Multilateral  Investment Court: Addressing the Flaws of ISDS or a Flawed Solution in itself?

I. Introduction

The legitimacy of the Investor-State Dispute Settlement (ISDS) system has come under scrutiny by the public. The claims that ISDS upholds the rule of law, safeguards investors from unjust actions, and boosts the economic growth of the host country are continuously being disproved. As the number of disputes continued to rise, there was an urgent need for reform, leading to the creation of the UNCITRAL Working Group III (“WGIII”) in 2017. This group was given the responsibility to address the legitimacy crisis of ISDS and was granted a broad, adaptable, and unrestricted mandate by UNCITRAL.

During the WGIII meetings, the European Commission proposed a comprehensive reform plan to establish a Multilateral Investment Court (MIC) that includes an Appellate Body (AB). The MIC is intended to serve as a global judicial settlement system to replace the current Bilateral Investment Treaty (BIT) based ISDS, aiming to address concerns regarding state sovereignty, inconsistency of ISDS decisions, and impartiality of arbitrators. The MIC is expected to be modelled after the World Trade Organization’s (WTO) dispute resolution and appellate mechanism, though the WTO is currently facing issues as the US has been preventing appointments to the appellate body, rendering it non-functional.

This article contends that the Multilateral Investment Court (MIC) proposal is flawed and will not address the legitimacy crisis it was intended to resolve. The second part of the article outlines the issues with the ISDS system that led to the suggestion of the MIC.  The third part describes the deficiencies of the MIC concerning the aforementioned issues. The article uses the successes and failures of the WTO appellate mechanism as a benchmark to evaluate the potential effectiveness of the MIC, taking into account the structural differences between investment law and trade law disputes.

II. The Crisis of Legitimacy and impact on MIC

The ISDS achieved its success based on three main principles: fairness in the legal process; conclusiveness of decisions; and the ability to enforce them. By allowing both parties to choose arbitrators, the tribunals provided impartiality. The decisions made by the tribunals were conclusive and could not be overturned, while the New York Convention was utilized to enforce these decisions in foreign jurisdictions.

However, the ISDS has faced significant opposition, with a wide range of countries, including those that export and import capital, developed, developing, and underdeveloped countries, taking steps to voice their dissent. Following the Achmea decision, over 20 European Union countries have terminated their intra-EU BITs, while the United States–Mexico–Canada Agreement (USMCA) has removed the ISDS altogether. Countries in Latin America, such as Bolivia, Ecuador, and Venezuela, have begun to terminate BITs and have spoken out against the ICSID Convention. Additionally, the India-Brazil BIT includes an ombudsman mechanism.

The reasons for this dissent are diverse and complex but the primary concerns are centered around ISDS violating state sovereignty, inconsistent rulings, and potential biases of arbitrators.

III. Examining the concerns of Sovereignty, Fragmentation, and Inconsistent Decision Making

The main issue with ISDS is that it can hinder a state’s ability to regulate investments in public interest, which undermines its sovereignty. For instance, during the Argentina economic crisis, taxpayers suffered due to investors’ expectations. This leads to regulatory chill, where states refrain from enacting regulations. Although it’s hard to find evidence of regulatory chill, investment treaties cases are often made by individuals who aren’t trained in public law and may not be impartial or locally qualified judges.

International Investment Law is made up of almost 3000 BITs, which rely on ad hoc arbitration panels with limited state oversight. This lack of institutional mechanisms for consistency and predictability in decision-making processes is the biggest concern regarding the legitimacy of ISDS. There is growing dissatisfaction with several BIT provisions, particularly the dispute settlement aspects. The same facts and circumstances can be litigated in different tribunals, resulting in vastly different outcomes.

There are almost 3000 BITs that make up international investment law, but the main issue with ISDS is that it does not have a consistent dispute settlement body. Instead, it relies on ad hoc arbitration panels with limited state oversight and no institutional mechanisms to ensure consistent and predictable decision-making. This lack of consistency has caused growing dissatisfaction with various BIT provisions, particularly in the dispute settlement aspects. Often, the same facts and circumstances are litigated in different tribunals, resulting in vastly different outcomes.


The European Union (EU) has presented a proposition for a permanent system of full-time adjudicators consisting of two levels of adjudication: a first-instance tribunal, which is similar to a regular tribunal that would investigate and apply the relevant law; and an appellate tribunal, which would hear appeals on mistakes of law or a clear error in the understanding of facts but would not review the facts from scratch. The MIC (permanent tribunal) would be established, and it would have a plenary body responsible for all decisions. The judges on the roster would reflect a diverse range of cultural, geographical, and gender backgrounds and would be appointed for a five-year term, thus eliminating the ad hoc nature of appointments.

V. Unveiling the Challenges Faced by MICs: An Insight into their Flaws

I am identifying six concerns with the current structure of MIC:

The first concern is that in its attempt to address the problem of consistency and predictability, the MIC may compromise on accuracy. To address this concern, we can take a cue from the WTO system, which, like the MIC, eliminates ad hoc appointments and has an appellate body that has helped resolve divergent WTO Panel Reports. However, having consistency does not necessarily ensure accuracy since one can consistently make incorrect decisions. This was a key reason why the USA blocked new appointments, as they believed that binding interpretations went against the agreement itself.

The second concern with the current structure of MIC is that the goal of consistency it aims to achieve is unlikely to be successful. This is because there are over three thousand treaties signed by different countries with different wording, making it difficult for the adjudicators to apply consistent interpretations. This is different from the WTO, where the appellate body oversees different parts of the same agreement. Additionally, it is possible that the adjudicators may bring biases from other agreements and interpretations to different treaties since the same roster of judges is used.

The third issue with the current structure of MIC is related to the principles of state sovereignty, which makes the implementation of MIC very difficult. In order to implement it, all states would have to sign and ratify it, which could lead to further fragmentation if only a few states ratify it. This could result in investors resorting to forum shopping under different treaties. One possible solution for MIC is to follow the example of the WTO, which prohibits its members from bringing actions alleging the violation of a WTO agreement before any judicial body outside the WTO system, as stipulated in Article 23.1 of the Dispute Settlement Body.         

Fourth, there are serious concerns with diversity and impartiality. The idea of MIC is proposed mostly by developed countries. These countries will form the foundation of contracting states who will appoint judges.

Fifth, there are concerns about the enforceability of MIC’s decisions as the International Court of Justice’s rulings are dependent on states’ willingness to comply. It is uncertain whether the New York Convention would be applicable in this case as parties need to voluntarily submit to the jurisdiction of the arbitral tribunal. Some argue that the structure of MIC is more akin to that of a court rather than a tribunal, which would bring it outside the Convention’s scope altogether.

Additionally, there are serious concerns regarding diversity and impartiality, as the proposal for MIC has mainly come from developed countries, and they will likely form the basis of the contracting states who will appoint judges. This raises questions about whether the roster will genuinely be diverse. Similarly, in the WTO, the appointments were often influenced by the United States, so the control of developed countries can also affect MIC. Furthermore, the problems of bias and impartiality could persist in MIC as in the traditional ISDS, where a small group of adjudicators has repeat appointments and issues multiple decisions on similar topics.

Sixth, the MIC has serious repercussions for investors and the tenet of equality of arms since the adjudicatory body will be appointed by sovereigns. There is a risk that courts of sovereigns would be reluctant to give judgment against their governments or governments of nations that are on friendly terms with the adjudicator’s home state.

Seventh, the appellate body can significantly prolong the adjudication, as seen in the case of the WTO where 70% of decisions were appealed as of 2007. This is extremely likely in MIC since states have already dissented with decisions. 


To sum up, the current structure of MIC poses a threat to its objectives of safeguarding sovereignty, guaranteeing consistency, and preventing partiality. Additionally, investors would face extra costs due to the absence of equality of arms, which goes against the fundamental principle of ISDS. The WTO’s recent crisis sheds light on problems with appointments and power dynamics. In conclusion, there are valuable lessons to be learned from the WTO’s experience.

Rupam Dubey is a second year B.A. LLB student from National Law School of India University, Bangalore.

Image: Getty Images

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