EU Proposes Investment Court System for TTIP

By Nikolaos Theodorakis

On 16 September 2015, the European Commission proposed the establishment of an Investment Court System that will resolve disputes between investors and states in a transparent and efficient way. This system, if approved, will replace the existing investor-to-state dispute settlement (ISDS) mechanism in all ongoing and future EU investment negotiations. This proposal was introduced in the EU-US talks on a Transatlantic Trade and Investment Partnership (TTIP).

The idea on the Investment Court System stems from the feedback provided by the European Parliament, Member States, national parliaments and stakeholders through a public consultation regarding ISDS. It uses elements found on various domestic and international courts, and bodies like the World Trade Organization. Its primary aim is to achieve transparency and accountability. In fact, the current dispute settlement mechanism is often complicated and does not always promote transparency, an exception being the recently introduced UNCITRAL rules on transparency in Treaty-based Investor-State Arbitration.

The plan is that the Court System will be composed of fully qualified judges, proceedings will be accessible to public, and cases will be decided on clear rules. Additionally, the Court will be subject to review by a new Appeal Tribunal. The overall aim is to create consistency in rulings, coherence in the rule of law, and security to investors. The Commission suggested that the traditional form of dispute resolution suffers from a lack of trust, and thus a reform is necessary.


Benefits of the new system

The EU wanted to reform the current investor-to-state dispute settlement mechanism so that it delivers greater security to the investors. Knowledge of law and common expectations are major tools that will stabilize and further encourage investments. In that respect, the main advantage is that proceedings will be transparent and hearings will be open and accessible online. Complete transparency will engage society more with disputes that have public interest, and minimize incidents of corruption. Public scrutiny and openness of documents will help towards this direction.

The proposed Investment Court System will end the current practice of forum-shopping and multiple proceedings. Multiple proceedings are used by corporations who wish to maximize their chances of winning a case, and initiate multiple and parallel proceedings in different jurisdictions. Hence, there is instability in the dispute settlement system, and multiple proceedings increase the cost, complexity, and time required to resolve a dispute. The Investment Court System will centralize all the relevant disputes and will eliminate any forum-shopping.

Similarly, the Investment Court System will act as a safeguard to any frivolous claims that investors may have. The Court will screen the claims as they come in and will dismiss the ones that have no legal basis. This is a cost and time efficient approach, since parties will not have to spend resources and time in a futile claim. Such an occurrence will also increase the quality of justice served and the trust that parties have in the dispute resolution system.

Lastly, the proposed System offers the benefit that there will be a clear distinction between international law and domestic law. Its functions will pertain to the field of public international law, and it will not substitute for domestic procedures. This offers clarity and security to both investors and states involved in a dispute.


Main points of reform

The proposal includes several improvements. The main ones are:

  • A public Investment Court System that comprises a first instance Tribunal and an Appeal Tribunal;
  • The Appeal Tribunal will have the same structure and scope as the WTO Appellate Body has in the WTO Dispute Settlement process;
  • Judges who participate in the court will be publicly appointed, as is the case with other European Courts. They must possess distinguished qualifications comparable to the ones required for members of permanent international courts, such as the International Court of Justice;
  • Governments will enjoy the right to regulate the provisions of trade and investment agreements in a protected environment with consistent rules and opportunities;
  • Investors will be informed of the exact requirements and options they have in order to take a case before a tribunal. Cases like expropriation without compensation or denial of justice are the most common elements, however issues of targeted discrimination and similar violations will be equally important.


Next steps

This is an ongoing process since the Commission will now negotiate with the Council and the European Parliament. Once it is concluded, it will be presented as an EU text proposal in the EU-US trade talks and upon acceptance will be used in other ongoing and future negotiations.

In parallel to the TTIP negotiations, the Commission will aim to establish a permanent International Investment Court. The aim is that over time the International Investment Court would replace all investment dispute resolution mechanisms provided in EU agreements. It would also replace EU Member States’ agreements with third countries and in trade and investment treaties concluded between non-EU countries.

Overall, should the proposal for the establishment of an Investment Court System materialize, the international investment dispute resolution system will be more efficient, consistent, and transparent.