Just published: Analysis of EU’s ”Investment Court System”

Chicago downtown skyscrapers looking upThe American Bar Association (ABA) is a leading organization in international legal debate. On 14 October, the ABA Task Force on investment law published a report on the EU’s proposal for an “Investment Court System” (ICS). We wrote about ICS when the proposal was first presented.

The authors of the report, a number of American lawyers who have previously expressed different individual perceptions of ISDS, pointed out that they do not take a position on the different views on the legitimacy of the system and the need for reform. Instead, the report focuses more specifically on the EU’s ICS proposal, which is also included in the CETA. The report examines whether the ICS will achieve the objectives that the EU have set itself: is ICS neutral, effective and predictable? Is the proposal practical, effective and feasible?

The short answer is “maybe”. The report identifies a number of aspects where the ICS proposal can be improved to achieve the stated objectives. First is that there is a risk that the proposal will lead to less diversity among the judges who will decide on future disputes. The report recommends that it should be expressly stated that diversity (in terms of geography, legal background and gender) should be sought in the nominations of the judges.

Another significant weakness identified in the report is the enforcement of judgments. There is a risk that ICS judgement might not be able to be enforced outside states that signed the agreement, since ICS is not considered to be arbitration, but rather a quasi-judicial process. The ICSID Convention and the New York Convention might not be applicable in this case which means that the ability to have the judgment enforced globally might sharply deteriorate. As we have written before, the possibility of getting arbitration awards enforced worldwide is one of the most important reasons why arbitration has largely replaced litigation in international trade.

The third concern raised in the report is the imbalance between the parties in dispute. ICS proposal entails the fact that state parties can influence the proceeding, including by changing the court’s procedural rules with binding effect during the proceeding and also when the EU replaces a Member State as a respondent. According to the report, this means an imbalanced proceeding, to the investor’s disadvantage.