Multilateral Investment Court: A Realistic Approach to Achieve Coherence and Consistency in International Investment Law?

Shiva Ghahremani (Konrad & Partners)

Ivan Prandzhev (Konrad & Partners)

Against all odds, the idea of creating an investment court to replace arbitration tribunals hearing disputes between investors and states has so far made a remarkable career. It has been only 3 years since the idea of an international investment court surfaced in EU Trade Commissioner Malmström’s speech during the meeting of the International Trade Committee of the European Parliament, in which the idea was referred to as a “medium term objective”. Since then, it was transformed into what we know as the Investment Court System (ICS) and has made its way into EU’s agreement with Vietnam, as well as the negotiations on a Transatlantic Trade and Investment Partnership with United States. It has also attracted significant public attention by replacing the originally envisaged investment arbitration tribunals in the EU’s Comprehensive Economic Trade Agreement with Canada (CETA).

While CETA has not passed the tests of the 28 Member States’ parliaments yet, the European Commission is ready to move its investment court to the next level and is setting the stage for its multilateralization. The introduction of a Multilateral Investment Court (MIC) was the subject of an informal ministerial meeting hosted by the EU and Canada at the World Economic Forum in Davos earlier this year. The EU Commission has launched a public consultation to gather opinions from companies, scholars and civil society groups on this subject until the 15 March 2017.

The purpose of the MIC is to do away with the ad hoc nature of the current investor-state dispute settlement system, introducing a standing court with a permanent seat consisting of a first instance and an appellate body with highly qualified state-appointed arbitrators to serve at both tribunals.

The Commission does not lack ambition. A look into its “Inception Impact Paper” shows that its goal is to align the dispute settlement systems available under the existing EU Member States’ BITs and the ECT with the policy being negotiated in EU level trade and/or investment agreements. To put this into perspective, there are around 1400 EU Member States’ BITs and this represents a substantial portion of the overall 2329 BITs and 297 treaties with investment provisions currently in force according to the UNCTAD Investment Policy Hub data. If fully implemented, the Commission’s proposal may result in the most significant reform of investor-state dispute settlement since the ICSID Convention entered into force in 1966.

Even more remarkable is that this revolution is being announced at a time in which the original backlash against investment arbitration that has been there for a number of years is now turning into an outright rejection of multilateralism and globalization. Today’s political environment appears significantly more hostile than back in the period of 1995 to 1998, shortly after the coming into force of the Uruguay Round and the creation of the WTO when the last great attempt to reform investment protection failed with the end of the negotiations on the Multilateral Investment Agreement.

However, the domestic and international political problems are not the only challenges before the Commission’s MIC proposal. The Court of Justice of the European Union (CJEU) has yet to decide the faith of the European investment protection itself since it showed in its Opinion 2/13 of 18 October 2014 that it would not tolerate other courts and tribunals encroaching its exclusive jurisdiction to interpret and apply European Union law. While the law applied by arbitral tribunals is usually derived from investment treaties and trade agreements with investment provisions, domestic European Union law may sometimes be considered as part of the relevant “factual matrix” [Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20] and require interpretation.

In addition to this, the ICS has not yet been put to the test of enforcement. Obviously, any treaty underlying the proposed MIC will have to ensure enforcement in all its signatories as CETA does for the EU and Canada. However, what will be the probable response of the enforcement authorities in third countries to the question whether the decisions rendered by a MIC, modeled on the ICS, are indeed arbitral awards enforceable under the New York Convention or the ICSID Convention? Even though recent publications [Reinisch, in J Int Economic Law (2016) 19(4): 761 et seq.] suggest parties will be able to rely on the New York Convention, the question will remain hanging as a sword of Damocles over the MIC initiative until coherent case law is established.

The purpose of the CJEU’s exclusive jurisdiction is to guarantee the coherent application of the EU law. Coherency also appears to be one of the central objectives which the European Commission is seeking to achieve with its MIC initiative. In its Inception Impact Assessment, the European Commission points at inconsistencies in interpretation – sometimes of the very same provisions in the same BITs – which naturally results in unpredictability. In addition to all the reasons why certainty is a highly desirable feature for any legal system, the lack of certainty in the field of investment arbitration needs to be seen in the light of criticism often voiced with respect to the substantive standards of investment protection as being vague. Vagueness has the potential to increase the regulatory chill on governments beyond what was originally envisaged in the treaty. The European Commission, therefore, is seeking to allow coherent case law to emerge under the guidance of MIC’s Appellate Tribunal.

The focus on the debate on the word “court” makes us forget that, in the past, different and more effective solutions had been proposed to address the issue of incoherence. Such is the mechanism of “preliminary ruling” which would allow arbitral tribunals to avoid divergent interpretations ex-ante rather than engaging in a complex and cumbersome appellate procedure. Once faced with a fundamental issue of investment treaty law, the competent arbitral tribunal would be required to suspend the proceedings and request a ruling by a central and permanent body set up for this purpose. After such preliminary ruling on the interpretation of investment law has been provided, the tribunal would apply it to the merits of the case pending before it. This solution is mainly modeled on the system of preliminary rulings which safeguard the uniform application of the European Union law and has been proposed for the domain of investment protection by Christoph Schreuer [Schreuer, Preliminary Rulings in Investment Arbitration, in: Appeals Mechanism in International Investment Disputes (K. Sauvant ed.) 207 (2008)].

None of the alternative policy approaches discussed in the Commission’s Inception Impact Assessment seems to include this option. Apart from the founding of the MIC, the paper addresses alternative approaches such as renegotiating the currently applicable BITs one by one, the creation of a permanent multilateral appeal instance and the introduction of an appeal mechanism into the ICSID Convention, which would require renegotiating it. Article 53(1) of the ICSID Convention expressly provides that “[t]he award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention”. The introduction of a mechanism providing for preliminary rulings, however, would be fully compatible with this provision and would leave the principle of finality of arbitral awards untouched. While suspending the arbitral proceedings until a preliminary ruling is provided would add to the time and costs of investment arbitration, this solution guarantees higher procedural efficiency than an appellate review of the award.

While the ambition of the European Commission deserves admiration even from those who may disagree with its proposed solutions and oppose the MIC initiative, a more moderate approach may prove more realistic and may come from a different place. The ICSID is accepting suggestions from members of the public as to how to amend its Rules. A decade ago, the process of updating the ICSID Rules took about two years and introduced third-party briefs and early dismissal of claims which are “manifestly without legal merit”. The introduction of a system of preliminary rulings may fit the size of a comparable reform, help investment arbitration achieve a long-desired coherence, ensure enforceability awards and address at least one of the European Commission’s concerns with respect to its Member States’ BITs.