Tag Archives: EU

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.

Former ICJ President Criticizes EU Investment Court Proposal

?????????????????????????????????????????????????????????????In a May 17 address, independent arbitrator and former president of the International Court of Justice Stephen M Schwebel criticised the EU proposal for the establishment of a permanent investment court in the context of the Transatlantic Trade and Investment Partnership (TTIP). Schwebel spoke in Washington, DC at a public event organized by Sidley Austin, the American Society of International Law, and the District of Columbia Bar Association. Read the full speech here.

The current system of investor-state arbitration – the standard dispute-resolution mechanism in 3,000 bilateral investment treaties – “works reasonably well”, Schwebel noted. He expressed concern that the EC is now seeking to replace that system with “a system that would face substantial problems of coherence, rationalisation, negotiation, ratification, establishment, functioning and financing.” The EU proposal for an investment court, Schwebel argued, is a mere “appeasement” of “uninformed or misinformed critics”.

ISDS critics often presume that an arbitrator appointed by an investor is biased in favor of the investor – a presumption not supported by the record of investor-state arbitration. The EU’s proposal, Schwebel notes, instead risks entrenching pro-state bias by allowing states to appoint all the judges on the investment court, and depriving investors of influence over the appointment process. If the goal is a truly fair and neutral dispute resolution, “is there reason to presume that judges appointed only by states will not be biased in favour of states?”

EU and OPEC contribute to increase transparency in ISDS

TranparencyISDSLast year marks an important milestone with regards to ISDS reform. The  Mauritius Convention on Transparency in Investor-State Arbitration opened for signature on 17 March 2015. The convention makes it possible for States to apply the UNCITRAL Transparency Rules in Treaty-based Investor-State Arbitration to ISDS cases arising under any of the 3,000 investment agreements concluded before 1 April 2014. This represents a level of transparency that is unprecedented in international arbitration.

One of the rules’ salient features is that most documents in an ISDS proceeding will be made public. To this end, the UNCITRAL Secretariat acts as transparency registry and publishes the information through its website.

Now international institutions are contributing to ensure that the registry is fully operational.

The European Union will contribute EUR 100,000 to finance this registry as a part of its commitment to enhance transparency in ISDS. Among other things, the European Commission writes in its website that the availability of information brings consistency between awards and predictability necessary for investors, stakeholders, states and arbitral tribunals.

In addition, OPEC Fund for International Development also will provide grants in the amount of USD 125,000 to the transparency registry. According to a press release by the United Nations, the organization is supporting the project as part of cooperation to stimulate economic growth and alleviate poverty in all disadvantaged regions of the world.

The Mauritius Convention has now been signed by 16 countries, which are Belgium, Canada, Congo, Finland, France, Gabon, Germany, Italy, Luxembourg, Madagascar, Mauritius, Sweden, Switzerland, Syria, the United Kingdom and the United States.

The U.S is sceptical of the European Commission’s ISDS proposal

?????????????????????????????????????????????????????????????????????????????In mid-September, the European Commission presented its proposal on dispute resolution in the TTIP, as we have previously discussed on this blog. In our previous post, we find it promising that the Commission’s proposal is built on existing practices but we also note that the proposal raises many questions.

The Commission’s proposal is only a proposal. It must first be accepted at home within the European Union and later be put on the negotiating table with the U.S counterpart. There has been some suspicions that the U.S would have doubted the proposed changes and this suspicion has now been confirmed.

The U.S Trade Representative Michael Froman especially expresses scepticism about the proposal of appeal mechanism in which the entire case will be reheard (in the current system, an award may only be appealed on procedural grounds). The U.S is among the countries that has been sued the most in ISDS nevertheless it has never lost a case, and the U.S Trade Representative is hesitant to give investors a second chance in the proceeding. As he puts it, “It’s not obvious to me why you would want to give companies a second bite of the apple”.

Another aspect of the proposal that has been widely criticized is the closed list of arbitrators to be pre-appointed unilaterally by states, in contrast to the current system in which each party in dispute may appoint an arbitrator.

Michael Froman would prefer that the investment chapter of the TTIP has provisions closer to those in the U.S model investment agreement of 2012. This model agreement is considered to be the most progressive of its kind and is based on international “best practices”.

The text of the completely negotiated TPP, which has recently been released, is based largely on such American model agreement. Froman believes that this should be the starting point of the TTIP.

[ICSID GUEST POST] Appeal, Review, Annulment …. What’s it all about?

Back-Left_Blog

 

This post is a guest contribution from Ms. Meg Kinnear, Secretary-General of ICSID.

 

The extent to which a legal decision should be reviewable is a question that all legal systems must address.  On the one hand, everyone can agree that decisions should be correct, and that getting the law, the facts and the procedure right are vital to the administration of justice. One of the ways legal systems try to ensure correct outcomes is by having a second body [and in some national systems, a third and even a fourth court!] review the first decision and correct any errors made by the original tribunal.

On the other hand, some argue that an equally important role of legal decision makers is to resolve disputes once and for all, so that the opposing parties have a final outcome, certainty, and the ability to get on with business without spending time and money on legal appeals. Balancing the goals of “correctness” and “finality” is difficult, and defining the right level of review can depend on factors such as cost, timing, the rights in question, and the goals of the legal system.

Discussion about how to balance correctness and finality has also taken place in the international investment context.  Indeed, the States drafting the ICSID Convention debated this question as early as the mid-1960s when they designed the Convention. States finally decided to provide a review called “annulment” which allowed a second look at ICSID awards, but on limited grounds.  These grounds were set out in Article 52 of the ICSID Convention and allowed a new panel [the ad hoc Committee] to annul an award if: [1] the tribunal was improperly constituted; [2] the tribunal manifestly exceeded its powers; [3] a tribunal member was corrupt; [4] there was a serious departure from a fundamental rule of procedure; or [5] the tribunal failed to state reasons for its decision [paraphrased from Article 52 of the ICSID Convention].

In 2004, ICSID issued a public discussion paper outlining possible features of an international investment appeals system.  The paper suggested that an appeal mechanism could be designed to provide a broader range of review on the basis of clear error of law, serious error of fact, or any of the five grounds of review in Article 52 of the ICSID Convention. States decided not to pursue an appeals facility at that time, however ICSID undertook to further study the matter and to offer its assistance and expertise if treaty negotiators decided to pursue this course in the future.

On September 16, 2015, the European Commission [EC] released a draft text on investment under the Transatlantic Trade and Investment Partnership [TTIP].  This draft included a proposal to create an Appeal Tribunal that could review an award issued by an investment tribunal.  The EC proposal builds on the ICSID Convention by suggesting that investment awards under the TTIP could be appealed based on the grounds in Article 52 of the ICSID Convention plus error of law or manifest error of fact [paraphrased from Article 29 of the EC text].

As investment cases grow in number and complexity, and increasingly arise out of an investment treaty, the discussion on the appropriate level of review for such awards will continue. Clearly the task of establishing the optimal level of review between correctness and finality is a difficult one, and it will be interesting to follow treaty negotiations as they grapple with this question.

Ms. Meg Kinnear, Secretary-General of ICSID

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.

 

Investment Treaty Forum in Stockholm

ITFSeminarThe Investment Treaty Forum was recently held for the first time in Stockholm.

The British Institute of International and Comparative Law, in cooperation with the SCC, Mannheimer Swartling and Uppsala University, organized Investment Treaty Forum in Stockholm on 12 June 2015.

The Investment Treaty Forum was founded in 2004 with the aim to provide a global centre for serious high level debate in the field of international law. The theme of the meeting – Europe as an Investment Treaty Actor – brought together speakers and participants from government, legal practitioners, academia, politicians and business. See the full program here.

The importance of investment treaty for European economic development was one of the topics discussed. Investment treaty contributes to predictability, stability and transparency in investment relation. It was further highlighted that investment treaty will benefit not only the industry, but also governments and consumers. Investment treaty has the potential to open up new market opportunities for European investors abroad and also to make Europe a more attractive place for investment. But there were also critical voices raised, questioning the need for investment protection.

The evolution of substantive terms of investment treaty was equally addressed. States retain full control of the regime, among others by issuing interpretation of the treaty and by introducing new provisions of investment protection. The former has been done by the state parties to the North American Free Trade Agreement and the latter by, among others, the European Commission.

The seminar ended with the well-anticipated discussion on the roles of the European Commission in investment law regime. In addition to its role as negotiator of future investment treaty, the Commission has also emerged as litigator and enforcer in the regime.

More pictures and presentation materials from the seminar will be published here shortly.

 Photo: Björn Leijon

 

 

 

Seminar report: ISDS – A Way Forward

AndrinaSeminariumImage2red3BloggThe SCC, in cooperation with the Association of International Arbitration and Brussels Diplomatic Academy of Vrije Universiteit Brussels organized a seminar, ISDS: Away Forward in Brussels, on 27 May 2015. The speakers were arbitration practitioners from Sweden, Belgium and France, including SCC Legal Counsels and representatives from the International Bar Association Subcommittee on Investment Arbitration. Read the full programme here.

The historical background of ISDS was explained, and how the mechanism was established under the ICSID Convention as a response to inefficient diplomatic protection to foreign investors. The discussion continued with the currently-debated issue, ISDS and environmental protection. SCC presented research findings that the number of ISDS cases where investors brought a claim because of environmental regulation is small. The findings from these cases support a conclusion that arbitral tribunals have not questioned the power of government to regulate for environmental protection.

In addition, some procedural aspects of ISDS were addressed, particularly transparency and public participation. The speakers emphasized that this is in fact not a new development, as tribunals have supported transparency and public participation to an increasing extent in the past decade. A new procedural development of ISDS, emergency arbitrator, was also discussed.

A speaker reminded that when discussing reform of the system, public opinion should always be taken into account.  It is important to ensure that the democratic values are preserved. The International Bar Association (IBA) is working on a project to bring together opinions from different stakeholders in ISDS. The ambition is to address the criticisms surrounding ISDS and to propose improvements of the system, when needed.

IBA has also recently published a statement, addressing facts of ISDS.

The dynamic and forward-looking discussion from the participants were much appreciated. More discussions will follow ahead to preserve the rule of law and ISDS.

SCC seminar on ISDS & TTIP at the European Parliament

isdsbloggbrysselThe Stockholm Chamber of Commerce took an initiative to organize a seminar on ISDS at the European Parliament on 5 May 2015. The aim was to discuss the importance of the mechanism in support of the global economy – with a special focus on the Transatlantic Trade and Investment Partnership (TTIP).

Participants came from the Members of the European Parliament offices, governments’ representatives including the European Commission and different NGOs. The panel consisted of experts from different backgrounds and was moderated by Andreas Hatzigeorgiou, Chief Economist at the Stockholm Chamber of Commerce.

ISDS comes in the form of international arbitration and it is therefore essential to understand how the mechanism has been used. Annette Magnusson, the Secretary General of the Arbitration Institute of Stockholm Chamber of Commerce explained that historically, arbitration served as a neutral dispute resolution venue in times of geopolitical crisis, among others during the fall of the Soviet and Iran-U.S crisis. Today, ISDS plays an even more important role. In recent years, investors in the renewable energy sector have used ISDS to enforce investment protections in IIAs. This demonstrates that ISDS has the potential to protect investment in sustainable development efforts.

Rikard Wikström, a partner at White & Case in Stockholm, explained that rule of law and legal principles underpin ISDS as a procedural mechanism. The disputing parties in ISDS have equal rights to present their case, arguments are made based on the law and due process should exist throughout the process.

ISDS reform is underway, among others by the adoption of international rules to enhance transparency in ISDS proceedings. Timothy Lemay, the Principal Legal Officer of the United Nations Commission on International Trade Law (UNCITRAL) explained how the UNCITRAL Transparency Rules work in practice. By the application of these rules, most documents in an ISDS proceeding will be made public, the public will be able to access the hearings through video-streaming and participate in the proceedings by submitting amicus curiae.

Turning to the question of ISDS in the TTIP, Christofer Fjellner, a Member of the European Parliament, emphasized that having investment protection in the TTIP is a matter of rule of law. It is a matter of ensuring that foreign property will not be expropriated without fair compensation and that investors are treated without discrimination. ISDS is just a mechanism to enforce this protection.

Finally, Freya Baetens, associate law professor of the Leiden University, conducted a cost-benefit analysis of including ISDS in the TTIP. She concluded that the TTIP may benefit from some improvements in the ISDS system, among others by invoking a loser-pays principle and ensuring that frivolous claims are dismissed at an early stage of the proceedings.

Above all, ISDS in the form of international arbitration is a well-established mechanism to resolve international disputes. It is governed by both international law and domestic law – which means that States maintain full control in the functioning of the system.

The European Commission Concept Paper on ISDS

bloggkommissionisds

The European Commission has published a concept paper on proposals for a potential future ISDS-mechanism in the TTIP.

According to the paper, a new approach in the EU investment policy is needed, where “a major part of the challenge is to make sure any system for dispute settlement is fair and independent”.

It may be observed that the paper contains no clear elaboration on how the current system is unfair and not independent. In contrast, in our experience the current system in the vast majority of cases does represent the values of fairness and independence.

As a starting point, the paper asserts that the EU has achieved a certain level of ISDS reform as embodied in the EU free trade agreements with Canada and Singapore. The paper addresses “what should be further improved”.

Firstly, the paper proposes an exclusive roster of arbitrators pre-established by State parties of the investment agreement. Several arguments could be raised against such practice. It is impossible to foresee what future disputes under an agreement will look like and what specific expertise will be required. A pre-established roster may constitute an obstacle for the dispute to be resolved by the most suitable arbitrator.

Secondly, the paper proposes an appellate mechanism “to ensure correctness and predictability”. It deserves pointing out that the ICSID Convention or the provisions of New York Convention already serves this purpose. Under the ICSID system, an award can be annulled on procedural grounds, among others if the tribunal manifestly exceeded its powers.

If what is desired is to try the whole case again at the appeal stage, it will significantly increase the time and costs associated the dispute. An appeal mechanism in itself is no safeguard to enhance predictability – this is best achieved by well formulated substantive terms.

Finally, the paper foresees the creation of “a permanent multilateral system for investment disputes”. The Commission seems to ignore that such system is already in place through the Washington Convention and the ICSID system, which has been endorsed by more than 150 states.

The impression is that the reform proposals were made based on “perception”, or more precisely, misperception on the system. A stronger emphasis on empirical evidence would better serve a higher standard in the decision-making process ahead.

For more information, read the SCC’s remarks on the Concept Paper here.