Within the context of the negotiations for the Transatlantic Trade and Investment Partnership (“TTIP“), on 12 November 2015, the EU sat at the discussion table with the United States, bringing forward – inter alia – its proposal for Investment Protection and Resolution of Investment Disputes.
The EU’s proposal should be included in the Title concerning “Trade in services, investment and e-commerce” of the TTIP.
Despite the coordination and integration issues between the proposed Investment Court System grounded on TTIP (hereinafter also “ICS“) and the current investor-state arbitration, grounded on multi- (ICSID Convention) or bilateral treaties (BITs) and typically characterized by the direct appointment by the parties of the members of the arbitral tribunal (hereinafter, for the sake of simplicity, “Private Investment Arbitration” or “PIA“), in this article I will endeavor to highlight the main differences between the proposed Investment Court System and Private Investment Arbitration.
The Investment Court System aims at substituting the Private Investment Arbitration. Its main novelty concerns the exclusion of the parties’ right to appoint the members of the arbitral tribunal, with a view towards the institutionalization of the investor-state disputes settlement’s mechanism.
The proposed Investment Court System provides for the establishment of a two-instance Investment Court, constituted by a Tribunal of First Instance and an Appeal Tribunal.
The Tribunal of First Instance shall be composed by fifteen judges while the Appeal Tribunal shall be composed by six. In both cases Judges shall be appointed by the European Commission amongst people having the required qualifications to be appointed to judicial office or being a distinguished jurist in the field of public international law.
The major driver for this change probably relies on the will of the EU to give an answer to the discontent of the public opinion. Indeed, PIA has been mainly criticized for a number of reasons.
As a matter of fact, many famous cases (such as the ICSID case No. ARB/07/5, Abaclat and Others v. Argentine Republic, formerly known as Giovanna a Beccara and Others v. The Argentine Republic, better known as Ablacat case) show that the interests at stake are very high. Disputes like this often give rise to serious public governance concerns. The most frequent backlashes against Private Investment Arbitration (to mention just a few) are:
(i) the inconsistency and the unpredictability of the decisions rendered by an ad hoc tribunal;
(ii) the arbitrators’ biases in favor of the investors and business’ interests;
(iii) the establishment of frivolous and abusive claims;
(iv) treaty shopping;
(v) lack of transparency.
(vi) discrimination against domestic investors.
Hence, probably with the aim of remedying the alleged backlashes, the EU proposed a structured and institutionalized mechanism that reduces the private parties’ involvement in the management of the proceedings, endorsing a dispute resolution system based on public international law rather than private international law.
Despite the label of the Investment Court System as public rather than private, would this system be substantially different from the Private Investment Arbitration?
In order to answer this question and to have a clearer picture of the EU’s proposal, it is worth underlining that the European Union has ‟borrowed” the main elements and some vocabulary from commercial arbitration (i.e. from UNCITRAL Rules).
In other words, the EU proposal relies on many features belonging to commercial arbitration; just to make a few examples, article 6, paragraph 2 of TTIP, provides that “a claim may be submitted to the Tribunal under one of the following sets of rules on dispute settlement“: (a) ICSID rules as of 18 March 1965; […] (c) UNCITRAL Rules. Again, Article 30 paragraph 5 of TTIP, reads that: “For the purpose of Article 1 of the New York Convention on the Recognition and Enforcement of Arbitral Awards, final awards issued pursuant to this Section shall be deemed to be arbitral awards and to relate to claims arising out of a commercial disputes relationship or transaction“.
Furthermore, it relies also on some of the structures of the Private Investment Arbitration; for example, Article 10 paragraph 13 of TTIP states that the remuneration of the Tribunal’s members shall be paid into an account managed by the Secretariat of the ICSID Centre or of the Permanent Court of Arbitration.
It seems that the EU’s proposal gives an alternative format to the investor-state disputes settlement’s mechanism, applying the existing set of rules of PIA, with only one relevant difference: the parties’ preclusion to appoint the members of an ad hoc arbitral tribunal.
By means of substituting the arbitrators’ appointment procedure relying upon the parties’ autonomy, with an arbitrators’ appointment procedure relying on the EU’s appointment, the EU made an attempt to address the criticism against the PIA.
The existence of a permanent structure and of a panel of predetermined arbitrators that oversees investment disputes aims at enhancing ethical conducts, predictability and uniformity, but those three requirements are already met in arbitration.
In my opinion, the institutionalization of the dispute settlement mechanism entailed by the EU proposal completely misses the point of arbitration, and, yet, it does not respond to all the mentioned backlashes.
In fact, while the EU proposal tries to address the criticism against PIA, undermining the parties’ autonomy and depriving ICS of the main feature of arbitration (i.e. the right of the parties to appoint the members of the arbitral tribunal), on the other hand, the EU proposal relies on many other characterizing features and structures of arbitration.
By this ambivalence, the EU seems to protect and affirm the undeniable attractiveness of private arbitration.