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On Sept. 16, 2015, the European Union launched a proposal for a new “Investment Court System” which shall be competent to hear investor-state disputes, initially those emerging under a completed Transatlantic Trade and Investment Partnership (“TTIP”) currently negotiated between the United States of America and the European Union. In the long run, the Investment Court System is apparently meant to replace the classic investment arbitration or “Investor-State Dispute Settlement” (“ISDS”), at least to the extent that the EU or an EU Member State is a party to the investment treaty. The cornerstones of the complex and comprehensive proposal are the following:

  • The Investment Court System shall consist of a Tribunal of First Instance (“Investment Tribunal”) and an Appeal Tribunal.
  • The Investment Tribunal shall consist of 15 publically appointed judges, five from the European Union, five from the United States and five from third countries. Any given case will be decided by a three-member panel with one judge being an EU national, one being a US national and one coming from a third country.
  • The Appeal Tribunal shall consist of six members, again proportionately coming from the EU, the US and third countries. Any appeal against an award of the Investment Tribunal shall be decided within 270 days, at most.
  • Proceedings shall be extremely transparent by following the newly adopted UNCITRAL Transparency Rules. In essence, all submissions will be available on-line and hearings will be open to the public.
  • The applicable substantive law shall now be stated in a new “Investment Protection” section of TTIP, containing a rather elaborate set of rules in nine articles plus explanatory exhibits. Therein, well-known investment protection principles, currently determined more by catch words such as “fair and equal treatment” or “expropriation”, are defined in detail. The aim is to provide a benchmark and standard for future decisions which is sounder than the case-by-case approach pursued today.
  • It is clarified that nothing limits a state’s right to regulate via statutes or ordinances within its territory to achieve legitimate policy objectives such as environmental or consumer protection.

What triggered this initiative? It was the hefty criticism against the well-established ISDS, a criticism particularly raised by numerous non-governmental organizations (joined by some political parties) in the context of the TTIP discussions. Arguably, the standard arbitration proceedings under the ISDS regime favored investors over states, produced a chilling effect on the legislation of democratically elected governments and were not transparent enough for allowing the public and the press to monitor those proceedings. Much can be said against such criticism which is inaccurate in most regards and which blames a system which worked well and without any scandals during the past decades. But all that is water under the bridge, as the Americans say, after the well-organized public resistance against ISDS has become so powerful that it threatened the TTIP negotiations as a whole. The wheel obviously needs to be reinvented. The proposal for the Investment Court System is certainly a strategic move by the European Commission to safeguard the success of the investment treaty between the US and the European Union.

Is the proposal for an Investment Court System the proverbial “Philosopher’s Stone”? Certainly not. However, it is a well thought-through concept. After the crucial question, namely whether it is superior to the tried and tested ISDS concept, has become an academic one, the Investment Court System should now be discussed in a constructive manner to improve it to the degree possible. So the following three items are less meant as a criticism but rather as a talking point for further discussions:

  1. Should there really be a free ticket for Public Health and Environmental Protection Laws? The respective proposal is clearly a reaction on the criticism that rich investors must not block legislation necessary for the public good. But already under the existing system, it has at all times been clear that nothing could limit the right of a democratically elected legislative body to enact a law, be it those for public health or environmental issues or any others. An investor can claim monetary damages, and nothing more. An investor cannot apply for the annulment of a statute (this rests with the constitutional courts of the host state). So why the new rule? If it is meant as a “blank power of attorney” regarding public health and environmental protection statutes, this would be a bad idea. Of course, an investor’s right can be violated by public health and environmental protection laws. If, for example, a state enacts a statute that sports cars must not be produced in the country for avoiding accidents, this may be considered a public health statute, but it certainly affects and might expropriate the sole (foreign) sports car manufacturer in that country.
  2. The “full transparency” rule suggested for the new system is music in the ears of many NGOs, but it has its disadvantages. There is a reason why most national codes of civil procedure do not follow such full transparency approach. For example, under German law, written submissions are generally not published, and hearings may be observed, film recording, however, is not permitted. Such rules are meant to shield the judge and the parties against public pressure and undue influence. It is at least debatable whether the public discussion of each and every investment dispute is truly indispensable, or even helpful, for a just final decision of the case.
  3.  And what about costs? The present ISDS system relies on the concept of ad hoc arbitrations with virtually no or very little overhead costs. The Investment Court System will probably be very different in this regard. In this context, the International Tribunal for the Law of the Sea, established some 20 years ago, provides a warning example. The yearly budget of this international tribunal is around EUR 18.8 million (figure for 2015/2016) plus the costs for the beautiful court building in Hamburg which are paid for by the German taxpayer. However, during the past 18 years, this international tribunal has handled only 24 cases, hence less than 1.5 cases per year. That translates to more than EUR 20 million for each case. Measures must be taken that any Investment Court System does not follow that path – a realistic danger if one considers how few investment arbitrations are actually pending where all parties involved stem from developed, industrialized countries with a sound democratic tradition.

It will be interesting to see how these and other questions are ultimately answered. And it takes two to dance tango! So let us wait what the American reaction to this proposal is.


Prof. Dr. Joerg Risse LL.M. (Berkeley) is a member of the Dispute Resolution Group at Baker McKenzie in Frankfurt. Being double-qualified as an attorney-at-law in Germany and in New York (USA), he represents his clients in international arbitrations before all major arbitral institutions. Since Prof. Risse is frequently appointed to act as an arbitrator or mediator, his clients also benefit from his "judiciary" outlook on a case. Prof. Risse teaches advocacy skills and dispute resolution at the University of Mannheim. Prof. Risse is ranked by Chambers Global 2015 as one of the top two arbitration counsels in Germany and among the most in-demand arbitrators. Handelsblatt/Best Lawyers 2015/2016 honors him as "Lawyer of the Year" in international arbitration. According to Juve (2010 - 2015), he is a "leading name" in arbitration, and Who is Who Legal 2015 declared him one of the top seven commercial mediators in Germany. Prof. Risse advises in post merger and acquisition disputes, in particular in price adjustment disputes, reps and warranty claims and claims raised against transaction advisers. His second main area of practice are disputes related to large infrastructure projects such as power plants, offshore wind farms, electricity networks, public transport projects or airports. Most of his clients are from the “old economy”, including turn-key contractors for large projects and companies from the chemical, automotive, medical and mass transport industry. Prof. Risse has particular experience in ADR-proceedings where he advises his clients in settlement negotiations, mediation and adjudication proceedings. Prof. Risse can be reached at [email protected] and +49 69 299080.