An Investment Court that Judges the Judges: a Case of Natural Selection?

• Author: Kyle Dickson-Smith
• Position: International Lawyer and Counsel, FCIArb., BSc, LLB, LLM (University of Melbourne). The author is very grateful for the thoughtful advice provided by Amokura Kawharu, Luke Nottage and Michael Blakeney
• Pages: 71-119

AN INVESTMENT COURT THAT JUDGES THE JUDGES:

A CASE OF NATURAL SELECTION?

KYLE DICKS ON-SMITH 1

Investor-state dispute settlement (ISDS) gives rise to a particular

phenomenon where international tribunal judges the fairness of the

domestic courts of a state. The Australian courts in the Philip Morris case

came close to being ‘judged’. In light of the recent criticism surrounding

ISDS, particularly the inconsistency of tribunal determinations, the

question thus arises whether this system promotes the rule of law. This

article evaluates whether a permanent international investment ‘court’,

such as that proposed by the EU and Canada, contributes to consistency

and the rule of law. In particular, this article identifies certain adequacies

and inadequacies of that system. This article concludes that, while

consistent standards at the international level may act as a catalyst by

providing the necessary foundation, its evolutionary potential to be a

‘public’ court in the true sense is somewhat limited.

Keywords: international economic law, investment law, investor-state dispute

settlement (ISDS), investment court, standard of deference, Australia, Philip Morris,

CETA, Chevron, Eli Lilly, denial of justice

I INTR ODU CTI ON

Courts and arbitral tribunals have a dynamic and symbiotic

relationship. In the field of commercial arbitration, we often perceive the

court system to be the institution supporting the arbitral award and

process. In the context of investment treaties enforced by ISDS, courts

have an added dimension. The courts (consisting of a judgment and the

judicial process) can form the subject of review by an arbitral tribunal. So,

if the international arbitral tribunal judges the fairness of the domestic

1 In ternational Lawyer and Counsel, FCIArb., BSc, LLB, LLM (University of Melbourne). The

author is very grateful for the thoughtful advice provided by Amokura Kawharu , Luke Nottage

and Michael Blakeney. I would lik e to express my appreciation to both Camilla Andersen and

Luke Nottage for providing an effective forum (namely the joint UWA/USyd 20 18 symposium)

to contribute to the current discourse. I welcome any comments and can be reached at

info@kyledickson-smith.com. The views expressed (along with any errors) herein are

exclusively the author’s own. The comments made in this article are solely made in my

personal capacity and cannot be attributed to the Government of Alberta, nor the Government

of Canada, in any way.

72 University of Western Australia Law Review Vol 44(2): 1

courts of a state, and a domestic court in turn judges the appropriateness

of the findings and process of an international arbitral tribunal, where does

that leave the predictability and accountability of the ISDS system?

The Chevron v Ecuador dispute2 provides an appropriate case study

of this phenomenon, which has permeated from the local Ecuadorian

courts to various international tribunals and courts of the United States,

Canada, Brazil and Europe. Similarly, other ISDS claims have encroached

(or come close to encroaching) on the task of judging courts of developed

nations, such as the recent Eli Lilly v Canada case.3 Australia recently

survived judgment of its legislature by an investment tribunal in the Philip

Morris case,4 but are the judgments of Australia’s High Court now grounds

for attack? The ISDS system has been the subject of criticism, with a

particular focus on the inconsistency of tribunal determinations. The

question thus arises, as to whether this ostensibly circular system of

judging the judges promotes the rule of law.

An evolutionary theory, that was unpopular and intensely debated

from its inception,5 was Darwin’s theory of adaptation by natural selection.

Darwin proposed that the strongest traits or features ‘survive’ by being the

most utile for its environment.6 These favourable traits are ultimately

‘selected’ by nature and endure through the reproductive cycle. Further,

under evolutionary theory, often a mutation in the system serves to be a

catalyst that expedites this evolutionary process.7

2 Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. Republic of Ecuador,

PCA Case No. 2007-2.

3 Eli Lilly and Company v. Government of Canada (ICSID Case No. UNCT/14/2).

4 Philip Morris Asia Limited v. The Commonwealth of Australia (UNCITRAL Arbitration, PCA

Case No. 2012-12).

5 The most notable confrontation took place at the 1860 Oxford Evolution Debate during a

meeting of the British Association for the Ad vancement of Science. Bishop of Oxford Samue l

Wilberforce argued against Darwin's theory. Vernon Jenson, Thomas Henry Huxley:

Communicating for Science (University of Delaware Press, 1991), Chapter 3; AFR Wollaston,

Life of Alfred Newton: late Professor of Comparative Anatomy, Cambridge University 1866–

1907, with a Preface by Sir Archibald Geikie OM (Dutton, New York, 1921), 118-120.

6 Charles Darwin defined natural selection as the ‘principle by which each slight variation [of a

trait], i f useful, is preserved’. Charles Darwin, On the Origin of Sp ecies by Means of Natural

Selection, or the Preservation of Favoured Races in the Struggle for Life (John Murray, 1959),

61. This theory was first published by Darwin and Alfred Russel W allace in a joint presentation

of papers in London in 1858, On the Tendency of Species to form Varieties; and on the

Perpetuation of Varieties and Species by Natural Means of Selection and was subsequently

elaborated in On the Origin of Species by Means of Natural Selection, or the Preservation of

Favoured Races in the Struggle for Life.

7 Mutations can change genes and produce variations in traits. Jose ph Carroll, On the Origin of

Species / Charles Darwin (Broadview Press, 2003), 51–52. By 1837, Darwin started his "B"

notebook in Transmutation of Species.

73 University of Western Australia Law Review Vol 44(2): 1

The underlying question presented in this article is whether the strong,

hegemonic nations have set a certain path that results in a paradigm such

that other nations are under some influence to survive by adaptation. In

particular, this article proposes that the investment settlement system has

presented a mutation in the system in the form of the recently proposed

international investment court. This ‘court’ was created and endorsed by

hegemonic states and economic unions, such as the EU and Canada.

One of the theories considered in this article is whether other Asia-Pacific

states, like Vietnam and recently Singapore as well as Mexico, are

‘adapting’ to the model of hegemonic states, and why they do so. Unlike

Darwin’s theory relating to species which unconsciously follow an

evolutionary path, states maintain a greater degree of autonomy to choose

to follow a certain path. As such, other states like Australia may adapt due

to competitive pressure, the virtues or merits of the design of the

investment court, or a combination of each.

With case examples to offer context, this article evaluates whether a

permanent international investment ‘court’, such as that proposed under

the EU-Canada Comprehensive Economic and Trade Agreement (CETA),

the EU-Vietnam Free Trade Agreement (FTA), and by the EU under the

Transatlantic Trade and Investment Partnership (TTIP), contributes to

consistency and the rule of law. In particular, this article identifies certain

adequacies and inadequacies of that system in the context of an

evolutionary institutional shift from the existing model based on private

contract-based arbitration to that of a public ‘court’. Will this model result in

an elevated standard of jurisprudence of international investment law, or

just similar circular outcomes? The standard of review of this ‘court’ could

just as equally promote a divergence, rather than a convergence, of

international investment norms. Ultimately, any convergence between

domestic and international legal norms is regulated by the reciprocal

standard of deference and the willingness of states to consent to a

particular investment treaty standard.

Before addressing the design and the impact of an international

investment court, Part I of this article considers a specific phenomenon of

a perpetual engagement and potential competition of the jurisdiction

between the local judiciary and investment tribunals. This section

discusses the Chevron/Ecuador dispute that once emanated from a local

court and permeated to various international tribunals and other domestic

courts. It is proposed that this case serves as a benchmark (or the

scientific control) to measure whether the investment court will improve