Forbidding Depecage: Law Governing Investment Treaty Arbitration

Abstract

I. INTRODUCTION The law international arbitration has been a field of considerable conceptual controversy. The debate goes back to the 1960's and 1970's, when distinguished scholars such as F.A. Mann, Berthold Goldman, Philippe Fouchard and others argued whether international arbitration should be considered an autonomous system of law, a new lex mercatoria, or whether it ultimately remained subject to the applicable local legal system. (1) As is well known, the former view was shared by many French arbitration scholars, whereas the latter, more conservative view tended to dominate in the United Kingdom and other common law jurisdictions. While no consensus was reached in this debate, it did not remain inconsequential in that it clarified a number of the conceptual issues at stake, including those relating to the various meanings of the term governing law. Indeed, it turned out that at least some of the conceptual confusion was explained by the fact that the various parties to the debate were in part addressing different issues. While F.A. Mann and others who sided with him were more concerned with the lex arbitri, or the curial law the arbitral tribunal rather than other aspects of the concept of law, the proponents of lex mercatoria were more interested in the substantive law of international arbitration. Consequently, as a result of the debate, a distinction came to be made, perhaps more consistently than before, between the law the arbitral tribunal (lex arbitri) and the law applicable to the merits (lex mercatoria). (2) While the lex arbitri v. lex mercatoria debate was conducted largely against the background and in the context of the quickly developing practice of international commercial arbitration, a parallel debate emerged around a related but separate issue--the law applicable to state contracts. Unlike the lex mercatoria debate, which was dominated by private international law scholars and international commercial arbitration practitioners, the debate about state contracts also attracted the attention of leading public international law scholars such as Robert Jennings and Prosper Weil, as well as, of course, the omnipresent F.A. Mann. The focus of this parallel debate was on the various issues raised by the participation of the state in international contracts and in international arbitration, including issues such as whether the state's agreement to arbitrate constituted a waiver of immunity, the existence of a public international law of contracts, the law the arbitration, and the limitations on the applicability of the host state's law on the contract. (3) The two grand debates of the 1960's and 1970's reflected an emerging distinction between international commercial arbitration and international investment arbitration--a distinction that is now taken virtually for granted, but was nothing but obvious at the time. This should not be considered surprising since at the time foreign investment usually took the form of direct contractual arrangements between the state and the foreign investor. As a result, both commercial arbitral tribunals and investment arbitration tribunals drew their jurisdiction from contractual arbitration clauses, negotiated at arm's length between the contracting parties. This contractual thinking was incorporated into, and is still reflected in the ICSID Convention, the great intellectual product of the era of state contracts. (4) The ICSID Convention more or less implicitly assumes that foreign investment will typically take the form of an investment contract entered into between a foreign investor and the host state, or an entity controlled by the state. (5) However, while the debates of the 1960's and 1970's reflected a growing interest in international arbitration as a process of resolving cross-border commercial disputes, and the parallel interest in developing alternative methods for the resolution of investment disputes (and the corresponding displacement of diplomatic protection as a method of dealing with these disputes), it remained, in the end, less than clear which theory or position in fact prevailed in these debates. …