The Lack of Any Legal Conflict Between EU Law and Intra-EU BITs/ECT Disputes

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

A couple of weeks ago the first award in the series of more than 25 other solar energy cases against Spain was issued.

The case was brought by two companies based in Luxembourg and the Netherlands against Spain on the basis of the Energy Charter Treaty (ECT) arguing that Spain violated its ECT obligations when it adopted measures which retroactively reduced the agreed feed-in tariff and other commitments for solar energy installations.

The majority of the arbitral tribunal concluded that there was no violation of the FET-standard, neither was there a sufficiently serious destruction of the investments of the investors. In other words, the claim was rejected.

In this blogpost I do not want to discuss the outcome of the case, but rather want to highlight one important issue, which is underlying all disputes in which European investors bring a claim against an EU Member States, namely, the relationship between EU law and the hundreds of intra-EU BITs/ECT.

The argument, which has been repeatedly and consistently advanced in all intra-EU disputes by the European Commission and various EU Member States (in particular by Spain, Czech Republic, Slovak Republic) is that there is a legal conflict between EU law and the intra-EU BITs/ECT, which would somehow render the intra-EU BITs/ECT in-applicable or would prevent European investors from using them against EU Member States.

Several arguments have been put forward in this context, which can be summarized as follows.

The first argument, which was advanced in the earlier intra-EU BITs cases, such as in the Eureko v. Slovak Rep. case, by the European Commission (but not in this one anymore), was that due to the accession of the former Central and Eastern European countries to the EU in 2004 and 2007, the existing intra-EU BITs were superseded by EU law.

The second argument, which was also used in this case, is that Art. 344 TFEU would prohibit arbitration proceedings between a private party and a Member State. However, as the arbitral tribunal in this case correctly pointed out, Art. 344 TFEU “literally refers to inter-State disputes, rather than to disputes between EU Member States and private persons”. The numerous domestic court disputes that concern the interpretation of EU legislation belie Spain’s thesis that only EU institutions should have jurisdiction over disputes concerning EU law. For the tribunal, EU Member States could agree to arbitrate disputes that “may involve” EU law issues. Moreover, relying on the EcoSwiss case, the tribunal considered it “universally accepted” that arbitral tribunals have both the ability and the duty to apply EU law. Citing the Electrabel v. Hungary award, the tribunal construed Art. 344 TFEU as a guarantee that the CJEU has the final say on EU law in order to ensure its uniform interpretation. Also, citing Electrabel again, the tribunal underscored that the EU accepted the possibility of investor-State arbitration under Art. 26 ECT when it became a party to that treaty, which does not admit reservations (Art. 46 ECT).

The third argument, which was advanced by Spain, was that the ECT would contain a so-called “implied disconnection clause” for intra-EU disputes. Some international treaties to which all EU Member States are parties indeed contain “explicit disconnection clauses”, which provide that EU Member States will apply relevant provisions of EU law in their mutual relations instead of the international treaty that contains them. However, the ECT does not contain an “explicit disconnection clause”, and neither did the arbitral award accept the artificial construction put forward by Spain and the European Commission of an “implied disconnection clause”.

The fourth argument, again advanced by Spain in this case, was that investors of an EU Member State were simultaneously investors of the EU. Since the EU is a party to the ECT Spain claimed that EU Member State investors could not be considered as “an investor of another Contracting Party”. It was also argued that the definition of “territory” encompassed the territory of all Member States and thus the investors originated in the same “area” or “territory” as they made the investment. The tribunal correctly dismissed this artificial argument. It held that EU Member States did not lose their status as ECT parties when the EU ratified the ECT. Likewise, Spanish territory constituted the relevant “area” or “territory” for jurisdictional purposes and not the EU territory as a whole.

In line with all arbitral tribunals dealing with intra-EU disputes so far, also this tribunal fully rejected all the above mentioned arguments. From a legal point of view, of course, no other solution would be acceptable, since only the explicit termination of the BITs/ECT according to the applicable rules would cease the application of those investment treaties – and only after the sunset clause has expired. A recent example is the termination of the ECT by Italy as of 1 January 2016. But neither the accession of states to the EU nor any provision of EU law stands in the way of investor-State arbitration initiated on the basis of valid investment treaties.

However, more important than the legal conclusions are the political implications. Ever since the first intra-EU disputes popped up – probably the Eastern Sugar case decided in 2007 – the attempts of the European Commission to thwart the invocation of intra-EU BITs/ECT have failed across the board. Moreover, despite the rising number of intra-EU disputes, most Member States consider them still highly necessary and thus have not terminated them yet.

Frustrated by the fact that intra-EU disputes continue to pop up, the European Commission has decided to apply a triple “bazooka approach” to wipe out the use of intra-EU BITs/ECT once and for all.

First, the European Commission launched infringement procedures against 5 Member States because their intra-EU BITs supposedly violate EU law.

Second, in an unprecedented act, the European Commission prohibited Romania to fulfil its international obligations of paying out the Micula award because that would supposedly constitute new, illegal state-aid. The Micula brothers have brought an action against the European Commission, which is currently pending before the General Court of Justice of the EU. Recently, the European Commission went as far as trying to vacate the ICSID award by appealing before US courts.

Third, the European Commission continues to actively intervene in all intra-EU BITs/ECT cases by trying to convince the arbitral tribunals that they lack jurisdiction for the above-mentioned arguments.

While the third approach has so far failed with arbitral tribunals, it is going to be extremely interesting to see whether the first two approaches before the Court of Justice of the EU (CJEU) will eventually succeed.

If this “big bazooka approach” succeeds, it will obviously mean the end of intra-EU investment arbitration proceedings. The question then arises whether the remaining option of using national courts will be of any help for investors/claimants, in particular in light of the shortcomings of the judicial system in many EU Member States.

Thus, it can be concluded that there is no legal conflict between EU law and intra-EU BITs/ECT, but that does not – necessarily – mean that one cannot create a political conflict, which would result into a significant reduction of the level of investment/investor protection within the EU.

But, ultimately, it is for the arbitral tribunals and the CJEU to decide on the basis of the Rule of Law and to deliver justice.


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

Report on EFILA’s Annual Conference

by  Blazej Blasikiewicz and Juan Pablo Valdivia Pizzaro

Maison du Barreau, Paris

February 5th 2016

I. Introduction

The European Federation for Investment Law and Arbitration (EFILA) set out for a promising year with its Inaugural Conference in London in January of 2015. Last year proved to be full of notorious developments in the area of investment arbitration, especially as the TTIP negotiations and proposals evolved and materialized regarding the implementation of specific Investor State Dispute Settlement (ISDS) mechanisms. The ensuing months were characterized by a rich and often polarized debate on both specific aspects of investment arbitration and on the fundamentals, nature and aims of ISDS mechanisms.

In this context of agitated waters and contrasting ideas, once again EFILA brought together world-class dispute resolution practitioners, prominent arbitration experts, European government officials, leading scholars and representatives from market participants and international organizations in its 2016 Annual Conference entitled “Investment Arbitration 2.0?” which took place on February 5th, at La Maison du Barreau, in Paris.

The framework in which ISDS is being argued is characterized by controversy, heavy criticism and an imperative necessity for an open debate and innovative ideas. Therefore, the venue served as a meeting point for such a wide array of stakeholders to join in an analytical assessment of ISDS and exchange views on the many challenges and opportunities of investment arbitration. In doing so, not only some new features of investment arbitration regarding the EU policy on International Investment Agreements were discussed, but the speakers and participants engaged in a thought-provoking debate on diverse topics such as the pros and cons of investment arbitration, the rule of law and other complex issues such as transparency, states’ right to regulate, protection of property rights and democratic deficits.

This stimulating discussion was led by four panels, which critically explored some of the roots and primary issues of investment arbitration and presented provocative views on several of the most up-to-date issues on ISDS, with the objective of setting the ground for an improved and more robust framework of investment arbitration in the future.

II. Panel 1: Setting the scene: pros and cons of Investment arbitration

Prof. Dr. Gerard Meijer, Partner and Head of Arbitration team at NautaDutilh

Andrew Cannon, Partner at Herbert Smith Freehills LLP

Prof. Dr. Hans van Houtte, President of the Iran-United States Claims Tribunal

Prof. Dr. Robert Howse, Professor of International Law, New York University School of Law

Marie Talašová, Head of International Legal Services Department, Ministry of Finance, Czech Republic

Kamil Zawicki, Partner at Kubas Kos Galkowski

The first panel, acknowledging the importance of taking a step back in order to examine the roots and analyse some of its main traits, explored the pros and cons of investment arbitration. A refreshing view of its history and development was provided through the evolution of the International Centre for the Settlement of Investment Disputes (ICSID). Important emphasis was given to the revolutionary characteristics the system presented when it was introduced – it made the general rule of international law apply also to domestic investor-state contracts and it disconnected arbitration from domestic law – and to some remarkable victories that the system has achieved. The speakers recognized that many current features of the system represent an arguably unexpected feat, such as its importance for international law, the success of the system in relation to the number of cases brought to it, and its adaptation to a truly global era where the burgeoning number of BITs has shaped much of its evolution. In this respect the panel gave an interesting insight regarding ICSID being created primarily as an op-in system to be included in contracts between States and investors, and that it was not until the mid 1970s that BITs began including ICSID clauses. This practice has become standard and one of the main sources of ICSID arbitration.

However, it was also acknowledged that the system faces several important challenges, such as the trend to move towards broader regional economic agreements, the higher number of stakeholders involved (such as NGOs and supranational or regional organizations), new states’ policies regarding investment arbitration and foreign investment, and a growing opposition from different sectors of society. These issues, among others, have lead several States – such as Indonesia, South Africa and more than one South American country – to dramatically reassess their positions on BITs due to the perceived adverse impact that certain matters – e.g. treaty and forum shopping, lack of transparency, limitations to States’ right to regulate on issues of public interest and high costs of the proceedings – have in their internal affairs. This trend of criticism has also been materialized in the adoption of Model BITs by different countries, which reflect States’ policies regarding arbitration and foreign economic investment.

Speakers analysed the issue of contradictory case law in investment arbitration and the differences in the basis and instruments upon which such decision are made. The disparities among the wording or context of certain BITs was presented as one potential explanation for the different interpretations that arbitral tribunals have on arguably similar issues. The panel also put forward the view that time is of essence in the clarification of tendencies that constantly arise in investment arbitration.

There was agreement as to the importance of reforms regarding certain standards of protection, the controversial nature of the differentiated treatment between domestic and foreign investors, and the relevance of the wording of the related instruments and the role of states in shaping their content. Nevertheless, pertinent questions were raised as to the effectiveness of current attempts to solve part of the problem, like the establishment of appeal mechanisms in ISDS. In this regard, the limited success of somewhat similar mechanisms (such as the ICSID annulment mechanism) raises valid doubts as to the effectiveness of appeal bodies or instances within the framework of ISDS.

 The panel also addressed the criticisms as to the lack of transparency and rising costs in investment arbitration, the alleged pro-investor bias and the role of the media, both from the arbitration practitioner’s and the state’s point of view. The relationship between investment arbitration, the media and public opinion, and the suggested lack of empirical evidence to support a claim for pro-investor bias gave rise to an encouraging debate among the panel and the audience. The speakers pertinently pointed out the necessity of embarking upon reforms that would not lead to “killing” a system that, being far from perfect, has proven to be of vital importance.

III. Panel 2: Rule of Law and Investment Arbitration: promoting or holding back its advancement?

Prof. Dr. Loukas Mistelis, Clive M Schmitthoff Professo of Transnational Commercial Law and Arbitration at the Queen Mery University of London

Sir David Baragwanath KNZM QC, Appellate Judge and former President of the Special Tribunal for Lebanon

John Gaffney, Senior Associate, Arbitration at Al Tamimi & Company

Dr. Richard Happ, Partner at Luther LLP

Barton Legum, Head of Investment Treaty Arbitration Practice at Dentons

Dr. Patricia Nacimiento, Partner at Norton Rose Fulbright LLP

Prof. Dr. Mathias Wolkewitz, Head of Legal Affairs, Tax and Insurance at Wintershall Holding

The second panel engaged in a fruitful discussion arising from the necessity of examining investment arbitration as a dispute resolution mechanism from three different – but equally important – perspectives: the point of view of the investors, the recipient state and the citizenship. The panel highlighted that the interplay among these actors is currently characterized by a growing gap, which is reflected in the public disquiet in seeing arbitration as an appropriate means for adjudication of issues relating to public interests. These concerns have echoed in specialized and reputable media, which has also championed the case against the necessity or convenience of using BITs at all. The panel advocated the importance of a prompt and adequate response from the investment arbitration system in order to bridge the gap between the ISDS mechanisms and the public interests from which it cannot be detached.

The panel also discussed the alleged thorny relationship between ISDS, the rule of law and public perception. Transparency, once again, was given a central role in the debate. However, the effectiveness of the mechanisms to achieve transparency was put into question, since their success is often related to the specific interests of the parties involved. Speakers also advanced views highlighting the power of the States and their influence on the media in order to impact public opinion. The current tension between the ISDS system, States and public perception was provocatively referred to as “BITs biting back”.

The panel also provided an enlightening historical account of the “international minimum standard of treatment” (IMST) as the predecessor of investment law and its protection mechanisms, as known today. The difference between standards of protection for foreign and domestic investors brought forward the complex and fundamentally undemocratic nature of investment law as a limit for state action. By putting the relationship between investment law, the IMST, state regulatory powers and the rule of law under the spotlight, a heated debate ensued as the panel presented the argument that the inherent undemocratic nature of investment law does not diminish its contribution to the rule of law. In this regard, the speakers raised an interesting comparison between the IMST, investment law and human rights, as setting the limits for sovereign regulatory power.

The panel also examined the tension between the alleged lack of legitimacy of investment arbitration and its position within a system of check and balances governed by general and legitimate legal rules. Speakers underlined the systemic need to have effective foreign investment protection, the fact that investment treaties increase legal certainty, that investment arbitration is not placed in a vacuum beyond general rules of law and the importance of applying the rule of law as an equal standard to all parties involved. In addition, they recognized the contribution of investment arbitration in levelling the playing field and ultimately upholding the rule of law.

IV. Panel 3: Evolution in dispute resolution: third party funding, the role of secretaries and security of data in investment arbitration

Dr. Daniella Strik, Partner at Linklaters LLP

Dr. Andrea Carlevaris, Secretary General, ICC International Court of Arbitration (Paris) and Director of Dispute Resolution Services of the ICC.

Anya George, Senior Associate at Schellenberg Wittmer Ltd.

Charles Nairac, Partner at White & Case LLP

Prof. Dr. Stavros Brekoulakis, Professor in International Arbitration and Commercial Law, Queen Mary University of London.

Jurriaan Braat, Partner at Omni Bridgeway

 

The following panel looked at several specific issues in investment arbitration. On third party funding, the panel carefully pointed at the main challenges this issue posts regarding matters of confidentiality, conflict of interests, security for costs, and the question of who ultimately owns the claim and makes the decisions of the funded party. Questions were raised by the speakers and participants as to the proper approach to be taken in relation to a party that is being funded on the merits, the presumptions that may arguably be placed on the funded party’s ability to pay, the difficulty in the determination of the “real party” in the arbitration and the responsibilities to be placed on the parties to the proceeding. On the specific topic of providing security for costs, it was discussed if the existence of a third party funding arrangement should affect the outcome of an application for such security and if a presumption against the funded party could be validly placed regarding its potential inability to pay. It was recognized that the current general approach to the issue is to grant such application only in specific and extreme circumstances. It was acknowledged that the increasing number of parties that have sought or secured third party funding in investment treaty claims, the unregulated nature of this issue and the difficulty to determine the content and the extent of disclosure obligations on the funded party are pressing matters in investment arbitration.

Regarding the issue of arbitral secretaries, it was recognized that the main debate revolves around the issue of tasks and duties that secretaries may fulfil without interfering with the nature of the obligations placed on the arbitrators by the parties, often cited as intuito personae. The controversial issue of the core content and scope of the arbitrators’ mandate and the issues of parties’ expectations in relation to the conduct of the arbitration tribunal and the transparency in fulfilling its duties were addressed by the speakers as well. Reference was made to seminal articles on this issue (such as Partasides’ “The Fourth Arbitrator?”), and the importance of the distinction between the decision-making process (which would arguably not be a pre-defined matter of personal mandate) and the decision-making function (which would be much more closely related to the personal mandate entrusted upon the tribunal). Cultural differences between arbitral tribunals – and among the members of the tribunals themselves – were also given a place in the debate, an aspect often overlooked when analysing this issue. The panel underlined the importance of disclosure and strict supervision of the duties of the tribunal’s secretaries. The challenges that the notably large grey area in this topic represent, were also discussed by the speakers and the audience.

Finally, on the issue of data protection, the significant practical implications of the issue were argued and recognized by the panel. The main issues set forth in the debate related to transparency, data integrity protection and data manageability. Speakers encouraged the audience to engage in proper data protection techniques within the setting of investment arbitration despite the technical challenges that this may entail. Attention was drawn into the potential conflict between data protection, confidentiality and the right of free access to information in investor-state disputes.

V. Panel 4: Towards Institutionalization and Judicialisation. The Proposal for a Permanent Court

Dr. Erhard Böhm, Partner at Baier Rechtsanwälte

Yves Derains, Founding Partner at Derains & Gharavi

David Gaukrodger, Senior Legal Advisor, Investment Division, OECD Directorate of Financial and Enterprise Affairs

Dr. Nikos Lavranos, Secretary General of EFILA

Andrea Menaker, Partner at White & Case LLP

Yasmin Mohammad, Senior Counsel at Vannin Capital

 

The final panel analysed one of the hot topics of investment arbitration nowadays in the European arena. In an energizing fashion and through a more informal and open debate among the speakers and the participants in the audience, the panel set out to touch upon many of the issues related to the EU Commission’s proposal for the creation of the Permanent Court for ISDS. The panel put forward a critical analysis of the structure, traits and alleged objectives and benefits of the creation of such a Permanent Court; of the interplay between the proposed system, EU law and the Court of Justice of European Union; and of the effectiveness of the proposed alternative in solving the problems facing the ISDS system.

The problem of recognition and enforcement of awards rendered under the proposed system was critically assessed, including the potential problems that such decisions may face in being recognized as “awards” under and as referred to in the New York Convention of 1958. The panel and the participants also examined the interplay between the proposed alternative and the ICSID system, especially in relation to issues of jurisdiction. In this regard, the proposed mechanism was elegantly criticised as a “medicine being given to the wrong patient”.

The panel also referred to a common perception of an alleged trend of investment arbitration not truly resembling arbitration after the several significant changes that the system has undergone. The perceived standardization, judicialization and lack of adaptability may be seen as drawbacks by investors and may decrease the amount of trust that economic agents may be willing to place in the system.

Also, questions were framed regarding the legitimacy of such a drastic change in the way of dealing with potential investment claims, specifically arguing that a possible cause for such significant deviation could be found in the shift in the position of several countries from usual “claimants” to potential “defendants” in investment disputes. Speakers and the audience advanced provoking arguments on the financial incentives that the judges of such court would have, as well as on possible issues on conflict of interests, political independence, level of required expertise and the challenge of legitimately having both investors and states resorting to a system that enjoys the benefit of their confidence.

VI. Conclusion

The controversial nature of many of the topics presented and discussed during the Conference gave rise to a rich variety of opinions, positions and further debates on related issues. The diversity in the background of the speakers and the participants during the session gave the all parties the opportunity to argue and analyse the most salient matters in investment arbitration from a wide range of angles. Speakers and participants agreed on the importance of strengthening the investment arbitration’s legal framework through properly founded and necessary reforms, of assuring a more transparent relationship between ISDS system and the citizenship, of reaffirming investment arbitration as a vital means for upholding the rule of law and of recognizing and confronting the challenges and drawbacks of the system that have lead to a widespread emergence of social opposition and resistance.

The current state of affairs regarding the future of investment arbitration in the European Union made it important to go back to the fundamentals of investment arbitration with a critical view in order to thoroughly assess the new trends, latest proposals and pressing matters regarding ISDS. The legitimacy and effectiveness of the proposal of the EU Commission regarding the Permanent Court under the TTIP were heavily debated and the complex relationship between investment arbitration, states’ regulatory powers, public opinion, transparency and the rule of law has proven to be a fertile field for further debate and much-needed reforms. Despite the many different positions confronted during the debate regarding the current attempts to modify the framework of investment arbitration, it was generally agreed that amendments must take place in order to reinforce the position of investment arbitration as a modern, legitimate and efficient means for the resolution of investor-state disputes.

The quality and depth of the debate during the session, the presence of many of the top investment arbitration experts, practitioners and authorities, and the wide array of topics covered, keep placing EFILA at a unique position as an open and stimulating meeting point for future debates that are to shape the policies that will impact the ISDS system, its evolution and improvement in the years to come.

GAR Awards 2016: The EFILA Lecture Has Been Shortlisted

EFILA is glad to announce that Ms. Sophie Nappert’s EFILA Lecture “Escaping from Freedom? The Dilemma of An Improved ISDS Mechanismhas been shortlisted for the 2016 GAR Awards for the best speech/lecture.

In the coming period, the voting process will begin. We would be grateful if Ms. Nappert’s outstanding lecture would receive your vote.

ISDS Novelty Overlooked Or Novelty Outdated?

by Emma Spiteri-Gonzi*

Investor-State Dispute Settlement (ISDS) is a procedural mechanism provided for in international investment agreements such as bilateral investment treaties (BITs) or multi-lateral investment treaties (MITs). ISDS allows an investor from one country to institute proceedings against the country where their investments where made- the Host State. So, has this novelty been overlooked or has it simply been outdated?

Disputes between investors and foreign countries have required adjudication for as long as there has been cross-border investment.  Under international law the taking of foreign property was protected under the minimum standard of treatment of aliens premised on the idea that a State is bound to respect and protect the property of nationals of other States. The problem however, lay in the individual being able to channel that right. Prior to the evolution of the modern rules-based system, foreign investors investing abroad relied heavily on the mercy of their own State. The injured citizen’s remedy lay in seeking diplomatic protection through his or her own government. If so inclined, the State would espouse the claim of its citizens against the offending Host State.

One will remember cases like Barcelona Traction, Light and Power Company Ltd (Belgium v Spain), in which the International Court of Justice (ICJ) detailed the shortcomings of diplomatic espousal remarking how the State is a ‘sole judge’ in deciding whether ‘its protection will be granted’ to a national, to what ‘extent it is granted’, and ‘when it will cease’.

The precarious procedural rights of the injured investor relying on Inter-State adjudication is further detailed in Elettronica Sicula S.P.A. (United States of America v Italy) where the court rejected the applicant’s claim for reparation and Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo) where notwithstanding a claim was successful in terms of securing the protection of Mr. Diallo’s human rights, the judgment fell short of protecting his investments.

One of the first investment treaties to provide for ISDS was the Belgium-Indonesia BIT of 1970. The clause was simple:

any dispute concerning an investment between an investor of one Contracting Party and the other Contracting Party shall, if possible, be settled amicably… Where the dispute is referred to international arbitration, parties in the dispute may agree to refer the dispute either to…’.

This clause paved the way for the multitude of ISDS clauses found in international investment agreements today.

Opponents of ISDS have pointed out that investment agreements concluded by developed countries no longer require ISDS and that this mechanism has become obsolete. The truth is that relying on the national courts of the Host State to enforce obligations in an investment agreement is not always easy, no matter how developed.

An investor in a Host State court is automatically an alien, advancing a claim in a foreign court automatically places the investor at a disadvantage of itself.

Lack of access to the court is another consideration. International investors have found that there would be no suitable forum, in certain Host States, to bring a claim unless an ISDS provision in the investment agreement had made adequate provision.

Host States are not always forthcoming with ratifying the rules entered into in an international investment agreement into their national laws. When this occurs, even if investors have access to local courts, they may not be able to rely on the obligations the government has entered into in the international investment agreement.

Today, opponents of ISDS choose to remember the procedure for providing corporations and investors with the locus standi to ‘drag’ Sovereign governments to dispute settlement.  More often it’s remarked that investment treaties are being concluded between countries with equally developed legal systems and it follows that any dispute would take place in the courts of either developed State, therefore the process has become outdated.

The past struggles of private parties to challenge the actions of governments seem all but forgotten. But perhaps we should not be so quick to forget, and not look a gift horse in the mouth.


* Emma Spiteri Gonzi, Legal Counsel- Nemea Bank Plc.

Call for Papers: PluriCourts Conference – 25-26 August 2016

The PluriCourts Centre of Excellence at the University of Oslo is organizing a conference titled ‘Adjudicating international trade and investment disputes: between interaction and isolation.’ The conference will be hosted at the Faculty of Law of the University of Oslo on Thursday and Friday 25- 26 August 2016. Submission procedures and timelines are detailed at the end of this call.

This conference aims to focus on the relationship, interactions and comparisons between the international trade and investment regimes in the context of adjudication of disputes. The conference will welcome research across the disciplines of law, political science, and philosophy relating to three themes: the new mega-regionals, comparisons and practices, and cross-fertilization and learning.

Historically, the global regulation of international trade and investment relations have been closely interrelated; but in the post-war period, international trade law and international investment law developed on largely divergent paths. While international trade regulation has culminated in a multilateral regime with a permanent dispute settlement mechanism, the international regulation of foreign direct investment is primarily governed by 3500 essentially bilateral treaty relationships calling for ad hoc investor – state arbitration potentially to be hosted by a variety of international institutions. Despite these seemingly distinct structures, there is a recent trend that some say signal a move towards regime convergence: most clearly seen in the rise of mega-regional free trade agreements (FTAs) with investment chapters.

This potential convergence may be deceiving, however. The investment chapters of FTAs remain separate from the rest of the agreements and provide for distinct rules and procedures on dispute settlement. Moreover, issues of overlap between trade chapters and investment chapters have not been resolved, which means that the same case could possibly be raised simultaneously in two separate disputes under the same FTA. Legal disputes based on investment chapters in FTAs to date (ie under the NAFTA and DR-CAFTA) appear to interpret the investment protection chapters as standalone agreements with little or no reference to other sections of the FTAs.

Despite the limitations to integration that this new generation of trade and investment agreements may represent, there are other areas of interaction between the trade and investment regimes that could provide better evidence of a gradual move towards cohesion. This conference aims to look at the development of the new mega-regionals, but also the ways (or lack thereof) that the trade and investment regimes share practices and cross-fertilize.

Submission procedure

We invite researchers from the disciplines of law, political science and philosophy to submit abstracts of no more than 500 words along with a CV of no more than two pages to Dr. Daniel Behn d.f.behn@jus.uio.no by 1 March 2016. Please indicate in the subject line of the email as to which Theme your abstract corresponds. Selection of papers will be based on abstracts as assessed through a blind process of a five person committee. Notification of successful applicants will be made by 15 March 2016. We will aim to select approximately 15 papers for presentation. Selected applicants will be required to submit a draft paper of 5000 to 7000 words two weeks prior to the conference. Travel funding may be available to paper presenters. Please indicate in the application your needs for funding.

For more details, please find here the complete Call for Papers – Trade Investment Conference.

The Shortcomings of the Proposal for an “International Court System” (ICS)

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

During 2015 it became clear that the European Commission was under mounting pressure from the European Parliament (EP), Trade Ministers of several EU Member States, anti-ISDS NGOs and the media to propose more “reforms” of the investor-State dispute settlement (ISDS) system that is contained in CETA and envisaged to be included in TTIP as well.

EFILA decided to establish a Task Force – consisting also of non-EFILA members – to analyse the final proposal for a so-called “International Court System” (ICS), which the European Commission formally adopted on 12 November 2015 and transmitted it to the US as a basis for further negotiations within the context of the TTIP negotiations.

During the debate in the European Parliament and among several Trade Ministers of EU Member States one key issue pointing towards a “solution” and which was continuously repeated was the creation of a permanent investment court consisting of publicly appointed judges. It was argued that in contrast to the current system of ad hoc arbitration consisting of party-appointed arbitrators, which has been characterized as “private”, behind closed doors dispute resolution, which biased towards the investor, a permanent investment court with judges would ensure fairer and better adjudication of investment disputes. Another related key issue, which was considered important for a “solution” was the creation of an appeal mechanism. Again the rather simplified characterization that ISDS disputes have no appeal possibility and are completely beyond the control of national courts, was used as a justification for the need of an appeal mechanism.

The European Commission had to incorporate these points otherwise a ratification of TTIP by the EP and the Member States would seem rather illusory. Having had significant experience as a disputing party in the WTO, which happens to include the Appellate Body as a permanent (quasi)judicial body, it was a small step for the European Commission to copy and paste many of the WTO dispute settlement elements into its ICS proposal.

The structure of the 60-pages EFILA Task Force analysis is as follows:

Chapter 1 analyses not only the ICS proposal as such, but also the process that preceded the proposal. This is important in order to understand the political context in which this proposal is embedded. It critiques certain aspects of the ICS proposal and raises a number of issues which the Task Force considers should be addressed in developing the ICS proposal further.

Chapter 2 provides an extensive overview of the already existing forms of appeal and annulment of investment awards. It also highlights the reform efforts in this regard by the PCA and the ICSID Secretariat. This overview provides a detailed picture of the status quo (including both the mechanisms and methods of operation), from which the ICS proposal departs. This analysis also draws critical attention to features or elements of the current system of ISDS which could be addressed in developing the ICS proposal.

Chapter 3 turns towards the WTO dispute settlement system by first explaining the features of the appeal system and then by examining to what extent this system could successfully be transplanted into the ICS and the limitations in so-doing.

Finally, Chapter 4 wraps up this analysis by providing some general conclusions as to matters which require consideration by the Contracting Parties in developing the ICS proposal further. In particular, the issues highlighted concern the methods of selection of the judges (and the implications of a move towards a system whereby the Respondent maintains, but the Claimant is deprived of, a role), the size of the pool of candidates for the two-tiered system, the relationship between the ICS and the CJEU and how the ICS will operate in the wider context of resolution of investor-state disputes under other instruments.

The conclusions of the Task Force report can be summarized as follows:

  1. The paper concludes that the ICS proposal is, first and foremost, a bold move to appease the EP and the public opinion in many EU Member States, which are critical against TTIP generally, and in particular against including any type of ISDS. The ICS proposal attempts to make the inclusion of an investor-state dispute settlement mechanism in TTIP politically acceptable, while at the same time trying to address the perceived shortcomings of the existing ISDS.
  1. The paper notes that – in contrast to the public perception – mechanisms for limited review of investment arbitration awards are already in place, such as the ICSID annulment mechanism and the setting aside procedure for non-ICSID awards by national courts. These mechanisms – while not perfect – provide useful corrective tools.
  1. The analysis of the WTO dispute settlement mechanism illustrates that caution should be exercised in simply transplanting it to investor-state disputes. The reason is that WTO law is structurally different from investment law, serves different purposes and has different users.
  1. Generally, it can be concluded that the ICS proposal clearly breaks with the current party-appointed, ad-hoc ISDS as provided for in practically all BITs and FTAs. The main result is that it deprives claimants of any role in the appointment of the judges, while giving the respondent States the exclusive authority to do so, albeit in advance of a particular case. The appointment of the judges by the Contracting Parties raises several problems, which the ICS proposal does not sufficiently address.
  1. The pre-selection of the TFI and AT judges by the Contracting Parties carries the inherent risk of selecting “pro-State” individuals, in particular since they are paid by the States (or rather their tax payers) alone. Apart from this danger, it remains doubtful whether a sufficient number of appropriately qualified individuals with the necessary expertise can be found. This is particularly true since many professionals currently working in arbitration may be excluded on the basis that they could be considered to be biased. The pool of TFI and AT judges would seem to be limited to academics, (former) judges and (former) Governmental officials. That might not be sufficient to guarantee the practical experience and expertise needed and/or independence from the State.
  1. The standard of impartiality and independence of the judges is highly subjective, and their independence on a practical level is not assured by the proposed text. Also, the system of challenging TFI judges and AT members can be further criticised for envisaging that the presiding judge will decide the challenge against one of his own colleagues on the bench, rather a decision being made by an independent outside authority.
  1. The system of determination of Respondent (in the case of the EU or Member States), in particular the binding nature of that determination, which is done by the EU and its Member States alone, creates significant disadvantages for the claimant and does not allow the ICS tribunals to correct any wrong determinations. This could result in cases being effectively thrown out because of a wrong determination of the Respondent.
  1. Since the ICSID Convention is not applicable to the EU, the recognition and enforcement of

ICS decisions remains limited to the EU and the US. The proposal also fails to clarify the difficulties elated to the New York Convention 1958.

  1. The ICS proposal does not address the difficult legal situation between the CJEU and other international courts and tribunals. There is no reason to believe that the CJEU would be more positive towards the ICS as compared to its outright rejection of the European Court of Human Rights when it comes to the potential interpretation or application of EU law. Also, the CJEU’s consistent rejection of any direct effect of WTO AB panel reports – even those that have been approved by the DSB and after the implementation deadline has lapsed – raises doubts as to the legal effects of ICS decisions within the European legal order.
  1. In sum, the suggested creation of a two-tier (semi)permanent court system would give the Contracting Parties a significantly stronger role in the whole dispute settlement process – potentially at the expense of both the investor/claimant and the authority of the ICS. In particular, the appeal possibility carries the risk of burdening small and medium investors by increasing the potential length of the proceedings and costs.
  1. While the US position towards the ICS proposal remains unclear for the time being, it also remains unclear how the ICS proposal could be multilateralized. Indeed, the perceived shortcomings of the current ISDS system is based on the fact that more than 3,000 BITs/FTAs are in place, which have been concluded by practically all countries in the world. The ICS proposal – limited to TTIP and perhaps extended to CETA – does not change that. The way the UNCITRAL Transparency Rules of 2014 are incrementally applied by way of an opt-in system established by a separate international treaty could be a possible way forward.
  1. As the TTIP negotiations between the US and the EU are now focusing on the ICS proposal, this is a perfect moment to further improve the proposal by addressing the matters identified in this analysis.
  1. Finally, the US and the EU should also consider whether it would not be more preferable to modify and improve existing systems, such as turning the ICSID annulment procedure into a full appeal mechanism.

This in-depth analysis is very timely and arguably one of the first ones following the formal adoption of the ICS proposal by the European Commission last November.

The EFILA Task Force paper raises many issues and provides some answers, but certainly leaves many problems untouched. At the EFILA Annual Conference which will take place on 5 February in Paris, the last panel will specifically discuss this report. All members of the investment arbitration community are welcome to (still) register for the conference or to submit their constructive comments to Dr. Nikos Lavranos, LLM, Secretary General of EFILA, at: n.lavranos@efila.org