The Blurring of the Public/Private Distinction or the Collapse of a Category? The Story of Investment Arbitration

The paper is a response piece to Deborah Hensler and Damira Khatam’s new article, Re-inventing Arbitration: How Expanding the Scope of Arbitration Is Re-Shaping Its Form and Blurring the Line Between Private and Public Adjudication. Their main argument regarding the public-private distinction is that the arbitral procedure has changed as a consequence of the substantive issues resolved in this particular ADR system. According to them the arbitral system, which was originally conceived for commercial purposes, has become another way of litigating public law, but without the accountability mechanisms attached to public courts. In this paper, I agree in large part with Hensler and Khatam’s contention that we are facing a collapse of the public-private distinction, at least in the case of investment arbitration. However, my view is also that the trend to include public law oriented elements into the investment arbitral procedure misses a counterintuitive point: that the remedies of the investment arbitration regime are being interpreted by arbitrators as belonging to a private system of adjudication. Even with all the new transparency clauses and the so-called accountability mechanisms in the new bilateral investment treaties, arbitrators are construing the remedies available to them as if the system were purely private. They might interpret public law, but the consequences of violating public law remain closer to the consequences of breaching a purely private commercial contract. Can we still hold that arbitration has now become a public adjudicatory procedure if the parties can openly breach their obligations and pay for doing so? Can we sustain that such a public system is affecting state sovereignty if the governments can ultimately keep engaging in their unlawful conduct as long as they are willing to pay for it