In the recently-approved and signed Comprehensive Economic and Trade Agreement between the European Union (EU) and Canada, a different approach to International Investment Arbitration is being put forward by the EU and its Member States for the resolution of Investment Disputes. This is the controversial proposal to establish a Permanent Multilateral Investment Court System.
The word ‘Court’ does not appear in CETA, which, instead, envisages dispute resolution first by a Bilateral ‘Tribunal’, until the parties establish a Multilateral ‘Tribunal’. CETA copies the wording of the proposal for an Investment Court System which first appeared elsewhere, notably in the still-negotiated Transatlantic Trade and Investment Partnership between the EU and the US. It has also been incorporated in the EU-Vietnam Free Trade Agreement.
Even though CETA has been signed (and ratifications are pending), this part of the Investment Chapter is still debated. This evidences the highly controversial nature of the proposal. In fact, Canada and the EU have just concluded talks with about 40 other countries in Geneva regarding a permanent Investment Court System.
The proposal contains “guarantees” such as a centralised appeals mechanism, transparency provisions, permanent judges, etc., that will supposedly ensure that the sensitive subject matter, often dealt with in Investment Arbitration, is properly handled by a more “legitimate” body than ad-hoc arbitral tribunals.
Additionally, the Investment Court System will aim to ensure that issues like abuse of process and conflicts of interests of arbitrators, allegations of which are frequently made in investment arbitrations, will be resolved through provisions on ethics (e.g., a prohibition of ‘double hatting’), qualifications and the random assignment of judges. It also has some interesting provisions such as disclosure as the disclosure of third-party funding by investors.
On the other hand, this proposal generates a number of practical and legal problems, which the investment arbitration community is cautious about. The Investment Court System would lessen certain attractive features of arbitration such as confidentiality (already somewhat diminished for UNCITRAL arbitrations) and party autonomy in appointing adjudicators, while raising questions about costs, the duration of procedures and financing a new institution. The key question of “who decides who decides” has been resolved in a manner that may also be inconsistent with the interests of both Parties. The average ICSID arbitration already costs in excess of USD 8 million, and with an Appellate Tribunal that can review both the laws and facts de novo, this seems certain to increase.
Second, the pool of potential permanent judges with the necessary qualifications and lack of conflict of interests to man the Court is rather small. It will likely be composed of the same arbitrators who are already serving as investment treaty arbitrators.
Another significant issue is the enforcement of Investment Court System decisions, which CETA attempts to sidestep by an express reference to enforcement under the 1958 NY Convention. It is highly unclear that these decisions will satisfy the definition of an arbitral award, which is the necessary precondition to the Convention’s applicability. It will be argued that the awards are being made by “permanent arbitral bodies to which the parties have submitted” under Article I(2) of the New York Convention, but the strength of this argument depends on the form the Investment Court System ultimately takes.
Last, in the context of CETA and the EU, the establishment of a Permanent Investment Court System has raised questions of compatibility with EU Treaties, which is why in the coming months the issue is likely to be referred to the European Court of Justice for an Opinion.
The Investment Court System is the latest proposed measure in the context of multilateralization and institutionalization of the decentralized regime of International Investment Law. The success of the proposal will signal a new era for International Investment Law globally.
It is impossible to say whether the Investment Court System will be better or worse, although it is quite clear that institutionalization and an appellate mechanism are going to make resolving investment disputes even more expensive.
Relevant provisions from the CETA treaty on the Investment Court System are shown below.
Constitution of the Tribunal
- The Tribunal established under this Section shall decide claims submitted pursuant to Article 8.23.
- The CETA Joint Committee shall, upon the entry into force of this Agreement, appoint fifteen Members of the Tribunal. Five of the Members of the Tribunal shall be nationals of a Member State of the European Union, five shall be nationals of Canada and five shall be nationals of third countries.
- The CETA Joint Committee may decide to increase or to decrease the number of the Members of the Tribunal by multiples of three. Additional appointments shall be made on the same basis as provided for in paragraph 2.
- The Members of the Tribunal shall possess the qualifications required in their respective countries for appointment to judicial office, or be jurists of recognised competence. They shall have demonstrated expertise in public international law. It is desirable that they have expertise in particular, in international investment law, in international trade law and the resolution of disputes arising under international investment or international trade agreements.
- The Members of the Tribunal appointed pursuant to this Section shall be appointed for a five-year term, renewable once. However, the terms of seven of the 15 persons appointed immediately after the entry into force of the Agreement, to be determined by lot, shall extend to six years. Vacancies shall be filled as they arise. A person appointed to replace a Member of the Tribunal whose term of office has not expired shall hold office for the remainder of the predecessor’s term. In principle, a Member of the Tribunal serving on a division of the Tribunal when his or her term expires may continue to serve on the division until a final award is issued.
- The Tribunal shall hear cases in divisions consisting of three Members of the Tribunal, of whom one shall be a national of a Member State of the European Union, one a national of Canada and one a national of a third country. The division shall be chaired by the Member of the Tribunal who is a national of a third country.
- Within 90 days of the submission of a claim pursuant to Article 8.23, the President of the Tribunal shall appoint the Members of the Tribunal composing the division of the Tribunal hearing the case on a rotation basis, ensuring that the composition of the divisions is random and unpredictable, while giving equal opportunity to all Members of the Tribunal to serve.
- The President and Vice-President of the Tribunal shall be responsible for organisational issues and will be appointed for a two-year term and shall be drawn by lot from among the Members of the Tribunal who are nationals of third countries. They shall serve on the basis of a rotation drawn by lot by the Chair of the CETA Joint Committee. The Vice-President shall replace the President when the President is unavailable.
- Notwithstanding paragraph 6, the disputing parties may agree that a case be heard by a sole Member of the Tribunal to be appointed at random from the third country nationals. The respondent shall give sympathetic consideration to a request from the claimant to have the case heard by a sole Member of the Tribunal, in particular where the claimant is a small or medium-sized enterprise or the compensation or damages claimed are relatively low. Such a request shall be made before the constitution of the division of the Tribunal.
- The Tribunal may draw up its own working procedures.
- The Members of the Tribunal shall ensure that they are available and able to perform the functions set out under this Section.
- In order to ensure their availability, the Members of the Tribunal shall be paid a monthly retainer fee to be determined by the CETA Joint Committee.
- The fees referred to in paragraph 12 shall be paid equally by both Parties into an account managed by the ICSID Secretariat. In the event that one Party fails to pay the retainer fee the other Party may elect to pay. Any such arrears by a Party will remain payable, with appropriate interest.
- Unless the CETA Joint Committee adopts a decision pursuant to paragraph 15, the amount of the fees and expenses of the Members of the Tribunal on a division constituted to hear a claim, other than the fees referred to in paragraph 12, shall be those determined pursuant to Regulation 14(1) of the Administrative and Financial Regulations of the ICSID Convention in force on the date of the submission of the claim and allocated by the Tribunal among the disputing parties in accordance with Article 8.39.5.
- The CETA Joint Committee may, by decision, transform the retainer fee and other fees and expenses into a regular salary, and decide applicable modalities and conditions.
- The ICSID Secretariat shall act as Secretariat for the Tribunal and provide it with appropriate support.
- If the CETA Joint Committee has not made the appointments pursuant to paragraph 2 within 90 days from the date that a claim is submitted for dispute settlement, the Secretary General of ICSID shall, at the request of either disputing party appoint a division consisting of three Members of the Tribunal, unless the disputing parties have agreed that the case is to be heard by a sole Member of the Tribunal. The Secretary General of ICSID shall make the appointment by random selection from the existing nominations. The Secretary-General of ICSID may not appoint as chair a national of either Canada or a Member State of the European Union unless the disputing parties agree otherwise.
- An Appellate Tribunal is hereby established to review awards rendered under this Section.
- The Appellate Tribunal may uphold, modify or reverse a Tribunal’s award based on:
- (a) errors in the application or interpretation of applicable law;
- (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law;
- (c) the grounds set out in Article 52(1) (a) through (e) of the ICSID Convention, in so far as they are not covered by paragraphs (a) and (b).
- The Members of the Appellate Tribunal shall be appointed by a decision of the CETA Joint Committee at the same time as the decision referred to in paragraph 7.
- The Members of the Appellate Tribunal shall meet the requirements of Articles 8.27.4 and comply with Article 8.30.
- The division of the Appellate Tribunal constituted to hear the appeal shall consist of three randomly appointed Members of the Appellate Tribunal.
- Articles 8.36 and 8.38 shall apply to the proceedings before the Appellate Tribunal.
- The CETA Joint Committee shall promptly adopt a decision setting out the following administrative and organisational matters regarding the functioning of the Appellate Tribunal:
- (a) administrative support;
- (b) procedures for the initiation and the conduct of appeals, and procedures for referring issues back to the Tribunal for adjustment of the award, as appropriate;
- (c) procedures for filling a vacancy on the Appellate Tribunal and on a division of the Appellate Tribunal constituted to hear a case;
- (d) remuneration of the Members of the Appellate Tribunal;
- (e) provisions related to the costs of appeals;
- (f) the number of Members of the Appellate Tribunal; and
- (g) any other elements it determines to be necessary for the effective functioning of the Appellate Tribunal
- The Committee on Services and Investment shall periodically review the functioning of the Appellate Tribunal and may make recommendations to the CETA Joint Committee. The CETA Joint Committee may revise the decision referred to in paragraph 7, if necessary.
- Upon adoption of the decision referred to in paragraph 7:
- (a) a disputing party may appeal an award rendered pursuant to this Section to the Appellate Tribunal within 90 days after its issuance;
- (b) a disputing party shall not seek to review, set aside, annul, revise or initiate any other similar procedure as regards an award under this Section;
- (c) an award rendered pursuant to Article 8.39 shall not be considered final and no action for enforcement of an award may be brought until either:
- (i) 90 days from the issuance of the award by the Tribunal has elapsed and no appeal has been initiated
- (ii) an initiated appeal has been rejected or withdrawn; or
- (iii) 90 days have elapsed from an award by the Appellate Tribunal and the Appellate Tribunal has not referred the matter back to the Tribunal;
- (d) a final award by the Appellate Tribunal shall be considered as a final award for the purposes of Article 8.41; and
- (e) Article 8.41.3 shall not apply.
Establishment of a multilateral investment tribunal and appellate mechanism
The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements.
- The Members of the Tribunal shall be independent. They shall not be affiliated with any government.10 They shall not take instructions from any organisation, or government with regard to matters related to the dispute. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest. They shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental rules adopted pursuant to Article 8.44.2. In addition, upon appointment, they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement.
- If a disputing party considers that a Member of the Tribunal has a conflict of interest, it shall send to the President of the International Court of Justice a notice of challenge to the appointment. The notice of challenge shall be sent within 15 days of the date on which the composition of the division of the Tribunal has been communicated to the disputing party, or within 15 days of the date on which the relevant facts came to its knowledge, if they could not have reasonably been known at the time of composition of the division. The notice of challenge shall state the grounds for the challenge.
- If, within 15 days from the date of the notice of challenge, the challenged Member of the Tribunal has elected not to resign from the division, the President of the International Court of Justice shall, after hearing the disputing parties and after providing the Member of the Tribunal an opportunity to submit any observations, issue a decision within 45 days of receipt of the notice of challenge and notify the disputing parties and the other Members of the division. A vacancy resulting from the disqualification or resignation of a Member of the Tribunal shall be filled promptly.
- Upon a reasoned recommendation from the President of the Tribunal, or on their joint initiative, the Parties, by decision of the CETA Joint Committee, may remove a Member from the Tribunal where his or her behavior is inconsistent with the obligations set out in paragraph 1 and incompatible with his or her continued membership of the Tribunal.
 Either Party may instead propose to appoint up to five Members of the Tribunal of any nationality. In this case, such Members of the Tribunal shall be considered to be nationals of the Party that proposed his or her appointment for the purposes of this Article.