One of the central concerns in establishing an MIC is the creation of institutional framework conditions for the avoidance of contradictory decisions and the development of a uniform decision-making process in the settlement of investment disputes.
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This concern is understandable given the previous and at times remarkably divergent interpretations of similar, if not identical investment protection standards. One must, however, also acknowledge that in the current decentralised system of investment arbitration, a high degree of convergence in the interpretation of investment protection standards has generally been achieved.
Nevertheless, the sometimes fundamental differences in interpretation show that there is a need for harmonisation, for instance with regard to the scope of the term ‘investment’ under Article 25 ICSID Convention,1 the applicability of Most-Favored-Nation (MFN) clauses to jurisdictional and procedural matters2 as well as the “importation” of protection standards,3 the scope of so-called umbrella clauses,4 the scope of obligations of Fair and Equitable Treatment (FET),5 the conditions for the application of a state of emergency6 etc.
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In the context of the divergent interpretations of comparable investment protection standards, criticism expressed regarding an allegedly too investor-friendly interpretation of investment protection standards by investment tribunals must be considered.7 This would follow, inter alia, from an emphasis on a teleological interpretation based on the object and purpose of an investment treaty, which in IIAs are very often explicitly the increase of foreign direct investment and the creation of an investor-friendly climate.8 Indeed, in light of the rather low success rates of investor claims, a generally too investor-friendly interpretation does not seem discernible.
Although both problems can be addressed at the level of the applicable substantive law and through institutional and procedural arrangements, a conceptual distinction has to be made between the uniformity of interpretation and the likelihood of too state-friendly or too investor-friendly interpretations of investment protection standards.
These problems could be tackled, at least to a certain extent, by increasing the degree of precision and by clarifying the scope of investment protection.
However, the competence transferred by the Lisbon Treaty to the EU to conclude IIAs regarding foreign direct investment has created a new and more fundamental problem for the applicable substantive law. It follows from the established case law of the CJEU, which emphasises its interpretative monopoly over EU Law, that the EU’s participation in international dispute settlement systems is compatible with this interpretative monopoly only insofar as the ultimate jurisdiction on matters of validity and interpretation of EU Law is reserved for the CJEU. In the CETA-Opinion 1/17, the CJEU has held that tribunals outside the EU judicial system cannot have the power to interpret or apply provisions of the EU law other than those of the international agreements or to make awards that might have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework.9 Therefore EU agreements cannot confer on the envisaged tribunals any power to interpret or aply EU law other than the power to interpret or apply the provisions of that agreement having regard to the rules and principles of international law applicable between the parties and that these tribunals may issue awards which have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework.10
Therefore, from an EU legal perspective, the interpretation and application of EU Law as the substantive applicable law in investment disputes by an MIC will cause problems, if the conditions set up by the CJEU are not taken into consideration. This “EU internal” problem, which is not directly related to the other discussed issues with regard to the establishment of an MIC, should therefore be considered initially.
5.1 Applicable Substantive Law
In the field of investment law, there are two models for the determination of the applicable substantive law: it can be determined by the rules of procedure of a dispute settlement body or it can be contained in the applicable bilateral or multilateral IIAs. In addition, it is possible that both regulatory regimes contain provisions on the applicable substantive law.
For example, the ICSID Convention provides that in light of the principle of party autonomy, the parties to the dispute basically have the right to choose the applicable substantive law. Otherwise, i.e. in the absence of a choice of law, the domestic law of the host state and public international law shall apply.11
In the case of investment contracts between investors and states, the choice of law is contained in a contractual clause. In the case of treaty-based investment dispute settlement, which is much more common in practice, the choice of law is agreed by the state parties to the treaties. Individual investors accept this “offer” of a choice of law in the same manner as they accept the offer to arbitrate, namely by bringing a request for arbitration.12
The “cumulative” application of the domestic law of the host state and of public international law provided for in Art. 42 ICSID Convention has caused conceptual problems. The original practice was based on a “complementary and corrective function” of public international law, according to which the domestic law had to be applied primarily; public international law was used only to fill gaps and correct results incompatible with international law.13 However, it is nowadays accepted that both legal systems play an equal role,14 the latter especially with regard to customary rules on state responsibility, particularly regarding issues of attribution and the circumstances precluding wrongfulness, the protection against denial of justice, expropriation etc.15
Most bilateral and multilateral IIAs also contain a definition of the applicable substantive law. As a rule, the substantive investment protection standards of the respective IIAs should in many cases be applied in conjunction with general international law. Furthermore, there are a number of treaties which in addition to public international law also provide for the application of the domestic law of the host state and specific investment contracts between investors and states.16 Conversely, some IIAs limit the applicable law to the respective substantive investment protection treaty standards.17
From the EU’s perspective, a treaty provision in an MIC Statute or in the respective IIAs concluded by the EU which stipulates that the domestic law of the host state shall be the applicable law would mean that EU Law would have to be interpreted and applied by an MIC.
While from a public international law perspective this would seem unproblematic and might even have the advantage that an MIC could take EU Law directly into account, from an EU legal perspective and especially in light of the CJEU’s jurisprudence on safeguarding its interpretative monopoly, problems could arise with regard to the conformity of such a choice of law with EU Law.
5.1.1 EU Law as Applicable Substantive Law?
Within the EU, the question arises as to whether the application and interpretation of EU Law by an MIC could jeopardise the ultimate jurisdiction of the CJEU over the interpretation of EU Law.
In principle, the CJEU does not regard the establishment of international courts on the basis of international treaties as incompatible with the EU Treaties.18 Rather, it has repeatedly held that binding international dispute settlement provisions are compatible with EU Law in so far as they concern the application and interpretation of treaties concluded by the Union.19 It has also considered international dispute settlement systems as permissible under EU Law, provided that they do not affect the competences of the Union and its institutions or the autonomy of the EU legal order.20
It follows that such courts are in conformity with EU Law, provided that they confine themselves to the interpretation and application of the international agreements in question and do not extend to the interpretation and application of EU Law, which would have been the case with the draft for a “European and Community Patents Court” which the CJEU has found to be incompatible with the EU Treaties.21
After the CJEU Opinion 1/1722 it now seems to having been clarified that also an MIC should be compatible until EU law provided for that the conditions set up by the CJEU in this Opinion 1/17 are fully taken into account when creating a statute for an MIC, especially in regard to the applicable law23
Several investment tribunals have held that the interpretation of EU Law as applicable law in investment disputes is unproblematic and considered it compatible with the EU legal order in light of the acte claire doctrine.24 Arbitral decisions concerning the ECT also did not find the overlap of interpretations to constitute a curtailment of the CJEU’s exclusive jurisdiction, since assessments of measures based on EU Law would never deal with the validity of European Law, a question reserved for the competent EU institutions.25
Because of still existing uncertainty, it is understandable that the negotiators of European investment treaties and chapters in comprehensive free trade agreements are very cautious with regard to the application of EU Law. For example, Article 8.31 para. 2 CETA provides that an investment tribunal does not have jurisdiction to determine the legality of a measure under domestic (including EU) law. Domestic law may only be relevant as a question of fact and interpretations of domestic law by investment tribunals have no binding effect on state courts and institutions of the contracting party.26
Accordingly, it seems appropriate to also include a provision on the applicable substantive law in an MIC Statute, which essentially limits the standards of protection to those of the applicable treaties. Such a provision could also stipulate whether and, if yes, under which circumstances an MIC can exercise jurisdiction over breaches of investor-state contracts (see para. 214 et seq.).
5.1.2 Uniform Interpretation of Standards of Protection
It is evident that a uniform interpretation of investment protection standards
can best be achieved on the basis of uniform treaty texts. Therefore, the optimal condition for a homogeneous interpretation would be the existence of a single multilateral investment treaty. However, it is also clear from today’s perspective and after the experience with the failure of a multilateral investment agreement in the 1990s that a multilateral investment treaty is currently politically impossible.27 Rather, the application of the existing and future IIAs needs to be considered. According to estimates by the United Nations Conference on Trade and Development (UNCTAD), there is a considerable legal body of approximately 3000 bilateral and multilateral treaties (especially IIAs and trade agreements with investment chapters).28
Although these treaties contain to a large extent similar provisions on substantive standards of protection,29 those provisions are often formulated in a significantly more detailed manner in the more recent agreements compared to those in the first generations of IIAs.30 In this context, we are faced with rather standardised provisions on compensation for direct and indirect expropriations, FET, full protection and security and non-discrimination in the “older” treaties from the 1960s to 1990s and subsequently with a series of agreements that do not always consistently regulate the various standards of protection in much greater detail.
This results in treaty-based limitations on a possible uniform interpretation of investment protection standards. As far as the wording of applicable substantive standards of protection clearly diverge, these textual differences must be taken into account in accordance with the generally accepted principles of treaty interpretation codified in the VCLT.31
Nevertheless, as evidenced by previous practice of investment arbitration, individual arbitral tribunals are able and willing to interpret and harmonise divergent provisions (see para. 394).
In addition, there are also procedural steps that contribute to a harmonious interpretation and which could be incorporated in an MIC Statute. This would primarily include the permanence of treaty interpreters (as opposed to ad-hoc arbitrators) inherent in a permanent court as well as an explicit, harmonious interpretation mandate.
5.1.2.1 Permanency of the Treaty Interpreters at the MIC
As the various interpretations of investment protection standards referred to above are not only owed to the fact of ‘objectively’ diverse treaty wording, but can sometimes also be attributed to the different treaty interpreters. A ‘standardisation’ among the treaty interpreters would be another important step towards the desired result.32
Already in the previous practice of investment arbitration, similar rudimentary steps were made; for example, by the formal consolidation of individual proceedings33 or by the appointment of the same arbitrators in different but related proceedings34 in order to avoid divergences in interpretation as much as possible.
In fact, the repeated reappointment of certain arbitrators in different arbitration proceedings resulted in a certain permanence of adjudicators, which may have contributed to a more uniform interpretation of treaty provisions.35 176 out of the total of 361 existing arbitrator posts in proceedings between 1972 and 2006 were occupied by the same 43 arbitrators.36 This trend has intensified in recent years and led to the development of shared legal views, which has resulted in an increased consistency of decisions.37
This standardising function can undoubtedly be strengthened by the establishment of an MIC, which would establish a single institution to decide on the interpretation and application of treaty standards instead of different ad hoc arbitral tribunals.38
It can be expected that the interpretation of identical or similar investment protection standards by the same group or a small group of persons who decide in a similar composition will lead to a greater degree of consistency and coherence, as should be the case with the proposed MIC.
5.1.2.2 Harmonising Interpretation Mandate
A further possibility to achieve a higher degree of uniformity in the interpretation of identical or similar investment protection standards would be to emphasize the need for the most uniform possible interpretation of the applicable provisions by the MIC.
Other dispute settlement systems also feature comparable “interpretation mandates” for treaty users and treaty interpreters. For example, the WTO DSU stipulates that the WTO Dispute Settlement System is primarily intended to serve legal certainty and predictability, and explicitly states that it should be oriented towards the international customary principles of interpretation of international treaties and must abstain from “legislative” interpretation.39 The background of the latter skepticism towards overly activist interpretations by WTO Panels and the Appellate Body has been a concern that Member States may have had in the often far-reaching interpretative practice of GATT Panels.40 However, it seems essential that the WTO Dispute Settlement System comprises a provision which contains a precise interpretative directive.41
Similarly, it seems practical not only to instruct the MIC to observe international customary principles of interpretation of international treaties, but also the most harmonising possible interpretation of investment protection standards which are not formulated in a completely identical manner. Such an interpretative mandate could, for example, be achieved by an emphasis on the systematic interpretation already mentioned in the VCLT and also known in investment arbitration practice in accordance with Article 31 para. 3 lit. c VCLT.42 Alternatively, one could also choose a wording according to which the interpretation of the applicable investment standards by the MIC would be oriented towards the principles of consistency and coherence.
5.1.3 Ensuring a Neutral and Objective Interpretation of Standards of Protection
A separate problem of interpretation
is the question as to how to prevent investment treaty standards agreed upon by the parties from being interpreted as too investor- or too state-friendly. The previous debate above was about the concern of a too investor-friendly interpretation of the standards of protection contained in IIAs and other treaties by investment arbitral tribunals which has given rise to various considerations for a “change of course”.
The proposals ranged from specifying and limiting investment standards to establishing corrective measures by the parties to the treaties e.g. authentic treaty interpretations or even proposals to establish an MIC to eliminate the influence of arbitrators appointed by the investors.
Similar to the issue of uniformity, in the interpretation of investment standards, this is also a question of interpretation, but at the same time involves weighing conflicting interests in interpretation.43 Therefore, it appears particularly necessary to consider the integrity of the interpretation and decision-making process by an MIC.
5.1.3.1 Clarification and Limitation of Investment Protection Standards in Investment Agreements
An unproblematic response to an interpretation practice of arbitral tribunals which is perceived to be too investor-friendly would be the correction and revision of investment protection standards in the applicable agreements. In fact, not only the CETA and TTIP texts but also a number of other recent investment agreements have clearly included provisions aimed at restricting investor rights.44
This can be well illustrated by the provisions on indirect expropriation. Whereas in the original “first generation” IIAs, direct and indirect expropriations were generally treated as equal and therefore in principle triggered an obligation to provide compensation,45 in the practice of investment tribunals46 and at the same time in the practice of treaty drafting, it has become accepted that non-discriminatory state measures adopted for a public purpose, e.g. health or environmental protection or for general public safety, cannot in principle be considered as measures tantamount to expropriation.47
Comparable textual limitations
48 of investor rights can also be found in other standards of protection. For example, the CETA text provides for a far-reaching curtailment of the standard of FET by defining only extreme violations of the elements of FET identified in previous practice of investment tribunals as CETA violations.49 Similarly, the CETA text adopts the standards of full protection and security by being expressly restricted to protection against physical threats by third parties.50
As the wording of a provision is the starting point of treaty interpretation51 under the VCLT rules,52 such prospective limitation of investors’ rights seems to be the safest and least problematic way of preventing individual standards from being interpreted in a too investor-friendly manner at the expense of host states. At most, however, an excessive limitation53 could result in investors finding the protection granted inadequate and they may therefore possibly turn to alternative methods of dispute settlement.54 This could range from a reactivation of diplomatic protection (which could be accompanied by a politicisation of the disputes),55 the increased conclusion of investment contracts between investors and states including their own separate arbitration clauses, to the strategic planning of investments via states that have a higher level of protection due to existing IIAs.
Such a redirecting effect would certainly be counterproductive with regard to the objective of uniform and consistent interpretation of investment protection standards. However, insofar as the respective agreements find a balance between the legitimate interests of host states and investors, a clarification of the standards of protection not only seems to be unproblematic, but even practical in order to provide the treaty interpreter, i.e. a future MIC, with a more detailed decision-making basis.
5.1.3.2 Limiting the Mandate for Interpretation
It should also be considered whether the MIC should be instructed with specific interpretative maxims. For example, it would be conceivable to clarify in the respective text of the treaty, in the preamble or in the annexes, that the investment protection standards are to be interpreted neutrally and objectively, or that specific interpretative variants could be agreed as binding. The more recent practice of interpreting the scope of the standard of FET and full protection and security or clarification of what should not be regarded as indirect expropriation provides useful examples (see para. 406). Since they are already provided for in the applicable treaties, investors cannot claim being confronted with an unexpected interpretation.
As an alternative to incorporating them in the applicable IIAs, one could consider whether comparable interpretation directives could be included in an instrument that governs the functioning of an MIC.
In this case, it may be necessary to differentiate whether a particular interpretation is within the scope of what the original text envisages or goes beyond it. This will be the case if, for example, the clarification of the individual elements of the FET standard contained in CETA is based on established principles of the previous interpretation by investment tribunals56; however, with regard to the subsidiary protection of legitimate expectations57 and the total lack of any stability and predictability, this may be considered questionable.58
More problematic than the clarification of the content of the investment protection standards in the applicable IIAs or the establishment of certain interpretation maxims therein (or in a general instrument for the functioning of the MIC) are two additional methods of interpretation in the context of correcting an investor-friendly ruling: so-called authentic interpretation by the parties to the agreement and the appointment of state-friendly judges as treaty-interpreters.
5.1.3.3 Authentic Interpretation by the Parties
A number of IIAs already provide that the Contracting Parties should be able to interpret individual treaty provisions as binding, in addition to the dispute settlement institution designated for “routine” interpretation and application of such treaties.59 In other words, the MIC (superseding the previous arbitral tribunals) and the parties to the IIA would in principle be entitled to interpret an IIA. The MIC Statute could therefore clarify (within the provision on the applicable law) that the MIC must take into account interpretative statements of the parties to the applicable IIA. However, the Plenary Body of the MIC cannot be given jurisdiction for the interpretation of bilateral IIAs, at best it could have jurisdiction for interpreting the MIC Statute.
As the rare invocation of such interpretative competence has shown, it is especially used as a corrective measure against overly investment-friendly interpretations by arbitral tribunals. A clear example is provided by the interpretation of FET by the North American Free Trade Agreement (NAFTA) Free Trade Commission, which stated that the FET standard provided for in Chapter 11 (the investment chapter of the NAFTA) does not go beyond the minimum standard of treatment under customary international law.60
To the extent that such interpretations are within the scope of the respective investment protection standard and do not go beyond that,61 i.e. modify the treaty, and to the extent that it is prospectively applicable, such “authentic” interpretations by the contracting parties appear to be a legitimate instrument to help them assert their will.62
However, it seems problematic to provide the contracting state parties with such extensive interpretative competence that they could help their legal position to a breakthrough in ongoing proceedings.63 This would not only be contrary to the principle that no one may be a judge in his own case (in causa sua nemo iudex sit), but also contrary to fundamental rule of law requirements for a fair trial.64 It would therefore be particularly important to note that any “authentic” interpretation by the parties to the agreement, even if made in response to an interpretation by the MIC or another dispute settlement body, must not have an effect on any pending proceedings.65
5.1.3.4 Composition of the MIC: Impartial and Independent Judges
Another means of ensuring
neutral and independent interpretations of the investment protection standards appears to be already implicitly included in the plans to establish an MIC. The appointment of judges to an MIC is intended to prevent arbitrators who are too investor-friendly from interpreting the standards of protection in favour of the investors, not only in individual cases, but on a permanent basis.
In traditional arbitration, the influence of party-appointed arbitrators is counterbalanced by the presiding third arbitrator.66 In addition, rules governing the independence and impartiality of persons appointed as arbitrators should prevent an undue influence of investors or states on the tribunal.67 As explained above (see para. 133 et seq.), this should be regulated primarily by a corresponding Code of Conduct of an MIC, with the option of incorporating the already very nuanced and widely used IBA Guidelines on Conflicts of Interest in International Arbitration.68
If the judicial decision-makers are appointed solely by one or more state parties, this could not only call the arbitral nature of this form of dispute settlement (see para. 518) into question, but also raise doubts about the independence and impartiality of the judges appointed exclusively by the potential respondent states. Indeed, this could be rebutted by the fact that states not only protect their own interests as potential respondent host states against foreign investors, but at the same time protect the interests of their investors abroad. Thus, they have an interest in a balanced appointment of the members of the MIC. However, even these considerations cannot change the fact that the selection of the MIC Members would lie exclusively in the hands of the state parties.69
Therefore, it would be important to minimise other factors beyond the appointment to the judicial office which could affect the impartiality of the individual decision-makers as far as possible (for details on the impartiality and independence of the judges, see para. 130 et seq.).
As stated above, terms of office should be as long as possible and either no or only a one-time re-election should be envisaged (see para. 155 et seq.). The exclusion or restriction of re-election is often considered as the main instrument to prevent a potential dependency of judicial decision-makers on the electing states. In addition, the exclusion of persons who could have a close relationship to potential parties to the dispute should also be considered. In specific terms, this could not only mean excluding government officials and party representatives of investors, as stated in CETA,70 but also persons who have held certain political or administrative offices in states’ or EU institutions in the past.
5.2 Applicable Procedural Law and Procedural Principles
The current decentralised system
of investment dispute settlement by ad hoc arbitral tribunals based on IIAs generally provides for various alternatives. Thus, it is usually at the investors’ discretion whether to initiate proceedings under the rules of the ICSID Convention, the ICSID Additional Facility Arbitration Rules, the UNCITRAL Arbitration Rules (possibly administered by the PCA), or under the arbitration rules of various institutions (such as International Chamber of Commerce (ICC), SCC, London Court of International Arbitration (LCIA) etc.).
These arbitration rules mostly do not differ significantly with regard to the core aspects of the proceeding. However, it should be noted that only the ICSID Arbitration Rules and the ICSID Additional Facility Arbitration Rules apply specifically to investment arbitration proceedings, while the other arbitration rules—except for the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration71—are also used in commercial arbitration.
Since in all these procedural rules the actual proceeding is regulated very rudimentarily and informally, only small differences arise. The core of all these arbitration rules is party autonomy and respect for the mutual right to be heard.72
Therefore, in practice, the choice between the various arbitration rules is primarily based on the different enforcement mechanisms between the ICSID arbitral awards that provide for a separate enforcement mechanism under the ICSID Convention and arbitral awards under other procedural rules, which are generally governed by the New York Convention (see para. 483). In addition, the special rules on jurisdiction of the ICSID Convention73 and its annulment system74 also influence the choice of procedure.75 Investors who have doubts as to whether their investments comply with the so-called Salini criteria of “investment” developed in ICSID arbitration practice or the nationality criteria set out in Article 25 ICSID Convention, or investors wishing to avoid the potential procedural delay caused by the possibility of annulment under the ICSID Convention may therefore rather opt for UNICTRAL rules based arbitration or other non-ICSID arbitration proceedings.
The fundamental question is primarily whether the current system of adopting existing rules of procedure should be maintained or whether separate rules of procedure should be provided for. The MIC Rules of Procedure could already be directly integrated into the MIC Statute or adopted by the Plenary Body as secondary rules specifying the MIC Statute (see para. 107).
This fundamental question depends on several factors: enforceability of awards, special procedural requirements such as transparency, efficiency (in particular cost efficiency but also reduction of the length of proceedings etc.), avoidance of abusive procedures etc.
The realisation of these objectives should partly be achieved by adopting existing rules of procedure and partly by creating own rules of procedure.
As will be explained in more detail below (see para. 484 et seq.), ICSID arbitral awards are subject to a particularly efficient enforcement mechanism according to which all (currently 163)76 parties to the ICSID Convention have in principle the duty to enforce the awards as if it were a final judgment of their own national court, whereby only the principles of state immunity in enforcement proceedings may constitute an admissible objection. Similarly efficient is the enforcement of arbitral awards governed by the New York Convention in all its (currently 160)77 members. However, there are additional grounds for non-recognition or non-enforcement of awards under the New York Convention. A precondition for the applicability of the enforcement mechanisms of increased effectiveness under the two named conventions is that the resulting decisions can be regarded as ICSID arbitral awards or as arbitral awards within the meaning of the New York Convention (see para. 480).
Whether decisions of the MIC can be regarded as ICSID arbitral awards or as arbitral awards within the meaning of the New York Convention is not only fundamentally problematic, but it also depends on the extent to which they are based on a procedure consistent with the ICSID Rules of Procedure or rules of procedure that satisfy the requirements of the New York Convention (see para. 480).
A series of measures/rules aimed at more efficient procedures which ultimately move away from the principle of party autonomy prevailing in arbitration towards a stronger concentration of the judicial process could run counter to this objective. Nevertheless, these should be discussed in detail in the context of a comprehensive reform of investment dispute settlement as is planned within the MIC.
5.2.1 Transparency
Principles of transparency have recently been the subject of various discussions and reform plans within arbitration. Under the aspect of transparency, the issues of publication of documents, the participation of third parties interested in the proceedings as well as public access to hearings are generally included. Transparency is seen as an expression of fundamental rule of law requirements. In order to ensure the simple application of the UNCITRAL Transparency Rules without having to renegotiate all existing investment agreements, the UN General Assembly adopted the Mauritius Convention
78 at the end of 2014.
Transparency is dealt with differently in the various investment dispute settlement mechanisms: on the one hand, there are divergences regarding the definition of a general obligation, either of confidentiality or transparency.79 On the other hand, there are differences in the implementation of presumed transparency.80
Using the transparency obligations enshrined in the 2013 UNCITRAL Rules on Transparency
81 as a potential standard for an MIC is largely undisputed. As a result of many years of negotiation, they constitute a stable set of rules and cater to the specific needs of proceedings between states and investors as a tailored set of rules which can significantly promote transparency in investment arbitration.82
In the context of the MIC, it would therefore make sense to incorporate the UNCITRAL Rules on Transparency into the constituent instrument following the example of CETA.83 Above all, this would avoid the problem of application that arose with regard to IIAs concluded before 1 April 2014 in relation to the UNCITRAL Rules. This issue had to be solved by a special multilateral instrument (Mauritius Convention).84
Specifically, it has to be noted that the debate in the area of a transparent investment dispute settlement system focuses on the following issues: access to information concerning the initiation of proceedings, public access to hearings, the possibility for third parties to participate in proceedings as well as the publication of procedural documents, in particular of the final award.85
As already stated above, the statement of claim should be published on the MIC website after the submission of a claim. The UNCITRAL Transparency Rules also provide that all documents related to the dispute must be published. The entire award and all relevant procedural documents such as the parties’ written pleadings, records of hearings and decisions would have to be published according to the Mauritius Convention (Article 3).
Under the aspect of transparency the participation of “interested third parties” has often been discussed in the past.86 The guarantee of procedural participation rights of interested parties also serves as “minority protection” in a broader sense; in any case, those affected by a decision should also have a right to participate in the proceedings leading to the decision in question. For example, according to the CETA guidelines, amicus curiae briefs should generally be allowed. Pursuant to the UNCITRAL Transparency Rules, the arbitral tribunal has the discretion to allow amicus curiae briefs (Article 4). The participation of third parties has now also been comprehensively regulated in the various transparency chapters.87
Pursuant to the UNCITRAL Transparency Rules, oral hearings should also in principle be public, unless that proves to be logistically impossible (Article 6).
In particular, transparency through the publication of documents and the conduct of oral hearings open to the public should in principle be under the caveat that business and trade secrets are treated in a confidential manner and that no respondent should have to disclose information concerning its confidential interests (Article 7). It should also be ensured that the “integrity” of the procedure is not impaired by transparency, for example by impeding the taking of evidence, intimidating witnesses, party representatives or arbitrators.
5.2.2 Efficiency
At present, arbitration proceedings last on an average for 3 years and 8 months.88 For the effectiveness and acceptance of the new system, limitations should be provided for the duration of the proceedings. Thus, in addition to being susceptible to soaring costs, the existing system is often criticised for the excessive duration of the proceedings.89 A shortening of the length of the proceedings would automatically lead to a reduction of the total costs.90
In traditional arbitration, it is partly up to the arbitral tribunals to ensure the efficient conduct of the proceedings; however, the concrete procedural organisation remains mostly at the disposition of the parties. The time-efficient and cost-effective completion of a procedure can thus be rendered more difficult by the obligation of the tribunal to decide on all submissions of the parties as explicitly laid down in the respective dispute settlement instruments.91
In practice, it is above all the right to be heard that usually causes the arbitral tribunal to admit submissions by the parties,92 even if they have a delaying effect on the proceedings, since otherwise they are subject to the risk of annulment.93
Here, a stronger conduct of proceedings by the MIC could provide a meaningful remedy. Where appropriate, it should be noted that in terms of cost and time efficiency, procedural decrees taken by the MIC are not, as a rule, to be considered as limitations on the due process of law.
It therefore seems advisable to set time frames for the length of proceedings for the MIC using the example of the reformed WTO DSU or regional instruments such as Association of South-East Asian Nations (ASEAN)94 or NAFTA.95 By virtue of complying with the deadlines set by the WTO DSU, the issue of longstanding disputes under the old GATT System has been resolved and it has helped the system to be transformed into an efficient dispute settlement mechanism.96
For the entire procedure of the first instance, from the lodging of the statement of claim to the decision, a maximum duration could be set from which it should be possible to deviate only after a special statement of reasons by the chamber. The investment dispute settlement mechanism in CETA and in the EU-Vietnam IPA provides for a maximum duration of proceedings based on the WTO DSU, which has so far not been found in investment arbitration. The first instance should last a maximum of 18 months, the second instance a further 6 months (see also para. 354 et seqq.).
Despite the generally accepted positive effects of fixed deadlines
97 and defined subject matters of the disputes on procedural and cost efficiency, there was also some doubt in the context of the WTO Dispute Settlement System. In particular, it was criticised that such arrangements may have a cost-saving effect in the short term, but could have the opposite effect in the longer term,98 since the probability of several “procedural stages” could increase.99
As a result, the MIC should in future be granted discretion to set the temporal dimension of specific cases based on their complexity. It should therefore be possible to extend the stipulated time frames in particularly complex cases or indeed if the establishment of the facts raises specific challenges.
For the MIC, it should be noted that already in the first instance, the judges should in principle be full-time judges, unlike, for example, under the CETA mechanism or the WTO DSU (which is known to appoint ad hoc arbitrators). Therefore, a shorter maximum length of proceedings could be envisaged, which could only be extended based on a statement of reasons, for instance due to the particular complexity of the facts. In the case of full-time judges, a maximum length of proceedings of generally 6 months/180 days for the first instance is generally accepted, which could be extended if, for example, comprehensive and lengthy fact finding is required or if there are particular difficulties in the legal assessment or calculation of damages and expert opinions have to be obtained. The procedural role of the MIC with full-time judges, unlike the ad hoc arbitrators of WTO Panels, could prevent the parties from lengthening proceedings and causing additional costs.
In conjunction with the introduction of requirements for the length of proceedings, the principle of celerity should apply. Hence, in all its work, the chamber should be careful not to unreasonably impair the conduct of the proceeding. In that regard, the chamber could be provided with means to expedite the implementation of the procedure, such as having the ability to deny submissions for the admission of evidence after a certain point in time, only providing for oral hearings or enforcing strict duties for pleadings. At the same time, however, it must be borne in mind that a balance should be struck between the interests of complete and comprehensive establishment of the facts on the one hand and the interest of least possible impairment to a potentially accelerated conduct of the proceedings on the other hand.
From the moment a chamber gives reasons for an extension of the length of the proceedings, this chamber should not be assigned new disputes until the decision has been handed down. If all chambers are busy and an extension of the length of the proceedings is requested on a regular basis, the President of the Court should propose to the Plenary Body for the number of MIC judges to be increased (see para. 86).
5.2.3 Practice of Judicial Investigation and Limitation of the Subject Matter of the Dispute
In German public law
,100 European law101 and public international law102 proceedings, the application of the practice of judicial investigation is widely accepted.103 There are no reasons why this should be deviated from in the case of the MIC, where basically the behaviour of public authorities is examined for compatibility with subjective legal positions. The MIC should therefore be allowed to establish the facts of the dispute ex officio.
This means that, the court would not be bound by the submissions and motions by the parties to take evidence.104 At the same time, however, it could be set forth that a substantive examination can only be carried out to the extent that a reference to the claimant’s arguments is clear. Furthermore, it should be considered whether a determination/limitation of the subject matter of the dispute—as is the case in the WTO DSU105 or also in the ICC Arbitration106—should take place, inter alia, by establishing Terms of Reference. This could lead to a focus of the proceeding on the actual points of contention. CETA has similar aims as it states that the claimant may not present any measure in its claim that was not already presented in the request for consultations.107
The chamber should clarify the facts of the dispute to the extent that it deems necessary for its decision. The principle of ex officio investigation or the principle of judicial investigation is thus in proportion to the principle of party disposition on the part of the applicants. Nevertheless, within the context of the scope of examination, it should only be examined whether the claimant’s interests were damaged, i.e. whether the rights of the claimant originating in the particular IIA were violated. Therefore, such violations of an MIC Member that do not affect the applicant’s own standards of protection should not be dealt with by the MIC.
Contrary to the principle of legal representation and the principle of production of evidence in civil procedural law, the chamber would itself under the principle of judicial investigation determine the manner and extent of the investigations. Insofar as the chamber sees further need for investigation, it should, in principle, exhaust all reasonably available and legally admissible possibilities for clarifying the relevant facts. In many cases, however, a chamber will only be able to confine itself to the points raised by the claimant as well as to other manifest and serious infringements. Further elaboration of the formalities regarding the taking of evidence should be provided for in the procedural rules of the MIC, for example, that the court can examine, take oath and, in the case of non-appearance, impose a fine on witnesses and experts, or that the MIC in this respect also has a right to information towards its members.108
The obligation of the parties to advance the procedure should in principle interact with the obligation of the chamber to find out the relevant facts ex officio. If a party to the proceedings fails to perform his obligation to ensure smooth conduct, the MIC chamber would consider it to the detriment of the non-compliant party. The duty to investigate the matter and to establish the facts should rather only come into play in case that the arguments of the parties (or the other facts), if considered reasonably, provide a sufficient reason to do so. From the interaction between the principle of judicial investigation and the principle of efficiency and the principle of celerity, it follows that the procedure should be terminated if the claimant fails to perform its obligations in a sufficiently swift manner.109
Without receiving a detailed statement of fact, the chamber should not be obliged to investigate on its own. Conversely, it follows from this “interaction doctrine” that, in case that the statement of facts by the parties or other facts give the supervisory bodies sufficient grounds for examination, they should be obliged to conduct further ex officio investigation and judicial review. The burden of proof for the legal facts should be borne by the one who asserts a right.
In the procedure before the MIC, the principle of free evaluation of evidence should apply, which results as a consequence of the principle of judicial investigation. The chamber should be bound to the rules of legal logic as well as to principles derived from recognised empirical principles and methods of interpretation in assessing the facts. In its assessment, the chamber can include in addition to the results following the taking of evidence the statement of facts by the parties, the knowledge of the administration, and as a whole, the overall impression of all circumstances etc.
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