Intra-EU BITs in a Fragile Union: On Non-Papers and Other (Legal) Demons


by Horia Ciurtin LL.M., Managing Editor of the EFILA Blog*

The Geo-Economic ‘Great Game’ and Its Symbolic Requirements

The Commission’s endless troubles with intra-EU investment treaties appears as a benchmark for its ability to develop a coherent trade and investment policy. Every single state and non-state stakeholder across the globalized agora is closely watching the manner in which the EU power is shifting from its soft forms to more ‘classical’ forms of constructing internal and external authority. In this sense, the handling of its own member states and their BITs is perceived as a litmus test for the Commission’s capacity to order itself internally and, thus, its future ability to project a coherent stance outward.

Therefore, reaching – or imposing – an internal consensus on the intra-EU BITs is a pre-condition for the EU becoming a truly relevant international player, detaching its future FTAs from those concluded before by member states. In this sense, the Commission is itself constrained to break loose from the MFN network laid down in prior bilateral treaties and to cut off national cabinets from their international capacity in investment law. Autonomy of the EU in foreign (economic) affairs is the keyword for Brussels. Autonomy from its members, autonomy from its often turbulent civil society and autonomy from other international organizations.

In this sense, as the Commission’s goal is to prevent ‘dangerous’ overlaps of projected (and symbolic) authority inside and outside the Union, it feels that the internal network of BITs must be first dismantled. And the extra-EU BITs are next on the list. More precisely, EU law cannot appear to be overrun by other norms within the realm subjected to the control of the Commission. Allowing such a phenomenon would immediately be perceived as a weak spot in the EU’s impenetrable normative armour by all the other actors from the global arena.

In such a geo-economic ‘great game’, no player can be perceived as lacking the force – or determination – to present a unitary and coherent stance. Everything is about leverage in negotiations. And no hesitating actors are allowed at the table.

Act I, A Euro-Tragedy Commencing: Carrying a Big (Legal) Stick

Somehow strangely for its previous benign image, the Commission appears to have lately got fond to Roosevelt’s principle of “speaking softly and carrying a big stick”. The infringement stick carried around and shown vigorously to (some) member states is a symbolic move to show that it really means to end the BIT regime.

After speaking softly – in the parlance of EU law supremacy and unitary treatment for European economic actors – the Commission decided to commence proceedings against those five member states who have been involved in finalized investment arbitrations (either on the claimant side or as respondents): Austria, the Netherlands, Romania, Slovakia and Sweden.

Not immediately compliant with the EU’s newly-discovered policy of terminating such BITs, these five member states found themselves at the whim of the Commission which not only argued for a coherent and non-discriminatory regime for all European investors, but also demanded that they dismantle the investment regime in a manner that might be at odds with good practices in international law.

More precisely, the request to strip away the effects of the so-called ‘sunset clauses’ is largely seen by many specialists in the field as a dishonest artifice on behalf of the signatory sovereigns (or those who push states to such a conduct. In addition, a paradox of the Commission’s stance is to ask investors from one state or another to entirely exclude (independent) arbitration as a justice mechanism and rather imbue this task upon national courts which the Commission itself criticizes on numerous occasions. While international arbitrators are relieved of this function, regular courts (sometimes under MCV scrutiny) from member states – often partisan with their national authorities – are considered as the only ones to properly protect investors’ rights.

When analyzing the distribution of states which have been subjected to this first wave of infringement proceedings, it can be seen that – with the relative exception of the Netherlands – none of them is a traditional or big EU player. For instance, despite the settlement in the Vattenfall v. Germany I case, Germany was not part of this lot. The other EU actors (such as the Franco-German entente or the British outlier) were just ‘warned’ and shown indirectly – but with deference – what could happen in case of non-compliance.

These initial five states rather represented the symbolic sacrifice, meant to give an example (a bad one) to the whole Union, in contrast with the two ‘good’ states (Italy and Ireland) that renounced the ‘treacherous ways’ of intra-EU BITs. Commissioner Jonathan Hill expressly made this point when arguing that “Intra-EU bilateral investment treaties are outdated and as Italy and Ireland have shown by already terminating their intra-EU BITs, no longer necessary in a single market of 28 Member States”.

And thus, the scene was set for the evolution of an unplanned dramatic dynamics.

Act II, A Euro-Comedy Unfolding: Impossible Solutions to Unknown Dilemmas

While it would have been predictable for the five infringing states to take either take a common position against the Commission or to tacitly comply, nobody foresaw that only two of them (Austria and the Netherlands) would attract other non-infringing states (France, Germany and Finland) and together make a counter-offer to the European executive. Their peculiar ‘Non-Paper’ was submitted to the Council – and not directly to the Commission – in a move that emphasizes a more profound power-game within the Union. Concentrating five states from the more prosperous and stable core of the EU (including the Franco-German bloc), with more leverage in negotiations and with a potential to coagulate a larger participation from the remaining member states, this Non-Paper essentially polarized the discussion on a different path, i.e. what comes after the termination of BITs.

While in principle agreeing to the immediate phasing out of investment treaties (obliterating the ‘sunset clauses’ and their effects), the Non-Paper establishes one single condition: general, coordinated and multilateral termination. This might prove feasible on the short term. However, it seems rather strange – given the history of the EU and its numerous normative impasses – to request a similar step in re-building investor protection.

In other words, the Non-Paper does not wish for a multilateral reform of the system – in conformity with EU law desiderates – but rather its total obliteration and then constructing it again from scratch. Although, not very differently. From a substantial perspective, the drafters of the Non-Paper advocate – more or less – the same standards used in classical BIT, but ‘codified’ for all member states and in a EU framework presenting an undisputable degree of deference to European law.

In addition, three procedural options are presented: one momentarily impossible, one politically improbable and one virtually unchanged. Either using the European Court of Justice as an ISDS (or, rather, ICS) EU-inspired proxy, or creating an autonomous body for exactly this type of disputes, or using the PCA under a limited and custom-made procedural framework. Apparently, this last alternative is the preferred one on the short-term, allowing a truly arbitral institution (one of the most prestigious, indeed) to administrate the future investment cases.

Therefore, all changes but everything stays the same.

Awaiting for the Grand Finale: Switching Centers, Merging Peripheries

In reality, this latest Non-Paper (rather a ‘Non’ than a ‘Paper’) might be reasonably perceived as a smoke and mirrors maneuver to coagulate a different type of EU-wide policy. Both the Commission, the ultra-compliant member states and the recalcitrant ones risk to be left on the margins, as a new ‘core’ tends to form. The stake of this strategic gamble is to determine who shall be the ‘center’ and who shall lie on the ‘periphery’.

For a coherent investment regime to emerge inside and outside the Union, perhaps, a less radical stance is needed from all sides involved. The internal power struggles of the EU might uncontrollably spill over its borders and affect its negotiations with other global players, if a majoritarian consensus is not soon reached. The Commission’s push on member states to dismantle the present BIT network might have worked with Italy or Ireland (and seems to be going well with Denmark and the Czech Republic), but it has attracted none of the big power brokers.

On the contrary, the Commission’s attitude managed to bring together the Franco-German entente with the Dutch key player, allowing for a nascent alternative consensus to be formed outside its reach. In parallel, the ground is also fertile for a grouping of dissenting states, including the UK (if it decides to remain in the EU) and Sweden (whose investors are involved in consistent ISDS proceedings) which might form another ‘center’, opposing the Commission’s mission to dismantle the BIT regime.

In such conditions, the global ‘great game’ and the EU’s future as a major international player might well be undermined by its internal divisions. As all enduring troubles, the EU’s start at home. Trying to exert too much force on a very limited – and largely marginal – issue tends to spiral into opposition. Preventing such dissensus to turn to outright defiance entirely rests with the Commission. The velvet gloves must come back on …

 * Horia Ciurtin, Managing Editor, EFILA Blog; Expert, New Strategy Center; Legal Adviser – International Arbitration, Scandic Distilleries S.A;  [see SSRN author page].


Is Third Party Funding a Relevant “Investment” for the Purposes of a IIA Protection?

by Duarte G. Henriques, BCH Advocados*

During a meeting on the occasion of the last ICCA Congress in Mauritius, someone asked whether a Third Party Funding is considered an “investment” for the purposes of protection afforded by international investment agreements (“IIAs”) and investor state dispute settlement (“ISDS”). Contrary to my first reaction—“no, TPF is not protected”—the question is not so easy to address and might not have one single answer.

Although related, this question is different from a similar issue, which has generated lively debates around the recoverability of costs and other expenditure incurred by a funded party through a funding structure. At least in one case the tribunal did not award the costs of the arbitration to the prevailing party because it had been funded by a funder, the latter having no contractual right vis-à-vis the claimants for reimbursement of the arbitration costs (see Quasar de Valores v. Russia). Nevertheless, the trend in investment arbitral tribunals is to award costs to the funded party even if those costs have been funded by a third party (see inter alia others Kardassopoulos v. Georgia).

Let us recall what TPF is. Broadly speaking—and thinking of the most common business model (or financial structure)—a third party funding may be encapsulated in the following idea: an entity external to a dispute provides to a party in dispute a non-recourse funding for the latter to pursue a claim, against a retribution consisting of a share over the proceeds. Applied to the “investment arbitration” setting, this means that an investor is funded by a third party to pursue its claim against the host State, and the third party funder will pay all the costs of the arbitration (legal fees, arbitration costs, experts, and the like) and receive in return a share calculated upon the proceeds. If the claim does not prevail, the funder’s “investment” will not be repaid.

However, according to almost every investment protection treaty, a claim against a host State must meet some requirements related to jurisdiction and admissibility. I will not elaborate much on this and will limit myself to some brief considerations. Of course one may ask whether or not a TPF “investment” meets all the requirements of some tests that are used to assess the availability of protection under an IIA (for instance, it is common to apply the so-called “Salini test”, while other investment tribunals resort to quantitative and qualitative indicia).

However, my goal is to address a more overarching requisite that may be found in the definition of the protected investments themselves.

Currently, the number of existing bilateral investment treaties and other international investment agreements in force amounts to more than 2,900. Each international instrument has a specific language, but regarding the definition of a protected investment, the wording is almost identical across the spectrum, with some specificities which are not particularly remarkable. Accordingly, we may pick an instrument at random—in this case, I chose the “BIT” between the United Kingdom and the Republic of Colombia of March 2010.

For the purposes of this “BIT”, an investment is defined as ‘every kind of economic asset, owned or controlled directly or indirectly, by investors of a Contracting Party in the territory of the other Contracting Party, in accordance with the law of the latter, including in particular, but not exclusively, the following: (i)  movable and immovable property, as well as any other rights in rem, including property rights; (ii)  shares in, and stocks and debentures of, a company and any other kind of economic participation in a company;  (iii)  claims to money or to any performance under contract having an economic value; (iv)  intellectual property rights, including, among others, copyrights and related rights, and industrial property rights such as patents, technical processes, manufactures’ brands and trademarks, trade names, industrial designs, know-how and goodwill; (v)  business concessions granted by law, administrative acts or contracts including concessions to explore, grow, extract or exploit natural resources.’ (Article I/1/a).

Having no regard to specific exclusion provisions (such as those that were foreseen in the UK/Colombia “BIT”), the first question that arises is whether this provision contains an exhaustive list of protected investments or, on the contrary, the provision is merely illustrative (“open clause”).

This question is not so misplaced as one might initially think. Indeed, very recently, in a somewhat parallel matter—that of an investment related to a Greek bond issuance bought by the investor Poštová Banka in the secondary market—an investment arbitral tribunal considered that the definitional clause contained a list of examples to which some meaning should be given, and no provision applied to the specific lending products in question. Therefore, the tribunal considered that it lacked jurisdiction to hear the claim (a detailed analysis of this case by Professor George Affaki may be found here). However, this understanding contrasts with at least three previous awards (Ablacat, Deutsch Bank and Ambiente Officio), where the tribunals considered that the “definitional” provision should be read broadly so as to include these financial products and other similar ones as a protected investment.

In all these cases, we are speaking of financial products with somewhat fragile links to the economy of the States in question and, therefore, one may rightfully ask whether a similar approach may be taken regarding a “Third Party Funding” investment.

Be that as it may, one may think of possibly qualifying investments more connected to the “local economy” in the context of Third Party Funding. Let us think of one example, which might well be taken from a real case: an investor mining company invested in country A and created a few hundred jobs for local employees; this was the only asset of the investor company; the host State revoked the exploration and exploitation licence and, therefore, the investor became insolvent and the company was dismantled with those hundreds of employees made redundant. However, this investor was able to have its claim against the host State funded by a third party funder. The claim was a mix of compensation and restitution and was successful enough to have the company exploitation and the jobs reinstated. In the meantime, the host State promulgated legislation prohibiting any repatriation of funds and, therefore, the Third Party Funder was not able to receive its share of the proceeds.

Is this a protected investment or not? Did the host State violate its international commitments to protect foreign investment from national individuals and companies nationals of the other contracting State?

Ultimately, the answer to this question will rely how the definitional provision of the relevant IIA should be understood. If one adopts an approach similar to the arbitral tribunal in the case Poštová Banka, the Third Party funding may fall outside the scope of the investment protection instrument. However, if the approach is broader, then I do not see why a protection should not be accorded to such an investment, albeit of a “third party” to the dispute and to the main investment made in the host State.

I’d welcome your thoughts on this.

Duarte G. Henriques, Rua Fialho de Almeida – 32 – 1 E, 1070-129 Lisbon • Portugal,


Report on the AIA, EFILA and CIArb Event: Updates on EU Law Related Arbitration: A Selection of New, Controversial and Hot Topics

Nikoletta Kallasidou and Michal Mojto, AIA, Brussels

The Arbitration for International Arbitration (AIA), EFILA and the CIArb jointly organised a well-attended event  at the VUB University in Brussels on the 27th of May, bringing two panels of experts to discuss recent developments on EU-related arbitration. Contentious issues such as the Brussels I Bis Regulation, the arbitrability of EU competition claims, state aid, human rights and investment arbitration under BITs/ MITs were raised and discussed. A lively discussion during the Q&A session following each panel, greatly benefiting both the panellists and the audience.

Thoughts on  Brexit – Effects on Investment Arbitration

In light of the upcoming EU referendum due to take place on the 23th of June 2016, Dr. Christophe Guilbert de Bruet, the first speaker of the day, provided a particularly useful insight on potential consequences of a Brexit in the context of investment arbitration. The presentation began with an overview of the Brexit process. Article 50 of the Lisbon Treaty shall be interpreted as requiring both parties to negotiate in good faith as well as obliging the EU to conclude a withdrawal agreement. Dr Christophe highlighted the importance of the negotiation process as a means of mitigating potential adverse effects of the Brexit.

Turning to the options of the UK has upon withdrawal, he  discussed 3 major models. The EEA model prescribes the departure of the United Kingdom of the European Union without, however, depriving it access to the EU Single Market. This outcome is what he described as the ‘least harmful option’ for both  the EU but also the UK itself. Then he discussed the option of adopting a Swiss model of membership, which allows the UK and the EU to enter into bilateral agreements on particular sectors. The last potential outcome of a Brexit is a drastic severance of the UK from the EU without any immediate negotiations for a trade-related agreement, which, he argued, could lead to severe consequences in the context of investment arbitration.

In the next part of his presentation, he  explained the grounds upon which a successful claim could be brought against the United Kingdom in the case of a Brexit. First, he referred to the concept of ‘fair and equitable treatment’ (FET) as the relevant legal standard, which is accorded to investors by most BITs and is the most relied upon standard of protection in investment disputes. The popularity of FET lies in the flexibility and wide-ranging nature,  encompassing fundamental standards, such as good faith,  due process and non-discrimination. Certain key aspects of the FET principle have however been identified in arbitral jurisprudence, which include protection of the legitimate expectations of investors as well as the requirements of transparency and stability.

Focusing on legitimate expectations, he  highlighted the controversy surrounding the concept, which as he pointed out has been inconsistently interpreted by various arbitration tribunals and has been subject to ‘vociferous criticism’. In an attempt to explain how the concept operates in practice, he employed two factual scenarios of potential Investor-State Dispute Settlements. One of them was ‘The Indian Car Manufacturer’ scenario. Under the India – United Kingdom BIT,  ‘investments of investors of each contracting party shall at shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting party.’ Considering that the investment on the part of the Indian manufacturer in the UK was driven by an expectation to access the internal market,  one may effectively contemplate a breach of legitimate expectations, since in a Brexit situation, such access may be severed or impaired. The chances of success of the claim are higher if the relevant investment agreement had specific assurances of access to the EU Single Market in this regard.

In the context of intra-EU BITs, the United Kingdom has some 100 BITs with other states,  12 of which are with other EU countries. While the European Commission, in its amicus curiae submissions, put forward a range of inter-related arguments to support its position that BITS are superseded by and are incompatible with EU Law, the Tribunals have generally noted that the submissions of the Commission are of persuasive force at best and have sometimes stated explicitly that they do not agree with the Commission’s position. However, if the Commission is right, there is an uncertain future ahead for all these BITs of a post-Brexit British State.

Brussels I Regulation

Up next, Dr Assimakis Komninos, Partner at White and Case, sought to address the ruling of the CJEU in CDC v Akzo Nobel et al, a landmark decision regarding questions of jurisdiction under the Brussels I Regulation in the case of cartel damage proceedings. The preliminary ruling procedure was initiated a German Regional Court, which, inter alia asked the CJEU to elaborate on the bearing of jurisdiction and arbitration clauses in the supply contracts on the German court’s jurisdiction, in light of the requirement for effective enforcement of Article 101 TFEU and Article 53 EEA Agreement.

He first summarised the view given by AG Jaaskinen in delivering his Opinion, who argued that national courts were required by EU law not to apply an arbitration clause, or a jurisdiction clause not governed by Article 23 of the Brussels I Regulation, in cases where the implementation of such clause would  have hampered the effectiveness of Article 101 TFEU. This rather restrictive approach, he explained, was not followed by the Court of Justice. In fact, the CJEU refrained from explicitly addressing arbitration. Instead, the Court of Justice invited national courts to ensure that jurisdiction clauses ‘actually bind the parties’. In other words, the CDC judgment made it clear that jurisdiction clauses cover cartel damage disputes insofar the victim has specifically consented thereto.

He  submitted that the Court’s silence with respect to EU jurisdiction clauses to arbitration clauses was rather intentional, since it could have gone further in its findings, but it chose not to, and as such, the status quo of the more favourable reading of arbitration clauses by national courts should not be affected. If anything, he added, national courts may only exercise a certain degree of caution in the presence of cartel damages claims when ruling on the scope of the arbitration clause. However, he concluded, this does not imply that national courts should routinely require the plaintiff’s explicit consent in order to refer the case to arbitration, since this would amount to serious retrogression.

The arbitrability of competition law claims

Jean-Francois Bellis, Managing Partner at Van Bael & Bellis, gave  a presentation focusing on the arbitrability of competition law issues. Bellis began with a reference to the landmark Eco Swiss case which established by implication the doctrine of arbitrability of competition law. The ordre public nature that is attached to antitrust related disputes, Bellis explained, requires national Courts, when reviewing an arbitral award, to consider EU competition law rules and annul the award where they find the award to be contrary to such principles.

However, the standard of review that is required on the part of the national courts when observing EU Competition rules, was left untouched by the Court of Justice, rendering it one of the key areas of discussion in the field of arbitrability. He referred to the two standards of judicial review, namely the minimalist view, where the Courts render any further examination of competition law issues unnecessary if they are satisfied that the arbitrators have investigated and ruled on potential competition law breaches, and the maximalist view, where the courts perform an in-depth review on how the arbitral tribunal addressed competition law issues and are satisfied that the award did not violate public policy.

National law jurisprudence, he noted, reflects an overall hesitancy to exercise anything above an extrinsic control, which dates back to the case of Thales. In the latter, the French Courts ruled that in order to set aside an arbitral award, the violation of public policy in an international arbitration case must be ‘flagrant, effective and concrete’. The Thales standard has since been reaffirmed on multiple occasions by the French courts, in both enforcement and setting-aside proceedings. However, despite the little support for the maximalist approach, Advocate General Wathelet, in his recent opinion issued in Genentech v Hoechst, emphatically rejected the minimalist approach and called for a more detailed review on the part of the MS Courts on the basis that such fundamental public policy rules cannot be placed under the scope of arbitration proceedings.

In his concluding remarks, Bellis welcomed the new approach initiated by AG Wathelet, highlighting that the existence of an infringement to EU competition law may always be scrutinized ex officio, independent of whether the arbitral tribunal dealt with the issue and irrespective of whether the parties raised such question before the Courts. It now remains to be seen to which extent the CJEU would adopt AG’s Wathelet opinion in the future.

Moving further  from the Minimalist – Maximalist Approach: Let’s talk Pragmatism

Founding Partner of EDGE Legal, Dr Damien Geradin, on the other hand, argued that the two approaches, namely the minimalist and maximalist are extreme positions and endorsed a more pragmatic approach. In practice, he asserted, the reviewing process should not be restrained in its ability to review the award in any matter of depth when it is necessary. While in the vast majority of cases the minimalist approach is sufficient for review purposes, he emphasised that on certain occasions it is necessary for an in-depth review of the arbitral award to be implemented.

In support of his view, he referred to the opinion of AG Saggio in Eco Swiss, which highlighted the need to supervise arbitration awards to ensure that they are compatible with EU Competition rules, which are of great interest in the smooth functioning of the common market.

In relation to the means of investigation that can be used by a domestic Court in its review of the award, it was explained that the starting point is looking at the reasoning of the award. In most instances the reasoning of the award will suffice to identify whether the arbitral tribunal failed to detect anti-competitive behaviour which in turn amounted to a public policy breach. However, on situations where such reasoning is flawed, courts may need to go beyond the reasoning award.

More specifically, he  asserted that where the competition issues relevant to the dispute have been treated by the arbitral tribunal, the reviewing court should rely on the elements of fact that have been submitted to the tribunal without being necessarily bound by the legal characterization of these facts by the tribunal when it has reasons to  believe that it is incorrect. Yet, the reviewing court in principle should only require from the parties to submit factual elements that were not submitted to the tribunal or to produce testimonies in exceptional circumstances when the reviewing court has strong suspicions that the award may condone serious violations of competition law, such as for instance the existence of cartel, which would create a grave prejudice to the interests protected  by competition law. Hence, he  concluded that dismissing the minimalist – maximalist approach altogether and opting for a pragmatic approach, would enable a fair balance to be stricken between the finality of the award, a principle that sits at the core of international arbitration, and the need for domestic courts to ensure that the award does not amount to a serious breach of EU competition law, which is one of the main tools to protect free, undistorted trade within the EU internal market.

The new Investment Court System

Zena Prodromou, Associate in White and Case, followed up next, aiming to shed light on the European Commission’s radical proposal for a new Investment Court System for use in TTIP and future EU trade and investment negotiations. Prodromou opened her speech with some facts and figures on the TTIP and emphasised how the TTIP agreement is intended to enhance the EU-US partnership in the context of trade and investment. Subsequently, she explained that following the inclusion of ‘foreign direct investment’ as part of the common commercial policy under the Lisbon Treaty, the European Commission now negotiates on the basis of the mandates/negotiate directives given by the European Governments with various negotiating rounds. This negotiation, however, is no easy task, since, considering its material scope and the monumental size of economic relations.

Turning to the issue of dispute settlement between investors and states, which has been the most contentious point in the negotiations, she presented the latest proposal of the European Commission which seeks to replace the investor-state dispute mechanism and address scepticism against the ICS instrument. The new system comprises of standing tribunals at two instances: a Tribunal of First Instance, with 15 judges appointed jointly by the EU and the US governments, with 5 appointees each from among EU nationals, US nationals and third party nationals, and a Permanent Appeal Tribunal with 6 members jointly appointed for a six year term.

In terms of the interplay of the new Investment Protection System with domestic law, Prodromou highlighted the strict application of international law, since the Investment Courts would apply exclusively to the provisions of TTIP and would only be allowed to consider a domestic law of each Party taken into account as a matter of fact.  Where the Tribunal would be required to ascertain the meaning of a provision of a domestic law of a Party it would have to follow the interpretation made by that Party’s domestic courts.

Prodromou concluded by observing that the Commission’s proposal sought to address a sense of public distrust towards investment protection. The proposed changes to the ISDS, however, in essence touch upon the very fundamental elements and traits of arbitral proceedings. It is less clear whether, following this, we would be still talking about investment protection granted through arbitration or rather through a new dispute resolution mechanism.

The event was concluded by Dr. Nikos Lavranos, Secretary General of the European Federation for investment Law and Arbitration (EFILA). The animating and controversial topics continued to be discussed in the reception following the event, and all participants left with some new perspectives.

The Pechstein Judgment Emphasizes the Virtues of Arbitration

by Nikos Lavranos, Secretary General of EFILA

On June 7, 2016, the German Federal Court (Bundesgerichtshof, BGH) published a press release summarizing its judgment in the Pechstein case. Since the judgment itself has not yet been published, the following blogpost is solely based on this press release and other publicly available sources.

This case revolves around the attempt of Ms Pechstein, a world class speed skating champion, to annul an award by the Court of Arbitration for Sport (CAS), which had imposed a 2 year suspension on Ms Pechstein for suspicion of doping. Ms Pechstein always denied any doping and claimed that any strange blood levels are due to an inherited condition.

In order to be able to participate in international ice skate races, Ms Pechstein “voluntarily” signed an arbitration agreement with the International Skating Union (ISU) referring disputes to the CAS.

Ms Pechstein challenged the ban before the CAS, but in 2009 a CAS arbitral tribunal upheld the ban, finding no evidence of an inherited condition. She subsequently tried twice to have the award set aside before the Swiss Federal Tribunal in 2010, without success.

Ahead of the Winter Olympics in Vancouver in 2010, Pechstein turned again to CAS to challenge the German Olympic Committee’s not to select her for the national speed-skating team because of the ban. However, an arbitral tribunal of the CAS’s ad hoc Olympic division chaired by Yves Fortier QC rejected that challenge too on the basis of res judicata.

Subsequently, Ms Pechstein turned to the German courts, seeking €4 million in damages from the ISU for loss of income caused by its breach of its dominant position.

While in 2015 Ms Pechstein was successful before the Munich Higher Court, which accepted that her argument that she had not freely agreed to arbitrate at CAS as her consent was a condition of her participation in international competitive speed skating, the German Federal Court overturned that decision.

Most importantly, the Federal Court declared the CAS to be “a real tribunal for arbitration” and that “the global fight against doping is in the interest of both the organisations and those of athletes”. While the court agreed that the skating union is in a dominant position, it said that its conferral of exclusive jurisdiction on CAS to hear disputes is not an abuse of its position as it is based on the “mutual interests” of ensuring that sport is clean. The Federal Court also stressed that there was no “structural imbalance” at CAS, which would imply that the CAS arbitral tribunals’ decisions are skewed against athletes.

Whether or not the German Federal Court’s ruling is considered right or wrong, one  conclusion is clear: this judgment is a massive support for arbitration.

More specifically, the Federal Court considered the finality and speed of the CAS procedures to be of particular importance. The exclusivity of CAS arbitration ensures that parties cannot circumvent the system by turning to ordinary courts. In this way, consistency and finality of the arbitration proceedings are ensured.

Nonetheless, there has been critique on the CAS arbitration system, in particular regarding the closed list of arbitrators. Considering the CAS’ case-load of more than 500 new fillings last year alone, it is obvious that the closed list of arbitrators must be opened up, in order to avoid repetitive appointments of the same arbitrators, who have too many cases on their plates and therefore are unable to deliver their awards in a speedy manner.

Indeed, the CAS is a perfect example that speaks against the use of closed lists or rosters of arbitrators, which has become fashionable in recent investment treaties. Only the free choice of arbitrators will enable the parties to select the arbitrator they consider most suitable, which includes also the actual availability of the arbitrator.

The judgment of the Federal Court also underlines the importance of keeping domestic courts out of the arbitration proceedings. Turning to domestic courts in parallel to arbitration usually only increases the costs and delays the proceedings without a real chance of a “better” decision.

In sum, the Pechstein case is a very good example, which strongly supports the virtues of arbitration, which are finality, quality and speed. This is a message that the European Commission and the Member States should take into account when negotiating investment treaties with arbitration provisions such as for example TTIP.