The Rule of Law as the Common Foundation of EU Law and International Investment Law

by Dr. Nikos Lavranos LLM, Secretary General of EFILA*

Ever since the EU started to get into international investment law by developing its own investment policy through the negotiation of several international investment agreements (IIAs), such as CETA, TTIP, EU-Japan, EU-Singapore, and the adoption of two EU Regulations (Regulation 1219/2012 and 912/2014), the relationship between EU law and international investment law has been characterized as being tense, conflicting or even opposite to each other.

EU law is characterized as being based on commonly accepted Rule of Law principles, disputes are resolved before domestic courts of the Member States, which are presumed to be transparent, impartial, independent and free from corruption and collusion, all which is supplemented and controlled by the CJEU and to some extent by the ECrtHR. In short, EU law is portrayed as a special sui generis legal order, based on constitutional foundations, which is to be distinguished from anything else. Or to put it differently, EU law is the perfect legal order, in which all is perfectly organized, democratically legitimized and in which the Rule of Law principles are equally applied in all Member States.

By contrast, international investment law, is based on a web of more than 3,000 IIAs, which delegates dispute settlement to party-appointed ad-hoc arbitral tribunals, which render their awards in clandestine, intransparent manner, without being controlled by any supreme court. In short, international investment law and in particular arbitral tribunals are depicted as uncontrollable bodies, full of conflicts of interests, which develop international investment law as they see fit without any means to restrain them.

Thus, it is no surprise that in light of these characterizations the relationship between EU law international investment law is considered to be full of tension, without little understanding of each other and even less common ground. Indeed, the title of EFILA’s Inaugural conference held in January 2015, “EU Law and Investment Treaty Law: Convergence, Conflict, or Conversation?” perfectly reflects this uneasiness between the two legal branches.

But upon closer inspection, it appears that EU law and international investment law actually have much more in common than is generally acknowledged. In fact, as will be shown below, the Rule of Law principles of which the EU and its Member States are so proud are in fact the common foundation for EU law and international investment law.

In March 2014 the European Commission published its Communication entitled: “A new EU Framework to strengthen the Rule of Law“. The Communication explains that:

“The principle of the rule of law has progressively become a dominant organisational model of modern constitutional law and international organisations (including the United Nations and the Council of Europe) to regulate the exercise of public powers. It makes sure that all public powers act within the constraints set out by law, in accordance with the values of democracy and fundamental rights, and under the control of independent and impartial courts.  The precise content of the principles and standards stemming from the rule of law may vary at national level, depending on each Member State’s constitutional system. Nevertheless, case law of the Court of Justice of the European Union (“the Court of Justice”) and of the European Court of Human Rights, as well as documents drawn up by the Council of Europe, building notably on the expertise of the Venice Commission, provide a non-exhaustive list of these principles and hence define the core meaning of the rule of law as a common value of the EU in accordance with Article 2 TEU. Those principles include:

  • legality, which implies a transparent, accountable, democratic and pluralistic process for enacting laws;
  • legal certainty;
  • prohibition of arbitrariness of the executive powers;
  • independent and impartial courts;
  • effective judicial review including respect for fundamental rights; and
  • equality before the law.”

For EU law practitioners this summary of the Rule of Law principles is well-known and unsurprising.

But the point that I want to make is that the very same Rule of Law principles are also  familiar to practitioners of international investment law, in particular arbitrators and legal counsels.

More specifically, most, if not all, of these Rule of Law principles have been found to be encapsulated in the fair and equitable treatment (FET), most favoured nation (MFN) and national treatment (NT) standards, which are contained in one form or another in practically all IIAs.

For example, the various elements of the FET standard used by the arbitral tribunal in Tecmed can be summarized as follows:

  • The protection of the investor’s legitimate expectations
  • Due process and denial of justice
  • Obligation of vigilance and protection
  • Transparency and Stability
  • Lack of arbitrariness and non discrimination
  • Proportionality
  • Abuse of Authority

Admittedly, the description of these elements is not identical with the EU’s Rule of Law principles, but the thrust and the main aim of all these principles is the same, namely, to protect fundamental rights and to deliver justice.

Domestic courts of the Member States, the CJEU, arbitral tribunals as well as the envisaged permanent investment court (if it were to be established) are all entrusted with same task of delivering justice. Moreover, it is expected and should be presumed that all these judicial bodies are composed of qualified persons who are impartial, independent and have the necessary expertise to exercise that task.

Obviously, that is not always the case, but what matters is that conceptually they are entrusted with same task and must base themselves on the similar Rule of Law principles.

If that is indeed the case, the Rule of Law principles as espoused in the EU’s Communication have to be recognized as the common foundation for EU law and international investment law alike.

Consequently, that common foundation could – and indeed – should provide the basis for a better mutual understanding, removing most of the perceived tensions and opening up the way for an effective co-existence and interplay between both legal branches.

In sum, rather than emphasizing the differences between EU law and international investment law, it makes more sense to appreciate the common foundation.

* Nikos Lavranos, Head of Legal Affairs at Global Investment Protection AG; Secretary-General of EFILA.