LikeLIhood of the change
Criticism of the ISDS
Once the two systems have been exposed, it seems reasonable to present the comments made upon the ISDS system so that the likelihood of the change to the other system can be evaluated. In this context, here there are exposed the main critiques found in many experts’ reviews.
Ø Opacity and unpredictability
ISDS can take place in secrecy by trade lawyers who do not enjoy the typical safeguards of judicial independence and procedural fairness, who earn income only if a case is brought and proceeds, and who are not required to take into account broader constitutional and international law norms.
The secrecy of such proceedings could make it impossible for governments to render account for matters in the public interest such as health or the environment, on which democratic decisions have been taken. In practice, access to documents and hearings is usually dependent on the consent of the parties to the dispute. In fact, there is currently limited published information about aspects such as the existence of investment disputes, the procedure, the substantive aspects or even the results of the disputes. The public nature of proceedings is one aspect of a fair trial
Ø Ad hoc basis and composition
Arbitrators are appointed by a disputing party on a case-by-case basis, thus that non-continuity of personnel from arbitration to arbitration implies to some critics the possibility of inconsistent, arbitrary, and/or unpredictable decision-making, as different arbitrators apply diverging interpretations of the same IIA provisions.
According to some experts, the “open and broad wording of the substantive provisions”, together with the ad hoc nature of the system, allows tribunals to adopt overly broad interpretations of their subject matter jurisdiction in investment disputes.
As a result, investors are able to bring claims concerning not only “direct expropriation and open discrimination, but also State regulatory measures,” thereby discouraging states from adopting even legitimate policy regulations.
Ø Length of the process and costs
The main costs for the parties involved are the arbitrator fees. As a matter of fact, research by the OECD indicates that the average for a claimant are around $8 million. The largest cost component is the expense incurred by each party for their own legal counsel and experts which ends to be about 82 % of the cost of an ISDS case, the arbitrator fees average about 16% of costs and the institutional costs payable to organisations that administer the arbitration and provide secretariat are low, generally amounting to about 2% of the costs.
But what really makes the system expensive is the extent in time of the litigation. The average duration of proceedings under existing investment treaties is 3-4 years, with annulment potentially adding around another 2 years, meaning that the total length is often around 6 years, with many taking longer.
Ø Partiality, unfairness and power allocation
Some critics take issue with the comparative lack of independence and impartiality amongst arbitrators as opposed to judges in domestic courts. The ISDS system is often considered overly favourable to foreign investors to the detriment of States’ interests. In this context, and given the fact that arbitrators are not subject to safeguards regarding personal and professional conflicts of interest, ISDS has turned into a powerful legal tool for corporations to achieve policy objectives that suit their interests around the world as it allows them to challenge States’ regulations and policies before a ‘private’ court rather than before the domestic systems of dispute resolution.1
Another aspect that influences this issue is the fact that parties directly concur in appointing the arbitration panels that will hear their dispute. This creates several dilemmas. First of all, the parties to the dispute will tend to appoint the arbitrators whom they believe to be the most likely to rule in their favour. But also, a more specific problem, is the so called “double hat”, where an individual act as a counsel in an international investment case and then seats as an arbitrator on another case concerning a similar issue. When acting as an arbitrator, the appointed member of the panel will try to direct the solution of the case towards a resolution which will later be favourable as he/she acts as counsel in another case dealing with a similar issue.
ICS as the response to ISDS problems
As previously stated the ISDS system is often considered overly beneficial to foreign investors to the detriment of States’ interests. On the basis of the concern that eliminating ISDS altogether may have a deterrent effect on foreign investors, the Commission’s ICS aims at reconciling investors’ protection with the State’s right to defend its own interests by creating a ‘hybrid’ system, in the form of a public Court working on the basis of arbitration rules which moves away from a private-oriented dispute resolution mechanism towards a more ‘State-like’ public system of justice.
Explained below are the main changes from one system to the other.
Ø Consistency and predictability
When the Commission designed the ICS model, they introduced two permanent tribunals comprised of a set list of semi-permanent adjudicators as a main and crucial aspect of consistency given the fact that without a formal appellate body within the investor-state context there exists no independent mechanism to correct errors of law or to act as a checker on the ISDS process.
By requiring that the same basic group of jurists decide every investor-state dispute, the Commission’s proposal makes the ICS tribunals authoritative bodies capable of delivering consistent opinions and ensures a more independent and impartial system compared to the ISDS.
PAPER CON MÁS INFO EN WHY APPELATE BODY http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF
2This system has clear procedural deadlines to ensure fast dispute settlement and to keep costs low. In a memo released November 11, 2015, the Commission claims that the ICS would provide a “more cost effective and faster investment dispute resolution system” than the existing ISDS network. According to that document, the overall proceedings are limited to 2 years, including appeal. The Tribunal of First Instance must decide within 18 months and the Appeal Tribunal within 6 months. As the extension of the whole process is reduced, it leads to fewer man-hours worked and, as a result, an overall reduction in the general costs.
Notwithstanding, the ICS would also apportion exclusive control over ICS adjudicators’ salaries to the EU and United States, rather than leaving this to be negotiated amongst the disputing parties as is the case under the current ISDS system.
Another feature that would make the system more effective is that investors would be able to first seek to obtain redress in domestic courts but if they wanted to submit a claim to the Investment Tribunal they would first have to withdraw from any domestic proceedings they had started.
Ø Independency and impartiality
The ICS intends to uphold ISDS’s faults through the instauration of a permanent dual-tribunal structure which uses a rotation system for assigning judges to cases randomly instead of being the parties who choose their one arbitrator to settle the dispute and to ensure that disputing parties would have no influence on which of the three judges will be hearing a particular case3.
Additionally, ICS judges cannot hear cases involving parties with whom they have a prior relationship, cannot act as counsel in any “pending or new investment protection dispute,” and cannot adjudicate any disputes “that would create a direct or indirect conflict of interest.”
Further, even it can be thought that allowing the EU and the USA to settle this system, States would lose sovereignty, in fact, by limiting investors’ capacity to challenge state regulatory initiatives, the ICS would be shifting power from big and powerful enterprises to the EU and United States, thereby protecting States’ control.
2 European Commission – Fact Sheet Why the new EU proposal for an Investment Court System in TTIP is beneficial to both States and investors Brussels, 12 November 2015 http://europa.eu/rapid/press-release_MEMO-15-6060_en.htm