A more perfect international investor court?

By Yves Faguy July 9, 20189 July 2018

A more perfect international investor court?

Over the past few years, the European Commission (EC) has been pushing to replace the traditional arbitration framework for investor-state disputes (ISDS) with a new investment court system – or ICS –run by independent judges, bound by strict conflict-of-interest rules, and operating more transparently.  It’s precisely what Canada and the EU agreed to when they concluded their free trade agreement, CETA. The  push is part of an effort to respond to criticism that the traditional ISDS model of using arbitral tribunals to solve disputes is overly favourable to foreign investors at the expense of states’ interests.  What’s more ISDS allows investors to challenge domestic regulations and policies before private arbitration courts that are mostly out of reach of regular litigants. CETA’s investment court system also provides for an appellate body to review decisions. The hope here is that this will help produce more consistency in treaty interpretation.

On these points, in an article to be published in The University of Western Australia Law Review, Kyle Dickson-Smith looks at how investor-state dispute claims in developed countries encroach on the work of domestic courts which, in turn, judge the appropriateness of the arbitral tribunal’s findings:

An interesting phenomenon occurs where the investment tribunal reviews the legal norms, both substantive and procedural, of domestic judicial systems. Conceptually, one could anticipate that the current design provides for a perpetual loop of judging other judgments, like a dog chasing its own tail. The process is initiated such that the domestic judicial system or its resulting judgment becomes the subject of jurisdiction and determination by an investment tribunal. The investment tribunal produces an award containing a legal standard as to the adequacy of the domestic court process or the substantive legal standard. The legal standard applied by the investment tribunal can vary, depending on the compromis, the governing law and legal standard provided in the investment treaty, as well as the appetite of the tribunal to enunciate a legal standard.8 The final investment award is then reviewed by a domestic judicial system, either to the court of the lex arbitri to set aside an award (or part of it) or to a court to support the enforcement of the award. In both cases, the domestic court will likely review the jurisdiction and appropriateness of the decision of the international tribunal (including the ground of ‘public policy’ if applicable), depending on the arbitration law of the local court and the jurisdiction provided to the investment tribunal by the treaty

Dickson-Smith then suggests that the proposed implementation of a permanent investment court endorsed by “hegemonic states and economic unions,” such as the one contemplated under CETA and other EU trade deals, has the potential to raise the standard of jurisprudence in international investment law. The thinking here is that such a court might also produce more consistent decisions, and therefore help reinforce the rule of law. But he still has doubts:

Beyond the technical changes of the investment dispute mechanism, if the court model is multilateralised to be adopted by a handful of hegemonic states, the landscape of the investment settlement regime is likely to be permanently altered. Whether the development will achieve a critical mass is uncertain and, at this stage, unlikely. Two underlying compounding factors to drive this evolutionary leap appear to be the merits and legitimacy of the international court system and any contagion and competitive effects arising from the inertia built by the EU.

The design of the investment court appears to resolve some of criticisms with the traditional ISDS process, such as consistency of decisions and public participation, and more expressly recalibrates public policy considerations. Yet questions remain as to whether such features deeply resolve issues of legitimacy. As with any evolutionary change, we ought to take stock of what is lost in the process. In this case, there may be repercussions of distancing ISDS from the private contractual arbitration model on which it was founded. There are likely to be impacts to the process by removing its inherent autonomy, flexibility, adaptability and achievable simplicity of arbitration (such impacts may not necessarily be felt solely by the investor). Similarly, the loss of judicial flexibility and diversity arising out of tribunal determinations is worth reflective consideration. Form should not necessarily give way to substance.


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