by Adam Marios Paschalidis (NautaDutilh)
Recalibrating the European Union – International Arbitration Interface
The 2018 Annual EFILA Lecture by Prof. George A. Bermann (Columbia University School of Law), continues the successful Annual EFILA Lectures series, which were previously delivered by Sophie Nappert (2015), Johnny Veeder (2016) and Sir Christopher Greenwood (2017).
Before giving the floor to Prof. Bermann, Prof. Dr. Lavranos, Secretary General of EFILA set the scene of the Lecture by referring to the EU’s recent trend of re-considering the inclusion of the investment court system (ICS) in its FTAs. While the ICS has been included in EU-Singapore FTA, EU-Vietnam FTA, EU-Mexico FTA and CETA, this is not the case anymore in EU-Japan FTA, and neither is it on the table for the EU-Australia and New Zealand FTAs, whose negotiation phase started after the CJEU’s Opinion on the EU-Singapore FTA in which the CEJU determined that the competence on investor-state dispute settlement (ISDS) provisions is mixed. He, also, referred briefly to the Vattenfall arbitral tribunal on the Achmea issue and predicted that the ECT-related disputes will be the next theatre to watch in the upcoming years.
By way of introduction, Prof. Bermann considered as a fact that there is little new to be said with regard to the EU law-International Arbitration interface, since a lot of ink has already been spilled on this subject. Furthermore, he clarified that the purpose of his speech is to trigger a constructive discussion through the identification of some EU policy features that, if “revisited”, would promote a better relationship between the two regimes. Moreover, he expressed that the relationship between EU law and International Investment Arbitration is experiencing the most dramatic confrontation amongst other legal order’s interactions. In that regard, he further added that, despite the considerable level of fragmentation, different legal orders seldom collide on such a considerable level.
The Lecture was divided primarily in three parts. Firstly, he referred to the initial stages of European law and its rather scattered interaction with international (private) law. He then proceeded with the main part of his Lecture. In that respect, by eloquently addressing the different phases Community law has undergone, he identified three particular features of EU policy, which have affected the interaction between the European and Investment Arbitration legal framework. At the end of his Lecture, he shared his opinion concerning the future image of the ISDS regime and how EU law can be “refurbished” in parallel to the already accelerated re-examination of the ISDS regime.
Initial stages of EU law and its interaction with international (private) law
Prof. Bermann noted that at first EU law and international private law, especially international arbitration, were experiencing a status of “peaceful co-existence”, as early European law was exclusively focused on regulating the Union’s internal matters. As such, both European Treatises, the European Common Commercial Policy, the European Common Agricultural Policy, the European Common Fisheries Policy and so forth were adopted primarily for internal consumption. The result of this “introversion” was that legal instruments, which were also addressing some “external” aspects of the Union’s law, for instance private law affairs, were adopted outside the EU structures and in the form of conventions, such as the Brussels and Rome Conventions. At this point, Prof. Bermann made specific reference to the absolute exclusion of international arbitration from the content of the above mentioned conventions.
However, since the signing of the Amsterdam Treaty a dramatic shift has become evident. Amongst many other reforms, the regulation of private international law became part of the European Community column. As such, the European Union realised a wider role on that field, driven perhaps by its will to achieve a higher level of federalisation. Therefore, European legal instruments began to deal with private international law affairs as the European Commission was gaining more and more competence to address them. Unsurprisingly enough, the Court of Justice of the EU (CJEU) could not remain silent in light of this wave of “extroversion” and started assuming exclusive jurisdiction in a variety of cases. Both of the abovementioned escalations placed European law, as Prof. Bermann illustratively put it, in orbit of collision with international private law, especially international investment law. At this point, it should be mentioned that Prof. Bermann referred to the rise of ISDS arbitration and leading to a quantum shift as an additional crucial factor for the tension amongst the two regimes. Once again, however, he stressed that the purpose of his Lecture was to identify the changes that took place on the EU’s side of the equation.
EU law changes and their impact in investment arbitration
Prof. Bermann underlined three EU law features that have evolved or have been “invented”, thus influencing its correlation with International Investment Arbitration. However, before presenting them he pointed out that the impact of the first two is relatively limited in comparison to the third one.
First of all, European legal instruments initiated by the European Commission assumed wider roles and attempted to regulate fields of law, that fell under the Member States competence at the first stages of the Union. New legal instruments concerning private and commercial relationships were adopted, thus placing EU law, which would arise previously primarily as a defence in arbitral proceedings, in orbit of collision with international commercial arbitration.
As a second EU law feature that contributed to the prospective/already existing confrontation of the EU legal order with investment arbitration, Prof. Bermann specifically referred to the notion of the private enforcement of EU competition law. Stemming primarily from the CJEU judgment in the EcoSwiss case, this special element of EU law could provide a domestic court with the power to place an arbitral award under a special scrutiny regime, and even reject its enforcement on European public policy grounds. In that respect, two facts are of particular interest. First, he referred to the undefined level of review (deferential or non-deferential) that a domestic court can exercise. Second, he was concerned with the possibility of this ground being investigated by a domestic court on its own motion, irrespective of a party’s previously raised objection. Moreover, Prof. Bermann took his thoughts one step further and directed the audience’s attention to the fact that the precise rationale of the EcoSwiss decision could be utilized by the CJEU in different legal contexts and relationships as well.
Before resuming with the identification of the third EU policy feature, Prof. Bermann concluded that both aforementioned features provided the appropriate fuel for a new EU norm to arise, namely, that of European public policy. He even expressed his concern with regard to the implications European public policy will have in the substantive level of the EU law-International Investment Arbitration interface.
With the aforementioned last consideration, Prof. Bermann proceeded to the third European law element, that according to him affects the interaction between EU law and International Investment Arbitration the most. Prof. Bermann noticed that the concept of “autonomy of EU law” constitutes a rather recent trend in CJEU’s decisions. As found in some of the Court’s Opinions, including the Opinion 2/13 on the EU’s accession to the ECHR and in the Achmea case as well, it seems that the CJEU reserves its right to interpret EU law. In fact, not only does it reserve it, but it also assumes a monopoly in applying it. According to Prof. Bermann, the origin of the “EU law’s autonomy” concept can be traced back to the notion of the EU law’s primacy over the domestic law of the Member-States, as the CJEU held already found in Van Gend en Loos and Costa v. ENEL.
However, Prof. Bermann considered that there is a significant gap between these two EU law concepts (autonomy of EU law and primacy of EU law). On the one hand, the legal norm of “primacy” is expected to operate in intra-EU conflicts of law. On the other hand, the “autonomy of EU law” has been invented in order to interact with the international legal order. As it was articulated in its series of Opinions, the CJEU stands in opposition to any EU’s accession in international treaties that establish a Court or Tribunal whose decisions have an “adverse effect on the autonomy of the EU’s legal order”. In that regard, Prof. Bermann was astonished to note there is no other legal order that purports to disallow foreign courts to interpret its law.
In addition, Prof. Bermann invited the audience to “see” the bigger picture. As such, he remarked that the concept of EU law’s autonomy is expected to create turbulence and confusion concerning the EU’s and its Member States’ international legal standing. Obviously, such a monopoly of interpretation can be abused by the CJEU to form a potential rejection of a claim against the EU or one of its Member States. Even worse, the CJEU could force a domestic court not to enforce a decision or award that stands in contradiction with any part of the EU’s superior legal framework. However, Prof. Bermann did also refer to attempts to moderate/limit the concept of autonomy of EU law with respect to CETA and the ICS system contained therein, which, however, awaits approval by the CJEU in Opinion 1/17.
Furthermore, Prof. Bermann accepted that there is a fundamental difference between the CJEU’s Opinions and its Decisions. The Court’s Opinions, such as Opinion 2/13, were asked in order to predict incompatibilities between two separate legal regimes before signature. On the other hand, the Court’s Decisions like Achmea touched upon a Treaty’s validity after having been signed. As such, the Achmea decision “condemned” a Treaty and “dishonoured” an award, creating a considerable level of precedence. Additionally, Prof. Bermann considered that, although the Court in Achmea reassured the validity of investment treaties like the ECT or the CETA, it made clear that it reserves the exclusive right to interpret EU law.
Last but not least, Prof. Bermann could not help but notice the possible startling outcome of the combination of the CJEU’s monopoly of interpretation with the notion of EU public policy. In that regard, he referred to the Micula case, where the CJEU considered the domestic court’s level of scrutiny as insufficient. As such, the CJEU gave a substantive law dimension to the level of control, which a domestic court should exert when confronted with the recognition and enforcement of an arbitral award. Prof. Bermann took his consideration a step further and “painted” a realistic picture of the CJEU’s demands from a domestic court to reject the enforcement of a decision against the EU itself on public policy grounds.
Future image of Investor-State Dispute Settlement (ISDS)
Taking a third person’s sight in respect of European political and legal dynamics, Prof. Bermann specifically mentioned the need for the ISDS system to be re-examined in its entirety. Being a member of the Gabrielle Kaufmann Kohler academic forum, which has been created in the context of the UNCITRAL Working Group on ISDS reforms, Prof. Bermann called for a reconsideration of the basic features of investment arbitration, as this will prove useful in its interaction with EU law as well. At the same time he also referred to the possible steps, which the EU institutions and EU law could take in order to optimize its interaction with international investment arbitration. As such, a clearer delineation and clarification of the aforementioned EU law concepts, such as “European public policy”, “EU law autonomy” and the extent of an arbitral award’s substantial review by domestic courts could be helpful. Last but not least, Prof. Bermann made specific reference to the potential use of the CJEU’s “proportionality” principle in the “re-calibration” of the EU law-Investment Arbitration law relationship. He also expressed his discomfort of the absence of a constructive dialogue between EU institutions and International Arbitration institutions.
Q&A session moderated by Mr Kamil Zawicki (KKG)
The following four points of discussion formed the core of the Q&A session.
First, a comment was raised with regard to the relationship between CJEU’s Opinions and post treaty decisions/judgments. It was stated that there is a considerable difference between the two. The first has to do with a matter that may raise concerns in the future and are non-binding, whereas the Court’s decisions/judgments deal with a specific case and provide a solution based on the facts of the case. On this point, Prof. Bermann argued that CJEU’s Opinions are quite abstract and cannot anticipate which points of concern will arise at a later stage. They represent a special kind of precedent and are rarely not followed by the EU’s organs, despite the fact of not being binding. As for the Court’s decisions/judgments, he stated that they refer quite often to generic norms, although they deal with the particular facts of the case at hand.
Second, a question was raised concerning what possible considerations an arbitrator is forced to make when sitting in ICSID arbitration proceedings, which take place in an EU Member State. Prof. Bermann replied that firstly an arbitrator should take into consideration his/her mandate to deliver an enforceable award. Secondly, he noted, in response to another point raised, that the interpretation of the Achmea case should be the same under intra-EU BITs, the ECT and the ICSID contexts. However, Prof. Bermann made a comment of significant value with regard to this question. He stated that even an award delivered in a seat of arbitration located outside the EU, such an award could still be annulled or not enforced for reasons of comity.
Third, a significant difference between the EcoSwiss case and the Achmea case was underlined. It was mentioned that in EcoSwiss the CJEU forced the Dutch courts to annul the arbitral award at hand. On the other hand, in Achmea the CJEU found that the arbitration clause was incompatible with the EU law, thus leaving more space for the domestic court’s deliberation. Prof. Bermann acknowledged the point raised, but he then turned the discussion on the EU law dynamics. Therefore, a domestic court cannot do much when confronted with the notion of EU law’s supremacy over domestic law. At this point, Prof. Lavranos added that indeed there is no room left to a domestic court to decide otherwise. Prof. Lavranos, also, referred to the need for widening the preliminary ruling system. In that respect, he expressed that it is of utmost importance that arbitral tribunals are provided with the right to request a preliminary ruling from the CJEU in case EU law is at issue. According to him, this crucial step would simplify the current situation in terms of consistency and predictability.
Fourth, a rather crucial remark was raised in respect of a very interesting feature of the Achmea case. In that regard, it was mentioned the Achmea case dealt primarily with the preliminary question of the presence or absence of the State’s relevant consent. The CJEU based its interpretation on the fact that the Member States compromised a part of their sovereignty by signing the Lisbon Treaty. Therefore, the CJEU can invoke the “supreme” instruments of EU law in order to determine the element of consent. At this point of the session, a debate took place with regard to the interpretation of Art. 54 ICSID “as it if were a final judgment of the courts of a constituent state”. It was mentioned by the audience that Art. 54 ICSID does not prevent a State from not enforcing an award on one of the grounds for annulment under ICSID or the ones for refusal of enforcement under the New York Convention. Prof. Bermann responded to the second point by mentioning that this depends on a particular State’s reading of the provision and exemplified his position by referring to the US framework concerning ICSID awards under which this kind of decisions are immune.
As far as the interpretation of a consent’s validity and its co-relation with EU law is concerned, Prof. Bermann made the following remarks. He firstly admitted that the supremacy of the EU law is a norm that should be taken into consideration when discussing the interaction of the EU’s and its Member States’ legal frameworks. However, when the concept of “supremacy” transforms into the one of “autonomy” and is used against the international legal order, problems as the one in the Micula case will arise. He further supported his opinion by inviting the audience to adopt a broader view beyond intra-EU BITs and imagine how an individual would investigate the existence of a consent from an international law perspective, by making reference to the Vienna Convention and its relevant provisions. As a last point, Prof. Bermann subscribed that a State is still considered a subject of international law, despite being a member of the EU.