Arbitration Front and Center at Columbia Law School
But not so at Columbia Law School, where arbitration has been front and center for decades, in large part due to the work of pioneering professors at the Law School, including the late Professors Henry P. deVries and Hans Smit ’58 LL.B., succeeded by Professor George A. Bermann ’75 LL.M., a world-renowned arbitrator and educator.
Bermann directs the Law School’s Center for International Commercial & Investment Arbitration (CICIA) and serves as co-editor-in-chief of the American Review of International Arbitration, the only student journal devoted to arbitration scholarship. Besides his many publications and presentations, he is chief reporter of the American Law Institute’s Restatement of the U.S. Law of International Commercial Arbitration. Professor Bermann is an active international commercial and investment arbitrator and highly active in international arbitration institutions and associations.
The past few months alone saw a serious flurry of events on campus. In March, about 200 students and practitioners attended the 8th annual Columbia Arbitration Day, hosted by the student-run Columbia International Arbitration Association. In April, the law firm Covington & Burling—for the second year in a row—offered students a three-day intensive in-house training on international arbitration. And, in just a few weeks, the Law School will host the American Arbitration Association’s annual directors’ meeting and conference and the 6th biennial International Chamber of Commerce Young Arbitrators Forum, respectively. This comes on top of a year-long speaker series organized by the center and the student organization.
Bermann is co-organizer of the American Arbitration Association event, for which he put together a panel that will present much-needed empirical data on controversial issues in the arbitration field, including whether consumers are disadvantaged in commercial arbitration and whether investor-State arbitration unduly interferes with States’ right to regulate.
Before the May 24 event, Bermann spoke with the Office of Communications and Public Affairs, discussing current controversies in the field, reform efforts, and the benefits of studying international arbitration in law school.
Q: Let’s start from the beginning: What are commercial arbitration and investor-state or investment arbitration?
Bermann: Commercial arbitration is essentially based on a contract between two (or more) enterprises that contains an arbitration clause for disputes that may arise in the future. We call these business-to-business, or B-to-B, arbitrations. Investor-State arbitration is typically, though not only, based on bilateral treaties by virtue of which an investor of one State is entitled to treaty-level protection in connection with an investment in the other State. These two types of arbitration are subject to very different substantive legal principles.
What are some of the major controversies in arbitration now?
One of the biggest controversies in commercial arbitration nowadays concerns the availability of class arbitration for the purpose of aggregating small-value claims. Large companies are putting in their contracts both exclusive arbitration classes and class-action waivers, thus barring consumers from pursuing their claims in class-action form in court. The Supreme Court has upheld that practice.
Though investor-State arbitration is attracting a wider range of critiques, the most salient is the contention that international arbitration unduly impairs States’ rights to legislate and regulate in the public interest. Among the highest profile cases are the Vattenfall case, which was a challenge to Germany’s ban on nuclear facilities, and the Philip Morris case, challenging Australia’s and Uruguay’s regulation of cigarette marketing.
As a practitioner, what concerns do you have about the field?
My concerns over international commercial arbitration are few. Though it is not delivering all it promised in terms of speed and efficiency, it I still performing its functions well and achieving most of its core objectives. It is questionable whether consumer claims, as distinct from B-to-B claims, are appropriate for arbitration, but the impetus toward actually barring arbitration of such claims has proven weak.
My largest concern in respect to investor-State arbitration is that it strive more decisively to promote its legitimacy in the face of widespread popular criticism. There can be no question but that the current investor-State dispute settlement (ISDS) system is preferable to either national court litigation or diplomatic protection as a means of dispute resolution. But it is urgent that the system undergo at least some meaningful reform, whether or not it reflects the current European preference for an international investment court system, not unlike that prevails in the WTO. There is reason for the degree of disquiet surrounding an adjudicatory system, disposing of vast sums of public money that is concentrated in so very few private hands. We see too many States withdrawing from the system. It is not necessary to move to an international court system in order to introduce reforms that widen the circle of international arbitrators, enhance transparency, and provide better definition of the borderline between legitimate exercise of regulation by States and unfair treatment of investors.
Fortunately, the international investment arbitration community is acutely aware of the challenges of ensuring acceptance of arbitration as a means of resolving investor-State disputes and very considerable energies are being devoted to that task. The community is neither complacent nor apathetic, but problems remain and there is a lot of work to be done.
I do not presume to identify the exact lines along which reform should be designed, but I am decidedly in favor of reform. This is one of the tasks to which law schools must make their contribution. It cannot be left entirely to the arbitral institutions, associations of arbitration practitioners, special interest groups or the media to shape the debate. It cannot be that the core values of expertise and neutrality in the conduct of investor-State disputes are achievable only through the system exactly as we know it today.
One panel at the AAA conference is a screening and discussion of the film, Quiet Triumph: How Arbitration Changed the World. How do you think it has changed the world?
That’s a film that was produced by the Arbitration Institute of the Stockholm Chamber of Commerce on the occasion of its 100th anniversary.
As I have said, international arbitration has provided the only viable alternative to adjudication of disputes in national courts or, in the case of investor-State disputes, through State-to-State diplomacy. This is a very big deal. I’ve already mentioned some of its attributes, but I should add to them the ability arbitration offers to parties to design their own dispute resolution system along the lines mutually agreeable to them. They can, if they wish, avoid some of the rigidities and procedural formalities associated with national litigation which is governed essentially by uniform procedural rules and standards. This freedom to establish the “ground rules” comes on top of the even more basic fact that the parties may establish their own tribunal rather than come before a national judge over whose selection they have no choice. Instead, each party typically names one arbitrator, with the pair thus named (or an agreed upon arbitral institution) naming the chair. Parties commonly take comfort in knowing that at least one of the three panel members will be a person of their choosing. The entire system is driven by what has come to be known as “party autonomy.” You can in principle have the dispute resolution system you seek, assuming the other party is in agreement. Because arbitration agreements are typically entered into before any dispute has arisen, the prospects of reaching agreement are in fact considerable.
Of course, investor-State arbitration has the further effect of submitting to the arbitral process disputes pitting investors of one nationality against States of another, with States virtually always appearing as respondents only. The impact has been enormous insofar as the decisionmaker over disputes arising out of actions ostensibly taken by States in the public interest is no longer the judicial branch of the State or diplomatic representatives of the two States, but private individuals. This is perhaps an even greater sea change than the submission of purely private law disputes between private actors to private decisionmaking.
Have recent political events around the world impacted the field at all? Do you expect that they will?
The rise of nationalism and populism around the world represents a challenge to arbitration in at least some of its aspects. Contract-based arbitration should remain largely effective and intact. The same cannot be said of investor-State arbitration. Entry into force and maintenance of international investment treaties presupposes a willingness by States to submit to the judgments of a tribunal sitting outside their borders and staffed by non-nationals. Populations are becoming, rightly or wrongly—but in any event excessively in my view—concerned that their fates are in the hands of foreigners and international elites. Bilateral investment treaties are likely to survive because States look upon themselves as able to negotiate good treaty deals. The real rub comes with multilateral agreements, such as multilateral free trade agreements containing investment chapters, which by definition are negotiated on a multilateral basis and entered into with a potentially wide range of nations. President Trump’s disavowal of the TPP and TTIP, with Asia and Europe, respectively, is evidence of that.
What practical skills can students learn from arbitration that they can apply to other areas of the law?
The kinship between commercial arbitration and the litigation of commercial disputes in national courts is close. Both involve serious drafting and advocacy skills that are highly transferable.However, the party autonomy associated with arbitration creates a space for innovation unattainable in an established court system. I am confident that skills and practices learned in arbitration will spill over into the litigation in which much greater numbers of lawyers engage. Investor-State arbitration creates an unprecedented opportunity for the application of public international law principles to the resolution of disputes. For students who want to become acquainted with, and hopefully practice, international law, there is no better arena than investor-State arbitration.
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Posted on May 23, 2017