Are investment courts the answer to investment treaty dispute resolution?

Investment courts for resolving investment treaty disputes is on the agenda for the negotiations on the China-EU bilateral investment treaty, which are due to be completed later this year. Policymakers, academics and lawyers at a conference in Hong Kong last month offered various perspectives on the potential advantages and pitfalls of having an investment court and other options that could be available.

At the Asia FDI Forum: “China-European Union investment relationships: Towards a new leadership in global investment”, panellists shared their views on existing issues of investor state arbitration and their ideas on the benefits and challenges of a permanent investment court. The investment court feature is in the Canada-EU (approval stage by EU national parliaments) and Vietnam-EU (legal review stage) bilateral investment treaties. Singapore and the EU also have plans to renegotiate their bilateral investment treaty (approval stage) to include an investment court.

Some of the criticisms at the conference organised by The Chinese University of Hong Kong’s faculty of law about existing investor state dispute settlement mechanisms that are based on ad hoc commercial arbitration were that they lacked transparency, predictability and independence and that the right to appeal was extremely challenging; however, whether a permanent investment court would be widely supported by  a set of stakeholders that include participating states in investment treaties, foreign investors and civil society remains to be seen. The EU wants an investment court more than China because of the large number of treaties it has a stake in. Out of the existing 3,200 investment treaties in force around the world, 1400, or 43% involve the EU. China’s view on the issue remains hard to work out.

Features of an investment court

Some of the important features that should be considered in investment courts are:

  • Transparency of proceedings to allow for information access for non-disputing bodies
  • Fair composition of adjudicative bodies (for example, in the EU-China treaty, the members may be one-third from China, one-third from EU member states, and one-third from other countries)
  • Independence safeguards for conflicts of interest and double-hatting of adjudicative bodies
  • Enforcement of rulings, especially monetary obligations
  • Inclusion of a first instance and appeal tribunal

Vee Vian Thien, associate at Allen & Overy, breaks down the strengths and weaknesses of a permanent investment court. She points out that it could lead to increased time and costs with a large financial burden on developing nations and the danger of appeals becoming the rule. However, a court would allow for strict time limits, maintain consistency in awards, reject unfounded claims and follow a loser pays principle.

Joao Riberio, head of the UN Commission on International Trade Law (UNCITRAL) regional centre for Asia and the Pacific, notes that the Mauritius Convention, which enters into force on October 18, offers an option for signatories to increase their transparency. This could be concept that is included into existing treaties rather than straying away completely from existing mechanisms.

Alternatives to an investment court

While an investment court is an alternative to arbitration, it is not the sole option. Nathalie Bernasconi-Osterwalder, group director, economic law & policy, International Institute for Sustainable Development, argues that a court system is litigation focused and is limited to a single group of economic actors, ie foreign investors. She calls for a solution-oriented multi-party mediation approach that has a strong focus on accountability and binding dispute settlements, with more involvement from domestic judicial systems.

Mediation would be relatively inexpensive and quick compared to arbitration and litigation, believes Carrie Shu Shang, ADR counsel, Hong Kong International Arbitration Centre. However, it may not be feasible if a relationship is already tarnished, and award enforcement and transparency would still be issues.

Looking beyond bilateral investment treaties, should a regional agreement such as the Regional Comprehensive Economic Partnership (RCEP) or the Trans-Pacific Partnership (TPP) come into existence, perhaps a regional investment court may be the answer to resolve regional disputes. Whether it is a concept that will gain traction among different countries is unclear. Businesses and investors should pay attention to how investment courts have come into play in the various investment treaties involving the EU which have incorporated such a feature.