ICSID jurisdiction over international mass investment arbitrations: due process and default rules.
The prominence of the due process discussions in the Abaclat opinions set the stage for an array of legal commentary about the case that focused on the due process issue. But due process is an unhelpful way to conceptualize the issues raised by mass investment arbitrations. Whether mass arbitrations are permissible depends not on parties' background due process rights, but rather on the scope of parties ' consent to arbitrate. This Article challenges the framing of the issue as one of due process. It argues, instead, that the question is best understood as an issue of treaty and contract interpretation, and of the selection of an appropriate default rule where the consent-granting clause in an investment contract (such as a bond) is ambiguous on the issue of whether parties ' consent to arbitrate extends to mass claims.
I. INTRODUCTION II. BACKGROUND III. ICSID AND MASS ARBITRATION: THE CASE OF ABACLAT IV. DUE PROCESS CONCERNS ABOUT MASS INVESTMENT ARBITRATIONS AT ICSID A. Due Process Concerns in Abaclat B. Due Process Concerns as a Red Herring C. Selecting a Default Rule for Consent to Mass Claims Arbitration V. CONCLUSION
In Abaclat and Others v. The Argentine Republic (formerly Giovanna a Beccara and Others v. The Argentine Republic), (1) approximately 60,000 Italian investors are attempting to convince a panel of arbitrators at the International Centre for the Settlement of Investment Disputes (ICSID) that Argentina's default on sovereign bonds held by the investors violated the Argentina-Italy Bilateral Investment Treaty (BIT). (2)
ICSID provides an arbitration forum for investment disputes between nation-states and foreign investors. (3) If the requirements for jurisdiction are met, (4) ICSID has jurisdiction over investment disputes arising out of BITs entered into by nation-states that are signatories to the ICSID Convention. (5)
The Abaclat case is significant because it is the first mass investment arbitration to be heard before ICSID. (6) The decision has attracted considerable commentary because of its implications for sovereign debt restructuring, the procedure by which a defaulting government offers to exchange new bonds of reduced value for outstanding bonds that it cannot repay. (7) For sovereign debt restructuring to succeed, defaulting governments must be able to credibly threaten that "holdout" creditors who decline to participate in the exchange offer will receive nothing. (8) The Abaclat decision may potentially create a new method for creditors holding defaulted sovereign debt to attempt to collect the face value of their bonds, creating an additional incentive for high-risk investors (such as so-called "vulture funds" (9)) to refuse to participate in sovereign debt restructurings. (10)
Class arbitration has played an increasingly important role in investment dispute resolution in recent decades. The aggregation of claims in a single arbitral proceeding saves individual claimants the costs of proving each element of their claim one-by-one, (11) but potentially multiplies the liability faced by respondents. (12) Mass arbitrations, like class action lawsuits, preclude detailed investigation into the unique facts underlying each individual claim. (13)
In Abaclat, Argentina argued that the mass claim format violated Argentina's "defense rights" (14) and due process rights, (15) and that allowing the case to proceed without Argentina's specific consent would be "a breach of the ICSID Convention's 'outer limits.'" (16) In a landmark decision, the panel--over a heated dissent--rejected Argentina's arguments and determined that the ICSID had Jurisdiction over the arbitration and that the dispute was properly admissible under the ICSID framework. (17)
The prominence of the due process discussion in the Abaclat opinions set the stage for an array of legal commentary about the case that focused on the due process issue. (18) But due process is an unhelpful way to conceptualize the issues raised by mass investment arbitrations. Whether mass arbitrations are permissible depends not on parties' background due process rights, but rather on the scope of parties' consent to arbitrate. The question is whether a blanket consent to arbitrate that does not specifically mention mass claims suffices to confer upon the tribunal the power to fashion a procedure to hear mass claims in a single arbitration. This is ultimately a question of treaty interpretation and the selection of an appropriate default rule, not a question of due process.
This Article begins by providing background on the ICSID generally and the Abaclat arbitration in particular. Next, it considers the due process concerns raised about the mass claim format in the Abaclat opinions. Finally, the Article challenges the framing of the issue of whether ICSID can hear mass claims as an issue of due process. It argues, instead, that the question is best understood as an issue of treaty and contract interpretation and of the selection of an appropriate default rule where the consent-granting clause in an investment contract--such as a bond--is ambiguous on the issue of whether the consent to arbitrate extends to mass claims.
The International Convention for the Settlement of Investment Disputes (ICSID), the arbitration arm of the World Bank, was established by the signing of the ICSID Convention (19) in 1966. (20) Today, 147 states have ratified the Convention and 158 states have signed it. (21) ICSID tribunals are convened to arbitrate investment disputes between "Contracting States and nationals of other Contracting States." (22)
Article 25 of the ICSID Convention gives ICSID jurisdiction over
any legal dispute arising directly out of an investment, between a Contracting State ... and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. Where the parties have given their consent, no party may withdraw its consent unilaterally. (23)
Under Article 25, two layers of consent are required for an ICSID tribunal to hear a dispute: the parties must be signatories to the ICSID Convention as either Contracting States or nationals of a Contracting State, and the parties must specifically consent to jurisdiction over disputes arising out of a particular investment or investment relationship. (24) This requisite "secondary consent" to arbitrate is often, as in Abaclat, derived from a bilateral investment treaty (BIT) to which the parties, or their states, are signatories. (25) BITs "grant foreign investors certain treaty protections as to the behavior of the host country. For example, the host country commits not to expropriate 'investments.'" (26)
A BIT is seen as providing "blanket consent" to arbitrate, so signatory countries need not include specific arbitration clauses in individual investment contracts governed by the BIT. (27) Arbitration clauses in BITS often provide for ICSID arbitration. (28) For example, the Argentina-Italy BIT that provides the secondary consent to arbitrate in Abaclat states that "each Contracting Party grants its anticipated and irrevocable consent that any dispute may be subject to arbitration." (29)
The proliferation of BITs illustrates the rising importance of international investment treaty arbitration. This is a recent development in international law, (30) and it is an especially powerful tool for investors. International arbitrators, such as ICSID panels, "have comprehensive jurisdiction to review sovereign acts of the state by applying broadly worded standards of review." (31) Their awards are "more widely enforceable" than decisions of national courts, (32) and they are not bound by local sovereign immunity laws."
The concentration of such power in the hands of ICSID arbitrators has raised concerns that ICSID arbitration could "shift bargaining power" to holdout creditors and away from "the country in default." (34) Other commentators have suggested that international investment arbitration is politically suspect, as it is sometimes seen as a threat to state sovereignty (35) and as "an anomalous and exceptionally potent system that protects one class of individuals by constraining the governments that continue to represent everyone else." (36) Indeed, one developing country, Bolivia, has denounced its membership in the ICSID Convention, perhaps because of such concerns. (37)
III. ICSID AND MASS ARBITRATION: THE CASE OF ABACLAT
Abaclat and Others v. The Argentine Republic is an ongoing arbitration before ICSID. Because it is the first mass claim brought before ICSID, (38) the Abaclat case raises highly significant issues about whether ICSID can (and should) hear mass claims. In the ICSID context, "mass claims" refers to claims brought by a very high number of investors against a state.
In Abaclat, around sixty thousand Italian investors (39) are attempting to convince the ICSID tribunal that Argentina's nonpayment of the investors' bonds (since Argentina's 2001 default) is a violation of the Argentina-Italy BIT. As of this writing, the tribunal has ruled on jurisdiction and admissibility, but has not yet produced a final arbitral award on the merits of the case. However, the questions surrounding the mass claim format of the proceeding relate to jurisdiction and admissibility rather than the merits of the underlying claim.
The threshold issue the tribunal decided was whether it had jurisdiction over the breach of contract claim raised by the investors, and if so, whether the claim was "admissible"--that is, properly before the court.
Noting that all previous ICSID arbitrations had been bilateral or multiparty (with a much smaller number of parties), Argentina argued that its consent to arbitrate in the Argentina-Italy BIT could not be interpreted as encompassing massclaim arbitrations. (40) Further, Argentina argued that the mass arbitration format violated its due process rights.
In a 2-1 decision, the tribunal concluded that it had jurisdiction. Because Argentina did not provide special, express consent to the arbitration, jurisdiction is based on the theory that Argentina, as a signatory to the ICSID Convention, has consented to arbitrate disputes arising out of the Argentina-Italy BIT. (41) Crucially, the tribunal also decided that it could hear all sixty thousand claims against Argentina in a single arbitration--in other words, that it had jurisdiction over a mass claim brought by the investors through a single representative.
The Abaclat majority used the logic of addition to conclude that because it would have had jurisdiction over each claim if brought individually, it had jurisdiction over the mass claim. The mass proceeding, it claimed, "is not different from any other multi-party arbitration, the only particularity being the unusually high number of claimants." (42) The majority noted that multi-party proceedings are common in ICSID arbitration, and that the ICSID convention and arbitration rules do not specify a limit on the number of parties who may join together in a single arbitration. (43) Hence, "there is no reason to treat this claim differently from any other multi-party arbitration." (44) Finally, the majority argued that the decision to allow the mass proceeding furthered the purpose of the BIT because the investments protected by the BIT inherently involve a high number of claimants. (45)
Accordingly, the majority treated the mass claim format not as an innovative new development in ICSID arbitration, but rather as conceptually identical to multi-party arbitration. An arbitration involving a single claim arising out of the BIT is not fundamentally different, in this view, from an arbitration involving sixty thousand claims arising out of the BIT.
Having concluded that it had jurisdiction over the mass claim, the tribunal then determined that it could fashion appropriate ad hoc procedures to manage the claim. The tribunal's power to fashion procedure derives from Article 44 of the ICSID Convention, which provides: "If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question." (46) Further, Article 19 of the ICSID Arbitration rules provides that the tribunal "shall make the orders required for the conduct of the proceeding." (47)
The Abaclat majority admitted that the nature of the mass claim is such that "Argentina will not be able to bring arguments in full length and detail concerning the individual situation of each of the Claimants." (48) But the majority concluded that
[I]t is not certain that such approach is at all necessary to protect Argentina's procedural rights in the light of the homogeneity of Claimants' claims. In addition, the only alternative would be to conduct 60,000 separate proceedings. The measures that Argentina would need to take to face 60,000 proceedings would be a much bigger challenge to Argentina's effective defense rights than a mere limitation of its right to individual treatment of homogenous claims in the present proceedings. (49)
The tribunal limited the scope of its holding by stating that "group examination of claims is acceptable where claims raised by a multitude of claimants are to be considered identical or at least sufficiently homogenous." (50) Because the investors' claims all arise out of Argentina's alleged violation of the BIT "and not [out of] any potential contractual claims," the majority concluded that the specific circumstances surrounding individual bond purchases are "irrelevant." (51)
The dissent, however, contested the majority's characterization of the nature of mass claims proceedings. It argued that the mass proceeding exceeded the scope of Argentina's consent to arbitrate under the ICSID Convention and the BIT (52): "The BIT does not cover collective mass claims actions, including the present one." (53) Further, "handling mass claims in a single arbitral case or proceeding, or as one arbitral suit or action, necessarily undermines the due process rights of the Respondent and would be unmanageable." (54) And finally, hearing the case would require changing rather than filling gaps in the ICSID arbitration rules, something the ICSID tribunal is not empowered to do. (55)
The dissent argued that the unique nature of mass claims necessitated obtaining a third layer of consent from Argentina: Argentina may be a signatory to the ICSID Convention and the Argentina-Italy BIT, but mass claims are conceptually distinct from multi-party arbitrations, and therefore outside the scope of the consent that can be fairly implied from the Convention and the BIT. (56)
Further, the dissent noted that previous international mass claims processing "took the form of administrative compensation commissions, quasijudicial bodies rather than fully judicial or arbitral tribunals," (57) and that there are heightened due process requirements for mass claims arbitration: "In the present case ... the requirements of ... arbitral due process have to be completely and strictly observed." (58)
In its discussion of Argentina's due process rights, the dissent referred in passing to several specific provisions of the ICSID Convention: Article 48(3) and Article 52(1)(d). (59) Article 48(3) states that the arbitral "award shall deal with every question submitted to the tribunal, and shall state the reasons upon which it is based." (60) The dissent admitted that this does not "necessarily preempt any and all group evaluation of claims," (61) but seemed to suggest that such group treatment is permissible only to the extent that the claims are identical, not just sharing "common features" or "a degree of homogeneity." (62)
The dissent then pointed to Article 52(1)(d), which provides that "a serious departure from a fundamental rule of procedure" is grounds for annulling an ICSID arbitral award, (63) to suggest that the majority's decision not to permit Argentina to demand that each individual claim be proven violated a fundamental rule of ICSID procedure, and so any award based on the decision should be annulled. (64)
Consent to arbitrate usually includes the consent to fashion any procedures necessary to carry out the arbitration, and the ICSID Convention is no exception. (65) But the dissent challenged the majority's characterization of the ICSID Convention's silence on the issue of mass claims as a "gap," arguing instead that mass claims are so conceptually distinct from ordinary multi-party arbitration that fashioning procedure to arbitrate mass claims would require not supplementing the usual arbitration rules, but rather refashioning the rules--an act that would exceed the tribunal's power under the Convention (66):
[Wjhat is envisaged in terms of "filling a gap" is the odd missing rule (by inadvertence or oversight) or a small missing element or cog of a rule necessary for its implementation, what is called in the general theory of law a "technical gap"; and not whole sets of rules that cover complete segments of procedure ..., (67)
If the question of whether to allow a mass claim format is an issue of procedure rather than jurisdiction, it would fall within the tribunal's power to fashion procedure under the ICSID Convention. In arbitration regimes generally, an arbitral panel's decisions as to procedure fall squarely within its jurisdiction, and are subject to great judicial deference. (68)
Whether the mass claim format is simply a matter of procedure as opposed to jurisdiction turns in part on whether the arbitration is characterized as different in kind from an ordinary multi-party arbitration with fewer claimants. In Abaclat, the majority held that the difference was merely procedural and did not implicate Argentina's consent to arbitrate--that is, the decision to allow the mass claim did not implicate questions of jurisdiction at all. Under this view, Argentina consented and the tribunal had jurisdiction, and it was fully within the tribunal's power to fashion procedure to handle the claims. (69)
So what are the practical differences between a mass claims arbitration and a standard multi-party arbitration? The majority admitted that "the large number of Claimants raises a series of questions and challenges," (70) because it would be "impossible to treat and examine each of the ... 60,000 claims ... as if it were a single claim, and certain generalisations and/or group examinations will be unavoidable." (71) Further, the majority added that "it is undeniable that the Tribunal will not be in a position to examine all elements and related documents in the same way as if there were only a handful of claimants. In this respect, the Tribunal would need to implement mechanisms allowing a simplified verification of evidentiary material." (72)
The majority went on to describe procedural adaptations that may be necessary to handle the mass claim. After "first obtainfing] an overview with regard to the merits of the ... case," (77) the tribunal would split the issues presented into three categories. The first group would include issues which are "of a general nature and thus apply to all Claimants uniformly. Such issues and/or conditions could be established at once with regard to all claimants." (74) The second group would include issues which, "while being generally applicable to all Claimants, present certain objective features that would require making certain distinctions among various groups of Claimants;" these issues could be established by a "sampling procedure." (75) Finally, the third group would consist of issues "so Claimant-specific that their establishment would require a case-by-case analysis." (76)
Argentina's argument that mass claims are wholly outside ICSID's jurisdiction in the absence of express consent to the arbitration could be characterized as an attempt to move all sixty thousand claims into this third category, requiring that each claim be brought individually (or that the claims be brought in small groups, in the form of smaller multi-party arbitrations). But mass claims are designed to make it possible for individual litigants to pool similar claims that would be inefficient or impractical to litigate on an individual basis, thereby creating a remedy to give substance to a legal right,77 as the majority noted:
[N]ot only would it be cost prohibitive for many Claimants to file individual claims but it would also be practically impossible for ICSID to deal separately with 60,000 individual arbitrations. Thus, the rejection of the admissibility of the present claims may equal a denial of justice. This would be shocking given that the investment at stake is protected under the BIT, which expressly provides for ICSID jurisdiction and arbitration. (78)
The dissent's view of class arbitration as materially different from bilateral arbitration, and hence requiring additional, express consent to class disposition, has some scholarly support. (79) It also aligns with the historical insistence of civil law countries (such as Argentina) on defendants' "right to mount a full, individualized defense of all legal and factual claims against them." (80)
Of course, it is difficult to imagine a scenario in which a state allegedly in violation of its investment treaty obligations would provide express consent to submit a dispute to international arbitration. States who default on their debt obligations usually have little interest in maximizing the opportunities for foreign creditors to obtain remedies. (81) Assuming such tertiary consent would be rare, (82) accepting the dissent's proposed tertiary consent requirement would amount to a refusal to make ICSID arbitration available as a remedy for investors bringing mass claims against a state.
Closing the ICSID to sovereign debt investors seeking to bring a mass claim would be desirable from the perspective of sovereign issuers and participants in sovereign debt restructurings, but would further narrow the few legal remedies available to holders of defaulted sovereign debt. Future ICSID tribunals may consider such policy considerations in the context of selecting a default rule regarding whether broad arbitration consent clauses encompass mass claims. (83)
IV. DUE PROCESS CONCERNS ABOUT MASS INVESTMENT ARBITRATIONS AT ICSID
This Section begins by critiquing the Abaclat opinions' focus on due process. It then explains why due process is an inappropriate lens through which to examine the dispute over mass claims arbitration. Finally, it suggests an alternative framing of the issue as a question of contract interpretation and default rules.
A. Due Process Concerns in Abaclat
The contentions in the Abaclat opinions about Argentina's due process rights obscure the crux of the issue, which is the following: Does Argentina's consent to arbitrate investment disputes arising out of the BIT encompass this case or not? (84) The issue of whether mass claim proceedings are permissible arguably depends on the limit of the arbitrator's jurisdiction. (85) In arbitration, jurisdiction is based on the parties' consent to arbitrate. Accordingly, Argentina's challenge to the mass claims format raises questions "as to the parties' unconditional willingness to submit to the process." (86) It therefore implicates the "contractual 'jurisdiction' of the arbitrators." (87)
As discussed above, the Abaclat majority concluded that Argentina's consent to arbitrate encompassed mass proceedings such as this one, and further concluded that as a procedural (not jurisdictional) matter, it made sense to aggregate these 60,000 claims as the claimants' representative requested. If the majority was right that Argentina's consent to arbitrate conferred jurisdiction over the claim upon the ICSID tribunal, that would be the end of the matter, as merely procedural matters are left to the tribunal's discretion under the ICSID rules. (88)
If the dissent were correct that Argentina's consent to arbitrate under the ICSID Convention and the BIT does not include mass claims, then that would be the end of the matter, as consent is the basis of arbitral jurisdiction. But if the majority was correct that Argentina consented to ICSID jurisdiction, would Argentina retain some residual due process rights that set a limit on the tribunal's power to fashion procedure? (89)
The dissent seemed to suggest that there were two tiers of due process requirements: one for ordinary arbitration, and one for mass arbitration. (90) But, as one commentator has written, "the similarities between class arbitrations and bilateral arbitrations--particularly at the policy level--outweigh the differences." (91)
A fundamental difference between Abaclat and typical class arbitrations (or class action lawsuits) (92) is that in Abaclat every individual claimant was present and had consented to submitting its claim (through the representative TFA) to the tribunal. This fact was probably critical to the majority's decision to label the proceeding as an "aggregate" proceeding, analogous to a multi-party proceeding rather than a class arbitration. (93)
This distinction is important. The Abacial dissent cites Stolt-Nielsen S.A. v. Animal Feeds International Corp., (94) a recent U.S. case narrowing the availability of class arbitration, (95) in support of its argument that special consent is required to permit class arbitration to go forward. (96) As the United States is at the forefront of class arbitration law, (97) Supreme Court authority may be persuasive to ICSID arbitrators even though it is nonbinding. (98) Stolt-Nielsen can be read as standing for the proposition that "class-wide arbitration 'changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.'" (99) But as one commentator points out, Stolt-Nielsen may be limited by its applicability to class arbitrations where the arbitral tribunal decides the rights of absent class members: "StoltNielsen might plausibly be read as falling short of a prohibition of arbitral orders of consolidation." (100)
Crucially, the fact that all of the claimants (investors) explicitly consented to the arbitration makes many of the familiar concerns often raised with respect to mass arbitrations irrelevant in the factual context of Abaclat. Many of these concerns focus on the rights of absentee claimants, (101) but in Abaclat there are no absentee claimants. The fact that all claimants were present appeared to be important to the majority's conclusion that there is no fundamental difference between a proceeding involving one investor and a proceeding involving 60,000 investors:
[T]he present proceedings appear to be aggregate proceedings, in which each individual Claimant is aware of and consented to the ICSID arbitration. As such, the present proceedings cannot be compared to US class-actions, in which a representative initiates a proceeding in the name of a class composed of an undetermined number of unidentified claimants. In the present arbitration, the number of Claimants is established and so is their identity. (102)
Indeed, what one commentator calls the "two major areas of concern regarding due process--notice and the ability to present one's argument" (103) arguably are not relevant to Argentina's situation in the Abaclat arbitration. And where there are no absentee claimants, the fear that respondents may be "considered unable to defend themselves adequately against the generalized claims of absent class members" (104) is inapplicable.
B. Due Process Concerns as a Red Herring
The Abaclat dissent argued that allowing the mass claim proceeding to be brought in a single arbitration violated Argentina's due process rights. Some legal commentary about the Abaclat decision accepted this conceptual framing and portrayed the mass claims issue as a question of due process. (105) But the issue of ICSID jurisdiction over mass claims is an issue of contract interpretation and default rules rather than an issue of due process.
There is little substance in the argument that the decision to allow the mass proceeding violated Argentina's due process rights. (106) There is no reason to suppose that Argentina's consent to arbitrate as a signatory to the ICSID Convention and the BIT is in some way more problematic than an express consent to mass claims arbitration of the sort the dissent claims is necessary. Argentina is a party to the arbitration, albeit a "respondent" rather than a civil defendant. Argentina has consented to arbitrate under the ICSID framework. That framework empowers the arbitral tribunal to fashion procedures, except as otherwise provided by the ICSID framework itself or by the mutual agreement of the parties. (107)
Due process questions relate to the fundamental rights of legal persons with respect to government bodies. (108) In domestic law, due process generally "is seen as a set of criteria that protect a private person in relation to the [sjtate and authorities." (109) In customary international law, analogous rights guarantee a party's right to basic procedural fairness in international courts and, to a lesser extent, arbitral tribunals. (110)
Because the basis of arbitral jurisdiction is consensual, however, the arbitral tribunal's "actions are based ... conceptually on freedom of contract," (111) and the traditional due process concern about individual rights against the state "needs to be reconsidered." (112)
Some due process rights related to the minimum quality of the arbitral procedure apply in arbitration contexts. (113) The source of these due process rights is based in customary international law, in "a set of norms that floats above" (114) the "hard law" (115) of national jurisdictions and treaties such as the ICSID Convention. Though these due process rights exist, they have limited practical importance in the international arbitration context because the "applicable mandatory law imposes only very general ... guarantees of procedural fairness and regularity." (116)
It is difficult to identify specific requirements of due process in the international arbitration context given such a fuzzy conceptual environment. If due process is supposed to be a hard limit on the power of the arbitrators to fashion procedure, a line-drawing problem arises regarding how far the arbitrators' power extends until it runs into that limit. Parties' consent to arbitrate confers the power on an arbitral tribunal to fashion the arbitral procedure. Arguably, this consent should not be overridden by debatable, undefined ideas about the content of due process requirements in customary international law.
Perhaps the Abaclat dissent (117) and the legal commentators who followed it into the "due process" quagmire (118) were looking in the wrong place for limits on the ICSID tribunal's jurisdiction to hear mass claims. The conceptual challenges raised by the use of ICSID as a forum for mass investment arbitration have little to do with due process rights, and more to do with the scope of parties' consent to arbitrate and the proper interpretation of the terms in the BIT and ICSID Convention in which states agree to ICSID arbitration.
Due process rights are generally waivable by the consent of the persons to whom the rights attach. (119) As arbitral jurisdiction is coterminous with consent, there are arguably few or no "residual" due process rights that limit the scope of arbitral procedure.
The issue of consent (and therefore jurisdiction) to mass claims arbitration is inextricably bound up in this case with the extent of the power of the ICSID arbitrators to fashion procedure to manage an arbitral dispute. As discussed previously, the Abaclat majority and dissent battled over whether the majority was fashioning procedure to fill a gap or revising existing procedure; the former is permitted under Article 33 of the ICSID Convention, (120) while the latter would obviously be impermissible (ultra vires, as the dissent puts it). (121) Any due process limits on the power of the tribunal to fashion procedure would have to be imposed externally, by national courts. But the general rule is judicial deference to arbitral decisions, particularly in matters of procedure. (122)
A threshold matter is whether an ICSID panel has the authority to definitively answer this question of consent and jurisdiction: whether the tribunal has jurisdiction to decide whether it has jurisdiction. Professor Rau suggests that "it might be thought ... that it must be for a court to clear away the obstacles ... and to establish the existence of consent--before any arbitration may be allowed to proceed." (123) But this is not the usual procedure: in general, while courts may invalidate arbitral awards after an arbitration is concluded, there is a strong presumption against judicial intervention in ongoing arbitral proceedings. (124)
Argentina consented to submit itself to ICSID jurisdiction by signing the Convention and the BIT. The next question that arises is whether Argentina's consent was broad enough to grant the tribunal the power to decide the threshold jurisdictional question of whether Argentina's consent to arbitrate extends to mass claims. If so, there remains the question of whether the scope of Argentina's consent to submit investment disputes with foreign nationals to ICSID arbitration was broad enough to include mass claims, absent a special, express consent to the mass claim format. This is a question not of due process, but rather of contract (and treaty) interpretation.
In short, any external limits on an ICSID panel's power to fashion procedure, including mass claims, would be quite weak and rarely applicable: such limits could be imposed only by a court second-guessing the arbitrators' decisions, something courts are usually reluctant to do. (125) However, future ICSID panels could impose internal limits on the power of ICSID tribunals to hear mass claims by discussing the issue of whether a general consent to arbitrate encompasses mass claims as an interpretive matter, and searching for an appropriate default rule. This possibility is discussed below.
C. Selecting a Default Rule for Consent to Mass Claims Arbitration
As discussed above, due process rights are generally waivable, and ICSID jurisdiction is based on and coterminous with the consent of the parties. Therefore, the search for residual due process rights that might limit ICSID jurisdiction over mass claims notwithstanding the parties' consent to the arbitration is a conceptual dead end. The question of whether consent to arbitrate via ICSID includes consent to mass arbitrations is a matter of interpretation: It turns on the interpretation of the underlying documents to which the parties have consented.
The ICSID Convention says nothing about mass claims, and the ArgentinaItaly BIT in Abaclat was also silent. Where a treaty or contract--treaty and contract interpretation principles overlap to some degree (126)--is silent on an issue that arises before a court or arbitral panel, the question arises of how to interpret that silence. Most silences in treaties as well as in contracts are filled with "default rules." (127) Default rules "fill the gaps in incomplete contracts; they govern unless the parties contract around them." (128)
Professor Alan Scott Rau, discussing a similar phenomenon in the context of American class arbitration law, writes that the concept of contractual silence "is a curious and unorthodox and unhelpful construct" because it obscures the central issue of an ambiguity that must be interpreted in the framework of the parties' agreement: (129)
Presumably the court meant to suggest [by the term "silence"] nothing more than that the contractual text itself contained no particular semantic 'hook' on which meaning could be hung--or perhaps, that no definitive meaning could be derived from the contractual text alone. Of course ... it would be an impoverished view indeed of the interpretive enterprise to suppose that one could sensibly stop there; surely some sense of context, and some sort of purposive narrative, are necessary to tease out the parties' framework of common understanding. (130)
When a court or arbitral panel (131) is faced with an ambiguous (or absent) term in a contract, it attempts to reconstruct the parties' "framework of common understanding" by filling any "gaps" or ambiguities in the contract with default rules. (132) These rules are often selected so as to impute to the parties the meaning they most likely would have preferred, ex ante, had they anticipated the future dispute. (133) Contract law "is rife with 'gap-fillers'" of this sort. (134)
Alternatively, jurists can bypass speculation over what the parties before the court or tribunal "would have preferred" and instead impose a "majoritarian" default rule: a term that most similarly situated parties would choose. (135) Such rules are chosen because of their apparent economic efficiency or "consistency with community standards of fairness and policy." (136) The advantages of correctly selecting a rule that reflects the preferences of a majority of actors in a particular market is that, in the future, "parties can omit more explicit terms and thereby save drafting and negotiation costs." (137)
Some commentators argue that the "efficient" default rule and the choice the particular parties before the court or tribunal "would have made" are, as best as can be identified by the judge or arbitrator, one and the same: there is "a complete congruence between the 'efficient' identification of the proper contract terms and honoring what the parties did, or would have agreed to do, under contract." (138)
My purpose here is to encourage reconceptualization of the mass claims arbitration issue in Abaclat in terms of contractual default rules rather than in terms of due process--not to suggest precisely what default rule ICSID arbitrators should apply to the issue of whether ordinary consent to arbitrate through the ICSID Convention and a BIT includes consent to arbitrate mass claims. However, it is worth exploring some of the options that might eventually be selected.
Where a BIT says nothing about mass claims, an ICSID tribunal can impute one of two basic default rules. One rule would be a presumption that mass claim arbitration requires additional, express consent. An alternative rule would be a presumption that the BIT'S grant of procedural discretion to arbitrators permits them to fashion procedures that involve mass claims. The Abaclat majority in effect applied the second rule--albeit perhaps with the limiting principle that all claimants must be present, expressly consenting to the arbitration by bringing their claim--while the Abaclat dissent would have preferred the first rule.
Several arguments can be raised in favor of the default rule implicitly applied by the Abaclat majority--that is, the presumption that consent to arbitrate includes consent to arbitrate in the mass claims format. First, there is a "background rule" that "informs every feature of our law of arbitration:" "By submitting to the process, the parties in cases of 'silence' have presumptively entrusted to their arbitrators a wide ranging power to determine just what form their proceeding will take." (139) Second, there is a logical argument that no essential difference exists between bilateral, multiparty, and "mass arbitration" where (as in Abaclat) all claimants are present and have explicitly consented to arbitration. (140) Third and finally, traditional principles of contract interpretation disfavor adding limitations to contractual clauses that do not appear in the text. (141)
In favor of a default rule requiring additional, express consent, one can point to the recent decision of the U.S. Supreme Court in Stolt-Nielsen, (142) in which the Supreme Court steered U.S. law--historically at the forefront of class litigation and arbitration--in a more conservative direction, putting the brakes on the expansion of claims arbitration. The Stolt-Nielsen Court wrote, in a passage cited by the Abaclat dissent, (143) that class arbitration "changes the nature of arbitration to such a degree that it cannot be presumed that the parties consented to it by simply agreeing to submit their disputes to an arbitrator." (144) In doing so, the Court selected the default rule (143) (implicitly) advocated by the Abacial dissent. Put otherwise, the Court reasoned that "the relative benefits of class-action arbitration are much less assured, giving reason to doubt the parties' mutual consent to resolve disputes through class-wide arbitration." (146) In such circumstances, arbitrators should require more than "the parties' mere silence on the issue of class-action arbitration" to infer consent to such a proceeding. (147)
The concerns raised by commentators about the effect of allowing mass claims arbitration at ICSID on sovereign debt restructuring regimes, (148) which play an important role in the resolution of financial crises, (149) could conceivably lead to a default rule requiring express consent to mass claims arbitration in the ICSID setting. (150) Insofar as the creditors most likely to be involved in litigation over distressed sovereign debt are socially disfavored, as the "vulture fund" moniker suggests, (151) this could also influence the selection of a pro-issuer default rule that shuts the door to future ICSID mass arbitration involving sovereign debt.
Further, the relative novelty of mass claims arbitration--particularly in the ICSID setting (152)--suggests that a default rule permitting class arbitration may be inconsistent with the ex ante expectations of the contracting parties. (153) It seems likely that contracting parties in a strong bargaining position--such as sovereign debtors, who are in the position of drafting bilateral investment treaties and sovereign bond contracts--would not, as a general matter, knowingly "structure their transactions so as to subject themselves to class wide liability," (154) and so would "be expected to immediately opt out of any general background rule that does so." (155)
Another question that arbitrators should consider in choosing a default rule about whether a broad consent granting clause encompasses mass claims is: Which rule is likely to be "stickier," or harder to change? Frequently, parties fail to opt out of default rules--including countermajoritarian or inefficient default rules--even if the parties would prefer a different rule. (156) "Boilerplate" terms that parties may insert out of habit or risk aversion, regardless of their actual preferences, are particularly common in sovereign debt contracts such as those at issue in the Abaclat arbitration. (157) The negative consequences of a countermajoritarian default rule are significantly greater if the rule is harder to change; a default rule that is both sticky and countermajoritarian is likely to impose greater drafting and litigation costs over a longer period of time. (158)
If arbitration consent clauses that are silent on the issue of mass claims are deemed to encompass mass claim proceedings--as the Abaclat panel held--that default rule could be contracted around by including a clause excepting mass claims from the broad grant of consent.
A third default rule--one representing a middle ground between a presumption in favor of and a presumption against interpreting an arbitration consent clause including mass claims--is possible. This option would apply an Abaclat-like rule only where, as in Abaclat, all claimants are present and explicitly consent to the arbitration. When that criterion is met, the arbitration would be treated as an ordinary multiparty arbitration, albeit with a high number of claimants--exactly the reasoning the Abaclat majority used to arrive at its decision. If not all claimants are present and explicitly consent to the arbitration, however--as in U.S. class action cases--the default rule would be that the consent to arbitrate does not encompass that sort of mass proceeding. Since many of the concerns raised about mass investment arbitration are based on analogies to U.S. class action cases in which not all claimants are present, a default rule requiring explicit consent in "absentee claimant" cases may address some of those concerns.
One counterargument to this third rule is that it is unclear why express consent should be required for claimants but not for respondents. Additionally, if this third default rule is countermajoritarian--that is, if it does not reflect the ex ante preferences of the majority of participants in the sovereign debt market (on the issuer side as well as the creditor side)--then it would encounter the same problems as any other countermajoritarian default rule: increased drafting costs and litigation costs.
Ultimately, it is hard to believe that a rule interpreting broad consent-toarbitrate clauses as encompassing mass claims represents the ex ante expectations of a majority of market participants. The fact that Abaclat was the first mass claim to be heard by an ICSID tribunal suggests that it represented a novel use of the legal framework created by the ICSID Convention and BITs, rather than the fulfillment of an ex ante expectation build into the terms of those documents.
There is no doubt that creditors would prefer an Abaclat-like rule that creates a presumption in favor of consent to class arbitration, as such a rule opens another avenue to seek remedies against defaulting sovereigns. But no issuer would support exposing itself to mass investment claims: The history of sovereign debt litigation illustrates the lengths to which sovereign issuers will go to shield themselves, particularly through sovereign immunity law, from the possibility of creditors seizing their assets to execute monetary judgments. (159)
The issue of whether broad consent to arbitrate at the ICSID encompasses "mass claim" proceedings cannot be answered by a search for principles of due process in customary international law. Rather, it is a question of treaty and contract interpretation. Future ICSID panels must decide whether a broad clause consenting to ICSID arbitration, in a BIT or a sovereign bond, encompasses mass claims proceedings. This decision should turn on the selection of an appropriate default rule.
Potential default rules include: (1) that consent to arbitrate is presumed to encompass mass claims; (2) that consent to arbitrate is presumed not to encompass mass claims, so that all parties must expressly consent to the mass claim format for the panel to have jurisdiction; or, (3) that consent to arbitrate is presumed to encompass multi-party proceedings where all claimants are present and expressly consent to the mass claim format, even if there are a large number of claimants and the respondent protests against the format.
This Article has attempted to clarify that the gravamen of the dispute in Abaclat and, to some extent, in mass claims arbitration generally is the interpretation of the scope of the respondent's consent to arbitrate. Future research should focus on which default rule is most consistent with the ex ante expectations of participants in the sovereign debt market.
(1) Abaclat v. Argentine Republic (formerly Giovanna a Beccara v. Argentine Republic), ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (Aug. 4, 2011), available at http://www.italaw.com/sites/default/files/case-documents/ita0236.pdf [hereinafter "Abaclat" or "majority opinion"]; Abaclat v. Argentine Republic (formerly Giovanna a Beccara v. Argentine Republic), ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (Oct. 28, 2011) (Abi-Saab, Prof., dissenting), available at http://www.italaw.com/sitcs/dcfault/files/casedocumcnts/italaw4085.pdf [hereinafter "Abaclat dissent," "dissent," or "dissenting opinion"].
(2) The Argentina-Italy BIT became effective on Oct 14, 1993. See Information on Argentina, Org. Am. States foreign Trade Info. Sys., http://www.sicc.oas.org/ctyindex/ARG/ARGBITs_e.asp. The Italian-language text of the treaty can be found at the following web address: http://www.sice.oas.org/Investment/BITSbyCountry/BITs/ARG_ltaly.pdf. For historical background on events surrounding Argentina's 2001 default see generally Paolo Di Rosa, The Recent Wave of Arbitrations Against Argentina Under Bilateral Investment Treaties: Background and Principal Legal Issues, 36 U. MIAMI Inter-Am. L. Rev. 41, 44-19 (2004).
(3) See generally ICSID, BACKGROUND INFORMATION ON THE INTERNATIONAL CENTRE FOR Settlement of Investment disputes, available at https://icsid.worldbank.org/apps/ICSIDWEB/about/Documents/ICSID%20Fact%20Sheet%20%20ENGLISH.pdf. "Investor-State dispute settlement (ISDS) is a form of resolution of disputes between foreign investors and the State that hosts their investment. ISDS allows foreign investors to initiate dispute settlement proceedings against a host State." Id. at 1.
(4) See generally International Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, art. 25-27, Oct. 17, 1966, 575 U.N.T.S. 159, available at https://icsid.worldbank.org/ICSID/StaticFilcs/basicdoc/CRR_English-final.pdf.
(5) See ICSID, supra note 3, at 1 ("Both the foreign investor and the host State must consent to ISDS before a proceeding may commence. Usually, the consent of the State is contained in international investment agreements between States. These agreements can be bilateral (between 2 countries), or multilateral (between more than 2 countries).").
(6) See S.I. Strong, GUEST-POST PART I: ICSID Accepts First-Ever Class-Type Arbitration, Karl Bayer's Disputing Blog (Aug. 29, 2011), http://www.karlbayer.com/blog/ guest-post-icsidaccepts-first-ever-class-type-arbitration/.
(7) See, e.g., Ellic Norton, International Investment Arbitration and the European Debt Crisis, 13 CHl.'J. Int'l L. 291, 297-309 (2012); Sabine F. Konrad & Lisa M. Richman, Investment Treaty Protection for State Defaults on Sovereign Bonds: The Broader Implications of Abaclat ct al. v. The Argentine Republic, K & L GATES LEGAL INSIGHT (Oct. 17, 2011), available at http://rn.klgatcs.com/arbitration-world-12-14-2011/#6.
(8) See Abaclat [paragraph] 512 (stating that Argentina "contends that the opening of ICSID arbitration with regard to sovereign debt restructuring would be counter-productive in so far as it would encourage hold outs. As such, it would go against current efforts to modernize foreign debt restructuring processes.").
(9) "Vulture funds" are hedge funds that deal in distressed debt. See Felix Salmon, In Defense of Vulture Funds, FELIX Salmon (Feb. 24, 2012), http://www.felixsalmon.com/2007/02/in-defense-of-vulture-funds/.
(10) See Karen Halverson Cross, Investment Arbitration Panel Upholds Jurisdiction to Hear Mass Bondholder Claims against Argentina, 15 Am. SOC'Y Int'l L. INSIGHTS 1 (2011), available at http://www.asil.org/insights/volume/15/issue/30/investment-arbitration-panel-upholds-jurisdiction-hear-mass-bondholder ("The jurisdictional decision in Abaclat may prompt other holders of defaulted sovereign debt to consider investment treaty arbitration as a means of recourse against the issuers.").
(11) See Christopher R. Drahozal, Arbitration Costs and Forum Accessibility: Empirical Evidence, 41 U. MICH. J. L. Reform 813, 835 (2008) (stating that the "recent development of class arbitration" is "a possible means by which claimants can vindicate small claims that could not be brought economically on an individual basis in arbitration").
(12) See Coopers & Lyrand v. Livesay, 437 U.S. 463, 476 (1978) (stating that "[cjertification of a large class may so increase the defendant's potential damages liability and litigation costs that he may find it economically prudent to settle and to abandon a meritorious defense"); .see also Eric J. Mogilnicki & Kirk D. Jensen, Arbitration and Unconscionability, 19 GA. ST. U. L. Rev. 761 (2003).
(13) See Abaclat [paragraph] 536 (admitting that "Argentina may not be able to enter into [sic] full length and detail into the individual circumstances of each Claimant," but stating that "it is not certain that such approach [sic] is at all necessary to protect Argentina's procedural rights in the light of the homogeneity of Claimants' claims").
(14) See, e.g., Abaclat [paragraph] 545.
(15) See id. [paragraph] 234 ("Respondent declares that it has not consented to such a proceeding in any of the relevant instruments. Therefore, to force Respondent into such a proceeding without its consent would be a fundamental denial of due process....").
(17) See Abaclat [paragraph] 506 (stating that the tribunal has jurisdiction over the mass claim); see also id [paragraph] 551 (holding that the mass claim is admissible).
(18) See, e.g., Hans van Houtte & Bridie McAsey, Abaclat and Others v. Argentine Republic: ICSID, the BIT and Mass Claims, 27 ICSID Rev. 231, 231 (stating that the evidentiary grouping techniques proposed by the Abaclat majority "may not meet the due process requirements of an ICSID tribunal").
(19) International Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Oct. 17, 1966, 575 U.N.T.S. 159, available at https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf.
(20) See ICSID, ICSID CONVENTION, REGULATIONS AND RULES 5 (2006), available at https://icsid.worldbank.org/ICSID/StaticFilcs/basicdoc/CRR_English-fmal.pdf.
(21) See Database of ICSID Member States, ICISD, https://icsid.worldbank.org/apps/ICSIDWEB/about/Pages/Database-of-Member-States.aspx.
(22) See ICSID, supra note 20, at 5.
(23) International Convention on the Settlement of Investment Disputes between States and Nationals of Other States, art. 25, Oct. 17, 1966, 575 U.N.T.S. 159, available at https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR English-fmal.pdf.
(24) See Abaclat [paragraph] 258.
(25) See, e.g., Paolo Di Rosa, The Recent Wave of Arbitrations Against Argentina Under Bilateral Investment Treaties: Background and Principal Legal Issues, 36 U. MIAMI INTER-Am. L. Rev. 41, 73 (2004).
(26) Michael Waibel, Opening Pandora's Box: Sovereign Bonds in International Arbitration, 101 Am. J. INT'L L. 711, 716 (2007).
(28) Abaclat [paragraph] 258 ("Within the context of BIT-based arbitration, it is widely admitted that an arbitration clause contained in a BIT and providing for ICSID arbitration constitutes a valid written offer for ICSID arbitration by the relevant state.").
(30) See Gus Van Harten, Investment Treaty Arbitration and Public Law 3 (Oxford 2007) ("Little more than a decade ago, investment treaty arbitration was virtually unknown beyond the circles of those who were involved ... in the negotiation of investment treaties. The system entered the public mindset in the mid-1990s....").
(31) See id. at 5.
(34) Waibel, supra note 26, at 715.
(35) Walter Mattli, Private Justice in a Global Economy, 55 INT'L ORG. 919, 945 (2001) (noting the "deep concern of states with maintaining sovereignty and independence combined with a perception that national autonomy and international arbitration practices are not easily compatible").
(36) Van Harten, supra note 30, at 10.
(37) See Bolivia Denounces ICSID Convention, 46 I.L.M. 973, 973 (2007).
(38) See Abaclat [paragraph] 295 ("While it has happened in the past that multiple claimants initiated ICSID arbitration proceedings, this appears to be the first case in ICSID's history that 'mass claims' are brought before it."); see also id. [paragraph] 519 (stating that "at the time of conclusion of the ICSID Convention, collective proceedings were quasi inexistent [sic]").
(39) See id. [paragraph] 294.
(40) See id. [paragraph] 234 ("Respondent contends that ... [t]he ICSID Convention would not permit such collective claim [sic], nor would the Argentina-Italy BIT").
(41) See id. [paragraph][paragraph] 500-03.
(42) Id. [paragraph] 513 (characterizing the claimants' argument).
(46) Id. [paragraph] 509 (quoting Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, March 18, 1965, amended April 2006, 17 U.S.T. 1270, 575 U.N.T.S. 159).
(47) Id. [paragraph] 510 (quoting ICSID, Rules of Procedure for Arbitration Proceedings, art. 19, ICSID Doc. ICSID/15 (Apr., 2006)).
(48) Id. [paragraph] 536.
(49) Id. [paragraph] 545.
(50) Id. [paragraph] 540.
(51) Id. [paragraph] 542.
(52) Abaclat dissent [paragraph] 153.
(53) Id. [paragraph] 120.
(56) See id. [paragraph][paragraph] 146-53.
(57) Id. [paragraph] 186.
(59) See id. [paragraph] 238.
(60) The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, art. 48(3), Mar. 18, 1965, amended Apr. 2006, 17 U.S.T. 1270, 575 U.N.T.S. 159 [hereinafter ICSID Convention].
(61) Abaclat dissent [paragraph] 237.
(62) See id.
(63) See ICSID Convention art. 52(1)(d).
(64) See Abaclat dissent [paragraph] 238.
(65) See Andrew Newcombe, Mass Claims and the Distinction Between Jurisdiction and Admissibility (Part II), KLUWER ARB. BLOG (Dec. 16, 2011), http://kluwerarbitrationblog.com/blog/2011/12/16/ mass-claims-and-thc-distinction-betweenjurisdiction-and-admissibility-part-ii/.
(66) See Abaclat dissent [paragraph] [paragraph] 194-262.
(67) Id. [paragraph] 202.
(68) See 2 Gary B. Born, International Commercial Arbitration 1773 (Kluwer, 3rd cd. 2009) (noting the "very deferential approach that is taken in most developed legal systems to the parties' procedural autonomy in international arbitrations"); see also id. at 1781 (stating that "[j]udicial orders purporting to establish arbitral procedures would directly contradict the parties' objectives in agreeing to arbitrate--including particularly their desire for less formal and more flexible procedures...").
(69) See Abaclat [paragraph] 297 ("[Argentina] argues that, in the light of their characteristics, mass proceedings are contrary to the system of ICSID arbitration and were not covered by [Argentina's] consent. Claimants, in contrast, hold the view that the 'mass' aspect of the claim is a mere procedural aspect, which does not raise any issues of consent or jurisdiction, and which can thus be duly addressed by the arbitrators under their usual power to rule upon the procedure of the arbitration").
(70) Id [paragraph] 296.
(72) Id. [paragraph] 531.
(73) Id. [paragraph] 667.
(74) Id. [paragraph] 669.
(77) See Abaclat [paragraph] 484:
Collective proceedings emerged where they constituted the only way to ensure an effective remedy in protection of a substantive right provided by contract or law; in other words, collective proceedings were seen as necessary, where the absence of such mechanism would de facto have resulted in depriving the claimants of their substantive rights due to the lack of appropriate mechanism.
(78) Id. [paragraph] 537.
(79) See S.I. Strong, Enforcing Class Arbitration in the International Sphere: Due Process and Public Policy Concerns, 30 U. Pa. J. Int'L L. 1,31 (2008).
[S]ome opponents point to the view of arbitration as a contractual construct and argue that if the parties to the arbitration do not explicitly agree to class disposition, then it is improper to proceed as such. The argument ... is similar to that made in cases involving consolidation of arbitration as well as cases involving third party intervention and joinder in arbitration.
(80) Id. at 9; see also Born, supra note 68, at 1772 (noting that "civil law jurisdictions arc sometimes more demanding than some common law courts with regard to ... the parties' opportunities to reply to factual or legal submissions").
(81) See S.I. Strong, Mass Procedures in Abaclat v. Argentine Republic: Are They Consistent With the International Investment Regime?, 22 n.100 (Univ. Mo. Sch. Law Legal Studies, Research Paper No. 2012-17, 2012), available at http://ssrn.com/abstract=2083219 ("Defendants and respondents often express a heightened interest in individual defense rights at the outset of a large-scale dispute, since that strategy can sometimes defeat the creation of a class or collective and effectively halt proceedings.").
(82) Defaulting sovereigns are generally keen to restrict, as much as possible, the avenues by which holdout creditors can recover on defaulted bonds. See W. Mark C. Weidemaier, Sovereign Debt After NML v. Argentina, online at http://ssm.com/abstract (noting that "sovereigns are very good at keeping assets out of their creditors' hands"); see, e.g., W. Mark C. Weidemaier & Ryan McCarl, Creditors' Remedies, in SOVEREIGN DEBT MANAGEMENT (Lee C. Buchhcit & Rosa M. Lastra, eds., 2014).
(83) See Part IV.C.
(84) In the arbitration context, the issue of consent to arbitrate is inextricably bound up with the issue of arbitral jurisdiction. Consent therefore is at the core of the "Question of Questions, the scope of arbitral power." See Alan Scott Rau, Arbitral Power and the Limits of Contract: The New Trilogy, 22 AM. REV. INT'L ARB. 435, 435-36 (2011).
(85) Id. at 436.
(88) See Abaclat [paragraph] 297 (noting the arbitrators' "usual power to rule upon the procedure of the arbitration").
(89) See Christopher F. Dugan et al., Investor-State Arbitration 97-99 (2008) (noting that the set of available procedural rules is constrained by "fundamental rules of procedure" under Article 52(l)(d) of the ICSID Convention, but "[i]t is not clear which rules fall into this category" and "it is difficult to identify fundamental procedural rules and distinguish them from those rules that arc not fundamental").
(90) See Abaclat dissent [paragraph][paragraph] 185-86.
(91) See Strong, supra note 79, at 7; see also Abaclat dissent [paragraph][paragraph] 75-89 (arguing that international class arbitral awards should be upheld for policy reasons).
(92) See, e.g., Strong, supra note 79, at 8.
(93) See Abaclat [paragraph][paragraph] 483-92; see also id. [paragraph] 104 (noting the investors' argument that their claims were not a "class action," but rather a "joint claim in which each Claimant initiates arbitration on its own behalf').
(94) 559 U.S. 662(2010).
(95) The dissent also cites a second recent American case on class arbitration, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), emphasizing the difference between mass arbitration and standard arbitration. See Abaclat dissent [paragraph] 153 (stating that there are "fundamental differences" between bilateral and class arbitration that "change the nature of arbitration," and noting that class arbitration exposes defendants to "great risk").
(96) See Abaclat dissent [paragraph] 152.
(97) See Strong, supra note 79, at 3 (noting that class arbitration is "a United States-initiated dispute resolution mechanism that has been in existence domestically since the early 1980s").
(98) See Georges R. Dclaume, ICSID Arbitration and the Courts, 11 Am. J. Int'L L. 784, 784 (1983) (stating that "ICSID arbitration constitutes a self-contained machinery functioning in total independence from domestic legal systems"). The fact that the dissent cites two American decisions, but no ICSID decisions, at the heart of its argument suggests that the dissent's due process arguments relied primarily on persuasive, "soft law" authority.
(99) Rau, supra note 84, at 478-79 (quoting Stolt-Nielsen, 130 S. Ct. at 1758 (2010)).
(100) Rau, supra note 84, at 485 n.178. In this footnote, Rau also cites a case distinguishing joinder and consolidation from mass claims arbitration--see Safra National Bank of New York v. Penfold Investment Trading, Ltd., 2011 WL 1672467 at *5 (S.D.N.Y. Apr 20, 2011)--and a case that characterizes a situation in which "no parties are absent" as distinct from class arbitration--see Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 462, 477-78 (S.D.N.Y. 2010).
(101) See, e.g., Strong, supra note 79, at 87-88 (stating that "the most compelling argument against class or representative proceedings" is "that such actions do not adequately protect the rights of absent class members in either the arbitral or judicial context").
(102) Abaclat [paragraph] 486.
(103) Strong, supra note 79, at 9.
(104) Id. at 10.
(105) See note 25.
(106) See generally Matti S. K.URKEL & SANTTU TURUNEN, Due PROCESS IN INTERNATIONAL Commercial Arbitration 1-14 (2d. ed. 2010).
(107) See generally DUGAN, supra note 89, at 95-99.
(108) See BLACK'S LAW DICTIONARY, Due Process (West 9th ed. 2011) (defining "due process" as the "conduct of legal proceedings according to established rules and principles for the protection and enforcement of private rights, including notice and the right to a fair hearing before a tribunal with the power to decide the case"); see also Thomas M. COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS 356 (1868) (describing due process as "such an exertion of the powers of government as the settled maxims of law sanction").
(109) See Black's LAW DICTIONARY, supra note 108, at 1.
(110) See infra notes 119-122 and accompanying text.
(111) DUGAN, supra note 89, at 1.
(113) See id. at 1-2.
(114) See id. at 5-8.
(115) See, e.g., Gunther F. Handel ct al., A Hard Look at Soft Law, 82 SOC'Y INT'L L. PROC. 371, 371 (1988) (stating that the concept of soft law "has been used in reference to international prescriptions that are deemed to lack requisite characteristics of international normativity, but which, notwithstanding this fact, are capable of producing certain legal effects").
(116) BORN, supra note 68, at 1765.
(117) See, e.g., Abaclat dissent [paragraph] 135 (contrasting the Abaclat mass proceeding with an arbitration in which "[t]he tribunal deals ... with one claim and can examine every aspect of it specifically, through adversarial debate and scrutiny that guarantees to the parties, particularly the respondent, all their due process rights").
(118) See supra note 18.
(119) See BORN, supra note 68, at 1775 (stating that "[i]t is well-settled under virtually all national laws and international arbitration rules that procedural protections and objections may be waived"); see, e.g., D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 185 (1972) ("The due process rights to notice and hearing prior to a civil judgment are subject to waiver."); see also Stephen J. Ware, Arbitration Clauses, Jury-Waiver Clauses, and Other Contractual Waivers of Constitutional Rights, 67 L. & CONTEMP. PROBLEMS 167, 193 (2004) (arguing that the Federal Arbitration Act's allowance of contract-law standards of consent to arbitrate permits waiver of the jury trial right and other Constitutional due process rights); Jaime Dodge, The Limits of Procedural Private Ordering, 97 Va. L. Rev. 723, 724 (2011) (noting that "[cjontracts modifying the spectrum of procedure, from commonplace jury-trial waivers to sophisticated alterations of evidentiary obligations and burdens of proof, are now broadly enforceable"). But see MATTI S. KURKELA & HANNES SNELLMAN, DUE Process in International Commercial Arbitration 4 (Oceana 2005) (stating that some due process rules "cannot be contracted out") (quoted in Strong, supra note 79, at 55).
(120) See ICSID, ICSID CONVENTION, REGULATIONS AND RULES art. 33 (2006), available at https://icsid.worldbank.org/lCSID/StaticFiles/basicdoc/CRR_English-final.pdf ("If any question of procedure arises which is not covered by this Section or the Conciliation Rules or any rules agreed by the parties, the Commission shall decide the question.").
(121) See Abaclat dissent 244 ("By imposing the 'adaptation' or 'simplified procedures', that deny Argentina an individual adversarial examination of the differentiated mass claims, the majority award has unlawfully curtailed the Respondent's defense rights and thus flagrantly violated the due process arbitral standards, apart from being manifestly ultra vires.").
(122) See BORN, supra note 68, at 1773 (noting the "very deferential approach that is taken in most developed legal systems to the parties' procedural autonomy in international arbitrations"); see also id. at 1781 (stating that "[j]udicial orders purporting to establish arbitral procedures would directly contradict the parties' objectives in agreeing to arbitrate--including particularly their desire for less forma] and more flexible procedures...").
(124) See id at 1776 (stating that "leading international arbitration conventions, arbitration legislation and institutional rules all adopt a basic principle of judicial non-interference in the ongoing conduct of the arbitral proceedings").
(125) One possible source of limits on arbitrators' power to decide questions of their own jurisdiction is the application of heightened scrutiny by courts to arbitral awards. Such scrutiny would impose greater limits on arbitral discretion, but at the cost of weakening the utility of arbitration as an alternative to litigation (rather than a prelude to litigation).
(126) See David J. Bederman, Revivalist Canons and Treaty Interpretation, 41 UCLA L. REV. 953, 955 (1994) ("Contractual and statutory idioms get confounded in the rhetoric of treaty interpretation.").
(127) See lan Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87, 87 (1989).
(129) Rau, supra note 84, at 438.
(131) This may actually be an important distinction, depending on the procedural posture of the case. If, for example, the ICSID tribunal has the power to determine whether Argentina's consent is broad enough to encompass mass claims, then the tribunal's decision on that question should receive deference under international arbitration law principles. See supra note 122.
(132) Note that it is not necessarily correct to say that a BIT that docs not mention mass claims has a "gap" if the BIT includes a broad consent to arbitrate (as docs the Argcntina-Italy BIT that was the basis of jurisdiction in Abacial). Whether there is a gap depends on how one interprets the consentgranting clause. If, as the Abacial majority held, mass claims arbitration is simply a subset of arbitration, then perhaps a broad consent clause includes a consent to mass claims arbitration, and there is no "gap" at all. As this example illustrates, it is usually more accurate to speak in terms of "ambiguities" rather than "gaps" in contracts. One can conclude that a "gap" exists only after interpreting the contract.
(133) See Rau, supra note 84, at 463-64 (explaining the choice of default rules based on the "hypothetical consent" of the parties to the transaction); see also 11 WlLLISTON ON CONTRACTS [section] 32:2 (stating that "the primary purpose and function of the court in interpreting a contract is to ascertain the parties' intention so as to give effect to that intention").
(134) Rau, supra note 84, at 463.
(135) See Ian Ayres & Robert Gertner, Majoritarian vs. Minoritarian Defaults, 51 STAN. L. Rev. 1591, 1591 (1999).
(136) RESTATEMENT (SECOND) OF CONTRACTS [section] 204 cmt. d, (quoted in Rau, supra note 84, at 465).
(137) Steven Shavell, Foundations of Economic Analysis of Law 302 (Belknap 2004).
(138) Richard A. Epstein, Beyond Foreseeability: Consequential Damages in the Law of Contract, 18 J. Legal Stud. 105, 106 (1989) (quoted in Rau, supra note 84, at 466 n.l 12).
(139) Rau, supra note 84, at 473.
(140) See supra text accompanying notes 41-56.
(141) See 11 WlLLISTON ON CONTRACTS [section] 31:6 (4th ed. 1990) ("Nor may a court, by interpretation, engraft on a contract a limitation inconsistent with the apparent object of the parties ... even where it is clear that had the attention of the parties been called to the omission, they would have, in all probability inserted the term."). However, some limitation is inherent in the act of interpretation: If a contractual term is ambiguous, and a court or tribunal must choose one meaning and not the other, it may thereby limit an apparently broad term--by defining the term to encompass some meanings and exclude others. Note also that the Restatement (Second) of Contracts takes a different view that leaves more scope for the imposition of a majoritarian default rule. See RESTATEMENT (SECOND) OF CONTRACTS [section] 204 (permitting courts to supply a term which is "reasonable under the circumstances" where a gap or ambiguity exists in the contract).
(142) Stolt- Nielson v. AnimalFeed International Corp. 130 S. Ct. 1758 (2010).
(143) See Abaclat dissent 1 150.
(144) 130 S. Ct. at 1774.
(145) See Rau, supra note 84, at 478 (referring to the Court's decision as creating a new federal "default rule").
(146) Stolt-Nielsen, 130 S. Ct. at 1775-76.
(147) Id. at 1776.
(148) See, e.g., Elbe Norton, International Investment Arbitration and the European Debt Crisis, 13 CHI. J. Int'L L. 291 (2012); Konrad & Richman, supra note 7.
(149) See, e.g., Michael Bradley & Mitu Gulati, Collective Action Clauses for the Eurozone: An Empirical Analysis 3-6 (2012), available at http://ssm.com/abstractH948534.
(150) See Rau, supra note 84, at 466 n.l 14 ("[A] default rule is necessarily ... a presumption that allocates between the parties the burden of persuasion as to whether a particular term was included in the deal. And in assigning burdens ... it is a familiar enough phenomenon to see the choice made largely in the interest of handicapping a contention that happens to be socially disfavored.").
(151) See supra text accompanying note 9.
(152) See Abaclat 1519 (noting that "at the time of conclusion of the ICSID Convention, collective proceedings were quasi inexistant [sic]").
(153) See Rau, supra note 84, at 480 n.163. See also 11 WILLISTON ON CONTRACTS supra note 141 [section] 31:7 (noting that courts are frequently willing to depart from literal construction of contractual terms where a literal construction would "defeat or frustrate the intentions of the parties").
(154) See Rau, supra note 84, at 481 n.165.
(156) See Richard A. Posner, economic Analysis of Law 119 (Aspen 2011).
(157) See Stephen J. Choi & G. Mitu Gulati, Innovation in Boilerplate Contracts: An Empirical Examination of Sovereign Bonds 53 EMORY L.J. 929, 929-30 (2004), available at http://ssm.com/abstract=515542. But see Mark C. Wcidemaier, Disputing Boilerplate, 82 TEMP. L. REV. 1 (2009) (contending that the prevalence of boilerplate in sovereign bonds is overstated).
(158) See Stephen J. Choi & G. Mitu Gulati, Contract as Statute, (NYU, Law and Econ., Research Paper No. 06-06; Georgetown Law and Econ., Research Paper No. 872861, 2005), available at http://ssm.com/abstract=872861 (arguing that erroneous interpretations of standard contract terms impose large costs because collective action problems make it difficult to opt-out of the rule through drafting).
(159) See Waibel, supra note 26, at 713 (noting that legal remedies for sovereign debt creditors are "generally ineffective, largely because sovereign debt litigation in national courts runs into the constraint of sovereign immunity from enforcement, coupled with a limited pool of attachable assets abroad").
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|Title Annotation:||International Centre for Settlement of Investment Disputes|
|Publication:||Stanford Journal of International Law|
|Date:||Jun 22, 2015|
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