When about 150,000 demonstrators protested against the proposed Transatlantic Trade and Investment Partnership (TTIP) in Berlin in October 2015, it became obvious that the idea to settle investor-state-disputes under TTIP through arbitration (commonly called Investor-State Dispute Settlement or ISDS) runs against strong and well-organized public resistance in many European countries, in particular Germany. European governments and the European Commission realized that insisting on ISDS could threaten the success of the whole TTIP project. The European Commission therefore proposed to drop ISDS and to create an Investment Court System (ICS) for the resolution of investor-state disputes under TTIP (cf. http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf). What seemed to be a smart strategic move to safeguard TTIP as a whole (cf. https://globalarbitrationnews.com/investment-court-system-20150925/) may not work out. Apart from the fact that the United States are not overly enthusiastic about the idea (cf. http://www.heritage.org/research/reports/2015/11/the-us-should-reject-the-european-commissions-proposed-investment-court), the German Association of Judges (Deutscher Richterbund – DRB), the largest professional organization of judges in Germany with 16,000 members, has raised objections against the introduction of an ICS. In its “Opinion on the Constitution of an Investment Court for TTIP”, the DRB rejects the proposal of the European Commission to establish an ICS and declares that there is neither a legal basis for such a proposal nor a necessity to introduce a special court for foreign investors seeking legal protection in the European Union (http://www.drb.de/cms/fileadmin/docs/Stellungnahmen/2016/DRB_160201_Stn_Nr_04_Europaeisches_Investitionsgericht.pdf; the opinion was published in February 2016 and is only available in German). The DRB puts forward three reasons against the introduction of an ICS.
- The European Union has no Legislative Competence to Create an Investment Court
First, the DRB doubts that the European Union has the legislative competence to create an investment court. It argues that the introduction of such a court would limit the legislative competence of the European Union and of the member states because it would create an obligation for them to submit to the jurisdiction of the ICS and to accept the court’s decisions as binding. Thereby, the established court systems of the European Union and of the Member States would be changed. To support its position, the DRB refers to Opinion 1/09 of the European Court of Justice (ECJ) of March 8, 2011 concerning the plan to create a European patent litigation system (http://ec.europa.eu/dgs/legal_service/arrets/09a001_en.pdf). In Opinion 1/09, the ECJ had found that the introduction of a European patent litigation system would be incompatible with Union law. The DRB argues that the reasoning in Opinion 1/09 would also apply to the creation of an Investment Court. An Investment Court, like a European Patent Court, allegedly changes the “complete system of legal remedies and procedures designed to ensure review of the legality of acts of the institutions” (Opinion 1/09 at margin no. 70). An Investment Court, like a European Patent Court, allegedly is “outside the institutional and judicial framework of the European Union” (Opinion 1/09 at margin no. 71) and a decision of such a court allegedly is “in breach of European Union law … [and] could not be the subject of infringement proceedings” (Opinion 1/09 at margin no. 88). Thereby, an Investment Court – like a European Patent Court – “would deprive courts of Member States of their powers in relation to the interpretation and application of European Union law and … would alter the essential character of the powers which the Treaties confer on the institutions of the European Union and on the Member States and which are indispensable to the preservation of the very nature of European law” (Opinion 1/09 at margin no. 89). It may be difficult to overcome this hurdle. In light of Opinion 1/09, the European legislators agreed on the European patent package which accommodates the objections of the ECJ by creating a specialized patent court (the Unified Patent Court or UPC) which has to apply European Union law in its entirety and has to respect its primacy (Article 20 of the Agreement on a Unified Patent Court). Furthermore, as a court common to the Member States of the European Union and as part of their judicial system, the UPC has to cooperate with the ECJ “to ensure the correct application and uniform interpretation of Union law, as any national court, in accordance with Article 267 TFEU in particular.” Finally, decisions of the ECJ are binding on the UPC (Article 21 of the Agreement on a Unified Patent Court). Certainly, TTIP cannot and will not contain similar provisions for an Investment Court.
- No Independence of the Judges
Second, the DRB is concerned about the independence of the judges of an ICS if the proposal of the European Commission was accepted. Allegedly, the proposal does not ensure that the selection and the appointment of judges are based on objective criteria and are made by an authority that is able to guarantee the independence of the judges. Moreover, the DRB considers a selection of the judges from the ranks of experts in international law and international investment law to be too narrow since it excludes experts in the substantive laws of the Member States. In addition, the DRB doubts whether the proposed remuneration for the judges can guarantee their professional and financial independence.
- Sufficient Protection of Interests of Foreign Investors by Courts of Member States
Third, the DRB rejects the reproach that the courts of the Member States of the European Union cannot adequately protect the interests of foreign investors. The DRB emphasizes that the Member States of the European Union are all states governed by the rule of law which guarantee persons in search of judicial assistance access to their courts, equal treatment and legal certainty. The DRB therefore does not see a reason why foreign investors need a special court if they feel that they are deprived of the fruits of their investment. Assuming access to the courts, equal treatment and/or legal certainty were not guaranteed in certain Member States of the European Union, the DRB argues that it would then be the obligation of the legislators and of those responsible for the court systems of these Member States to put things right. In this context, the DRB also urges the German and European legislators to limit recourse to arbitral tribunals in the area of international investment protection as far as possible.
It does not come as a surprise that a professional organization of judges defends state courts and favors the idea that disputes about expropriation, fair and equitable treatment or full protection and security of foreign investors should be decided by the courts of the state that allegedly breached its obligation to protect the foreign investment. However, even if the evaluation of the quality of the European court systems was correct, concerns of foreign investors as to a possible bias of national courts in favor of their home state have to be taken seriously. The DRB Opinion ignores this aspect completely. Moreover, by only looking at the European aspects of the proposal to create an Investment Court System, the DRB opinion disregards that European companies might have similar concerns about bias of domestic courts in the United States. It remains to be seen how the European Commission and the German government will respond to this very critical view on ISDS and ICS by the DRB. Certainly, the opinion of the DRB is grist to the mills of the opponents of TTIP.