The Ball is in your Court: An Analysis of the EU Commission’s Proposal for a Permanent Investment Court in the TTIP Agreement

(1)

The Ball is in your Court: An Analysis of the

EU Commission’s Proposal for a Permanent

Investment Court in the TTIP Agreement

By Michael Madders

Academic Year 2015/2016 Universiteit van Amsterdam

LLM International Trade and Investment Law

Final Thesis / 12 ECs

(2)

2

Abstract

For some, international investment arbitration has become the target of everything that is wrong with the globalised world and the international system. Criticisms of investment arbitration range from its lack of transparency, costs, unpredictability, lack of state sovereignty and bias towards investors. The proposal for a permanent investment court by the EU in their draft investment chapter for TTIP is the latest attempt to answer such criticisms and increase the legitimacy of international investment awards. It is hoped by the EU that this court system will develop into a global governing institution, thus creating a normative system of settling investor-state disputes. Due to the size and influence of both parties of the TTIP agreement, this proposal has the potential to make such a wide ranging reform possible. Using law and politics, law and sociological, and a comparative methodology, this papers looks at the reasons why the proposal was created, how it will try to improve on the current ‘system’, how the court will ultimately be unable to establish itself as a institution of global governance. The paper concludes whit some other potential reforms which could have a better chance of being politically acceptable to the stakeholders, and should arguably be the next step in evolution of investor-state dispute settlement.

(3)

3

Introduction

Investor-state arbitration has recently come under much criticism from commentators. Critics maintain that international investment arbitration institutions lack democratic legitimacy, restrict a state’s right to regulate, are biased towards investors, issue inconsistent awards, etc1

. As a result the EU Commission has proposed the creation of a permanent Investment Court System (ICS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP Agreement) in place of already established arbitral institutions2. However there is little to suggest that this court in practice will be able to overcome the criticisms of investor-state arbitration or increase public, state, and investor confidence in the area of Investor-State Dispute Settlement (ISDS).

The TTIP Agreement stands to be one of the biggest trade and investment agreements ever made. The establishment of a permanent ICS under TTIP would have a massive effect for the future of ISDS in international investment law. The potential for the ICS proposal to evolve into a global normative way of settling investor-state disputes is a stated intention of the EU Trade Commissioner3. It makes sense due to the economic size and geo-political influence of the parties concerned4. Considering the current attention on and importance of ISDS, it is imperative that any major reform that occurs in this area is able to satisfy the main concerns of the public, states and investors. Should the proposed ICS in TTIP fall foul to the same criticisms of the current IIA Arbitration it may not be able to establish itself as a normative system of settling investor-state disputes in international investment law. Furthermore it could stifle other reform in the area and possibly lead to increased lack of confidence in investor-state arbitration5. So the main question is, can the ICS as proposed in TTIP become an internationally normative way of settling investor-states disputes?

1_{C.Provost, M. Kennard, ‘The Obscure Legal System that Allows Corporations Sue Countries’, The Guardian,}

London, Published 10/June/2015.

2

C. Malmstrom, ‘Proposing an Investment Court System’, Trade Commissioner’s Official Blog, Posted 16/September/2015, found at https://ec.europa.eu/commission/2014-2019/malmstrom/blog/proposing-investment-court-system_en.

3

Ibid.

4

EU Commission, ‘Transatlantic Trade and Partnership: The Economic Analysis Explained’, Published September/2013, at p. 6, Found at

http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151787.pdf.

5_{S. Schill, ‘TTIP Negotiations: US versus EU Leadership in Global Investment Governance’, Kluwer Arbitration}

Blog, Published 05/March/2016, Available at http://kluwerarbitrationblog.com/2016/03/05/the-ttip-

(5)

negotiations-us-versus-eu-leadership-in-global-investment-5

Examining the international investment law from a public international law perspective, this paper aims to show through a law and sociological, and comparative analysis that this proposal is not the right model for an international, normative investor-state dispute settlement body. The paper will show this by highlighting some of the criticisms of current IIA Arbitration on which the proposal is based upon. Further analysis of these criticisms generally shows that they are either inaccurate or extremely politically motivated. The paper will also look at other more genuine criticisms of IIA Arbitration and how the proposal will not be able to practically solve those issues. The result of those two components will mean that the ICS will be unable to gain support and legitimacy needed to become the international judicial body for which it is being established6. This paper argues that reforms to existing IIA Arbitration conventions and rules along with a possible proposal of an Alternative Dispute Resolution (ADR) body, would possibly have a better chance of success of spurring reform, not only for TTIP, but for ISDS in future IIAs. For the purposes of this paper, I will focus entirely on the proposal for an investment Court System in TTIP. It will not compare and contrast the proposals in the CETA and Vietnam – EU FTA.

Looking at both the individual member states, global attitudes, and the actions of the EU institutions, chapter one will outline the evolution of the EU’s policy from preferring IIA arbitration to proposing the ICS. Chapter two will examine the criticisms of ISDS in more depth, which are the justifications for the exclusion of IIA Arbitration in TTIP. Chapter three, breaks down the structure of the court form the proposal, linking which provisions to which criticisms they are supposed to address. Chapter four details the influence of the overly political and inaccurate criticisms of IIA arbitration along with practical problems with the operation of the ICS. These issues will hinder the ICS’ ability to obtain the legitimacy needed to fulfil its Raison d'être. Chapter four also includes current geo-political issues facing the establishment of such an institution at this point in time. Chapter five explores alternative measures that could possibly be a better alternative than the ICS proposal for both TTIP itself and future reform in the area of IIA arbitration in general.

governance/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+KluwerArbitrationBlog Full+%28Kluwer+Arbitration+Blog+-+Latest+Entries%29..

6_{A. Buchanan, R.O. Keohane, ‘The Legitimacy of Global Governance Institutions’, Ethics and Institutional Affairs,}

(6)

6

Chapter 1 – The European Union and International Investment

Arbitration

Reform or the replacement of an international system is usually a result of a number of events. For example, many states may think that the current system is not working. It may have a number of problems that may warrant it to be replaced. An example of this would be the League of Nations. The failure of the League of Nations in the run up to the Second World War, made it clear that the organisation had to be reformed (or replaced)7. Another reason why international law is reformed is that many states are of a single mind of what ‘the international system’ should be. Therefore they try to make that system in resemble their own. For example, over the last number of years the EU has been trying to establish an international legal system of geographical indication protection based on their internal legal protection8. This is a result of the EU adopting a sui generis system of GI protection since 1992 operating it for a number of years, and attempting to establish that system as an international normative system, through FTAs. Those two examples are how over time and with clear indications, states reject the current system and opt for a new one. The reasons why reform is called for is extremely important for the establishment the new system. If it is the case that reform is based on political bias or opportunism it may affect its credibility. Without being too simplistic, there should be a kind of ‘supply and demand’ for such institution. This chapter outlines the EU’s relationship with IIA arbitration and establish the current standing of IIA arbitration in the global order. The purpose is to ascertain the reasons for the EU’s proposal, which is a stark change in policy from past EU and member state practice.

1.1) EU’s History with International Investment Arbitration

EU member states are party to roughly 1,400 of the 3,000 international Investment Agreements9. Member states are generally seen as supportive of international arbitration as a way of settling disputes arising from such agreements. All member states are parties to the

7_{M. Mazower, ‘No enchanted palace: The End of Empire and the Ideological Origins of the United Nations’,}

Princton University Press, United States, 2009. At p.15.

8_{T. Engelhardt, ‘Geographical indications under Recent Free Trade Agreements’, Max Planck institute for}

Innovation and Competition, pp. 781-818, 2015, at p782.

9

(7)

7

ICSID Convention10 and New York Convention. Much of this openness to IIA arbitration is also reflected in some member state’s domestic law11.

Data from the United Nations Conference on Trade and Development (UNCTAD) paints a positive relationship between EU States and investors. Investors from or based in the EU have been the claimants in over 50% of known IIA arbitration cases12. EU member states have been the respondents in approximately 16% of the known IIA arbitration cases in total13. EU member states have been mostly challenged by investors based in another EU member state and rarely challenged by non-EU based investors14. Intra-EU BITs are the primary source for disputes involving an EU state or investor15. According to figures produced by ICSID relating to awards on the merits of a dispute before an ICSID arbitration and ICSID Additional Facility Rules arbitration, EU states are more successful in ICSID arbitration than non-EU states. EU member states have a success rate of 50%16 for an arbitration dismissing all claims, while the global average for states is 29%17. The same statistics show that EU investors are also more successful in ICSID convention or ICSID Additional facility rules cases. A full or partial award rendered in favour of the EU investor 48%18 of the time compared to 46% for a global average19.

At an EU level, previous FTAs which the EU has made with other countries contain provisions consenting to international arbitration as a form of dispute resolution in the agreements investment chapter. For example the EU-Singapore FTA provides for a submission of a claim to ICSID Convention arbitration, arbitration under the ICSID Additional Facility Rules, arbitration under UNCITRAL arbitration rules, and another arbitral rules agreed by the parties20. The initial proposed legal text of the Comprehensive Economic

10

With the exception of Poland.

11_{For example Article 1106 of the Netherlands Arbitration Act, shows that state’s commitment to the}

enforcement of international arbitration awards.

12

UNCTAD, ‘Recent Trends in IIAS and ISDS’, Published February/2015.

13_{Ibid, at p. 6.} 14

Ibid.

15

Ibid.

16_{ICSID Case Load – Special Focus European Union’, ICSID, World Bank, Published 01/01/2015,}

http://documents.worldbank.org/curated/en/2015/01/23718193/icsid-caseload-statistics-special-focus-european-union-carga-de-casos-del-ciadi-estadisticas-edicion-especial-union-europea, at p. 14

17

ICSID Case Load – Statistics, Issue 2016-1, ICSID, World Bank, Published 01/01/2016

https://icsid.worldbank.org/apps/ICSIDWEB/resources/Documents/ICSID%20Web%20Stats%202016-1%20(English)%20final.pdf, at p. 14.

18_{n16 above, at p. 21.} 19_{n17 above.} 20

(8)

8

and Trade Agreement (CETA) between the EU and Canada also contained an ISDS provision consenting to arbitration under these institutions and rules21.

1.2) IIA Arbitration Globally

It would be unreasonable to say that there is mass rejection of IIA arbitration globally. Investor-state disputes being resolved by way of IIA arbitration is still relatively high, compared with pre-2003 level22. Despite some reservations by certain states in certain recent agreements, IIA arbitration is generally still the go to form of dispute settlement in IIAs23. The Trans-Pacific Partnership (TPP) is a regional trade agreement between twelve pacific-rim countries, including the United States, Australia and Vietnam. Like the agreements mentioned above, the TPP also provides for a dispute to be submitted to ICSID Convention arbitration, arbitration under the ICSID Additional Facility Rules, arbitration under UNCITRAL arbitration rules, and another arbitral rules agreed by the parties24. This is an important comparison to make. Not only do both the TTP and TTIP agreements involve many different states with different legal systems. But also because the United States is a party to both agreements, so it indicates how other regions and their regional trade agreements are including international investment arbitration as a means of dispute settlement25. Major East Asian economies like China, Japan, and South Korea are continuing to include IIA arbitration provisions in recent agreements, despite some reservations26. An example of blowback to IIA arbitration in other parts of the world include a proposal from UNASUR to create a regional investment arbitration body as a result of dissatisfaction with International arbitration, particularly ICSID27. Other states are also reforming their model BITs to limit investor access to IIA arbitration28. However, despite some reservations and

21_{Article 8.23, Agreed consolidated text between the EU and Canada prior to the revised legal text published}

29/February/2016. This Article and Article 9.16 of the EU-Singapore FTA, are not identical in wording, but do essentially provide for the same consent to arbitration.

22_{n12 above, at P.5.} 23

UNCTAD, ‘Taking Stock of IIA Reform’, IIA Issue Note, No 1, Published March 2016, at p. 15-19.

24

Trans-pacific Partnership, Article 9.18(4).

25

It should be noted that there are differences in the jurisdictional scope of the provisions, but the principle is the same that these three agreements all refer to the same kind of arbitral choices in their ISDS provisions.

26

J. Lee, ‘Korea-China-Japan Trilateral Investment Treaty’, Chinese Journal of International law, 12, pp.509-541, 2013, at p. 511-516.

27_{S. Karina Fiezzoni, ‘The Challenge to Replace ICSID Arbitration’, Beijing Law Review, 2, pp. 134-144, 2011.} 28

(9)

9

limitations to IIA arbitration, generally the rest of the world is still content for to include it in treaties29.

1.3) Change in EU Policy

A sharp change came to the EU’s stance on IIA arbitration in 2015. This was due to public concerns on the inclusion of ISDS in TTIP.

1.3.1) EU Commission’s Public Consultation on ISDS in TTIP

Due to the ‘strong public’ interest, the EU Commission launched a public consultation on investor protection and ISDS in the TTIP Agreement. The results of the consultation indicated that there was strong ‘public opposition to the inclusion of ISDS in the TTIP Agreement in general30. The main reasons why there is such opposition are as follows;

 Hampers governments ability to regulate in the public interest

 Lacks democratic legitimacy

 Bias of arbitrators

 Lack of transparency

 More guidance on interpretation of agreements

 Lack Appellate mechanism and consistency

 High costs make it unsuitable for SMEs to access31

Many of these concerns are reflected in the criticism of ISDS in general throughout the world and will be explored in greater detail in the following section.

This consultation received more submissions than any other EU Commission public consultation32. The demographics of the submissions show that the submissions come from all different sectors.

29

n23 above.

30

Commission Staff Working Document, ‘Online Public Consultation on Investor Protection and

Investor-to-State-dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP)’, Brussels,

published 13 January 2015, found at http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf, at p.14.

31_{Ibid, p. 14-16.} 32

(10)

10

1.3.2) The EU Parliament

On July 8th 2015, the EU parliament overwhelming voted in favour of adoption of a common position, the so-called ‘Lange amendment’ on TTIP. The breakdown of the votes were 63.3% in favour, 32.4% against, 4% Abstention 33. The common position endorsed the TTIP agreement in principle, however it did not support the inclusion of ISDS34. The reasons given for rejecting an ISDS provision are essentially the same as the criticism highlighted in the public consultation and those expressed about ISDS generally35. In the adopted text, there was this recommendation to the Commission on its negotiation of TTIP regarding ISDS

“to ensure that foreign investors are treated in a non-discriminatory fashion, while benefiting from no greater rights than domestic investors, and to replace the ISDS system with a new system for resolving disputes between investors and states which is subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured, the jurisdiction of courts of the EU and of the Member States is respected, and where private interests cannot undermine public policy objectives;36”

1.3.3) The Commission’s response

From the above, the EU Commission now had the mandate to create an alternative to international investment arbitration as a way of settling investor-state disputes. This alternative would have to address the following issues raised above;

 Ensure foreign investors are treated in a non-discriminatory fashion.

33_{J. Levy-Abegonli, ‘TTIP: EU Parliament Vote Paves the Way for new ISDS’, The EU Parliament Magazine,}

Published on 8/July/2016, Found at https://www.theparliamentmagazine.eu/articles/news/ttip-eu-parliament-vote-paves-way-new-isds.

34

A. Robert, ‘European Parliament Backs TTIP, Rejects ISDS’. Published 09 July 2015, found at

http://www.euractiv.com/section/global-europe/news/european-parliament-backs-ttip-rejects-isds/.

35

Ibid.

36_{European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to}

the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)), at Part S(b)(xv).

(11)

11

 Not to benefit from greater rights than domestic investors

 New ISDS system subject democratic principles and scrutiny

 Cases are transparent

 Publically appointed independent judges

 Includes an appellate mechanism where consistency is ensured

 Respect of the jurisdiction of EU and member states courts

 Private interests cannot undermine public policy

The Commission released their alternative to IIA arbitration for TTIP in September 2015. In a press release, Commissioner Malstrom made it clear that it was the intention of the EU to establish the ICS as the primary way of solving international investor-state disputes not only in TTIP, but also in future EU IIAs37.

It is difficult to see why the EU was quick to call for a replacement of arbitration considering EU member states’ and investor’s activity, relative success within IIA arbitration, and the fact that the Council of Europe had included ‘traditional’ ISDS including arbitration to be part of the mandate authorising negotiation38. A further look into the criticisms of IIA arbitration is needed to understand the need for its replacement.

37_{n1 above.}

38_{EU Trade Commission, ‘Member States Endorse EU-US Trade and investment negotiations’, Press Release,}

(12)

12

Chapter 2 – The Criticisms of Investor-State Arbitration

The following chapter examines the criticisms mentioned in the Commission’s public consultation and criticism from outside the EU of IIA arbitration. The structure of the ICS is based on the criticisms of investment arbitration. So to properly evaluate the ICS, it is important to understand in detail the origins of its creation.

2.1) IIA Arbitration Restricts State’s Right to Regulate

The first major criticism of investment arbitration is that it ‘restricts’ state’s right to make legitimate regulations. It is the idea that an investor can take a state to arbitration and seek compensation or damages because of the effect a regulation(s) or action by the state, has on the investment. This is seen as ‘punishing’ states for carrying out it’s right as a sovereign entity to make laws for its people.

Many non-legal publications have been stating this criticism since investment arbitration ‘beeped on their radar’. The increased media is both a result of the increase in the number of investor-state arbitration cases overall and due to some more interesting high profile cases such as Loewn, Methanex and Phillip-Morris 39. One example of a media publication making this criticism is from ‘The Guardian’ newspaper entitled ‘The Obscure Legal System that

Allows Corporations Sue Countries’40. The sub-heading is just as subtle, ‘Fifty years ago, an

international legal system (referring to ICSID) was created to protect the rights of foreign investors. Today, as companies win billions in damages, insiders say it has got dangerously out of control’. The article goes on to briefly explain a number of investor-state disputes that

went to arbitration, which were either won by the investor or settled41. The article details how a government enacted regulations, usually environmental regulations, and were taken to arbitration but the unscrupulous corporation who were affected by the change in law. Many

39

J. Kleinkeisterkamp, ‘Investment Treaty Law and the Fear of Sovereignty, Traditional Challenges and

Solutions’, Modern Law Review, 78(5), 2015, pp. 793-825, at p 798 and 801.

40_{n1 Above .} 41

(13)

13

other major publications have articles that share a similar point of view on investment arbitration and ISDS generally42.

Influential individuals have also come out against IIA arbitration in investment agreements, often citing the cases mentioned above as IIA arbitration is threatening state sovereignty. US Democratic Senator Bernie Sanders43, WikiLeaks founder Julian Assange44, and UK Labour Party leader Jeremy Corbyn45 to name a few. Furthermore many non-Governmental Organizations (NGOs)46, political action groups, and charities47 have also expressed that states are withheld from regulating on certain issues to the capacity necessary, because of the ‘fear’ that corporations affected by such regulation will use an ISDS provision under an investment agreement and seek compensation.

States also have accused Investor-state arbitration of overstepping its authority, thus limiting their sovereign rights. The US revised its Model BIT in 2004, in light of cases taken against it under NAFTA. One of the aims of the revision was to protect US Sovereignty and ‘to shield US sovereign regulatory powers by imposing a ‘ceiling’ on the possible interpretations that arbitral tribunals could give to vague provisions in investment treaties’48

. Several Latin American countries have been openly hostile towards ICSID and have even denounced the ICSID Convention49. One of the reasons cited by these countries is that international investment arbitration bodies unfairly punish states for making legitimate regulations50.

2.2) Lack of Democratic Legitimacy

42

S. D. Franck, L.E. Wylie, ‘Predicting Outcomes in Investment Treaty Arbitration’, Duke Law Journal, Vol 65, 2015, at p. 463-464.

43_{B. Sanders, ‘The TTP Must Be Defeated’, Huffington Post, Online, 21 May 2015, found at}

http://www.huffingtonpost.com/rep-bernie-sanders/the-tpp-must-be-defeated_b_7352166.html

44

https://wikileaks.org/tpp-investment/.

45_{A. McSmith, ‘TTIP: Jeremy Corbyn, Nigel Farage, Nicola Sturgeon and Natalie Bennett, sign appeal to exempt}

NHS from Trade Deal’, The Independent, London, Published 26/October/2015.

46

Greenpeace is one such example, it outlined its concerns on ISDS provisions limiting states right to regulate in their proposal submitted to the EU Commissions public consultation on ISDS in TTIP. 6 July 2014, Found at http://www.greenpeace.org/eu-unit/en/Publications/2014/140706-Greenpeace-contribution-on-ISDS/

47

War on Want, a charity founded in 1951, main objective is to ‘fight’ global poverty, http://www.waronwant.org/our-history.

48_{N28 above, at p. 799.} 49

S.K Fiezzoni, ‘The Challenge to UNASUR Member Countries to Replace ICSID Arbitration’, Beijing Law Review, 2, 2001, pp. 134-144, at p.137.

50_{N. Brower, S. Blanchard, ‘What is in a Meme? The Truth About Investor-State Arbitration, Why It Need Not}

(14)

14

IIA arbitration panels lack democratic legitimately, is a very serious criticism. This criticism is often dovetailed on to the point above, however I will discuss the concept of a lack of ‘democratic legitimacy’ in relation to the following points. Firstly, IIA arbitration tribunals are creating obligations for states, which are not what the state had consented to when making the agreement. Secondly is that investment arbitration sidesteps certain aspects that one would associate with an adjudicative body in a modern democracy.

The modern BIT or IIA evolved from the old Friendship Commerce and Navigation treaties. These treaties were mainly used to establish commercial relations with other nations. While they did contain some limited protection for investments and investors, access to dispute settlement was usually subject to diplomatic protection51. The modern BIT which extended more protections to individuals and enabled them to seek redress themselves. It coincided with the creation of the International Centre for Settlement of Disputes (ICSID), making IIA arbitration in BITs quite a ‘powerful enforcement tool’52. Although it was ‘powerful’ the number of IIA arbitration cases was quite low, until the late nineties53. States were quite eager to make BITs and IIAs as a way to increase investments54. The obligations within the treaties were considered to be general commitments and not to have the ‘teeth’ that they now have. South Africa has cited that it did not intend for the IIAs it was entering into to have such a ‘powerful’ effect. South Africa maintains it was really entering into these agreements to attract investment in a post-apartheid South Africa55. The criticism lies in the notion that IIA arbitration tribunals are incorrectly interpreting IIAs and are ‘creating’ obligations for states, which they never intended to create when entering into the IIA. A breach of these obliterations can lead to a country being at the mercy of a legally effective IIA arbitration award. For example obligations such as full protection and security, and Most Favoured Nation (MFN) clauses, to name just a few controversial interpretations56. This is compared to a domestic court, where if a government or public had felt that a domestic court had not applied the law properly. The law could be changed to stop this occurring again in the future. It is far more difficult for states to do this due to the need for consent of the other party or

51

K.J.Vandevelde, ‘A Brief History of International Investment Agreements’, 12 U. C. Davis J. Int’l L & Pol’y 157, 2005 – 2006, at p. 165.

52

J.W. Salacuse, The Law of Investment Treaties, Oxford University Press, New York, 2010, at p. 93

53_{Ibid, at p. 388.} 54

n51 above, at p. 185.

55_{n40 above.}

56_{Z. Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation off the Rails’, Journal of}

(15)

15

parties to the IIA57, so in practice states feel as if they are bound by these unintended obligations. As a result states have revised the their model BITs, to try to obtain more clarity on their intention when a arbitrator is interpreting provisions of a BIT or IIA 58.

The second part to this criticism relating to issues such as transparency, right of appeal, and appointment of arbitrators.

Regarding transparency, the fact that a case involving a state, for which the award may have serious consequences for states, could be happening without the knowledge of the public is an unsettling thought59. The ability of a party to an investment dispute, to request to be held in secret has been criticised again by many different commentators60. Again the mainstream media has no hesitation in pointing this option out in any publication on the issue of investor-state dispute cases61.

The finality of arbitration awards, the lack of an appeal system, and lack of judicial review is another aspect to the absence of democratic legitimacy in investment arbitration62. Awards which are rendered by an arbitration tribunal using UNCITRAL Rules although final, do leave room for a party to seek redress from an ‘unfair’ decision or award63

. ICSID awards can only be annulled by the ad-hoc committee, which has very limited grounds in which to do so64.

The selection of arbitrators is also another issue that many are uncomfortable with in IIA arbitration, but also arbitration in general. There is a perception that arbitrators are ‘in the

57_{G V Harten, ‘Sovereign Choices and Sovereign Constraints: Judicial Restraint in Investment Treaty Arbitration’}

Oxford University Press, at p2-3.

58

S. Schill, ‘International investment Law and Comparative Public Law – An Introduction’, Oxford University Press, 2010, at p.6, Found at

http://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780199589104.001.0001/acprof-9780199589104-chapter-1 .

59_{UNCITRAL Rules, Article 25(4) and Article 32(5), 1976 Rules.} 60

A. Asteriti and C. J. Tams, ‘Transparency and Representation of the Public Interest in Investment Arbitration’, International Investment law and Comparative Public Law, Chapter 25, Oxford Scholarship Online, 2010 , found on SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1618843.

61

Found in any of the media sources used above, and also here, L. Williams ‘This Secret UK-Eurotunnel Tribunal

reveals something Disturbing About Refugees and TTIP’ The Independent, London, Published 2 February 2016.

62

Y. Ngangjoh-Hodu, C.C. Ajibo, ‘ICSID Annulment Procedure and the WTO Appellate System: A Case for an

Appellate System in Investment Arbitration’, Journal for international Dispute Settlement, 2015,6, 308-331, at

p.314.

63_{J Fernadz-Armesto, ‘Different Systems for the Annulment of Investment Awards’, ICSID Review, 26(1),2011, P.}

128-146, at p.130.

64

(16)

16

pockets’ of the parties who selected them. That in order for them to maintain their career as an arbitrator it is in their interests to act in an overtly biased manor65.

2.3) International Investment Arbitration is Biased Towards the Investor

A recurring point of criticism of international investment arbitration is that it is biased towards the investor. Once again the media is one major source of this criticism. One such example is this editorial from ‘The Economist’ about ISDS, ‘Multinationals have exploited woolly definitions of expropriation to claim compensation for changes in government policy that happen to have harmed their business’66

. One can see from the use of an adjective like ‘woolly’ and the phrase ‘that happen to have harmed their business’ the sarcastic disdain the writer has for investment arbitration. It also gives the impression to a reader that it is easy for a corporation to successfully ‘sue’ a state for ‘whatever reason’. This point is also echoed by individuals and organisations also. In a video about TTIP made by WikiLeaks, several individuals state the following “It’s (TTIP and trade agreements in general) about enshrining

a investor rights regime in their respective countries and ensuring that corporations can run wild in the respective economies, with very little regulation or impingement from governments or authorities”67. Referring to ISDS specifically, it is stated “(ISDS) allows companies to sue states over virtually anything that affects their investment”68. Following this Claire Provost also from the Centre for Investigative journalists lists the following as reasons how a corporation can sue a state; protests, laws, new regulations that affect corporations ‘money’69

. It would be easy for one to dismiss their criticism as ‘leftist’ or that it’s just a ‘youtube’ video. But it is important to highlight that 83% of people between the age of 19 - 35 get their news and information from websites like youtube70. Furthermore WikiLeaks and

65

B. Kingsbury, ‘International Courts: Uneven Judicialization in Global Order’, New Your University School of Law, Public Law and Legal Theory Research Paper Series, Working Paper No. 11-05, 2011, at p16.

66

Editorial, ‘The Arbitration Game’, The Economist, London, Published 11/October/2014, Found at http://www.economist.com/news/finance-and-economics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbitration.

67

M. Kennard – Centre for Investigative Journalists, ‘WikiLeaks – The US strategy to Create a new Global Legal and Economic System: TTIP, TTP and TISA’, found here https://www.youtube.com/watch?v=Rw7P0RGZQxQ, at 04:50, uploaded on 18/August/2015.

68_{Ibid, at 5:20.} 69

Ibid, at 5:34.

70_{‘How Millennials Get News: Inside the habits of America’s first digital generation’, American Press Institute,}

Published 16 March 2015, Fond at https://www.americanpressinstitute.org/publications/reports/survey-research/millennials-news/single-page/.

(17)

17

the Centre for investigative Journalists have a reputation of uncovering corporate and political corruption and fraud71. Many hold them in high regard and as a genuine source. States have also exclaimed the bias of on Investment arbitration for investors. As explained above, Bolivia, Ecuador and Venezuela all denounced the ICSID Convention. One reasons why they did so because they believed that ICSID was an investor biased body72.

Another aspect of the investor bias comes from investors themselves, rather small and medium sized investors. There is statistical evidence to show that investors with a revenue of 10 billion per annum, have a higher success rate at the jurisdictional or merits stage of international investment arbitration than those with under 1 billion USD per annum revenue73. However the data cannot point conclusively that arbitrators favour a large investor simply they have more money. The fact that large corporations are apparently more successful, just adds to the impression that ISDS is made to suit the large corporations.

2.4) International Investment Arbitration is Inconsistent and Unpredictable

The Criticism that ad hoc investment arbitration is inconsistent and unpredictable has manifested itself in many different forms and from different kinds of commentators. The ICSID Convention does not contain a principle of ‘stare decisis’. So there is no requirement for tribunals to follow the decisions laid down by other tribunals74. Susan D Franck states that there are three reasons why there are inconsistent decision in investment treaty arbitration. First, different tribunals can come to different conclusions on the meaning or standard of the same treaty article. Second, tribunals formed under different treaties, may make different conclusions relating to similar parties, facts, and investment rights. Lastly, different tribunals organized under different investment treaties will consider disputes involving a similar commercial situation and similar investment rights, but will come to opposite conclusions75. For example the definition of ‘investment’ in the ICSID Convention

71_{S. Ellison, ‘The Man who Spilled the Secrets’, Vanity Fair, United States, Published February 2011, Found at}

http://www.vanityfair.com/news/2011/02/the-guardian-201102.

72

n49, at p. 134.

73

G.V Harten, P. Malysheuski, ‘Who has benefited financially from Investment Treaty Arbitration? An

Evaluation of the Size and Wealth of Claimants’, Osgoode Hall Law School, Legal Studies Research Paper series, Paper No. 14, Vol 12, Issue 3, 2016, at p.2.

74_{Amco v Indonesia, ICSID Case No. ARB/81/1, Decision on Annulment, para. 44.}

75_{S D. Franck, ‘The Legitimacy Crisis in investment Treaty Arbitration, Privatising Public International law}

(18)

18

and the case Salini v which laid out criteria for an investment under the convention, the so-called ‘Salini’ test76

. Then there are the tribunals that reject this interpretation and choose not to follow it77. This is also seen with regard to the application of MFN clauses. Take for example the cases of Maffezini (Argentina) v Spain78 and Plama (Cyprus) v Bulgaria79 who have opposite views on the issue. Furthermore tribunals have also being inconsistent with ‘umbrella clauses’ in investment treaties. The leading ICSID cases SGS v Pakistan80

and SGS v Philippines81, where divergent conclusions were reached.

Another reason why many commentators think that this inconsistency occurs is due to the ‘limited’ options for appealing a decision of an investment arbitration tribunal82

. Thus an appellate system is unable to ‘correct’ an exceptional error by a ‘lower’ tribunal.

The main problem that inconsistency and unpredictability creates is simply that. The point of creating an international framework is supposed to provide a reliable and predictable environment in which an investor and state may act83. If IIA arbitration cannot provide that consistent and stable environment, then a permanent investment court might.

On the second part of this criticism, is the enforcement side of an award. Investors have criticised IIA arbitration when an award has been issued by an arbitration panel, but they may still have difficulty getting the award enforced. Should a state be unable or unwilling to ‘pay’ the investor outright, an investor may seek its recognition and enforcement in a domestic court of the respondent state or a state in which the respondent state has assets. A respondent state may seek an annulment of the award or block the enforcement. This is generally a concern relating to awards issued by tribunals using UNCITRAL Rules and relying on the New York Convention for enforcement84. The New York Convention provides limited grounds for a domestic court to recognise or enforce the award85. Although recognition and enforcement via the New York Convention was generally seen as effective as that of ICSID,

76_{Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4.} 77

Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Paras 310, 312-18.

78

Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No. ARB/97/7, Para 64.

79_{Plama Consortium Limited v. Republic. of Bulgaria. ICSID Case No. ARB/03/24, Paras 222-224.} 80

SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Paras 171-173.

81

SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Para 131

82_{n75 above, at p 26 .} 83

I. Venzke, ‘Investor-State Dispute Settlement in TTIP from the Perspective of a Public Law Theory of

International Adjudication’, ACIL Research Paper 2016-06, available on SSRN.

84_{New York Convention, Article IV.} 85

(19)

19

recently respondent states are becoming more successful at blocking enforcement of awards in domestic courts86.

2.5) Expensive and Time Consuming

Aside from creating a neutral venue to hear investor-state disputes, one of the main reasons why arbitration was a preferred dispute settlement option because it was quick, efficient, and less costly87. However as the case load for arbitration bodies has increased, so too has the length and costs of the proceedings88.

One aspect to this criticism is that the unpredictability of the costs and time consuming nature proceedings make it particularly difficult and unattractive for investors, particularly small and medium sized investors (SMEs) to take claims to arbitration89. Statistics from the OECD indicates that the average cost of an IIA arbitration case is 8 million USD for a claimant90. As stated above investors with an annual turnover of 10 Billion USD are more likely to be successful at a jurisdictional and merits stage91. Companies note that the high costs in general and uncertainly of the allocation of costs are reasons why they might not choose Investment arbitration as a way of settling a dispute92. It also adds fuel to the criticism that ISDS is more favourable to large corporations and developed states. The main reasons is that wealthier corporations and states will often be able to shoulder the expenses of lengthy arbitration proceedings, such as having experienced legal counsel on retainer, thus making it more likely that they will achieve a favourable outcome93.

Time is also an issue for investors, as having to wait for a long time to reach a conclusion to a dispute can lead to further costs and uncertainty. According to a UNCTAD the average

86_{Investor-State Dispute: Prevention and Alternatives to Arbitration, UNCTAD series on Investment Policies for}

Development, 2010, at p. 18.

87

Ibid, at p. 14.

88_{Ibid, p. 17 – 18.} 89

S.D. Franck, ‘Rationalizing Costs in Investment Treaty Arbitration’, Washington University Law Review, Vol 88 No 4, 2011 at p. 787-788.

90

Gaukrodger, D. and K. Gordon (2012), ‘Investor-State Dispute Settlement: A Scoping Paper for the Investment

Policy Community’, OECD Working Papers on International Investment, 2012/03, OECD Publishing.

http://dx.doi.org/10.1787/5k46b1r85j6f-en , at p.19.

91_{n62 above.} 92_{n86 above.} 93

(20)

20

investor-state arbitration case can take between 3 to 4 years94. Costs and time is also an issue with the enforcement of the award. Should an investor be successful in arbitration proceedings, they may still run into further delay and costs trying to get the award recognised and enforced in a meaningful jurisdiction95.

When one examines the criticism in slightly more depth, it becomes clearer why the EU has opted for a change in policy. It would appear that all stake holders are having major problems with IIA arbitration as they currently operate.

94_{n90, at p.18.} 95

(21)

21

Chapter 3 – The Proposal for a Permanent Investment Court

System

In November 2015 the EU finalised its official proposal for an investment court in TTIP as a replacement for ad hoc ICSID and UNCITRAL Rules arbitration96. The Commission draft text on TTIP (‘the draft text’) outlined the proposal for an institution it hopes can be an effective form of investor-state depute settlement and also answer the criticisms of more traditional arbitration mechanisms, outlined in the previous chapter97. Like many other IIAs, the draft text outlines a number of possible ways to settle the dispute before submitting it to the court98. For example it provides for an attempt for an ‘amicable resolution’ by way of mediation99

. Should mediation shall fail, another possible resolution through consultations with the other party100. If no solution to the dispute can be found thorough the aforementioned methods, then the claim may be submitted to the court system101.

3.1) Investment Court System

The ICS is made up of two tribunals, a ‘Tribunal of First Instance’ (the Tribunal) and an Appellate Tribunal. Article 6 provides that the claim maybe submitted to the tribunal under one of the following rules ‘ICSID Convention’, pursuant to ICSID Additional Facility Rules, UNCITRAL Rules or other mutually agreed rules102.

3.2) Tribunal of First instance

Chapter 2, Sub-section 3, Article 9 of the draft text describes the makeup of the permanent court as an institution.

96

EU Commission – Press Release, ‘EU Finalises Proposal for a Investment Protection and Court System for

TTIP’, Brussels, 12/November/2015, found at http://europa.eu/rapid/press-release_IP-15-6059_en.htm .

97

Ibid.

98_{J.W. Salacuse, ‘The Law of Investment Treaties’, Oxford Law Library Series, Second Edition, 2015, at p 359} 99

Investment Chapter, TTIP Draft Text, Section 3, Article 2 and 3.

100_{Ibid, at Article 4.} 101_{Ibid, at Article 6(1).} 102

(22)

22

The tribunal shall be made up of fifteen Judges, which will be appointed by the Trade Committee. Five of the judges shall be nationals of an EU member state. Another five shall be nationals of the US and the remaining five shall be nationals of third party countries103. The Committee may also increase or decrease the number of Judges by multiples of three104. There is a ‘requirement’ for judges to possess the qualifications required in their countries for judicial office, or be a judge already. There is also a requirement for the judges to have ‘demonstrated an expertise in public international law’. Furthermore there is a stated preference that the committee chose judges who have expertise in investment law, trade law, and resolution of trade or investment disputes105. Further in the draft text there is a section ‘ethics’ of the arbitrators106. The qualification and ethical requirements of the judges is the commission’s response to criticism that the ISDS arbitrators are sometimes not qualified to make decisions and awards on international investment matters, or are biased and influenced by some kind of ulterior motive.

The judges shall be appointed for six-year terms which are renewable once107. The President and Vice-President shall be responsible for the organisational issues of the court and shall be appointed on two year terms. The President and Vice-President of the tribunal shall be ‘determined by lot’, or in other words chosen randomly, from the judges who are nationals of the third countries108. Having a process of selection is an attempt to further distance the parties of the dispute from the adjudicators, thus furthering impartiality.

Claims submitted to the tribunal shall be heard by three judges, one of which is a national of an EU member state, the USA, and a judge from third country109. The President of the Tribunal to ensure that the way in which the judges are chosen for a case is ‘random’ and ‘unpredictable’, but yet ensures that all judges have the chance to serve110. There is a provision for a case to be heard by a sole judge, whom is a national of a third state. The article also stipulates that a respondent shall ‘give sympathetic

103 Ibid, at Article 9(2). 104 Ibid, at Article 9(3). 105 Ibid, at Article 9(4). 106_{Ibid, At Article 11.} 107 Ibid, at Article 9(5). 108_{Ibid, at Article 9(8).} 109_{Ibid, at Article 9(6).} 110 Ibid, at Article 9(7).

(23)

23

consideration’ to small or medium sized enterprises in cases where the compensation or possible damages are low111. Requiring that respondents give special consideration to SMEs and opt for a sole arbitrator is the attempt to lower the cost of the process for SMEs. The judges shall be kept on a fixed retainer to ensure availability112. The fixed retainer is also included to try to control the costs of the process. There is another provision that envisages potential for judges to become ‘full-time’ members of the court and the retainer to be considered a salary113. Those two provisions would appear to try to attempt to lower the cost of the process. Also keeping the availability is a way of trying to speed up the process. As stated one main reason for the delay in IIA arbitration decisions is the availability of the arbitrators114.

3.3) Appellate Tribunal

The Inclusion of the Appeal Tribunal is the biggest difference from the standard IIA arbitration, used in previous agreements.

The Appeals Tribunal will consist of six members, two will be nationals of the EU, another two nationals of the US and two will be nationals of a third country115. Again the Committee may decide to increase the tribunal by multiples of three116. The judges may serve for period 6 years, ability to be reappointed once117. The makeup of an appeal tribunal shall be on a rotation and random basis, selection of a president and vice president from the two (or more) judges from a non-party state118. A point of diversions of the organisation comes with the qualifications. There is a requirement for the judges of the appeals tribunal to be or possess the qualifications needed hold the ‘highest judicial office’119

. Another point of diversion is that it would appear from the draft text that cases in front of the appeals tribunal shall only be heard by heard by three judges120.

111 Ibid, at Article 9(9). 112_{Ibid, at Article 9(12).} 113 Ibid, at Article 9(15). 114

See section 2.5 above.

115

Investment Chapter, TTIP Draft Text, Section 3 Article 10 (2).

116_{Ibid, at Article 10 (4).} 117 Ibid, at Article 10 (5). 118_{Ibid, at Article 10 (6).} 119_{Ibid, at Article 10 (7).} 120 Ibid, at Article 10 (8).

(24)

24

How the appeals process differs from a process like the ad hoc committee for ICSID or potential judicial review of a domestic court from a ‘territorialized’ or non- ICSID arbitration under the New York Convention in the way that it can annul an award based an error in the interpretation or application of the applicable law or in the appreciation of the facts or interpretation domestic law121.

3.4) Other Points of Note

Article 30 outlines the enforcement of an award. This article provides that the award rendered by the court is not subject to review by a national court. It is also considered legally binding, as it were a ‘final judgement of a court in that Party’122

. The enforcement of the award is governed by the laws of the state in which the enforcement is sought. This would suggest that the court would be a ‘self-contained entity’, similar to the enforcement provision of the ICSID Convention. This would be a move to make awards from the ICS to be more secure with regards recognition and enforcement compared to arbitration awards under UNCITRAL Rules123.

The scope of indirect expropriation in the investment chapter is also something that has been narrowed. The use of words like ‘substantially deprives the investor of . . . ‘, and ‘the impact of the measure or series of measure is so severe’ indicate a expressly high threshold for an indirect expropriation to be established124. This is an attempt to further clarify the difference between what could be considered an indirect expropriation and the effects of a legitimate regulation, which would further ensure states’ ‘right to regulate’ on genuine public policy grounds, which out the fear of having to pay damages125.

121

Ibid, at Article 29 (1)(a)-(b).

122_{Ibid, at Article 30 (2).} 123

See Section 2.4 above.

124_{Investment Chapter, TTIP Draft Text, at Section 2, Annex 1.}

125_{F.Ortino, ‘Defining Indirect Expropriation: The TTIP Approach’, King’s College London Dickson Poon School of}

(25)

25

Chapter 4 – Why the ICS Model in TTIP has a Limited

Potential for Success

The following chapter outlines the reasons why this author believes that the ICS model in TTIP may not lead to the great global reformation of ISDS as is intended. The first section outlines reasons why ICS will fall short of establishing itself as a legitimate international adjudicating institution. The second section outlines other political problems facing the establishment of such a court.

4.1) Predicted Successes and Failings of the ICS

For an institution of global governance to achieve the legitimacy needed to establish itself, there needs to be consensus among the stakeholders involved 126 . The stakeholders for the ICS are investors, states and ‘civil society’127

. The ICS will not achieve consensus among stake holders for two reasons. Firstly, many of the criticisms of IIA arbitration are based on perception which does not reflect reality. This perception is usually driven by political ideology from opponents of globalisation in general128. The effect of creating a new institution based upon these false criticisms amounts to creating a system based on political bias rather than an institution that is created to serve the needs of all stakeholders. It is a given that any kind of reform, especially reform in International law, is in some way driven by a political agenda, to a certain extent129. The problem of having too much of a politically driven law, is that it could lose credibility in the eyes of actors who are subjected by it130.

The second reason is grounded more in the practical operation of the court. As a proposal for reform, does it reasonably set out a way of being ‘an improvement’ on

126

n4 above.

127

R. Voeten, ‘Public Opinion and the Legitimacy of International Courts’, Theoretical Inquiries in Law, 411, 2013, at p.

128

As evidenced by the results of the EU Commission’s public consultation on ISDS.

129_{M. Koskenniemi, ‘The Politics of International Law’, The European Journal of International Law, 1990, pp.}

4-32 .

130

(26)

26

what came before it. In other words, can it both achieve the objectives that it not only sets out for itself? And do what is expected of it by its stakeholders131?

4.1.1) Ensuring a State’s Right to Regulate

‘IIA arbitration restricts a sovereign state’s right to regulate’, is probably the most popular criticisms of IIA arbitration from media and politicians. However there is a reasonable case to be made that no state has ever reversed a genuine regulation or policy based on an IIA arbitration case award or because of the threat of becoming a respondent to in an IIA arbitration case132. In many ways this criticism is a ‘red herring’ as arbitrators are already quite aware about the importance of a state’s right to regulate133. It is considered paramount and it reflected in such arbitration cases, such as the ‘Techmed case’134.

However, organisations have made political hay out of exceptional cases such as the Philip Morris v Australia, in backing up opposition to IIA arbitration. There is a kind portrayal of states looking out for their citizen’s best interest, while being at the mercy of the underhanded foreign investor. The real facts and details of the IIA arbitration cases are rarely delved into by IIA arbitration opposition groups. For example the fact that the arbitration panel declined jurisdiction in the Phillip Morris case is rarely mentioned by those who use it as an example of investors challenging the states right to regulate135. Opposing IIA arbitration is part of an overall anti-globalisation agenda in

131

J. N. Clark, ‘International Criminal Courts and Normative Legitimacy: An Achievable Goal?’, International Criminal Law Review, 15,2015, pp. 763-783, at p. 770.

132

S. Miller, G. Hicks, ‘Investor-State Dispute Settlement: A reality Check’, Centre for Strategic and International Studies Reports, Published 29/October/2014, Found at https://www.csis.org/analysis/investor-state-dispute-settlement-reality-check-working-paper.

133_{C. Henkels, ‘ Indirect Expropriation and the Right to Regulate: Revisiting the Proportionality Analysis and the}

Standard of Review in Investor-State Arbitration’, Journal of Economic Law, 15(1), pp.223-255, 2012, at p.225

134_{Ibid at p.231-232}

135_{T. Worstall, ‘Greenpeace, Philip Morris, Australia and the secret ISDS Trade Courts- Naught Greenpeace’,}

(27)

27

general from certain organisations136. This is evidenced due to the fact that many of the organisations are still not satisfied with the ICS proposal137.

Politicians have added to volume of this criticism, leading to a false belief that states regulate in the fear of IIA arbitration claims. They have in turn exploited this populist mantra to become the voice of a demographic which is increasingly becoming disaffected with globalisation138. The media is not helping clarity on the issue either. As noted in section 2.1 above, the media has a general negative tone towards IIA arbitration. It seems to generally focus on the negative exceptional case. Such negative press give people the impression that their state is can be punished if it tries to make genuine, legitimate regulations. The effect that increased media coverage has on influencing a government’s attitude to ISDS139 can be seen in Australia, during their FTA negations with the US. Media coverage of ISDS increased dramatically during the negations and the ISDS provision was omitted from that agreement. This can be compared to the inclusion of ISDS provisions in BITs between Australia and other states, where there was ‘virtually no media coverage’140_{. In other words there wasn’t a}

problem with IIA arbitration until the media said there was a problem.

As a result of the apparent criticism the TTIP draft proposal has placed a significant explicit emphasis on a state’s right to regulate141. This raises the bar on investors who are trying to seek a remedy in the ICS.

4.1.2) Democratic Legitimacy

136

As evidenced by the majority of the submissions to the EU Commissions’ ISDS Consultation were ‘copy-and-paste templates circulated by non-governmental organisations campaigning against TTIP’, C. Oliver, ‘Public Backlash Threatens EU Trade Deal with the US’, Financial Times, London, Published 13 January 2015.

137

N.Cingotti, P. Eberhardt, N. Grotefendt, C. Olivet, S. Sinclair, ‘Investment Court System put to the Test: New

EU Proposal will Perpetuate Investors Attacks on health and Environment’, Published by Canadian Centre for

Policy Alternatives, Corporate Europe Observatory, Friends of the Earth Europe, Forum Umwelt und Entwicklung (German Forum on Environment & Development) and the Transnational Institute, April 2016.

138

D. Francis, ‘French President Says ‘Non’ To TTIP’, Foreign Policy, Published on 03 May 2016, Found at http://foreignpolicy.com/2016/05/03/french-president-says-non-to-ttip/.

139_{Or anything for that matter.} 140

L. Nottage, ‘Investment Treaty Arbitration Policy in Australia, New Zealand and Korea’, Journal of Arbitration Studies, Vol 25 No 3, 2015, at 191-192.

141_{TTIP EU Proposal Text, Section 2, Annex I, Provides for direct or indirect expropriation in ‘rare circumstances’}

(28)

28

There are a number of ways in which the ICS proposal does make strides in improving the apparent lack of democratic legitimacy that currently exists in IIA arbitration. Firstly the proposed investment chapter does go quite far into ensuring transparency142. Secondly, it restricts the potential for arbitrator’s interpretation to ‘create’ obligations beyond the intention of the states143. More transparency can only add to the democratic legitimacy of the ICS144. No matter how much some investors and some states would like it to be otherwise. Public knowledge of how their state conducts its affairs is a welcome part of the proposal from most critics concerned about the secrecy of ISDS arbitral tribunals.

Thirdly, the appeal mechanism in the proposal with far broader grounds of appeal than those which already exist in the ICSID or New York Conventions, certainly adds to a parties ability to annul an ‘unfair’ award145

. The ability for a party to a dispute to have access to judicial review of what could be a rather ‘unfair’ decision is a fundamental component of a democratic legal system. Therefore the inclusion of this Appeal tribunal is certainly an addition to the democratic legitimately of the ICS proposal.

In the proposal, there is a provision that allows trade committee to make precise definitions, gives more control over the interpretation of the text146. There are two sides to this argument. One is laid out above, that it gives the parties to the agreement the ability to restrict an arbitrator using too much of a broad base for its interpretation, and thus not interpreting obligations that states did not agree on when drafting the agreement. However this ‘solution’ may satisfy one aspect of IIA arbitration relating to democratic legitimacy, but may leave itself open to another criticism, which is independence of the adjudicators. As stated in the previous chapter, the judges who can be appointed to the ICS are required to have high extremely qualifications147. Surly judges who meet the criteria to be a member of the ICS are qualified to make accurate interpretations of the treaty themselves. One of the main reasons of having a strong,

142

Investment Chapter, TTIP Draft Text, at Article 18.

143

Ibid, at Article 13.

144

J.D.F. Licht, et al, ‘When Does Transparency Generate legitimacy: Experimenting on a Context Bound

relationship’, Governance: An International Journal of Policy, Administration, and Institutions, Vol. 27, No. 1,

January 2014, pp. 111–134, at p. 114.

145_{n83 above.}

146_{Investment Chapter, TTIP Draft Text, Section 3 Sub-section 5, Article 13.} 147

(29)

29

independent judiciary is to check and balance the power of an executive or legislature148. In the proposal the Judges interpretation has the potential to be severely curtailed by one of the parties. Not to mention the selection of the panel of the judges is entirely left to the ‘state parties’ 149

. Although subsequent agreement of the interpretation of terms is accepted under Article 31 of the Vienna Convention of the Law of Treaties (VCLT), should the state parties not have more trust in the expertise of the judges for it to be considered a legitimate international court? I.e the ability to easily determine the ‘proper interpretation’ serve the interest of states too an excessive degree150. The issue of evolving interpretation of terms in agreements has come up from time to time in different international cases. For example the case of Costa Rica v Nicaragua before the ICJ, in which the Court found that the interpretation of the term can evolve and the interpretation of the modern meaning is acceptable under the VCLT151.

4.1.3) Investor Bias

When one examines known statistics from IIA arbitration cases, it paints a picture that respondent states are in fact more successful than investors. According to research from known IIA arbitration cases, investors are achieving a successful final award or settlement is at 30.9%152. This would appear to show that the claim that IIA arbitration is biased towards investors is false, or at least over blown153. EU states and investors are particularly successful at defeating and succeeding in IIA arbitration claims154. It is difficult to reconcile how the ICS will address a problem of investor bias, when the problem doesn’t seem to exist.

148_{M. Kai, ‘Towards a Theory of Balancing and Proportionality: The Point and the Purpose of Judicial review’,}

The Global Model of Constitutional Rights, Chapter 5, Oxford University Press, 2012.

149

TTIP Draft Text Proposal, Section 3, Article 9(2) and Article 10(3).

150

n6 above, at p.409-412.

151_{Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua), (Judgement) ICJ Rep [2009], at}

Para 66.

152_{n42 above, at p.490.} 153_{Ibid, at p.491.} 154

(30)

30

The second issue is that IIA arbitration favours ‘larger’ investors over SME’s. Data indicates that SME investor claims in IIA arbitration are approximately the same as larger investors. However SMEs tend to receive far less than they sought in favourable outcomes compared to large investors155. There is no real way to say that the ‘statistics’ are false. The issue is then to consider, would the ICS be ‘less biased’ against SMEs? It is difficult to conclude one way or another. As mentioned already, one reason to suggest that SMEs are less successful at IIA arbitration is due to the costs involved. A reduction in costs could lead to better success for SMEs. This will be further discussed below in section 4.1.5) Cost Effectiveness

4.1.4) Improving Consistency and Predictability

The ICS proposal does show promise for creating a more consistent and predictable system compared IIA arbitration. There are two reasons main reasons for this.

The ICS proposal’s inclusion of an appellate system will in fact create a jurisprudential consistency like it has in the WTO DSB156 and the improvement in consistency will ultimately add to the legitimacy of the ICS itself157. Arguable one way in which a global adjudicating body gains legitimacy in the eyes of the stakeholder is that it creates a consistent international environment for the actors to conduct their affairs158.

Secondly the enforcement provision of the investment chapter outlines that the awards from the ICS will be not subject to review from other bodies and the award should be recognised and enforced as ‘if it were a final judgement of a court in that party’. This would appear to give greater certainty to the recognition and enforcement of an award.

4.1.5) Cost Effectiveness

As noted in section 2, high costs are an issue for investors, particularly SMEs when considering to seek a remedy through IIA arbitration. Despite the ‘consideration’ that a

155_{n73 above, at p. 11-13} 156

n83 above, at 12-13.

157_Ibid.

158_{A. von Bogdandy, I. Venzke, ‘On the Functions of International Courts: An Appraisal of Their Burgeoning}

The Ball is in your Court: An Analysis of the EU Commission’s Proposal for a Permanent Investment Court in the TTIP Agreement