Transnational Court of Investment Arbitration

by Duarte G. Henriques, BCH Advocados*

In the context of the discussions surrounding the Transatlantic Trade and Investment Partnership (TTIP), much criticism has been raised against ISDS (Investor-State Dispute Settlement). We know now that the European Parliament echoed public complaints and voted against the inclusion of an ISDS mechanism in the TTIP. It further recommended to the European Commission that disputes falling under the investment protection framework should be adjudicated by a system similar to state courts, where the decision-makers are appointed from among judges from the US, EU and third countries. Accordingly, the proposal advances the creation of a new court system (Investment Court System) consisting of a Tribunal of First Instance and an Appeal Tribunal.

At the same time, this proposal resonates the suspicions raised regarding the lack of impartiality of some arbitrators and paves the way to the implementation of an adjudication system subject to public scrutiny.

However meritorious it could be, this idea nevertheless forecloses the right of the investor to (at least) participate in the process of selection of the decision-maker, a principle paramount to international arbitration stemming from the distrust of a system where the adjudicator might be swayed by parochial views, not to mention political and economic pressures.

I am still not convinced that an arbitral system is not apt to provide a neutral, impartial and independent means for solving disputes between foreign investors and host states. But I do not look at the current ISDS status quo without some hesitation either, especially if we think of the system instituted by ICSID, its locations positioning and its “ad hoc committee” revision method. The circumstance that the ICSID system operates under the aegis of a banking institution (World Bank) lending money to sovereign states, but at the same time with a level of financial power strong enough to go as far as to impose changes in regulation, and in the economic and political environment of those countries, gives room for criticism concerning its bias in favour of investors. This criticism has led a few nations (Venezuela and Bolivia, for instance) to withdraw from the ICSID Convention, claiming that BITs were made to protect “investments” and not “investors”.

On the other hand, at first glance I do not have to struggle with the idea of waiving the principle of finality of arbitral awards: indeed, why not submit the arbitral decision to a revision similar to the state courts system of appeals? In my country, foreign investors wishing to pursue their claims before the state courts are given the right to appeal against the decision. This right to appeal, however, is subject to limitations: it may be restricted to a single level of appeal (usually the “Court of Appeal”), and it only comprises the revision of the factual findings if the decision contains “egregious” errors of determination. Interpretation and application of the legal rules are subject to full revision.

That being said, a suggestion (and here I underline that the following is a mere suggestion, subject to further development) might be put forward to create an international body for settling investment disputes. Most likely, the idea has already been suggested, but in any case, I will dare to name it as the “Transnational Court of Investment Arbitration”.

Explaining the idea involves speaking about each of its four words.

Firstly, it would be a Court in the sense that it consists of a permanent institutional body with permanent facilities, structured in the same fashion as traditional state courts, and permanently dedicated staff. Arbitrators would be vested with “jus imperii” powers. Witnesses would be subject to criminal prosecution in the case of false statements, disobedience, and similar behaviour. Arbitrators, counsel, parties’ representatives, witnesses, experts, secretaries and other administrative staff would be submitted to a single regulation system, including a Code of Ethics.

Secondly, it would be a body dedicated exclusively to settling disputes between foreign investors and host states. Therefore, it would be an “Investment” Court. Underlying this notion is the consideration of the jurisdictional issue, that is, discovering, inter alia, what kind of legal instrument would afford a protection under this ISDS to the relevant “investments”. As long as an international instrument protecting foreign investments provides for arbitration as a mechanism to solve disputes arising therefrom, the Transnational Court would hold jurisdiction.

Thirdly, however closely this body might resemble a traditional “court”, it would be an institution managing arbitration (and possibly mediation in a two-tiered process). Therefore, parties are allowed to appoint their arbitrators, but also to have a tailor-made proceeding, including waiving of the right to appeal and the setting-up of time schedules, costs, bifurcation, and so on and so forth. Given the particularities of this kind of arbitration – which deals with public interests of the states involved – the right to appeal and public hearings would be set-up by default. Of course, the “traditional” requirements as to the independence, impartiality and neutrality of the adjudicators would apply, and this institution would act as an appointing authority as well (chair and arbitrators not appointed by defaulting parties). Final awards would “circulate” (that is, would be enforceable with no need for prior recognition) within the territory of all jurisdictions adhering to this system and within the geographic perimeter of the New York Convention of 1958.

Lastly, it would be a transnational court, in the sense that would cover all jurisdictions adhering to this system, potentially within the context of a multilateral free-trade agreement. That brings us to the potential to use an existing legal and institutional setting, such as the WTO, and be attached to it at the logistical level. However, it would be more than that. It would have to be a body truly independent from the states adhering to the international convention enacting this system.

Of course, it would be necessary to provide for initial financial funding from contracting states until reaching a “cruising speed” where the system would be financially self-sustained concerning maintenance and administrative costs.

Its state constituency would democratically elect the managing and supervising bodies by “one country one vote”.

Another concern related to the current ISDS system is its geographic accessibility. Currently, investment disputes are managed in Washington (ICSID) or The Hague (PCA), with hearing locations settled in association with arbitral institutions such as the DIS in Germany, the CIETAC in China or the Singapore International Arbitration Centre in Singapore. This concern suggests the notion of spreading a few regional or continental sub-Courts (or Courts of First Instance) across the globe. The distribution would be drawn according to the caseload currently brought by investors against host states. Looking below at the last statistics available at the ICSID website (2015-2), we could think of the following continental or regional Sub-Courts and respective locations: 1) South America, in Chile or Uruguay; 2) Western Europe, in Warsaw or Kiev; 3) Eastern Europe, in Geneva, Paris or London; 4) North America and Central America, in New York or Miami; 5) Africa, in Cairo, Egypt or Abuja, Nigeria; 6) Australasia, in Sydney; 7) Asia, in Beijing or HK.

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This system would include what we may call “intra-EU” disputes, that is, disputes between European investors and EU member states.

The first instance level of this system would be topped by a “Superior Court” based on a movable location for a term of 5 to 10 years. Contrary to the “first instance” level, where the decision-makers would be arbitrators chosen by the parties, the jurisdictional body of the Superior Court would consist of the President of the highest Courts of Justice of each contracting state. With the exception of “egregious” determinations of facts, the Superior Court would have jurisdiction on matters of law only, and its decisions would be published.


Duarte G. Henriques, Rua Fialho de Almeida – 32 – 1 E, 1070-129 Lisbon • Portugal, dghenriques@bch.ptwww.bch.pt.

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2 thoughts on “Transnational Court of Investment Arbitration

  1. Wonderful post. Out of curiosity, I had compiled a year wise list of the ICSID arbitrators actually appointed (identifying from them the then panel arbitrators; and number of times they were appointed for different parties viz., for the claimant or the respondent, or as the president in the representative period) in post 2011 ICSID ISA cases till 15 June, 2015. The paper then sorts out the ‘leading arbitrators’ from the entire set. You may download my pithy paper from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2735836

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