Advocacy in Investment Treaty Arbitration

Of the modes of persuasion furnished by the spoken word there are three kinds. The first kind depends on the personal character of the speaker [ethos]; the second on putting the audience into a certain frame of mind [pathos]; the third on the proof, or apparent proof, provided by the words of the speech itself [logos]. Persuasion is achieved by the speaker’s personal character when the speech is so spoken as to make us think him credible.

Aristotle

As investment treaty arbitration has become more prominent in the past few decades, much has been written about its differences and similarities with commercial arbitration. In terms of pleading a case, the art of advocacy is, in any type of arbitration, the art of persuasion. The ultimate goal is to persuade a neutral or a group of neutrals to adjudicate in favour of one’s client. Investment treaty arbitration, however, presents certain unique aspects. It always involves a sovereign state or a state’s agency or instrumentality, which incorporates a public component to the factual background of the case. It is typically based on an international treaty, rather than a contract, which determines a different law applicable to the merits – international law rather than national law.

Advocacy in investment treaty arbitration requires at least four particular skills that a diligent counsel should master to present a compelling, persuasive and ultimately successful case: critical thinking, strategy, writing and calibrated drama. This chapter provides an overview of these skills. The purpose is not to present an exhaustive account of the techniques available to counsel, but to group some of them and provide some practical guidelines.

Critical thinking

The roots of critical thinking are traceable to the teaching practice of Socrates, whose questioning method involved seeking evidence, testing assumptions, analysing concepts and anticipating implications. This is the first step for counsel in any investment treaty arbitration: apply critical thinking to the facts, the law and the rules of the game.

Learn the facts

The factual predicates of any investment treaty claim are the actions performed by, or attributable to, the state. Typically, the claim will be based on sovereign’s acts of government (i.e., executive, legislative or judicial measures), which incorporates a public component to the factual framework of the case, as opposed to commercial arbitration, which is generally based on acts of commerce.

Whether representing a claimant or a respondent, counsel will need to conduct thorough research on the respondent state, its socio-political circumstances, the government policies implemented during the course of the relevant investment period and the public interests behind them. A great number of investment cases further involve heavily regulated sectors, such as energy, mining or telecommunications. The understanding of these sectors will be indispensable to build a solid case. Every minute of properly conducted research at the outset will certainly pay off over the course of the proceeding.

Counsel for the claimant will need to pay close attention to the availability of documentation and witnesses, as investment treaty claims may involve an asymmetry in the access to information. The background documentation on the relevant government measures may be scattered around several national or regional entities, or may not be public at all. Witnesses may further be government officials with no incentive to cooperate with the foreign investor and who may fear retaliation. A diligent counsel for the claimant will seek measures at the outset of the proceeding to ensure the integrity of the documentation and the safety of the witnesses.

Counsel for the respondent also faces factual challenges. First, some of the state measures at issue may be politically motivated and will be harder to justify under the investment treaty. A newly elected administration may decide to change long-lasting government policies or openly criticise the actions undertaken by the previous administration. Government officials may also adopt certain measures to preserve their political capital, which may not be in the best interests of the state. An experienced counsel will navigate politically turbulent waters, conveying a uniform and coherent message despite potential changes in government. Second, the state’s apparatus typically comprises national, regional and local entities, which may be governed by different political parties or factions within a party. Counsel will need to coordinate the state’s public statements at all levels of government to avoid contradictions or acknowledgements that may have a negative effect on the case.

The presence of a sovereign state alters a proceeding

The presence of a sovereign state as party substantially alters a proceeding, and in myriad ways.

By way of example, sovereigns may well invoke protections (e.g., sovereign responding to immunity, act of state) that private parties cannot invoke.

From a procedural point of view, states commonly move more slowly, or at least more formally (and formalistically!) than private parties in complying with tribunal orders or participating more generally.

Even the merits of the dispute may be affected by the state’s invocation of the public interest in support of its claim or defence. Especially in treaty-based investor-state disputes, jurisdictional issues take on a different colouration. Whether the claimant is an investor that made an investment may sound like a merits question, but it is in fact most often viewed as jurisdictional.

Similarly, whether the claimant failed to satisfy a condition precedent to arbitration (e.g., mediation or litigation for a period of time) is ordinarily viewed as a matter strictly for the tribunal, but may be viewed in the investor-state context as jurisdictional. The latter is precisely the question that divided the US Supreme Court in its landmark BG Group v. Argentina decision.

– George A Bermann, Columbia Law School

Learn the law

One of the most distinctive features of investment treaty arbitration is the combination of elements of public and private law. It is typically based on an international treaty entered into by sovereign states, while it affords rights to nationals of those states and entitles them to enforce those rights in arbitration. The law applicable to the merits of the case will typically be the bilateral investment treaty (as lex specialis), customary international law and, occasionally, domestic law of the host state. Counsel will need to be familiar with the interplay of these three sources of law.

Investment treaties further contain a handful of standards of protection, which are often vaguely drafted and provide, in and of themselves, little guidance as to their application to the particular case. Counsel will need to further research the application of these standards in hundreds of investment treaty awards, which, albeit not binding, are granted a reasonable degree of deference by other tribunals.^[2] Counsel will need to fill in perceived gaps of the treaty with customary international law and resolutions of the International Court of Justice, as needed. Finally, the advocate may need to be familiar with specific instances of local law, such as to determine the scope of the investor’s property rights or to establish whether or not it effected the investment in accordance with the law of the host state.

Learn the rules of the game

This is as crucial as knowing the law and the facts. Written rules include the arbitration law of the seat and the procedural regulations that may govern the arbitration proceeding, whether it be the rules of the International Centre for Settlement of Investment Disputes (ICSID), the United Nations Commission for International Trade Law (UNCITRAL), the Permanent Court of Arbitration or others. At the outset of the proceedings, particular emphasis should be placed on sections concerning the appointment and recusal of arbitrators, interim measures, bifurcation, interaction with local courts, or annulment or enforcement of the award, which could have a direct impact on the preferred composition of the tribunal, the party’s ability to present its case or the integrity of the award.

Unwritten norms include codes of conduct by which counsel should abide. Investment treaty arbitration has been described as a gentleman’s game. Arbitrators sitting on investment treaty cases are among the most experienced and respected professionals in the arbitration community. The tribunal will address counsel with the utmost respect and consideration, and will expect them to follow suit. Counsel’s tone and demeanour should be calm and polite. Ad hominem attacks or signs of hostility should be avoided. Zealous advocacy in the client’s best interest is always accepted; disrespecting the counterparty or opposing counsel is not.

Strategy

Counsel must develop a clear strategy from the outset, correctly allocating resources and never losing sight of the ultimate goal.

Focus on the essence of the case

Arbitrators can be persuaded if they are genuinely helped.

Counsel need to be clear and assist the tribunal in reaching the best possible decision, in identifying what truly matters for the resolution of the case. Counsel live and breathe the case. They speak to the clients, interview the witnesses or the experts, review and select every scrap of document in the file. Arbitrators, on the other hand, no matter how well prepared they are, will never master a case to the same degree.

Counsel must lead the tribunal through the maze of the case and towards their preferred solution in a clear, concise manner without resort to embellishment or polemic.

In doing so, counsel should be mindful not to lose sight of their positive case and not to get caught in the minutiae of the dispute.

It is important that advocates focus on the essence of the case and the main factual and legal issues, those that they want the tribunal to remember when all is said and done and the lights go off in the hearing room.

– Loretta Malintoppi, 39 Essex Chambers

Keep your eye on the end game

The first strategic consideration is setting the ultimate goal. It may not be as straightforward as it seems. For a claimant, the goal may seem to be a favourable award, but most likely is early favourable settlement or, failing that, ultimately collecting payment on the award. Enforcement strategy should be considered at the outset of the proceedings. For instance, out of the dispute resolution alternatives included in an investment treaty, a claimant may lean towards ICSID instead of UNCITRAL arbitration, since ICSID awards are directly enforceable as national court judgments. However, should the investor lack legal personality (e.g., a trust or a limited partnership in some jurisdictions), it may fall within the definition of investor under the treaty but may face some hurdles under Article 25(2) of the ICSID Convention, which provides that the Centre has jurisdiction over disputes between the host state and a ‘juridical person’ of the home state. In this case, UNCITRAL arbitration – containing no such requirement – may be more appropriate. Other early considerations include whether the relevant investment is still a going concern in the host state or has been irreversibly destroyed, and whether the particular state has voluntarily paid investment awards in the past. This may affect the ultimate goal of the case – to reach a settlement and maintain an amicable relationship, or proceed to an award.

For a state, the ultimate goal may well be an award dismissing the claim. Other political or economic factors may be in play, however, such as the state’s intention to project a positive image as a safe destination for foreign investment, or the existence of a third-party funder and the investor’s lack of own resources to pay for arbitration costs. These factors may also speak for a settlement rather than a public and lengthy proceeding. Conversely, the goals of government decision-making may diverge from the state’s interests. An elected official may wish to delay or reject a settlement, even if favourable to the state, until after critical elections take place. A civil servant may wish to avoid a settlement involving large payments during his or her tenure, leaving the decision to a successor. Experienced counsel must be aware of competing interests in the client’s decision-making process and navigate them carefully.

Assess the strengths and weaknesses of the case

Two common and useful pieces of advice for counsel at this stage are not to fall in love with one’s own case, and not to hide its weaknesses, allowing the counterparty to expose them. Counsel will often do well to address these weaknesses directly, minimising their impact and relevance for the case.

Appoint the right tribunal for the case

In arbitration, the parties participate in the selection of the tribunal. Additionally, in investor-state arbitration, most of the awards are public. There is, therefore, a vast corpus of decisions that counsel may examine to better understand the arbitrators’ positions on certain issues of fact and law that may be applicable to the case at hand. Counsel should also assess whether the candidates’ decisions lean towards the investor or the state, for obvious reasons, and whether they frequently issue dissenting opinions, when they have been unable to persuade the other members of the tribunal of their point of view.

The cultural and legal background of the arbitrators is also relevant. It has been traditionally contended that civil law-trained arbitrators tend to rely more on documentary evidence and are reluctant to grant wide-scope discovery, while common law arbitrators pay greater deference to oral evidence and cross-examination of witnesses, and are more prone to discovery. Counsel should assess the particulars of the case and the available evidence to tailor the appointment accordingly. Language skills are relevant too. Most of the documentation of the case may be written, and most of the witnesses may testify, in the host state’s official language. An arbitrator who speaks and understands that language will have an edge over other members of the tribunal, thereby avoiding ‘lost in translation’ issues. Language skills may also be an indirect way for a specific cultural or legal background to permeate the tribunal (e.g., most native French and Spanish speakers are likely to have a civil law background). More broadly, the reputation and credibility of an arbitrator should be paramount factors in the appointment decision.

Finally, investment treaty arbitration is international by definition and it involves different cultural, legal and socio-economic sensitivities. Fostering diversity in the composition of the tribunal, in all forms, will ensure a broader perspective on the issues at hand and enhance the quality of the decision-making process.

Anticipate next steps

In the event of a dispute before domestic courts or administrative bodies of the host state, counsel should consider potential jurisdictional hurdles for the investment treaty arbitration (e.g., cooling-off periods, fork-in-the-road clauses). Moreover, counsel will need to assess the documentary gaps in the case and how to fill those gaps, namely with witness statements or with document production requests to the counterparty.

Writing

Humans are not ideally set up to understand logic;
they are ideally set up to understand stories.

Roger C Schank, PhD

Written submissions are the backbone of investment treaty arbitration – they articulate the narrative and contain the relevant information upon which the tribunal will base its decision. In investor-state arbitration, at least two rounds of written submissions will typically take place before the hearing. Counsel should take advantage of them so that the arbitrators enter the hearing with a clear idea about the case.

Some recommendations on how to write effectively to persuade an adjudicator have been eloquently summarised as follows:

• be clear;
• be brief;
• make it interesting;
• don’t misstate the facts;
• don’t misstate the law;
• don’t stray from your legal argument;
• keep it simple;
• use examples; and
• revise, revise, revise.^[3]

These and other practical recommendations can be grouped into three main categories, from the specific to the more general.

Be clear

The purpose of a written submission is to assist the arbitrators and build the advocate’s credibility. The guidelines for an advocate are to be clear, rigorous, thorough and structured. Experienced counsel will avoid hyperbole, adjectives or adverbs, unless they are indispensable in conveying the message. Counsel will use the active voice, short simple sentences and parallel structures. Plain and direct language, conveying one idea per paragraph, is also advisable.

When becoming familiar with the case, the tribunal may instinctively follow one of the briefs filed by the parties; and the chances are that it will choose the brief in which the information is more simply and accurately conveyed, and easier to find and understand. There is no quicker way for counsel to lose credibility than by misquoting or omitting the relevant part of a document, or misstating a date. There is no easier way to lose the tribunal’s attention than by being unnecessarily convoluted – the tribunal will immediately turn to the other party’s brief for assistance. The ultimate goal of any written submission is, therefore, to be clearer and more accurate than that of the counterparty.

Tell a story

The second step is to include the details of the case within a broader narrative. In the words of film director Jean-Luc Godard: ‘Sometimes reality is too complex; stories give it form.’ Counsel should convey complex issues in a simple way, within a compelling story. Studies show that we understand, absorb, categorise and memorise information better when it is included as part of a story. A useful way to verify the narrative is by checking the headings included in the table of contents, which, by themselves, should paint a complete, compelling and persuasive picture of the case. The story should also be relatable to the reader, for whom it may be useful to explain the intent behind the parties’ actions. Intent may not be required to establish violations of investment treaty standards, but it may help to draw empathy from the reader.

The critical difference is transparency

Investor-state treaty-based arbitration is, of course, different from commercial arbitration in many important aspects. The advocacy skills, however, are not that different. The vast majority of the advocacy tips relevant to treaty-based arbitration are equally relevant to commercial arbitration, and vice versa. The critical difference is transparency. An advocate in treaty-based arbitration should be prepared that the briefs he or she has written would be published and that the hearing, in which he or she would examine and cross-examine witnesses and present oral arguments, would be webcast. This doesn’t mean, of course, that the advocate should perform to the audience – the goal of the advocate is to persuade the tribunal. However, public hearings contribute to the accountability of parties, counsel and arbitrators, and – as far as counsel is concerned – impose discipline and highlight the duty to act in an efficient and courteous manner.

– Stanimir A Alexandrov, Stanimir A Alexandrov PLLC

The maxim is that a good story is always more persuasive. Think, for example, how difficult it would be to absorb and memorise a three-paragraph sequence of random numbers. Think, instead, how easy it is to absorb and memorise Aesop’s fable of the fox and the ‘sour’ grapes. It is easy to understand, relatable and it ends with a moral. Now think about framing the actions of the counterparty in terms of Aesop’s fable. The state, for example, did not have the resources to pay for a main road that was being constructed by the investor, so it claimed that there were construction defects. Or the investor did not have the resources to build the road so it claimed that the state’s requirements were unfair and unequitable. Story: one of the parties could not reach the grapes so it claimed they were sour. Moral: many tend to find excuses for their own shortcomings.

As the proceeding evolves and the parties produce the bulk of the evidence, counsel’s task should further resemble that of the director of a documentary. Ideally, there should be no narrator, no voice-over. The facts and the evidence produced in the proceedings – documents, witness statements or expert reports – should drive the narrative of the case, as footage and interviews drive the story in a documentary. The fewer arguments made by counsel, the better. The facts should speak for themselves.

Listen, especially to your own witnesses

As an advocate, it is critically important to listen carefully to every word said in a hearing, especially by your own witnesses. In a treaty-based arbitration, the former manager of the claimant’s operations in the respondent state became a turncoat. The respondent included a witness statement from him only in its rejoinder memorial, trashing his former employer, the claimant, and favouring the respondent’s case. The tribunal then correctly permitted the claimant to file a further witness statement responding to the turncoat’s late submission. It came from a senior in-house counsel of the claimant, who testified that he had received a phone call from the turncoat shortly after he was fired, stating that he had done a lot for his former employer, so much so that it should be worth US$5 million in severance pay. Cross-examining counsel for the respondent asked the witness, ‘Did you report him to the authorities [in the respondent state]?’, to which the response was, ‘No, not then’. Counsel for the claimant missed the significance of this answer, but as one of the arbitrators in the case, when it was my turn to ask questions, remembering the ‘not then’ that had followed ‘No’, I asked: ‘Did there ever come a time when you reported this person to those authorities?’ It opened a floodgate. The response was, ‘Oh, yes, we did. After I received that phone call we convened an emergency meeting in the board room, we sent down to our operations in that country a forensic accounting team and they discovered that that person had embezzled $300,000 from the company. With that we went to the authorities!’ Counsel for the claimant had missed the significance of the soft ‘not then’ after the claimant’s witness’s ‘No’.

Moral of the story: catch every word, even of your own witness’s answers on cross-examination, as one or two words may be the fuse on a stick of dynamite for you to ignite!

If an obvious witness is missing, expect us to ask

Sometimes it can be very useful for the tribunal in an investor-state arbitration itself to request the presence at the hearing of an individual who has not been offered or called for cross-examination by either party. In one such case, the corporate secretary of the private company that claimed it had been expropriated had given witness statements to both sides but was not called by either party for cross-examination. The two witness statements did not conflict with each other, but each made points somewhat favourable to the party that had presented it. Intrigued by this unusual situation, the tribunal requested that this witness appear at the hearing, and indeed she did. In the end, her testimony proved to be absolutely worthless.

In another case, however, in which a troubled eastern European state was the respondent, the tribunal realised from the written submissions of both sides that a certain billionaire of prominence in the respondent state seemed to be everywhere in the background, yet neither party had submitted a witness statement from him, perhaps with good reason. The tribunal requested his presence at the hearing and he complied. (The only incident along the way was that his bodyguard was unhappily relieved of his weapon by the United Nations guards at the gate to the Peace Palace in The Hague, the venue of the hearing.) In this case, the testimony elicited by the tribunal, in response to which both sides were permitted to ask questions, helped to seal the fate of the respondent. The moral of the story: ‘Nothing ventured, nothing gained!’

– Charles N Brower, Twenty Essex

Simplify

Most written submissions in investment treaty arbitration cover complex factual and legal issues and, unfortunately, tend to be rather lengthy. Once a first draft of the brief has been put together, counsel’s task is to revise and simplify it. Then revise and simplify it again. Then once more. Counsel should boil the brief down to its essentials, stripping it of all unnecessary detail. Less is more – simplicity is the road to persuasion.^[4]

Identify key ideas

Compelling stories can be summarised in one paragraph. If the task does not seem possible at any given point in time, the brief may benefit from some extra work. Counsel should further identify the key ideas on which the case rests and adequately convey them to the tribunal. The writing process should therefore be based on describing the facts in a simple way, incorporating those facts into a broader narrative, simplifying the story and breaking it down into a few main drivers.

Calibrated drama

The last stage of an investment treaty arbitration is the oral argument before the tribunal. All practical recommendations for written submissions in investment treaty arbitration (i.e., brevity, clarity, structure, thoroughness, identifying key ideas, simplicity) are directly applicable to an oral presentation. Other features unique to oral advocacy can be summarised through an analogy to the art of drama. For instance, Brutus and Antony’s monologues in the third act of Shakespeare’s Julius Caesar represent a master class in oral persuasion and contain a list of practical dos and don’ts in oral advocacy.

In his monologue, Brutus commences by ordering the audience to listen to him, remain silent and believe him for who he is (‘Romans, countrymen, and lovers! hear me for my cause, and be silent, that you may hear: believe me for mine honour, and have respect to mine honour, that you may believe . . .’). Brutus then explains that he killed Caesar in the interest of Rome, because he was too ambitious, focusing solely on justification for his actions (‘Not that I loved Caesar less, but that I loved Rome more. Had you rather Caesar were living and die all slaves, than that Caesar were dead, to live all free men? As Caesar loved me, I weep for him; as he was fortunate, I rejoice at it; as he was valiant, I honour him: but, as he was ambitious, I slew him.’). Finally, Brutus forces his conclusions upon the audience, reiteratively defying them to prove him wrong (‘Who is here so base that would be a bondman? If any, speak; for him have I offended. Who is here so rude that would not be a Roman? If any, speak; for him have I offended. Who is here so vile that will not love his country? If any, speak; for him have I offended. I pause for a reply.’).

In his monologue, Antony follows a very different path. First, he kindly requests the audience’s attention (‘Friends, Romans, countrymen, lend me your ears.’). Then, he shows respect for Brutus and his arguments (‘The noble Brutus hath told you Caesar was ambitious: if it were so, it was a grievous fault, and grievously hath Caesar answer’d it. Here, under leave of Brutus and the rest – for Brutus is an honourable man . . .’). Thereafter, Antony analyses the facts and slowly builds the argument, through structure and repetition, that ambition is not a good enough reason to kill the self-appointed dictator. In this process, he elicits empathy from the listener and, in the end, he does not impose his own conclusions, but allows the audience to reach their own.^[5]

Shakespeare engages and persuades the audience using tools that can be as effective before an investment arbitration tribunal. The tone is respectful and direct. The rhythm and cadence keep the audience interested. The message is clear, simple and structured. The content is relatable and elicits empathy from the listener. Caesar’s ambition may well have led to the destruction of Rome, as Brutus contended, but the audience remains captivated by Antony’s empathetic message of reason and civility. This is the art of persuasion.

Conclusion

Advocacy in investment treaty arbitration is an art, not a science – it is the art of persuading a tribunal. Counsel must learn the facts and the law, carefully design an effective strategy, draft an accurate and compelling story, simplify the messages conveyed to the arbitrators and present them persuasively before the tribunal. He or she must do so, taking into account the specific particularities of investment treaty arbitration as opposed to other forms of dispute resolution. The facts and the law are the key to being successful in an arbitration, but presenting them in a persuasive manner is certainly the path that leads to that outcome.

Notes