I.               Introduction

Debates about the functions of adjudication in the sphere of international law have not been scarce, Investor-State Dispute Settlement (ISDS) traditionally occupying the main stage. Given as much, it should not come as a surprise that the recent EU proposal for an Investment Court under the TTIP generated heated discussions, for it does indeed turn the tables in the field of ISDS. Amidst such discussions, the present note addresses the issue from a very specific perspective in that it shifts the paradigm to the contribution that each mechanism makes to the international rule of law.

II.             Furtherance of the Rule of Law as a Function of Adjudicating Bodies

At the outset, it should be clarified that the rule of law is, in the context of the theory of dispute settlement, perceived in its formal guise. That is, as a principle that serves to preserve a certain level of predictability so as to reaffirm and reinforce the law’s ‘dependable guideposts for self-directed action’, as best expressed by Lon Fuller. In particular, the rule of law seeks to ‘subject […] people’s conduct to the guidance of general rules by which they may themselves orient their behaviour’. According to Fuller, as particularly clarified by Matthew Kramer, it does so by positing eight requirements: (i) governance by general norms; (ii) public ascertainability; (iii) prospectivity; (iv) perspicuity; (v) non-contradictoriness and non-conflictingness; (vi) compliability; (vii) steadiness over time; and (viii) congruence between formulation and implementation.

At this point, two caveats should be made: first, that predictability obtains by degrees. Ergo, it should not be expected that a certain dispute settlement system will bring about an instant metamorphosis in the rule of law. Second, that sustaining the rule of law is a noble task only insofar as the law, itself, sufficiently reflects fundamental societal values; and indeed, the assumption that the TTIP Court is established in order to enforce valuable substantive standards should not be made lightly. Still, challenging those standards conveys that the entire field of investment law is not sensible and functional, a point which can be expanded on in a separate note.

III.           ISDS and the International Rule of Law

International lawyers arguing for the compatibility of ISDS with the rule of law have generally based their contentions on the following premises: first, that the standards of protection of foreign investment under Bilateral Investment Treaties (BIT) are worth sustaining; and second, that the system’s purpose is not to protect the rights of corporations but rather to enable States to make reliable promises to them.

Fighting the first premise would require a socio-economic analysis which, as noted, lies beyond the reach of this note. The second inherent assumption however is by and large assessable; it essentially suggests that arbitral tribunals promote the rule of law because they allow states to make reliable promises to foreigners. Finding themselves in a predictable legal environment, foreigners are induced to invest larger sums for longer periods, bringing prosperity to the host state.

The tribunal in Saipem v. Bangladesh, moving along those lines, stated that reliance on previous case-law may be mandated by a ‘[…]duty […] to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.’ Yet, the actuality is that absent a strict stare decisis doctrine in investment law, tribunals will not necessarily ascribe authoritative weight to previous awards. As a result, investors may or may not be given access to a tribunal by virtue of an MFN clause, and they may or may not be able to litigate their contract claims under an International Investment Agreement (IIA). In turn, states are insecure as to the possibility of facing claims on said bases.

Likewise, the absence of effective mechanisms for the avoidance of parallel proceedings may lead to Lauder-type scenarios or double counting of remedies, creating a setting that is far from predictable, be it for the investor or the state. The vast network of around 3000 IIAs opens up a plethora of possibilities for investors to pursue parallel claims against states, especially where shareholders’ claims for indirect injury are permitted. Further, claims arising out of the same facts are increasingly pursued in parallel before investment and commercial arbitration tribunals.

Predictability would, lastly, necessitate consistency in correctly interpreting a set of rules. In other words, teleological or other extra-legal considerations should not prompt contra legem interpretations. Arbitrators have not escaped criticism in that respect, be it for judicial activism or for being motivated by the possibility of being reappointed by the parties, rather than promoting justice.

To sum up, and to put it in Kramer’s terms, ISDS is rightly criticized for lagging behind in non-contradictoriness, steadiness over time, and congruence between formulation and implementation of its norms. It is these defects that the TTIP Investment Court System must dispose of.

IV.           The TTIP Investment Court and the Road Ahead

The TTIP investment chapter features a number of provisions that go beyond traditional investment treaties. Indicatively, it requires investors to furnish evidence that parallel proceedings by subsidiaries or controlling entities are not pursued before other fora; it provides that all hearings and documents shall be made public; and it designates a mechanism for early dismissal of unfounded claims. At the very core of the system however lie two main features: the existence of a standing adjudicative body and the possibility of appeal.

In concreto, the TTIP establishes a ‘Tribunal of First Instance’ composed of 15 judges, appointed for a six-year term, renewable once. Its members are appointed by the Committee on Services and Investment, five of them being nationals of EU member-states, an equal five being US nationals, and the remaining five seats being reserved for nationals of third countries. The members must demonstrate expertise in trade, investment and public international law. Tribunals on each occasion consist of three adjudicators, one of each eligible nationality, the ‘third country national’ presiding; members are appointed on a rotation basis by the President of the Tribunal of First Instance, and must not be involved in any pending case. Lastly, they receive moderate salaries.

The ‘Appeal Tribunal’ in turn consists of six members, two of each designated nationality (US, EU, third countries). The grounds for appeal are (i) error in interpretation or application of the law, (ii) manifest error in appreciation of facts and (iii) the grounds for annulment listed under Article 52 of the International Centre for Settlement of Investment Disputes Convention.

All the features laid out above represent a branching out to successful dispute settlement mechanisms, and in particular to the WTO Dispute Settlement Body. The latter, while not free of mild criticism, has generally been commemorated by its users during its 21 years of existence, and largely, its success comes encased within the work of the Appellate Body. The supreme judicial organ of the WTO has for the most part sustained the rule of law, providing a body of consistent jurisprudence yet not hesitating to depart from previous reports where ‘cogent reasons’ so mandate, ensuring congruence between formulation and practice of the law. Further, the limited influence of the parties on the selection of Panelists has generally managed to repeal impartiality concerns.

Equally, the Investment Court System disconnects adjudication from party autonomy, rightly so for a system that engages the public interest this much. Indeed, while arbitrators answer to the parties, judges answer to the public. In the same vein, moderate salaries have the capacity to filter out purely financially driven adjudicators, while rigid requirements on the amount of cases handled in parallel with those under the TTIP seek to safeguard the principles of impartiality and independence. Additionally, the existence of an appellate court empowered to review the merits of a tribunal’s decision ensures non-contradictoriness, perspicuity and congruence between the letter of the law and its application.

Yet, the EU proposal does present a number of challenges: it does not clearly specify how the Trade and Investment Commission is to appoint the fifteen members of the Tribunal, urging investors to voice concerns about substantial state involvement, potentially leading to appointment of pro-state adjudicators. Further, the proposal envisages the possibility of binding treaty interpretations offered by the TTIP member-states, even pending a dispute. This brings up unpleasant memories from the Pope & Talbot saga, which tested NAFTA’s prospectivity. Lastly, requiring judges not to be at all involved in other investment cases excessively narrows down the spectrum of eligible judges, seeing as the vast majority of investment experts regularly sit as arbitrators or act as counsel.

V.             Conclusion

‘There is little use in going to law with the devil while the court is held in hell’, said Humphrey O’Sullivan in 1831. Those holding onto that logic in order to defend ISDS create – and part from – the incorrect premise that domestic courts are by necessity ‘hell’. Yet, ISDS itself admittedly remains far from ‘heaven’; and what this note has put forward is that, in turn, the EU Investment Court proposal represents a form of ‘Midgard’ for the rule of law in the international investment context.