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CIArb News

CIArb response to European Commission plans for MIC

1 June 2017 News
By Sabina Adascalitei MCIArb Research and Academic Affairs Coordinator

At the end of last year, the European Commission announced that it would begin developing plans for a multilateral investment court (MIC). CIArb responded to the Commission’s consultation paper by addressing three key areas that raise concern.

Sustainability

The MIC proposes a system that will be funded by the states that are party to the reform. It is unlikely that states will agree to publicly fund this system, as it does not seem sustainable. Specifically, with the UK’s withdrawal from the EU, the money that would be required to fund the MIC can be used to fund different projects.

Furthermore, the Commission has not provided enough details to help estimate the overall costs of funding the MIC.

For example, there is no information with regard to the operational costs of the MIC. Similarly, not enough information is available to determine the needs, duties and remuneration of the secretariat of the MIC.

Since there is no data publicly available on this matter, these concepts remain obscure and confusing to the wider international community. It should also be noted that as the EU would seek to engage global partners on a multilateral initiative, both the US and post-Brexit UK are committed to driving strong bilateral trade programmes.

This will add to a complicated global environment of simultaneous trade treaties and dispute resolution systems, one where confusion and mixed messages could hinder acceptance of an MIC and therefore prevent the critical mass of participants required for the success of this initiative.

Accountability and Impartiality

There are two issues arising out of the proposed composition of the MIC. Firstly, there is an issue concerning the talent pool. The success of high-value, complex arbitration cases is due in part to the power of the parties to appoint their arbitrator of choice, based on their qualification and expertise.

This choice should not be limited. Appointing the same fixed adjudicators, who will be part of the former judiciary, will achieve the contrary.

Furthermore, limiting the choice of arbitrators will diminish parties’ confidence in the whole process, mainly because they cannot be certain that the individuals deciding their case will possess the necessary set of skills.

Secondly, MIC adjudicators should not only possess high qualifications, but they should also be independent and impartial.

It is doubtful whether this can be achieved through the current proposition – where contracting parties select individuals behind closed doors with no transparent and inclusive process in place. This would eventually result in pro-state impartial judges.

To avoid this, the profiles of prospective adjudicators should be publicly available and followed by an individual assessment to determine their suitability. 

Enforceability

The EU multilateral reform, as it stands, raises a serious question as to how enforceable the awards coming from the MIC will be in ICSID/New York Convention 1958 third countries (essentially all countries that are not EU Member States, Canada and Vietnam). 

With regard to ICSID, Articles 26 and 53 of the ICSID Convention prohibit “other remedies” and so, the EU appellate review system would be prima facie incompatible with these provisions.

The Commission might consider that amending the ICSID Convention would be a viable solution, but it should be borne in mind that Article 66 requires unanimity in this respect.

A “final award” from the MIC, by definition, could have been subject to appellate review on fact and on law in addition to any of the grounds stipulated under Article 52 of the ICSID Convention. Prima facie this runs counter to the prohibition of “other remedies” in Articles 26 and 53 of the ICSID Convention.

It would therefore not be unreasonable for a contracting state to the ICSID Convention (but which is not a member of the MIC) to scrutinise whether such a “final award” should be recognised and enforced by their domestic courts as an ICSID award. This will be the case despite the presence of “deeming” provisions employed by the MIC’s instruments that oblige MIC parties to treat its final awards as ICSID awards, but which are not opposable to non-parties.

The Commission further notes that other awards could be enforced under the New York Convention 1958. The New York Convention is more flexible than ICISD, especially in terms of what can pass as an award, but it raises compatibility issues with regard to Art V.

It is not clear at this stage whether signing up to the MIC would represent a possible waiver of the challenges provided under Art V of the New York Convention.

Should the Commission clarify that a waiver of Art V shall be sought, this will impose a high burden on the domestic courts of New York Convention contracting states that are not part of the MIC.

In other words, these domestic courts will have to individually assess whether an award from the MIC is indeed a New York Convention award and if so, whether the challenge-related provisions under Art V have been effectively waived.

In addition, it does not seem likely that such courts will allow for a waiver of all the challenge provisions contained in Art V, especially when looking at public policy or lex fori grounds.