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Debate report: The Future of Investment Treaty Arbitration

11 April 2017 YMG News
By Emilie Gonin

On 13 March 2017, CIArb YMG co-organised a debate on the Future of Investment Treaty arbitration with students from Sciences Po’s Economic Litigation and Arbitration Master’s course hosted by White & Case Paris.  

Two motions were tabled for debate:

  1. This House believes that investment treaty arbitration will no longer exist within a decade” which was debated by Emilie Gonin, Barrister at Doughty Street Chambers and Simon Maynard, Solicitor Advocate at Three Crowns in London;

  2. This House believes that an investment treaty court is the solution to the legitimacy crisis the current investment treaty system is going through”  which was debated by Athina Fouchard Papaefstratiou, Counsel at Lazareff Le Bars and Jiries Saadeh, Solicitor Advocate at Fietta.


The two moderators were Charles Nairac, Partner at White & Case Paris and Roderick Cordara QC of Essex Court Chambers.  

The evening was attended by over 100 students and practitioners.  The debate was very lively, at times, even heated.  Brexit, Trump, and the zombie apocalypse were amongst the topics referred to in support of the debaters’ respective thesis. 

Conference report 

NB. The following took place in a debate setting. The arguments made do not reflect the views of the speakers.

Co-chair Charles Nairac, Partner at White & Case Paris, set the scene in his welcoming remarks by looking back to the start of the supposed backlash against investor-state arbitration. 

He suggested the ball started rolling in earnest with the publication in 2012 of “Profiting from Injustice”, a report from the Corporate Europe Observatory.  The backlash then gathered momentum and intensity during the negotiations of Transatlantic Trade and Investment Partnership (TTIP).

Nairac noted that this backlash persisted despite attempts, such as the Mauritius Convention on Transparency 2014, to bring legitimacy back to investor-state arbitration. 

He concluded by asking two questions: would an investment court system, as proposed by the European Commission during the negotiations of the Comprehensive Economic Trade Agreement (CETA), work? And if so, would it actually be better?

This House believes that investment treaty arbitration will no longer exist within a decade

Emilie Gonin, Barrister at Doughty Street Chambers, spoke in support of the motion.  Don’t be fooled, she said, by the fact that the number of treaty arbitrations is on the rise. 

Investment arbitration has no future: the fertile geopolitics which spread free-trade and bilateral investment treaties have withered, leaving President Trump to enact measures restricting free-trade and the UK, the EU’s only true-free trade voice, to walk away from the Union.

In some respects, Gonin argued, the end is already here.  CETA and the other recently concluded EU free trade agreements do not provide for arbitration but adopt quasi court systems which take inspiration from public judicial systems and other international courts.    

The scene is no more promising when it comes to capital importing countries.  She noted that at the time when Venezuela and Ecuador withdrew from the ICSID convention many maintained that it was much ado about nothing. 

Arbitral tribunals continued to treat states primarily as respondents rather than also as treaty parties, overlooking the relevance of the treaty parties' subsequent agreements and practice.  Arbitral tribunals continued to expand the scope of certain controversial clauses, such as the MFN clause.

She concluded that this situation would no longer be acceptable from the prospective of capital importing countries.  What possible motivation would capital importing countries have to engage with a system that is no longer good enough for the EU and the US?  “Winter is coming”, warned Gonin.

Simon Maynard, Solicitor Advocate at Three Crowns in London, struck a more optimistic note.  “Everyone loves disaster movies” he said, because “we are all hardwired to believe that we are living through a period of unique instability and turmoil”, and “what you have just heard is the legal equivalent of the zombie apocalypse”.   

Maynard suggested that we are witnessing a period of reform, not decline. 

He observed that while the EU is clearly dissatisfied with the current model of investment treaty tribunals, the introduction of investment courts is a proposal for reform of ISDS, not abolition.

He went on to note that although the UK has voted for Brexit, in a government white paper published after the referendum the UK has committed to include ISDS in its future FTAs. 

And while Trump’s presidency does appear to mark a shift in US economic policy away from free trade, Maynard pointed out that there are signs that the Trans-Pacific Partnership (TPP) may continue without the US, perhaps with China being brought into the fold. 

Maynard also questioned the idea that developing countries do not see a future in ISDS: he gave the example of India, which, despite substantially reforming its new model BIT, has still included ISDS provisions.

Maynard concluded that while this ongoing reform may not be easy, we should view it as an opportunity, as well as a challenge – “the system is only as good as its participants’ commitment to it”, he observed. 

He encouraged participants to embrace that challenge, which must include greater transparency to ensure public legitimacy, and, in doing so, affirm their support for the international rule of law.

This House believes that an investment treaty court is the solution to the legitimacy crisis the current investment treaty system is going through

Athina Fouchard Papaefstratiou, Counsel at Lazareff Le Bars, spoke in support of the notion.

The flexible and private nature of arbitration is perfect, she said, for commercial arbitration.  But what makes it work for commercial arbitration limits its utility in investment disputes.  States do not need flexibility, but they do need consistency and appeal mechanisms, and their tax payers need transparency.

Fouchard Papaefstratiou highlighted the lack of consistency in ISDS, noting conflicting decisions on various points of law.  Without consistency and transparency states cannot plan ahead and the legitimacy of ISDS is undermined.

Moreover, the crisis that ISDS is encountering is very real: you need only look at the press, or the fact that states are opting out of ICSID, terminating BITs, or not signing up to new investor-state arbitration clauses to be convinced of that.

The answer to this crisis, she said, is a court system. This will foster consistency, impose transparency, limit party appointments and allow for appeals so as to deal with the legitimacy crisis.

Fouchard Papaefstratiou accepted that this was not going to happen tomorrow, but pointed to the use of courts by regional agreements, which she called “a very important first step”.  

CETA, the Arab Investment Agreement, UNASUR, COMESA and the EU agreement with Vietnam are just a few examples.  Fouchard Papaefstratiou also noted a group of EU Member-States’ proposition that the ECJ, or a new alternative court, be used to judge intra-EU investment disputes.

Jiries Saadeh of Fietta countered the motion.  Saadeh first took aim at the premise that ISDS was going through a legitimacy crisis: some negative press and a few reports do not amount to a crisis, he said.

Saadeh then criticized the proposition that a court system would somehow provide all the answers.  The current proposals are too vague, he said, and regional courts would not solve the problem of fragmentation. 

There are problems with ISDS, he accepted, but we should not “throw the baby out with the bathwater”.

Saadeh then addressed the issues raised by Fouchard Papaefstratiou.  Inconsistencies in case-law are rare, he said, which is highlighted by the fact that they are all so well-known and so thoroughly discussed. 

And in any case, a series of investment treaty courts would not solve this issue; we would just be left with inconsistencies between court systems.

Nor would investment courts necessarily lead to a more legitimate bench.  At the moment, each party can nominate a panel member and panel members often do not share the nationality of either disputing party.  

This would not be the case with an investment court, where judges would systemically be appointed because of their nationality, undermining neutrality and legitimacy. 

Moreover, we must ask where these judges would come from.  The answer is obvious: the same pool as the current crop; they are the ones with the requisite education and experience.

Saadeh then turned to the issue of costs in investment arbitration. The current system works, he said, because costs are borne by the parties to the dispute at the time of the dispute. 

A court system, however, would require permanent judges, a permanent secretariat, and permanent buildings and infrastructure.  He pointed to CETA, where first instance and appeal judges would consequently be paid to sit around and do nothing until a rare dispute under the agreement comes along.

To finish, Saadeh also noted the potential issues surrounding both enforcement and the fact that an appeal mechanism, for which a court system would provide, appears to be incompatible with the ICSID Convention. 

In conclusion, a court system would not address the alleged ‘crisis’ but instead would raise issues of its own; addressing legitimate concerns with ISDS would consequently be pushed down the road.

Concluding notes

Co-chair Roderick Cordara QC, of Essex Court Chambers, concluded the evening. 

Reflecting on the enduring question of the legitimacy of judicial processes, he noted the obvious tension between a state’s desire to protect its sovereignty and a form of dispute settlement which engages that sovereignty, over which a state has no control and from which there is no appeal. 

This is as true for arbitration, he said, as it is for the European Court of Justice. “The issues which have been ventilated tonight are issues that we will all live with for a long time.