A quick read of the EU Commission’s Investment Court Proposal

CommissionYesterday the EU Commission presented its proposal for the investment chapter in the TTIP, which is the result of a long consultation. The text, which runs to almost 40 pages, is available here. It will now be discussed internally in the EU and then put on the negotiating table with the US.

Below we briefly go through some of the noteworthy aspects:

The dispute procedure

-        A “court system” consisting of one Investment Tribunal and one Appeals Tribunal is set up.

-        The tribunals will work under established arbitration rules: ICSID, UNCITRAL or “any other rules agreed by the parties”, depending on the choice of the investor in the particular case. Instead of reinventing the wheel, the Commission is here relying on established practice.

-        While it is positive that the proposal draws so extensively on established arbitration rules, many areas remain where the interaction between the proposal and those rules must be studied further. This is most obvious when it comes to the enforcement of awards, but also other aspects such as the Appeals Tribunal and the appointment of arbitrators need extensive analysis before being included in a treaty.

-        It is made clear that the tribunal only has the mandate to look at cases through the lens of international law. Consequently, domestic law cannot be applied or reviewed by the tribunal.

-        Mediation provisions have been introduced. While mediation is sometimes often possible under the current system (and most disputing parties so far have elected not to mediate) such a procedure makes sense for reasons of efficiency. Mediation is however a challenge from a transparency perspective as it is hard to mediate openly.

The arbitrators/the system

-        The relationship is unclear between this proposal (which is aimed only at the TTIP) and the ambitious but vague multilateral dispute settlement mechanism envisioned by the Commission (which is to set up some sort of World Investment Court in the future). Under Article 12, many parts of the current proposal will cease to apply when/if a permanent multilateral system is set up. With this solution, the Commission is kicking the can further down the road.

-        Arbitrators can only be drawn from a list established by states. This is problematic because one of the two parties (the state) will set the frames for the disputes when the other (the investor) can only appoint from a list pre-approved by the state. Under the current system, each party can freely choose its own arbitrator.

-        States have to negotiate over whom to put on the list of arbitrators. This risks a politicization of the appointments, which is exactly what investment arbitration is intended to avoid.

-        Furthermore, the arbitrators must fulfill an almost impossible list of requirements to be eligible for the list. Annex II – where the arbitrators’ code of conduct is set down – in combination with the requirements in Article 9(4), leave a very small group of people eligible. In practice, depending on how the requirements are interpreted, it is likely that only retired lawyers (and probably only retired judges) will be able to sit as arbitrators. This restricts the parties’ possibility to appoint the most suitable arbitrator and also ensures that only a small elite gets to adjudicate investment disputes.

-        The Appeals Tribunal, allowing the case to be reheard on its merits, is sure to make disputes much longer and much more expensive; the average dispute would likely be twice as expensive as under the current system, which affects both investors and states.

Transparency

-        An express reference to the UNCITRAL Transparency Rules is included. The proposal even goes further than the Rules by making clear that many documents, including everything from proceedings before the Appeal Tribunal, shall always be made public.

-        The proposal extends the possibility for third parties to intervene. While the general tendency towards transparency is desirable, Article 23 states that the tribunal “shall permit any natural or legal person which can establish a direct and present interest in the result of the dispute”. This seems to (i) restrict the tribunal’s discretion by saying that it “shall” allow such submissions and (ii) considerably widen the scope of who shall be allowed to file submissions. In comparison, the UNCITRAL Rules on Transparency states that the tribunal “may” allow such submissions, after consulting the parties and only if it finds the submission could be helpful.