Contributed by Unnati Sinha

Introduction

The existing system of Investor -State Dispute Settlement (ISDS) needs revisions, as stated in a study released in April 2019 by the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WG III). The committee’s conclusions corroborated the repeated criticisms of the ISDS system from many countries. To address these issues, the European Union (EU) tasked the European Commission (EC) with leading negotiations for the creation of a Multilateral Investment Court (MIC) in 2018. By creating a permanent court with arbitrators to settle investor-State disputes, an MIC represents a radical departure from the existing ISDS system. The EU has recently abandoned its ad hoc dispute resolution system in favor of a permanent Investment Court System under a variety of foreign investment agreements.

In this article, the author will attempt to explain why they suppose the MIC is a sensible move that can help fix the problems with the present ISDS system. Secondly, the author will demonstrate that, in contrast to the ISDS framework, the MIC facilitates more enforcement and openness in the settlement process. Thirdly, the author addresses claims that the MIC is biased and has been politicized. Lastly, the author addresses the problem of how the standing court is supported and provide a feasible solution that would allow the institution to retain its financial autonomy. The article contrasts the MIC with the WTO Dispute Settlement Mechanism (DSM), which was the inspiration for the MIC concept and is generally recognized as a permanent organization for international dispute resolution.

What are the Issues with the ISDS System?

Most criticism of the existing ISDS framework centers on the dearth of openness of dispute resolution processes. Sometimes the verdict is not fully released, and the processes and the stakes involved are kept under wraps. This creates severe concerns, since the cases heard by the tribunals are often of enormous public interest and challenge the constitutionality of laws enacted by independent states. With this issue in mind, the MIC conducts open hearings and uses a transparent process to choose and appoint arbitrators. The case’s briefs, oral arguments, and final judgement would be available to all member states. More openness will also allow academics to scrutinize the decision more closely. A higher level of confidence, transparency, and legitimacy in the system might be achieved in this way.

It is also believed that the existing system does not adequately ensure that arbitral rulings are effectively enforced against State parties. The Republic of India was sued by Cairn Energy PLC and Cairn UK Holdings Ltd for breach of the Bilateral Investment Treaty. Cairn has been suing Indian assets in several foreign countries since the verdict was granted in December 2020. Since India consented to returning the revenue, it had collected, but without interest and penalty as was envisioned in the decision, all of these lawsuits were dropped in 2021. Cases like this one are part of a larger pattern of states ignoring investment arbitration decisions.

In its 40th session, WG III discussed the possibility of an independent appellate body or an appeal mechanism to a permanent court, such as the MIC, for the purpose of upholding arbitral awards. In this article, the author asserts that the World Trade Organization’s Dispute Settlement Body (DSB) is a good model that could be replicated. The DSB is a plenary body that investigates the adjudication process and the use of penalties to implement decisions. To maintain consistent and efficacious enforcement of awards, a parallel plenary body composed of representatives of all States admitting jurisdiction over the MIC would be necessary. An impartial group like this might have the authority to take punitive action. As opposed to the WTO, where advantages from a cooperative trade scheme can be taken away as sanctions, it is unclear what kind of sanctions, such a parallel plenary body will impose on parties to investor-State disputes. The same holds true for the current ISDS framework and the MIC’s shortcomings. None the less, the implementation of MIC awards would benefit from the oversight of an independent body, which would offer a committed group of persons and may supplement the requirements of the New York Convention.

Shortcomings of the MIC

a. Packing the Court

Born compares the idea to expand the MIC to the United States’ intention to boost the number of justices on the Supreme Court. He argues that the MIC will be ‘packed’ with arbitrators chosen only by State parties and hence would endure from pro-state bias. Because of this, investors’ concerns will be utterly ignored. This critique is false since the EU’s plan takes into consideration such a worry. It presents a rigorous set of rules for the nomination of arbitrators. For instance, there is a suggestion that an impartial appointing authority may be formed that would adopt a consistent approach for choosing arbitrators. The impartial authority would compile a list of arbitrators from which the conflicting parties might pick their panel. Robert contends that States have twin roles in an investment system – one of a dispute party and the other of a treaty party. States in negotiating treaties and institutional designs serve as treaty parties. As treaty parties, they would demand that the equilibrium established in investment treaties be kept in settling disputes as the State may be the respondent or its nationals could be the claiming investors. Hence, Born’s argument that arbitrators would have a pro-state bias does not hold.

b. Politicization of the courts

Concerns have been raised about the impartiality and autonomy of the arbitrators assigned to the MIC. There is a danger of politicization of the selection process, which may lead to strong economies having more influence in the choice of arbitrators. This could end up in poor nations being treated unjustly and compromise the validity of the organization.

A different way to avoid rich economies from exercising overt influence on the MIC would be to offer a right to underdeveloped and developing nations to have at least one member from comparable economies in the adjudicatory panel. The Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides comparable rights. However, under the WTO settlement system, once the Secretariat recommends the nominated panels for adjudicating the dispute, the parties cannot resist such nominations save for cogent grounds. By contrary, the MIC provides the parties the ability to select an arbitrator from the pool of arbitrators provided by the independent body. This is a big difference from the WTO system and decreases the potential of politicization.

A Multilateral Investment Treaty: Is it really needed?

Over the last several decades, humanity has seen tremendous advancements in the fields of investment security and dispute resolution. This covers ISDS procedures as well as investment treaty talks. There has also been a lot of discussion and a need for change in this area of legislation.

The concept of a Multilateral Investment Treaty (MIT) is not fresh; in fact, it predates the use of bilateral investment treaties (BITs). In actuality, the number of abortive efforts to create a multilateral framework on substantive treaty guarantees is the primary explanation why governments chose to govern investment protection on bilateral terms. The latest unsuccessful effort was initiated by countries in April 1998 under the framework of the Organization for Economic Cooperation and Development (OECD) to negotiate a multilateral agreement on investment (MAI).

Some of the significant issues with the present investment protection and dispute resolution system may be well-solved by MIT. Numerous issues have surfaced as a result of the existing disjointed system, which is comprised of more than 3,200 BITs and TIPs. Therefore, MIT may provide solutions to a number of issues that the global community is now debating. These worries consist of, but are not limited to, the following:

1. Multiple and simultaneous procedures;
2. Nationality planning and treaty and forum shopping;
3. An absence of common grasp of procedural norms, legal concepts, and decision-makers’ natural skills to interact with different facets of ISDS; and
4. Incompatible and competing treaty interpretations.

Conclusion

An MIC alone may not provide as a comprehensive remedy to address all the deficiencies within the ISDS system. Nevertheless, it significantly mitigates these shortcomings and fosters enhanced openness and efficiency inside the system. The problems of politicization and independent funding of the court may be resolved and would increase the legitimacy of the MIC. Therefore, States would do well to iron out the complex aspects of the system and come at an agreement for the construction of the MIC. However, to establish such a global framework, it is needed to put the majority of states on the same page which is a very difficult challenge. However, it is not impossible, given we currently have a worldwide framework for commerce, i.e. WTO. Further, building a framework for an investment treaty would need the same amount of effort as WTO and would call for a strong political will to get the majority of governments to sign up for discussions.