The European Commission Proposes a Move Towards a Multilateral Investment Court System

The European Commission has recently requested authorisation to launch negotiations to establish a permanent Multilateral Investment Court, which would hear investment disputes under existing and future trade agreements entered into between the EU Member States and third countries. This new court could also replace the Investment Court System provided for by the EU-Canada agreement (Comprehensive Economic and Trade Agreement: ‘CETA’), whose compatibility with EU law will be reviewed by the European Court of Justice following a request introduced by Belgium on 6 September 2017.

From Investor-State Dispute Settlement to an Investment Court System

Bilateral and multilateral trade and investment agreements usually grant a number of guarantees to investments made by an investor of one contracting state in the territory of another. Most of them offer Investor-State Dispute Settlement (‘ISDS’) mechanisms whereby investors alleging a violation of their rights under the treaty may refer the dispute to arbitration, often at the International Centre for the Settlement of Investment Disputes (‘ICSID’). EU Member States are party to roughly 1,400 such agreements, which were entered into before the EU assumed exclusive competency for external trade policy in 2009.

Recent years have seen an increase in criticism of the ISDS system. Since 2015, in order to address those criticisms, the EU’s approach has been to attempt to use an Investment Court System (‘ICS’) in trade and investment agreements it concludes on behalf of its Member States. For example, in the EU-Vietnam Free Trade Agreement (‘EVFTA’) and CETA. ICS involves a permanent and institutionalised court, whose members (subject to strict independence and impartiality requirements) are appointed in advance by the parties to the treaty instead of being appointed on a case-by-case basis by the investor and the state involved in the dispute. An appellate body is also provided for by CETA.

Belgium asks the CJEU to review the compatibility of ICS with EU law

Despite the EU’s efforts, ICS has not avoided controversy. Its inclusion in CETA, in particular, gave rise to heated debates before ratification. This point was one of the core reasons put forward by the Walloon Region, one of Belgium’s federated entities, for refusing to ratify CETA. The region’s agreement to do so, ended up being conditional on Belgium’s agreement to refer the validity of CETA’s ICS to the Court of Justice of the European Union (‘CJEU’).

On 6 September 2017, Belgium duly requested the CJEU’s opinion on the compatibility of CETA’s ICS with EU law – in particular with (i) the exclusive competence of the CJEU to provide definitive interpretations of EU law, (ii) the general principle of equality and the practical effect requirement of EU law, (iii) the right of access to the courts and (iv) the right to an independent and impartial judiciary – while specifying that Belgium ‘does not take any position itself regarding [those] questions’.

Obtaining consent to ICS is particularly important for the EU since, in its opinion 2/15 of 16 May 2017 on the draft EU-Singapore trade agreement, the CJEU had ruled that a regime governing dispute settlement between investors and states falls within a competence shared between the EU and its Member States. As a result, the EU must obtain its Member States’ consent in order to include such a regime in a trade treaty.

Towards a Multilateral Investment Court System

Following those developments, the European Commission (‘EC’), on 13 September 2017, introduced a recommendation for a Council decision authorising the opening of negotiations for a convention establishing a multilateral court for the settlement of investment disputes, with the aim of ‘having one, multilateral institution to rule on investment disputes covered by all the bilateral agreements in place’ rather than an investment court for each treaty.

With this new regime, the EC hopes to address the criticisms raised against the ISDS and ICS by:

‘setting up a framework for the resolution of international investment disputes that is permanent, independent and legitimate; predictable in delivering consistent case-law; allowing for an appeal of decisions; cost-effective; transparent and efficient proceedings and allowing for third party interventions. The independence of the Court should be guaranteed through stringent requirements on ethics and impartiality, non-renewable appointments, full time employment of adjudicators and independent mechanisms for appointment’.

Should the Council formally adopt the EC’s recommendation, the latter will start discussions with third countries to establish a framework for negotiations to set up the Multilateral Investment Court. It will probably be done in the framework of the United Nations Commission on International Trade Law (‘UNCITRAL’), which identified the setting up of an international investment court as an ‘option for reform’ of investor-state dispute settlements at the occasion of its 50th session last July.

The scope of the EC’s proposals currently concern trade agreements concluded between the EU (or its Member States for pre-2009 agreements) and third countries, given the EC’s position that bilateral investment treaties concluded between Member States (‘intra-EU BITs’) are incompatible with EU law. However, AG Wathelet has recently rejected this position in a case pending before the CJEU and concerning the 1991 Netherlands-Slovakia BIT.

This post was first published on Arbitration Links. It comes to us from Linklaters and has been co-authored by Matthew Weiniger and Guillaume Croisant.