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The European Proposal for the Creation of an Investment Court




On 12 November 2015, the European Commission rendered public and put on the negotiation table with the United States a proposal regarding the investment chapter of the draft Transatlantic Trade and Investment Partnership between the EU and the US (TTIP) (the EU Proposal). The text contains tentative remedies for major current criticisms against investment arbitration: the restriction of States’ general regulatory power, the expansion of frivolous claims, the lack of transparency, etc.


Most of these measures are both innovative and sensible. Probably the most novel but at the same time controversial proposal is the one regarding the constitution of a permanent court to hear investment disputes falling under the scope of the TTIP (the Investment Court).


The EU Proposal provides for a Tribunal of First Instance and an Appeal Tribunal for investment disputes. An appeal can be based on the grounds of Article 52 of the ICSID Convention or on the ground that the Tribunal of First Instance: (i) erred in the interpretation or application of the applicable law; or (ii) manifestly erred in the appreciation of the facts.


The introduction of an appeal mechanism in investment arbitration is a current trend, the ICSID Secretariat having for example worked on a possible appellate mechanism. That said, the risk that the specific formulation of the EU Proposal entails is that grounds for appeal such as simple error in the interpretation and application of the law, or manifest error in the appreciation of facts (NB that national law is considered as fact in investment arbitration) are too wide and leave the door open for systematic appeals. Although Article 29 provides that the decision on appeal must be issued within six months, this seems rather unrealistic if the Appeal Tribunal has to re-examine the facts of the case.


Both tribunals will be composed of a fixed number of judges: in principle 15 for the Tribunal of First Instance and 6 for the Appeal Tribunal, appointed for a six-year term. One-third of the judges must be nationals of the US, one-third nationals of an EU Member State, and one-third member of a third country.


The criteria for the selection of judges are particularly strict. Judges must notably possess the qualifications required in their respective countries for appointment to judicial office and must refrain from acting as counsel, party-appointed expert or witness in any pending or new investment protection dispute. In practice, the last requirement excludes arbitration practitioners from appointment. This is not necessarily a good thing, given arbitration practitioners’ expertise in investment arbitration law and their wide experience in investment arbitration cases. More generally, a closed list may only be a good list when political considerations have not interfered with its establishment. In the case of the EU Proposal, it is unclear how the judges will be selected.


Regarding the constitution of the specific panel which will hear the case, the President of the Tribunal of First Instance / of the Appeal Tribunal (drawn by lot among the judges who are nationals of third countries) appoints the arbitrators on a rotation basis, “ensuring that the composition of each division is random and unpredictable”. Especially with regard to the Appeal Tribunal, the room for unpredictability is rather restricted given that it consists in principle of only 6 members.


Regarding the next steps, the EU Proposal will now be put on the US negotiation table. Following the negotiations, the final text will be incorporated into the TTIP. What are the chances that the final TTIP provides for the establishment of an Investment Court? The fact that the newly-published Trans-Pacific Partnership between the US, Canada and several countries of Latin America and Asia provides for investor-State arbitration as we know it may indicate the US’s reluctance to experiment with alternative ISDS methods. In any event, the future will show if we are now on the eve of a major development regarding investor-state dispute resolution.

A longer version of this article, pointing to the main innovative features of the investment chapter of the TTIP was published on Kluwer Blog on 29 December 2015.