Columbia FDI Perspectives
Perspectives on topical foreign direct investment issues
No. 180 August 15, 2016
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Daniel Allman ([log in to unmask])
The proposal for an International Investment Court is a red herring. The central issue is whether investment treaties should exist at all. The secondary issue is whether, if they do, an Investment Court is better than the present settlement of disputes through arbitration. The first issue is the more important one. But since the second issue has been raised, it is best to stop the idea at the outset.
Given the disenchantment with the present investor-state dispute-settlement (ISDS) system, the alternative suggested, especially in recent documents of the European Union (EU) in the context of the Transatlantic Trade and Investment Partnership negotiations, is a standing International Investment Tribunal. Does the idea cure the charges of illegitimacy leveled at the present ISDS system? The illegitimacy of ISDS flows, according to its critics, from the allegation that a select few arbitrators routinely decide disputes in favor of multinational enterprises in an ideologically prejudiced manner, articulating doctrines more extensively than agreed upon by governments negotiating the treaties, thereby also curtailing those governments’ regulatory functions.
An Investment Court would not cure such illegitimacy. A Court would become a device for neoliberal rules of investment protection with even greater authority. Judges of the International Court of Justice (ICJ) have been sitting as investment arbitrators. A study of their record does not show that they avoid the prejudices of those arbitrators who had not also served as judges at such a high level. On the few occasions ICJ judges from developing countries sat on investment arbitration panels, they dissented from the (developed country) majority.
Having a minority of five judges from developing countries is no help. They are in a minority, even assuming those appointed are not already acculturated to the neoliberal vision. They could be strong-armed into complying with majority decisions. There is no indication as to the geographical areas they may come from or how they would be chosen.
Judges of domestic courts (the EU uses domestic courts as the model) are drawn from elite classes that have uniform views. Baroness Hale, Deputy President of the United Kingdom Supreme Court, has observed that most top English judges are white, male, attended the same elite universities, and specialized in commercial law.
Apart from the lack of expertise in public law issues that abound in investment arbitration, these judges, of whatever court, most likely have the same ideological predispositions. Judges chosen from other EU countries are unlikely to be different. The affirmation of slanted positions in a more authoritative fashion is the likely outcome of an Investment Court.
Take the existing European Court of Human Rights. It has dealt with the right to property, an issue featuring in investment arbitration. The European Convention on Human Rights did not originally include that right, since socialists had problems with it. It was included through the first protocol to the Convention. The Court’s interpretation of that provision indicates that it reserves the power to apply a proportionality test to any regulatory interference with property rights. The proportionality rule is now used in investment arbitration to overcome the rule that regulatory interference does not amount to compensable takings. Such creativity in favor of investment protection would become more intense through an Investment Court. Proportionality adds to indeterminacy and subjectivity. Critics argue that proportionality ensures that courts impede democratic state functions by arrogating to themselves a continuing power to review regulation.
The establishment of an Investment Court would dissociate that Court from democratic control. As in the case of other permanent international tribunals, the Court would arrogate additional powers and create regimes through precedents in the area in which it operates. Academic opinion supports such creative expansion into the constitutionalization of fragmented law. The danger is that neoliberal principles will become set in stone beyond the power of democratic processes. To date, there is no doctrine of precedent in investment arbitration. This will not be so when there is a permanent judicial body.
The EU proposal suggests that an International Investment Court is not different from a domestic court. If so, why not permit existing domestic courts to perform the function of deciding investment disputes? They are more familiar with the circumstances in which a state interfered with foreign investments and can assess the fairness of the interference in its political and social context more effectively. This is the way chosen in South Africa and Brazil. Domestic courts are part of a democratic system. In the face of the experience of investment arbitration, the proposal to set up an Investment Court will enhance the worst features of the existing ISDS system.
* M. Sornarajah ([log in to unmask]) is CJ Koh Professor of Law at the National University of Singapore. The author is grateful to Anna Joubin-Bret, David Schneiderman and one anonymous reviewer for their helpful peer reviews. The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.  Judge Shahabuddeen in Malaysian Historical Salvors, SDN, BHD v. Malaysia, ICSID Case No. ARB/05/10, Annulment Tribunal (Apr. 16, 2009); Judge ad hoc Abi-Saab in Abaclat and others v. Argentina, ICSID Case No. ARB/07/5, Dissenting Opinion to Decision on Jurisdiction and Admissibility (Aug. 4, 2011).  Brenda Hale, “Kuttan Menon memorial lecture: Equality in the judiciary,” Feb. 21, 2013, available at https://www.supremecourt.uk/docs/speech-130221.pdf. These views were echoed by the late Justice Scalia in Obergefell v. Hodges 576 U.S. (2015), dissenting, p. 6.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “M. Sornarajah, ‘An International Investment Court: panacea or purgatory?,’ Columbia FDI Perspectives, No. 180, August 15, 2016. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Daniel Allman, [log in to unmask]. Most recent Columbia FDI Perspectives
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All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/. Other relevant CCSI news and announcements
- On September 12, 2016, CCSI will launch its Fall 2016 International Investment Law and Policy Speaker Series. We’re delighted to announce that this year’s speakers include Maria Chedid, Freddy Sourgens, Stanimir Alexandrov, Gabrielle Kaufmann-Kohler, Gabriel Bottini, Allan Rosas and Mark Wu. This fall, the series will once again be co-sponsored by Crowell & Moring LLP, Baker & McKenzie LLP and Investment Claims. The series will be moderated by Ian Laird, Grant Hanessian and Kabir Duggal. All talks will take place in Jerome Greene Hall. Select presentations will be webcast; please see our website for the schedule and more details. No registration is required.
- On October 6, 2016, 6:00-8:00pm, CCSI and Columbia Global Reports will co-host “Shadow Courts: The Hidden Danger in Trade Agreements.” Jeffrey Sachs, Director of the Center for Sustainable Development at Columbia University, and Haley Sweetland Edwards, author of Shadow Courts, will discuss the investor-state dispute settlement provision in trade and investment agreements, and the risks of the provision to democracy, public policy, and the rule of law. The event will take place at Columbia University, World Room, Pulitzer Hall, 1600 Broadway.
- On November 2-3, 2016, CCSI will host the eleventh annual Columbia International Investment Conference, entitled “Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action.” Both the Sustainable Development Goals and the Paris Agreement, reached last December at COP21, make clear that climate-change mitigation must be pursued within the broader agenda of ending poverty, promoting economic development, ensuring social inclusion, and protecting the physical environment. Our Conference, taking place one week before COP22, will offer a high-level opportunity to explore the complex challenges of the Paris Agreement in light of sustainable development, the SDGs, and the real challenges facing developing countries within the global economy. The Conference’s sessions will address issues including: the rapidly changing (and declining) role of hydrocarbons in the global energy system; how low-carbon strategies can and should be adapted to the development needs of low-income countries; how to manage land use to mitigate climate and environmental impacts and to maximize benefits for development; and the development of new international legal frameworks and global governance to support national-level actions. Registration is free, but required; for more information, including registration, please check our website.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946