We're losing the ISDS fight, warns Mourre

In a lecture in Miami, Alexis Mourre has suggested the arbitration community is “losing” the fight to ensure the survival of ISDS, endangering the future of commercial arbitration in the process, and should instead contemplate a return to the contractual protection of investments. 

Built over 40 years on a framework of over 3,000 bilateral and multilateral treaties, the investor-state dispute settlement system is in crisis because “we – the defenders of the idea” have been “politically defeated”, the French arbitrator and former president of the ICC Court told an audience at the first ever Miami Arbitration Week. ”We have lost the battle of public opinion,” and, “to a large extent, the battle of legitimacy”.

Taking as his premise the assumption that the system is the “best possible” way to provide meaningful protection to international investments, he said arbitration specialists have unfortunately failed to get “that truth understood and accepted,” in part because of a failure to understand their “opponents”. By this, he meant not the EU or the states that have taken steps to withdraw from the system, but members of civil society who vehemently oppose ISDS. 

“When we look at how the debate... has unfolded, the most striking thing is the complete misunderstanding between both sides,” he said. “There could not be a better example of two ships passing in the night. Different values, different languages, different cultures. But above all: no desire to bridge the differences. And no desire to reach a compromise.”

To arbitration specialists, he said ISDS, based on a direct right to arbitrate under rules taken from international commercial arbitration, is “existential”. “Like Marxists who think that communism is the result of a necessary and inevitable historical evolution, we think that investor-state arbitration is the ultimate evolution of the international protection of the right of aliens, after gunboat diplomacy and diplomatic protection.”

The belief is based on the conviction (which he said has never been proved scientifically) that the availability of investor-state arbitration increases the free-flow of foreign investment, and that this is “good for societies, good for prosperity”,

Anti-arbitration militants think the opposite: that ISDS is “a post-colonial instrument of domination by the powerful against the democratic will of peoples, as expressed through their...governments.” They contend that it leads to “unacceptable discrimination between nationals and aliens”,  the “blackmailing” of governments by multinationals and the protection of “polluting industries”, causing harm to the poor and to the environment. 

Mourre also discussed the “striking difference” in the language of the two camps, saying supporters of arbitration speak “the cold and rational language of legal technique” and its opponents “the language of emotions and politics.”

Arbitration's supporters are industry “insiders” who speak mainly to each other, defending ISDS with technical arguments on the shortcomings of diplomatic protection, the neutrality of the process and the ability of arbitrators to address complex matters requiring time and experience, he said. Its opponents “speak to the broader public”, communicating “simple messages”, which may distort reality but resonate with the public's fear of globalisation and free markets. 

The rise and demise of the MAI

Mourre spoke about the change in the public perception of ”the relationship between the state and the economy,” which he said is the “root cause of our ideological defeat” rather than “a plot by the European Commission  to dismantle international law or to arrogate to itself exorbitant powers”. He said the change in perception began 25 years ago with the “rise and demise” of the Multilateral Agreement on Investment, an OECD treaty negotiated from 1995 onwards “behind closed doors in Paris”.

At the time, “the old 20th century ideologies were dying” in the wake of the fall of the Berlin Wall and far-left political organisations were disappearing. This meant experienced activists were forced into different forms of action, joining a new generation of groups that converged on “the common foes” of globalisation and liberalism. Investor-state arbitration was seen as the epitome of these evils.

For two years, nobody noticed the MAI negotiation, but in 1997 an American NGO called Public Citizen leaked a draft of the agreement online. In a matter of months, 600 NGOs from 70 countries started a “Stop-MAI” campaign. 

US activist Lori Wallach said the treaty was “like Dracula” because it would die as soon as it saw the light of day. “And, unfortunately, she was right.”

Mourre recalled how opposition to the MAI developed in his home country of France, starting in the film industry. Actors spread the message that the MAI would prevent the government from subsidising French-made films and destroy the country's cultural policy. Then, trade unions and environmental and civil rights associations joined the campaign and it “snowballed”. 

This was the first time, 10 years before the Tapie case, that the French public found out about arbitration, he suggested. People came to view it as a plot to “dismantle the most cherished social protections and to grant exorbitant rights to foreign multinationals”. 

In 1998, the negotiations were suspended and France, the UK, the USA, Australia and Canada started parliamentary reviews of the MAI. Against the background of a global financial crisis, Mourre said the treaty had become “politically indefensible” and the French government's decision to withdraw from the talks “killed” it. 

Since then, he said the 2008 financial crisis has caused even more ”deep distrust” of the private sector, globalisation and free markets, with young people becoming “deeply anguished” at the idea that capitalism is leading humanity towards a global warming catastrophe. 

Know your opponent

Mourre noted the “high level of coordination” between the diverse NGOs that oppose investor-state arbitration, which use the internet and social media to disseminate a “simple and easily understandable” anti-ISDS message, and contrasted this with the patchy and reluctant participation in the debate of company leaders and arbitration specialists. 

Among the opponents, he said there are environmental associations such as Greenpeace, Friends of the Earth, Just Stop Oil and Extinction Rebellion; human rights groups like Amnesty International; anti-globalisation groups militating for more capital controls; citizens' watchdogs, student groups and even churches. 

Increasingly, he said, they are not just left wing but also right wing and, owing to growing nationalist and populist feeling, even mainstream European centre-right parties have “joined the anti-ISDS chorus”.

“In fact, there is virtually no longer anyone, across the European political spectrum, defending ISDS.”

Initially, Mourre said, the arbitration and business community foolishly refused to engage with these opponents, denying their representative nature and entitlement to have a say on trade policy and investment protection. He quoted an “incredibly patronising” ICC statement from 1998 challenging the legitimacy of anti-MAI NGOs and suggesting that business people should only enter discussions with accredited organisations, not activist pressure groups. 

Now, we have no choice but to engage with “an amorphous and fast evolving constellation of inter-connected organisations”, whose “number... determination and.. enormous capacity to organise” means governments can no longer ignore their message.

To emphasise the power of these groups, he spoke about the coordinated opposition to the Transatlantic Trade and Investment Partnership in the last decade, noting that a petition against the pact collected more than 3.3 million signatures in a year and a European Commission online consultation received 150,000 responses, 97% of which rejected ISDS. 

Although the TTIP's demise was ultimately due to Donald Trump, he said it was the start of “a long series of setbacks for ISDS”, culminating in the Achmea ruling in 2018, the end of European bilateral investment treaties and the EU's announcement of its withdrawal from the Energy Charter Treaty. Nowadays, he said it is “politically impossible” to obtain parliamentary approval of any treaty containing the word arbitration, which is why the EU decided it needed to get rid of it to pursue its ambitious trade policy.

Between 1999 and 2022, UNCTAD recorded 569 terminations of bilateral investment treaties, of which 70% were in the past decade. In 2022 alone, there were 84 terminations, compared with 15 new treaties entered. 

A contractual solution?

According to Mourre, we now face a fragmented future where treaties including a direct right to arbitrate will continue to exist alongside a new generation of treaties that either limit that right, refer disputes to a “dysfunctional” EU investment court or exclude any form of ISDS at all.

There will also be much less protection for investors, as states reform investment treaties to make them more acceptable to the public and quell concern about multiple actions, double recovery and curbs on their right to regulate. 

An “important initiative” that could restore some protection is an ICC and UNIDROIT project to draw up a model contract for international investors by 2026, Mourre said. This is being led by the president of the ICC Institute for Business Law Eduardo Silva Romero and UNIDROIT president Maria Chiara Malaguti and could provide “a valid alternative to investors where there is no longer an offer to arbitrate or where the applicable treaties have become too restrictive.”

Contracts between individual investors and states would set out a bilaterally-agreed investment protection framework and provide for arbitration under ICSID, UNCITRAL or ICC rules, Mourre explained. The states' power to regulate would not be affected and mutliple actions and double recovery would be avoided since the protected investors would be defined in each case. 

It would also be easy to put obligations on the investors in return for the advantages received, requiring them to make commitments to protect public health, labour rights and the environment. 

The project raises “interesting challenges”, Mourre said. For example, how do you adapt traditional stabilisation clauses to today's reality or balance states' obligation not to impose new laws with recognition of legitimate regulatory objectives? And, how do you “contractualise” international law standards such as legitimate expectations and fair and equitable treatment in light of states' right to regulate in the public interest. 

Finally, which law should apply to the contract: international law or the tried-and-tested UNIDROIT principles, with their useful provisions on force majeure and hardship?

A potential objection is that such contractual protection would only be available to investors with sufficient bargaining power to secure “bespoke arrangements,” Mourre acknowledged. However, he thought a model contract such as the one proposed by the ICC and UNIDROIT could also be adopted by “smaller players” and offer “an interesting alternative to the faltering framework of treaty-based investment protection” if it effectively overcame the challenges. 

At the very least, it would help put an end to the “increasingly bitter debate” over ISDS, which “ultimately risks endangering international commercial arbitration as much as investment arbitration”.

Miami Arbitration Week took place from 8 to 15 November, hosted by the Miami International Arbitration Society and Miami International Arbitration Foundation. Mourre spoke on 12 November at MIAS's second annual Lat-Am investor-state arbitration conference.