Permanent Investment Courts: The European Experiment [1st ed.] 9783030456832, 9783030456849

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European Yearbook of International Economic Law Güneş Ünüvar Joanna Lam Shai Dothan Editors

Special Issue: Permanent Investment Courts The European Experiment

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European Yearbook of International Economic Law Special Issue

Series Editors Marc Bungenberg, Saarbrücken, Germany Markus Krajewski, Erlangen, Germany Christian J. Tams, Glasgow, UK Jörg Philipp Terhechte, Lüneburg, Germany Andreas R. Ziegler, Lausanne, Switzerland

The European Yearbook of International Economic Law (EYIEL) is an annual publication in International Economic Law, a field increasingly emancipating itself from Public International Law scholarship and evolving into a fully-fledged academic discipline in its own right. With the yearbook, the editors and publisher intend to make a significant contribution to the development of this “new” discipline and provide an international reference source of the highest possible quality. The EYIEL covers all areas of IEL, in particular WTO Law, External Trade Law for major trading countries, important Regional Economic Integration agreements, International Competition Law, International Investment Regulation, International Monetary Law, International Intellectual Property Protection and International Tax Law. In addition to the regular annual volumes, EYIEL Special Issues routinely address specific current topics in International Economic Law.

More information about this subseries at http://www.springer.com/series/8848

Güneş Ünüvar • Joanna Lam • Shai Dothan Editors

Permanent Investment Courts The European Experiment

Editors Güneş Ünüvar Faculty of Law University of Copenhagen Copenhagen, Denmark

Joanna Lam Faculty of Law University of Copenhagen Copenhagen, Denmark

Shai Dothan Faculty of Law University of Copenhagen Copenhagen, Denmark

ISSN 2364-8392 ISSN 2364-8406 (electronic) European Yearbook of International Economic Law ISSN 2510-6880 ISSN 2510-6899 (electronic) Special Issue ISBN 978-3-030-45683-2 ISBN 978-3-030-45684-9 (eBook) https://doi.org/10.1007/978-3-030-45684-9 © Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Preface

This special issue explores the Investment Court System (ICS) solutions which the European Union (EU) has adopted in recent economic treaties. It is particularly interested in the transitory and hybrid character of these solutions. As part of this investigation, the special issue also assesses the feasibility of establishing a truly multilateral investment court (MIC) in the present ‘interregnum’ times of Investor-State Dispute Settlement (ISDS). The creation of such a multilateral institution is currently promoted as one of the flagship projects of the EU trade and investment policy, as seen, for example, in the 2017 ‘State of the Union’ address of the then-President of the European Commission Jean Claude Juncker; authorization of the European Commission by the Council on 20 March 2018 to negotiate on behalf of the EU and MIC convention; and the supportive stance for the initiative adopted by the EU Member States before UNCITRAL Working Group III (which since 2017 examines the possibilities of reform of the ISDS system). As the investment court project is currently one of the most pronounced, as well as the most debated projects of the EU trade policy, the proposed special issue is particularly timely. International investment disputes often concern society as a collective and direct stakeholder, especially in cases prompted by multinational companies conducting essential public services such as sanitation, energy production and distribution, or resource extraction. As disputes with far-reaching and direct implications for the society have amassed, it has been increasingly argued by scholars that the social legitimacy of the international settlement of investment disputes shall be enhanced by, inter alia, shifting the ad hoc and arbitral focus of investment dispute resolution to new and more permanent, institutionalized dispute settlement bodies. Although such suggestions for creating permanent investment courts have been around for decades, it is only now that they may materialize into actual investment courts. In particular, the European Commission has been pushing for a court-like mechanism to resolve investment disputes in several recent trade deals. Such a framework was, for example, included in the Free Trade Agreements (FTAs) and v

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Investment Protection Agreements (IPAs) that the EU signed with Vietnam and Singapore (EU–Vietnam IPA and EU–Singapore IPA) and Canada (Comprehensive Economic and Trade Agreement (CETA)). The European Commission had also formally proposed a court system during the negotiations for the now-defunct Transatlantic Trade and Investment Partnership (TTIP) agreement with the USA. The adoption of a permanent dispute settlement mechanism has also been accepted in negotiations with Mexico. In addition, and crucially, all agreements mentioned above also include provisions that foresee the establishment of a multilateral investment court (MIC). The ambitions of the EU to create a MIC have been repeatedly expressed on various occasions, including submissions to UNCITRAL, where in 2017 the Working Group III has been entrusted with a broad mandate to conduct work on the possibilities of multilateral reforms of the ISDS system. These reform options are being discussed to this day. The big question is whether these developments are actually leading to the creation of permanent investment courts. The articles in this special issue examine this question as well as several related inquiries including: How might such courts change the future of international investment law? Will they bring about a real institutional change of adjudicatory mechanisms? Or will they introduce a ‘hybrid’ system, which borrows important characteristics from both arbitration and institutional methods of international adjudication? How will the proposed shift from arbitrators to judges affect the prescribed qualification requirements and rules of appointment of tribunal members? What challenges await stakeholders in the enforcement of decisions rendered by the investment courts, vis-à-vis arbitral tribunals functioning pursuant to the ICSID Convention or the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? What lessons can be learned from the North American ISDS practice, and what does a potential MIC mean for the EU legal order as a whole? The special issue brings together a group of established and emerging scholars who are all investigating the new European model of permanent investment courts. It is based on carefully selected papers from a larger conference at the Centre of Excellence for International Courts (iCourts) at the University of Copenhagen Faculty of Law, which the editors organized on 1–2 February 2018. In their contribution, Shai Dothan and Joanna Lam explore the transitory and hybrid character of the newly proposed investment courts, which contrasts with the public discourse of revolutionary change in investor-state dispute resolution. They ask whether the shift from arbitration to court-like mechanisms is likely to happen, and how deep the change is going to be. The advantages and disadvantages of replacing ad hoc arbitrators with court-like mechanisms are examined. The authors argue that courts are more centralized than arbitration, which is a factor bolstering adjudicatory coherence and adoption of a long-term perspective. However, centralization may imply a greater risk of capture by special interests and could lead to more radical legal developments than the system based on arbitration. Furthermore, compromise solutions that create numerous competing court-like mechanisms

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instead of a universal court may potentially escalate the fragmentation of international law. Eleftheria Neframi scrutinizes the effects of permanent investment courts on the EU legal order. Her contribution deals with the concept of ‘mixity’ of future EU investment treaties, whereby both the EU and its Member States are to become parties to these future treaties. The paper emphasizes substantial issues such as the allocation of international responsibility between the EU and the Member States, the balance between efficiency and ‘the respect of the EU legal order’s fundamental principles’. Armand de Mestral and Lukas Vanhonnaeker approach the question of permanent investment courts from the North American perspective. They ask whether the parties of NAFTA and the new USMCA, namely the USA, Canada and Mexico, might be more willing to adopt a court-like structure to handle future investment disputes in light of their unique ISDS experience. They juxtapose this question with the inquiry of whether investor-state arbitration is a source of ‘discomfort’ for the countries they classify as developed democracies. To answer these questions, they delve deep into the NAFTA Chapter 11 practice, the North American Model BITs and their development, as well as their apparent stance on the institutionalization of ISA mechanisms. Marc Bungenberg and Anna M. Holzer conduct a comprehensive analysis of different possible enforcement mechanisms to be employed in a future MIC. They approach the issue from several distinct yet related angles. They consider whether the existing enforcement mechanisms under international arbitration pursuant to the New York Convention or the ICSID Convention, as well as international enforcement of court judgements, shed any light on how an effective enforcement mechanism for the MIC awards could be established. In that vein, they also scrutinize whether the decisions of a MIC would be considered arbitral or judicial in nature. They further discuss the creation of brand-new enforcement mechanisms, including a self-contained ‘MIC treaty’ containing rules on procedure and enforcement, a new New York Convention or ICSID Convention-style treaty on enforcement, among others. They also indicate that the establishment of a ‘fund system’ could be feasible, whereby the MIC members would contribute to a pool intended for compensating the foreign investor, provided that certain conditions are fulfilled and a breach is maintained. Finally, Güneş Ünüvar and Tim Kreft examine the new EU FTAs and IPAs in order to assess the rules of qualifications and ethics applicable to ISDS adjudicators. They compare the arbitration-based notions of ethics currently applicable to arbitrators, on the one hand, and international judges appointed to international courts, on the other. The fragmented and vague nature of these provisions sometimes makes it difficult to pinpoint how, if at all, arbitrators and international judges differ in the kinds of ethical obligations and duties they assume. The contribution identifies what kinds of core ethical responsibilities international arbitrators and international judges undertake, and how these different adjudicators differ in accordance with the

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institutional, permanent and ‘public’ features embedded within each mechanism. Based on these contextual divergences, the paper cautions against the use of ethical rules devised to regulate the judicial and extrajudicial conduct of arbitrators in more judicialized settings where judges adjudicate—such as the prospective ICS proposals and the eventual MIC. Copenhagen, Denmark Copenhagen, Denmark Copenhagen, Denmark May 2020

Güneş Ünüvar Joanna Lam Shai Dothan

Contents

A Paradigm Shift? Arbitration and Court-Like Mechanisms in Investors’ Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shai Dothan and Joanna Lam Permanent Investment Courts and the EU Legal Order . . . . . . . . . . . . . Eleftheria Neframi

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The North American Experience with Investor-State Arbitration: Does It Lead to a Permanent Investment Court? . . . . . . . . . . . . . . . . . . Armand de Mestral and Lukas Vanhonnaeker

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Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marc Bungenberg and Anna M. Holzer

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Impossible Ethics? A Critical Analysis of the Rules on Qualifications and Conduct of Adjudicators in the New EU Investment Treaties . . . . . 119 Güneş Ünüvar and Tim Kreft

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A Paradigm Shift? Arbitration and Court-Like Mechanisms in Investors’ Disputes Shai Dothan and Joanna Lam

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Proposals for Court-Like Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Historical Development and Problems with the Current System . . . . . . . . . . . . . . . . . . . . . 2.2 Proposals for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Current Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Is There a Real Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Political Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 The Prospects of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Assessing the Magnitude of the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The Dark Side of Investment Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Benefits of the Arbitration Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 The Dangers of Introducing Investment Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Advantages of Investment Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Improved Normative Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Improved Social Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Regional Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Potentially Improved Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 5 5 6 9 11 11 12 13 14 15 15 17 18 18 20 20 21 22 23

Abstract Recently, several court-like mechanisms have been considered as a substitute for investor-state arbitration. Suggestions for creating such mechanisms have been around for a long time, but new trade agreements may make court-like mechanisms for investors’ disputes a reality. This paper starts by asking whether the shift from arbitration to court-like mechanism is likely to happen and how deep is S. Dothan (*) University of Copenhagen Faculty of Law, Copenhagen, Denmark e-mail: [email protected] J. Lam University of Copenhagen Faculty of Law, Copenhagen, Denmark Koźmiński University, Warsaw, Poland e-mail: [email protected] © Springer Nature Switzerland AG 2020 G. Ünüvar et al. (eds.), Permanent Investment Courts, European Yearbook of International Economic Law (2020): 1–26, https://doi.org/10.1007/8165_2020_50, Published online: 18 June 2020

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the change to dispute resolution going to be. The advantages and disadvantages of replacing ad-hoc arbitrators with court-like mechanisms are examined. Courts are more centralized than arbitrators, which gives them the ability to act in a coherent way and consider long-term consequences. However, centralization may imply a greater risk of capture by special interests and could lead to more radical legal developments than the stable system of diverse arbitration. Furthermore, compromise solutions that create numerous competing court-like mechanisms instead of a universal court may escalate the fragmentation of international law.

1 Introduction The push for transparency in resolution of international economic disputes has increased in recent years along with the proliferation of arbitration-based mechanisms. The growing number of arbitration fora has led to forum shopping and parallel proceedings not only within but also across the field of international economic law, a field traditionally divided between trade law, investment treaty law and arbitration, and international commercial arbitration. Following these developments, a number of proposals were made to introduce a permanent court or an appellate body for arbitral awards in investment disputes. A more radical version imagines this body as controlling not only investment cases, but also commercial cases that involve issues of public interest. Although long present in the academic discourse, such proposals have not been implemented, until recently, and they have not received much political support. This may soon change. The European Commission has promoted a permanent, court-like mechanism for investment disputes in several recent trade agreements. Such a solution has already been adopted in the Free Trade Agreement (FTA) of the European Union (EU) with Vietnam. When such a mechanism was accepted by the Canadian government in February 2016—in connection with the Comprehensive Economic and Trade Agreement (CETA) with the EU—it was viewed as sensational due to the scale of both economies and the volume of their trade. In 2015, the European Commission has also officially forwarded and publicized such a proposal in the negotiations of the mega-regional Transatlantic Trade and Investment Partnership (TTIP) agreement with the United States. These developments were followed by reopening of the—already concluded—negotiations of the EU-Singapore FTA. The process resulted in adoption of the permanent investorstate dispute resolution mechanism in the 2018 EU-Singapore Investment Protection Agreement. ICS provisions have also been included in the 2018 revision of the EU-Mexico Global Agreement, making it the fourth EU treaty which incorporates the discussed mechanism. It should also be noted that all the EU agreements which provide for such a permanent mechanism also include provisions supporting the creation of a single, multilateral adjudicatory body for investor-state disputes. The intention to pursue

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this goal was firmly expressed by the European Commission in 2017. President of the European Commission Jean-Claude Juncker affirmed it in the annual “State of the Union” address and brochure of 13 September 2017.1 On the same day, the Commission issued a Recommendation for a Council Decision authorizing the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes.2 Possibilities of multilateral reforms of the current Investor-State Dispute Settlement (ISDS) system have also recently been explored by the United Nations Commission on International Trade Law (UNCITRAL). Since 2017, the UNCITRAL Working Group III (WG III) has been entrusted with a broad mandate to conduct work on this topic.3 This designation follows the UNCITRAL Secretariat’s studies, pursued jointly with interested organizations, including the Centre for International Dispute Settlement, Geneva (CIDS). In particular, the options of establishing a stand-alone appellate body within ISDS, and of setting up an international investment court have been explicitly introduced for discussion by the Secretariat.4 It is also worth noticing that in the Note by the Secretariat “Settlement of Commercial Disputes, Investor-State Dispute Settlement Framework, Compilation of Comments”,5 submitted for the fiftieth session of UNCITRAL in July 2017, the responses from several European states express a favorable view of the potential reforms. The comments offered by the EU highlight the efforts already undertaken by the EU and its Member States in this regard, and emphasize the need for “further discussions about the main goals and priorities of the overall reform project”.6 The proceedings of UNCITRAL WG III (since its thirty-fourth to thirty-seventh sessions) have led to identification of matters, on which the postulated reform would be desirable. They included reshaping of the dispute resolution mechanism in regard

1 Available at: https://ec.europa.eu/commission/sites/beta-political/files/state-union-2017-bro chure_en.pdf at 30 and 47 (last visited on January 25, 2020). 2 Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri¼COM:2017:493:FIN (last visited on January 25, 2020). 3 Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirtyfourth session (Vienna, 27 November-1 December 2017) available at http://www.uncitral.org/pdf/ english/workinggroups/wg_3/WGIII-34th-session/930_for_the_website.pdf (last visited on January 25, 2020) According to the Report, “[t]he Working Group would proceed to: (i) first, identify and consider concerns regarding ISDS; (ii) second, consider whether reform was desirable in light of any identified concerns; and (iii) third, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.” p. 3. 4 United Nations Commission on International Trade Law Fiftieth session Vienna, 3–21 July 2017. Possible future work in the field of dispute settlement: Reforms of investor-State dispute settlement (ISDS). Note by the Secretariat. available at: http://www.uncitral.org/uncitral/en/commission/work ing_groups/3Investor_State.html (last visited on January 25, 2020) p. 6 and ff. 5 United Nations Commission on International Trade Law Fiftieth session Vienna, 3–21 July 2017. Settlement of Commercial Disputes, Investor-State Dispute Settlement Framework. Compilation of Comments. Note by the Secretariat available at: http://www.uncitral.org/uncitral/en/commission/ working_groups/3Investor_State.html (last visited on January 25, 2020) p. 12. 6 Ibid.

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to (1) stand-alone review or appellate mechanism; (2) standing multilateral investment court; and (3) selection and appointment of arbitrators and adjudicators (A/CN.9/1004, paras. 25 and 27). These issues were the object of discussion of the thirty-eighth session of UNCITRAL WG III, held on 14–18 October, 2019 and on 20–24 January, 2020, where polarized stances of the WG III Members on the prospects of the reform in this regard were expressed.7 All those developments form a significant trend which might signal a paradigm shift in the resolution of investment disputes. Is the recent trend in favor of permanent tribunals really a paradigm shift? Is it a revolution or is it simply a natural evolution of processes that were already discernible in arbitration? Scholars have noted that even the current system of investment arbitration takes into account interests besides those of the parties to the dispute. Investment arbitration can promote the values of transparency,8 legal stability, and fairness. In other words, even separate arbitrators can form some sort of global governance.9 Yet as long as there is a possibility of choosing between individual arbitrators, the goal of global governance suffers from several major challenges. A court-like mechanism of dispute resolution may ensure transparency and participation and include mechanisms of review that secure its normative legitimacy. It may be able to consider long-term goals and build its social legitimacy over time. It may also improve regional consolidation and facilitate the consideration of all relevant interests better than ad-hoc arbitration. A shift from arbitrators to courts will be compatible with trends that are already materializing in arbitration of investment disputes. This institutional change may solve some problems that the current system is still struggling with. At the same time, the shift to court-like mechanisms may introduce a new set of problems into the system. The prospects of a truly universal economic court are not high at the moment. More feasible compromise solutions—in the form of a multitude of multilateral or regional institutions—may prove to be a dangerous cure. Such solutions add new institutions instead of unifying old ones and may compound the problems associated with fragmentation. Specifically, the new institutions may give powerful countries an even greater advantage in choosing the forum that suits their interests.10 The article examines these issues in the context of recent, as well as historical developments. Section 2 reviews the policy proposals and the proposals made by academics to construct court-like mechanisms to address investment disputes. Section 3 presents current legal developments in the creation of courts of this kind. Section 4 asks if arbitrators are not solving most of the problems of forum

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Possible reform of investor-State dispute settlement (ISDS) Appellate and multilateral court mechanisms. Note by the Secretariat available at https://undocs.org/en/A/CN.9/WG.III/WP.185 (last visited on January 25, 2020), p. 2. 8 Jemielniak (2016), p. 262. 9 Schill and Kingsbury (2010), pp. 5–68. 10 Benvenisti and Downs (2007), p. 595.

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shopping themselves without any need for a true revolution in the field. Section 5 reviews the potential harmful effects of creating court-like mechanisms, particularly their tendency to increase the fragmentation of international governance. Section 6 presents some advantages of shifting to court-like mechanisms for resolving investment disputes. Section 7 concludes.

2 Proposals for Court-Like Mechanisms 2.1

Historical Development and Problems with the Current System

Early attempts at multilateralization of the investment regime were undertaken already in the 1940s and 1950s upon the initiative of capital-exporting states and organizations representing investors, such as the International Chamber of Commerce.11 One of these initiatives was the proposal for establishment of the Arbitral Tribunal for Foreign Investment and of the Foreign Investment Court, the statute of which was drafted under the auspices of the International Law Association in 1948.12 These efforts did not lead to the creation of the proposed institutions, due to the reluctance of host states, which were influenced by recent decolonization processes.13 Nevertheless, this initiative was considered successful as it marked a notable conceptual and semantic shift from the traditional focus on the protection of aliens and their property towards protection of investment ‘with the object of promoting economic development’.14 This approach, which emphasizes the longterm effects of investment and not just investors’ rights, was further adopted in subsequent instruments. The concept of a uniform investment court has thus been formulated already in the beginning of contemporary investment relations. Because the capital-exporting states were unable to secure protection for investments by multilateral means of a judicial system, they turned instead to bilateral negotiations, entering into multiple bilateral investment treaties, with arbitration as a main mechanism for addressing disputes. Scholars have raised several arguments against the use of arbitration to resolve investment disputes. Some commentators focus on the lack of transparency and social legitimacy of arbitration.15 Others focus on the problems of forum shopping

11

Miles (2013), p. 85. International Law Association, Draft Statute of the Arbitral Tribunal for Foreign Investment and the Foreign Investment Court (reprinted in UNCTAD, International Code 1948). 13 See Miles (2013), p. 85. 14 See Newcombe and Paradell (2009). 15 See the discussion on Sect. 6 below. 12

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and parallel proceedings that plague disputes that are resolved by arbitration.16 For others, the key problem is the lack of coherence in adjudication by arbitration, which is especially damaging for lack of an appellate body or judicial control to supervise arbitration.17 Finally, some authors are concerned that arbitrators are biased in favor of investors and do not sufficiently consider the public interest.18

2.2

Proposals for Change

Some of these concerns may have been addressed by recent developments in the field of investment arbitration.19 Nevertheless, some proposals were raised to remedy the problems with investor arbitration by introducing court-like mechanisms. This sub-Part discusses several such proposals. As discussed in detail below, some of them call for introducing a court-like mechanism to resolve investment disputes. Others suggest keeping the system of arbitration, but adding on to it a permanent appellate body which shall review investment awards. Finally, some envision a system of permanent bodies for investment disputes that would include both first instance courts and an appellate body. The proposals for reforming the investment dispute settlement system must address two types of questions regarding jurisdiction. First, they must determine the personal jurisdiction of the court-like bodies, namely, which parties will fall under their jurisdiction. Second, they must circumscribe the subject-matter jurisdiction of the envisioned bodies. Addressing these questions involves difficult choices. Separate courts with narrow personal jurisdictions in general increase the risk of further fragmentation of international law (although evidence as to the harmonizing effect of activity of investment arbitral tribunals has also been presented).20 As discussed below, some commentators have argued that the subject-matter jurisdiction should also be expansive and should include trade disputes between states and commercial disputes between private parties in addition to investment treaty disputes. Some scholars argued that the continuous will of state actors to retain arbitration as the default mechanism in their investment agreements demonstrates that ‘at least in the eyes of the users of the system, arbitration is not a fundamentally flawed

16

See Tereposky and Nielsen (2016). See Harten (2007); Schill (2017), pp. 5–6. 18 See id at 172–173. Cf. Park (2009), p. 629 at 658–661 (suggesting that arbitrators cannot be systematically biased toward investors because they care about their reputation and because host states also take part in appointing arbitrators); Christoph (2013), p. 296 at 314 (arguing that available data doesn’t support accusations of pro-investor bias). 19 See below Sect. 5. 20 Cf. Ünüvar (2016). 17

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model’.21 Considering limitations ensuing from this political context, energy should then be directed into improving the status quo instead of vain attempts at replacing it with an artificial construct of a centralized, permanent court. Consequently, these scholars suggested to supplement the existing investment arbitration regime with an appellate body as a means to increase adjudicatory consistency of the current, fragmented regime. An appellate court could also strive to include the UNCITRAL Transparency Rules into investment agreements already in force.22 This court could also work under specific ethical rules of conduct, adjusted to the particular demands of adjudication in investment cases. Some have suggested that these developments may be further followed by establishing a permanent investment court. Nevertheless, until such a court is fully designed and politically feasible, key concerns about the current system should be addressed by an appellate court.23 The issues of inconsistency of jurisprudence, as well as related concerns as to the lack of legal certainty and the resulting flaws in the administration of justice, have also been raised by proponents of introducing an appellate body for review of awards in investment cases.24 Some are especially concerned with issues in which public interest is involved in the merits of the dispute and suggest introducing an appellate mechanism specifically for such rulings. These proposals call for the establishment of a permanent appellate body to review investment as well as commercial awards that affect the public good.25 A different position—skeptical with regard to possibilities of reforming the existing ISDS regime—has been presented by other scholars. While they acknowledge some potentially beneficial effects of such initiatives as the UNCITRAL Transparency Rules, the 2012 UN Conference on Trade and Development (UNCTAD’s) Investment Policy Framework for Sustainable Development and the proposals forwarded in recent EU FTAs negotiations, they consider them insufficient.26 They also perceive a variety of procedural components, adopted into ISDS from commercial arbitration, as detrimental to public legitimacy, accountability, and transparency of the system.27 Under this view, the ad hoc mechanism of appointing arbitrators and the contractual character of arbitration are factors undermining the independence and the impartiality which are necessary in public law adjudication.

21

Ketcheson (2016), pp. 97–110. Ibid., at. 112 and ff. 23 Ibid., at. 108, 110. 24 See Franck (2005), p. 1521; Cf. Bucher (2008), p. 285. 25 Fan (2016), p. 318. 26 Harten (2016), p. 129. For a general discussion see also Sornarajah (1997), p. 103. 27 See Harten (2008) Investment treaty arbitration and public law (arguing that “the system’s unique use of private arbitration in the regulatory sphere conflicts with cherished principles of judicial accountability and independence in democratic societies; in effect it taints the integrity of the legal system by contracting out the judicial function in public law”). 22

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Consequently, these scholars argued for the establishment of a permanent, multilateral investment court, with adjudicatory independence secured through procedural and institutional safeguards, such as the judges’ tenure.28 Similar arguments have been considered by scholars who proposed the creation of a Supreme Investment Court (SIC), inspired by the adjudicatory powers and the institutional design of the World Trade Organization (WTO) Dispute Settlement Mechanism (DSM). These scholars suggest that establishing an entirely new international court would be politically difficult, but the SIC could be incorporated as a chamber of the International Court of Justice.29 The WTO DSM and in particular the WTO Appellate Body has served as a main point of reference for numerous scholars who formulated proposals for institutional design of a judicial system for resolution of investment disputes. However, scholars have noted that drawing analogies between the two regimes is simplistic.30 There are structural differences between the regulatory frameworks of both regimes. In particular, there are thousands of different investment treaties as opposed to the consolidated character of the WTO agreements.31 As a result, creating a coherent corpus of case law on the basis of diversified legal instruments by a permanent appellate instance for investment disputes would be a challenge that cannot be compared with relevant tasks of the WTO Appellate Body.32

Ibid., at. 180–181; ‘A Case for an International Investment Court,’ Society of International Economic Law (SIEL) Inaugural Conference (2008). 29 See Qureshi (2008), p. 1165 and ff. 30 See Wu (2014), p. 183. 31 Legum (2006), p. 121 and ff.; Schneider (2006), p. 103 and ff. 32 See McRae (2010), p. 371. Scholars noted that the doctrinal discussion on introducing a universal appellate body for investment disputes patterned after the WTO Appellate Body reached its peak in the mid-2000s and then declined due to lack of actual political support, See Wu (2014), pp. 184–185. The current renaissance of this idea is connected with the interest of the European Union in promoting a judicial mechanism for investment disputes. However, this solution has been forwarded through an introduction of court-like systems in separate agreements, with merely a possibility of a following creeping multilateralization not as a grand universal project, as postulated in the ‘first round of proposals for an appellate mechanism for investment disputes’ in early and mid-2000s, See Legum (2015), p. 437. 28

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3 Current Developments Proposals for the creation of court-like mechanisms have started to materialize in recent years in the form of international agreements. Examples are the EU FTAs with Vietnam33 and with Canada34 as well as the currently negotiated TTIP agreement with the United States.35 These have been characterized as ‘groundbreaking innovations’, the implementation of which has brought ‘remarkable acceleration’ in processes of establishing permanent dispute resolution mechanisms for investment cases.36 In all three cases, the model forwarded by the European Commission is a two-level mechanism with a First Instance Tribunal and an Appeal Tribunal37 (characterized as a ‘built-in’38 appellate tribunal). In the EU-Vietnam FTA and in CETA these bodies are not labeled as ‘courts’, but the TTIP proposal explicitly refers to these bodies as courts and refers to the First Instance Tribunal members as ‘judges’. The members of the First Instance Tribunal shall be appointed by a joint committee. The Tribunal shall include nationals of a Member State of the EU (one third of the members), nationals of Canada, Vietnam, or the United States respectively (another one third) and nationals of third countries (the remaining members). Divisions of the Tribunal, with the authority to hear cases, will consist of three members, with a third country national as a chairperson. Upon submission of a claim, the division members shall be appointed by the President of the Tribunal ‘on a rotation basis, ensuring that the composition (. . .) is random and unpredictable, while giving equal opportunity to all Members to serve’.39 Claims may be submitted to the tribunal under the Convention on the Settlement of Investment Disputes 33 As of July 2016, the negotiations on this agreement were successfully concluded and the text of the treaty published in February 2016. The proposal shall now be subject to legal review, translations and formal presentation by the European Commission to the Council of Ministers for approval and to the European Parliament for ratification. See http://ec.europa.eu/trade/policy/ countries-and-regions/countries/vietnam/. 34 As of July 2016, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) has already underwent legal review, and the signature and conclusion has been formally proposed by the Commission to the Council. See http://ec.europa.eu/trade/policy/in-focus/ceta/. 35 Of the three instruments, the future of the TTIP is most uncertain. As officially remarked by Ignacio García Bercero, the EU Chief Negotiator for TTIP in the Statement on conclusion of the 14th TTIP Negotiation Round 15 July 2016: “political environment for trade is becoming increasingly challenging on both sides of the Atlantic. But as Commissioner Malmström recently stated, ‘the EU has an ambitious trade agenda and remains engaged in pursuing and concluding the different negotiations in which it is involved’. (. . .) ‘On TTIP, therefore, the EU is prepared to make the political choices needed to close this deal with the current US Administration, provided that the substance is right.’” 36 Kaufmann-Kohler and Potestà (2016), p. 23. 37 CETA, Chapter 8 Section F; EU-Vietnam FTA, Chapter 8.II Section 3; TTIP proposal Chapter 2. 38 Kaufmann-Kohler and Potestà (2016), p. 23. 39 EU-Vietnam FTA Article 12(7); cf. CETA Article 8.27.7.

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between States and Nationals of Other States (the ICSID Convention) and the ICSID Arbitration Rules, the ICSID Rules on the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (the ICSID Additional Facility Rules), the UNCITRAL Rules, or any other rules agreed upon by the disputing parties. The Appeal Tribunal in the European Commission proposals will be modeled after The WTO Appellate Body in terms of organization and allocation of powers. It has been endowed with authority to review awards by divisions consisting of three members, on the grounds listed in Article 52 of the ICSID Convention, in regard to errors of the law and manifest errors in the assessment of facts.40 The Appeal Tribunal can uphold, reverse, or modify an award, as well as refer the case (or the award requiring adjustment) back to the Tribunal when it cannot itself render a final decision on the matter. In all three proposals, several elements of the dispute resolution mechanism regarding the status and functions of adjudicators resemble a judicial role rather than that of an arbitrator. Primarily, adjudicators will have tenure, instead of an ad hoc appointment. The members of the Tribunals will have a fixed term appointment of 4 years (under the EU-Vietnam FTA), 5 years (under CETA), or 6 years (under the TTIP proposal) with an option of a single renewal. Adjudicators will be subject to a code of conduct.41 They will not be allowed to combine the roles of a member of the Tribunal and a counsel.42 In cases of conflict of interest, members of the tribunals can be challenged.43 Adjudicators may also be removed from office if they fail to comply with their duties.44 Similar to some international courts, candidates for adjudication must fulfill a set of formal requirements.45 The issue of securing procedural transparency, which has long been one of the main grounds for criticism of investment arbitration, has also been explicitly tackled in the EU proposals. In particular, they provide admission of amici curiae briefs.46 40

Whereas in the EU-Vietnam FTA the Appeal Tribunal has been agreed to have six members (to be appointed by joint committees), the number of members of the Appeal Tribunal in CETA has to be determined by the CETA Parties’ joint committee. In the TTIP Proposal, Article 10(2), the EU Commission also suggests a composition of the Appeal Tribunal of six members (two from a Member State of the European Union, two from the United States and two nationals of third countries). 41 CETA, Article 8.30.1 and 8.44.2; EU-Vietnam FTA, Article 14(1) and Annex II; TTIP proposal Chapter 2 Article 11.1 and Annex II. 42 CETA, Article 8.30.1; EU-Vietnam FTA, Article 14(1); TTIP proposal Chapter 2 Article 11.1. 43 CETA, Article 8.30.2-3; EU-Vietnam FTA, Article 14(2)–(4); TTIP proposal Chapter 2 Article 11.2-4. 44 3 CETA, Article 8.30.4; EU-Vietnam FTA, Article 14(5). 45 CETA, Article 8.27.4 and 8.28.4; EU-Vietnam FTA, Article 14(1) and 13(7); TTIP proposal Chapter 2 Article 9.4 and 10.7. 46 In connection with incorporation of the UNCITRAL Transparency Rules, Articles 4 (Submission by a third person) and 5 (Submission by a non-disputing Party to the treaty) into the discussed FTAs; see Lam and Ünüvar (2019), pp. 781–795 and ff.

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The right for intervention has been established for third parties who will demonstrate existing, direct interest in the outcomes of the dispute.47 The proposals introduce open hearings and publication of comments online.48 Whereas these innovations make dispute resolution mechanisms in the discussed documents close to the judicial one, some of its key components are borrowed from the arbitration regime. In particular, the new bodies rely on the ICSID and New York Conventions regarding the enforcement of awards. The CETA tribunal will not even have a separate secretariat. It will rely on the ICSID Secretariat instead. In that way, it is different from other court-like bodies. In sum, the envisioned institutions certainly resemble international courts, but they are different from them in several respects. One can view these mechanisms as hybrids, which may have been viewed by their drafters as only temporary solutions. These temporary solutions may lead to the future creation of consolidated multilateral tribunals, an option discussed in the Conclusion.

4 Is There a Real Change? To assess the actual significance of the recently proposed systems of investment dispute resolution, one needs to consider both legal and political factors. The question whether court-like mechanisms in recent FTAs may bring a real change into the current ISDS landscape is addressed with regard to three sets of issues: First, on the legal level, this Part analyzes to what extent solutions proposed in the EU-Vietnam FTA, CETA, and TTIP truly qualify as an introduction of a judicialized model of investment dispute resolution. Second, the actual and potential implementation of these solutions is examined. Finally, this Part assesses the prospects for consolidation: can dispute resolution mechanisms in the discussed FTAs form a basis for a future integrated regional investment court, or quasi-court, or at least function as chambers of such a centralized institution?

4.1

Legal Analysis

As discussed in the preceding Part, the ‘European model’ is repeatedly proposed without major modifications and can be seen as a notable step forward in adjusting adjudicatory standards in ISDS to resemble judicial ones. However, this European

47 CETA, Article 8.36 and 8.38; EU-Vietnam FTA, Article 14(1) and 13(7); TTIP proposal Chapter 2 Article 22 and 23. 48 CETA, Article 8.36.5; EU-Vietnam FTA, Article 14(1) and 13(7); TTIP proposal Chapter 2 Article 22; in connection with incorporation of the UNCITRAL Transparency Rules, Article 6 (Hearings) into the discussed FTAs; see Lam and Ünüvar, at p. 794 and ff.

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model also preserves some of the key features of investment arbitration, such as the status and enforceability of rulings, or reliance on the ICSID Secretariat for the purpose of procedural administration. As a consequence, despite introducing this model to the media as an ‘Investment Court’, it is actually more of a hybrid solution. The EU-Singapore FTA, negotiations of which were concluded in October 2014, adopted arbitration as the method of investment dispute resolution. However, the negotiations of this agreement were subsequently resumed in order to have arbitration replaced by the Investment Court System (ICS) as a default mechanism for addressing investor-state controversies.49 It has taken place in the 2018 EU-Singapore Investment Protection Agreement. Hence, as court-like solutions have been consistently forwarded in several major EU agreements, it seems justified to describe the shift to court-like mechanisms as a stable trend. In the absence of an EU model BIT (and model ISDS solutions), this trend might herald the establishment of a de facto European quasi-judicial model of ISDS.

4.2

Political Feasibility

Recent political developments related to CETA have shifted the analysis of courtlike mechanisms introduced in this FTA from the sphere of mere speculation to one of actual institutional design. CETA was signed in Brussels on October 30th 2016 at the 16th Summit between the European Union and Canada. In the official press release of the European Commission, the dispute resolution mechanism adopted in CETA was labeled as an Investment Court System, and adjudicators were called ‘judges’.50 This choice of nomenclature—while not strictly correct in legal terms— can be read as an indicator of a consistent policy of the EU. It is worth noting that the official release disclosed a paced approach adopted by the CETA parties in regard to implementation of the provisions on ICS. The mechanism will not be included in a provisional stage—which is planned to take place after the signature and approval of the agreement by EU Member States in the Council and by the European Parliament—but before the completion of ratifications by Member States. The decision to leave ICS outside the provisional entry into force of CETA was formally explained by the novelty of this solution and the need for proper disclosure for the general public: [s]ince the Investment Court System (ICS) is a new issue in trade agreements and the public debate on it is not finished in many countries, the choice of EU Member States - supported by the Commission - is that ICS will be out of the scope of the provisional application of

49 Bilaterals.org, ‘EU Makes Big Step toward Setting Investor Court as Global Norm.’, available at: http://bilaterals.org/?eu-makes-big-step-toward-setting&lang¼en (last visited on January 25, 2020). 50 Available at: http://europa.eu/rapid/press-release_IP-16-3581_en.htm (last visited on January 25, 2020).

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CETA. This means that it will only be implemented once all Member States conclude their national ratification procedures.51

Whereas introduction of court-like mechanisms under CETA and, arguably, also the EU-Vietnam FTA seems at present highly probable (provided that the support from EU Member States will be eventually fully secured), the future of the EU proposal for TTIP is highly questionable. First, the political will of the partners to pursue TTIP negotiations is unclear, considering the recent election of Donald Trump to the Presidency of the United States. Second, the stance of the US in regard to judicialization of dispute resolution systems in trade agreements so far has been far from supportive.52 Moreover, as can be inferred from the discussion of the recent EU draft chapter on dispute settlement for the Trade in Services Agreement (TiSA, negotiated inter alia between the EU and the US),53 arbitration panels are still seen as the main feasible option. The US also vehemently opposed introduction of an appeal mechanism, originally forwarded by the EU. Proliferation of the ‘European ICS model’ in further mega-regional agreements is thus disputable.

4.3

The Prospects of Consolidation

The question whether the adoption of the ‘European model’ in a number of subsequent agreements may eventually lead to the establishment of a single consolidated institution also requires legal as well as political analysis. On the legal level, provisions allowing for a transition to the Multilateral Investment Court are present in both CETA and the EU-Vietnam FTA. As discussed in the European Commission’s Inception Impact Assessment paper of August 1st 2016,54 such provisions will also be proposed in further trade and investment negotiations, as well as in the new investment agreements between the EU Member States with third countries, concluded upon the authorization of Regulation No EU 1219/2012 of 20 December 2012. According to this regulation, court-like mechanisms, analogical to the ones in CETA and EU-Vietnam FTA, are to be forwarded in the negotiations conducted, inter alia, with China, Myanmar, Tunisia, Morocco, Japan, Philippines, and Mexico, as well as in the planned ones with Indonesia, Australia, New Zealand, and Chile.55 51

Ibid. “The arbitration game”, The Economist, October 11th, 2014 http://www.economist.com/news/ finance-and-economics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbi tration (last visited on January 25, 2020). 53 The EU proposal of September 2016 available at: http://trade.ec.europa.eu/doclib/docs/2016/ october/tradoc_154992.pdf (last visited on January 25, 2020). 54 “Establishment of a Multilateral Investment Court for investment dispute resolution”, available at: http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_trade_024_court_on_investment_en.pdf (last visited on January 25, 2020). 55 Ibid at 3. 52

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On the political level, ambitions of the EU to establish a consolidated multilateral dispute resolution system have been explicitly articulated, inter alia, in the communication titled “Trade For All: Towards a More Responsible Trade and Investment Policy”56 from October 2015. This communication states that the Commission, besides including relevant provisions in bilateral agreements, will also in parallel, engage with partners to build consensus for a fully-fledged, permanent International Investment Court.57

The proposal has also been advocated throughout public consultation on ISDS in TTIP, held in 2014.58 As further explained in the context of TTIP negotiations in the European Commission’s press release of November 12, 2015: [t]he objective is to, over time, replace all investment dispute resolution mechanisms in EU agreements, in EU Member States’ agreements with third countries, and trade and investment treaties concluded between non-EU countries, with the International Investment Court. This would lead to the full replacement of the “old ISDS” mechanism (. . .).59

The feasibility and the scale of this “creeping multilateralization”60 project depends on approaches adopted by the states engaged in negotiations with the EU and the EU member states. Furthermore, parallel tracks and schedules of appointments of adjudicators, enshrined in different agreements, will pose a difficulty to potential centralization processes. It is thus possible that the integration under a common umbrella of ‘Investment Courts’, created under various FTAs, will take the form of establishing several chambers of a common institution rather than a complete consolidation.

4.4

Assessing the Magnitude of the Change

Whereas the high policy goals and ambitions on the side of the EU have been clearly formulated, the content of current “Investment Courts” regulations and proposals discloses a rather moderate stance. Resulting mechanisms can only be characterized as judicial to a limited extent. The multilateralization option remains open, but it would be, at best, only partially realized due to the required involvement of a variety of parties to the EU agreements. 56

Available at: http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf (last visited on January 25, 2020). 57 Ibid at 21–22. 58 Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), available at: http://trade.ec.europa.eu/consultations/index.cfm?consul_id¼179 (last visited on January 25, 2020). 59 Available at: http://europa.eu/rapid/press-release_IP-15-6059_en.htm (last visited on January 25, 2020). 60 Lenk (2016).

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The ultimate shape and the level of consolidation of the institutions created as an outcome of this multilateralization remain uncertain. The performative rhetoric of the EU public press releases does not seem to fully reflect the current state, or the reasonable prospects, of the “Multilateral Court” project. Moreover, this document adopts a conflicted approach: while the ICS is formally presented as a remedy for the deficiencies of the investment arbitration model, in fact it heavily draws upon that model. The current situation seems to resemble Zygmunt Bauman’s concept of “interregnum” as the “time-lag separating the death of one royal sovereign from the enthronement of the successor”.61 This situation was defined by Giorgio Agamben as a transitory period in which old laws may be suspended, but the anticipated new ones have not been introduced yet. Bauman cites Gramsci—“[t]he crisis consists precisely in the fact that the old is dying and the new cannot be born”62—to emphasize the floating and socially uncertain character of this interregnum. Whether “creeping multilateralization” of the “creepingly judicialized” European model is an expression of such transitory uncertainty or an early signal of a paradigmatic change in investment dispute resolution remains to be seen. Assessment of its actual significance is even more unclear in the light of notable transformative efforts undertaken over the past years within the field of investment treaty arbitration in regard to such considerations as transparency standards, non-party participation, and neutrality of arbitrators.63

5 The Dark Side of Investment Courts After considering the current state of the law and the political feasibility of creating permanent bodies for resolving investment disputes, one can examine whether investment courts are at all a good thing. Before discussing the advantages of investment courts in Part 6, this Part will discuss some of the disadvantages of leaving the arbitration model.

5.1

Benefits of the Arbitration Model

Arbitration practitioners have been rather cautious in assessing the idea of a permanent appellate body for investment arbitration and particularly for commercial arbitration. One reason for resisting change is that establishing an appellate body for commercial arbitration would go against the predominant current of the recent

61

Bauman (2012), p. 49. Ibid. 63 See Jemielniak (2016). 62

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decades, which involved giving commercial arbitration increasing levels of autonomy and freedom from judicial intervention in the proceedings and in the substance of the awards.64 The resistance to establishing a public appellate body does not come only from a commitment to the autonomy of arbitration. The current system also wins support due to its ability to match the preferences of stakeholders: both commercial bodies and states. In fact, states have shown a willingness to adopt the arbitration model even in non-investment disputes.65 Introducing quasi-judicial solutions may jeopardize the proven functionality of investment arbitration.66 Other supporters of the arbitration model have argued that this model better represents the interests of all parties concerned. Arbitrators are selected by both investors and states, while judges are nominated by states alone. Allowing investors to take part in the selection of the people who resolve their disputes may ensure that the investors’ perspective isn’t completely neglected in favor of state interests.67 At the same time, the current system is open to accusations of a pro-investor bias that was highlighted by previous literature.68 Moreover, as noted above, the ad hoc process of selection of arbitrators directly by the parties has been viewed by some as a threat to adjudicatory independence, as non-tenured arbitrators may consider their reappointment for further disputes.69 Another important aspect of the functioning of permanent adjudicatory bodies— largely absent from ISDS—is the presence of diversity safeguards. These safeguards aim at ascertaining that individual adjudicators not only possess the required competences, but also that ‘the bench as a whole’ retains ‘a certain balance with respect to geographical distribution, legal systems, nationalities, or gender’.70 Diversity in the composition of adjudicatory bodies has been interpreted as a significant factor improving the quality of decision-making, but also enhancing their social legitimacy.71 From a more systemic point of view, that tries to assess the projected development of the law on investment disputes, some suggest that arbitration is a superior model. A permanent court can change the law too quickly, leading to unfortunate mistakes. In contrast, a decentralized system of arbitration develops slowly as the community of arbitrators adjusts to shifting circumstances and explores new 64

Park (2001), p. 596. A prominent example are two LCIA arbitrations in the trade case Softwood Lumber between Canada and the United States pursuant to Article XIV of the Softwood Lumber Agreement of 2006, See Schütze (2013). 66 Brower and Blanchard (2014), p. 689 at 697; Ketcheson, above note 21, p. 110. 67 Schwebel (2016), p. 1. 68 See above note 8. 69 See Brower and Schill (2008), p. 471 at 489 and ff. (commenting on the mechanisms securing independence and impartiality of arbitration); Jemielniak (2017), p. 582 (reviewing the state of doctrinal debate on this issue). 70 Kaufmann-Kohler and Potestà (2017), p. 26. 71 Ibid., at. 27 and ff. 65

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methods of improvement. While it is difficult to empirically test such a general claim, this intuition has been pointed out by scholars as a key advantage of the arbitration model.72 Scholars have further explored the advantages of a decentralized system over a centralized one by using insights from complexity theory. The decentralized system of arbitration allows for frequent natural experiments and quick adaptation to changing circumstances. It enjoys the same resilience that one finds in complex evolutionary systems where natural selection ensures the prosperity of the system as a whole. Scholars cite both personal developments (such as the spontaneous growing prominence of a small group of arbitrators)73 and the gradual evolution of converging legal standards as evidence of the advantage of a decentralized system of arbitration.74 Of course, centralized institutions can also develop the law cautiously and incrementally, while testing the repercussions of their judgments at every juncture.75 But it is only wise to leave the strategic development of the law to a centralized body if it can be trusted to steer in the right direction. Unfortunately, there are some reasons to question if a new, permanent investment tribunal would do that. These are addressed in the next sub-Part.

5.2

The Dangers of Introducing Investment Courts

Once an international court is created, it is usually granted a certain amount of political independence. This means that the states which created the court are not able to fully control all its actions. Nevertheless, states usually preserve some measures for constraining the court to follow their interests.76 States can influence judicial selection and manipulate the court’s budget. They can criticize the court, fail to comply with its judgments, or exit its jurisdiction.77 A new international investment court will probably face some political constraints by the states that created it. If some of these states have a disproportionally stronger influence on this court, it will be biased to favor the interests of these states

72

See Schill (2011b), p. 875. See Puig (2014), p. 387 at 423 (showing how the independent efforts of parties to increase predictability lead to the emergence of a small group of highly-connected arbitrators controlling most of the investor-state arbitrations). 74 See Pauwelyn (2014), pp. 372–375 (note, however, that the natural evolution of a decentralized system is path dependent and may not always lead to efficient results as explained at id at 408). 75 Lindblom (1959), pp. 79–86 (arguing for a practice of incremental decision making in administrative bodies). Shapiro (1968), pp. 73–91 (exploring incremental decision-making). Sunstein (1999). 76 See Helfer and Slaughter (2005), pp. 899–942. 77 See e.g. Ginsburg (2005), p. 631; Cogan (2008), p. 411; Dothan (2015a), at Chapter III. 73

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at the expense of others. The EU may not be able to pressure individual arbitrators into serving its interest, but it may find it easier to pressure a centralized court. If several investment courts are created, or if arbitrators are allowed to work in conjunction with a new investment court, the problems of bias towards powerful states may become even worse. States that have an advantage in choosing the forum of adjudication may direct the case to the judges that can assure them a favorable result. The forum shopping that results from jurisdictional competition harms legal predictability and fairness—dangers that should be considered every time a new tribunal is contemplated.78 In addition, powerful countries are able to threaten tribunals with leaving their jurisdiction if there are other fora they can choose from. This threat gives those countries a greater ability to constrain tribunals towards adopting policies that serve their own interests.79

6 The Advantages of Investment Courts While there are reasons to doubt whether a new investment court will be unbiased and develop the law in the right course, there are several advantages to creating centralized courts. This Part will address four sets of advantages. The first relates to the normative legitimacy of courts as compared to arbitrators. The second discusses the ability of courts to secure compliance and to build their social legitimacy. The third explores the potential of courts to push forward regional consolidation. The final set of advantages considers potential improvements on the arbitration model that merit further empirical investigation.

6.1

Improved Normative Legitimacy

The main challenge to the current system of arbitration is that it doesn’t comply with basic rule of law principles that are necessary to ensure its normative legitimacy.80 Scholars have argued that investment treaty arbitration is a dispute settlement system which forms a part of public international law.81 As such, the system must comply with certain principles to maintain its normative legitimacy. These principles have been studied in the growing field of literature known as Global Administrative Law. Global Administrative Law scholars called for the development of procedures that ensure legal decisions comply with the following five principles: (1) transparency

78

See Shany (2003), p. 288. See Benvenisti and Downs (2007), p. 597. 80 See Schill (2011a), pp. 57–67. 81 See De Brabandere (2014), pp. 1–2. 79

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(2) participation (3) reasoned decisions (4) legality (5) review.82 A centralized court system is better able to comply with all these principles than arbitration. Although international courts are not always transparent in their decision-making, it is much easier to get acquainted with the practice of one court than with the practices of multiple arbitrators. Furthermore, even if the discussions of judges remain hidden, courts, unlike arbitrators, publish all of their judgments. These judgments form a case-law that can be analyzed empirically, exposing even the most secret and embarrassing biases of judges.83 While international courts are increasingly conceived as representing a much greater constituency than the parties before them,84 actual mechanisms that ensure participation of interested parties are not always available in international courts. Nevertheless, many international judges are aware of the need to assure participation of interested parties and change the procedures of their courts accordingly.85 A court-like mechanism to resolve investment disputes doesn’t guarantee adequate participation, but if the court is aware of the need for participation, it can lead to substantial improvement compared to the arbitration model. In fact, the EU proposals considered above allow the participation of friends of the court with an interest in the proceedings,86 suggesting that this important consideration is taken into account by the framers of the new generation of regimes. However, it should be noted that the adopted solutions are largely borrowed from investment arbitration, as the ‘EU model’ incorporates the UNCITRAL Transparency Rules. It goes without saying that a court model serves better the principles of legality, reasoned decisions, and effective review than arbitration. Courts are a prime example of institutions with reasoned decisions that follow directly from legal norms. Proposals for an appellate court to examine investment arbitration awards are designed specifically to provide a needed review mechanism. The issue of whether ICS will secure a more consistent and coherent jurisprudence is however not entirely clear. As argued by Stephan Schill, as long as the ICS takes the form of parallel mechanisms embedded in separate treaties (and not that of a multilateral system), achieving crosstreaty consistency seems unlikely.87

82

See Kingsbury et al. (2005), pp. 15–17. See e.g. Posner and de Figueiredo (2005), p. 599 (proving empirically that judges at the International Court of Justice are biased towards favoring their home states). 84 See von Bogdandy and Venzke (2014). 85 See Dothan (2015b), p. 635. 86 See above note 46–47. 87 Schill and Kingsbury (2010), p. 18. 83

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Improved Social Legitimacy

All the mechanisms described in the last sub-Part are what makes courts as institutions normatively legitimate. Namely, they justify the authority of these courts from a prescriptive point of view. But one can also make a descriptive claim that such principles can in fact increase the social legitimacy of institutions, that is, the way society perceives their legitimacy and, consequently, the willingness of states to comply and collaborate with them. Scholars have pointed out that states are more likely to comply with institutions that are predictable and consistent and that rely on authoritative symbols,88 although it should be noted that the level of compliance with arbitral awards in investment cases has already been high.89 All these qualities are much more easily preformed within a consolidated court system than through a plethora of decentralized panels. Courts that strive to increase their social legitimacy and to improve their chances of receiving compliance can employ a variety of strategies.90 These strategies are much more likely to be effectively executed when they are employed by a court with a long time horizon than in the practice of ad-hoc arbitrators. In fact, courts sometimes need to jeopardize the immediate interest of their institutions to achieve long-term goals. For example, they can issue judgments with a low probability of compliance in the hope that if compliance would occur it would send a strong signal that they are powerful institutions.91 This is something that only permanent institutions can do effectively.

6.3

Regional Consolidation

Effective international courts are not concerned only with improving compliance with their own judgments. They should also legitimize the institutions of which they are part.92 A consolidated court that will resolve investment disputes of the European Union, for example, can serve as a tool for European integration. Such a court would probably issue judgments that will take into account the longterm business interests of the European Union as a whole. It can also create a coherent system of law that would serve the formation of an autonomous legal order, with supremacy over both national laws of Member States and international obligations.93 A problem that may occur in the EU setting is that such a court will 88

See Franck (1988), pp. 705–712. Tsai-Yu (2012), p. 1. 90 See Dothan (2013), p. 455. 91 See Dothan (2015a). 92 See Shany (2012), pp. 225–246 (arguing that international courts should contribute to the regime in which they operate). 93 See Eckes (2012), pp. 230–232. 89

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compete with the Court of Justice of the European Union when deciding questions of EU law.94 Yet this only shows that even if the international court model is beneficial in the abstract, it may lead to unwelcome results when working in combination with specific existing circumstances.

6.4

Potentially Improved Incentives

Taking into account the fact that specific conditions will eventually determine which model of adjudication works best, several others conjectures could be raised about the advantages of courts over ad-hoc arbitrations. These conjectures could be the focus of future empirical investigations that would test newly established mechanisms in comparison to traditional arbitration. Because arbitrators earn their living as a result of disputes they arbitrate, they have an interest in creating standards that increase the chances of legal disputes. As a result, one may hypothesize that arbitrators would promulgate vague and ambiguous legal rules that can give rise to many future disputes.95 Certainly, this theoretical incentive of arbitrators doesn’t dictate that arbitration actually leads to legal ambiguity. However, it is worth noting that courts are not only more able to promote coherent legal standards, they also have a greater incentive to do so. Courts do not have such a pressing financial interest to promote litigation and they can use consistency in their decisions to reduce their workload as well as to improve their institutional legitimacy.96 Arbitrators also have an incentive to focus on the interests of the parties that bring the case to them, even if this implies damaging the interests of third parties. If one of the disputing parties has a greater ability to choose the forum than the other party, the arbitrators will have a special incentive to cater to the first party’s interest;97 although this harmful incentive may be tamed by the high value put on the objectivity of arbitrators and by existing procedural safeguards. As a result of the bias in favor of the parties to the dispute, arbitrators may avoid criticizing the actions of the parties in a way that could provide valuable guidance to others, just because they need their future business.98 Furthermore, arbitrators may be more likely to focus on short-term considerations, without taking into account the influence of their decision on the development of the law or on the future of the economy.

See Laurens Ankersmit, ‘Investment Court System in CETA to be Judged by the ECJ’, European Law Blog October 31st 2016, available at: http://europeanlawblog.eu/?p¼3411 (last visited on January 25, 2020). 95 See Landes and Posner (1979), p. 235 at 239–240. 96 See Cardozo (1921), pp. 149–150; Schauer (1987), p. 571 at 597–600. 97 See Cooter (1983), p. 107 at 129–130. 98 Cf. Rock (1997), p. 1009. 94

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In contrast, a permanent court can be constructed in a way that guides judges to consider long-term repercussions and the interests of third parties. Even judges who do not strategically calculate the effects of their actions are guided by doctrine and by developed judicial practices to act in ways that serve the long-term goal of the legal community of which the court is part.99 For that reason, courts and court-like mechanisms may be the proper answer to the challenges the system of arbitrators poses to global governance. Whether court-like mechanisms would actually rise to these challenges and improve governance is an empirical question that only future events can decide.

7 Conclusion As the previous Parts demonstrate, the move from arbitration to a court-like model to solve investment disputes has advantages and disadvantages. Moreover, the results of this shift depend on the concrete settings in which this solution is adopted. While specific details can easily determine the outcome of legal institutions, it is possible to review some ideal-types of organizations that are considered as a way to tap into the advantages of the court-like model. The ‘EU model’ of a permanent, two-tier mechanism can be seen as a hybrid solution, still sharing a number of vital attributes with arbitral tribunals. Notably, many of the traits of the ICS, aimed at enhancing social legitimacy of investment dispute resolution, are adopted directly from investment arbitration (through the UNCITRAL Transparency Rules, which the EU proposals incorporate). The ICS is created in the tension between repeated calls for a radical reconstruction of the system of investment dispute settlement, on one hand, and the practical demands of political feasibility, on the other. While it is a pragmatic compromise, it may nevertheless fail to materialize. Furthermore, even if successful, its implementation will lead to the establishment of parallel institutions, embedded in different EU treaties. It would thus replace parts of the existing ISDS system by adding a new layer of scattered adjudicating bodies. This might mean tossing a handful of new ingredients into the already complicated ‘spaghetti bowl’ of investment dispute resolution mechanisms, instead of disentangling it. The prospects of following through ‘creeping multilateralization’ with the ultimate consolidation of these bodies into a single international institution are even more uncertain. A more realistic scenario seems to be a coagulation of the implemented ICS mechanisms as chambers of a regional permanent investment tribunal. So far, the ‘EU model’ is thus more a product of transitory, interregnum times in investment dispute resolution than a genuine paradigm shift.

99

See Cohen (1935), pp. 809–843.

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Acknowledgment This research is funded by the Danish National Research Foundation Grant no. DNRF105 and conducted under the auspices of iCourts, the Danish National Research Foundation’s Centre of Excellence for International Courts.

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Kaufmann-Kohler G, Potestà M (2016) Can the Mauritius convention serve as a model for the reform of investor-state arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? CIDS Research Paper Kaufmann-Kohler G, Potestà M (2017) The composition of a multilateral investment court and of an appeal mechanism for investment awards. CIDS Supplemental Report at 26 Ketcheson J (2016) Investment arbitration: learning from experience. In: Hindelang S, Krajewski M (eds) Shifting paradigms in international investment law: more balanced, less isolated, increasingly diversified. OUP, p 97 Kingsbury B, Krisch N, Stewart RB (2005) The emergence of Global Administrative Law. Law Contemp Prob 68:15 Lam J, Ünüvar G (2019) Transparency and participatory aspects of investor-state dispute settlement in the EU ‘new wave’ trade agreements. Leiden J Int Law 32:781 Landes WM, Posner RA (1979) Adjudication as a private good. J Legal Studies 8:235 Legum B (2006) Visualizing an appellate system. In: Ortino F, Sheppard A, Warner H (eds) Investment treaty law: current issues. British Institute of International and Comparative Law Legum B (2015) Appellate Mechanisms for investment arbitration: worth a second look for the trans-pacific partnership and the proposed EU-US FTA? In: Kalicki JE, Joubin-Bret A (eds) Reshaping the investor-state dispute settlement system. Brill Lenk H (2016) The Creeping Multilateralization of Investment Dispute Resolution under EU Trade and Investment Agreements in Adjudicating international trade and investment disputes: between isolation and interaction, Oslo Lindblom CE (1959) The Science of “Muddling Through”. Public Adm Rev 19:79 McRae D (2010) The WTO appellate body: a model for an ICSID appeals facility? J Int Dispute Settlement 1:371 Miles K (2013) The origins of international investment law: empire, environment and the safeguarding of capital. CUP, New York, p 85 Newcombe AP, Paradell L (2009) Law and practice of investment treaties: standards of treatment. Kluwer, Alphen aan den Rijn Park WW (2001) Why courts review arbitral awards. In: Briner R et al (eds) Recht der internationalen wirtschaft und streiterledigung im 21. Festschrift für karl-heinz böckstiegel (Köln), Jahrhundert Park WW (2009) Arbitrator integrity: the transient and the permanent. San Diego Law Rev 46:629 Pauwelyn J (2014) At the edge of chaos?: foreign investment law as a complex adaptive system, how it emerged and how it can be reformed. ICSID Rev 29:372 Posner EA, de Figueiredo MFP (2005) Is the international court of justice biased? J Legal Stud 34:599 Puig S (2014) Social capital in the arbitration market. Eur J Int Law 25:387 Qureshi AH (2008) An appellate system in international investment arbitration? In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. OUP Rock EB (1997) Saints and sinners: how does Delaware corporate law work? UCLA Law Rev 44:1009 Schauer F (1987) Precedent. Stanf Law Rev 39:571 Schill SW (2011a) Enhancing international investment law’s legitimacy: conceptual and methodological foundations of a new public law approach. Virginia J Int Law 52:57 Schill SW (2011b) W(h)ither fragmentation? on the literature and sociology of international investment law. Eur J Int Law 22:875 Schill S (2017) Reforming investor–state dispute settlement: a (comparative and international) constitutional law framework. J Int Econ Law 20:5–6 Schill S, Kingsbury B (2010) Investor-state arbitration as governance: fair and equitable treatment, proportionality, and the emerging global administrative law. In: Berg (ed) 50 years of the New York Convention, vol 14. pp 5–68

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Schneider M (2006) Does the WTO confirm the need for a more general appellate system in investment disputes? In: Ortino F, Sheppard A, Warner H (eds) Investment treaty law: current issues. British Institute of International and Comparative Law Schütze RA (2013) Institutional arbitration: a commentary. Schwebel SM (2016) ‘The outlook for the continued vitality, or lack thereof, of investor–state arbitration. Arbitration Int 32:1 Shany Y(2003) The competing jurisdictions of international courts and tribunals. Shany Y (2012) Assessing the effectiveness of international courts – a goal-based approach. Am J Int Law 106:225 Shapiro M (1968) The supreme court and administrative agencies. Sornarajah M (1997) Power and justice in foreign investment arbitration. J Int Arb 14:103 Sunstein CR (1999) One case at a time: judicial minimalism on the supreme court Tereposky G, Nielsen L (2016) Coordinated actions in international economic law as illustrated by investment treaty arbitration and World Trade Organization (WTO) disputes. In: Jemielniak J, Nielsen L, Olsen HP (eds) Establishing judicial authority in international economic law. CUP Tsai-Yu L (2012) Systemic reflections on Argentina’s non-compliance with ICSID arbitral awards: a new role of the annulment committee at enforcement. Contem Asia Arb J 5:1 Ünüvar G (2016) Transformation of international investment law and politics - interplay between interpretation, application, and policy-making. University of Copenhagen, Copenhagen von Bogdandy A, Venzke I (2014) In whose name? a public law theory of international adjudication Wu M (2014) The scope and limits of trade’s influence in shaping the evolving international investment regime. In: Douglas Z, Pauwelyn J, Viñuales JE (eds) The foundations of international investment law: bringing theory into practice. OUP

Shai Dothan Associate Professor of International and Public Law, University of Copenhagen Faculty of Law affiliated with iCourts. PhD, LLM, LLB, Tel Aviv University Faculty of Law. Joanna Lam Professor wsr of International Economic Law, iCourts, and Director of Study Hub for International Economic Law and Development (SHIELD) at University of Copenhagen Faculty of Law; affiliated with Koźmiński University.

Permanent Investment Courts and the EU Legal Order Eleftheria Neframi

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Joint Participation of the EU and Its Member States in Agreements Establishing Permanent Investment Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Question of Competence Following Opinion 2/15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Convention Establishing a MIC as a Mixed Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Determination of the Respondent Party as a Matter of Autonomy . . . . . . . . . . . . . . . . . . . 3 Balancing Efficiency and Constitutional Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Preserving the Autonomy of the EU Legal Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Ensuring the Precedence of EU Primary Law and Applying Article 47 of the Charter . . . 4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 30 30 33 35 38 39 45 48 48

Abstract In the external action of the Union, the establishment of permanent investment courts is not only part of the common commercial policy, but also an expression of the objective to promote the rule of law and to act as an influential actor in international procedural law. Through its participation in agreements that establish a bilateral investment court system (ICS) and in the negotiation of the convention establishing a Multilateral Investment Court (MIC), the Union aims to promote its own standards of judicial protection while preserving the constitutional framework at the basis of the principle of autonomy. The present paper deals with the question of division of competences, especially in the context of the establishment of a MIC and the allocation of international responsibility in Investor-State Dispute Settlement (ISDS) mechanisms. Moreover, it discusses the scope of fundamental principles of the EU legal order through the position of the Court of Justice in Opinion 1/17 and the analysis of the compatibility of the ICS with primary EU law. While the principles of conferral and of the autonomy of the EU legal order impose constraints to the external action of the Union, their scope is at the same time interpreted in a way to accommodate their guarantee with the EU’s objective to

E. Neframi (*) University of Luxembourg, Luxembourg, Luxembourg e-mail: [email protected] © Springer Nature Switzerland AG 2020 G. Ünüvar et al. (eds.), Permanent Investment Courts, European Yearbook of International Economic Law (2020): 27–52, https://doi.org/10.1007/8165_2020_51, Published online: 23 June 2020

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contribute to the major reform of the ISDS. In that way, the guarantee of the EU legal order’s constitutional requirements is not necessarily a limit to the efficiency of the Union’s external action.

1 Introduction From the perspective of the external action of the European Union (EU), the proposed reform of Investor State Dispute Settlement (ISDS) raises two series of questions. On the one hand, those related to the EU’s external competence to participate in trade and investment agreements providing for a bilateral investment court system (ICS) and in the convention establishing a Multilateral Investment Court (MIC). On the other hand, those related to constitutional requirements stemming from the EU legal order that limit the Union’s participation in agreements establishing permanent investment courts. Such requirements are to be balanced with the Union’s objective to contribute to the shaping of the international legal order and to promote the rule of law. The Union shares indeed the arguments in favour of the shift from ISDS ad hoc mechanisms to permanent investment courts as a means to increase legitimacy, transparency and judicial protection.1 The establishment of an ICS in the field of investment protection has been advanced by the European Commission first in the context of the Transatlantic Trade and Investment Partnership (TTIP).2 It is now part of bilateral trade and investment agreements of new generation concluded by the Union, such as the Comprehensive Economic and Trade Agreement with Canada (CETA), the EU-Singapore Investment Protection Agreement (IPA), the EU-Mexico Global Agreement and the EU-Vietnam IPA.3 The establishment of permanent investment courts is, furthermore, the object of the negotiation mandate that the Commission received from the EU Council in the framework of the United Nations Commission on International Trade Law (UNCITRAL).4 The establishment of permanent investment courts is thus an external action objective of the Union, which is to be pursued in accordance with the requirements stemming from the fundamental principles of its legal order.

1 The first step, on the EU’s side, was taken with the launching of the Communication of the Commission: Towards a Comprehensive European International Investment Policy, 10 COM (2010)343 final. For an analysis of the EU interest in leading the global reform process of ISDS, see Sangiulo (2019), pp. 271–287. 2 See 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), P8_TA(2015)0252. 3 Bungenberg and Reinisch (2020), pp. 3 et seq.; Lenk (2016a), pp. 665–677; Sardinha (2016), pp. 311–365. 4 Council of the European Union Negotiating Directives for a Convention Establishing a Multilateral Court for the Settlement of Investment Disputes EU Doc 12981/17 ADD 1.

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The two sets of questions have been addressed in two landmark Opinions of the Court of Justice of the EU (CJEU), Opinion 2/155 and Opinion 1/17.6 While the two Opinions concern bilateral trade and investment agreements, the lessons drawn are conditioning the participation of the Union in the future convention establishing a MIC. Moreover, the need to balance the efficiency objective with the EU constitutional requirements gave the Court of Justice the opportunity to revisit or clarify the scope and role of fundamental principles of the EU legal order, and mainly the principles of conferral and of autonomy. The present paper will therefore look at the application of the principles of the EU legal order in the context of permanent investment courts, the constraints they impose as to the participation of the Union, but also the way they may be adapted in order to accommodate their guarantee with the EU’s objective to contribute to the major reform of the ISDS. From the competence-related point of view, establishing permanent investment courts requires the participation of both the EU and its Member States in investment treaties and to convention establishing a MIC. The requirement of joint participation stems from a particular approach to the division of competences, linked to what in literature is qualified as functional or false mandatory mixity.7 Mixity, regardless of its basis, raises important questions as to the allocation of international responsibility, which may affect the principle of autonomy of the EU legal order.8 Joint participation and management of mixity are revisited in the specific framework of establishment of permanent investment courts and the characteristics of investment dispute settlement. Section 2 of this paper will deal with the competence-related questions of the Union’s participation ISDS mechanisms, as addressed in Opinion 2/15 and in relation to the Union’s participation in the UNCITRAL Working Group for ISDS Reform. The balance between the efficiency objective to shape the establishment of permanent investment courts and the respect of the EU legal order’s fundamental principles will be discussed in Sect. 3. Opinion 1/17 sets out the conditions under which the Union can legitimately participate in ICS. At the same time, it invites to rethink the role and scope of the principle of autonomy.

5 Opinion 2/15 Free Trade Agreement between the European Union and the Republic of Singapore (16 May 2017) ECLI:EU:C:2017:376. 6 Opinion 1/17 Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part (CETA) (30 April 2019) ECLI: EU:C:2019:341. 7 Chamon (2018), p. 145; Dashwood (2010), p. 356; Rosas (2000), p. 205. 8 Kuijper (2010), pp. 208–226.

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2 Joint Participation of the EU and Its Member States in Agreements Establishing Permanent Investment Courts The question of the EU competence to participate in agreements establishing investment courts preceded that of their compatibility with the EU legal order. In Opinion 2/15, which addressed competence to conclude the EU-Singapore free trade agreement (EUSFTA), the Court of Justice acknowledged that the Union’s exclusive competence in the field of foreign direct investment does not cover ISDS provisions (Sect. 2.1). The lack of exclusivity, but also the specific nature of the future MIC,9 imply that the convention under negotiation in UNCITRAL will be a mixed agreement. Mixity raises important questions of effective management related both to the negotiation and conclusion of the convention establishing a MIC (Sect. 2.2). Mixity also raises a question about the allocation of international responsibility, be it in the context of the ICS or of the MIC, which is linked to that of the autonomy of the EU legal order (Sect. 2.3).

2.1

The Question of Competence Following Opinion 2/15

In Opinion 2/15 the CJEU examined the ISDS provisions of the EUSFTA from the point of view of the division of competences,10 explicitly rejecting any assessment of their compatibility with the EU legal order.11 It first noted that “the competence of the European Union in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions”.12 The Court also held that provisions related to dispute settlement between the parties “form part of the institutional framework for the substantive provisions of the envisaged agreement”13 and, as such, they “are of an ancillary nature and therefore fall within the same competence as the substantive provisions which they accompany”.14 However, the Court of Justice highlighted the specificity of ISDS provisions, which allow the investor, in case of dispute with a Member State, to submit its claim to arbitration. Contrary to the State-to-State dispute settlement mechanisms, “(s)uch a regime, which removes disputes from the jurisdiction of the courts of the Member

9

Bungenberg and Reinisch (2020), pp. 175 et seq. Cremona (2018), pp. 231–259; Neframi (2018), pp. 32–58. 11 Opinion 2/15, paras 28–30. 12 Ibid., para 298. 13 Ibid., para 303. 14 Ibid., para 276. 10

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States, cannot be of a purely ancillary nature (. . .) and cannot, therefore, be established without the Member States’ consent”.15 As a consequence, it held that the EUSFTA’s ISDS provisions do fall “not within the exclusive competence of the European Union, but within a competence shared between the European Union and the Member States”.16 Given that in the same Opinion the Court of Justice held that substantive provisions concerning foreign direct investments fall under the exclusive competence of the Union, as part of the common commercial policy, while provisions on non-direct investments fall under the Union’s shared competence, the competence to approve ISDS provisions, which is in any case shared, is to be assessed as such. In other words, the Member States’ implementing competence impacts the international level, such as any ISDS provisions, from the competence perspective, are dissociated from the substantive provisions the respect of which they intend to ensure. The Court’s holding leads to the need for the Member States’ consent and, thus, to the conclusion of an agreement containing ISDS provisions as a mixed agreement. One could note that mixity could not be avoided because of the limits of exclusive EU competence with regard to non-direct investment substantive provisions. Furthermore, the Member States’ participation could be seen as imposed by the rules of allocation of financial responsibility,17 which are linked to the objective of effective enforcement of the investment courts’ decisions. Nevertheless, in Opinion 2/15, the Court of Justice explicitly confirmed that ISDS provisions cannot be of a purely ancillary nature. As a consequence, the Member States’ participation in the conclusion of an agreement providing for ISDS mechanisms is required regardless of the EU’s substantive competence in the field of investment policy. Even in the absence of allocation of financial responsibility, and even if the Union decided to exercise its shared competence in the field of non-direct investments,18 ISDS provisions could not fall under the Union’s competence. They relate to the Member States’ implementing competence, which is an expression of their duty to ensure the protection of rights stemming from EU law.19 Indeed, implementation of EU law by the Member States is ensured through, inter alia, domestic courts. The Court of Justice recognized the external dimension to the

15

Ibid., para 292. Ibid., para 293. 17 See infra under 2.3. 18 In its judgment Germany v Council (Case C-600/14, 5 December 2017, ECLI:EU:C:2017:935) concerning the establishment of an EU position in a field falling under shared competence, in the framework of the Convention concerning International Carriage by Rail (COTIF), the Court of Justice acknowledged that the Union may exercise its external competence even if it is not exclusive but is instead shared. As a consequence, the absence of exclusive external competence does not imply the conclusion of a mixed agreement. However, the exercise of the Union’s shared external competence depends on the Council’s acknowledgment, of the need to attain the corresponding objective. See Neframi (2019), pp. 489–520. 19 Following Article 19(1) subparagraph 2 TEU, “Member States shall provide remedies sufficient to ensure effective legal protection in the fields covered by Union law”. 16

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Member States’ obligation to ensure judicial protection in the implementation of EU law, which requires an autonomous assessment of the competence to approve ISDS provisions. This approach to the allocation of competences is significant for the conclusion of the EU agreements containing ICS provisions and for the conclusion of the convention establishing a MIC. First, the shared competence of the Union and its Member States must be exercised jointly. In Opinion 2/15, the Court of Justice held that an ISDS regime cannot be established “without the Member States’ consent”20 and that provisions concerning other types than foreign direct investments “cannot be approved by the European Union alone”.21 In its judgment Germany v/Council,22 the CJEU referred to shared competence to approve provisions concerning other types than foreign direct investments when it held that the Union’s shared competence can be exercised directly in the external field and that mixity is not mandatory.23 In other words, the possibility of the Union to approve alone provisions falling under its shared competence,24 does extend to ISDS provisions. Second, the Member States’ competence is not exclusive and cannot be seen as independent from the Union’s competence. It is an implementing competence that can only be exercised when the Union exercises its substantive competence. To put it differently, ISDS provisions are not ancillary and, thus, are not absorbed in the exercise of the Union’s substantive competence; they require the exercise, in the external field, of the Member States’ implementing competence along with the exercise of the Union’s exclusive or shared substantive competence. The fact that the Court of Justice examined EUSFTA’s ISDS provisions from the competence perspective may be viewed as a confirmation of the limited impact of the Court’s Achmea judgment.25 Removing competence from the domestic courts in favour of arbitration proceedings is incompatible with the principle of the autonomy of the EU legal order only in intra-EU relations based on the principle of mutual trust. In the relations with third States, the Member States may remove the implementing competence from their domestic courts. The question of the compatibility of the ICS with the autonomy of the EU legal order was not resolved through

20

Opinion 2/15, para 292. Ibid., para 244. 22 N 18. 23 Paragraph 68 of the judgment states: “Admittedly, the Court found, in paragraph 244 of that Opinion (2/15), that the relevant provisions of the agreement concerned, relating to non-direct foreign investment, which fall within the shared competence of the European Union and its Member States, could not be approved by the Union alone. However, in making that finding, the Court did no more than acknowledge the fact that, as stated by the Council in the course of the proceedings relating to that Opinion, there was no possibility of the required majority being obtained within the Council for the Union to be able to exercise alone the external competence that it shares with the Member States in this area”. 24 See Prete (2020), pp. 113–127. 25 Case C-284-16 Achmea BV (2018), ECLI:EU:C:2018:158. 21

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the competence-related approach, but that approach confirms the inter-EU constitutional dimension of the Court’s findings in Achmea.26 The position of the Court of Justice in Opinion 2/15 with regard to competence to approve ISDS provisions seems to imply the mandatory mixity of any agreement establishing an investment court. Besides, mixity is a necessity for the establishment of a MIC, as its competence is also supposed to cover investment agreements concluded by the Member States.

2.2

The Convention Establishing a MIC as a Mixed Agreement

The Union’s enhanced observer status in UNCITRAL allows the Commission to participate in UNCITRAL sessions and working groups and to conclude agreements elaborated in that framework. The Commission participates in the negotiations of the Convention establishing a MIC, together with the 12 Member States also members of UNCITRAL. Following the practice, in case of joint participation the principle of sincere cooperation requires unity in the external representation of the Union and its Member States.27 The negotiating directives adopted by the Council on 1 March 2018 provide that the Union and the Member States “shall fully coordinate positions and act accordingly throughout the negotiations”.28 Besides, as the Union is not member of UNCITRAL “in the event of a vote, the Member States which are Members of the United Nations Commission on International Trade Law shall exercise their voting rights in accordance with these directives and previously agreed EU positions”.29 The convention establishing a MIC is thus negotiated following the negotiation practice for all mixed agreements, in a framework in which the Union and its Member States jointly participate. Unity in external representation, which implies close cooperation during the negotiations and the expression of common positions is a requirement stemming from the principle of loyalty that applies regardless of the exclusive or shared nature of EU competence.30 It is indeed explicitly stated that the negotiating directives are “without prejudice to the division of competences between the Union and the Member States as laid down in the Treaties”.31 The requirement of unity in the representation of the Union in UNCITRAL serves the Union’s

26

See contra: Gatti (2019). Kaddous (2019), p. 303. 28 N 4, para 1. 29 Council of the European Union Negotiating Directives for a Convention Establishing a Multilateral Court for the Settlement of Investment Disputes (n 4), para 4. 30 Case C-620/16 Commission v Germany (27 March 2019) ECLI:EU:C:2019:256. See also Van Elsewuge (2019), pp. 283–298. 31 Negotiating Directives (n 4), para 5. 27

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negotiating position and does not imply that the convention establishing a MIC will be signed by the Union alone. On the contrary, following the position of the Court of Justice in Opinion 2/15, and because of the competence of the future MIC, any such convention must be concluded as a mixed agreement. However, the Court’s position in Opinion 2/15, which links the Member States’ participation in agreements containing ISDS provisions to their implementing competence implies a specific approach to mixity. In combination with the institutional nature of the convention establishing a MIC, some elements of the practice of mixed agreements will not apply. First, provisional application in case of ratification delays is not to be envisaged. The provisional application of CETA does not cover the establishment of the ICS, not only because of the doubt about its compatibility with the EU legal order, but mainly because of the institutional nature of the provisions.32 Instead, an early entrance into force of the convention establishing a MIC could be envisaged.33 Second, because the convention establishing a MIC will apply, ultimately, to both situations under EU and Member States competence, and because of the specific character of the shared competence with regard to dispute settlement provisions, it will not be possible to distinguish between provisions falling under the EU competence and those falling under the Member States’s competence. Due to the institutional character of the convention, such distinction does not have practical consequences, as is usually the case in mixed agreements, in which the division of competences may determine the division of contractual links and implementing obligations. Thus, the signature of the convention establishing a MIC by the Union will not need to be followed by a declaration of competences.34 The absence of vertical division of legislative competences means that the MIC convention, despite the joint participation of the Union and its Member States, will mainly be an EU agreement, as the Member States’ participation follows and completes the Union’s participation. Of course, the competence of the future MIC will cover investment agreements concluded by the Member States. However, from the EU law point of view, such Member States’ agreements are subject to authorization. Considering the convention establishing a MIC, from the EU law point of view, to be a mainly EU agreement, despite its conclusion as a mixed one, will have two further consequences. First, it justifies the Union’s preponderant role during the negotiations, beyond the requirement of unity, which allows the Union to act as an influent international actor. Second, it explains the disconnection clause in the negotiating directives, according to which the jurisdiction of the MIC will not apply to intra-EU investment treaties, but only to relations of the Union (and the Member States authorized by the Union) with third States.35

32

Suse and Wouters (2019), p. 191. Para 18 of the Negotiating directives (n 4). See also Bungenberg and Reinisch (2020), p. 182. 34 Heliskoski (2013), p. 199. 35 N 4, para 7 note 1. 33

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Despite its specific features, the convention establishing a MIC will be a mixed agreement. As in all mixed agreements, including the EU investment treaties establishing an ICS, a classic question arises, that of the determination of the respondent party in the dispute and, thus, the allocation of international responsibility.

2.3

Determination of the Respondent Party as a Matter of Autonomy

The establishment of permanent investment courts raises the question of their role in the determination of the respondent and the apportionment of responsibility between the Union and its Member States,36 especially when the treatment is afforded by a Member State while implementing EU law. The principle of autonomy requires the apportionment of international responsibility to be an internal issue for the EU legal order,37 where the principle of conferral is fundamental. The principle of conferral implies that allocation of international responsibility between the Union and its Member States be based on the division of competences. Declaration of competences is made with the aim of aligning the respondent status and international responsibility with the respective field of competence.38 However, beyond the debate over the pertinence of the competence criterion for allocating responsibility in comparison with that of attributing the wrongful act, the dynamic nature of the Union’s competences and the difficulty of linking the provisions of an agreement to one sphere, compromise the effectiveness of such declarations and lead to the international law solution of joint responsibility.39 Joint responsibility suggests that the respondents are both the EU and its Member States and that an international court does not need to investigate EU law and interpret the allocation of competences. As a consequence, even if joint responsibility does not perfectly align with the principle of conferral, it safeguards the principle of autonomy of the EU legal order. Concerning investment treaties and the future convention establishing a MIC, the absence of declaration of competences, as well as the fact that the EU and its Member States form an undivided contracting party because of the specific nature of the division of competences leading to mixity, seem to suggest that joint

36

Stegmann (2019), 368 pp; Steinbach (2017), p. 129. The Court of Justice has held that the interpretation by an international court of the expression “Contracting Party” in a mixed agreement in order to determine whether such expression means the Union or its Member States, or the Union and the Member States, infringes the principle of autonomy. Opinion 1/91 Creation of the European Economic Area (1991) ECLI:EU:C:1991:490, para 34. 38 Delgado Casteleiro (2012), p. 491; Heliskoski (2013), p. 199. 39 Stegmann (2019), pp. 32 et seq. 37

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responsibility could safeguard the principle of autonomy without affecting the principle of conferral. However, due to the emphasis on the attribution of the treatment affecting the investor, the solution of joint responsibility does not seem appropriate for investment disputes. Instead, in order to ensure that apportionment of responsibility does not impact the principle of autonomy, EU investment agreements contain rules of procedure that identify the correct respondent.40 It should be emphasized that the mere existence of rules of procedure designing the respondent is not sufficient to ensure respect of the principle of autonomy. It must be further guaranteed that an international court does not intervene in the division of competences and that the alignment of the respondent status to international responsibility is a matter falling entirely under the EU legal order. Indeed, one of the obstacles of the Union’s accession to the European Convention of Human Rights was the intervention of the European Court of Human Rights (ECtHR) in allocating responsibility between the Union and a Member States through the co-respondent mechanism. Such a mechanism included in the Draft EU Accession Agreement would allow the European Union and its Member States to both become parties to proceedings instituted against only one of them. As the Draft EU Accession Agreement assigned jurisdiction to decide on the status of co-respondent to the ECtHR upon request by a contracting party, the Court of Justice found, in Opinion 2/13, an interference with the division of competences between the Union and its Member States and, thus, an infringement of the principle of autonomy.41 Consequently, to safeguard the principle of autonomy, EU investment treaties, that provide an ICS or that fall under the competence of a future MIC, must contain rules of identification of the respondent, but also permit the Union to ensure alignment between respondent status and international responsibility.42 Indeed, the Union’s bilateral investment agreements that include an ICS contain also rules intended to internalise the choice of respondent to an investment dispute.43 According to such rules, prior to the submission of the claim, the investor must send a notice to the EU, and the Member State concerned if the contested treatment was accorded by it, requesting to determine who will act as respondent in the proceedings. The EU must inform the claimant within a prescribed period as to whether the EU itself or a Member State is to be the respondent in the dispute. The investor and the investment tribunal cannot contest such determination. If the Union fails to deliver a response within the prescribed period, some agreements, such as the

This practice is designed as “proceduralisation”. See Contartese and Pantaleo (2018), pp. 420 et seq.; Stegmann (2019), pp. 139 et seq. 41 Opinion 2/13 Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms (18 December 2014) ECLI:EU:C:2014:2454, paras 224, 225, 231. See Eckes (2013), pp. 254–285. 42 Dimopoulos (2014), p. 1702; Eckes (2019), pp. 205 et seq. 43 Pantaleo (2016). 40

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CETA and the EUSFTA, contain precise rules for determining respondent status.44 In that way, the investor and the investment tribunal cannot apply the rules of international law that would impose joint and several responsibility. As one of the conditions for preserving autonomy is to ensure that allocation of responsibility be an internal matter for the EU,45 clauses such as those of the CETA and the EUSFTA should be included in the EU investment treaties, and the convention establishing a MIC should provide that the court must refrain from intervening in such allocation. Concerning the question of whether a determination of the respondent can be contested by an investment court as an issue of admissibility of the claim, based on the need to apportion responsibility,46 it has been advanced that the identification of the respondent made under the EU investment agreements should be taken as an implied recognition of responsibility.47 Furthermore, the identification of the respondent by the EU follows the allocation of financial responsibility according an act of secondary EU law. Regulation n 912/2014 (FRR) cannot affect third States but instead aims to allocate (financial) responsibility ‘as a matter of Union law’.48 As allocation of financial responsibility on the EU level leads to the designation of the respondent party, allocation of international responsibility is also an EU internal issue. The FRR confirms that the main criterion for apportionment of financial responsibility is that of imputation.49 It however aligns with the principle of competence-based responsibility50 and confirms the responsibility of the Union where the Member State’s action was required by Union law, with the derogation that the treatment attributed to a Member State’s incorrect implementation of EU law entails the responsibility of that Member State. This derogation may help to avoid a Micula scenario, in which international responsibility stems from the Member

44

According to Chapter 8, Article 21, paragraph 4, of the CETA, if the measures identified in the notice are exclusively measures of a Member State of the EU, the Member State shall be the respondent; if the measures identified in the notice include measures of the European Union, the European Union shall be the respondent. 45 Opinion 1/17, para 132. 46 See Lenk (2016b), p. 21. 47 EU investment agreements contain a clause according to which “neither the European Union nor the Member State concerned may assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise assert that the claim or award is unfounded or invalid on the ground that the proper respondent should be or should have been the European Union rather than the Member State or vice versa”. See Contartese and Pantaleo (2018), p. 441. 48 (2014) OJ L 257/121, recital 5. 49 According to Article 3 of Regulation 912/2014 the Union shall bear the financial responsibility arising from treatment afforded by the institutions, bodies, offices or agencies of the Union and the Member State concerned shall bear the financial responsibility arising from treatment afforded by that Member State. 50 Regulation 912/2014, recital 3.

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State’s repeal of business incentives incompatible with the EU State aid law.51 In any case, even if the designation of the respondent does not align with the allocation of responsibility, it needs to remain an internal question for the EU.52 Specific questions may arise in that regard, such as the consequences of a CJEU judgment overruling a Commission decision on respondent status for enforcement proceedings.53 Enforcement of the investment courts’ decisions is guaranteed and governed by international mechanisms, which may be detailed in the provisions of the EU’s investment treaties or the statute of the future MIC.54 From the Union’s point of view the FRR confirms not only the internalisation of the apportionment of the financial responsibility, but also the commitment of the Union to the enforcement of the arbitral tribunals’ awards.55 The “internalisation” of the designation of the respondent is a mandatory requirement, necessary to preserve the autonomy of the EU legal order, which falls under the Union’s negotiating discretion. As linked to the division of competences between the Union and its Member States, such ‘internalisation’ is, itself, an EU law question. On the other hand, both the autonomy of the EU legal order and EU primary law provisions must be preserved in the exercise of the investment courts’ competence. From the Union’s point of view, a balance needs to be maintained between the objective to act as an efficient international actor contributing to the establishment of permanent investment courts and respect of constitutional requirements in the EU legal order.

3 Balancing Efficiency and Constitutional Requirements The Union’s objective of promoting multilateralism and the rule of law in its relations with the wider world finds its limits in the need to respect the constitutional requirements stemming from primary EU law. From a substantive law point of view, the establishment of a framework for screening inward foreign direct investments 51

In the Micula case Romania was ordered by an arbitral tribunal to pay compensation to a foreign investor for discontinuing business incentives that were found incompatible with EU state aid law. The General Court of the EU held that the Commission had no competence to apply EU State aid rules prior to Romania’s accession to the EU (Cases T-624/15, T-694/15 and T-704/15 European Food SA and Others v European Commission (2019) ECLI:EU:T:2019:423). The case raises important questions concerning the enforcement of arbitral awards in conflict with EU law. See Gallo and Nicola (2016), pp. 1108 et seq.; Tietje and Wackernagel (2015), pp. 201–243. 52 Article 9, paragraph 1, b, of the FRR stipulates that a Member State can agree with the Commission not to appear as respondent in a dispute in which it would otherwise do so according to the rules set out in regulation. 53 Stegmann (2019), pp. 306 et seq. 54 Bungenberg (2020), this volume. 55 According to the explanatory memorandum to the FRR, ‘the investor bringing the claim should not be adversely affected by any disagreement between the Union and the Member State’. See Stegmann (2019), p. 313.

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could anticipate the conflict between investors’ protection and EU interests.56 From the procedural law perspective, the exercise of the permanent investment courts’ and tribunals’ judicial power needs to be in accordance with the need to preserve the EU constitutional system.57 In Opinion 1/17 the Court of Justice confirmed that the ICS established by the CETA is compatible with primary EU law.58 Opinion 1/17, thus, sets the conditions under which the Union can participate in the ICS, and in the future MIC, depending on the impact their functioning has on the autonomy of the EU legal order (Sect. 3.1), and, more generally, on EU primary law (Sect. 3.2). At the same time, the Court’s assessment, in Opinion 1/17, of compatibility of the ICS with the constitutional requirements of the EU legal order offers an opportunity to discuss the scope of the principle of autonomy59 and the positioning of the Union’s constitutional requirements in the search for efficiency in its external action.

3.1

Preserving the Autonomy of the EU Legal Order

As the establishment of permanent investment courts falls under the external competence of the Union,60 it is not per se incompatible with the principle of autonomy. As is well known from established case law, respecting the autonomy of the EU’s legal order demands that international agreements guarantee the functioning of the preliminary reference procedure (Sect. 3.1.1) and the exclusive jurisdiction of the Court of Justice to interpret and apply EU law (Sect. 3.1.2). Moreover, in Opinion 1/17, the Court of Justice stressed the dimension of the principle of autonomy consisting in the exercise of the institutions’ powers within the EU constitutional framework (Sect. 3.1.3).

3.1.1

Preserving the Preliminary Reference Procedure

As the Court of Justice has stressed, the preliminary reference procedure is the keystone of the EU judicial system.61 Article 267 TFEU sets up the mechanism through which the domestic courts fulfill their duty of loyal cooperation with the 56

Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, JO L 79I/1. See Schill (2019), pp. 105–128. 57 Ankersmit (2016), pp. 46–63. 58 Bungenberg and Titi (2019); Delile (2019), pp. 347–370; Lenaerts (2019); Peers (2019); Titi (2020); Tranchant (2019), pp. 347–373 59 For an analysis of Opinion 1/17 from the perspective of the principle of autonomy see Eckes (2020). 60 Supra under Sect. 2. 61 Opinion 2/13 (n 41) para 176.

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Court of Justice and the Member States fulfill their obligation to establish remedies sufficient to ensure effective legal protection in the fields covered by EU law, which obligation is enshrined in Article 19 TEU.62 Through the preliminary reference the Court of Justice ensures uniformity and effectiveness in the implementation of EU law. Therefore, the mechanism is the expression of the composite character of the Union’s judicial system and constitutes the foundation of the autonomy of the Union’s legal order.63 Membership in the EU implies the obligation to ensure the effectiveness of Article 267 TFEU and, as a consequence, anything that affects the functioning of the preliminary reference automatically affects the autonomy of the legal order of the EU. In Achmea, the Court held that ISDS mechanisms in intra-EU investment treaties, because they remove jurisdiction from domestic courts, put at risk the mutual trust that is the foundation of the composite character of the EU judicial system and, thus, at the basis of the principle of autonomy.64 However, in Opinion 1/17 the CJEU clearly distinguished the intra-EU investment treaties, the ISDS mechanism of which has an adverse effect on the autonomy of EU law, from the ISDS mechanisms in agreements between the Union and third States. Opinion 1/17 confirmed that the judgment in Achmea only has an intra-EU constitutional impact.65 Indeed, ISDS mechanisms in agreements between Member States affect the cooperation of the domestic courts with the Court of Justice via the preliminary reference procedure, the functioning of which is an obligation for the Member States that stems from Articles 19 TEU and 267 TFEU and is an expression of the principle of sincere cooperation based on mutual trust. In contrast, in EU agreements with third countries, the impact of ISDS mechanisms on the preliminary reference procedure is not per se a threat to the autonomy of the EU legal order and only raises a question of shared competence. In the Opinion of Advocate General Bot and the position of the Court of Justice, the argument of the limited impact of Achmea on the establishment of investment courts is based on the principle of mutual trust, which is not applicable in relations between the EU and third States.66 One could certainly argue that mutual trust, stemming from shared common values, also exists in the external relations of the Union. It can be acknowledged in international agreements that establish a mechanism of mutual recognition, with third countries sharing the values of the Union.67 The difference with intra-EU 62

Rosas (2012), pp. 105–121. Neframi and Gatti (2019), pp. 62 et seq. 64 Case C-284/16, paras 34, 58. 65 On the impact of Achmea on the ISDS see Glinski (2018). 66 Opinion 1/17, paras 126–136. 67 See Case C-897/19 PPU (Ruska Federacija, 2 April 2020, ECLI:EU:C:2020:262) where the Court of Justice acknowledged that mutual assistance mechanism may be established in the European Economic Area (EEA), based on the mutual confidence in the structure and functioning of the legal systems of the Member States of the Union and the EFTA States parties in the EEA Agreement. 63

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relations is that, within the EU, mutual trust does not need to be acknowledged, it is inherent in the establishment of the Union, as a prerequisite for the realization of the Union’s objectives through the exercise of the institutions’ powers, including the Court of Justice. Removing the competence from domestic courts in intra-EU relations affects the functioning of the EU judicial system and, thus, questions the premise of mutual trust. Such a situation impacts the autonomy of the EU legal order as it affects the functioning of the EU judicial system, which aims to preserve its specific characteristics. ISDS mechanisms cannot consequently be established in intra-EU agreements. The negotiation directives for the convention establishing a MIC explicitly exclude intra-EU agreements from its jurisdiction.68 In contrast, ISDS mechanisms in the relations between the EU and third parties are in principle compatible with the autonomy of the EU legal order, provided that their functioning does not affect the exercise of competence of the EU institutions. It is, thus, to be determined whether the functioning of the ICS preserves the exclusive jurisdiction of the Court of Justice and safeguards the characteristics of the EU legal order. Opinion 1/17, although only addressing the CETA’s ICS, gives the green light to the establishment of a multilateral investment court.

3.1.2

Preserving the Exclusive Jurisdiction of the CJEU to Interpret and Apply EU Law

Safeguarding the exclusive jurisdiction of the Court of Justice to interpret and apply EU law was early recognized as an expression of the autonomy claim.69 The functioning of the EU’s composite judicial system and achieving uniformity in the interpretation and application of EU law require that any external judicial body exercising its jurisdiction in a field falling under the Union’s external competence must refrain from interpreting and applying EU law. In Opinion 1/17 the CJEU examined whether the functioning of the ICS was liable to undermine its own role in ensuring consistency and uniformity in the interpretation of EU law. The essential element in the admission of the CETA’s conformity with the principle of autonomy was the fact that the investment tribunal, according to CETA’s wording, was not supposed to interpret or apply EU law, but can only apply CETA rules. Domestic law, including EU law, can only be applied as a fact by the CETA tribunal. The argument submitted to the Court’s Opinion, according to which, in the absence of available interpretation of the relevant EU law rule, the CETA tribunal could interpret EU law in order to establish the facts, was not considered as establishing any conflict with the Court’s jurisdiction, as such interpretation is not binding for the EU.70

68

N 35. Eckes (2017), pp. 161–189; Govaere (2010), p. 187; Odermatt (2018), p. 291. 70 Opinion 1/17, para 124. 69

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Consequently, so long as investment tribunals do not have jurisdiction to determine the legality of a measure, but their jurisdiction is limited to the award of damages, such tribunals cannot call into question the exclusive jurisdiction of the Court of Justice as part of the autonomy claim. Moreover, the no U-Turn rule, according to which once an investor has opted into the ISDS mechanism, the domestic courts of the Member States lose their competence to hear the dispute or review the decisions of the investment tribunals, has no impact on the functioning of the preliminary reference procedure. Indeed, the Court of Justice held that competence can be removed from domestic courts, in order to allow the EU to exercise its competence comprising the establishment of international courts. The binding effect of the investment tribunal’s decisions is compatible with the autonomy of the EU legal order, provided that their establishment does not affect the exclusive jurisdiction of the Court of Justice to interpret and apply EU law. The no U-Turn approach avoids parallel domestic EU and ICS proceedings and confirms the clear separation of legal orders and of the functions of the courts, as well as the lack of direct effect of the CETA, through the dualist approach that it implies.71 Appropriate clauses in EU’s investment protection agreements, and in the convention establishing a MIC, should thus ensure that the ICS or the MIC provides investment protection according to the rules of the investment treaties and, when doing so, they only consider EU law as a fact. The establishment of a multilateral court could help spread such an approach.

3.1.3

Preserving the Exercise of the EU Institutions’ Powers Within the EU Constitutional Framework

Beyond the exclusive jurisdiction of the Court of Justice in the interpretation and application of EU law, the preservation of which constitutes the main intent of the principle of autonomy, in Opinion 1/17 the Court examined whether CETA’s ISDS mechanism conferred on the investment tribunals competences such as to prevent the EU institutions “from operating in accordance with the EU constitutional framework”.72 This question differs from that of the application of EU law, as such, by the investment tribunals, which only relates to the Court’s competence. This question concerns the ability to assess whether a given EU measure violates the investment protection rules that the investment court is supposed to apply. In doing so, the investment tribunals or courts could weigh the investment protection rules against the public interest the EU rule serves.73 They could thus affect the exercise of the EU institutions’ competence.

71

See Lopez-Rodriguez (2018), pp. 178 et seq. Opinion 1/17, para 119. 73 On the question of balance between investor’s protection and the State’s right to regulate, see Titi (2015), p. 646. 72

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The Court of Justice used the opportunity Opinion 1/17 offered to clarify the scope of the principle of autonomy with regard to the specific characteristics of the EU legal order.74 The specific characteristics of the EU legal order—the principles and rules that compose it—justify its autonomy from national and international law75 because the content of the principle of autonomy consists in the functioning of the EU legal order following those characteristics that are to be preserved. Preservation of the specific characteristics of the EU legal order is ensured through the competence of the Court of Justice, the functioning of the EU judicial system, and, in a broader sense, the exercise of the institution’s powers provided in the Treaties. The conflict between a rule of international law and one of the specific characteristics of the EU legal order falls under the principle of precedence of primary EU law, as expressed in Article 218(11) TFEU.76 The conflict between international law and the exercise of the EU institutions’ powers in accordance with the EU constitutional framework falls under the principle of autonomy. The difference consists in the contrast between static and dynamic confrontation, the latter leaving room for balancing the investment protection objective with respect for the EU constitutional requirements. More precisely, in the context of Opinion 1/17, the Court of Justice found the ISDS mechanism compatible with the principle of autonomy so long as the investment tribunals do not call into question the level of protection of any public interest reflected in measures limiting the freedom to conduct business of a Canadian investor.77 Such a guarantee stems from CETA’s substantive provisions, which protect the parties’ right to regulate,78 and from the Joint interpretative instrument.79 Nevertheless, the position of the Court raises further questions.

74

Lenaerts (n 58) p. 9. N 69. 76 “A Member State, the European Parliament, the Council or the Commission may obtain the opinion of the Court of Justice as to whether an agreement envisaged is compatible with the Treaties. Where the opinion of the Court is adverse, the agreement envisaged may not enter into force unless it is amended or the Treaties are revised.” 77 Opinion 1/17, paras 154–161. 78 According to Article 8.9 of the CETA: “1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. 2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.” 79 OJ L11/3 (14.01.2017). Point 2 provides: “CETA preserves the ability of the European Union and its Member States and Canada to adopt and apply their own laws and regulations that regulate economic activity in the public interest, to achieve legitimate public policy objectives such as the protection and promotion of public health, social services, public education, safety, the environment, public morals, social or consumer protection, privacy and data protection and the promotion and protection of cultural diversity”. 75

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Provisions of an investment agreement that grant the right to regulate or prevent lowering standards in fields such as public health or environmental policy are of a substantive, not procedural nature. In Opinion 1/17, the Court stated that the CETA’s investment court “has no jurisdiction to declare incompatible with the CETA the level of protection of a public interest established by EU measures and on that basis to order the Union to pay damages”.80 However, lack of jurisdiction finds its limits when EU measures protecting a public interest “are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties, or a disguised restriction on trade”.81 Consequently, procedural and substantive requirements interfere with each other such as the protection of the right to regulate becomes subject to conditions falling under the investment court’s power of judicial review. This is particularly problematic for the establishment of a MIC, as the convention currently under negotiation does not deal with substantive investment law. Besides, the investment court’s assessment of the discriminatory character of a measure may seem to conflict with its lack of jurisdiction to examine measures protecting a public interest and to interpret EU law.82 These questions are indeed problematic from the perspective of the specific characteristics of the EU legal order or, in other words, from the perspective of the compatibility of substantive provisions of primary EU law with an international agreement. If the investment court’s assessment of the discriminatory character of a measure serving public interest confronts substantive EU rules in environmental, public health, social, cultural or consumer protection policies, the result is a static confrontation with EU standards. Such a confrontation falls under substantive rules to be included in investment treaties that come under the jurisdiction of a future MIC and, thus, could not be addressed by provisions concerning the investment court’s jurisdiction unless any balancing with the investor’s protection is excluded. Moreover, any such substantive provisions found in EU investment treaties contain, in that sense, a contradiction between the requirement not to call into question the level of protection of a public interest and the exception for discriminatory measures. The investment court’s assessment of the applicability of the protection of a public interest would be in conflict with the principle of autonomy if the principle covered EU standards as specific characteristics and if the investment court could evaluate the standards in order to apply the regulatory autonomy rule and its exception. On the other hand, the Court’s position confirms that the EU standards of protection of the public interest do not, as such, fall under the principle of autonomy. What is covered by the autonomy of the EU legal order and is to be preserved both by substantive and procedural rules of the EU investment treaties and the convention establishing a MIC is the “essence of the democratic process leading to the adoption of EU norms protecting public interests”.83 That demands a dynamic approach to the

80

Opinion 1/17, para 153. Ibid. para 152. 82 Leonelli (2020), pp. 43–70. 83 Lenaerts K. (n 58), p. 16. 81

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notion of autonomy, one that allows a balancing with the investor’s protection. In other words, the award of monetary compensation under the ISDS mechanism arising from its assessment of the discriminatory or arbitrary character of a measure protecting public interest does not raise a question of EU standards of protection but that of the preservation of the EU institutions’ powers to adopt such measure. Indeed, the investment court cannot order the EU or a Member State to repeal the measure, which can continue to apply internally. The decision to deal with the regulatory autonomy to protect public interest as a question of autonomy of the EU legal order and not as a question of compatibility with EU primary law avoids the above-mentioned difficulties. Indeed, the award of compensation is covered by procedural provisions, regardless of the substantive provisions in EU investment treaties. Moreover, the investment courts’ discretion to assess the discriminatory or arbitrary character of an EU measure protecting public interest, that does not affect the measure as such, does not confront EU standards. From the autonomy perspective, in the broad sense of preserving the exercise of the institution’s powers in accordance with the EU constitutional framework, the investment court’s assessment would be an expression of its balancing constitutional requirements against investment protection. However, a legitimate question may rise therefrom: could EU standards of protection be affected in order to avoid repeated compulsion to pay damages? Does the establishment of investment courts following the EU standards of judicial protection guarantee a fair balance between effective investment policy and public interest protection? EU standards of judicial protection are not, however, addressed as elements of the principle of autonomy, but as parameters for the assessment of the compatibility of ISDS mechanisms with EU primary law.

3.2

Ensuring the Precedence of EU Primary Law and Applying Article 47 of the Charter

In Opinion 1/17 the Court of Justice examined, as requested by Belgium, the compatibility of CETA’s ICS with substantive provisions of primary EU law. Ultimately, the Court held the ISDS mechanism compatible with the general principle of equality, as guaranteed by Article 20 of the Charter, with the effectiveness of the EU competition rules and with the right of access to an effective remedy, as guaranteed by Article 47 of the Charter. As far as the principle of equality and the effectiveness of EU competition rules are concerned, the Court examined the substantive CETA provisions and the purpose of the agreement. It held that the fact that nationals of the Member States of the Union having invested in another Member State do not have access to CETA’s investment court does not violate the principle of equal treatment. The purpose of the CETA is indeed to provide protection for Canadian investors in the EU, the situation of foreign investors is thus not comparable with the one of Member States’

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investors.84 The Court of Justice further held that equal treatment is not affected by the fact that Canadian investors might have access to the CETA tribunals if the Commission sanctions a violation of EU competition law, while EU investors will not. Given the importance of free and undistorted competition in the CETA, the investment court is not likely to award damages in a case of correct application of competition rules by the Commission. In that sense, the effectiveness of EU competition rules is not undermined.85 Concerning the right of access to an effective remedy, the Court of Justice acknowledged the compatibility of CETA’s ICS with the requirements of Article 47 of the Charter. It held that the interpretation of the agreement by the CETA joint committee has no impact on the independence of the CETA tribunals, so long as the Committee’s interpretations have no retroactive and no direct effect on pending cases.86 The Court also held that the rules of the agreement related to the appointment, remuneration, and removal of the members of the tribunals, as well as the equal distance between members of the tribunals and the parties and the conflict of interests, are sufficient to respect EU standards of judicial protection.87 Concerning access to the CETA tribunals, the Court of Justice acknowledged that compatibility with Article 47 of the Charter depends on the adoption of effective rules that assure financial accessibility, following also the Union’s commitment enshrined in Statement 36 to the CETA, to reduce financial burden on natural persons and SMEs.88 The conditional acknowledgement of the compatibility of the access to the CETA tribunals with Article 47 of the Charter should not raise any question. The Union attaches particular importance to the promotion of its standards of judicial protection. The negotiating directives for the Statute of the prospective MIC cover the guarantee of its independence.89 Ensuring that permanent investment courts comply with EU standards of judicial protection seems to be a specific goal of the Union’s external action. However, the applicability of Article 47 of the Charter as a tool to promote the rule of law requires further discussion. Of course, the Charter applies in the fields covered by EU law, including the scope of international agreements concluded by the Union. As a consequence, the conclusion of international agreements is conditioned upon compatibility with EU primary law, including the Charter. In Opinion 1/15, the Court examined the compatibility of the agreement on transfer of Passenger Name Record data between the Union and Canada with Articles 7 and 8 of the Charter.90 Non-discrimination and data protection are part of the substantive rules of the agreement and as the Charter applies, the relevant provisions of the agreement have to be compatible with the

84

Opinion 1/17, paras 180–181. Ibid., paras 187–188. 86 Ibid., paras 227–237. 87 Ibid., paras 223–226 and 238–244. 88 Ibid., paras 205–222. 89 N 4, para 11. 90 Opinion 1/15 (26 July 2017) ECLI:EU:C:2017:592. 85

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relevant provisions of the Charter. In that sense, the Court had no difficulty acknowledging, in Opinion 1/17, the applicability of Article 20 of the Charter. The principle of equal treatment is part of the investment protection guaranteed by the CETA, and as the CETA is concluded by the Union, it must be compatible with Article 20 of the Charter. There is however a specific point concerning Article 47 of the Charter. This provision is not self-sufficient once the applicability of the Charter established. Article 47 gives access to the EU judicial system, as linked to Article 19 TEU,91 in the event of a violation of rights stemming from EU law. Article 47 of the Charter requires not only access to the judicial system of the Union, but also that said judicial system meets the guarantees of independence and impartiality.92 The difficulty with the applicability of Article 47 of the Charter lies in its transversal character. It is not supposed to be an autonomous right, but a right guaranteeing the protection of substantive rights, protection that falls within the responsibility of the EU judicial system. However, the CETA investment court is not part of the judicial system of the Union.93 Besides, the investment court is not supposed to apply EU law, while Article 47 of the Charter aims to guarantee rights arising from EU law. Of course, the establishment of a court is part of the normative objective of the CETA; but is an independent and impartial court responding to the requirements of effective judicial protection an objective of the CETA, that should be assessed with regard to the standards of Article 47 of the Charter? In other words, can the Union exercise an autonomous external competence with the objective of judicial protection, as it can do it with regard to the investors’ protection or the protection of personal data? Or do the standards of Article 47 of the Charter aim to ensure that the investment court meets requirements such as to ensure that the enforcement of its decisions in the EU will not alter the constitutional framework in which EU institutions operate? One could argue that the standards of Article 47 of the Charter are to be assessed as part of the principle of autonomy. Preserving the exercise of the EU institutions’ powers in the EU constitutional framework requires an international court that makes decisions that bind the Union and are enforced in the EU legal order, and that is entrusted with balancing investment protection against EU public interests, to meet the standards of Article 47 of the Charter. However, in Opinion 1/17, the Court of Justice did not apply Article 47 of the Charter from the perspective of the EU legal order’s autonomy, but rather as a substantive rule of primary EU law with which the international agreement must comply. Judicial protection standards are thus part of the specific characteristics of the EU legal order that the Union can promote in the international level.

91

N 19. Case C-64/16 Associação Sindical dos Juízes Portugueses (2018) ECLI:EU:C:2018:117. 93 Opinion 1/17, paras 199–200. 92

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4 Concluding Remarks Promoting the rule of law in the international sphere is an objective of the Union’s external action, even if, from the perspective of the principle of conferral, it is not an autonomous competence, but absorbed by the competence in the field of foreign investments. Indeed, the proposed Council decisions related to the position of the Union in the framework of the CETA Joint Committee that will elaborate the rules for the functioning of the CETA Tribunals are based on the Union’s competence in the field of common commercial policy.94 However, considering that the shaping of permanent investment courts according to the EU standards to be an autonomous objective of the Union’s external action, gives precise content to the Union’s objective to be an efficient international actor. Consequently, the need to preserve the EU legal order’s constitutional requirements is not necessarily a limit to the efficiency of the Union’s external action. Efficiency through constitutional limits is facilitated by the instructive approach of the Court of Justice with regard to the conditions that will allow the Union to participate in international agreements establishing permanent investment courts. Key concepts of EU external relations law have been clarified and adapted to the objective of efficient external action. Although the balance with constitutional requirements is not always obvious,95 the Union has managed to affirm its role as an influential actor in international procedural law.96

References Ankersmit L (2016) The compatibility of investment arbitration in EU trade agreements with the EU judicial system. J Eur Environ Plann Law 13:46–63 Bungenberg M, Reinisch A (2020) From bilateral arbitral tribunals and investment courts to a Multilateral Investment Court. Springer Bungenberg M, Titi C (2019) CETA opinion – setting conditions for the future of ISDS. EJIL: TALK! https://www.ejiltalk.org/ceta-opinion-setting-conditions-for-the-future-of-isds/ Chamon M (2018) Constitutional limits to the political choice of mixity. In: Neframi E, Gatti M (eds) Constitutional issues of EU external relations law. Nomos, Baden-Baden, p 145 Contartese C, Pantaleo L (2018) Division of competences, EU autonomy and the determination of the respondent party: proceduralisation as a possible way-out? In: Neframi E, Gatti M (eds) Constitutional issues of EU external relations law. Nomos, Baden-Baden, pp 420 et seq.

COM(2019) 458 final 2019/0218; COM(2019) 457 final, 2019/0217; COM(2019) 459 final 2019/ 0216; COM(2019) 460 final, 2019/0219. 95 One could note that the confirmation of the Commission’s decision to partially refuse access to documents concerning the ICS (Case C-612/18P ClientEarth v Commission (19 March 2020) ECLI: EU:C:2020:223) is another illustration of the difficult balance between efficiency and promotion of the principle of transparency in the functioning of the investment courts. 96 See, for example, the Commission’s concept paper on the modernisation of the WTO: https:// trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157331.pdf. 94

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Cremona M (2018) Shaping EU Trade Policy post-Lisbon: Opinion 2/15 of 16 May 2017. ECLR 14:231–259 Dashwood A (2010) Mixity in the era of the Treaty of Lisbon. In: Hillion C, Koutrakos P (eds) Mixed agreements revisited. Hart, Oxford, p 356 Delgado Casteleiro A (2012) EU declarations of competence to multilateral agreements: a useful reference base? Eur Foreign Aff Rev 17(4):491 Delile J-F (2019) L’avis 1/17 ou le retour en grace des juridictions internationales auprès de la Cour de justice de l’Union européenne. RAE 2:347–370 Dimopoulos A (2014) The involvement of the EU in Investor-State Dispute Settlement: a question of responsibilities. Common Mark Law Rev 51:1702 Eckes C (2013) EU accession to the ECHR: between autonomy and adaptation. Mod Law Rev 76 (2):254–285 Eckes C (2017) International rulings and the EU legal order: autonomy or legitimacy? In: Cremona M, Thies A, Wessel R (eds) The European Union and International Dispute Settlement. Hart, Oxford, pp 161–189 Eckes C (2019) EU powers under external pressure. Oxford University Press, pp 205 et seq Eckes C (2020) The autonomy of the EU legal order. Europe World Law Rev 19. https://doi.org/10. 14324/111.444.ewlj.2019.19 Gallo D, Nicola F (2016) The external dimension of EU investment law: jurisdictional clashes and transformative adjudication. Fordham Int Law J 39(5):1108 et seq. Gatti M (2019) Opinion 1/17 in light of Achmea: a chronicle of an opinion foretold? Eur Papers 4 (1). http://www.europeanpapers.eu/en/e-journal/opinion-1-17-in-light-of-achmea-chronicleopinion-foretold Glinski C (2018) Achmea and its implications for Investor Dispute Settlement. ZeuS 1. https://doi. org/10.5771/1435-439X-2018-1-47 Govaere I (2010) Beware of the Trojan Horse: dispute settlement in (mixed) agreements and the autonomy of the EU legal order. In: Hillion C, Koutrakos P (eds) Mixed agreements revisited: The EU and its Member States in the world. Hart, Oxford, p 187 Heliskoski J (2013) EU declarations of competence and international responsibility. In: Evans M, Koutrakos P (eds) The international responsibility of the European Union. Hart, Oxford, p 199 Kaddous C (2019) Les accords mixtes. In: Aloupi N, Flaesch-Mougin C, Kaddous C, Rapoport C (eds) Les accords internationaux de l’Union européenne, Commentaire Megret. Editions de l’Université de Bruxelles, p 303 Kuijper P-J (2010) International responsibility for EU mixed agreements. In: Hillion C, Koutrakos P (eds) Mixed agreements revisited. Hart, Oxford, pp 208–226 Lenaerts K (2019) Modernising trade whilst safeguarding the EU constitutional framework: an insight into the balanced approach of Opinion 1/17. Belgian Ministry of Foreign Affairs – Brussels. https://diplomatie.belgium.be/sites/default/files/downloads/presentation_lenaerts_ opinion_1_17.pdf Lenk H (2016a) An Investment Court System for the new generation of EU trade and investment agreements: a discussion of the free trade agreement with Vietnam and the Comprehensive Economic and Trade Agreement with Canada. Eur Papers 1(2):665–677 Lenk H (2016b) Issues of attribution: responsibility of the EU in investment disputes under CETA. Transnatl Dispute Manag 13(1):21 Leonelli GC (2020) CETA and the external autonomy of the EU legal order: risk regulation as a test. Leg Issues Econ Integr 47(1):43–70 Lopez-Rodriguez AM (2018) Investor-State Dispute Settlement in the EU: certainties and uncertainties. Huston J Int Law 40(1):178 et seq Neframi E (2018) The competence to conclude new generation of free trade agreements: lessons from Opinion 2/15. In: Chaisse J (ed) China-EU investment relationships. Edward Elgar, London, pp 32–58 Neframi E (2019) Article 216(1) TFEU and the Union’s shared external competence in the light of mixity. Common Mark Law Rev 56(2):489–520

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Neframi E, Gatti M (2019) Autonomy and EU competences in the context of free trade and investment agreements. In: Bosse Platière I, Rapoport C (eds) Negotiation and conclusion of the new generation of free trade agreements. Edward Elgar, London, pp 62 et seq Odermatt J (2018) The principle of autonomy: an adolescent disease of EU external relations law? In: Cremona M (ed) Structural principles in EU external relations law. Hart, Oxford, p 291 Pantaleo L (2016) Respondent status and allocation of international responsibility under EU investment agreements. Eur Papers 3 (1). http://europeanpapers.eu/it/taxonomy/term/269/all Peers S (2019) We *aren’t the world’: the CJEU reconciles EU law with international (investment) law. EU Law Analysis. http://eulawanalysis.blogspot.com/2019/05/we-arent-world-cjeu-recon ciles-eu-law.html Prete L (2020) The constitutional limits to the choice of mixity after EUSFTA, COTIF I, MPA Antarctic and COTIF II: towards a more constructive discourse? Eur Law Rev 45:113–127 Rosas A (2000) The European Union and mixed agreements. In Dashwood A., Hillion C. The general law of EC external relations, Sweet & Maxwell, London, p. 205 Rosas A (2012) The national judge as EU judge: Opinion 1/09. In: Cardonnel P, Rosas A, Wahl N (eds) Constitutionalising the EU judicial system, essays in honor of Pernilla Lindh. Hart, Oxford, pp 105–121 Sangiulo G (2019) An International Court System for a transformative Europe? In: Bosse-Platière I, Rapoport C (eds) The conclusion and implementation of EU free trade agreements. Edward Elgar, London, pp 271–287 Sardinha E (2016) Towards a new horizon in Investor-State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA). Can Yearb Int Law 54:311–365 Schill SW (2019) The European Union’s Foreign Direct Investment screening paradox: tightening inward investment control to further external investment liberalization. Leg Issues Econ Integr 46(2):105–128 Stegmann PT (2019) Responsibility of the EU and the Member States under EU International Investment Protection Agreements, EYIEL. Springer, 368 pp Steinbach A (2017) EU liability and international economic law. Hart, Oxford, p 129 Suse A, Wouters J (2019) The provisional application of the EU’s mixed trade an investment agreements. In: Bosse-Platière I, Rapoport C (eds) The conclusion and implementation of EU free trade agreements. Edward Elgar, London, p 191 Tietje C, Wackernagel C (2015) Enforcement of intra-EU ICSID Awards: multilevel governance, investment tribunals and the lost opportunity of the “Micula” Arbitration. J World Invest Trade 16:201–243 Titi C (2015) International investment law and the European Union: towards a new generation of International Investment Agreements. Eur J Int Law 639(26):646 Titi C (2020) Opinion 1/17 and the future of investment dispute settlement: implications of the design of a multilateral investment court Tranchant B (2019) Avis 1/17: Une interprétation conciliante de l’autonomie du droit de l’UE au secours du mécanisme de règlement des différends relatifs aux investissements de l’AECG. CDE 2:347–373 Van Elsewuge P (2019) The duty of sincere cooperation and its implications for autonomous Member State action in the field of external relations. In: Varju M (ed) Between compliance and particularism: Member States interests and European Union law. Springer, pp 283–298

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Eleftheria Neframi is professor of European law at the University of Luxembourg since 2012. Prior to joining the University of Luxembourg she held a post as professor at the University Sorbonne Paris-Nord (Paris 13). She graduated in law from the University of Athens and obtained her PhD at the University Paris 2, Panthéon-Assas. She holds an LLM in European Law (University Paris 2, Panthéon-Assas) and an LLM in International Economic Law (University Paris 1, Panthéon-Sorbonne). She attained full professorship through national competition in France (agrégation) in 2004. Eleftheria Neframi is director of the LLM in European Litigation and member of the Jean Monnet Center of Excellence. She is visiting professor at the University Paris 2, Panthéon-Assas and at the National and Kapodistrian University of Athens. She has published widely in the fields of European external relations, European litigation and interaction of legal orders.

The North American Experience with Investor-State Arbitration: Does It Lead to a Permanent Investment Court? Armand de Mestral and Lukas Vanhonnaeker

Contents 1 The Experience of the Three Countries with NAFTA Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Comments on the Experience in the Three Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Steps Taken by the Three Countries Under the NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Evolution of the US and Canadian Model BITs Since 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Evolution of Treaty Practise Since 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Extent to Which Canada, the United States and Mexico Are Open to a Standing International Investment Tribunal? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54 54 59 60 61 63 64 65 65 68 69 70 72 72

Abstract This paper addresses two related questions: (1) does the experience of the three NAFTA Parties suggest that they would be more comfortable with a court structure replacing arbitration and (2) does this reflect the discomfort of developed democracies with investor-state arbitration (ISA)? To answer these questions the paper examines the experience of the three states Parties to NAFTA Chapter 11, the steps that they have taken over the years to change the procedure or interpretation of Chapter 11, the evolution of their Model BITs, other investment treaty practice and the extent to which they appear to have embraced the European Union’s call for some form of standing foreign investment tribunal to replace investor-state arbitration.

A. de Mestral (*) and L. Vanhonnaeker Faculty of Law, McGill University, Montreal, QC, Canada e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2020 G. Ünüvar et al. (eds.), Permanent Investment Courts, European Yearbook of International Economic Law (2020): 53–74, https://doi.org/10.1007/8165_2020_49, Published online: 20 June 2020

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1 The Experience of the Three Countries with NAFTA Chapter 11 The objective of including Investor-State Arbitration (ISA) in Chapter 11 Part B was to ensure that Mexico would be required to honour its obligations under Part A which outlines the standards of treatment of investors and investments of the two other Parties. This was done on the initiative of the United States which entertained some doubt that the Mexican legal system was adequate to ensure the high standard of protection required by Chapter 11.1 The drafting of Part B was based on the US Model BIT of the time.2 Canadian negotiators fully understood the implications and shared the concerns of the United States. Ironically, the largest number of claims under Chapter 11 have been filed against Canada, followed by Mexico and the United States.3 Interestingly in all three countries by no means all claims have been pursued beyond a statement of claim and request for arbitration.

1.1 1.1.1

Canada Cases That Have Caused the Most Concern

A number of cases have caused public concern in Canada. The very first, the Ethyl4 claim involved an import (but not internal production) ban on a gasoline additive deemed harmful to the environment. This claim was settled by Canada. The S.D. Myers5 arbitration, which was lost by Canada, arose out of the denial of a permit to export nuclear waste for disposal after the making of the contractual arrangements by the would-be exporter. The Pope & Talbot6 claim arose out of the allegation of discriminatory export quotas as well as the assertion of abusive litigation tactics by

1

Gantz (2017), pp. 236–237. Id., at 236 (“Including Chapter 11 in NAFTA was (. . .) not a radical move for the United States. The sources were the United States-Canada Free Trade Agreement (for the obligations to the investor), various U.S. BITs, and the 1992 ‘model’ BIT (for ISDS).” [footnote omitted]). 3 For NAFTA Chapter 11 claims against Canada, see http://www.international.gc.ca/trade-agree ments-accords-commerciaux/topics-domaines/disp-diff/gov.aspx?lang¼eng (last accessed Feb. 21, 2020), for the US, see https://2009-2017.state.gov/s/l/c3741.htm and https://www.state.gov/ cases-filed-against-the-united-states-of-america-5/ (last accessed Feb. 21, 2020) and for Mexico see https://2009-2017.state.gov/s/l/c3742.htm and https://www.state.gov/cases-filed-against-theunited-mexican-states/ (last accessed Feb. 21, 2020) (the website of the USTR was used for Mexico as no official website of the Mexican government lists the cases taken against Mexico). 4 Ethyl Corporation v. The Government of Canada, UNCITRAL, Award on Jurisdiction, Jun. 24, 1998. 5 S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Second Partial Award, Oct. 21, 2002. 6 Pope & Talbot Inc. v. Government of Canada, UNCITRAL, Award in Respect of Damages, May 31, 2002. 2

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Canada. Only the latter claim succeeded but there appears to have been a difficult relationship between the arbitrators’ and the government’s lawyers. The Sun Belt7 claim arose out of the denial of a permit to export water in bulk by the Province of British Columbia and touched a very sensitive nerve among Canadians who wish to retain control over water policy. However, this claim has not been pursued. The Dow Chemicals8 claim, defeated by Canada, asserted that various provincial policies governing the use of a previously widely sold garden pesticide were applied in a capricious manner by the government of Quebec. This claim was made even after the Supreme Court of Canada had upheld a municipal ban of the chemical in the Province of Quebec. Windstream Energy9 arose out of the policy of the Province of Ontario to require that subsidies to windfarms be restricted to Canadian firms. This case was lost both at arbitration and before the WTO.10 Lone Pine Resources11 involves the still-pending claim arising out of the moratorium imposed by the Province of Quebec on fracking. The Bowater12 claim arose out of the expropriation without compensation of the water and timber rights of the company in the Province of Newfoundland. The Government of Canada had no alternative but to settle the claim for some $130 million. The Mobil13 claim, lost by Canada, was made when Newfoundland imposed certain additional performance payments beyond those originally agreed by the company. Eli Lilly14 involved the claim that the so-called “promise doctrine” and the interpretation by Canadian courts of Canada’s Patent Act led to a breach by Canada of its obligations under Chapter 11. Despite winning this case and the UPS15 claim, both were seen variously as an attack on the integrity of the courts, the Canadian patent system and the Canadian postal monopoly. Perhaps the most controversial loss involved the finding that both federal and provincial environmental authorities had denied fair and equitable treatment to the request by the Bilcon16

Sun Belt Water, Inc., a United States company, served the Government of Canada with a “Notice of Intent to Submit a Claim to Arbitration” in November 1998. No valid claim has been filed. 8 Dow AgroSciences LLC v. Government of Canada, UNCITRAL, settled. 9 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, Award, Sept. 27, 2016. 10 See Canada—Certain Measures Affecting the renewable Energy Generation Sector, Case DS412 and Canada—Measures Relating to the Feed-in Tariff Program, Case DS426. 11 Lone Pine Resources Inc. v. The Government of Canada, ICSID Case No. UNCT/15/2, Notice of Intent to Submit a Claim to Arbitration Under Chapter 11 of NAFTA, Nov. 8, 2012. 12 AbitibiBowater Inc. v. The Government of Canada, UNCITRAL, Consent Award, Dec. 15, 2010. 13 Mobil Investments Canada Inc. and Murphy Oil Corporation v. Canada, ICSID Case No. ARB (AF)/07/14, Award, Feb. 20, 2015. 14 Eli Lilly and Company v. The Government of Canada, UNCITRAL, Case No. UNCT/14/2, Final Award, Mar. 16, 2017. 15 United Parcel Service of America, Inc. v. The Government of Canada, UNCITRAL, Award on the Merits, May 24, 2007. 16 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada, UNCITRAL, PCA Case No. 2009-04, Award on Jurisdiction and Liability, Mar. 17, 2015. 7

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company to establish a quarry on the coast of the Province of Nova Scotia. This controversial case was lost by Canada by two votes with one abstention by the Canadian arbitrator.

1.1.2

Constitutional Challenge

Opposition to NAFTA Chapter 11 has taken several forms, including a challenge to its constitutional validity. In Council of Canadians17 the Ontario Court of Appeal affirmed the decision of the Ontario Superior Court rejecting the plea of unconstitutionality which was brought by the Company of Canadians, supported by labour unions. This view has been supported by a leading constitutional authority Professor David Schneiderman of the University of Toronto.18 The Courts held that the commitment to arbitrate under the treaty was made by the Government of Canada which had full authority to do so and in no way affected the exercise of rights otherwise guaranteed to citizens or the Provinces by the Constitution of Canada.

1.1.3

Comments on the Concerns Expressed by Various Groups and Authorities

Concerns have been expressed by a number of groups with respect to Chapter 11. Perhaps the most vocal have been environmentalist and anti-trade NGOs19 whose attention was immediately caught by the Ethyl and S.D. Myers cases. Public service unions have been concerned that claims might arise which could threaten public services in Canada. The danger most frequently stated was that of a potential “regulatory chill” arising out of the alleged fear of public servants and governments to run the risk of Chapter 11 claims. Among those first articulating this fear was environmental lawyer Howard Mann.20 Subsequently these concerns have been eloquently articulated by law professors Gus van Harten21 and David 17 Court of Appeal for Ontario, The Council of Canadians, and Dale Clark, Deborah Bourque, and George Kuehnbaum on their own behalf and on behalf of all members of the Canadian Union of Postal Workers, and Bruce Porter on his own behalf and on behalf of all members of the Charter Committee on Poverty Issues v. Her Majesty The Queen in Right of Canada as represented by the Attorney General of Canada, Nov. 30, 2006, C43995. 18 Schneiderman (1996), p. 499. 19 See e.g. Sforza and Vallianatos (1998):

Ethyl Corporation’s $251 million lawsuit against a new Canadian environmental law should set off alarm bells throughout the public interest world. The suit, brought under the terms of the North American Free Trade Agreement, demonstrates the serious danger that present and future international economic pacts could pose to environmental regulations and other laws that protect the public. 20 21

See e.g. Mann and von Moltke (1999). See e.g. Van Harten (2007).

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Schneiderman.22 Together these three critics have made some of the most trenchant criticism of investor-state arbitration in any country. A further concern expressed by these and other critics has been that ISA allows foreign investors to bypass domestic courts thus constituting a special privilege and diminishing the standing of domestic justice. Equally objectionable to critics has been the recourse to arbitration conducted by privately chosen arbitrators according to non-transparent arbitral procedures. Defenders of Chapter 11 have pointed out that the majority of claims appear to have been abandoned and, while Canada has lost or settled six cases, it has won the major challenges. It should also be pointed out that the cases lost were virtually unwinnable in that they involved variously, expropriation without compensation (Bowater) or violation of WTO standards (Ethyl, S.D. Myers, Mobil). It should also be noted that most of the claims in damages could not have been resolved by the courts as they would be characterised in Canada as administrative claims which do not allow damages.23

1.1.4

American and Mexican Claims Noticed in Canada

A few claims made under Chapter 11 in the United States and Mexico have attracted attention in Canada. The Metalclad24 claim attracted attention among environmentalists as it involved allegedly abusive waste disposal in Mexico and review of the award was successfully sought before the courts of British Columbia for a variety of alleged procedural failings of the arbitrators.25 The Loewen26 award, which involved claims of unfair and abusive procedures before the courts of Mississippi by a Canadian claimant, is possibly the most controversial case under Chapter 11. Many commentators have expressed surprise that the claim did not succeed.27 The Methanex28 claim involving a complaint by the Canadian maker of a gasoline additive banned in California attracted great interest among environmentalists as a dangerous claim. Among lawyers this claim attracted interest as the first successful effort to assert the right to submit amicus curiae briefs29 as well as the challenge to one arbitrator. 22

See supra note 18. See de Mestral and Morgan (2017). 24 Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, Aug. 20, 2000. 25 Supreme Court of British Columbia, The United Mexican States v. Metalclad Corporation, May 5, 2001, 2001 BCSC 664. 26 The Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award, Jun. 26, 2003. 27 See e.g. Rubins (2005), p. 1. 28 Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, Aug. 3, 2005. 29 See https://www.iisd.org/library/amicus-curiae-submissions-nafta-chapter-11-tribunal-methanexcorp-v-united-states-america (last accessed Feb. 21, 2020). 23

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Attempts to Review Arbitral Awards Under Chapter 11

There have been no less than five attempts to seek to review or overturn arbitral awards under Chapter 11.30 The Metalclad award, arising out of a claim in Mexico was challenged successfully before the courts of British Columbia because the site of the arbitration was Vancouver. The review of other awards involving claims made against Canada was unsuccessfully sought before the courts of Ontario and the Federal Court of Canada. In each case the court decided that there were no grounds for review under applicable Canadian law and the New York Convention.31 These decisions highlighted in the public mind the difficulty that exists in seeking to overturn an arbitral award and the absence of appellate procedures comparable to those available under ordinary civil procedure.32

1.1.6

General Assessment of the Canadian Experience with Chapter 11

Canada has been the recipient of the most claims under Chapter 11.33 Much of the criticism has focussed on substantive questions such as the perceived threat to the right of governments to regulate. An equal amount has also focused on procedural matters. Recourse to arbitration has remained a concern, particularly the fact that arbitrators are privately named, that they are perceived to be in conflict of interest as they can serve both as counsel and arbitrators in different cases, and at least initially were not subject to any publicly established standards of conduct. Similarly, there has been a concern that arbitrations have been conducted in private and not subject to all the rules of publicity and transparency attending court proceedings. Concerns have been expressed that the potential for review of arbitral awards by the courts is very limited and that no general procedure for appeal of arbitral awards under Chapter 11 is available. In the initial years it was uncertain that all documents and awards in Chapter 11 cases would be publicly available as would be the case in domestic court proceedings. To sum up, while there has been no overwhelming political pressure in Canada to abandon Chapter 11, there has been ongoing concern both with respect to the rules applied by arbitrators and the manner in which proceedings have been conducted. As set out below, governments have responded to public concerns34 particularly with 30

See de Mestral (2013). Convention on the Recognition and Enforcement of Foreign Arbitral Awards, concluded Jun. 10, 1958, entered into force Jun. 7, 1959, 330 UNTS 38, 21 UST 2517, 7 ILM 1046 (1968). 32 Canada became a party to the ICSID convention in 2013 (Canada signed the ICSID Convention on Dec. 15, 2006 and the Convention entered into force on Dec. 1, 2013) and Mexico became a party in 2018 (Mexico signed the ICSID Convention on Jan. 11, 2018). Thus the review committee procedure was not available in any of these Chapter 11 cases. See https://icsid.worldbank.org/en/ Pages/about/Database-of-Member-States.aspx (last accessed Feb. 21, 2020). 33 See supra note 3 and accompanying text. 34 See below. 31

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new procedural guarantees and to a lesser extent with clarifications of the rules to be applied.

1.2 1.2.1

United States Cases That Have Attracted Attention

Because the United States has never lost a case there has been less response to specific cases since 1994; but there has been greater debate in the political sphere than in Canada or Mexico. However, several claims have achieved national attention. As in Canada, claims that appeared to affect environmental policy have attracted attention. None more so than the Methanex claim against a California ban on a gasoline additive which provoked considerable concern among environmentalists until the United States resoundingly prevailed. Among the issues hotly debated were those of the transparency of proceedings and the right to file amicus briefs. The Loewen and Mondev claims were seen as potential attaints to the integrity of the civil jury system and the authority of the courts in general. The Glamis35 award was seen as a potential attaint to aboriginal rights as well as reflecting a higher and potentially inconsistent standard of treatment in comparison to previous awards.

1.2.2

Constitutional Challenge

As in Canada there have been challenges to the constitutionality of Chapter 11 insofar as it has been suggested that Chapter 11 goes beyond the US constitutional guarantee against regulatory takings.36 But there has been no successful attempt to litigate the question.

1.2.3

Comments on the Concerns Expressed by Various Groups

The US Administration takes the position that Chapter 11 grants no rights to foreign investors which are not also available to domestic litigants. This position is possible in light of the constitutional guarantees of property, contract and due process which govern all regulatory action by the state. Whether it is legally correct remains a matter of debate, but it may well be one of the reasons that the United States has not lost a single case under Chapter 11. No comparable guarantees exist under the Constitution of Canada although they do exist in Mexico.

35 36

Glamis Gold Ltd. v. The United States of America, UNCITRAL, Award, Jun. 8, 2009. See e.g. Been and Beauvais (2003), p. 30.

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There has been considerable criticism of Chapter 11 and various cases from civil society groups and academics and, compared to Canada and Mexico, there has been serious political debate at the national level. Various major associations for the protection of the environment have criticised Chapter 11.37 The criticisms have focused both on the perceived threat to the right of governments to protect the environment as well as the perceived procedural inadequacies of ISA. There has been considerable academic criticism of Chapter 11 from the legal, political and environmental perspectives.38 Chapter 11 of NAFTA was based on the US Model BIT39 which was itself the object of political debate. A similar debate ensued with the proposal of the second US Model BIT and an even more vigorous debate took place at the time of the renewal of trade negotiations authority in 2015.40 This debate to renew President Obama’s authority to negotiate trade agreements which might include investment chapters was informed by the experience with Chapter 11 cases. Democratic opponents of ISA such as Senator Warren took exception to the whole principle of foreign investment protection and particularly ISA. Criticisms and reservations expressed by Democrats in this debate focused both on the formulation of the standards of protection and equally on the ISA process itself. Democratic critics in the Senate called for greater transparency of procedures, tighter control over the selection and actions of arbitrators and insisted on adding expressly the principle that foreign investor protections could not exceed those available to all Americans under US domestic law.

1.3 1.3.1

Mexico Cases That Have Attracted Attention

The most hotly contested cases have arisen out of the differences of policy between Mexico and the United States over sugar and competing sweeteners.41 The second most significant group can be described as arising out of issues of environmental protection or water use.42 Other major cases that have gone forward relate variously 37

See Gantz (2017), pp. 237 et seq. Id. 39 See supra note 2. 40 See Gantz (2017), pp. 249–252. 41 See e.g. GAMI Investments, Inc. v. The Government of the United Mexican States, UNCITRAL, Final Award, Nov. 15, 2004; Cargill, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/05/ 2, Award, Sept. 18, 2009; Corn Products International, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/1, Award, Aug. 18, 2009; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB(AF)/04/5, Award Nov. 21, 2007. 42 See e.g. Bayview Irrigation District et al. v. United Mexican States, ICSID Case No. ARB(AF)/ 05/1, Award, Jun. 19, 2007; Billy Joe Adams, Juan Alarcon, Roberto Alonzo et al. v. United Mexican States, UNCITRAL, discontinued; Metalclad, supra note 24; Waste Management, Inc. II v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, Apr. 30, 2004. 38

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to gambling and securities regulation.43 It should be noted that many of the issues related to sugar were also litigated before the WTO.44 Clearly the latter cases raised the greatest public interest and a major policy and legal question which they posed relates to the relationship of NAFTA dispute settlement generally to that of the WTO.

1.3.2

Constitutional Challenges

There has been no known attempt to challenge the constitutionality of Chapter 11, although NAFTA Chapter 19 did give rise to several unsuccessful claims that it violated the constitutional guarantee of a right to seek revision of judgments under the amparo procedure.45

1.3.3

Comments on Concerns Raised in Mexico

Mexico has been at the receiving end of at least 17 claims under Chapter 11. Equally it would seem that there has been less political criticism and fallout from Chapter 11 than in the other NAFTA countries. One exception to this is the opposition to Chapter 11 expressed in his unsuccessful presidential campaigns by Andres Lopez-Obrador.46 These criticisms have been muted in the run-up to his third— and successful—presidential campaign. The Metalclad award was surrounded by considerable controversy and, in the absence of an appellate or review procedure under the ICSID Additional Facility, the Government of Mexico successfully sought review before the courts of British Columbia, the place of arbitration.

1.4

Comments on the Experience in the Three Countries

Reactions have varied to considerable scrutiny of Chapter 11 at the highest political levels in the United States, considerable academic and NGO criticism in the United States and Canada to more muted reactions in Mexico. While the legislative debates have been the most public in the United States, successive governments (before the Trump Administration) have been firmly committed to promoting foreign 43

See e.g. Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/1, Award, Jul. 17, 2006 and International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Award, Jan. 26, 2006. 44 See e.g. European Communities—Export Subsidies on Sugar, DS265, 266 and 283 and Mexico— Taxes on Soft Drinks, DS308. 45 See https://www.nafta-sec-alena.org/Home/Dispute-Settlement/Decisions-and-Reports (last accessed Feb. 21, 2020). 46 See Phippen (2017).

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investment protection internationally. The Canadian government has been a less enthusiastic defender of ISA generally and Chapter 11 in particular, but it has continued to promote a very progressive BIT (known as a Foreign Investment Protection Agreement (FIPA) in Canada) and to sign investment protection agreements with other countries.47 The government of Mexico has seen Chapter 11 as one of the prices paid for NAFTA and has seen itself as party to an international network of BITs and trade agreements with investment promotion chapters.48 All three governments have become concerned to clarify certain substantive rules in light of their experience with Chapter 11, with a view to defending their right to regulate. Similarly, Canada and the United States, and to a lesser extent Mexico, have been moved by their experience with Chapter 11 to exercise greater control over the choice and performance of arbitrators and to ensure that all ISA proceedings meet high standards of transparency. In their responses to criticism and the changes they have promoted both Canada and the United States have displayed a clear preference for moving towards procedures much more akin to judicial procedures—as is set out in the next section of this paper. Two important developments in the last years must be noted. The first is the call from the European Union to incorporate a new form of standing Investment Tribunal in the Comprehensive Economic and Trade Agreement (CETA),49 replacing the ISA provisions originally negotiated and published in an earlier draft,50 as well as the call of the EU to launch international negotiations for the creation of a Multilateral Investment Tribunal. The second development is the renegotiation of the NAFTA which culminated with the conclusion of a new agreement (the United StatesMexico-Canada Agreement, or USMCA) between the United States, Mexico and Canada on November 30, 2018. The agreement, which does not include ISA, was signed by the three countries despite Canada having expressed its support of the efforts of the EU to move from an arbitral model for ISA to that of a standing tribunal. In addition, both Canada and Mexico have signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which includes ISA.51 Accordingly, although there is no more systematic ISA between Canada and the United States and Mexico and the United States, ISA exists for investment disputes between Canada and Mexico by virtue of the CPTPP. Canada is thus party to agreements with ISA, to a new revised USMCA without ISA and to the CETA with the EU which includes Investor-State Dispute Settlement (ISDS) but administered by a standing tribunal.52

47

See infra. See infra. 49 Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), signed Oct. 30, 2016, provisionally entered into force. 50 See infra. 51 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), signed Mar. 8, 2018, entered into force Dec. 30, 2018 (Canada, Australia, Japan, Mexico, New Zealand, and Singapore) and Jan. 14, 2019 (Vietnam). 52 CETA, supra note 49, Chapter 8, Section F. 48

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2 Steps Taken by the Three Countries Under the NAFTA Over the life of NAFTA, the three Parties included in NAFTA article 1131(2) a provision that reserved the right to issue binding interpretations of the agreement as a possible constraint on arbitrators if need be.53 The activation of the provision in 200154 was undeniably a reaction to the renewed intensity of the criticisms of the agreement in the aftermath of controversial Chapter 11 disputes.55 The three NAFTA Parties addressed one of the major criticisms formulated against NAFTA Chapter 11’s ISA mechanism: the lack of transparency. The Parties thus issued Notes of Interpretation that, among other issues, addressed the transparency of ISA proceedings under Chapter 11 by affirming that “[n]othing in the NAFTA imposes a general duty of confidentiality on the disputing parties to a Chapter Eleven arbitration”, that “nothing in the relevant arbitral rules imposes a general duty of confidentiality” and that “[e]ach Party agrees to make available to the public in a timely manner all documents submitted to, or issued by, a Chapter Eleven tribunal”.56 Canada and the United States further issued a joint statement affirming that “they will consent to opening to the public hearings in Chapter 11 disputes to which either is a party, and to request the consent of disputing investors to such open hearings”,57 an issue not addressed by the text of NAFTA Chapter 11. This initiative was also embraced by Mexico in a joint statement of July 16, 2004. Shortly after the 2001 Notes of Interpretation Canada and the United States affirmed their openness to non-disputing party participation in the FTC Statement

53

North American Free Trade Agreement (NAFTA), concluded Dec. 17, 1992, entered into force Jan. 1, 1994, 32 ILM 289, 605 (1993), Art. 1131(2): 2. An interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section. 54 In 1998, the Canadian government had already issued a paper suggesting the possibility of interpreting NAFTA Chapter 11 to permit enhanced transparency and the disclosure of information related to the nature of Chapter 11 claims. However, the NAFTA Parties could not reach a consensus as to whether it was necessary to act in respect of transparency (see VanDuzer (1999), p. 13). 55 Highly mediatised cases included, against the US, Lowewen (supra note 26) and Methanex (supra note 28) and, against Canada, Pope & Talbot (supra note 6) and S.D. Myers (supra note 5). 56 See NAFTA Free Trade Commission, North American Free Trade Agreement—Notes of Interpretation of Certain Chapter 11 Provisions, Jul. 31, 2001, http://www.international.gc.ca/ (last accessed Feb. 21, 2020). 57 Office of the US Trade Representative, “NAFTA Commission Announces New Transparency Measures”, Oct. 7, 2003, https://ustr.gov/about-us/policy-offices/press-office/press-releases/ archives/2003/october/nafta-commission-announces-new-transparen (last accessed Feb. 21, 2020).

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on non-disputing party participation of October 7, 200358 after such participations were first accepted by a NAFTA tribunal in 2003 in Methanex.59 In addition to answering the main procedural concerns voiced against ISA, the only substantive provision that was formally clarified was article 1105 in an attempt to elucidate the content of the “minimum standard of treatment”. In particular, the NAFTA Parties emphasised that the “concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens”.60 Despite these attempts to answer concerns with respect to ISA in Chapter 11 and the integration of key procedural elements taken from procedures that are seen as normal in judicial decision-making, concerns continue to be voiced against ISA, most visibly in the context of more recent agreements.61

3 Evolution of the US and Canadian Model BITs Since 1994 Unsurprisingly, the US and Canadian Model BITs that followed the conclusion of the NAFTA were, like almost all BITs and investment chapters negotiated by the two countries, modeled after NAFTA Chapter 11. In Canada, one of the most important formal updates of the Canadian Model FIPA took place in 2004 and a subsequent version of the Model text was issued in 2012. With respect to the substance of the agreement, a modified version of the standard of protection against unlawful expropriation incorporates a wording that echoes the one used in the NAFTA by abandoning the reference to the explicit requirements of the Hull formula. One of the most significant additions to the 2012 version of the Canadian Model FIPA consists, however, of a new provision on corporate social responsibility (Article 16). Another novelty is the modification of the general exception provision modelled after Article XX of the GATT in the 2012 version. The US Model BIT is similarly based on NAFTA Chapter 11 and the last available version of the Model BIT that was drafted in 2012 is largely similar to the 2004 version of the US Model BIT. Despite the relatively minor changes that the 2012 Model BIT brought to the 2004 version, it took 3 years before it was finally made public. Both this lengthy process and the changes of the Model BIT can likely be explained by the debate that took place between opponents and proponents to 58

Statement of the NAFTA Free Trade Commission on Non-Disputing Party Participation, Oct. 7, 2003, http://www.naftaclaims.com/commissionfiles/Nondisputing-en.pdf (last accessed Feb. 21, 2020). 59 Supra note 29. 60 See NAFTA Free Trade Commission, North American Free Trade Agreement—Notes of Interpretation of Certain Chapter 11 Provisions, Jul. 31, 2001, http://www.international.gc.ca/ (last accessed Feb. 21, 2020). 61 See infra.

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ISA. As explained by the State Department, the changes made to the 2004 BIT text were “so as to enhance transparency and public participation: sharpen the disciplines that address preferential treatment to state-owned enterprises, including the distortions created by certain indigenous innovation policies; and strengthen protections relating to labor and the environment”.62 It is worth mentioning that the possibility of ultimately adhering to an appellate tribunal established in the future was preserved in the 2012 Model BIT although by contrast with the 2004 Model BIT, the 2012 version refers specifically to such a tribunal developed under other institutional arrangements.63

4 Evolution of Treaty Practise Since 1994 4.1

Canada

Treaty practise in the US and Canada is relatively consistent since 1994. Most investment agreements that were concluded in the aftermath of the NAFTA share numerous similarities with Chapter 11 of the NAFTA although as criticisms of ISA intensified, an evolution towards broader provisions protecting the state’s legitimate regulatory power and provisions designed to guarantee further transparency can be witnessed. Canada generally negotiates its investment agreements on the basis of its Model FIPA although it occasionally departs from it and sometimes accepts significant changes to the substantive provisions of its Model agreement. This is illustrated by the Canada-China BIT64 in which provisions with respect to pre-establishment national treatment rights and the prohibition of performance requirements are omitted. Similarly, the provisions guaranteeing transparency are much attenuated (insofar as the BIT restricts the publication of documents to the award and does not provide for open hearings if the respondent state does not explicitly whish so). With respect to ISA, until the adoption of the CETA with the EU, Canadian practise was consistent and ISA was generally provided in investment agreements. Dispute-settlement provisions of Canadian treaties often include broad clauses on the transparency of proceedings as well as interpretative provisions,

United States Department of State, “United States Concludes Review of Model Bilateral Investment Treaty”, Apr. 20, 2012, https://2009-2017.state.gov/r/pa/prs/ps/2012/04/188198.htm (last accessed Feb. 21, 2020). 63 Treaty Between the Government of the United States of America and the Government of [Country] Concerning the Encouragement and Reciprocal Protection of Investment (2012), https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf (last accessed Feb. 21, 2020), Art. 28(10). 64 Agreement Between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments, signed Sept. 9, 2012, entered into force Jan. 10, 2014. 62

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annexes and exceptions provisions protecting the right to regulate. This trend is illustrated by the most recent FTAs negotiated by Canada with Peru,65 Colombia,66 Panama,67 Honduras,68 and Korea.69 One of the answers to the criticisms of ISA, namely the possibility of the creation of an appellate mechanism that is provided in the US’s 2004 and 2012 Model BITs and in some of its recent FTAs70 was also included, albeit less often, in some Canadian FTAs.71 Recently a very major shift in Canadian investment treaty practise with respect to ISA took place in the negotiations of the CETA. The CETA investment chapter innovated with respect to ISA through its broader inclusion of provisions aiming at preserving the state’s legitimate regulatory power through an explicit provision in this regard72 but also by attempting to limit abuses of process73 as well as ensuring a high degree of transparency and accountability for arbitrators.74 These provisions that were incorporated in the first drafts of the CETA’s investment chapter75 appeared uncontroversial in Canada, but the agreement’s ISA provisions remained controversial in the EU. Nevertheless, the Canadian government supported keeping investment dispute provisions based on arbitration in the CETA until the EU’s 2015 proposal to replace ISA by an investment court system (ICS), which is provided in the final text of the agreement that was made public on February 29, 2016.76 65 Free Trade Agreement between Canada and Peru, signed May 29, 2008, entered into force Aug. 1, 2009. 66 Free Trade Agreement between Canada and Colombia, signed Nov. 21, 2008, entered into force Aug. 15, 2011. 67 Free Trade Agreement between Canada and Panama, signed May 14, 2010, entered into force Apr. 1, 2013. 68 Free Trade Agreement between Canada and the Republic Honduras, signed Nov. 5, 2013, entered into force Oct. 1, 2014. 69 Free Trade Agreement between Canada and the Republic of Korea, signed Sept. 22, 2014, entered into force Jan. 1, 2015. 70 See e.g. Free Trade Agreement Between the United States of America and the Republic of Korea, signed Jun. 30, 2007, entered into force Mar. 15, 2012, Annex 11-D (“Possibility of a Bilateral Appellate Mechanism”), United States-Peru Trade Promotion Agreement, signed Apr. 12, 2006, entered into force Feb. 1, 2009, Annex 10-D (“Appellate Body or Similar Mechanism”), United States-Panama Trade Promotion Agreement, signed Jun. 28, 2007, entered into force Oct. 31, 2012, Annex 10-D (“Possibility of a Bilateral Appellate Mechanism”), Free Trade Agreement between Singapore and the United States of America, signed May 6, 2003, entered into force Jan. 1, 2004, Art. 15.19(10), Free Trade Agreement between the Kingdom of Morocco and the United States of America, signed Jun. 15, 2004, entered into force Jan. 1, 2006, Art. 10(19) and Annex 10-D (“Possibility of a Bilateral Appellate Mechanism”). 71 See e.g. Canada-Korea FTA (supra note 69) Annex 8-E (“Possibility of a Bilateral Appellate Mechanism”) and CETA, supra note 49, Art. 8.28 (“Appellate Tribunal”). 72 CETA, supra note 49, Art. 8.9. 73 Id., Arts. 8.32 and 8.33. 74 See id., Arts. 8.30 and 8.36. 75 Early drafts of the CETA’s investment chapter were made public on Nov. 21, 2013 and on Sept. 26, 2014. 76 Hübner et al. (2016), p. 30.

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It was thus to the surprise of many that the final version of the investment chapter that was made public in February 2016 departed from the Canadian practise with a never-seen-before standing investment tribunal system, which also provides for the possibility of an appeal.77 This joint initiative of the EU and Canada was an unprecedented attempt to take into account the criticisms that were voiced against the inclusion of ISA in the NAFTA and that intensified as the number of IIAs including ISA grew larger. In fact, this shift in investment treaty practise with respect to ISA appears to have been unilaterally initiated by the EU and the proposition of a standing tribunal clause during the fall of 2015 apparently came as a “significant surprise”78 to Steve Verheil, the leading negotiator for Canada. It is thus tempting to argue for a shift in Canadian investment treaty practise with respect to dispute settlement, from ISA to an ICS. However, although Canada has committed with the EU, “to pursue with their other trading partners the establishment of a multilateral investment tribunal and appellate mechanism to resolve foreign investment disputes”,79 it is premature to conclude that a definitive shift in Canadian investment treaty practise has occurred. Indeed, although a provision envisioning the creation of such a multilateral court was inserted in the CETA (Article 8.29), the overall Canadian approach to ISA remains ambiguous, to say the least, in the light of the renewed—now—CPTPP which includes ISA and not an ICS. In this regard, the Ministers of the 11 remaining countries to the negotiations of the TPP agreed to incorporate provisions of the TPP in the CPTPP.80 At the same time, Canada signed the USMCA on November 30, 2018 which does not include ISA (nor an ICS).

77

CETA, supra note 49, Chapter 8, Section F. McGregor (2016). 79 Tapp (2017). 80 Government of Canada (2017), para. 3: 78

Ministers are pleased to announce that they have agreed on the core elements of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Ministers agreed to Annex I and II, which incorporate provisions of the TPP, with the exception of a limited set of provisions, which will be suspended. The annexes also incorporate a list of four specific items on which substantial progress was made but consensus must be achieved prior to signing. See Annex II—List of Suspended Provisions to the Trans-Pacific Partnership Ministerial Statement (supra note 80), para. 2: 2. Investment Agreement and Investment Authorisation (ISDS applies to these) • • • • • •

9.1 Definitions—suspend “investment agreement” and “investment authorisation” and associated Footnotes (5–11) 9.19.1 Submission of Claim to Arbitration—a(i) B and C; (b)(i) B and C (investment authorisation or investment agreement), chausette, footnote 31 9.19.2 Submission of Claim to Arbitration, footnote 32 9.19.3 Submission of Claim to Arbitration—(b)delete investment authorisation or investment agreement 9.22.5 Selection of Arbitrators 9.25.2 Governing Law

Annex 9-L Investment Agreements.

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United States

In the United States, despite opposition from the public and from Democrats in Congress, support for ISA in investment agreements has been consistent, until the Trump Administration initiated the renegotiation of NAFTA in 2017.81 The final text of the USMCA which was signed on November 30, 2018, does not include ISA. However, ISA provisions can be found in all of the US’s investment agreements negotiated since the NAFTA, except for the FTA between the US and Australia (AUSFTA)82 and the agreement with Jordan.83 Despite the continuous inclusion of ISA in its investment agreements, the US nevertheless took into account growing concerns with respect to the protection of legitimate government regulatory action. In particular, the negotiating instructions in President Bush’s Trade Promotion Authority (TPA) legislation shows a shift from a strong protection of investors’ rights to the protection of the legitimate regulatory actions of governments. In this regard, among other new measures that were taken,84 annexes were includes in the AUSFTA and the US-Chile FTA that restrict the scope of indirect expropriation. The same was done through an exchange of letters in the US-Singapore FTA. With respect to ISA more specifically, post-NAFTA US investment agreements often include broad provisions on the transparency of proceedings modelled after the NAFTA, as reflected in the 2002 TPA negotiating objectives, the affirmation of ISA tribunals’ authority to address procedural objections as preliminary questions and provisions on investment authorizations and investment agreements.85 These new features can also be witnessed in the 2012 US Model BIT.86 The debate over the desirability of ISA in US investment agreements intensified during debates in Congress of the 2015 TPA that would grant President Obama the authority to negotiate the TPP. With a growing anti-TPA, anti-ISA, anti-TPP and, more generally, anti-trade movement led by Senator Elizabeth Warren, the TPA was finally signed by President Obama on June 20, 2015.87 Although ultimately the TPA 81

See Office of the United States Trade Representative (2017). Free Trade Agreement Between Australia and the United States, signed May 18, 2004, entered into force Jan. 1, 2005. 83 Agreement between the United States of America and the Hashemite Kingdom of Jordan on the establishment of a Free Trade Area, signed Nov. 24, 2000, entered into force Dec. 17, 2001. However, a BIT exists between Jordan and the US providing for ISA (Treaty Between the Government of the United States of America and the Government of the Hashemite Kingdom of Jordan concerning the encouragement and reciprocal protection of investment, signed Jul. 2, 1997, entered into force Jun. 12, 2003). 84 Gantz (2017), pp. 246–247. 85 See US-Singapore FTA, supra note 70, Art. 15.15.1(a)(i), Free Trade Agreement Between the Government of Chile and the Government of the United States of America, signed Jun. 6, 2003, entered into force Jan. 1, 2004, Art. 10.15(a)(i), US-Korea FTA, supra note 70, Art. 11.6.1(a). 86 See supra. 87 Bolen (2016). 82

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incorporated few changes compared to the 2002 TPA, its adoption would be a shortlived victory for trade and ISA proponents, as the conclusion of the draft TPP that included ISA88 would be left to the next Administration led by President Trump. As observed, “[i]ronically, the last issues to be resolved in TPP were largely unrelated to ISDS”.89 Nevertheless, the debate about ISA and the campaign against this means of dispute settlement intensified and ultimately seemed to be one of the reasons behind the decision of the Trump Administration to withdraw the US from this ambitious agreement.90 At the same time, the negotiations of the TTIP,91 which include the innovative Investment Court System92 promoted by the EU, comparable to the CETA, seem to be at a standstill and it is unlikely that the US, especially under the new Administration, will agree to it. The last available report on the progress to date in the TTIP’s negotiations lists dispute settlement between foreign investors and host states among the controversial topics that remain to be discussed.93

4.3

Mexico

In Mexico, the conclusion of investment treaties since the conclusion of the NAFTA has been less controversial, or at least less publicized, and the country’s investment treaty network consistently incorporates ISA.94 In addition, Mexico is a Party to the

88 Trans-Pacific Partnership, https://ustr.gov/sites/default/files/TPP-Final-Text-Investment.pdf (last accessed Feb. 21, 2020), Draft Chapter 9—Investment, Section B. 89 Gantz (2017), p. 252. 90 The US withdrew from the negotiations of the TPP on Jan. 30, 2017. See https://www.interna tional.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/time line_negotiations-chronologie_negociations.aspx?lang¼eng (last accessed Feb. 21, 2020). 91 Transatlantic Trade and Investment Partnership, Draft text on Trade in Services, Investment and E-Commerce, Sept. 2015, http://trade.ec.europa.eu/doclib/docs/2015/july/tradoc_153669.pdf (last accessed Feb. 21, 2020). 92 Id., Chapter II—Investment, Section 3. 93 See Office of the United States Trade Representative, “U.S.-EU Joint Report on T-TIP Progress to Date”, 2017, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/january/useu-joint-report-t-tip-progress-0 (last accessed Feb. 21, 2020):

We still have significant work to do to resolve our differences in several important areas of the negotiations, inter alia, (. . .) how best to achieve our shared objective of providing strong investor protection while preserving the right of governments to regulate, including with respect to dispute resolution mechanisms. 94 See https://investmentpolicy.unctad.org/international-investment-agreements/countries/136/ mexico (last accessed Feb. 21, 2020).

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CPTPP as well as to the Pacific Alliance Additional Protocol (with Colombia, Peru and Chile)95 and the Mexico-Panama FTA96 which also provide for ISA. Another indication of Mexico’s positive stance with respect to ISA is its signature of the ICSID Convention97 on January 11, 2018.98 Finally, it seems that Mexico will follow in the footsteps of Canada as it enters into the final steps of concluding a FTA with the EU whose draft investment chapter provides for the ICS.99 On December 4, 2017, the EU Commission was reporting that “[o]ver the course of the week [i.e. the sixth round of negotiations that took place in Mexico City from November 25 to December 1, 2017] the negotiating teams had talks on all issues, with progress made on key issues like (. . .) the investment court system (. . .)”.100

5 Extent to Which Canada, the United States and Mexico Are Open to a Standing International Investment Tribunal? Of the three NAFTA Parties, only Canada has signed an agreement—CETA—which includes an ICS rather than ISA in an investment chapter of a trade agreement. It is possible that Mexico will accede to the demands of the EU to include ICS in its future revised FTA with the EU. Both countries are parties to the ongoing CPTPP negotiations which include ISA and they remain parties to the many BITs and FTAs containing ISA which they have signed in the past. Neither country has indicated the intention to revise the content of their BITs or RTAs in the immediate future. The United States under the Obama and Trump Administrations has shown no interest in supporting the EU’s proposal for an ICS, although in principle the US Model BIT states the willingness of the United States to adhere to an undefined appellate procedure. The situation has been further complicated by the positions, generally hostile to ISA, taken by the USTR in the NAFTA renegotiation process which began in late 2017 and which culminated with the signing of the USMCA on November 30, 2018 without ISA. 95

Additional Protocol to the Framework Agreement of the Pacific Alliance, signed Feb. 10, 2014, entered into force May 1, 2016. 96 Free Trade Agreement between the United Mexican States and the Republic of Panama, signed Apr. 3, 2014, entered into force Jul. 1, 2015. 97 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, concluded Mar. 18, 1965, entered into force Oct. 14, 1966. 98 See https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx (last accessed Feb. 21, 2020). 99 Free Trade Agreement between Mexico and the European Union, draft Title on Investment and Trade in Services of April 2017, http://trade.ec.europa.eu/doclib/docs/2017/may/tradoc_155521. pdf (last accessed Feb. 21, 2020), Chapter II, Section C. 100 European Commission (2014).

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At this point, Canada has committed itself to a specific ICS provision in CETA and to launching international negotiations for the creation of a Multilateral Investment Court with the EU. But examination of the experience of the three NAFTA Parties with NAFTA Chapter 11 does lead to the conclusion that at least Canada and the United States have not been entirely happy with ISA—at least between themselves. In all probability Mexico has few complaints with the ISA system but could be persuaded to accept ICS in an agreement with the EU. It is not clear that either Mexico or Canada are ready to revise the ISA commitments in their trade and investment agreements or to promote ICS in other agreements. It is not clear whether Canada has attempted to promote ICS in its NAFTA renegotiations. It seems clear, however, that the Trump Administration is uninterested in the idea and the USTR has taken positions which are highly critical of ISA as it is now enshrined in NAFTA. This critical stance towards ISA was finally adopted in the USMCA which does not provide for this mechanism of dispute resolution of investment disputes. However, beyond the approach which was ultimately adopted in the USMCA, it can be asserted that both Canada and the United States have tended to push the interpretation and practise of Chapter 11 proceedings towards concepts more akin to the judicial process. Whether it be with respect to open and transparent proceedings, admission of amicus briefs, public participation, the publication of all documents and open hearings, the development of a code of conduct for arbitrators and the elimination of any possibility of conflict of interest, the selection of arbitrators sensitive to the public interest dimensions of investment arbitrations as well as the reformulation of the standards of treatment of foreign investors in a manner guaranteeing the right of each state to regulate by protecting public health, the environment, labour standards, public services etc., the Canadian and US governments have been sensitive to public criticism and have sought to make changes to ISA. For Canada, the EU’s proposal of a self-standing tribunal in CETA fell like manna from Heaven and Canada had no difficulty in accepting it. Canada is also a willing partner in the difficult enterprise of promoting the creation of a Multilateral Investment Tribunal with the EU. Canada may attempt to add a permanent tribunal to future investment agreements but it is not clear how much political capital will be expended in this effort. Mexico may be willing to accede to EU pressure but is not an eager partner. The United States under the Trump Administration is certainly not interested. However, as outlined above, the United States has tended to be more comfortable with procedures and interpretations more akin to judicial that arbitral procedures—at least in its dealings with NAFTA partners. There is thus every reasonable prospect that Canada will assist the EU in its efforts to promote the ICS and the creation of a new Multilateral Investment Court. Mexico may be persuaded but with little enthusiasm and the Trump Administration in not interested.

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6 Conclusions Should the Canadian and American hesitations in the face of ISA be seen as reflecting a growing global concern with ISA, or one related to their mutual relations as developed democracies, each having a developed legal system and strong legal traditions supporting a robust court system? This question has been explored at some length with other colleagues in a book entitled Second Thoughts: Investor-State Arbitration between Developed Democracies.101 Examination of the response of developed democracies to recourse to ISA between themselves does suggest that there has been considerable discomfort arising out of the adoption of the ISA model, developed for relations between developed and developing states and included in agreements between developed democracies. This has been particularly well demonstrated by claims under NAFTA Chapter 11 in North America and claims under the Energy Charter Treaty102 in Europe. The problem for developed democracies is that they are parties to a global network of over 3000 treaties with ISA which might be put at risk if they were simply to abandon recourse to ISA. Whether the EU’s proposal for ICS and ultimately a Multilateral Investment Court will resolve this dilemma has yet to be seen.

References Been V, Beauvais JC (2003) The global fifth amendment? NAFTA’s investment protections and the misguided quest for an International ‘Regulatory Takings’ Doctrine. N Y Univ Law Rev 78 (1):30 Bolen (2016) Obama signs trade bills needed to negotiate Trans-Pacific Partnership. International Trade Daily (BNA) de Mestral A (2013) L’annulation des sentences arbitrales ‘investisseur État’ en vertu de la Loi type au Canada et du régime du CIRDI. In: Bachand F, Gélinas F (eds) D’une réforme à une autre: Regards croisés sur l’arbitrage au Québec. Thomson Reuters de Mestral A (2017) Second thoughts: investor-state arbitration between developed democracies. CIGI Press de Mestral A, Morgan R (2017) Does Canadian law provide remedies equivalent to NAFTA Chapter 11 arbitration? In: de Mestral A (ed) Second thoughts: investor-state arbitration between developed democracies. CIGI Press European Commission (2014) EU and Mexico conclude sixth round of trade negotiations. News. http://trade.ec.europa.eu/doclib/press/index.cfm?id=1764. Accessed 21 Feb 2020 Gantz DA (2017) Increasing host state regulatory flexibility in defending investor-state disputes: the evolution of U.S. approaches from NAFTA to the TPP. Int Lawyer 50(2):231 Government of Canada (2017) Trans-Pacific Partnership Ministerial Statement. https://www.inter national.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptppptpgp/ statement-declaration.aspx?lang=eng. Accessed 21 Feb 2020

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de Mestral (2017). Energy Charter Treaty (ECT), concluded Dec. 17, 1994, entered into force Apr. 16, 1998, 2080 UNTS 95; 34 ILM 360 (1995).

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Hübner K, Balik T, Deman AS (2016) CETA: the making of the comprehensive economic and trade agreement between Canada and the EU. Notes de L’Ifri, p 30 Mann H, von Moltke K (1999) NAFTA’s Chapter 11 and the environment: addressing the impacts of the investor-state process on the environment. IISD, Winnipeg McGregor J (2016) EU quietly asks Canada to rework trade deal’s thorny investment clause. CBC News. http://www.cbc.ca/news/politics/canada-europe-trade-isds-ceta-1.3412943. Accessed 21 Feb 2020 Office of the United States Trade Representative (2017) USTR releases NAFTA negotiating objectives. Press Release. https://ustr.gov/about-us/policy-offices/pressoffice/press-releases/ 2017/july/ustr-releases-nafta-negotiating. Accessed 21 Feb 2020 Phippen JW (2017) Mexico’s populist savior may be too good to be true. The Atlantic. https://www. theatlantic.com/international/archive/2017/11/mexico-lopez-obradornafta-trade-trump/544295/. Accessed 21 Feb 2020 Rubins N (2005) Loewen v. United States: the burial of an investor-state arbitration claim. Arbitr Int 21(1):1 Sforza M, Vallianatos M (1998) Ethyl Corporation v.s. Government of Canada: now investors can use NAFTA to challenge environmental safeguards. Public Citizen. https://www.citizen.org/ wp-content/uploads/ethyl-briefing-paper.pdf. Accessed 21 Feb 2020 Schneiderman D (1996) NAFTA’s taking rule: American constitutionalism comes to Canada. Univ Tor Law J 46(4):499 Tapp S (2017) Which way forward for Canada’s international investment treaty policy? Policy Options. http://policyoptions.irpp.org/magazines/january-2017/which-way-forwardforcanadas-international-investment-treaty-policy/. Accessed 21 Feb 2020 Van Harten G (2007) Investment treaty arbitration and public law. OUP, Oxford VanDuzer JA (1999) What have we done? NAFTA states have concerns regarding investor-state settlement under NAFTA Chapter 11. Can Counc Int Law Bull 25:13

Armand de Mestral is Emeritus Professor at the Faculty of Law at McGill University. Lukas Vanhonnaeker is Post-doctoral fellow at the Faculty of Law at McGill University.

Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court Marc Bungenberg and Anna M. Holzer

Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Enforcement of MIC Decisions Under Existing Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Enforcement Under the New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Enforcement Under the ICSID Convention, Including Possibility of inter se Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Applicability of Documents Ensuring the Enforcement of Judgments . . . . . . . . . . . . . . 2.4 Interim Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Enforcement of MIC Decisions Under Yet-To-Be-Created Instruments . . . . . . . . . . . . . . . . . . 3.1 Independent Enforcement Mechanism Included in the MIC Statute . . . . . . . . . . . . . . . . 3.2 New York Convention 2.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 ICSID Convention 2.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Taking International Documents Ensuring the Enforcement of Judgments as a Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Additional Protocol to the Existing NYC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Additional Protocol to International Documents Ensuring the Enforcement of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Interim Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Alternative Enforcement Method: Fund System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Organisational Form of a Fund System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Functioning of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Interim Result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Summary and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex 1: Summarising Table on the Results of the Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex 2: Convention on the Recognition and Enforcement of Decisions Made by the Multilateral Investment Court (MIC) (New York Convention 2.0) . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract In recent years, demands for reforming investor-state arbitration have become louder. One of the rather incisive proposals in this regard is to set up a Multilateral Investment Court (MIC). Because of the still early stage of development there is much room for the unprejudiced expression of ideas and suggestions M. Bungenberg (*) and A. M. Holzer Europa-Institut, Saarland University, Saarbrücken, Germany e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2020 G. Ünüvar et al. (eds.), Permanent Investment Courts, European Yearbook of International Economic Law (2020): 75–118, https://doi.org/10.1007/8165_2020_48, Published online: 30 June 2020

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regarding its organisational structure. This article aims to contribute to this process and intends to identify possible arrangements for effective enforcement mechanisms for the decisions of the MIC. The present paper will therefore look at the different ways in which decisions of an MIC could be enforced. Part B will deal with the question whether existing conventions concerning the enforcement of arbitral awards or the international enforcement of judgments should and could be used for the enforcement of MIC decisions. Part C will then address the possibilities of creating new international instruments or agreements for the enforcement of MIC decisions aiming at obliging not only MIC members but also third states to enforce MIC decisions. The options to be addressed include establishing an MIC Statute containing provisions on the enforcement of MIC decisions, the creation of a new international convention along the lines of the New York Convention, the ICSID Convention, or existing conventions on the international enforcement of judgments. Additionally, the advantages and disadvantages of agreeing on additional protocols to existing conventions are discussed. A further, however entirely different approach will then be addressed in the last part: MIC decisions could be enforced by using a (yet-to-be-created) fund system following the example of the Iran-US Claims Tribunal. MIC members would have to pay a certain sum into that fund and if a decision against an MIC member is issued, the investor can—under certain conditions— obtain money out of/from the fund. However, this is followed again by questions of enforcement.

1 Introduction In recent years, demands for reforming investor-state arbitration have become louder. One of the rather incisive proposals in this regard1 is to set up a multilateral investment court (MIC)2 that should aim to replace bilateral investment tribunals and investment courts as far as possible. The MIC is yet to be established and the design of its organisational structure is therefore unclear and subject of a current debate.3 Because of the still early stage of development there is much room for the unprejudiced expression of ideas and suggestions. This article aims to contribute to this process and intends to identify possible arrangements for effective

Calling the proposal a “more radical option for reform”: UNCITRAL (2017), para. 29. UN General Assembly (2019), Possible reform of investor-State dispute settlement (ISDS)— Submission from the European Union and its Member States, A/CN.9/WG.III/WP.159/Add.1, 24 January 2019. For a comprehensive examination of the options regarding the institutionalisation of investor-state arbitration by creating a multilateral investment court: Bungenberg and Reinisch (2018). 3 See especially the ongoing UNCITRAL WG III discussions. 1 2

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enforcement mechanisms for the decisions of the MIC. One of the fundamental choices to be made in this context concerns the legal quality of its decisions. On the one hand, the Court may be organised in such a way that its decisions could be regarded as arbitral awards. On the other hand, it might also be expedient to consider the option of categorising the decisions of the Court as judgments. The purpose of arbitral or judicial proceedings in general is to achieve a final and binding decision on a dispute.4 However, even a final and binding decision is useless if it cannot be forcibly executed. Thus, of course it is possible to foresee in a MIC treaty (which will be called “MIC Statute” throughout the paper) that MIC decisions are enforceable in all members of the MIC; it would have to be decided whether or not any kind of reservations comparable to Art. V of the New York Convention should exist. However, such an enforcement system obviously only binds MIC Members. In order to strengthen the general international recognition of such a new MIC and, above all, to make effective procedures and mechanisms available to it, the facilitation of enforcement of its decisions in, if necessary, also non-MICmembers is particularly relevant. In investment arbitration, it is common to seek enforcement and recognition of awards through national courts in accordance with the provisions of the New York Convention5 or the ICSID Convention.6 With regard to the enforcement of court judgments, the situation appears to be more complicated in the international context. Judgments are typically supposed to have a “nationality” in the sense that they are issued by a national court. There are conventions covering the enforcement of “foreign” judgments issued by domestic courts in third states but there are no conventions explicitly on the enforcement of international judgments that could be used by private parties. Different options arise: The MIC could be equipped with either a self-standing enforcement mechanism in an MIC Statute or the possibility to use enforcement mechanisms under already existing or yet-to-be-created international instruments. The present paper will therefore look at the different ways in which decisions of an MIC could be enforced. Section 2 will deal with the question whether existing conventions concerning the enforcement of arbitral awards—the New York Convention or the ICSID Convention—or the international enforcement of judgments— the Brussels-Ia-Regulation, Lugano Convention or the Hague Convention on Choice of Court Agreements—should and could be used for the enforcement of MIC decisions. Here it is decisive whether decisions of the MIC can be regarded as arbitral awards within the meaning of the New York Convention and/or whether they can fulfil the special requirements for an arbitral award under the ICSID Convention. Correspondently, the question will come up whether MIC decisions qualify as

Blackaby et al. (2015), para. 11.01; Hill (2018), p. 591 (regarding an award as the “ultimate objective of an arbitration”); Moses (2017) p. 201; Waincymer (2012), p. 1263. 5 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) 330 U.N.T.S. 3. 6 Convention on the Settlement of Investment Disputes between States and Nationals of Others States (1965). 4

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judgments in the sense of the Conventions concerning the enforcement of judgements. Either depends above all on the design of the Court and its procedure. Section 3 will then address the possibilities of creating new international instruments or agreements for the enforcement of MIC decisions. Within Part C, different options are conceivable, which, however, differ in particular in whether only those parties which have also submitted themselves to the jurisdiction of the new Court or also third states are obliged to enforce MIC decisions. As a first option, it might be a reasonable solution to establish an MIC Statute in the form of an international treaty containing not only rules of procedure but also provisions on the enforcement of MIC decisions (Sect. 3.1). Secondly, a cogitable possibility may be the creation of a new international convention along the lines of the New York Convention (Sect. 3.2) or of the ICSID Convention (Sect. 3.3), which could go under the name “New York Convention 2.0” or “ICSID Convention 2.0”. Thirdly, it will be examined whether existing conventions on the international enforcement of judgments can be used in a modified form as suitable models for future conventions which shall ultimately ensure the enforcement of MIC decisions (Sect. 3.4) Fourthly, an option akin to a New York Convention 2.0 could be an additional protocol to the already existing New York Convention (Sect. 3.5), which would be open to all members of the original New York Convention and which would include the agreement to recognise and enforce MIC decisions as if they were awards in the sense of the New York Convention. Another possibility to be explored in this paper is the drafting of an additional protocol to a convention ensuring the enforceability of judgments (Sect. 3.6). A further, however entirely different approach will then be addressed in Sect. 4: MIC decisions could be enforced by using a (yet-to-be-created) fund system. In that case, MIC members would have to pay a certain sum into that fund and if a decision against an MIC member is issued, the investor can—under certain conditions— obtain money out of/from the fund. However, this is followed again by questions of enforcement.

2 Enforcement of MIC Decisions Under Existing Mechanisms The most obvious solution to the problem of enforcement of MIC decisions would be to use the New York Convention (Sect. 2.1) and/or the ICSID Convention (Sect. 2.2). This is obviously the approach the EU Commission envisages for decisions of the Investment Court System’s (ICS) under CETA, the EU-Vietnam and EU-Singapore IPA.7 Alternatively, it could be considered to use conventions on the international enforcement of judgments for MIC decisions (Sect. 2.3) Unfortunately, however, there are implementation difficulties at this point, which result in 7

Art. 3.57 EU-Vietnam IPA; Art. 3.22 EU-Singapore IPA; Art. 8.41 CETA.

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the fact that it is not necessarily advisable or even possible to resort to the aforementioned instruments.

2.1

Enforcement Under the New York Convention

A distinction must be made between states which are parties to both the MIC Statute and the New York Convention and states which are not subject to both documents. With regard to states which have committed themselves under both agreements, an enforcement obligation under the New York Convention can be easily created. A provision may be included in the MIC Statute whereby members undertake to recognise and enforce decisions of the MIC as arbitral awards under the New York Convention. Such an agreement then only affects the respective members and has no effect on any third states that are not MIC members. Even if this agreement constituted a modification of the provisions of the New York Convention, this is legally permissible as an inter se modification under Art. 41 VCLT.8 When states agree in the MIC Statute to enforce decisions pursuant to the New York Convention, this binds their domestic courts and makes decisions effectively enforceable, at least in relation to such states.9 In relation to third states not being members to the MIC, the situation is, however, somewhat more complicated. Enforcement of MIC decisions under the New York Convention would then presuppose that such decisions fall within the scope of Art. I of the New York Convention and therefore are within the scope of the Convention itself.10 According to Art. I, the decisions of the MIC would have to constitute an arbitral award. The New York Convention does not contain a legal definition of the term arbitral award, but rather presupposes it. Therefore, the question arises as to what is meant by an arbitral award within the meaning of the Convention. This exactly is to be decided by the domestic courts in the enforcement state—and leads to uncertainty. It is generally not possible to give a uniform definition of the term “arbitral award”.11 However, both the Paris Cour d’Appel and a US Federal Court of Appeals, for example, have each offered definitions that focus on different aspects. The Paris Cour d’Appel classified an arbitral decision captioned “order” as an award with the argument the decision purported to resolve one of the substantive issues between the

8

Vienna Convention on the Law of Treaties (1969) 1155 U.N.T.S. 331. Kaufmann-Kohler and Potestà (2016), para. 142; Bungenberg and Reinisch (2018), paras 500 et seqq. 10 Bungenberg and Reinisch (2018), para. 500; Potestà (2018), pp. 171 et seqq.; Kaufmann-Kohler and Potestà (2016), paras 147 et seqq. 11 Blackaby et al. (2015), para. 9.05. Noting the absence of a uniform definition: Hill (2018), p. 591; Gaillard and Savage (1999), pp. 735 et seqq.; Peters and Koller (2010), p. 158. 9

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parties in a definitive manner.12 The Seventh Circuit Court of Appeals, in turn, considered finality to be the decisive feature of an arbitral award.13 What both decisions have in common is that the courts assume in each case that substance prevails over form. However, these definitions are not helpful when it comes to adequately defining the notion “arbitral award”. The characteristics mentioned would, for example, also apply to court judgments and characterise them—substance over form. In the present context, however, it is precisely a matter of distinguishing an arbitral award from a court judgment, since the scope of application of the New York Convention is only opened up in the former case. For this reason, the context in which an arbitral award is made must be taken into account for a more purposeful definition. In the end, an arbitral award is the ultimate product of a certain procedure, which is not a classical court procedure. Although there is no uniform definition of the term,14 there are some elements which are referred to as characteristics of an arbitral award and which take account of the circumstances leading to an award. These four elements are: (1) a voluntary submission of the parties (2) for the reaching of a legally binding final dispute settlement (3) by a non-state decision-making mechanism, (4) which consists of arbitrators selected by the parties.15 An MIC may well be designed in a way as to ensure that the named criteria can be regarded as fulfilled.16 However, even if an MIC were to be designed in such a way, and even if legal analysis were to suggest that all the conditions for the applicability of the New York Convention were met too,17 a major disadvantage of any enforcement under the Convention would remain: the authority of the national courts of the state where enforcement is meant to take place to interpret its provisions. The national courts which have jurisdiction to enforce arbitral awards in their respective states apply the New York Convention and are required to interpret it for that purpose.18 The interpretation may therefore vary widely from state to state. Since it will certainly not be uncontroversial whether decisions of the MIC fall within the scope of the New York Convention, the authority of the national courts to interpret its provisions

Braspetro Oil Services Company – Brasoil v. The Management and Implementation Authority of the Great Man-Made River Project, Paris Cour d’Appel [Court of Appeal], 1 July 1999, excerpts printed in: van den Berg (ed), Yearbook Commercial Arbitration 1999—Vol. XXIVa, pp. 296–302 [297]. 13 Publicis Communication and Publicis S.A. v. True North Communications Inc., US Court of Appeals, Seventh Circuit, US No. 338, 14 March 2000, excerpts printed in: van den Berg (ed), Yearbook Commercial Arbitration 2000—Vol. XXV, pp. 1152–1157 [1153 et seq.]. 14 Blackaby et al. (2015), para. 9.05; Hill (2018), p. 591; Gaillard and Savage (1999), pp. 735 et seqq.; Peters and Koller (2010), p. 158. 15 Bungenberg and Reinisch (2018), para. 502. 16 See for a detailed analysis of the issues: Bungenberg and Reinisch (2018), paras 500 et seqq. 17 That an MIC could be designed in a way that complies with the New York Convention’s requirements is also propounded by: Potestà (2018), pp. 171 et seqq. and 178; Kaufmann-Kohler and Potestà (2016), paras 142 and 145 et seqq.; Reinisch (2016), p. 786; UNCITRAL (2017), paras 47 and 49. 18 Bungenberg and Reinisch (2018), para. 535; Potestà (2018), p. 170. 12

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appears to be a considerable risk for the international recognition and reputation of the MIC. Enforcement under the New York Convention also has another disadvantage rooted in the interpretation authority of national courts. Art. V of the Convention allows the refusal of enforcement on certain grounds. According to Art. V(2)(b), such a ground may be that “the recognition and enforcement of the award would be contrary to the public policy” of the state in which enforcement is sought. In particular by accepting public policy concerns, the Convention gives the national courts a considerable margin of discretion19 going along with the aforementioned risks for the MIC’s recognition. What is and what is not public policy will differ from jurisdiction to jurisdiction.

2.2

Enforcement Under the ICSID Convention, Including Possibility of inter se Modification

The applicability of the ICSID Convention would be a guarantor for the enforcement of the decisions of the MIC in a most efficient manner. However, it seems more or less impossible to pronounce the ICSID Convention applicable to the effect that third states and ICSID members which are not MIC members are obliged to enforce MIC decisions pursuant to the ICSID provisions. Nevertheless, the EU Commission seems to be of a different opinion in regard to decisions coming from an ICS, as already mentioned. According to Art. 54(1) of the ICSID Convention, “each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce [it] within its territories as if it were a final judgment of a court in that State”.20 In contrast to the New York Convention, the ICSID Convention does not open up any possibility of reviewing the awards’ public policy conformity and, also in other respects, offers no possibilities for the reassessment by domestic courts. The risk arising from the interpretation authority of the national courts under the New York Convention is eliminated under the ICSID Convention. Only the possibility of an annulment exists on limited grounds. However, the question arises as to when an arbitral award is rendered pursuant to the provisions of the ICSID Convention in the sense of Art. 54(1) and whether the MIC can be designed so that its decisions meet these requirements. The ICSID Convention provides for certain procedural rules and a specific method for constituting the panels, which already raises doubts as to whether an MIC can be shaped in such a way that the essence of those rules are reflected. Moreover, there is, in particular, one feature in the probable design of an MIC that is likely to lead to incompatibility with two aspects of the ICSID Convention: There are 19 20

Howard (2017), p. 16. Emphasis added.

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good arguments in favour of establishing the MIC as a two-tiered court that encompasses an appeals mechanism.21 This is at least the institutional construction the EU has in mind. This clearly contrasts with the express provision in Art. 53(1) of the ICSID Convention,22 according to which “the award [. . .] shall not be subject to any appeal or any other remedy except those provided for in this Convention”. Therefore, the ICSID Convention would only be applicable to decisions of the MIC Appellate Body or those first instance decisions that cannot be appealed anymore. In addition, the implementation of an appeals mechanism also has the effect that the rules of revision and annulment provided for in Art. 51 and 52 of the Convention will at least not apply to first instance decisions of the MIC. The corresponding function would be performed by the MIC’s second instance instead. This is problematic since it can be assumed that the aforementioned regulations of the ICSID Convention are such that reflect essential characteristics of the Convention. There are other provisions in the Convention that explicitly open up the possibility of derogating from them, such as Art. 26, 43, 44 ICSID Convention where it reads “unless otherwise stated” or “except as the parties otherwise agree”. Art. 53 ICSID Convention does not contain such a clause. It can therefore be assumed that a derogation from Art. 53 (1) is not intended under the Convention.23 Against this background, even an inter se modification between the members of the MIC Statute which would be implemented by creating a provision in the Statute providing for the applicability of the ICSID Convention constitutes a problem. If the absence of an appeals mechanism is an essential feature of an ICSID arbitration, an inter se modification could conflict with Art. 41 VCLT. Art. 41(1)(b)(ii) VCLT only permits an inter se modification if this is not prohibited by the respective treaty and also does not refer to a provision, “derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole”. It is highly questionable whether an appeals mechanism can be brought in line with these conditions set by Art. 41 VCLT.24

21

For further examination of the MIC as a two-tiered instance: Bungenberg and Reinisch (2018), paras 64 et seqq.; also supporting some sort of a two-tiered structure of a possible MIC: UNCITRAL Working Group III (2018), para. 42; European Union (2019), paras 13 et seq.; European Commission (2017), p. 48. Most recently, the option of a second instance has been introduced into treaty practice by the EU, for example, with CETA (Article 8.28 para. 1 CETA), the EU-Vietnam IPA (Article 3.39 EU-Vietnam IPA) and the EU-Singapore IPA (Article 3.10 para. 1 EU-Singapore IPA). 22 Forwarding the similar argument: Schreuer et al. (2009), p. 1105. 23 Schreuer et al. (2009), p. 1105. 24 Schreuer et al. (2009), p. 1105; referring to the doubts arising in connection with the parties’ right to nominate their adjudicator and Art. 41 VCLT: Titi (2017), p. 24.

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Applicability of Documents Ensuring the Enforcement of Judgments

Apart from the New York Convention and the ICSID Convention, which both contain rules on the enforcement of arbitral awards, it should also be examined whether international documents governing the enforcement of judgments could be used for the MIC decisions’ enforcement. Several conventions and mechanisms exist that can be used to render judgments enforceable in foreign countries. However, these documents are typically applicable to judgments of national (domestic) courts that are meant to be enforced in a state other than the state of origin. Within the EU, for example, the Brussels-Ia-Regulation25 of 2015 is applicable when it comes to the recognition and enforcement of judgments in civil and commercial matters made by a court of a member state other than the member state where the recognition and enforcement of the judgment is sought. The new Regulation replaces the Brussels-I-Regulation,26 which foresaw an exequatur procedure before enforcement could be sought. Under the new Brussels-Ia-Regulation, this is no longer necessary. An international agreement that complements the intra-EU provisions is the Lugano Convention.27 The Convention aims to ensure that judgments are equally effective in EU member states, Switzerland, Norway and Iceland.28 It is adapted to the current EU rules on jurisdiction, recognition and enforcement of judgments in civil and commercial matters between EU countries prescribed by the Brussels-IaRegulation. Similar rules therefore apply in the EU and Switzerland, Norway and Iceland.29 Another example is the Hague Convention on Choice of Court Agreements,30 which now has 34 signatories31 and applies in cases of exclusive choice of court

25 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. 26 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. 27 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (New Lugano Convention), U.N.T.S. Volume 2658, I-47299, entry into force: 2010/2011. 28 EU Summary of Legislation, “Strengthening cooperation with Switzerland, Norway and Iceland: the Lugano Convention”: https://eur-lex.europa.eu/legal-content/DE/TXT/?uri¼LEGISSUM: l16029. 29 EU Summary of Legislation, “Strengthening cooperation with Switzerland, Norway and Iceland: the Lugano Convention”: https://eur-lex.europa.eu/legal-content/DE/TXT/?uri¼LEGISSUM: l16029. 30 Hague Convention on Choice of Court Agreements, concluded: 30 June 2005, entered into force: 1 October 2015. 31 See for the current status table: https://www.hcch.net/en/instruments/conventions/status-table/? cid¼98.

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agreements. The Convention has entered into force in 2015 and applies currently to the EU, Mexico, Montenegro and Singapore. The USA, Ukraine and China have signed but not ratified it yet. The Convention provides for considerably facilitated enforcement in case of an exclusive choice of court agreement concluded in civil or commercial matters. The justification for the facilitated enforcement is likely to be that both parties to the dispute have expressly decided that courts of a particular country should rule on their dispute and, thus, explicitly accepted the chosen jurisdiction. Therefore, it seems appropriate to allow the immediate enforcement of the resulting judgments in other member states. However, when it comes to the enforcement of judgments of international courts, the situation appears different. There are not many permanent courts where private individuals can sue a state directly or even another private individual. Most examples are provided by human rights courts, such as the ECtHR, where private individuals can directly defend themselves against violations of their rights by states. In general, judgments of international courts—as for example the International Court of Justice (ICJ)—constitute exceptional issues since the cases involve state parties, i.e. sovereigns, with the consequence that diplomatic means play an important role when it comes to the enforcement of the decisions. Even in the case of the European Court of Human Rights (ECtHR), the implementation of judgments is largely based on the states’ voluntarily given commitment to abide with the judgments (Art. 46 (1) ECHR). In case a state does not comply with an ECtHR’s decision, a special procedure may be used, which is specifically tailored to the needs of the Court and, again, involves a considerable proportion of diplomatic means and no coercive enforcement.32 In the present paper, international criminal jurisdiction is left out of the picture, as it is a very specific concept in the international context and it is not a rewarding concept with regard to a possible MIC. However, taken as a whole, it can be stated that genuine international courts need to be supplied with their own independent mechanisms for the enforcement of judgments against states. The abovementioned agreements apply to the recognition and enforcement of judgments issued by national courts. In some cases this is expressly stipulated in the agreements,33 however, in the Hague Convention, for example, it results from the formulation of Art. 8(1).34 Therefore, they are principally not applicable when it 32

In general, the Committee of Ministers is the competent organ, which supervises the execution of the judgments of the ECtHR by the member states (Art. 46(2) ECHR). If a state persistently refuses to implement a judgment, so-called infringement proceedings can be launched under Art. 46(4), (5) ECHR (provisions governing the procedure can be found in Rule 99–104 of the 2018 Rules of Court). However, even these exceptional infringement proceedings may only lead to the ECtHR’s decision stating that the respective state has failed to comply with the judgment. Thus, it is more of a diplomatic means to shame the state in order to persuade it to give in. Infringement proceedings were initiated for the first time in 2017 in the case Mammadov v. Azerbaijan (appl. No. 4762/05); see General Press Release of the ECtHR “ECHR to use new infringement procedure in case concerning Azerbaijan opposition politician for first time” (ECHR 390 (2017), 14.12.2017). 33 See for example Art. 32 Lugano Convention and Art. 2(a) Brussels-Ia-Regulation. 34 See Art. 8(1) of the Hague Convention on Choice of Court Agreements where it reads: “A judgment given by a court of a Contracting State designated in an exclusive choice of court

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comes to the enforcement of an international court’s judgments, which are not of a “domestic origin” and have “no nationality”, so to speak. Thus, decisions of a potential MIC would not be covered by the respective conventions.

2.4

Interim Result

As a result, the New York Convention would certainly offer the possibility of enforcing decisions of the MIC in third states, provided the Court is correspondingly designed. However, due to the interpretation authority of the national courts, which goes hand in hand with the application of the New York Convention, it would be preferable to be able to resort to a less interpretation-susceptible enforcement mechanism. In order to achieve particularly strict and unassailable enforcement of decisions, the ICSID Convention is usually used in investment arbitration. However, this presupposes its applicability. Regarding enforcement under the ICSID Convention, it can be stated that already the two-tiered structure, which is a probable and at the same time essential feature for an MIC, leads to the fact that compatibility with the requirements of the ICSID Convention cannot be established. Therefore, the realisation of enforcement of MIC decisions “pursuant to the ICSID Convention” or even “under the ICSID Convention” appears to be practically impossible. Enforcement under documents usually applicable to the international enforceability of judgments will not seem to be possible due to the lack of “nationality”/ “domestic origin” of MIC decisions.

3 Enforcement of MIC Decisions Under Yet-To-Be-Created Instruments If—as has been shown—the implementation of an enforcement mechanism under existing international treaties proves to be between not well feasible and impossible, there remains the possibility of creating a new international agreement specifically regulating the enforcement of decisions made by the MIC. There are various ways of how this could be approached. As a first option, it might be a reasonable solution to establish an MIC Statute in the form of an international treaty containing independent provisions on the enforcement of MIC decisions (Sect. 3.1). Secondly, a cogitable possibility may be the creation of a new international convention along the lines of the New York Convention (Sect. 3.2) or of the ICSID Convention (Sect. 3.3). The third option might be an additional protocol to the New York Convention agreement shall be recognised and enforced in other Contracting States in accordance with this Chapter” (emphasis added).

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(Sect. 3.4) or to one of the international instruments covering the enforceability of judgments in foreign jurisdictions (Sect. 3.5).

3.1

Independent Enforcement Mechanism Included in the MIC Statute

It appears appropriate to put a future MIC organisationally on the footing of a statute (which has been called “MIC Statute” throughout the present paper).35 The MIC Statute would be an international treaty between those, which submit to the jurisdiction of the Court. An MIC Statute could hedge various topics, such as detailed procedural rules, a code of conduct for judges and other associates of the Court, immunity rules, and indeed also provisions on the enforcement of MIC decisions. The most advisable option seems to design such enforcement provisions along the lines of the ICSID Convention and to actually use the wording of Art. 54 of the Convention. The MIC Statute would then contain a provision prescribing that the MIC members shall recognise and enforce MIC decisions as if they were a final judgment of a court in the respective MIC member. Such an independent enforcement regime would be simple to formulate, tailored to the needs of the MIC and would avoid the difficulties described above, which would be associated with a mere reference to the relevant rules of the ICSID Convention. A proposal for drafting could be—actually copying Art. 54 ICSID-Convention— as follows: (1) Each Member of the MIC shall recognise a decision rendered pursuant to this Statute as binding and enforce the pecuniary obligations imposed by that decision within its territories as if it were a final judgment of a court in that State or International Organisation. A Member of the MIC with a federal constitution may enforce such a decision in or through its federal courts and may provide that such courts shall treat the decision as if it were a final judgment of the courts of a constituent state or International Organisation. (2) A party seeking recognition or enforcement in the territories of a Member of the MIC shall furnish to a competent court or other authority which such Member shall have designated for this purpose a copy of the decision certified by the Secretary-General/ President/Chancellor36. Each Member of the MIC shall notify the Secretary-General/ President/Chancellor of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation. (3) Execution of a decision shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.

However, the regulation of the enforcement mechanism in the MIC Statute has the decisive disadvantage that such rules, in principle, are binding only on the members to the Statute. Theoretically, it would be possible to add a phrase to the

35 36

Forwarding the same proposal issued by the EU: UNCITRAL (2017), para. 29. The terminology will depend on the institutional structure of the future MIC.

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provision in the MIC Statute to the effect that third states could also (voluntarily) comply with it and thus help decisions to be enforced using the MIC Statute provisions. Such an additional phrase could be drafted as follows: (4) Third States which are not a Contracting Party to this Statute may commit themselves to recognise and enforce decisions rendered by the MIC in accordance with the rules set out in this Statute. The declaration of commitment may be made at any time to the Secretariat of the MIC.

However, the voluntary nature of the commitment to the respective regulations in the Statute of a future MIC is the decisive factor and the very problem of such a construction. There is no element of binding character which would make it possible for persons who wish to pursue enforcement to reliably calculate the chances of success of enforcement outside the “circle of members” of the MIC. Thus, even if such a formulation were inserted in the MIC Statute, it would not significantly increase the enforcement potential and “attractiveness” of MIC decisions. The sole binding effect remains vis-à-vis members of the MIC. Therefore, the enforcement of MIC decisions in third states which are not members of the MIC would not be secured. Hence, the regulation of enforcement in the Statute alone would not give any particular effectiveness to the decisions of the MIC. This is the case, at any rate, as long as not many states are members of the Court and, accordingly, only a few states are bound by the MIC Statute.

3.2

New York Convention 2.0

As discussed above, the New York Convention generally provides a basis for the effective enforcement of foreign arbitral awards in investment arbitration. Although it might be possible to design an MIC in a way that would make the applicability of the New York Convention likely, this is not strongly recommended for the reasons given above. An alternative option would therefore be to create a new convention especially tailored to the requirements for the enforcement of decisions of an international/multilateral investment court—so to speak, a “New York Convention 2.0” (“NYC 2.0”). The “NYC 2.0” should regulate the enforcement of MIC decisions in a comprehensive and binding manner and be an international treaty open to accession by all states of the world. However, regarding the MIC membership, the MIC Statute should contain a provision according to which the accession of MIC members to the new Convention is compulsory since enforcement has at least to be guaranteed by the Members of the MIC. The question arises whether the existing New York Convention can serve as a model for a new “NYC 2.0” and as to which provisions should be transferred and to what extent. Several rules found in the New York Convention may be unsuitable or need amendments when it comes to application to a standing investment court, as for

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example Art. I(2), (3).37 However, the fact that third states are not members of the MIC Statute meaning that the Statute’s provisions are not relevant to them, must be compensated for by instructive provisions in the new Convention. In this respect, the “NYC 2.0” should regulate various aspects with regard to the legal quality and the precise conditions for enforcement of MIC decisions. Obviously, the scope of application (Art. I New York Convention) should expressly state that the new Convention applies to the MIC decisions. Particularly critical is the question of how to deal with Art. V of the New York Convention, which is certainly one of the most relevant and most frequently used provisions of the Convention in view of the practice to date in commercial and investment arbitration.38 There is a risk that the achievements generated by the establishment of a multilateral investment court will be counteracted if such a provision is included in a “NYC 2.0”. The institution of an MIC shall lead to the greatest possible consistency in the application and implementation of investment law and, at the same time, it shall ensure that other judicial bodies (e.g. investment tribunals and national courts) get as few as possible chances to affect the MIC’s decisions on the basis of case-by-case considerations.39 An inclusion of a provision similar to Art. V of the New York Convention in the “NYC 2.0” would possibly increase the Convention’s acceptance in third states that do not want to be members of the MIC. Those states might appreciate the opportunity to retain some control over the decisions to be enforced on their territory as it is under the existing New York Convention.40 For some states, the preservation of autonomy can be an

37

Article I para. 2 and 3 of the New York Convention: 2. The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted. 3. When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.

38

Borris and Hennecke, in: Wolff (2012), p. 239. Shelton (2009), p. 543, also states with regard to courts in general: “Courts have a published corpus of judgments and orders that can guide the resolution of future disputes and aid in developing the law. A standing court also can be more predictable as it may develop expertise and a consistent jurisprudence” (footnote omitted). 40 As Borris and Hennecke, in: Wolff (2012), Art. V para. 4 formulate it: “Article V eliminates many unnecessary hurdles to enforcement, thus making the enforcement of foreign arbitral awards considerably easier than, in many cases, the enforcement of judgments by foreign national courts. On the other hand, it ensures that national jurisdictions will have sufficient opportunity to verify that the basic principles of procedural and substantive justice (i.e. within the limits of public policy) are respected.” Additionally, Barry (1978), p. 839: “It would seem safe to assume that, while the drafters of the New York Convention desired to limit the scope of the public policy exception as much as possible, the effect of the exception was to provide the courts with an “escape clause” in a 39

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important argument in favour of making MIC decisions principally enforceable in their territory. In the final analysis, however, it would be desirable to establish a system which strikes an appropriate balance between the two interests: achieving most effective enforceability of MIC decisions versus setting incentives for the accession of as many states as possible. A conceivable option could be to include a provision similar to Art. V in the new Convention, but to make it applicable only if enforcement is sought in a state which is not a member of the MIC (i.e. only in third states). The domestic courts’ review regarding the enforceability of MIC decisions, and in particular their compatibility with the public policy, would therefore be eliminated in the Members of the MIC. By acceding to the “NYC 2.0”, the MIC members would ultimately agree to a similarly strict enforceability as would be the case under the ICSID Convention. At any rate, this appears to be appropriate from the point of view that the MIC will presumably have a two-tiered structure, so that a reviewing body for the decisions has already been set up in the system. The moment a state becomes an MIC member and submits to its jurisdiction, it normally also recognises its functionality and reliability. In addition, members can also influence the composition and general organisation of the Court through their membership. Against this background, it seems appropriate not to allow the respective member an additional and renewed possibility to review the MIC’s decisions. Third states, on the other hand, have no influence on the internal affairs of the MIC. Indeed, in principle, it could be argued that such third states should become an MIC member and be able to exert influence using their membership rights. If a state is unwilling to do so, one could argue, it must also accept enforcing MIC decisions whose compatibility with its public order is beyond its control. However, the question is: Why should a state join the “NYC 2.0” under such conditions that entail only obligations but no means of control? A certain incentive must be created for the accession of those states which, while fundamentally rejecting accession to the MIC, would, under certain circumstances, agree to enforce the Court’s decisions. With such an arrangement including an Art. V-like provision applicable to third states only, the potential of an MIC would indeed not be fully exhausted and third states would be given a way (and possibly even an incentive) to avoid submission to the jurisdiction of the Court. A different option for setting incentives could be trade-offs between high-level stakeholders that are MIC members—as it might become the case with the EU for example—and third states. A conceivable strategy, for example, would be for the EU to make certain promises or concessions to third states in yet-to-be-created Free Trade Agreements, Accession Agreements or other documents in exchange for the third states committing themselves to accede to the “NYC 2.0”. In short, the EU could use its economic strength as well as treaty making power to “direct” third states in such a path.

sufficiently hard case. Indeed, the existence of an escape clause was used to quiet potential objections to ratification of the New York Convention by the United States.”

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To put it in a nutshell, as long as the MIC has not yet become a “fast-selling success” due to its far-reaching reputation, compromises must be considered which help the MIC to achieve greater effectiveness in the short run. Overall, the creation of a “NYC 2.0” is an alternative to the regulation of enforcement in the MIC Statute worth considering. The new Convention would at least make it possible to ensure far-reaching enforceability of MIC decisions also in third states. By regulating the matter in the MIC Statute only, the problem of inapplicability in third states could hardly be avoided. The Court would then be all the more dependent on the membership of as many states as possible in order to be able to demonstrate a reasonably high level of effectiveness of decisions.

3.3

ICSID Convention 2.0

Another possibility to regulate the enforcement of MIC decisions in a separate international document would be the creation of an “ICSID Convention 2.0”. This would work in exactly the same way as with the “NYC 2.0”. In other words, the enforcement mechanism of the ICSID Convention (especially Art. 54 ICSID Convention) could be adopted and adapted in newly formulated rules for the MIC. This would ensure almost absolute enforceability of decisions in all states becoming parties to the new “ICSID Convention 2.0”. An “ICSID Convention 2.0” could make MIC decisions widely enforceable, both in members of the MIC and third states. However, it seems questionable whether a larger number of third states would decide to accede at all. In the case of an “ICSID Convention 2.0” which contains provisions that are modelled on those of the existing ICSID Convention, the situation is even more disadvantageous for third states than in the case of a “NYC 2.0”. After all, under a “NYC 2.0” there could be the possibility of national control using the grounds for refusal of enforcement pursuant to Art. V New York Convention. Under the “ICSID Convention 2.0”, on the other hand, third states would agree to an absolute enforcement obligation without the possibility of control. Under these circumstances, there is little incentive for states that are sceptical or opposed to the concept of an MIC in general to accede to an “ICSID Convention 2.0”.

3.4

Taking International Documents Ensuring the Enforcement of Judgments as a Model

As has been shown, the existing conventions ensuring the enforceability of judgments in foreign countries are not applicable to MIC decisions because of their missing “nationality”/“domestic origin”. However, it might be a conceivable option to formulate a new convention along the lines of the aforementioned documents. At

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this point, the issue is similar to the one discussed above for the enforcement of MIC decisions if it were to be designed as an arbitral court entailing the mentioning of the New York Convention and ICSID Convention. It would be possible, for example, to take the Hague Convention as a model and reformulate it according to the needs of the MIC as an international court. The Hague Convention contains several provisions similar to those of the New York Convention. For example, recognition and enforcement can only be refused on the grounds set out in the Hague Convention (Art. 8(1) and Art. 9); a review of the merits, however, is not admitted (Art. 8(2)). Additionally, the grounds for refusal of enforcement set out in Art. 9 Hague Convention are similar to those set out in Art. V of the New York Convention. Overall, it can be said that the Hague Convention contains very similar rationales to the New York Convention, but its text is in several parts more detailed. Although the Hague Convention does not have the same high level of integration as the BrusselsIa-Regulation and the Lugano Convention, it has a comprehensive approach to the effective enforcement of judgments that could be usefully applied to an MIC. However, ultimately, “arbitral awards” and “judgments” of an international investment court are the same affair when it comes to creating a new convention on their enforcement. Where judgments issued by an international court are concerned which are not of domestic origin and which are directed against states, the legal question of whether the title to be enforced is a “judgment” or an “arbitral award” is no longer decisive with regard to the creation of an entirely new convention on enforcement. Therefore, there is no need for more in-depth discussion at this point, as the already discussed reasoning regarding the drafting of conventions on the enforcement of MIC decisions does not change, regardless of whether its decisions are considered to be rather akin to “arbitral awards” or “judgments”.

3.5

Additional Protocol to the Existing NYC

In international law it is generally possible to modify or amend multilateral treaties by additional agreements/protocols41 which require separate ratification.42 Such protocols usually constitute inter se modifications in the sense of Art. 41 VCLT, if the states concerned consider from the outset that the additional agreements should apply only to a limited circle and not to all parties to the original document.43 Thus, an option for the implementation of an enforcement mechanism for MIC decisions would be to create an additional protocol to the existing New York Convention. The Additional Protocol would be open to the accession of all members of the New York Convention, i.e. by now 159 parties. The fact that it constitutes an inter se modification does not preclude that, after some time, all or most members of

41

Bernhardt, in: Merten and Papier (2010), p. 52. Von Arnauld (2016), para. 234; see also Art. 40 et seq. VCLT. 43 Heintschel von Heinegg, in: Ipsen (2018), pp. 495 et seq. 42

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the existing New York Convention also join the Protocol.44 In addition, entirely new members may subsequently accede to the New York Convention, together with the Protocol.45 Through the Protocol, states could declare that they recognise and enforce the decisions of the MIC as they do it with regard to other arbitral awards under the New York Convention. It could be taken into consideration whether to agree on only limited applicability of the New York Convention in an Additional Protocol in order to exclude the grounds for refusal of enforcement in the sense of Art. V of the New York Convention and thus ensure almost absolute enforcement. However, this raises the question of whether such an exclusion would be permissible in an inter se modification at all, since it may be inadmissible under Art. 41 (1)(b) VCLT. According to Art. 41(1)(b)(i) VCLT, a modification must “not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations”. This demand is generally not breached as long as the modified treaty can be performed separately and independently between the various treaty parties.46 With regard to an Additional Protocol for the MIC decisions, it would appear that it does not affect the rights and obligations of the parties to the original New York Convention. Even if Art. V was excluded in the Protocol, the provision’s applicability would in any event be preserved for all other foreign international arbitral awards. An incompatibility with Art. 41 (1)(b)(i) VCLT therefore seems unlikely. According to Art. 41 (1)(b)(ii) VCLT, however, a modification must not “relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole”. Thus, even if the treaty can be performed independently by the parties in accordance with Art. 41 (1)(b)(i) VCLT, the modification may still run counter to the object and purpose of the original treaty (including its end, intentions and aims).47 The main purpose of the New York Convention is to provide an effective legislative framework for the enforcement and recognition of international arbitral awards.48 In order to make the Convention acceptable to as many states as possible, however, it was above all necessary to weigh interests when drafting the Convention’s provisions: on the one hand the desire for the widest possible enforceability of international arbitral awards and on the other hand the aim to ensure that the various fundamental legal principles of different states can be respected.49 It is precisely this balance that has been decisively implemented by Art. V of the Convention where the grounds for the refusal of enforcement can be found. The provision gives member states the crucial opportunity to defend their own legal principles (including their public policy) and to exert

44

With regard to the often equivocal differentiability of amendments and modifications: Heintschel von Heinegg, in: Ipsen (2018), p. 494. 45 Noting the possibility of joining a modified treaty by third parties: Villiger (2009), p. 534. 46 Villiger (2009), pp. 534 et seq. 47 Villiger (2009), p. 535. 48 Liebscher, in: Wolff (2012), p. 4; Kronke, in: Kronke et al. (2010), p. 4. 49 Liebscher, in: Wolff (2012), pp. 4 and 9.

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influence on what arbitral awards are enforced on their territory. Therefore, there is much to suggest that Art. V is an integral part of the Convention that is essential to its “identity”. Hence, there is considerable reason to believe that an inter se modification excluding Art. V would be incompatible with the object and purpose of the original New York Convention and would therefore be contrary to Art. 41 (1)(b) (ii) VCLT. Besides these deliberations on the compatibility with Art. 41 VCLT of a modification that excludes Art. V of the New York Convention, the question remains as to what motivation a third state might have for joining an Additional Protocol under such conditions. Again, as it might be under a “NYC 2.0”, the Protocol would entail only obligations but no means of control. For this reason, it could be considered to apprehend the applicability of Art. V of the New York Convention as an advantage in order to create an incentive for third states to accede and to provide the MIC with a greater scope in the short run. With regard to the scope of the Protocol there are two alternatives: Both the Additional Protocol and the MIC Statute could contain provisions on enforcement (1) or the Protocol could regulate the enforcement of the MIC’s decisions exclusively (2). (1) The rules on enforcing an MIC decision within the territory of an MIC member could be included in the MIC Statute, whereas those on enforcement within a third state could be covered by the Additional Protocol to the New York Convention. For the enforcement within the territory of an MIC member, the MIC Statute could include a provision in the style of Art. 54 of the ICSID Convention. When it then comes to enforcement in a member of the MIC, the provisions of the MIC Statute take precedence. If, on the other hand, enforcement is to take place in a non-MIC-member, the MIC Statute does not apply and the Additional Protocol prevails. The Protocol would provide for the corresponding applicability of the New York Convention, i.e. refer to it. For the aforementioned reasons, the Protocol has to prescribe the applicability of the New York Convention including Art. V. Consequently, the opportunity for review in the sense of Art. V of the New York Convention would exist for non-members, but not for MIC members. Under the described conditions it does not seem reasonable for MIC members to also accede to the Additional Protocol, although it would be possible from a legal point of view. Nevertheless, the MIC members being a signatory themselves might help to motivate third states to ratify it, at least from a psychological point of view. The Protocol would therefore be merely an instrument to which third states would voluntarily subscribe in order to enable the decisions of the MIC to be enforced on their territory. (2) The second alternative would be to regulate the enforcement of MIC decisions entirely in an Additional Protocol to the New York Convention, to which both MIC members and third states would accede. However, regarding the MIC members, the MIC Statute should contain a provision according to which their accession to the Protocol is compulsory or even an automatism since

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enforcement has at least to be guaranteed within the jurisdiction of the MIC member. The difference to a “NYC 2.0” would be that an Additional Protocol only stipulates the applicability of the existing convention and does not formulate completely new provisions. The abovementioned facts that the sovereignty of interpretation of an international document principally lies with the interpreting states and their domestic courts and that terms can be interpreted differently have no impact on the applicability issue. Under an Additional Protocol, only its signatories would be bound and if the respective states declare that the New York Convention’s provisions shall be applicable to MIC decisions, this also pertains to their domestic courts. Thus, the general applicability of the Convention’s provisions to MIC decisions would be unambiguous. The inconsistent interpretation of various terms (in particular “public order”), however, remains as a problem. Furthermore, since the Additional Protocol would necessarily entail the applicability of Art. V New York Convention, even MIC members would have the opportunity to refuse the enforcement of MIC decisions invoking their public policy. However, this cannot be intended by any means, since the establishment of an MIC is precisely aimed at preventing such a situation and the envisaged two-tiered structure is supposed to bring about greater legal certainty and consistency of decisions. It could therefore be considered to include in the Additional Protocol to the New York Convention a provision whereby the MIC members declare that they do not invoke Art. V of the New York Convention. However, even if it could also be considered, alternatively, that the applicability of Art. V to enforcement proceedings in MIC members could still be excluded by a corresponding provision in the MIC Statute, the regulation of enforcement in an Additional Protocol to the New York Convention, to which MIC members and non-members equally accede, does not appear to be a practical or elegant solution.

3.6

Additional Protocol to International Documents Ensuring the Enforcement of Judgments

It could be considered to declare an international document on the enforcement of judgments applicable to MIC decisions by creating an additional protocol to the respective document. However, with regard to the Brussels-Ia-Regulation, it must be noted that it is not a regular international treaty. Rather, it is an EU legal act that is not subject to the general rules of the VCLT and it is not possible to extend the circle of “member states” beyond the borders of the EU by mere agreement. However, the aim of creating an enforcement mechanism for MIC decisions is to ensure that they can be implemented worldwide as comprehensively as possible. This cannot be achieved by declaring the Brussels-Ia-Regulation applicable since—if such a declaration is possible at all—this would apply to EU members only. Moreover, the Brussels-Ia-Regulation is heavily based on the very high degree of integration and

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harmonisation within the EU,50 which means that it is not suitable as a direct template for a new convention on the enforcement of MIC decisions. However, consideration could be given to declaring the Hague Convention or the Lugano Convention applicable to MIC decisions by means of an additional protocol. As already explained above in the context of the potential Additional Protocol to the New York Convention, additional protocols are typically inter se modifications in the sense of Art. 41 VCLT. At this point, however, there is a problem with regard to the actual intention of making MIC decisions enforceable. The aim is to enable international enforcement as far as possible, especially in a large number of states. However, the conventions mentioned have only a small number of members, i.e. the EU and a few additional states. This is due to the fact that the concession of facilitated enforcement presupposes considerable confidence in the competence and functioning of the foreign jurisdiction.51 Such a high level of trust is not justified in relation to all states. Thus, even if it were possible to draw up an additional protocol to one of the conventions referred to and its content met the requirements of Art. 41 VCLT, only parties to the main document could accede to the additional protocol. In theory, the Hague Convention52 and the Lugano Convention53 are open to the accession by all states of the world (provided that all members agree to the accession of the respective new member). However, it is highly unlikely that the number of members will increase significantly in the near future. Therefore, an additional protocol to one of the conventions is not a suitable means of creating an instrument for the enforcement of MIC decisions for ensuring the widest possible enforceability.

3.7

Interim Result

There are various ways of regulating the enforcement of MIC decisions in a yet-tobe-created international document but it has to be kept in mind that that it will most likely not be feasible to render the ICSID or New York Convention’s provisions on enforcement applicable to MIC decisions. Therefore, other mechanisms will have to be developed. An enforcement mechanism could, for example, be integrated in the MIC Statute. This, however, harbours the decisive disadvantage that in principle only the MIC members will be bound by the MIC Statute. An enforceability of the Court’s decisions in third states could hardly be generated on this basis. Thus, as 50

Schack (2017), para. 889 recognises that the Brussels-Ia-Regulation represents the most advanced stage of international recognition of judgments and demonstrates an unusually high degree of mutual trust in the judicial system of the member states. 51 Schack (2017), para. 889 states that the Brussels-Ia-Regulation and the Lugano Convention represent the most advanced stage of international recognition of judgments and demonstrate an unusually high degree of mutual trust in the judicial system of the member states. 52 Art. 27 Hague Convention on Choice of Court Agreements. 53 Art. 70(1)(c), 72 Lugano Convention.

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long as not a considerable number of states will become members of the Court, it will not be provided for a far-reaching effectiveness of MIC decisions. Actually, it would be logical to regulate the enforcement of MIC decisions in the MIC Statute. However, in order to make enforcement in third countries possible as well, the creation of an entirely new Convention in the style of the New York Convention is likely to offer the greatest opportunity to ensure the most far-reaching and effective enforcement of MIC decisions and thus to enhance the reputation of the Court in the short run. Under an “ICSID Convention 2.0”, a far-reaching and almost absolute enforceability of MIC decisions could be achieved. However, it appears questionable whether third states see any reason for acceding to such a Convention that brings only obligations but no means of control. Therefore, from a practical point of view, this alternative for the regulation of enforcement does not appear to be a recommendable solution. The creation of a “NYC 2.0”, in turn, is a variant for the regulation of enforcement of MIC decisions worth considering. Such a new Convention would at least make it possible to ensure far-reaching enforceability of MIC decisions not only in member states but also in third states. If a provision like Art. V New York Convention is incorporated into the “NYC 2.0” in such a way that it applies only to third states (non-MIC-members), an incentive could be provided for the accession of such states. For third states, an opportunity for exercising national control would be left open. Within MIC members, on the other hand, absolute enforceability of the MIC decisions would be maintained. Likewise, it would be possible to use existing international documents on the enforcement of judgments (e.g. Brussels-Ia-Regulation, Hague Convention on Choice of Court Agreements, Lugano Convention) as a basis for a yet-to-be-created convention on the enforcement of MIC decisions. However, due to their similarity in content to the New York Convention, reference can be made to what has already been said about the proposed “NYC 2.0” with regard to the possible formulation of such provisions. Coming to the possibility of adopting an Additional Protocol, it has to be stated that this is not a viable option in the case of the Brussels-Ia-Regulation. In the case of the other two conventions, however, the possibility exists, but due to the small number of member states of the respective conventions, it does not appear to be a suitable option for achieving a high degree of international enforceability of MIC decisions. Another possibility would be the creation of an Additional Protocol to the New York Convention. However, this would be an inter se modification in the sense of Art. 41 VCLT, which would lead to two legal restrictions: First, only states that are or will become members of the original New York Convention could become members of the Additional Protocol. Secondly, the applicability of the Art. V New York Convention cannot be excluded in an Additional Protocol because of the conditions set by Art. 41 (1)(b)(ii) VCLT. Thus, if the enforcement of MIC decisions would be regulated in such an Additional Protocol for both, the MIC members and third states, the opportunity for refusal of enforcement remained in all

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states where enforcement is sought. In order to avoid this problem, the enforcement of decisions in MIC member states would have to be regulated separately and only enforcement within non-member states could be covered by the Additional Protocol or an application of public policy exceptions would have to be excluded for MIC members. However, to include the regulations on enforcement in two separate documents does not appear to be a particularly elegant solution to the problem.

4 Alternative Enforcement Method: Fund System An entirely different approach in regard to the enforcement of MIC decisions would be the creation of a fund system into which MIC members would have to pay a certain amount of money (deposit amount). The enforcement mechanism and the fund system could be laid down in the MIC Statute. If an investor is awarded a sum of money through an MIC decision, he could under certain conditions receive a sum from the fund. In turn, the MIC or the Fund should then obtain a claim or title against the respondent and non-compensating state. On the basis of such a system, the creation of a separate convention governing the enforcement could possibly be dispensed with; it might no longer be necessary to ensure enforceability in third states. In cases the respondent is not willing to compensate or to pay damages, satisfaction of the investor would take place independently of any assets of the convicted state through the Fund established at the MIC. The Iran-US Claims Tribunal (IUSCT) took a similar approach to ensure the enforcement of its decisions.54 Iranian assets in US bank accounts worth US$1 billion had been transferred to a “security account” at the time of the hostage crisis following the storming of the US embassy in Tehran in 1979. On the basis of the “1981 Algiers Accords”,55 the “security account” was used as a fund to satisfy US claims following from IUSCT decisions. In addition, Iran was obliged to make additional payments to this account so that its balance did not fall below US$500 million. This enforcement mechanism has proved very effective and might therefore serve as a model for the MIC. However, the creation of such a fund system raises a number of questions which should be addressed in this paper. At first it has to be considered, which organisational form would be suitable for such a fund system (Sect. 4.1). With regard to the Fund’s modus operandi, some specific issues will be assessed in Sect. 4.2. It will be of particular interest, for example, to examine the determination of the deposit amount, the Fund’s financing in general, the conditions for a payment 54

For further information on the IUSCT’s funding and enforcement mechanism: Bungenberg and Reinisch (2018), para. 537; Brilmayer et al. (2017), pp. 99 and 142 et seqq. 55 The “1981 Algiers Accords” are printed in: AJIL, Volume 75 (1981), pp. 418 et seqq. The document can also be accessed via: http://www.iusct.net/General%20Documents/1-General% 20Declaration%E2%80%8E.pdf. For further information on the IUSCT cf. Khan (1990), pp. ix et seqq.; Caron (1990).

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obligation to come into existence, and the possible obligation for members to replenish the Fund.

4.1

Organisational Form of a Fund System

With regard to the organisational form of the Fund, two options are particularly conceivable: (1) The Fund could be designed as an independent international organisation. (2) Alternatively, the Fund could be organisationally integrated into the MIC, which itself would be recommended to be established as an international organisation.56

4.1.1

The Fund as Independent International Organisation

The Fund could be organised as an independent international organisation and could at the same time become a specialised agency of the MIC. Similar arrangements at the UN are, for example, the International Monetary Fund (IMF) and the World Health Organization (WHO).57 Despite certain interconnections via cooperation agreements between these organisations, the specialised agencies in the UN context retain their autonomy and legal personality, which is reflected, for example, in a different composition of members and an independent budget.58 They are therefore not subordinates to the UN organs, but as members of the “UN family” closely associated with the main organisation on a contractual basis.59 With regard to the establishment of a Fund for the enforcement of MIC decisions, however, the question arises as to whether its setting-up in an independent international organisation is reasonable and functional. Such a structure would have the advantage that the Fund—because of its legal personality—could be the holder of claims. However, the establishment of another international organisation—besides the MIC itself—would entail a considerable additional effort. Moreover, all MIC members would also have to become members of the Fund anyway to guarantee effective as well as efficient enforcement. Eventually, although an organisational and personal independence of the Fund would also bring advantages with regard to the neutrality of the enforcement body, these advantages do not seem to outweigh the greater complexity of the structure and the additional effort involved regarding its establishment.

56

Bungenberg and Reinisch (2018), paras 11 et seqq. and 547 et seqq. Stein et al. (2017), para. 424; Epping, in: Ipsen (2018), pp. 304 et seq. 58 Epping, in: Ipsen (2018), p. 304. 59 Stein et al. (2017), para. 424. 57

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Organisational Integration into the MIC

As an alternative to an establishment as an independent international organisation, the Fund could also be included into the MIC’s organisational structure. If the members designate the Court’s set-up as an international organisation and thereby as a subject of international law (e.g. by a provision to that effect in the MIC Statute), it is clarified that the MIC is in this respect the holder of its own rights and obligations under international law.60 This then also includes the ability to be a creditor, which is the party entitled to claim a financial performance of another party, i.e. the debtor.61 The Fund could then be set up as either an independent MIC organ or as a subdivision of a secretariat as it is generally foreseen in other international organisations. In both cases, the Fund’s acts are in the end attributed62 to the MIC. The Fund could take over the management of the money, the disbursements and the collection of claims against adjudged states. However, the Fund being an organ of the MIC would not have its own legal personality and, therefore, could not itself be a creditor. However, the MIC would be able to hold claims. Insofar, the Fund could act on behalf of the Court; any claims of the MIC could be administered and collected by the Fund as an organ of the Court. The integration of the Fund into the organisational structure of the Court should be laid down in general in the MIC Statute (treaty establishing the MIC). In addition, the MIC’s Plenary Body could be furnished with the power to adopt procedural secondary rules. Such secondary rules could then also codify as far as possible all further details of the administration of the Fund and the enforcement mechanism.

4.2

Functioning of the Fund

The fund should in principle be available for the financial execution of the MIC decisions. However, the question arises as to the relevant details regarding its modus operandi.

4.2.1

Should There Be a Uniform Deposit Amount for All Members?

In order to ensure the rapid and efficient enforcement of decisions, members should be obliged to pay a certain amount of money into the Fund as a deposit. In this

60

With regard to international organisations in general: Stein et al. (2017), para. 382; Walter, “Subjects of International Law”, in: MPEPIL, para. 5, 21 [11.03.2019]. 61 On the ability of subjects of international law to be creditors/debtors: Martha (2015), pp. 19 et seq. 62 About the attribution of organ conduct to the organisation: Schmalenbach, “International Organizations or Institutions, General Aspects”, in: MPEPIL, para. 81 [08.03.2019].

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context, the question arises whether the amount to be paid should be the same for all members or whether it is more appropriate to establish differentiation criteria. The main arguments in favour of differentiation are that the states’ economic capability varies and that some states are more frequently involved in arbitration proceedings as respondents than others. However, a tribunal generally does not base its decision on the amount of compensation to be paid on the economic capabilities of the respective state, but typically on the actual damage or violation having incurred. Insofar, a differentiation according to economic capability does not appear to be an appropriate concept. A differentiation according to how often a state is adjudged would appear to make more sense, but there are difficulties here with regard to the calculation of the individual amounts. Moreover, what is even more significant is the implicit prejudgement that accompanies such a calculation base. Furthermore, a calculation on the basis of previous arbitration cases might also discourage a lot of countries ‘having a history’ from becoming an MIC member. For this reason, it may be reasonable to start from a uniform amount to be paid by all members. Thereby, the share of outward-FDI of the specific state might be taken into account. However, this approach would change the idea of the system entirely. What had been set up as a system for protecting investors via an arbitration regime would then move towards a development policy driven approach with industrialised countries establishing a quasi-guarantee fund for outward investments and the MIC as an institution to calculate the guarantee sum to be paid to an investor.

4.2.2

How Should the Fund Be Financed and When Should It Incur a Payment Obligation?

The Fund would have to be financed by contributions from the MIC members. With regard to the amount to be paid into a MIC Fund, various aspects need to be taken into account for its calculation. For example, the question arises whether the Fund must be provided with sufficient financial resources to cover an average arbitral award. According to the statistics issued by the UNCTAD,63 in 2017, an average of 28% of the amount originally claimed was awarded to successful plaintiffs. With an average amount claimed of approximately $454 million, the statistic shows an average amount awarded of about $125 million.64 Therefore, it should be examined

63

United Nations Conference on Trade and Development. UNCTAD (2018), p. 5. The average figures quoted refer to the year 2017, but have been adjusted to the effect that the amounts sued and awarded in the three Yukos cases (brought by Hulley Enterprises, Veteran Petroleum and Yukos Universal against the Russian Federation) have not been taken into account (see UNCTAD (2018), p. 5). The UNCTAD also states that these three cases have significantly increased the average figures because they are the largest cases ever decided. They must probably be granted a certain uniqueness. If the three cases are taken into account in the figures, the average amount claimed increases to $1.3 billion, the average amount awarded increases to $504 million and the average success rate increases to 40%. 64

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whether claims of SMEs differ in their amounts compared to claims of big enterprises and therefore also if SMEs should be protected in a particular way. One decisive question regarding the financial equipping of the Fund is when a payment obligation should exist. In this context, a fundamental choice is whether the Fund should always be obliged to pay as soon as a state has been adjudged by the MIC to a payment (primary payment obligation), or whether a payment obligation should only exist if other enforcement attempts by the investor have failed (subsidiary payment obligation) and only to investors fulfilling some extreme conditions and only up to a certain amount. The details of the respective mechanism should be laid down in the MIC Statute. There are arguments for each variant. For example, only under a model prescribing a primary payment obligation would it be possible, at least in theory, to do without traditional instruments of enforcement and to refrain from reformulating international agreements in order to create enforcement mechanisms tailored to the needs of the MIC. The implementation of MIC decisions through the Fund would then be exclusive and would replace enforcement in the actual sense. However, if the Fund always has to pay for the satisfaction of all MIC decisions and can only take recourse against the respective state after the fact, the Fund must have a considerable financial volume. If the Fund is only required to pay on a subsidiary basis, it is likely that it will be used less frequently than if it is primarily required to pay. The argument that the Fund does not need to be so lavishly funded is a very weighty one. Even if it were to be assumed that an MIC would award lower amounts on average than the above-mentioned $125 million, the question arises as to whether these amounts would actually be or could be so much lower in value. After all, it must be kept in mind that the utilisation of the Court should also be attractive for investors—especially in the initial period, as long as the MIC might possibly only be an option for dispute resolution in addition to traditional arbitration proceedings. The average amount awarded might therefore not be so much inferior to current statistical values. It is not possible to estimate the caseload the MIC will have to deal with. Although it may be small at the outset, it can be expected to continue to increase once the efficiency and functioning of the Court are generally recognised. In any case, it seems reasonable that the Fund should at all times be able to satisfy several decisions spontaneously if this is its primary obligation. Therefore, even if an average amount of only about $100 million per MIC decision could be assumed, each member (with a hypothetical MIC membership of 40) would then have to make $12.5–25 million as a permanent deposit. Thus, if a primary and full payment obligation is chosen, MIC members would have to expect a relatively high deposit obligation. Insofar it might be preferable to stipulate a subsidiary payment obligation. However, the adoption of a secondary payment obligation of the Fund is likely to cause problems in the practical implementation, in particular as regards the question of when the payment obligation of the Fund will arise. It will presumably prove difficult to determine when an investor has tried with sufficient effort or vigour to

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enforce an MIC decision in the traditional way. In this context, it appears to be delicate to define what proof of futile enforcement attempts the investor must provide in individual cases in order to trigger the fund’s obligation to pay. Moreover, the insuring character of the Fund’s secondary obligation might pose an incentive for investors to be half-hearted about enforcement in the traditional way. Apart from that, an only secondary payment obligation would inevitably require primary means of enforcement for MIC decisions through traditional mechanisms. Under these circumstances, the establishment of the Fund would not spare the creation of new agreements on the enforcement of MIC decisions as it has been examined above. Nevertheless, in cases where the investor can show that he is currently facing economic difficulties, a direct recourse to the Fund should be possible.

4.2.3

Should the Fund Be Obliged to Pay to a Maximum Amount Only?

A single MIC decision that significantly exceeds the average amount awarded could substantially reduce the fund’s volume at one stroke. One of the greatest difficulties in this context is likely to be the lack of predictability regarding the issuance of an above-average MIC decision. And even if the granting of such a decision should be foreseeable in individual cases, the question arises as to how to react to that prospect. For example, a special deposit obligation could be established in the MIC Statute which would only affect the respondent state in the respective large-scale proceedings. Or all MIC members could be obliged to make an additional deposit if such a large-scale case is pending or about to be decided. However, these proposals do not necessarily seem practicable or appropriate. The question already arises, for example, as to why states that do not participate as respondents in the respective proceedings should agree to make additional deposits. One way of circumventing this problem entirely would be to set a maximum amount up to which the Fund would pay for the satisfaction of an MIC decision. Furthermore, it could be considered whether only specific investors should qualify for drawing such a guarantee from the fund (e.g. investors in insolvency or similar situations; SME; etc.) This would make it easier to predict and calculate the financial burden on the Fund. In this connection, however, the question arises as to the calculation of the maximum amount or the criteria for determining it. It would perhaps be appropriate to cover MIC decisions up to an average amount, whereby the question again arises as to how the average amount should be determined. As long as the MIC has not yet started its work, no assertions can be made about the average amounts awarded by it. Therefore, for the initial phase, the average amount awarded by arbitral tribunals could be used, which, according to the UNCTAD, is approximately $125 million.65 The MIC Statute could prescribe that the average statistical amount—as published

65

UNCTAD (2018), p. 5 (average amount awarded in 2017; excluding the Yukos Cases).

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by the UNCTAD—is to be used initially for 3 years as the maximum sum to be paid out by the Fund. After 3 years, the maximum amount could be recalculated on the basis of the amounts that have been awarded by the MIC during the 3 years. In addition, the MIC Statute should provide for a regular recalculation of the maximum sum every 3 years anyway, so that the Fund is adapted as regularly as possible to the reality of the Court’s rulings. In the same way, of course, the deposits to be paid by the MIC members would then also need to be adjusted. In general, inserting a cap on the amount paid by the Fund balances the need to ensure the implementation of the MIC decisions on the one hand and the predictability and limitation of the deposits to be contributed to the Fund on the other. Even before initiating the proceedings, the investor could calculate with the fact that he will be able to realise an MIC decision up to the maximum amount covered by the Fund. In this respect, the investor might not be dependent on having to go through expensive and lengthy enforcement proceedings in different states, which may ultimately not lead to a result, if such primary enforcement attempts are not a necessary condition for the Fund to pay. This would be an enormous advantage for the investor in comparison to the usual arbitration proceedings, in which he may have to look worldwide for enforceable assets of the respective state if the latter does not voluntarily comply with its payment obligation under the arbitral award and in which the investor might have to deal with issues arising from enforcement immunity. In other words, up to the maximum amount covered, the Fund would therefore act as some sort of insurance for the investor. However, it must be borne in mind that, if a cap is inserted for the payment obligation of the Fund, other (standard) enforcement mechanisms must also be made available for the enforcement of MIC decisions. In this respect, it would again amount to making use of mechanisms that either already exist or are yet to be created. Since—as already explained above—it does not seem advisable to simply declare the New York Convention or the ICSID Convention applicable, the proposals for a “New York Convention 2.0” or an Additional Protocol to the existing New York Convention would once again have a particular significance here.

4.2.4

Member States’ Obligation to Continuously Replenish the Fund

There should be an obligation on members to replenish the Fund whenever necessary. In this context, two different obligations of members have to be distinguished: Firstly, there is the duty of all MIC members to make the standard deposit. Secondly, there must be an obligation on an adjudged member to repay to the Fund any money the latter has paid on the member’s behalf to an investor. Thus, the second obligation is actually only aimed at those members that have been adjudged by the MIC. Accordingly, the basic functioning of the Fund should be the following: Each member makes a standard deposit when acceding to the MIC Statute. In so doing, the member has done its duty to the Fund. If a member is adjudged by the MIC and the sum is paid from the Fund, the adjudged member, for whose obligation the Fund has paid, must, on the one hand, repay its deposit (or repay the missing part if the

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sentence was lower than the standard deposit) and, on the other hand, replace the amount paid by the Fund in excess of its deposit. The Fund therefore has a continuous claim against each member to keep up its standard deposit. In addition, the Fund must always acquire a claim against a member if it has satisfied a payment obligation on behalf of that member under an MIC decision. How exactly this works must be laid down in the MIC Statute. The described functioning of the Fund allows at this point a comparison with the function of the Multilateral Investment Guarantee Agency (MIGA) and the provisions contained in the MIGA Convention.66 The MIGA Convention stipulates guarantees for investments undertaken in developing countries against non-commercial risks, such as currency transfer or expropriation,67 and is thereby a typical example for a political risk insurance.68 In the context of the replenishment of the Fund by the MIC members, Art. 18(a) MIGA Convention is of particular interest, which reads as follows: Upon paying or agreeing to pay compensation to a holder of a guarantee, the Agency shall be subrogated to such rights or claims related to the guaranteed investment as the holder of a guarantee may have had against the host country and other obligors. The contract of guarantee shall provide the terms and conditions of such subrogation.

If the MIGA pays compensation to the holder of a guarantee, with this payment, the original claim against the host country is transferred from the holder of the guarantee to the MIGA. Thus, Art. 18(a) MIGA Convention provides for an automatic subrogation.69 Such an automatic subrogation should also be provided for in the MIC Statute in case the Fund satisfies an investor’s claim. However, if the Fund covers the claim only up to a certain amount (e.g. fixed maximum amount), there remains a separate claim of the investor against the respondent in the amount of the unpaid part. In general, the transfer of a claim is possible in the form of an agency or an assignment.70 Accordingly, an option would be to regulate the transfer of the investor’s claim to the MIC in the MIC Statute in the form of an agency. Once the money has been paid by the Fund to the investor, the Court could take action against the member on behalf of the investor. The MIC would then assert the claim in the investor’s name.71 Alternatively, the regulation in the form of an assignment could also be envisaged. In this case, the MIC would take the place of the investor. The

66

Convention Establishing the Multilateral Investment Guarantee Agency (went into effect in 1988). 67 Art. 2, 11 MIGA Convention. 68 Martha (2015), p. 571; Williams (1993), p. 62. 69 For details on the legal classification of the provision and the subrogation: Seidl-Hohenveldern (1987), pp. 111 et seqq. 70 Martha (2015), p. 571. 71 On the functioning of an agency: Martha (2015), p. 571.

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investor would thus cease to have a claim and would no longer be able to assert any rights from it.72 A subrogation arrangement in the form of an assignment appears to have the advantage over an agency of creating clearly separate legal relationships. As soon as the Fund has satisfied an investor’s claim arising from an MIC decision entirely, the investor leaves the legal relationship of formerly three parties (i.e. investor, respondent, and MIC). Any subsequent recourse is limited to the relationship between the MIC and its member. However, this only applies with regard to the amount the subrogation has taken place in. For any remaining (non-reimbursed) amount outside this guaranteed sum, it remains to be only a bilateral relation between the investor and the respondent state. The above-cited Art. 18(a) of the MIGA Convention could be reformulated in order to adapt it to the needs of the MIC and the Fund: Upon satisfying or agreeing to satisfy a Member’s obligation under an MIC decision by payment to the benefited investor, the MIC shall be subrogated to such rights or claims related to the respective decision as the holder of the decision may have had against the Member and other obligors. The subrogation shall be effected in the form of assignment.

However, assignments of this kind are not very widespread in international law.73 This applies in particular to the assignment of claims arising from an arbitral award in investment arbitration or other decisions.74 However, in the end it can probably be assumed that there are no objections with regard to the assignability of such claims if consent has been given.75 For this reason, such an arrangement providing for the claim’s assignment would require the express consent of the third party76—in the case of the MIC, this would be the consent of the respondent concerned. Therefore, upon accession to the MIC Statute, the members should have to declare their general consent with this type of subrogation to the Court in case the Fund satisfies an investor’s claim. In addition, when filing the claim with the MIC, the investor should agree to the described procedure and, in particular, the resulting subrogation. However, there is no reason why the investor should not be given the choice as to whether he wishes to exclude the utilisation of the Fund in general. This should also be declared by the investor when filing the claim. Eventually, the subrogation leads to the extinction of the obligations of the adjudged member vis-à-vis the investor and to the creation of new obligations of that member vis-à-vis the Court.77 In the end, however, a severe problem arises when such a subrogation is envisaged: If the investor is satisfied by the Fund and the claim ultimately passes to the MIC, the Court is also faced with the problem of enforcement. If the adjudged member is unreasonable and unwilling to pay, it will not have been willing to pay the 72

On the functioning of an assignment: Martha (2015), p. 571. Martha (2015), p. 571. 74 Martha (2015), p. 569. 75 Martha (2015), p. 570. 76 Martha (2015), p. 571. 77 To the effects of a subrogation: Martha (2015), p. 572. 73

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investor, nor will it later be willing to comply with the MIC’s recourse claim. For example, Art. 57 MIGA Convention together with the procedure set out in Annex II to the Convention provides that disputes between the MIGA and the host country arising out of a subrogation shall normally be settled by negotiation, conciliation and arbitration. However, since the existence of the investor’s original claim against the member has already been established by the MIC and thus by judicial proceedings, it would be absurd to carry out arbitration proceedings again. Nevertheless, it needs to be kept in mind that the subrogated claim actually seizes to be “a decision” once it passes to the MIC. Therefore, it should be considered whether the MIC Statute could prescribe that the subrogated claim cannot be challenged or disputed by the adjudged state after the fact. However, this ultimately results in the Court being dependent, on the one hand, on the success of diplomatic efforts with regard to the claim for recourse. On the other hand, alternatively, consideration could still be given to providing for internal sanctions for the defaulting member. A similar notion can be found in Art. 19 of the UN Charter, where a State may lose its voting rights if payments are outstanding. Transferred to the MIC conception, a member could for example lose its participation and voting rights in other institutions of the MIC as long as payments are outstanding and no sufficient reason has been given. Another option might be that the protection of the debtor’s investors could be suspended. Furthermore, it could be thought of a cooperation in this regard with other international organisations. An example could be a cooperation with the WTO based on the idea that the home state of the investor could be given the right to suspend concessions given inter alia to the respondent state. In addition, it could be considered to grant all WTO members the right to suspend concessions or collect duties/tariffs on imports originating in the respondent state that is unwilling to pay. This, of course, would affect especially private enterprises of the respective state. Therefore, the question has to be posed whether such an approach could somehow be limited to state-owned enterprises (SOEs). Another possibility could be to enter into a cooperation in this regard with the World Bank or the International Monetary Fund (IMF). The World Bank, for example, could suspend further future long-term credit lines. However, when such a cooperation is envisaged, it must always be kept in mind that it may be necessary to amend the statutes of the respective international organisations in order to enable them to implement such sanction mechanisms. However, in order to prevent a dispute between members, internal liability should in any case be excluded. When the Fund settles a payment obligation of a member which goes beyond the standard deposit, a stock of the Fund which cannot be attributed to the convicted member is affected. In the event that the member does not comply with the Fund’s claim for recourse, it should not be possible for other members to take internal action against the defaulting member. Anything else would have too much potential for dispute. Only the Fund, as an organ of the MIC, should be able to assert the claim of recourse.

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Ranking Order for Satisfaction of Investors

If the Fund has to provide for the satisfaction of investors, a problem may arise if the MIC issues several decisions in favour of investors at short intervals. The Fund can then quickly reach its financial limits due to the mere number of decisions (against different members) made in a short period of time. Also, it is possible that several MIC decisions may be rendered against the same member in favour of different investors. If a single member is adjudged to payment in several proceedings, this must not be to the detriment of the winning investors. At any rate, it should always be ensured that they are satisfied by the Fund in accordance with the provisions of the MIC Statute. Therefore, it is important to ensure that the financial resources of the Fund are sufficient to ensure the satisfaction of investors even if several decisions are made against the same member at the same time. In any case, the question arises as to the order in which the respective investors are to be satisfied by the Fund. In principle, a chronological order can be considered, depending on the issuing date of the respective MIC decision. This merely creates the problem that the Court could theoretically influence, by delaying the issuing of the decision, which investor will obtain a higher priority in the payment procedure. Furthermore, it might also be sensible to take the economic viability of the respective investor into account. In particular, consideration could be given to favouring small and medium-sized enterprises (SMEs) in the ranking for satisfaction from the Fund, as it would be more difficult for them to raise the financial resources for other enforcement attempts.

4.2.6

Miscellaneous Aspects to Be Codified in the MIC Statute

In addition to the main aspects of the design of the Fund mentioned above, it is advisable to address a number of miscellaneous points in the MIC Statute. In this regard, for example, banks should be consulted on the design of the Fund in order to identify cultural differences that should be addressed by appropriate regulations.78 In the financial sector, especially religious groups have different notions and expectations about how to conduct financial transactions. Possible difficulties that are within the realm of predictability should be ruled out as far as possible by seeking the advice of experienced financial experts. In addition, a dispute should be avoided, as it once arose at the IUSCT. The relevant documents did not regulate what would happen to the interest on the $1 billion security account, which led to a dispute between Iran and the United States over its whereabouts.79 With regard to the MIC Fund, it should therefore be stipulated in the MIC Statute that any interest accruing should be credited to the Fund and used in the same way as the other money holdings to satisfy investors.

78 79

Similar suggestion made by: Brilmayer et al. (2017), pp. 146 et seq. IUSCT, Decision No. DEC 12-A1-FT (03 August 1982); Brilmayer et al. (2017), p. 146.

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Alternatively, such interest could be used, for example, for capacity building in the field of international investment law. Furthermore, the MIC Statute should lay down rules on what happens to the money paid in if the MIC should be dissolved.80 For example, outstanding payments to investors should take priority over the repayment of deposits to members. The remaining funds should be allocated in such a way that the deposits are repaid to the members in proportion to the original amount of the deposit. In the event that a single member withdraws from the MIC while the Court continues to exist, the MIC Statute should provide that its standard deposit is to be repaid.

4.3

Interim Result

In conclusion, it becomes clear after the analysis that setting up a fund for the enforcement of MIC decisions is not an easy task. There are many individual aspects which should be taken into account and addressed in the MIC Statute when drafting the relevant provisions. Nevertheless, the establishment of such a fund is a worthconsidering option for making MIC decisions more effective and might lead to a greater attractiveness of the MIC. In view of the fact that the costs of such a fund should at least remain calculable, the determination of a maximum amount for the fund’s payment obligation appears to be a recommendable solution.

5 Summary and Outlook One of the points brought forward against the future establishment of a Multilateral Investment Court is the issue of effective enforcement. Most likely, procedures under the Multilateral Investment Court will not be covered by the ICSID Convention. Thus, the enforcement mechanism laid down in articles 52–54 of the ICSID Convention will not apply to MIC decisions. Also enforcement under the New York Convention is not guaranteed. Domestic courts would decide on whether MIC decisions qualify as arbitral awards as defined by the New York Convention of 1958. Therefore, the MIC should make sure its decisions are enforceable and not dependent on the goodwill of either respondent states or domestic courts of third states. The MIC should have its own enforcement mechanism. The present contribution has shown that, in principle, different options seem possible when aiming at the establishment of an efficient enforcement mechanism for the MIC. In this context, the treaty establishing the multilateral investment court

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The statutes of only a few international organisations contain provisions on their dissolution. A good example of the regulation of dissolution, also in financial terms, is Art. VI (5) of the Articles of Agreement of the International Bank for Reconstruction and Development (the World Bank).

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(MIC Statute) is one of the central pivots. General principles and rules could already be laid down there. More detailed procedures could then be formulated in easy to amend rules on the level of secondary law. Existing international rules could serve as a model for the drafting of rules specially tailored to the needs of an MIC. The ideas of the New York Convention of 1958 take into account the public policy and therefore also sovereignty of those states, on whose territory enforcement is supposed to take place. The enforcement mechanism under the ICSID Convention, in contrast, is characterised by its exceptional effectiveness. Both models should be taken into account when formulating new rules for the MIC and it should be examined to what extent they might suit the needs of the Court. Alternatively, the establishment of an enforcement fund could be considered. All members of the MIC would have to contribute to such a fund, and under certain conditions successful claimants—especially small and medium-sized enterprises— could have access to at least a part of the awarded compensation in cases where the respondent is not willing to pay the awarded sum immediately. In such cases, claims against the losing party arising from an MIC decision could then be subrogated to the Fund. The Fund or the Multilateral Investment Court itself could then enforce these claims against the respondent, possibly in cooperation with other international organisations. In the final analysis, the present paper demonstrates that effective enforcement of decisions of a future MIC can be guaranteed. The topic should thus not be used to try to stop discussions on the establishment of an MIC.

Annex 1: Summarising Table on the Results of the Paper Possible construction? Existing mechanisms Using NYC (+)

Reason(s) for impossibility

Using ICSID Convention

 MIC’s two-tiered structure  MIC will probably not comply with non-derogable ICSID provisions (! Art. 41 VCLT)

()

Main advantage (s)

Main disadvantage(s)

 widely accepted instrument for enforcement

 interpretation authority of national courts  Art. V NYC (esp. public policy)

 almost absolute enforcement

(continued)

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M. Bungenberg and A. M. Holzer Possible construction? ()

Yet-to-be-created instruments Enforcement (+) Mechanism Included in MIC Statute

“NYC 2.0”

(+) (recommendable option)

“ICSID Convention 2.0”

(+)

Taking Documents Ensuring Enforcement of Judgments as Template for new Convention Additional Protocol to NYC

(+) (because of similarities to NYC: same arguments apply as for NYC 2.0) (+)

Additional Protocol to Documents Ensuring

(+)

Reason(s) for impossibility  missing “nationality”/ “domestic origin” of MIC decisions

Main advantage (s)

Main disadvantage(s)

 could be modelled on Art. 54 ICSID Convention

 likely to be only binding on MIC Members  binding effect on third states only on voluntary basis and therefore unlikely  third states’ domestic courts might retain some control over enforcement of MIC decisions on their territory (if Art. V-like provision is included)

Possible construction:  Art. V-like provision in “NYC 2.0” only applies to third states (not to MIC Members)  absolute enforcement within MIC Members  almost absolute enforcement, at least within MIC Members

 large number of NYC member states

 nearly no incentive for third states to access the Convention

 only within limits of Art. 41 VCLT  because of Art. 41 VCLT: no exclusion of Art. V NYC possible  Hague and Lugano Conventions have only small number of (continued)

Potential Enforcement Mechanisms for Decisions of a Multilateral Investment. . . Possible construction? Enforcement of Judgments

Reason(s) for impossibility

Main advantage (s)

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Main disadvantage(s) members  Brussels-IaRegulation: EU legal act; circle of members cannot easily be extended

Annex 2: Convention on the Recognition and Enforcement of Decisions Made by the Multilateral Investment Court (MIC) (New York Convention 2.0)

Article I 1. This Convention shall apply to the recognition and enforcement of decisions made by the Multilateral Investment Court (MIC) according to the Statute Establishing the Multilateral Investment Court (hereinafter “MIC Statute”). 2. A decision, in this context, needs to show the following characteristics: It has to be a final decision rendered by the MIC disposing of one or more substantial aspects submitted to the Court, including decisions on procedural requirements, but, in the latter case, only, if their non-fulfillment would lead to the termination of the proceedings.81 Article II 1. Each Contracting Party shall recognise an agreement in writing under which the parties undertake to submit to the MIC all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by the MIC. 2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters, emails, or in any other recorded form. 3. The court of a Contracting Party, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to the

The definition given here is strongly based on the proposed definition of the term “award” in: Peters/Koller, The Notion of Arbitral Award: An Attempt to Overcome a Babylonian Confusion, in: Austrian Yearbook on International Arbitration (2010) 137 (158).

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MIC, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Article III Each Contracting Party shall recognise MIC decisions as binding and enforce them in accordance with the rules of procedure of the territory where the decision is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of MIC decisions than are imposed on the recognition or enforcement of domestic arbitral awards or judgments. Article IV 1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply: (a) The duly authenticated original MIC decision or a duly certified copy thereof; (b) The original agreement referred to in article II or a duly certified copy thereof. 2. If the said decision or agreement is not made in an official language of the country in which the decision is relied upon, the party applying for recognition and enforcement of the decision shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent. Article V 1. Recognition and enforcement of the decision may be refused in and by States, which are not Members of the MIC Statute themselves (non-MIC-members), at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it; or (b) The party against whom the decision is invoked was not given proper notice of the appointment of the judge or of the MIC proceedings or was otherwise unable to present his case; or (c) The decision deals with a difference not contemplated by or not falling within the terms of the submission to the MIC, or it contains decisions on matters beyond the scope of the submission to the MIC, provided that, if the decisions on matters submitted to the MIC can be separated from those not so submitted, that part of the decision which contains decisions on matters submitted to the MIC may be recognised and enforced; or

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(d) The composition of the MIC chamber or the MIC procedure was not in accordance with the agreement of the parties; or (e) The decision has not yet become binding on the parties, or has been set aside or suspended in second instance proceedings before the MIC. 2. Recognition and enforcement of a decision may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by the Multilateral Investment Court under the law of that country; or (b) The recognition or enforcement of the decision would be contrary to the public policy of that country. Article VI Recognition or enforcement may be postponed or refused if the decision is the subject of review before the MIC’s second instance or if the time limit for seeking such review has not expired. A refusal does not prevent a subsequent application for recognition or enforcement of the decision. Article VII If an application for the setting aside or suspension of the decision has been made to a competent authority referred to in article V (1) (e), the authority before which the decision is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the decision and may also, on the application of the party claiming enforcement of the decision, order the other party to give suitable security. Article VIII Recognition or enforcement of a severable part of a decision shall be granted where recognition or enforcement of that part is applied for, or only part of the decision is capable of being recognised or enforced under this Convention. Article IX The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of MIC decisions entered into by the Contracting Parties nor deprive any interested party of any right he may have to avail himself of an MIC decision in the manner and to the extent allowed by the law or the treaties of the country where such decision is sought to be relied upon.

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Article X 1. This Convention shall be open until 31 December 20XX for signature on behalf of any Member of the United Nations and also on behalf of any other party which is or hereafter becomes a party to the Statute of the MIC. 2. This Convention shall be ratified and the instrument of ratification shall be deposited with the Secretary-General of the United Nations. Article XI 1. This Convention shall be open for accession to all States or other parties referred to in article X(1). 2. Accession shall be effected by the deposit of an instrument of accession with the Secretary-General of the United Nations. Article XII 1. Any Party may, at the time of signature, ratification or accession, declare that this Convention shall extend to all or any of the territories for the international relations of which it is responsible. Such a declaration shall take effect when the Convention enters into force for the Party concerned. 2. At any time thereafter any such extension shall be made by notification addressed to the Secretary-General of the United Nations and shall take effect as from the ninetieth day after the day of receipt by the Secretary-General of the United Nations of this notification, or as from the date of entry into force of the Convention for the State concerned, whichever is the later. 3. With respect to those territories to which this Convention is not extended at the time of signature, ratification or accession, each Party concerned shall consider the possibility of taking the necessary steps in order to extend the application of this Convention to such territories, subject, where necessary for constitutional reasons, to the consent of the Governments of such territories. Article XIII In the case of a federal or non-unitary State, the following provisions shall apply: (a) With respect to those articles of this Convention that come within the legislative jurisdiction of the federal authority, the obligations of the federal Government shall to this extent be the same as those of Contracting Parties which are not federal States; (b) With respect to those articles of this Convention that come within the legislative jurisdiction of constituent states or provinces which are not, under the constitutional system of the federation, bound to take legislative action, the federal Government shall bring such articles with a favourable recommendation to the notice of the appropriate authorities of constituent states or provinces at the earliest possible moment; (c) A federal State Party to this Convention shall, at the request of any other Contracting Party transmitted through the Secretary-General of the United Nations, supply a statement of the law and practice of the federation and its

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constituent units in regard to any particular provision of this Convention, showing the extent to which effect has been given to that provision by legislative or other action. Article XIV 1. This Convention shall come into force on the day following the date of entry into force of the MIC Statute. 2. For each Party ratifying or acceding to this Convention after its entry into force according to Paragraph 1 of this Provision, this Convention shall enter into force on the ninetieth day after deposit by such Party of its instrument of ratification or accession. Article XV 1. Any Contracting Party may denounce this Convention by a written notification to the Secretary-General of the United Nations. Denunciation shall take effect one year after the date of receipt of the notification by the Secretary-General. 2. Any Party which has made a declaration or notification under article XII may, at any time thereafter, by notification to the Secretary-General of the United Nations, declare that this Convention shall cease to extend to the territory concerned one year after the date of the receipt of the notification by the Secretary-General. 3. This Convention shall continue to be applicable to MIC decisions in respect of which recognition and enforcement proceedings have been instituted before the denunciation takes effect. Article XVI The Secretary-General of the United Nations shall notify the Parties contemplated in article X of the following: (a) (b) (c) (d)

Signatures and ratifications in accordance with article X; Accessions in accordance with article XI; Declarations and notifications under articles XII and XIII; The date upon which this Convention enters into force in accordance with article XIV; (e) Denunciations and notifications in accordance with article XV.

Article XVII 1. This Convention, of which the Chinese, English, French, Russian and Spanish texts shall be equally authentic, shall be deposited in the archives of the United Nations. 2. The Secretary-General of the United Nations shall transmit a certified copy of this Convention to the Parties contemplated in article VIII.

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Seidl-Hohenveldern I (1987) Subrogation under the MIGA Convention. ICSID Rev Foreign Investment Law J 2:111–121 Shelton D (2009) Form, function, and the powers of international courts. Chic J Int Law 9:537–571 Stein T, von Buttlar C, Kotzur M (2017) Völkerrecht, 14. Auflage. Verlag Franz Vahlen, München. Titi C (2017) The European Union’s proposal for an International Investment Court: significance, innovations and challenges ahead. TDM 14:1–35 UNCITRAL (2017) Possible future work in the field of dispute settlement: reforms of Investor-State Dispute Settlement (ISDS), A/CN.9/917, 20.04.2017 UNCITRAL Working Group III (2018) Possible reform of Investor-State Dispute Settlement (ISDS) – note by the secretariat. A/CN.9/WG.III/WP.149, 05.09.2018 UNCTAD (2018) IIA Issues Note, June 2018, Investor-State Dispute Settlement – review of developments in 2017 (UNCTAD/DIAE/PCB/INF/2018/2) Villiger ME (2009) Commentary on the 1969 Vienna Convention on the Law of Treaties. Martinus Nijhoff, Leiden von Arnauld A (2016) Völkerrecht, 3. Auflage. C.F. Müller, Heidelberg Waincymer J (2012) Procedure and evidence in international arbitration. Kluwer Law International. Williams SL (1993) Political and other risk insurance: OPIC, MIGA, EXIMBANK and other providers. Pace Int Law Rev 5:59–113 Wolff R (ed) (2012) New York Convention – Convention on the recognition and enforcement of foreign arbitral awards of 10 June 1958 – commentary. C.H. Beck, München Wolfrum R (ed) (2019) The Max Planck Encyclopedia of Public International Law, Online Version, Oxford University Press. www.mpepil.com [cited as: [author], [title], in: MPEPIL, [paragraph] [date of access]]

Marc Bungenberg LLM is the Director of the Europa-Institut and a Professor of Public Law, Public International Law and European Law at Saarland University in Germany, a Permanent Visiting Professor at the University of Lausanne/Switzerland and inter alia a member of the scientific advisory board to the International Investment Law Centre in Cologne. He has presented independent expert opinions on the proposed EU-China Investment Agreement, the proposed Multilateral Investment Court (CETA) and on Trade Defence Instruments in the European Union for the German Government as well as the European Parliament. His main fields of research are European (Common Commercial Policy, public procurement and state aid law) and International Economic Law, particularly International Investment and Trade Law and WTO Law. Anna M. Holzer, LL.M. (LSE) is a doctoral candidate and research assistant to Prof. Dr. Marc Bungenberg at the Europa-Institut (Saarland University, Germany). She graduated from Johannes Gutenberg University (Mainz) with the First State Exam, followed by the legal clerkship and the Second State Exam in Hesse. After completing her LL.M. at the London School of Economics, she now mainly focuses on procedural issues in the context of international arbitration.

Impossible Ethics? A Critical Analysis of the Rules on Qualifications and Conduct of Adjudicators in the New EU Investment Treaties Güneş Ünüvar and Tim Kreft Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Permanent Investment Courts as a Response to Systemic Criticism . . . . . . . . . . . . . . . . . . . . . . . 2.1 An Overview of the Current Systemic Criticism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Link Between the Conduct of International Adjudicators, Their Role, and Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Mapping the Current Landscape of Rules on Ethics and Qualifications of International Adjudicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 International Arbitration: ABA Codes of Ethics and IBA Guidelines . . . . . . . . . . . . . . . 3.2 International Investment Agreements (IIAs): Current and Future Framework . . . . . . 3.3 International Courts and Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 From Arbitrators to Judges: A(nother) Paradigm Shift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract This contribution will outline and analyze a selection of rules on qualifications of judges, and the framework of rules on ethics, vis-à-vis perceived problems related to arbitrators in investor-State dispute settlement (ISDS). It specifically focuses on the conduct, ethics and qualifications of “Members of Tribunal” for a series of new generation EU Agreements (CETA, EUVIPA, EUSIPA, EUMEX, TTIP) pursuant to publicly available documents at the time of the writing. It will identify the core characteristics of rules on ethics and qualifications in arbitration and the prescribed ICS practice, as well as the relevant rules governing international courts such as the International Court of Justice (ICJ) and the International Criminal Court (ICC). The contribution will detail provisions in each EU Agreement; as well as the new USMCA or “NAFTA 2.0”, as a strikingly different take on what ‘reform’ This research has been funded by the Carlsberg Foundation (Carlsbergfondet), and conducted under the auspices of iCourts, funded by the Danish National Research Foundation Grant no. DNRF105. G. Ünüvar (*) and T. Kreft Faculty of Law, University of Copenhagen, Copenhagen, Denmark e-mail: [email protected] © Springer Nature Switzerland AG 2020 G. Ünüvar et al. (eds.), Permanent Investment Courts, European Yearbook of International Economic Law (2020): 119–150, https://doi.org/10.1007/8165_2020_47, Published online: 30 June 2020

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could look like. In comparing these two different contextual applications of ethical rules (to arbitrators and judges respectively), the contribution will finally argue that, given their fundamentally different sources of authority and perceived (reputational and actual) duties and responsibilities, any confusion in applying ethical rules tailored for arbitrators to international court judges will prove to be problematic and work against intended reform objectives such as (re)establishing legitimacy.

1 Introduction In international arbitration, rules governing the ethics and qualifications of its actors, such as legal counsel and arbitrators, are infamously fragmented.1 This is also the case for investor-State dispute settlement (ISDS), a system essentially based on arbitration. The vast majority of international investment agreements (IIAs) lack a detailed set of provisions dedicated to arbitrator ethics or qualifications. Sets of ethics rules, such as those produced by the International Bar Association (IBA) or American Bar Association (ABA) voluntarily apply to arbitral disputes; including to those between foreign investors and host states. Until recently, the sole adjudicator in ISDS was the arbitrator. While this still remains the case de facto, a series of newer generation international investment agreements (IIAs) introduce international judges in the new permanent investment court system (ICS), and attach important ethics and qualifications rules to their performance. Others, while retaining the arbitration core of their investor-State dispute settlement (ISDS), introduce more detailed and elaborate rules that govern different kinds of professional and personal activities and their interaction with actual or perceived impartiality and independence of its arbitrators.2 This shift in policy (from arbitration/arbitrators to ICS/judges) is best observed in some recent treaties negotiated by the European Union (EU).3 The reason for the shift (and a plethora of other ‘upgrades’ to the system, as proposed by the EU) is to “ensure the highest standards of legitimacy, transparency and neutrality”.4 The ICS has so far been showcased as the pathway to a fairer, more predictable, more democratic, and more transparent dispute settlement end-game: the Multilateral Investment Court (MIC).5 Issues such as party appointment, bias, reappointment of a ‘club' of arbitrators and opaque dynamics of the arbitrator-lawyer

1

Dunoff and Giorgetti (2019), p. 280, Rogers (2014), p. 18. USMCA. 3 CETA, EUVIPA, EUSIPA, TTIP Proposal, and EUMEX. These agreements will hereinafter be collectively referred to as the “EU Agreements”. 4 Investment disputes—Trade-European Commission. https://ec.europa.eu/trade/policy/accessingmarkets/dispute-settlement/investment-disputes/#_policy. Accessed 27 March 2020. 5 See, generally, Bungenberg and Reinisch (2020). 2

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community have been seen as hindrances to a legitimate and fair system—and this series of provisions are proposed as a systemic remedy. It is imperative to have a deeper understanding of these provisions, as they are set to regulate virtually all professional and judicial conduct of adjudicators. Upon this background, this paper will examine rules on qualifications of judges as well as the framework of rules on ethics, vis-à-vis perceived problems related to arbitrators in investor-State dispute settlement (ISDS). It focuses particularly on the new treaty-based framework on the conduct, ethics and qualifications of adjudicators, in this case primarily the “Members of Tribunal” for each EU Agreement, pursuant to publicly available documents at the time of writing. It will identify the core characteristics of rules on ethics and qualifications in arbitration and the prescribed ICS practice, as well as the relevant rules governing international courts such as the International Court of Justice (ICJ) and the International Criminal Court (ICC). The contribution will detail provisions in each EU Agreement; as well as the new USMCA or “NAFTA 2.0”, as a strikingly different take on what ‘reform’ could look like. In comparing these two different contextual applications of ethical rules (to arbitrators and judges respectively), the contribution will finally argue that, given their fundamentally different sources of authority and perceived (reputational and actual) duties and responsibilities, any confusion in applying ethical rules tailored for arbitrators to international court judges will prove to be problematic. Such confusion, which was present in at least one EU Agreement until October 2019, could even act as a destabilizing factor, working precisely against its intended objective: legitimacy. The paper is organized as follows: Sect. 2 will address the shift from arbitration to more permanent modes of dispute settlement as a remedy against systemic criticism targeting the IIL regime. Section 3 will outline and analyze a selection of available sets of rules on ethics and conduct of adjudicators, including rules prepared by bar associations, new generation EU Agreements as well as the USMCA. It will then compare the framework embedded in some international courts such as the ICJ, ECtHR and ICC to the arbitral framework. Section 4 will focus on differences, both content and context-wise, between arbitrators and judges, juxtaposed with the recent framework presented by the available sets of rules examined under Sect. 3. Section 5 will conclude.

2 Permanent Investment Courts as a Response to Systemic Criticism 2.1

An Overview of the Current Systemic Criticism

It has been said that the international investment law (IIL) regime was victim of its own success.6 Its frequent use as a means to settle disputes between 6

Alvarez (2011), p. 351.

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foreign investors and their host states, and the exponential growth in the number of cases since the early 2000s continue to cause ripples in international adjudication of economic disputes. Its success notwithstanding, a number of underlying economic, political and ideological factors also played into its success and its consequential scrutiny by the public, academics, professionals and the like. It is increasingly recognized that the underlying objectives of IIL are moving towards setting the international standards, rights and obligations of states and investors alike.7 Given these shifting paradigms regarding the nature and purpose of IIL and policy, the existing regime stands at a crossroads of its historical development. Investor-State disputes can have far-reaching consequences on the general public. Often perceived as a ‘private’ means of dispute settlement by its critics,8 the use of arbitration for disputes that have an embedded public interest is a cumbersome and complex matter.9 Famous examples, Vattenfall v. Germany10 and the Philip Morris11 arbitrations, illustrate how an IIA could, in theory, lead to state responsibility due to measures seeking to benefit or protect the public. This discrepancy between the remedial features and the subject matter of some of investor-State disputes tossed some traditional features of arbitration (such as confidentiality of proceedings and party appointment of arbitrators) under the limelight. It is difficult to justify why party-appointed adjudicators, who also act as counsel, experts, tribunal secretaries or many other tasks and duties possible within the professional sphere of international arbitration, decide on such disputes which concern alleged violations committed by states as sovereigns vis-à-vis primarily economic rights of foreign investors recognized under IIAs. Moreover, the structural setting of arbitration and investment arbitration in particular is believed to favor private interests of investors.12 Increased

7 Hindelang and Krajewski (2016). The balance between enforceable rights and obligations of foreign investors vis-à-vis the general public is often perceived to be skewed towards investors as the sole claimants and direct beneficiaries of the system. This systemic asymmetry of IIL reflects an inherent injustice contrary to basic notions of fairness and equality, and in its current form, it is not aligned with nowadays demands of comprehensive international legal responses to negative impacts of globalized business and trade, including but not limited to international corporate responsibility. While this subject is beyond the scope of this contribution, the absence of fora for harmful business conduct has been comprehensively discussed elsewhere; see, Steinitz (2018). 8 Sornarajah (2006), p. 333. 9 Generally see, Van Harten (2008), Titi (2014). 10 ICSID, Vattenfall AB and others v. Federal Republic of Germany, Case No. ARB/12/12, https:// www.iisd.org/project/vattenfall-v-germany. 11 PCA, Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, Case No. 2012-12, Decision on Jurisdiction and Admissibility of 17 December 2015; ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Case No. ARB/10/7, Award of 8 June 2016. 12 In 2018, out of 50 “substantive decisions”, 29 were publicly available. Out of these public decisions, “about 70 per cent” were decided in favour of the investor “either on jurisdictional grounds or on the merits”. In 2017, “tribunals rendered at least 62 substantive decisions, 34 of which are in the public domain [. . .] Of these public decisions, more than half of the decisions on jurisdictional issues were decided in favour of the State, whereas those on the merits were mostly decided in favor of the investor.” See, UNCTAD (2019); cf. UNCTAD (2018).

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public and academic scrutiny on the issue led to an increased sensitivity towards the matter. In this context, the creation of the permanent Investment Court System (ICS), conceptualized by the European Commission in its newly negotiated trade and investment agreements, is one of the most noteworthy initiatives.13 The ICS proposal was intended to neutralize strong public opposition to the inclusion of investment protection provisions in the US-EU Trans-Atlantic Trade and Investment Partnership (TTIP) and the Canada-EU Comprehensive Economic and Trade Agreement (CETA), in particular concerning Investor-State Dispute Settlement (ISDS). The EU Commission introduced a number of significant reforms concerning both substantive matters (i.e. investor/investment promotion and protection) and the procedural framework (i.e. ISDS).14 In that vein, one of the most prominent features of the ICS is the transformation of the existing ad hoc arbitration system into “one which functions more like traditional courts systems, by making their appointment to serve as arbitrators permanent, to move towards assimilating their qualifications to those of national judges, and to introduce an appeal system”.15 In particular, the Codes of Conduct envisaged in the new EU FTAs and IIAs represent “an advance in terms of systematization, visibility, transparency and accountability”16 for the adjudicators and the system itself, and it represents “a rapprochement to highly critical public opinion”.17

2.2

The Link Between the Conduct of International Adjudicators, Their Role, and Legitimacy

One other significant contributing factor to arbitration’s infamy in the context of ISDS is arbitrators themselves.18 Instead of sustaining a system essentially managed by a select group of international legal professionals motivated primarily by private gain (and not necessarily a sense of public duty), adopting an institutional approach to duties and the ethics of adjudicators would bolster its legitimacy, democratize the system in its entirety and limit investor control over adjudicators. Features such as party-appointment, potential bias19 related to such party-appointment,

13 The compatibility of the Investment Court System with EU law and order has also been extensively discussed following the Opinion 1/17 of the Court of Justice of the EU, see ‘Trade: European Court of Justice confirms compatibility of Investment Court System with EU Treaties’. https://ec.europa.eu/commission/presscorner/detail/en/IP_19_2334. Accessed 29 March 2020. 14 See for a list, European Commission (2015b). 15 Ibid. 16 Gómez (2019), p. 191. 17 Ibid., p. 9. 18 Kalicki and Joubin-Bret (2015), p. 326. 19 Bernasconi-Osterwalder et al. (2011).

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reappointment of the members of an ‘incestuous’20 club of arbitrators, opaque dynamics of the arbitrator-lawyer community have been seen as hindrances to the possibility of a fair and legitimate system. So, it is necessary to dissect these new rules and see whether they introduce any improvements to a system riddled with ambiguity and shortcomings. The role, as well as the conduct of adjudicators is imperative to the overall legitimacy21 of judicial mechanisms and systems, regardless of whether they are national, international, private, or public. It bears the potential to elevate or undermine the procedural and substantive design put in place for a judicial system. The issue of legitimacy also includes what is perceived to be legitimate. According to Schefer, “[. . .] legitimacy [. . .] relies on the perceived legitimacy of the decisionmakers who are responsible for ensuring that the procedural rules are followed and the substantive rules are applied appropriately [. . .] [T]he tribunal members as individuals are an integral factor in the legitimacy of international dispute settlement as an institution.”22 According to Judge Burgenthal: “Judicial ethics are [. . .] matters of perception [. . .] that courts must continuously keep in mind to preserve their legitimacy [. . .] [T]he appearance of bias [. . .] [is] what judicial ethics are all about.”23 The conceptions on the role of the adjudicator in international investment disputes seem to be evolving along the lines of contemporary ‘public law’ understandings of IIL and arbitration.24 Expressed from the perspective of principal-agent theory, the arbitrator is increasingly understood as an agent of a broader public, to which he is accountable, rather than the agent of two disputing parties only.25 It has thus become insufficient to consider the parties alone in determining the necessary degree of qualifications, independence and impartiality—actual or perceived—of the arbitrator. Moreover, the issue of perceived bias—which entails that not only must

20

Fabri (2019), p. 308. Franck (2005), pp. 1586–87. 22 Schefer (2016), p. 216. 23 ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, I.C.J. Reports 2004, Dissenting opinion of Judge Buergenthal, Judgment of 30 January 2004, para. 10. 24 A strand of scholarship coneptualizes the IIL regime, including ISDS, as a public law system, see for example Van Harten (2008), Alvarez (2011), de Brabandere (2014). This “public law”, as opposed to “private law”, character brings about different and mostly higher expectations as to for example the applicable standards of transparency or regarding the qualifications and conduct of adjudicators. From this emerged the “paradigm shifters, a group of scholars within the different camps in the investment law and reform debate, who are contesting the system’s foundational premises. Arbitration forms a part of this set of criticized features, along with its principal actor, the arbitrator. For a more general take on the state of reforms and approaches to controversies in investment law, see Roberts (2013, 2018). 25 Stone Sweet (2011), pp. 4–7. 21

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justice be done, but it must be seen to be done26—has become more imminent, as the reach of perceptions to be included in the assessment increasingly extends to the public opinion. Hence, there have been numerous debates both amongst practitioners, scholars, and in public on how to bolster the legitimacy of ISDS with a focus on its main actor, the arbitrator. Hence, trust in the ethical standards of arbitrators and arbitral institutions has been identified as the ’Alpha and Omega’ of the legitimacy of the process and the ’Achilles’ heel’ of arbitration.27 The procedural frameworks and the investment treaties set hardly any substantive requirements regarding the qualifications that the arbitrators should have.28 The main purpose of such regulation is to secure the independence and impartiality of the judiciary, and thus they are a crucial element of fair trial, due process, and ‘checks and balances’.29 Nonetheless, it has been mainly left to self-regulation in the form of non-binding guidelines until recently.30 Considering the fact that arbitration has “in effect become a ‘primary justice system’, which has been [. . .] filled by men and women who are ‘in essence business people in search of opportunities’, creating a ‘tension between the personal commercial interests of the arbitrators and their public duty to do justice’”,31 it is perhaps not all that surprising that the integrity of arbitrators has been put under scrutiny. According to Fabri, “the perception of the issue of conflicts, and with it the tolerance threshold, has shifted over time; sensitivity to conflicts of interests and more generally to ethical questions has increased, in a context of desacralization of authority.”32 She also points out that the issue far surpasses investment law as its relevant domain, as to include the functioning of institutions such as the International Court of Justice (ICJ) and criminal courts.33 This relatively closed-off professional community exacerbated the debates on the existence of an elite ‘club’, given the fact that “investment arbitrators constitute an elite pool of law professionals”,34 and a relatively small number of individuals are

The principle of open justice is often expressed in the form of the aphorism “that justice should not only be done, but should manifestly and undoubtedly be seen to be done”, which is attributed to Lord Chief Justice Hewart in the English case R v Sussex Justices; Ex parte McCarthy, [1924] 1 KB 256, p. 259; Although, this case is prominent for introducing the dictum to domestic common law, the principle arguably already played a more significant role in the context of international adjudication, including early debates in the beginning of the twentieth century on the appointment of judges to the ICJ, see Oakes and Davies (2016), p. 461. 27 Paulsson (2014). 28 de Brabandere (2014), Van Harten (2010). 29 Schefer (2016), p. 216. 30 See section 4.1 below. 31 Paulsson (2014); citing Menon (2013) Keynote Address, ICCA Congress Series No. 17: International Arbitration: the Coming of a New Age for Asia (and Elsewhere). 32 Fabri (2019), p. 308. 33 Ibid. 34 Gaukrodger and Gordon (2012); cf. Costa and Augusto (2011), p. 14; Rogers (2005), p. 958. 26

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involved in most cases.35 One concern has been a perceived risk that “mutual backscratching” (between the arbitrators or between arbitrators and counsel) could lead to cases being decided on grounds other than the merits.36 While performing their multiple tasks as counsel, arbitrator, and expert witness in different cases, arbitrators can assume contradictory positions regarding essentially identical facts and issues, thus creating a risk of bias, including a perceived bias.37 This is not only about arbitrators per se, but about their appointees and appointment as well. Some believe, for instance, that some multinational law firms are driving demand for investment arbitration, acting like “sharks [. . .] circling the fallout” from, inter alia, economic crises and subsequent measures put in place by states to address such crises.38 It is also noted that counsel have another advantage in arbitration, that they already know the arbitrators and such familiarity “increases [. . .] chances of picking someone who will rule in [their] favour.”39 Through appointments and client direction, law firms are currently in a position to control arbitrator appointment in accordance with their needs, using personal connections and using adjudicator appointment as a litigation tactic to increase their chances of winning. This leads to issues of independence due to informal affinity and interaction between the arbitrator and the appointing party. This can manifest as possible (direct or indirect) pressure on an arbitrator to decide in a certain way due to personal motivations (e.g., reappointment), or more generally a tendency or responsibility felt by the arbitrator to decide in favor of the appointing party due to their background, education, political views, and so on.40 Recent years have seen a surge forward in very impactful empirical research on arbitrators themselves. These studies focused on, inter alia, who these arbitrators are, how they conduct their duties, and to what extent they engage in ‘doublehatting’, or in other words, fulfill different41 (and possibly conflicting) tasks within the international arbitration regime as arbitrators, counsel, experts, witnesses, and so on.42 According to John R. Crook, many “view dual-hatting [or double-hatting] as highly suspect, rife with potential for arbitrators, whether acting unconsciously or in knowing disregard of their ethical obligations, to render decisions that advance either the interests of their clients or their own interests in attracting or retaining clients.”43 Double-hatting may cast doubts on whether an adjudicator is impartial, and different

35

Generally see, Puig (2014); Langford et al. (2017). Gaukrodger and Gordon (2012); Paulsson (2010); cit. Buergenthal (2006). 37 Langford et al. (2017), p. 305. 38 Corporate Europe Observatory (2012); Eberhardt and Olivet (2012). 39 Ibid. 40 For the latter, see Waibel and Wu (2012). 41 Ziadé (2009). 42 Langford et al. (2017). 43 Crook (2019), p. 284. 36

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thresholds of permissibility seem to apply to arbitrators (in international arbitration more generally) and to international judges (in international courts) respectively. In light of the foregoing background, the EU Commission believes that the ‘upgrade’ from arbitrators to judges captures the public character of most foreign investment disputes. It abolishes party appointment in an attempt to install a more ‘democratic’ mechanism for the appointment of adjudicators—by delegating the task exclusively to the state, the only possible respondent in the current system.44 These judges, pursuant to a number of newer trade and investment agreements detailed in below sections, are subject to relatively stringent rules regarding their extrajudicial activities when compared to arbitrators. They are allowed much less discretion in how they can engage with adjudicatory tasks outside the international court with which they are primarily affiliated. In this connection, this so-called ‘upgrade’ also reveals that, in spite of its fragmented nature, the ethics applicable to international arbitrators and judges differ substantially in certain aspects. The fact that their primary affiliation is with their court, as opposed to their legal business and personal financial gain, plays a direct role in how judges can in fact be perceived to be more diligent, less biased and less likely to be corrupted by personal interests. Thus, an added element of this debate is what an arbitrator and an international judge stand for vis-à-vis international dispute settlement.

3 Mapping the Current Landscape of Rules on Ethics and Qualifications of International Adjudicators The Section below outlines a selection of rules on ethical conduct for adjudicators. The Section first delves into two sets of rules on ethical conduct in arbitration: the ABA Codes and the IBA Guidelines. It then focuses on the framework included in the EU Agreements applicable to their Members of Tribunal to highlight their overlaps and divergences. It then turns its attention to sets of rules regulating ethical conduct by international court judges vis-à-vis arbitral and ICS framework.

The issue of whether international court judges (and ICJ judges in particular) “vote in favour of their home state, or, in the case of ad joc judges, the state that appoints them” has been discussed extensively elsewhere. According to one study, “[ICJ judges] vote for their home states about 90 percent of the time”. However, this does not mean that judges do so “in a manner that promotes that strategic interests of their home states; it is possible that the judges vote in a manner that reflects their own psychological or philosophical biases.” While the paper will not go into the specifics of this matter, for a comprehensive study of the ICJ judges and national bias, see, Posner and de Figueiredo (2005).

44

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International Arbitration: ABA Codes of Ethics and IBA Guidelines

The AAA/ABA Code of Ethics for Commercial Arbitrators45 is a set of non-binding rules on legal ethics and professional responsibility for arbitrators. Albeit often referred to by many US federal and state courts as the defining framework of arbitrator conduct, its standards “do not have the force of law”.46 Hence, the Code “cannot in itself provide a basis for judicial decision” and arbitrator impropriety in violation of the rules cannot per se constitute a challenge to an awards validity.47 This is confirmed explicitly in the preamble, which states that “[. . .] by its terms the Code also does not establish new or additional grounds for judicial review of arbitration awards”. Nonetheless, the Code informs these regulations and is in fact a preeminent guiding and defining framework for ethical and responsible arbitrator conduct in commercial arbitrations, for instance, in the United States. The Code consists of ten thematically distinguished canons. Canon I addresses the integrity and fairness of the arbitration process. Canon I, B sets forth four conditions, according to which arbitrators should only accept appointment provided that he or she can serve (1) impartially; (2) independently; and that he or she is (3) competent; and (4) available. The Code does not provide for a single comprehensive definition of either independence or impartiality. Instead, it stipulates a number of specific duties that can be related to either concept, including obligations regarding disclosures (Canon II); communication with parties (Canon III); conducting proceedings fairly and diligently (Canon IV); just and deliberate decision making (Canon V); trust and confidentiality (Canon VI); compensation and reimbursement (Canon VII); advertising and promotion (Canon VIII). Canon I.C and I.D elaborate on the concept of independence and impartiality under the Code. Canon I.C stresses that arbitrators “should avoid entering into any business, professional, or personal relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality.”48 This applies both during the proceedings, as well as for a “reasonable period of time after the decision of a case” for any interest or relationship, “which might reasonably create the appearance that [the arbitrator] had been influenced in the arbitration by the anticipation or expectation of the relationship or interest.” Canon I.D stipulates that “[a]rbitrators should conduct themselves in a way that is fair to all parties and should not be swayed by outside pressure, public clamor, and fear of criticism or self-interest.”49 45

AAA/ABA Code of Ethics (2013). See e.g. Merit v. Leatherby (1983); Accord ANR v. Cogentrix (1999); Lifecare v. CD Medical (1995). 47 Introduction, ABA Code of Ethics (2004). 48 Canon I.C, ABA Code (2004). 49 Canon I.D, ABA Code (2004). 46

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ABA Code recognizes the main functional differences between arbitrators and judges and adopts standards of conduct for arbitrators that reflect this difference. In its preamble, the Code highlights the ‘double-hatting’ practice and ‘expert’ character that is typical for adjudicators on arbitration panels: “[U]nlike full-time judges, arbitrators are usually engaged in other occupations before, during, and after the time that they serve as arbitrators. Often, arbitrators are purposely chosen from the same trade or industry as the parties in order to bring special knowledge to the task of deciding.”50 According to the Comment on Canon I, “A prospective arbitrator is not necessarily partial or prejudiced by having acquired knowledge of the parties, the applicable law or the customs and practices of the business involved. Arbitrators may also have special experience or expertise in the areas of business, commerce, or technology which are involved in the arbitration.”51 In other words, the affiliation of arbitrators, and party appointed arbitrators in particular, with certain sectors, clients, etc. is not as such a ground for disqualification for the role of a fair and just adjudicator in arbitral proceedings. To the contrary, a certain degree of expertise and affiliation is a desired feature of commercial arbitration and inherent in the concept of party appointment. Hence, the preamble continues that “[a]rbitrators do not contravene this Canon if, by virtue of such experience or expertise, they have views on certain general issues likely to arise in the arbitration, but an arbitrator may not have prejudged any of the specific factual or legal determinations to be addressed during the arbitration.” General bias, such as public statements expressing e.g. certain political views, are considered a permissible and inherent feature of commercial arbitration. The threshold is one of individualization, or whether actual or perceived bias can be narrowed down to the specific case. This is in stark contrast with the idea of ethical conduct of judges who are generally required to be free of any affiliation that might give the appearance of predisposition, as will be shown below. The IBA Guidelines, similar to the ABA Rules, are soft law instruments which can be adopted voluntarily by disputing (or contracting) parties. They are compiled as preset General Standards (GS) to regulate the conduct of arbitrators. In its standard text, each GS is accompanied by an ‘Explanation’ that elaborates on the content and meaning of the said GS. Under the explanation of the GS 2 concerning the conflicts of interest and situations in which an arbitrator’s impartiality and independence may come in question, it expressly offers a definition for ‘impartial’ and ‘independent’ by way of referring to Article 12 of the UNCITRAL Model Law.52 The GS 2 further explains that doubts regarding the impartiality of an arbitrator “are justifiable if a reasonable third person, having knowledge of the relevant facts and circumstances,

50

Preamble, ABA Code (2004). Emphasis added. Comment, Canon I, ABA Code (2004). 52 Article 12, UNCITRAL Model Law (1985). 51

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would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case”.53 The GS makes reference to non-exhaustive lists of conflicts of interests, such as the ‘Non-Waivable Red List’ annexed to the Guidelines, which exemplify situations where the conflict of interest is so substantial that the parties cannot allow the arbitrator who fits one of these situations to perform as an adjudicator.54 The list, inter alia, includes the following situations: (a) “the arbitrator is a manager, director or member of the supervisory board, or has a controlling influence on one of the parties or an entity”, (b) “the arbitrator has a significant financial or personal interest in one of the parties, or the outcome of the case”, and (c) “the arbitrator or his or her law firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her law firm derives significant financial income therefrom.”55 The Guidelines also contain another list of conflict of interests (Waivable Red List), but those that can be overlooked by the parties if they so wish. The IBA Guidelines aim to capture possible specific situations, possibly in an attempt to address what its drafters may have perceived as common or conceivable situations in international economic disputes.56 The GS 6, entitled ‘Relationships’, brings an interesting angle to these rules by asserting that the arbitrator is in principle considered to bear the identity of his or her law firm, but when considering the relevant of facts or circumstances to determine whether a potential conflict of interest exists, or whether disclosure should be made, the activities of an arbitrator’s law firm, if any, and the relationship of the arbitrator with the law firm, should be considered in each individual case. The fact that the activities of the arbitrator’s firm involve one of the parties shall not necessarily constitute a source of such conflict [. . .]57

The GS 6 does not only recognize the possibility that the arbitrators could be lawyers affiliated with law firms. It also specifically notes that the existence of such affiliation (even with a law firm whose activities involve one of the disputing parties) cannot be considered as a prima facie conflict of interest. The Explanation to this GS further states that [t]here is a need to balance the interests of a party to appoint the arbitrator of its choice, who maybe a partner at a large law firm, and the importance of maintaining confidence in the impartiality and independence of international arbitrators [. . .] the activities of the arbitrator’s firm should not automatically create a conflict of interest.58

53

General Standard 2, IBA Guidelines (2014). The reference to ‘Non-Waiverable’ refers to parties’ ability to waive any conflict of interest present for an arbitrator. Likewise, the Rules also include a list of ‘Waiverable’ situations, which can be overlooked by the parties, if they give mutual consent. 55 Non-Waivable Red List, IBA Guidelines. 56 Waivable Red List, IBA Guidelines. This goal is express in the Part II of the IBA Guidelines, which is entitled ‘Practical Application of the General Standards’. 57 GS 6, IBA Guidelines. 58 Explanation to General Standard 6, IBA Guidelines. 54

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As is clear from its language and well-articulated context, IBA Guidelines are tailor-made for international arbitration. As will be shown below under CETA provisions, while the situation has now been seemingly averted, its incorporation under CETA as applicable to ICS ‘Members of Tribunal’ would have been problematic.

3.2

International Investment Agreements (IIAs): Current and Future Framework

The new generation Free Trade Agreements with Investment chapters (FTAs) and Investment Protection Agreements (IPAs) to which EU is a party include some of the first binding and detailed Codes of Conduct (Codes) concerning adjudicators tasked to resolve disputes between investors and States. This currently includes the Members of Tribunal to be appointed to new investment courts (according to currently available EU Agreements’ texts). In addition, they include relatively detailed rules on ‘Ethics’, as well as on adjudicators’ qualifications. Most IIAs currently in force do not contain binding Codes. Several voluntary and largely self-regulatory soft law instruments, inter alia those explained above, predate the new generation IIAs. Inclusion of specific Codes as annexes, or explicit references to these soft law instruments in IIA texts are new practices. The annexed Codes contain rules on, inter alia, independence and impartiality of tribunal members, disclosure obligations, and confidentiality during and after the adjudicatory proceedings. While the Codes in EU Agreements and proposals are similar, the CETA’s (now dismantled) incorporation of the IBA Guidelines would likely result in a fundamentally divergent framework. This section will first refer to the rules in CETA, then proceed to compare relevant provisions in other EU Agreements (EUVIPA, EUSIPA, TTIP Proposal and EUMEX) as well as USMCA.

3.2.1

New Generation European Union Agreements

Comprehensive Economic and Trade Agreement Between the European Union and Canada (CETA) A ‘Tribunal’ is established pursuant to Article 8.27 of CETA.59 In subsequent paragraphs, the provision further stipulates that fifteen ‘Members of the Tribunal’ shall be appointed ex ante. Its paragraph 4 notes that 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

59

Article 8.27.4, CETA.

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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.60

Article 8.30, entitled ‘Ethics’, lists a number of features and qualifications that must be possessed by the Members of the Tribunal. According to the first paragraph of this Article, the Members [. . .] shall be independent. They shall not be affiliated with any government. 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 [. . .] 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.61

Up until the proposal submitted by the European Commission concerning the adoption of a new Code of Conduct in October 2019, the CETA only contained a reference to the IBA Guidelines instead of a dedicated Code of Conduct.62 The proposed Code is presented by the European Commission as detailed rules of conduct applicable to candidates for appointment [. . .], in particular concerning of disclosure of their past and current activities that might affect their appointment or the exercise of their duties; detailed rules of conduct applicable to members [. . .] during their term of office; detailed rules of conduct applicable to members [. . .] at the end of their term of office, including the prohibition of the exercise of specific duties or professions for a specified period after the end of their term of office; a sanction mechanism in the event of non-compliance with the rules of conduct which is effective and fully respects the independence of judicial power.63

The Code is not yet an official part of the CETA text, but it is very similar to those of other EU Agreements referred to under this Section, which will be detailed below under EUVIPA and subsequent Agreements. However, it must be noted here that light of the new Code (as well as under any other Code included in any EU Agreement), an affiliation with a law firm per se could very well create an appearance of bias for an ICS Member of Tribunal particularly if the said law firm is working on other investment disputes—perhaps even when the said lawyer is not officially or directly involved in such cases.

60

Ibid. Art. 8.30, CETA. 62 European Commission (2019); cit. International Bar Association (2014). 63 European Commission (2019) Commission Proposal for a Council Decision of 11 October 2019 on the position to be taken on behalf of the EU in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the EU and its MS, of the other part as regards the adoption of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators, p. 2. 61

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While the provision is now set to be modified in light of the recent EU Commission proposal to include an annexed Code to CETA, the initial version with its reference to IBA Guidelines was unique across the new generation treaties of the EU. Without the new Code, a reference (and only a reference) to the Guidelines would represent a confusion between an arbitrator and a judge or ‘Member of Tribunal’ sitting at the bench of an international court. CETA is explicit in its determination that the CETA adjudicators are judges—not arbitrators. The European Court of Justice, with its recent Opinion 1/17, expressly classified the CETA Tribunal as ‘judicial’ in nature.64 It is imperative for policymakers to recall that the IBA Guidelines present a set of detailed rules as to what is permissible, negligible, or a fundamental violation of the framework of ethical professional conduct for arbitrators. There are inherent interpretative problems related to the use of arbitrator-specific rules for judges. Specifically for CETA, Article 8.30 becomes cumbersome to navigate when considered in connection with the Non-Waivable Red List included in the abovementioned IBA Guidelines.65 Article 8.30, despite being a broadlyworded provision, is further specified by these IBA Guidelines. Pursuant to all rules and standards regarding qualifications and eligibility of a Member of the Tribunal, Members who are affiliated with law firms should be able to maintain their relationship with their law firms, provided neither the Member nor their law firm regularly advises one of the disputing parties and extracts a significant financial gain (the Non-Waivable List). They must not act as counsel, witness or expert under any other investment dispute pursuant to Article 8.30. Under these principles, as long as the Member is not personally involved, the affiliated law firm should be able to continue advising or otherwise working on other investment disputes. This being said, the Members, notwithstanding the existence of any affiliation with a law firm, would have to ascertain at all times that they are not involved, at any capacity, in the consideration of any other dispute that could potentially affect their impartiality or independence. To illustrate, according to Article 8.30, a full-time lawyer specialized in investment arbitration appointed as a Member of the CETA Tribunal would have to suspend any and all activity related to any other investment dispute, rendering her tasks as a lawyer unperformable. Regardless of any other factor, any involvement in any investment dispute is outright prohibited. However, under the IBA Guidelines and subject to limitations therewith, the same lawyer and her affiliated law firm would (only) have to cease any regular and financially significant relationship with a client if the client appoints the lawyer as an arbitrator. Of course, this depends on whether such a past relationship would be considered a conflict of interest in and of itself, despite its subsequent termination. However, she would otherwise be free to act as counsel or arbitrator in other investment disputes, and continue to perform her tasks as a lawyer. Most activities as such would not create an appearance of bias in

64 65

CJEU, Opinion 1/17 of the Court, 30 April 2019, ECLI:EU:C:2019:341., paras 189–204. Section 3.1.2. above.

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case the said lawyer accepted an appointment as arbitrator. IBA Guidelines and the Codes examined in this section clearly draw different ethical boundaries for adjudicators.

EU: Vietnam Investment Protection Agreement (EUVIPA) Similar to CETA, Article 3.38 of the EUVIPA establishes a ‘Tribunal’ to hear investor-State disputes.66 In its fourth paragraph, it requires members of this Tribunal to “possess the qualifications required in their respective countries for appointment to judicial offices, or be jurists of recognized competence”. It further seeks the members to “have demonstrated expertise in public international law.” In addition to these compulsory qualifications, the Article notes that it is “desirable that they have expertise in [. . .] international investment law, international trade law and the resolution of disputes arising under international investment or [. . .] trade agreements.”67 The members of the Appeal Tribunal, established pursuant to Article 3.39, must possess the same qualifications.68 Almost identically to CETA, the abovementioned professional qualifications are supplemented by ‘ethical’ qualifications under Article 3.40, entitled ‘Ethics’.69 It notes that the Members should be selected “from persons whose independence is beyond doubt” and who are. not affiliated with any government. They shall not take instructions from any government or organization, and should avoid involvement with disputes that might create a direct or indirect conflict of interest. They are also barred from acting as counsel or as party-appointed expert or witness in any pending or new investment protection dispute under this or any other agreement or domestic laws and regulations.70 The Article also refers to Annex 11, containing the Codes of Conduct for ‘Members of the Tribunal, Members of the Appeal Tribunal and Mediators’ for the EUVIPA. It requires every candidate and member of the Tribunal to avoid ‘impropriety and the appearance of impropriety’, and to be ‘independent and impartial’.71 It further seeks to eliminate any ‘direct and indirect conflicts of interest.’72 These requirements go hand in and with the disclosure obligations (Article 3) with regard to “any past and present interest, relationship or matter that is likely to affect his or her independence or impartiality or that might reasonably create an appearance of impropriety or bias.”73

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Article 3.38, EUVIPA. Ibid. 68 Article 3.39, EUVIPA. 69 Article 3.40, EUVIPA. 70 Ibid. 71 Article 2, Annex 11, EUVIPA. 72 Article 2, Annex 11, EUVIPA. 73 Article 3, Annex 11, EUVIPA. 67

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Subsequent Article 4 emphasizes on ‘fairness and diligence’ while performing duties, and prohibits any discussion between disputing parties on the one hand, and members of the tribunal on the other.74 Article 5, entitled ‘Independence and Impartiality of Members’, is an ambiguous provision. After reiterating that Members of the Tribunal must be independent and impartial (and avoid bias or impropriety), it further states that Members “shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party or disputing party or fear of criticism.”75 It prohibits its Members to “incur any obligation or accept any benefit that would in any way interfere or appear to interfere, with the proper performance of his or her duties.” In line with this, it also seeks to prevent its Members to use their positions to “advance any personal or private interests and shall avoid actions that may create the impression that others are in a special position to influence him or her.”76 What these interests could include, or how ‘personal’ and ‘private’ interests differ (if they differ at all), are two issues that the provision does not clarify. As ‘advancement of any personal or private interests’ is not necessarily limited to financial motivations, it could be asked whether non-financial personal or private interests would violate this rule.77 Final paragraphs of the Article 5 cover inter alia avoidance of financial interests that might create an appearance of impropriety or bias.78 In short, according to the EUVIPA, the Members shall be independent, not be affiliated with any government and not take instructions from any government or organization. They shall avoid participating in the consideration of any disputes that might create a conflict, and refrain from acting as counsel, expert or witness in any investment dispute, pending or prospective. They shall not advance any personal or private interests that might create the impression that they are not impartial.

EU: Singapore Investment Protection Agreement (EUSIPA) EUSIPA follows the sequence detailed above under CETA and EUVIPA. Article 3.9 establishes a Tribunal. Paragraph 4 lists the required qualifications from the Mem-

74

Article 4, Annex 11, EUVIPA. Article 5, Annex 11, EUVIPA. 76 Ibid. 77 Take, for instance, the example of this hypothetical professor: She is the coordinator of an LL.M. program on international investment law at a university. If her appointment contributed to the fact that her LL.M. program has become more popular and reputed, could her appointment be considered as extracting a private or personal gain (i.e. an increased popularity and quality for her program, therefore her own prestige and reputation as a professional)? 78 Ibid. 75

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bers of Tribunal in a manner virtually identical to CETA Article 8.30 and EUVIPA 3.38.79 Article 3.11 of EUSIPA is entitled ‘Ethics’, and again follows the foregoing Agreements in content and structure. Perhaps a noteworthy addition in Article 3.11 is the clarification (and expansion) of the phrase ‘affiliated with any government’. A footnote clarifies that “[f]or greater certainty, the fact that a person receives an income from the government, or was formerly employed by the government, or has family relationship with a person who receives an income from the government, does not in itself render that person ineligible.”80 While EUVIPA contains this very clarification under the corresponding ethics rule, CETA has a more confined approach. According to Article 8.30 of CETA, “the fact that a person receives remuneration from a government does not in itself make that person ineligible.”81 CETA language does not explicitly mention former employment and familial relationships with those who receive such remuneration.

EU: Mexico Agreement (EUMEX) In April 2018, the EU and Mexico completed negotiations for a new EU—Mexico Free Trade Agreement after almost two years. This new agreement is set to replace the previous agreement dating from 2000.82 An agreement has been reached,83 and the available public documents offer insight as to what an eventual EUMEX text will look like once the text is finalized. The structure of the EUMEX generally follows the sequence recognized in other EU Agreements: Section 19 (Investment Dispute Resolution), Article 11 (Tribunal) establishes a tribunal,84 Article 11.4 stipulates the required qualifications of appointed ‘Members to the Tribunal’, and Article 13 (Ethics) defines the ethical conduct and obligations of the Members. The EUMEX does however provide for a few noteworthy modifications in content. A Member to the Tribunal under the EUMEX must fulfill the “qualifications required for appointment as a judge to the International Court of Justice”.85 Accordingly, the EUMEX establishes the Statute of the ICJ (SICJ) as the

79

Some differences, such as different appointment periods (Eight (8) in EUSIPA, four (4) in EUVIPA, and five (5) in CETA) exist, however all foregoing agreements otherwise contain the same framework. To reiterate a significant difference, among all new generation investment treaties, CETA remains the sole agreement in which an external ethics guideline is referenced at any moment during their negotiating and drafting process. 80 Article 3.11, EUSIPA. 81 Article 8.30, CETA. 82 European Commission (2019). 83 As of April 2020, EUMEX remains an ‘Agreement in Principle’ and is undergoing legal revision. 84 cf. Art. 8.30, CETA; Art. 3.38, EUVIPA; Art. 3.9, EUSIPA. 85 Art. 11.4, EUMEX.

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main source of its rules on qualifications of Members of an EUMEX tribunal, and in particular Article 2 of the SICJ: The Court shall be composed of a body of independent judges, elected regardless of their nationality from among persons of high moral character, who possess the qualifications required in their respective countries for appointment to the highest judicial offices, or are jurisconsults of recognized competence in international law.86

The consequence of the reference to the SICJ is that the EUMEX requires tribunal Members to qualify both under the “qualifications required in their respective countries” and SICJ-specific requirements—which are determined by the SICJ itself and the practice of the ICJ. Such specific rules may for example be Article 16 or 17 of the SICJ and thereto related practice. Put differently, EUMEX tribunal Members must qualify both under international and domestic rules on qualifications of judges. By contrast, other EU FTAs, such as CETA, EUVIPA, and EUSIPA base the required qualifications of appointed Members exclusively on the domestic laws of the respective appointing parties.87 It seems therefore that the EUMEX stipulates a higher and more narrowly construed standard compared to its FTA counterparts. This is not without prejudice as to whether the requirements under the SICJ and national laws actually differ or otherwise will lead to diverging standards between the Agreements. Like other EU Agreements, the EUMEX—by reference to the SICJ—makes renvoi to the national laws of the appointing states. SICJ explicitly refers to the qualifications pertaining to the “the highest judicial offices”, whereas CETA, EUVIPA and EUSIPA simply reference “judicial offices” suggesting that less senior jurists may be eligible. However, whether this semantic difference de facto will lead to a less strict standard under the EUMEX is not clear.

Transatlantic Trade and Investment Partnership (TTIP) European Commission Proposal In light of the political backlash towards the TTIP88 following the 2016 US Presidential elections and its subsequent suspension, the TTIP project is considered ‘obsolete and no longer relevant’ at this time.89 As a defunct text, it is safe to say that the submission made by the European Commission before Trump’s 2016 election will not eventually turn into an actual agreement. The only public official text of the TTIP remains to be the EU proposal, a one-sided text from 2015 which had no input from the

86

Article 2, SICJ (1946). “. . . 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.” cf. Art. 8.30, CETA; Art. 3.38, EUVIPA; Art. 3.9, EUSIPA. 88 European Commission (2015a). 89 Council Decision authorizing the opening of negotiations with the United States of America for an agreement on the elimination of tariffs for industrial goods, 9 April 2019, available at https:// www.consilium.europa.eu/media/39180/st06052-en19.pdf (Date Accessed 30 March 2020). 87

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United States. This one-sidedness, also considering the absence of a publicly available EU Model IIA so far, could mean that the TTIP proposal text is as close the public might get to an ‘EU blueprint’ of its ‘investment court’ framework. Therefore, a brief glance at its features is useful. When its similarities and divergences to other FTA and IPA texts are considered (and if the TTIP text is considered as a European ‘base text’), it is also possible to pinpoint the additions, omissions or modifications that parties had agreed on during their respective negotiations. These general observations also apply to the TTIP rules on qualifications and conduct of adjudicators. Articles 9, 10 and 11 establish an investment court, and call the adjudicators ‘Judges’, diverting from the language in the negotiated EU Agreements mentioned above.90 CETA, EUSIPA and EUVIPA, instead of judges, refer to ‘Members’. Aside from several additional and minor wording differences, the base rules and qualifications on ethics remain the same. The TTIP, like the foregoing Vietnam and Singapore agreements, refers to an Annex (II), and consolidate the Codes thereunder. The Annex incorporates virtually the same Code as the EUSIPA and EUVIPA, save minor and unsubstantial wording variations.

3.2.2

United States: Mexico—Canada Free Trade Agreement (USMCA)

The newly-signed USMCA, or ‘NAFTA 2.0’, stands aside from all aforementioned treaties. First and foremost, the agreement includes an arbitration-based ISDS system solely applicable to disputes between Mexico and the United States.91 Under Article 14.D.6. of Annex 14-D entitled ‘Mexico-United States Investment Disputes’, the agreement stipulates that “[a]rbitrators appointed to a tribunal [. . .] shall [. . .] comply with the [IBA Guidelines], including guidelines regarding direct or indirect conflicts of interest, or any supplemental guidelines or rules adopted by [US and Canada].92 It then reiterates some fundamental principles, such as not taking instructions from “any organization or government regarding the dispute” and “not, for the duration of the proceedings, act as counsel or as party-appointed expert or witness in any pending arbitration under [this Chapter].”93 This presents a stark departure from the discourse on public ‘repossession’ of the integrity of ISDS currently dominant in Europe. According to these rules, USMCA arbitrators are allowed to act as arbitrators under the same agreement a) when they are not already sitting at a USMCA panel at that time, and b) if the dispute stems from another IIA. Both situations would still be evaluated under (and would be subject to) General Standards prescribed under the IBA Guidelines. As USMCA

It is noteworthy that the only one-sided EU text publicly available mentions ‘judges’, and not ‘members of tribunal’, a term arguably more strongly associated with (international) courts and a clear (semantic) departure from arbitration terminology. 91 Article 14.2.4, Annex 14-D, USMCA. 92 Article 14.D.6.5, Annex 14-D, USMCA. 93 Article 14.D.6.5(c), Annex 14-D, USMCA. 90

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opts for international arbitration as its primary dispute settlement mechanism, its reference and subsequent use for this particular agreement can be considered appropriate. None of the IBA General Standards interfere with arbitrators’ possibility of engaging with extra-USMCA arbitration, because arbitrators are already “considered to bear the identity of [their] law firm[s]”.94 As for judges, primary affiliations lie elsewhere.

3.3

International Courts and Tribunals

Even if one accepts the presumption that different ethical thresholds exist for arbitrators and international court judges, the required and/or expected degree of independence and impartiality for these professional groups is not always immediately clear. While there are major overlaps (such as not being affiliated to a government, not taking instructions from a disputing party, or not having vested financial interest in one of the parties), this does not fully explain and clarify the divergences. As will be shown below, most international courts adopt strict(er) rules on conflicts of interest arising out of double-hatting and other related activities—a situation explicitly accepted in most arbitration rules. For instance, Article 16 of the Statute of the International Court of Justice (SICJ) states that “[n]o members of the Court may exercise any political or administrative function, or engage in any other occupation of a professional nature.”95 The subsequent Article 17 notes that “[n]o member of the Court may act as agent, counsel, or advocate in any case.”96 For Article 16, while SICJ does not clarify what could qualify as such, it is accepted that the judges (a) must give precedence to their duties as ICJ judges, and (b) should not accept appointments concerning cases that might be submitted to the ICJ later on.97 This being said, the ICJ has held the view that “a limited participation of Judges in other judicial or quasi-judicial activities of an occasional nature” as well as “occasional appointments as arbitrators” of its judges were not prohibited,98 with the caveat that it “will continue to keep under review any questions that may arise of their compatibility of the functions of the judges with the [SICJ] and with their supervening obligations.”99

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GS 6, IBA Guidelines. Art. 16, SICJ. 96 Art. 17, SICJ. 97 United Nations Secretary General (1995), para. 31–32. 98 Ibid. 99 United Nations Secretary General (1995), para 33. 95

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This approach has changed drastically over the last few years. In 2017, a report by Bernasconi-Osterwalder and Brauch revealed a well-known secret: “at least 7 current ICJ judges and 13 former ICJ judges have worked—or are currently working—as arbitrators [. . .] [t]hose 20 individuals were appointed at least 92 times, either during or before the start of their ICJ terms, and served as arbitrators in at least 90 cases while sitting as ICJ judges [corresponding to] roughly 10 per cent of all known investment treaty cases”.100 While the report focused predominantly on renumeration issues, it still voiced broader concerns. For instance, it asked whether this “simultaneous role as ICJ judge and arbitrator affect their perceived and actual independence and impartiality”, and observed that this practice “appears to entangle the ICJ in situations that undermine its reputation for independence as the highest authority on public international law.”101 The superimposition of adjudicatory tasks perfectly legitimate within separate domains (in this case, arbitration on one hand, a permanent court on the other) can significantly undermine the integrity of the permanent court. It appears that a judge who acts as an arbitrator can damage not only their own reputation, but also the reputation of the institution with which they are (primarily) affiliated. This warning was seemingly picked up by the Court. In October 2018, the President of the ICJ, A. A. Yusuf, noted that the Court had adopted the view that its judges could, in certain circumstances, participate in arbitral proceedings. However, he further noted that “in light of its ever-increasing workload, the Court decided a few months ago to review this practice and to set out clearly defined rules regulating such activities [. . .] Members of the Court have come to the decision last month, that they will not normally accept to participate in international arbitration [. . .] in particular [. . .] investor-State arbitration or commercial arbitration.”102 Since ICJ judges are expected to prioritize their Court duties as opposed to every other professional engagement, the Court seems to have contended that the time dedicated to ISDS cases, which is ever more attractive with significant financial gains, might decrease the high quality expected from the ICJ rulings. In any case, it is clear that commercial and investment arbitrations called for specific mention and an explicit and clear stance on the side of the Court. It is possible that the involvement of ICJ judges in investor-State cases bears the risk of creating an impression of bias. Other international courts, such as the International Criminal Court (ICC), also have codes of conduct. The Code of Ethics of ICC prioritizes court-related tasks for judges, and considers their affiliation with ICC to take precedence over other duties and affiliations. Article 7, for instance, notes that “[j]udges shall act diligently in the exercise of their duties and shall devote their professional activities to those duties.”103 Article 10 entitled ‘Extra-judicial activity’ bars judges from engaging “in any extra-judicial activity that is incompatible with their judicial function or 100

Bernasconi-Osterwalder and Brauch (2017), p. 1. Ibid, p. 5. 102 Yusuf (2018), pp. 11–12. 103 Art. 7, ICC Code of Ethics. 101

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the efficient and timely functioning of the Court, or that may affect or may reasonably appear to affect their independence and impartiality.”104 Furthermore, judges “shall not exercise any political function”.105 In this context, the extra-arbitral tasks that arbitrators can undertake are regulated much less rigidly. One example is the IBA Guidelines outlined above, and it is particularly relevant as it was the principal ethics guideline for the CETA until very recently. As noted, the IBA Guidelines GS 6 explicitly states that “[t]he arbitrator is in principle considered to bear the identity of his or her law firm” and that “[t]he fact that the activities of the arbitrator’s firm involve one of the parties shall not necessarily constitute a source of such conflict, or a reason for disclosure.”106 This is a far cry from what the ICJ judges are allowed to do in practice and in theory. Unlike arbitrators, they are expected not to engage in a broad spectrum of extraCourt conduct. Except for certain circumstances, they cannot engage in activities of professional nature—let alone being ‘in principle considered to bear the identity of [their] law [firms]’. As for the European Court of Human Rights (ECtHR), a Resolution on Judicial Ethics was adopted by the Plenary Court on 23 June 2008. A short text with ten rules, its preamble highlights that “the principles set forth in this text should enhance public confidence in the Court”.107 Its first two rules (I. and II.) concern independence and impartiality, and contain relatively similar language to foregoing instruments. Rule I notes that “[t]hey shall refrain from any activity or membership of an association, and avoid any situation, that may affect confidence in their independence.”108 Finally, a brief mention of the rules applicable to the World Trade Organization (WTO) Dispute Settlement Mechanism Appellate Body (DSM AB) is necessary. According to Article 17.3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes, The Appellate Body shall comprise persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally. They shall be unaffiliated with any government. The Appellate Body membership shall be broadly representative of membership in the WTO. All persons serving on the Appellate Body shall be available at all times and on short notice, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.109

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Art. 10, ICC Code of Ethics. Ibid. 106 GS 6, IBA Guidelines. 107 ECtHR Resolution on Judicial Ethics (2008). 108 Rule I, ECtHR Resolution on Judicial Ethics. 109 Article 17.1, WTO DSM AB Understanding on Rules and Procedures Governing the Settlement of Disputes. 105

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The foregoing provisions and analysis demonstrate that tangible differences exist in what governs the conduct of an international court judge and an arbitrator. In arbitration, as demonstrated, an arbitrator is generally allowed to perform other professional, legal, or commercial duties. This flexibility is seen as part and parcel of arbitral conduct, and numerous roles of a person acting as arbitrator is presupposed and acknowledged by voluntary codes currently available—such as IBA and ABA Rules outlined above. However, a judge, often appointed or nominated by her own state to an international court, is expected to identify primarily with that court. It follows that a judge as such shall not take upon any other professional engagements, and their court-related tasks always take precedence. This difference does not mean that arbitrators are, in any situation, free and allowed to conduct any extra-judicial task—nor does it mean every extra-judicial task for a judge is problematic. It does, however, indicate that the threshold for arbitrators and judges engaging in such extra-adjudicatory tasks will differ, as the rules regulating arbitrators are clearly more permissive and accommodating of the fact that arbitrators are often legal professionals who, by nature of their profession, fulfill different tasks within the same arbitral sphere. One could argue that a complete detachment from the rest of the legal practice in favor of arbitral appointments is uncommon, especially among more junior legal professionals. Upon this contextual difference, what might constitute “an appearance of impartiality and independence” might differ in case of an arbitrator and an international court judge. More specifically, the fact that an arbitrator works as a lawyer in a law firm is not a prima facie violation and does not create an impression of bias or partiality, pursuant to inter alia the GS 6 of the IBA Guidelines. An ICJ judge spontaneously working as a lawyer and principally identifying with his or her law firm would arguably create that impression, particularly in light of the recent views on arbitral appointments, as also noted above.

4 From Arbitrators to Judges: A(nother) Paradigm Shift Having explicit and binding Codes of Conduct governing adjudicators active in the settlement of investment disputes is a novel development. No extensive binding code of ethics exists in a treaty with investment protection provisions. There is no comprehensive, normative framework applicable to adjudicators and their conduct in general, either. In this vein, the Codes envisaged in the new EU agreements represent “an advance in terms of systematization, visibility, transparency and accountability”110 not only for the adjudicators, but also the institution with which they are affiliated. One other thing that needs to be highlighted in that connection is the persistence and perpetual relevance of the distinction between arbitrators and judges in international law. Manley O. Hudson, conducting an early comparison of the Permanent

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Gómez (2019), p. 191.

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Court of Arbitration and the then-new Permanent Court of International Justice in 1922, observed that fundamental differences exist between arbitral tribunals and international courts. He noted: The Court of Arbitration is ‘permanent’ in the sense that a panel is always in existence, from which arbitrators may at any time be chosen; the Court of Justice is ‘permanent’ in the sense that eleven definite judges are always ready to sit, without any necessity of their being specially selected after a dispute arises. [. . .]In the seventeen cases before tribunals formed from the Permanent Court of Arbitration, there has been a decided tendency for the same persons to be chosen as arbitrators. [. . .] In the new court, the eleven judges or some of the four deputies will be sitting in every case. The possibility of building up a continuous and harmonious system of international law, therefore, seems more promising through the new court than through the Permanent Court of Arbitration. The essential advantages of “permanence” have at last been achieved.111

These different approaches to rules on ethics applicable to judges and arbitrators assign different public personalities to arbitrators and judges, and prescribe degrees of restrictions on certain activities, such as double-hatting, to alleviate the professional engagements these adjudicators might pursue. A judge, may it be an international or national judge (notwithstanding the differences between these two groups), differs markedly from an arbitrator with regard to the manner in which it exercises a judicial function, in part due to institutional features attributed to (international) courts. As Malintoppi observes, “the professional distinction existing on a national level between Bench and Bar has been elevated to the international plane, albeit in a somewhat informal manner.”112 Judges as envisaged under the CETA Tribunal are not party-appointed, and are far more restricted than their arbitrator counterparts handling similar disputes in terms of their extra-judicial activities. Arbitrators, on the other hand, are appointed specifically for disputes, from among professionals who often conduct private practice and bring about a specific expertise stemming from such practice. Because of these distinctions mentioned (which are by no means exhaustive) between arbitrators and judges, and what might be expected of them regarding their independence and impartiality, the new EU FTA/IPA rules must be evaluated on the basis of their application to judges and not arbitrators. This indeed differs from the examination of general conundrums related to independence and impartiality in investment arbitration per se.113 One specific issue which warrants a closer inspection is, therefore, contextual confusion between arbitrators and judges (or Members of Tribunal). CETA and the evolution of its ethics provisions are illustrative, especially when this evolution is compared to provisions in other EU agreements mentioned above. A case in point on this issue is the recent Opinion 1/17 of the CJEU.114 In 2017, Belgium made a

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Hudson (1922), pp. 245 et seq. Malintoppi (2008), p. 813. 113 Giorgetti and Dunoff (2019), p. 213 et seq. 114 CJEU, Opinion 1/17 (2019). See, Ünüvar (2020). 112

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request for an opinion from the CJEU, asking, inter alia, whether the CETA Section F (on resolution of investment disputes) of Chapter Eight (on ‘Investment’) was compatible with the EU Treaties (TEU115 and TFEU116), including with fundamental rights (with an emphasis on the Charter of Fundamental Rights of the EU, ‘the Charter’).117 More specifically, the doubts raised by Belgium concern the rules on ethics and qualifications under the ‘right of access to an independent tribunal’—a principle enshrined under Article 47 of the Charter.118 On the issue of the compatibility of CETA with Article 47 of the Charter, one particular argument stands out. Belgium expressed further doubts with regard to the fact that CETA judges “will have to comply with the IBA Guidelines, pending the adoption of a code of conduct”.119 Belgium further stipulated that “since the IBA Guidelines are intended for arbiters and not for judges, they may contain standards of independence that are not adapted to those acting in a judicial capacity.”120 On that point, the Court briefly referred to the IBA Guidelines and the fact that they provide guidance and rules on personal interests with regard to the outcome of the dispute. Most notably, the Court left the Belgian arguments regarding the compatibility of the IBA Guidelines with judges as opposed to arbitrators unaddressed, in particular its seemingly generous take on double-hatting and outside activities. There is no doubt that CETA and other EU Agreements seek to prohibit their adjudicators to act in another professional legal capacity in any pending or new investment dispute under any agreement. This prohibition presents potential contradictions with several IBA General Standards. As alluded to above, the Guidelines are prepared explicitly for arbitrators and with their multiple roles within the arbitration community. In fact, the Guidelines clearly stipulate that they “apply to international commercial arbitration and investment arbitration [. . .] irrespective of whether or not non-legal professionals serve as arbitrators.”121 Several other issues, such as the duration of the obligation of independence and impartiality under GS 1, could also create contradictory situations when applied to the CETA Tribunal. GS 1 stipulates that independence and impartiality extends “until the final award has been rendered or the proceedings have otherwise finally terminated”. This specification does not carry much substance in a court setting. This is because the envisaged CETA Members will not be appointed ad hoc, and their responsibilities will extend well beyond any final award. Under the proposed Code

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Treaty on European Union (TEU). Treaty on the Functioning of the European Union (TFEU). 117 CJEU, Opinion 1/17 (2019), par. 1, cit. the Charter of Fundamental Rights of the EU. Also see, Belgium’s submission (2017). 118 Art. 47, the Charter. 119 CJEU, Opinion 1/17 (2019), par. 67. Emphasis added. It was known in advance that eventually, the IBA Guidelines would be replaced. 120 CJEU, Opinion 1/17 (2019), par. 68. 121 IBA Guidelines (2014), p. 3. 116

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of Conduct, which will replace the IBA Reference,122 the Commission addressed this issue within its proper setting. Pursuant to Article 5 regulating obligations for former members of the CETA Tribunal, significant restrictions vis-à-vis GS 1 apply. Former Members are to “undertake that for a period of three years after the end of their term, they shall not act as representatives or any of the disputing parties in investment disputes before the Tribunal or the Appellate Tribunal”, and “they shall not become involved [. . .] in investment disputes which were pending before the Tribunal”, as well as “in investment disputes directly and clearly connected with disputes, including concluded disputes, which they have dealt with as Members of the Tribunal [. . .]”.123 The extent of incompatibilities entrenched within such references to IBA Guidelines (or any other arbitration-specific set of rules) in an international court setting goes beyond the temporal aspects of adjudicator responsibilities. IBA Guidelines generally allow parties (subject to all parties’ consent) to waive conflicts of interest that otherwise would not be allowed under the CETA structure. For instance, parties can waive a conflict of interest when “[t]he arbitrator holds shares, either directly or indirectly, in one of the parties”, or when “[t]he arbitrator currently represents or advises one of the parties, or an affiliate of one of the parties.”124 These situations are prohibited under CETA, even without the new Code. Last but not least, the aforementioned GS 6 stands as a stark illustration of how arbitrators and judges differ. It unequivocally attaches the arbitrator primarily to their legal businesses, and further articulates the aim of “[balancing] the interest of a party to appoint the arbitrator of its choice, who may be a partner at a large law firm, and the importance of maintaining confidence in the impartiality and independence of international arbitrators.”125 Absent the interest of appointing an adjudicator of their choice, international courts will differ in what interests they seek to balance. Thus, none of these observations apply to CETA, or any other ICS Tribunal. Contrary to arbitrators, judges are primarily considered to bear the identity of the court in which they operate, and neither they nor disputing parties are in a position to decide which disputes they will resolve. Extra-judicial appointments are severely restricted under CETA as well as other international courts, and party appointment is an arbitration-specific mechanism that does not exist under CETA, EUSIPA, or any other EU Agreement examined above. Because of this, not only are arbitration rules and international courts contradictory in principle, but the Guidelines directly come in conflict with the novel aspects of CETA that are perceived to elevate its permanency and institutional legitimacy. In other, arbitral settings such as the new USMCA, the reference to the IBA Guidelines are more appropriate and

122

Co-existence of the IBA Guidelines reference and a new Code of Conduct is unlikely in any case, as rules fundamentally differ and would perpetuate significant normative and procedural confusion. 123 Article 5, Proposed Code of Conduct for CETA. 124 Waivable Red List, Annex, IBA Guidelines. 125 Explanation of GS 6, IBA Guidelines.

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compatible, as the framework is built around international arbitration, and not a judicial or otherwise court-like mechanism. As it is very likely that the IBA Guideline reference will cease to exist (and that such reference does not exist in EUVIPA, EUSIPA or any other publicly available EU agreement), its relevance is now arguably moot as far as the current EU agreements are concerned. However, as a general policy, the EU or any other country seeking to renew or renegotiate their IIAs should refrain from adopting ethical codes cut out for arbitrators, if the treaty-making practice is to follow in the EU’s footsteps.

5 Conclusion This paper conducted a tour d'horizon through the current landscape of regulations on conduct, ethics, and qualifications of arbitrators in the context of IIL. It demonstrated a clear tendency in recent years towards including clearer and binding regulations. Until recently, non-binding codes of ethics stipulating the moral principles that arbitrators should adhere to were the only measures available to ensure trust in the IIL adjudicators. Whereas this still applies for most IIAs and ISDS cases, the EU has initiated a policy to include mandatory ethical provisions for future adjudicators under EU Agreements. The traditionally non-binding, soft-law ethic principles are therefore increasingly supplemented by specific, hard law codes of conduct that are comparable to the standards applicable in other international courts and judicial fora. The so-called new generation FTAs between the EU and some of its major trading partners are leading in this regard. However, the review demonstrated that this trend is not exclusive to the EU Agreements. Instead, it seems that it is a structural development with broader implications for the entire international investment protection regime. Thus, also other legal frameworks, such as the USMCA are paying increased attention to issues relating to arbitrator conduct and ethics and provide for novel regulations in this direction. This increased awareness on the issue of arbitrator conduct is linked to the legitimacy crisis, which has dominated debates on IIL in the last two decades. The ISDS has been a particular locus of criticism. It is therefore not surprising that current reforms seek to remedy actual or perceived obstacles to the legitimacy of the system. One way of increasing legitimacy is appears to be the replacement of the traditional arbitral procedure for the settlement of investment disputes with more permanent court-like structures—as currently promoted by the EU. Another way to achieve this, however, are regulations that promote trust in the principal actor of the judicial process itself—the adjudicator. The reforms point towards the increasing judicialization of IIL. The same rational is easily applied on the above analyzed regulations: They represent the transition from arbitrators to judges—a paradigm shift—in this case

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through assimilation of the applicable standards of (especially) impartiality and independency, which are necessary to ensure trust in the judicial office. However, the study also shows that it is imperative to subject the new regulations to objective and, above all, critical observation and to avoid drawing premature conclusions. Although the analyzed agreements demonstrate clear signs of assimilation between the role of the international arbitrator in investment disputes with that of the international judge in other fora, there are functional incongruencies, which problematize this process. These functional differences remain an important factor in predicting the future of ISDS. In this regard, the above analysis demonstrates that at present the ‘transition’ from arbitrators to judges often appears rather as a ‘confusion’ between the two offices. As Giorgetti and Abdel Wahab also noted, “practice shows that most codes of conduct provide specific regulations for a specific kind of actor involved in international litigation or arbitration.”126 While they also consider the possibility of adopting “a code of conduct for all actors in ISDS”, they also note that such a code would “need to be rather general”.127 Therefore, it is not, nor will it be, as simple as adopting identical standards to judges and arbitrators, nor does it follow any sound legal or ethical basis. Notwithstanding current trends, developments or semantic preferences, the ‘IIL judge’ is not truly a judge unless it is regulated as such. The analysis demonstrates the importance of recognizing these factors, and that disregarding them may ultimately hamper the objectives of reform, that is to (re)build trust in the judicial office for a legitimate and fair dispute settlement mechanism. Güneş Ünüvar128 and Tim Kreft129

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Güneş Ünüvar is Postdoctoral research fellow, Centre of Excellence for International Courts (iCourts), Faculty of Law, University of Copenhagen. Tim Kreft LL.M., Faculty of Law, University of Copenhagen. Assistant Attorney, Fischer Advokatfirma ApS.