Some people are surprised that I am so obsessed with concerned about ISDS. I've tried explaining it in various ways, but I've had trouble getting my point across. I think the Bilcon decision from last week can help me clarify. (Investment Arbitration Reporter explains the case here, here and here -- those links are subscription only, but I think they offer free trials, so feel free to contact them).
The substantive aspect of international investment obligations that is most problematic, in my view, is the "minimum standard of treatment" (although when you interpret national treatment like this, that worries me too). This is how the Bilcon majority described this standard:
442. The formulation of the “general standard for Article 1105” by the Waste Management Tribunal is particularly influential, and a number of other tribunals have applied its formulation of the international minimum standard based on its reading of NAFTA authorities:
Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety - as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant.
Evidently the standard is to some extent a flexible one which must be adapted to the circumstances of each case.635
443. While no single arbitral formulation can definitively and exhaustively capture the meaning of Article 1105, the Tribunal finds this quote from Waste Management to be a particularly apt one. Acts or omissions constituting a breach must be of a serious nature. The Waste Management formulation applies intensifying adjectives to certain items—but by no means all of them—in its list of categories of potentially nonconforming conduct. The formulation includes “grossly” unfair, “manifest” failure of natural justice and “complete” lack of transparency.
444. The list conveys that there is a high threshold for the conduct of a host state to rise to the level of a NAFTA Article 1105 breach, but that there is no requirement in all cases that the challenged conduct reaches the level of shocking or outrageous behaviour. The formulation also recognises the requirement for tribunals to be sensitive to the facts of each case, the potential relevance of reasonably relied-on representations by a host state, and a recognition that injustice in either procedures or outcomes can constitute a breach.
My sense is that words such as "arbitrary, grossly unfair, unjust or idiosyncratic" convince many people that most government action is basically immune from review under this standard. With such a "high threshold," findings of violation will be extremely rare, some people might say.
I have a different impression of how this standard would apply to government actions in the real world, which is why I'm concerned about all this. In my view, using the standard described in Bilcon, you could make a non-frivolous claim on a significant percentage of all government legislation and regulation. As a result, there are loads of potential claims, and plenty of possible violations.
It would be great if it were possible to quantify the exact likelihood of a violation under this standard. Unfortunately, I have no data on this, just instincts. My view on this is probably shaped by my experience running a business, where the absurdity of government behavior becomes apparent.
The facts of the Bilcon case make me think I'm right to be worried. Read the case for yourself (paras. 446-604), and make up your own mind, but my take on it was that this seems like pretty typical government behavior. It may have been "arbitrary" or "unjust," to some extent, but it also strikes me as quite common.
I'm not sure how exactly you study this issue, but one of you data-analyzing political science folks out there would probably know what to do. I suspect that if you found a way to characterize what happened to Bilcon, and looked around for that kind of behavior, the answer would be that it happens quite frequently.
It's worth noting that the vast majority of such government actions are against domestic actors. A handful of foreign investors here and there also experience this treatment, but this is mainly a domestic issue.
But of course, it happens to foreign investors too, so if that's the standard we are using, and ISDS tribunals find violations in these circumstances, the ISDS litigation business is going to be booming for a long time.
