This article is originally from The American Review of International Arbitration (ARIA)

PREVIEW

I.     INTRODUCTION

As exemplified by the agenda of UNCITRAL Working Group III, the focus of ongoing debates over reform of the current investor-State dispute resolution (ISDS) system has been on procedural reform, broadly understood. The debates thus sideline the substantive aspects of ISDS, i.e. the rights and obligations of investors and States.  Within this structure, the place of counterclaims by States in investor-State arbitration is uncertain. To be sure, the question of counterclaims is basically a procedural one, for, by definition, counterclaims represent a vehicle by which a respondent State may assert a claim against an investor in a proceeding initiated by the investor against the State. Certainly, at the national level, the availability or unavailability of counterclaims is ordinarily addressed in a code of civil procedure.

However, judging from discussions of the subject to date, counterclaims present two further and far more substantive dimensions—not typical of procedural matters in general—that dominate the jurisprudence on the subject. The first has a jurisdictional character. Does an arbitral tribunal possess authority under the relevant investment treaty to adjudicate counterclaims by respondent States against claimant investors? Second, assuming an affirmative answer to this question, what actionable substantive obligations, if any, does the investment treaty impose on investors, and what correlative rights does it confer on States? Given that investment treaties have been largely conceived of as imposing on investors rights only and on States obligations only, neither the availability to States of counterclaims nor the existence of investor obligations and States’ rights can be presumed. It will take express language in any given investment treaty to conclude otherwise.

Complicating matters further is the difficulty tribunals have experienced in disentangling these two aspects of counterclaims. This is due to the fact that, even if a treaty does not expressly confer counterclaim authority on a tribunal, such authority might arguably be inferred from the mere presence in treaties of provisions establishing substantive investor obligations or substantive State rights. This conflation of counterclaim jurisdiction with substantive claims may help explain why, although counterclaims have been on the ISDS radar screen for a long while,  they have not been at the center of recent reform debates.

This article proceeds on the belief that consideration of the place of counterclaims in ISDS will be advanced if the two above-mentioned aspects of counterclaims—jurisdiction and substance—are cleanly separated. Therefore, Part II of this article approaches counterclaims by States as essentially a jurisdictional matter, examining tribunals’ authority to entertain them. In Part III, I assume an affirmative answer to this question and then bring into the equation the question of the substantive rights of States and obligations of investors that might be the subject of such counterclaims. There is of course nothing unusual about differentiating between jurisdictional and substantive issues in ISDS. The very notion of bifurcation in ISDS is based on the notion that jurisdictional and merits issues may be meaningfully distinguished.

Part IV of the article argues, on the basis of discussion to that point, that treaty drafters and tribunals alike have far too long been simply improvising in their approach to counterclaims, leaving the law on the subject in confusion and disarray. This state of affairs goes a long way to explaining the relative paucity of counterclaims in investment arbitration,  and the even greater paucity of successful ones.  The article then examines critically, with an eye on both the jurisdictional and substantive dimensions of counterclaims, how drafters of a new generation of investment treaties who favor the availability of counterclaims are proceeding in that endeavor, and how they are faring. Part V offers a conclusion to the inquiry.