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?”
The European Federation for Investment Law and Arbitration (EFILA) recently released a new report on the permanent investment court proposed by the European Commission within the context of the TTIP negotiations. The report is highly critical of the EU proposal, on two main grounds. First, under the proposed court system, states have the exclusive power to appoint judges, while investors lack any influence over who hears the disputes. This removes a significant benefit of arbitration as a method of dispute resolution, and creates an inherent imbalance between investors and states. Second, the proposed system has two tiers – the Tribunal of First Instance and the Appeals Tribunal – and allows parties to appeal an award on issues of law and fact. This undermines the finality of arbitral awards, and is likely to burden small and medium-size investors by increasing the length and cost of proceedings.
EFILA launched the report at its Annual Conference, held in Paris on 5 February 2016. The event, entitled “Investment Arbitration 2.0?”, brought together experienced arbitration experts, state officials, and representatives of investors to discuss current issues in investment arbitration. Panels discussed such topics as third party funding, the role of tribunal secretaries, and the relationship between investment arbitration and the rule of law.
One session of the conference was dedicated to discussing the EU court proposal. Most, but not all, panelists agreed with the criticisms advanced in the EFILA report. One speaker noted that investors are unlikely to trust the neutrality of judges that are appointed and paid by states. A U.S.-based academic retorted with examples from other permanent international courts showing that state-appointed judges are not necessarily pro-state in how they rule. Another panelist noted that the proposed investment court would not have a secretariat or its own set of arbitration rules, and that it would be impossible to apply a pre-existing set of arbitration rules to the proposed two-tier court structure populated by permanent judges.
Someone commented that the EU proposal “appears half-baked”. Nonetheless, as EFILA secretary-general Nikos Lavranos emphasized, the arbitration community must take it seriously.