbitration is a regulatory dispute arising between the state (acting in a public capacity) and an individual who is subject to the exercise of public authority by the state." (276) This conclusion appears to be supported by the fact that "the regime of investment arbitration [is] established by a sovereign act of the state" as well as by the fact that investment arbitration is "designed to resolve disputes arising from the exercise of public authority." (277)

   Under the liberal internationalist view,

   the underlying purpose of international investment law is ... to provide a global regulatory environment favourable to investors--that "the system of international investment arbitration ... has been set up as one of the major new tools in improving good governance in the global economy." From this perspective, ... international investment law may be characterized as public law, serving private interests. It is a development of international public law, because it is a universal regime focused on regulating the exercise of state powers. But it serves private interests, because its principal goal is to liberate investors from state regulatory control, and maximize the freedom of global capital movements. (278) The fact that "most regulatory disputes are adjudicated by domestic courts in accordance with domestic law, or by a specialized domestic tribunal subject to supervision by domestic courts," is not problematic for those adhering to the liberal internationalist perspective because "the general consent authorizes the adjudication of regulatory disputes by an international tribunal." (279) Thus, people adopting this view say that the investment regime requires (or shortly will require) "a system of compulsory arbitration against States for all matters relating to international investments, at the initiative of the private actors of international economic relations." (280)

   This approach to investment arbitration is fiercely opposed by persons espousing the "sovereigntist" perspective, which "doubt[s] the inherent desirability of free global markets and internationalized regulation" and instead emphasizes "the values of nationalism, state sovereignty, and the need to protect the internal domain of states, their domestic policies and culture." (281) Proponents of this position consider the existence of an international regulatory regime as much more doubtful and, to the extent such a regime exists, much more limited in scope, given that the investment arbitration regime is not meant to protect every type of economic transaction that could possibly arise. (282)

   Detailed analysis of the two theoretical views of investment arbitration is beyond the scope of this Article. (283) However, it is useful to note that it may be impossible to determine which approach is ultimately "correct" as a matter of treaty interpretation because the debate reflects "deeper uncertainties underlying international investment law" and, as such, may not be "susceptible to technical or doctrinal solutions" alone. (284) Therefore, other sorts of analyses--such as the one in this Article--may be necessary to provide alternative perspectives on various issues, including questions relating to the propriety of mass procedures.

   These theoretical concerns are not just fodder for academic debate. Instead, the two views of investment arbitration have practical ramifications and are in fact reflected in the jurisdictional awards rendered in Abaclat, with the majority siding with the liberal internationalists and the dissent aligning itself with the sovereigntists. (285) This is both intriguing and important, since it suggests future cases involving mass investment claims could be subject to the same kind of ideological divisions.

   Having put Abaclat in its proper context, it is time to consider whether and to what extent the mass procedures proposed in Abaclat constitute a form of regulatory arbitration independent of any regulatory aims that might or might not be associated with investment law as a general proposition. (286) The analysis considers each of the three elements necessary to establish regulatory litigation and regulatory arbitration separately: intent, a pre-existing substantive norm, and a rule or remedy that provides a forward-looking effect. (287)

   1. Intent

      The first aspect of the test for regulatory litigation and arbitration, intent, requires "not only the desire to influence behavior as the conscious object of the one who would regulate, but also the desire to prevent some future, risk-producing behavior." (288) This element could be problematic for those attempting to frame Abaclat as a form of regulatory arbitration, at least to the extent that the focus is on the intent of the arbitrators.

      On the one hand, the majority clearly indicated that "[c]ollective proceedings are ... consistent with the purpose and object of the BIT." (289) While this statement is in many ways helpful, it does not express an intent to regulate or deter. In fact, the majority appeared to downplay the forward-looking (i.e., regulatory) effect of its award, stating explicitly that its decision regarding the use of mass proceedings was not intended to act as a form of procedural precedent (290) and denying that it had taken any policy considerations into account when determining the various issues, indicating instead that the outcome was based on a strict reading of the BIT itself. (291)

      In many ways, the absence of any visible regulatory intent in the Abaclat majority award is not surprising. (292) While it is possible that an arbitral tribunal could indicate an intent to regulate certain behavior, it is more likely that arbitrators will disguise or deny any regulatory aims in large-scale arbitration, given the U.S. Supreme Court's recent criticism of policy-driven awards in the context of an international class arbitration. (293) While arbitrators in investment proceedings are not bound by U.S. precedent, (294) panelists who are concerned about protecting their awards are unlikely to include controversial elements that may result in an annulment.

      However, regulatory intent does not rely solely on the mentality of the court or tribunal. (295) Instead, the necessary intent can be provided by the litigants. (296) All that is necessary is that the actor providing the requisite intent "intend[s] to produce some action on the part of the target of regulation because of the risk (and the litigant's or judge's apprehension of the risk) that the target actor's future behavior will fall short of the relevant norm." (297)

      Taking the burden of regulatory intent off the arbitrators opens the door to some interesting analysis. For example, a state respondent could be said to have provided the necessary regulatory intent to the extent investment arbitration can be framed as a regulatory mechanism. (298) This approach would take any general regulatory intent that already exists in investment arbitration and carry it over to disputes involving class, mass, or collective claims, thus eliminating the need to show any additional specific intent to use large-scale litigation procedures in a regulatory manner. (299) While this technique is not recommended for general use, since it triggers the potentially irreconcilable division between the liberal internationalist and sovereigntist views of investment arbitration, it does provide food for thought. (300)

      Another, more likely possibility is that the claimants in an investment proceeding have supplied the necessary intent. (301) As it turns out, the bondholders in Abaclat appear to have had a type of regulatory intent in mind when they filed their arbitration, based on their statements that "[t]he major threat to the efficiency of foreign debt restructuring [is] rogue debtors, such as Argentina. Consequently, opening the door to ICSID arbitration would create a supplementary leverage against such rogue debtors and...