Currently the European Commission and Canada are at the forefront of an initiative to replace traditional investor-state arbitration with a multilateral investment court. The latter would likely include a true appellate mechanism, serious rules on arbitrator ethics and against conflict of interest, judges who are qualified in public international law and largely compensated by a fixed salary rather than by the hour (as with arbitrators). The investment arbitrator/counsel elite has (not surprisingly) reacted negatively to the idea of replacing a system that has allowed them to generate considerable personal wealth with a judicial mechanism. One member of the innermost circle, however, Gabrielle Kaufman-Kohler has, with a co-author, devised what looks like a detailed blueprint for transitioning from traditional ISDS to a multilateral tribunal. The central idea is to use the model of the UNCITRAL Mauritius Convention on transparency in ISDS, which allows the possibility of states who have existing investment agreements that offer arbitration opting in to a multilateral instrument that would be a treaty later in time within the meaning of the Vienna Convention on the Law of Treaties (VCLT) rules and therefore prevail to the extent of conflict over the dispute settlement provisions of existing investment agreements. Through this device, it would be possible to jump start a multilateral court, without the states concerned having to renegotiate or denounce their existing investment agreements. European Commission officials are understandably attracted to the Mauritius Convention model, as it provides a way of making the multilateral court proposal feasible in a relatively short period of time, simply by virtue of avoiding the need to open up treaties now in force. As far as Kaufman-Kohler's proposal is merely about this kind of opt-in feature of a multilateral tribunal, it is indeed attractive; but beware of what is inside the Trojan horse.
If one reads carefully Kaufman-Kohler's long study, the strategy behind it becomes evident; namely to make the project for a multilateral investment court resemble, or depend on as much as possible, the existing system in which, as the EU's director-general for trade Cecilia Malmstrom has pointed out, there is a fundamental lack of trust.
The basic starting premise of this strategy is that,in order to have awards in favor of investors enforceable against the host state in courts around the world, the adjudicative system in question must be capable of being called "arbitration". In the case of arbitration, the New York and ICSID Conventions already exist, which bind states signatories to allow enforcement in their domestic court systems. But not comparable approach exists for the enforcement of judicial awards by international bodies. Once one starts from the premise that the multilateral tribunal has to count as "arbitration" for purposes of the New York (UNCITRAL) and/or the Washington Convention (ICSID) a deep anxiety sets in about departing too much from existing ISDS, which is to a large extent the presupposition of those systems.
So it's time for a reality check about Kaufman-Kohler's starting premise. First of all, the collection of most arbitral awards against a host state does not involve enforcement in domestic courts of another country. States pay awards for reputational reasons, because of a culture of rule of law, because a new government can blame the conduct that led to the award on the bad behavior of the previous one, because host states may receive pressure from other states if they do not pay (threatening to cut off foreign aid, etc), and also because, in the case of non-democracies, the rulers are not accountable to the people for spending public money. Efforts to enforce awards in domestic courts have yielded a few spectacular successes, but many failures. States can and do easily organize their activities to avoid holding in other jurisdictions large quantities of state assets of the kind that are unprotected by sovereign immunity from execution. Second, if they wanted to, the parties to a multilateral instrument establishing an investment court could through that very instrument bind themselves to have domestic courts enforce the awards, without any need whatsoever to refer to the New York Convention/UNCITRAL or ICSID (which in her rather arcane, technician's way of writing Kaufman-Kohler at some point seems to concede) . The parties are "Herren der Vertrage" as it were and don't need to incorporate any other treaty to specify the obligations among themselves. As for enforcement of awards in the courts of countries not parties to the multilateral instrument, this would depend upon cooperation between the states parties and these non-parties. Yet there is little evidence that such cooperation would not occur, assuming that the multilateral court were seen as legitimate. Even if there were a gap, in that some countries resisted such cooperation, for the reasons described above, it would make scarce little difference to the overall effectiveness of the multilateral judicial system.
More philosophically, one might ask whether even if there were real limits to the extent investors could fully enforce awards in the courts,the objective of full and enforceable compensation for investors should be a sine quo non of reform of the system, such that other goals, such as the genuine independence and autonomy of the multilateral tribunal from the arbitration regime and its keepers, would need to be sacrificed. The design of other international dispute settlement systems does not seem to prioritize the ability of private actors to recover multi-million dollar damages awards, the WTO for example. Investors doubtless want as iron-clad enforcement as possible but why put their concerns over others in determining how to reform investment dispute settlement?
Having challenged Kaufman-Kohler's basic premise, in the next post I'll look at some of its undesirable implications, and other features of her approach that would sabotage the lofty goals of reform, for example her ploy to propose a preliminary rulings mechanism as an alternative to genuine appellate jurisdiction, which would really hold first-instance adjudicators accountable.