DAA Investment Arbitration Committee Meeting 2019

The new 2018 Dutch Model BIT text: An evolution or revolution?

An event organised by the DAA Investment Arbitration Committee  
Date: Tuesday 21 May 2019
Location: DLA Piper, Amstelveenseweg 638, Amsterdam

In October 2018, the Dutch Government approved a new Dutch Model BIT text, which replaces the 2004 text. The 2018 text has been developed on the basis of a public online consultation round and intensive discussions with various stakeholders. The backdrop of the 2018 text forms the heated debate, which has been surrounding the perceived shortcomings of the current investor-State dispute settlement (ISDS) system and the general scepticism against the benefits of trade and investment agreements. The reform agenda of the EU, which has been implemented in its new trade and investment agreements such as CETA and the creation of the Investment Court System (ICS) are also partly reflected in the 2018 text. The aim of this event is to take stock of the most important changes, which the 2018 text introduces and to discuss their pros and cons – also compared to the 2004 text and in light of awards involving Dutch BITs that have been issued in the past.

The event will be preceded by the Annual General Assembly of Members of the Dutch Arbitration Association.

Program

11.30 – 12.30 General Assembly of Members of the DAA
12.30 – 14.00 Light lunch
14.00 – 14.20 Overview of the new 2018 Dutch Model BIT text by Ralf van de Beek, Dutch Ministry of Foreign Affairs
14.20 – 15.30 Panel discussion with
Hans van Houtte (Professor, KU Leuven)
Carmen Nunez Lagos (Hogan Lovells, Partner)
Niuscha Bassiri (Hanotiau & Van den Berg, Partner)
15.30 – 16.00 Coffee break
16.00 – 17.15 Continuation of Panel discussion
17.15 – 18.30 Closure & drinks

 

Registration

Places are limited. Please register by sending an email to: events@dutcharbitrationassociation.nl.
You can register via email until 17 May 2019

Arbitration Under the New Egyptian Investment Law: A Sanguine Crusade, or a Mirage Station  

 

Amr Arafa Hasaan, LL.M.*

 

Egypt has suffered massively in economic terms since the onset of the Arab Spring in 2011. Since then, there have been continuous endeavors to mitigate the loss, for instance, by holding the economic forum at Sharm El-sheikh in 2015, and concluding amendments to the investment law pending the same year. Thus, it sought to enact a new investment law which ought to offer tempting attractions for investors, and it shall be completely different from the “old, if I can say so. The Egyptian Parliament approved the new investment law on May 7, 2017, which came into force on 1st of June 2017

Indeed, the new investment law has some distinguishes from the “old” investment law which worth a commentary. Yet, this blog post underlines the Egyptian perspective regarding arbitration in particular under the new law.

Under Article 90(1) of the new law potential disputes with the investor may be settled either according to the mechanism agreed upon with the investor, or pursuant to the Egyptian Arbitration Act 1994 as amended in 1997. Further, Article 90(2) potentially gives the disputing parties the possibility to resolve their dispute amicably through the available means of settlement including ad hoc arbitration or institutional arbitration. The executive regulations of the law are yet to be issued.

Hasty call for myriad claims

Article 90(1) avails the addressees of the new law to either resolve their disputes according to the agreed mechanism or via arbitration according to the Egyptian Arbitration Act.

Well, for me, this provision seems promising from the investor’s perspective. Investors are identified globally wide under the provisions of the new law. This provision reading seems, from the investor’s perspective, as offering the option either to resolve its dispute through the agreed mechanism with the counter-party, or arbitration under the Egyptian Arbitration Act 1994.

Outwardly, this provision gives any investor a carte blanche to refer to arbitration any dispute that might arise with any official authority.

This conclusion rings a bell in my ears. A few years ago I was attending “the Berthold Goldman Lecture on Historic Arbitration Stories in Paris, where Jan Paulsson presented how he could manage to resolve, what it seemed during 1990’s, a dilemma for suing Egypt for the breaches of its commitments under Hong Kong-Egypt BIT. The presentation was about the well-known SPP v. Egypt Case, or as Paulsson named “the Pyramids Case”. This case landmarked the first investment case where the investor could sue a host state based on its domestic law.

Paulsson rehearsed his discussion with his boss, at that time, Mr. Laurie Craig, with his invented theory for suing Egypt. Mr. Craig was dissatisfied with Paulsson’s theory which seemed irrational. Mr. Craig, to express his restlessness with the theory, said “Egypt might not even know who can sue it in Arbitration. Article 8 of the Egyptian Investment law no. 43 of the year 1974 availed the investor to refer its dispute directly to the International Centre for the Settlement of Investment Disputes (ICSID). In Paulsson’s words, “Article 8 established that any dispute between an investor and the State could be decided in one of four ways; (…..) (1) [b]y a complaint to the Egyptian courts; or (2) in a manner agreed between the investor and the State; or (3) in accordance with the terms of an agreement between the State of Egypt and the home State of the investor; or (4) under the ICSID Rules.

Reading Article 90(1) of the new investment law, in abstract, makes an unreasonable conclusion. It reads as giving the addressees “the option either to resolve investment disputes (i) in accordance with the agreed forum, or (ii) pursuant to the Egyptian Arbitration Act. The absurdity of this conclusion lies in the fact that the first option is the agreed forum. It does not need a law to be effective. Likewise, the second option, in principle, is permissible under the Egyptian Arbitration Act. Briefly, interpreting Article 90(1) in this manner makes it has no added value to the law. However, reading it in an effective mode looks like lodging a machine gun with bolts  without a safety catch. In fact, the bolts here are the potential arbitration disputes.

Article 90(1) of the new law ostensibly recreates the spirit of Article 8 of the Egyptian Investment law no. 43 of the year 1974. Still, Article 90(1) has a limited application only to resolve investment disputes under the Egyptian Arbitration Act.

Offering a blank check for the addressees of the new law to refer any dispute to arbitration seems a tempting option for filing arbitration disputes against governmental entities and the vice versa. The said provision gives a probability that investors may be motivated to invest in Egypt, but it, unquestionably, guarantees never-ending arbitration claims against administrative entities.

These prospective arbitration cases might affect the economy undesirably. Arbitration in Egypt, unlike some western countries, is much costly than referring disputes to domestic courts. This implies a bunch of the government budget to be located for expenses of arbitration disputes.

Would it be an ad hoc arbitration, or is it just an inoperative arbitration offer?

Expression of the intent to refer a dispute to arbitration will constitute an acceptance of the offer to arbitrate. However, once the applicant considers the content of the offer to arbitrate, it will figure out that it is in an inaccessible situation.

Incompatibility with the Egyptian Arbitration Act

Initial reading put the operation of this open-ended offer to arbitrate in dilemma. Article 90(1) affirms that potential disputes shall be resolved in accordance to the Egyptian Arbitration Act. Article (1) of the Egyptian Arbitration Act requires a formal approval of the competent minister, or its similar competent, to refer a dispute to arbitration.

So, would Article 90 replace the formal requirement stated under Article (1) of the Arbitration Act? Unquestionably, it will be subject to opposing interpretations by disputing parties. Under international arbitration, some imminent scholars support the proposition that the arbitration agreement shall be valid, and domestic law requirements shall be irrelevant. Others confirm that the formal requirement shall prevail. Though, this would foray expectations of investors who sought to refer their disputes to arbitration depending on Article 90(1).

Non-executive offer to arbitrate

Article 90(1), per se, by referring to the Egyptian Arbitration Act implies that the Egyptian courts shall be competent with the annulment proceeding, and the seat of arbitration will be Egypt. However, it lacks salient features for an arbitration agreement to be operational. For instance, there is no determination of the rules of arbitration, language of proceeding, number of arbitrators, appointing authority, location of hearings. The Geneva Protocol of 1923 stipulated the instances where an arbitration agreement is considered inoperative. Without cementing these gaps in Article 90(1), referring disputes to arbitration pursuant to Article 90 will be standstill in case the counter party chooses not to cooperate.


* Amr Arafa Hasaan, LL.M., Counsellor at the Egyptian State Lawsuits Authority, Foreign Disputes Department

 

The love-hate story of arbitral jurisdiction over claims against states in the EU

by Emanuela Matei, Associate Researcher – CELS*

Staging the scene

In October 2013 the European Commission issued a note entitled ‘Platform for Good Tax Governance: Addressing the remaining cases of double taxation in the single market: means to foster arbitration’ in which it exposed the limitations of the EU Arbitration Convention 90/463/EEC. It affirmed that whenever a case covered a situation where no DTC was applicable, the domestic rules have been proven insufficient in regard of the pursuit to eliminate double taxation. The Commission recommended the renegotiation of the existent intra-EU DTCs in order to introduce an arbitration clause. Another option would be the adoption of a directive providing for an arbitration clause. On the other hand, the harmonisation of the rules applicable in the context of DTCs has been regarded as too invasive vis-à-vis the tax autonomy of the Member States.

In the meanwhile, the Commission has been fighting a whole different battle in the field of intra-EU BITs, where actually the elimination of the arbitration clause is one of the main issues. Since the Member States have not acted in order to displace the alleged incompatibilities, the Commission envisages a discussion with the Member States and all interested parties regarding the further improvement of investment protection within the EU.

In the OECD setting, the BEPS project that mainly addresses the risk of double non-taxation would have been incomplete if the elimination of double taxation had been left outside. The question of effective dispute resolution has been addressed in Action 14 of the BEPS. The main topic relates to supplementing the existing provisions of the tax treaties with a mandatory and binding arbitration provision. Exactly as the Commission, the OECD remarks that many DTCs do not contain such a clause and some other DTCs do not guarantee that the access to arbitration is actually recognised.

As it stands now, the EU law does not provide protection against double taxation beyond the scope of the principle of non-discrimination and the four economic freedoms. On the other hand, the issue of double non-taxation is caught under the scope of State aid prohibition[1]. Disfavouring investors is allowed under EU law, as long as the tax measure is not discriminatory. If the tax measure distorts competition, the Commission should react as mentioned above in accordance with the provisions of Article 116 TFEU.

The division of competences in taxation matters reminds you of a quantum system existing in a combination of multiple states that may lead to different outcomes. The multitude of states collapses into a state or another as soon as the system interacts with the external world. In a similar manner, the limits of the national tax autonomy are not predetermined, but only determinable through interpretation, so the matter of jurisdiction to resolve a question entangled with taxation will never be a definitely closed file.

The parallel universe of international investment law

External investment may fall either under the provisions of Articles 206-207 TFEU, if the investment comes from a third country or within the scope of internal market rules, if the investment comes from another Member State. Intra-EU investments fall within an area of shared legislative competence. Taxation measures may attract investments from abroad or put the investor off the idea to move to a different Member State.

The substantive protection derived by investors from the network of BITs is clearly superior, since it includes protection against measures which are not discriminatory in the meaning of Article 18, 49 or 63 TFEU. However, the remarkable difference in favour of the BIT regime can be noticed in the field of procedural rights. The fact that individuals do not have locus standi before the CJEU is the biggest impairment in this context.

The effectiveness of the protection granted by EU law to the intra-EU investor depends on the sincere cooperation of each Member State to take any action that might be necessary in order to achieve the expected results. In Cilfit, the CJEU affirmed that if the correct application of EU law is so obvious as to leave no scope for any reasonable doubt as to the way in which the question raised is to be resolved, the national court may refrain from submitting that question for a preliminary ruling and take upon itself the responsibility for resolving it. Furthermore, it must be established in detail that there is no such doubt[2].

[A] court against whose decisions there is no judicial remedy under national law is required, when a question of EU law is raised before it, to fulfil its obligation to bring the matter before the Court of Justice, unless it has established that the correct application of EU law is so obvious as to leave no scope for any reasonable doubt and that the existence of such a possibility must be assessed in the light of the specific characteristics of EU law, the particular difficulties to which its interpretation gives rise and the risk of divergences in judicial decisions within the European Union[3].

The obligation to refer for a preliminary ruling is strict in the case of courts of last resort, though in practice, national courts may still make use of Cilfit in order to avoid a request for a preliminary ruling. I would also dare to affirm that generally in any domain of science, less you know about a subject, clearer things appear to be. In case that certain national courts still do not dispose of human resources with sufficient knowledge of EU law, the intricacy of a certain question of EU law would not be easily accessible to them. It is very probable that in such a case, the plaintiff will not be able to obtain damages by making use of Köbler doctrine, since the infringement will not be manifest[4]. The Commission as well does not have an outstanding record of starting infringement proceedings in order to discourage the  practice of making use of a broader interpretation of the Cilfit-exception.

Since 2010 the overall number of infringement procedures has decreased, while the number preliminary rulings under Article 267 TFEU has significantly increased[5]. However, these numbers do not say anything about compliance with the duty to refer for a preliminary ruling and they do not provide any guarantee that the interpretation given by the CJEU has been applied correctly in practice by the national courts. The inability of EU law to effectively defend the implied right of an individual to have a question referred to the CJEU for a preliminary ruling invites the question whether international investment law should provide legal protection via its traditional means i.e. through investor-state arbitral proceedings.

As discussed above, the source of conflict is often the reverse coin of a certain competence. It is not the right to impose taxation, but the decision to abstain from it that may cause problems. It is not the right to allow free movement of capital from and to third countries, but the ability to impose restrictions on it that generated a number of infringement proceedings in EU law. It appears obvious that EU law allows Member States to restrict the protection of the foreign investor in cases where the IIA standard would not. In other cases, the EU law itself contains restrictions that the Member State must apply.

The judicial system of the European Union has nonetheless been created as a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the EU institutions. The Member States are not allowed to confer the jurisdiction to adjudicate disputes between individuals on ‘a court created by an international agreement which would deprive those courts of their task, as ordinary courts within the European Union legal order, to implement European Union law and, thereby, of the power provided for in Article 267 TFEU, or, as the case may be, the obligation, to refer questions for a preliminary ruling in the field concerned[6].

Concerning disputes between Member States in relation to the application of the ECHR within the scope ratione materiae of EU law, the CJEU held that only an explicit exclusion of the ECtHR’s jurisdiction would be compatible with EU law[7]. The tasks attributed to the national courts and the CJEU are deemed indispensable for the preservation of the very nature of the law established by the Treaties[8]. It must be underlined that the Commission has been in favour of establishing a system of external judicial control in many occasions including the adhesion to the ECHR, and agreed with the adoption of an arbitration clause in CETA, TTIP and FTAS[9]. The answer provided by the CJEU until now has been different from the opinion of the Commission.

In a recent request for preliminary ruling the Bundesgerichtshof asked the CJEU whether the application of an ISDS provision in an intra-EU bilateral investment protection agreement would be precluded by Article 344 TFEU or Article 267 TFEU or Article 18 TFEU[10].  Article 344 TFEU merely prohibits Member States from submitting a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties[11]. The theory projected by the Commission in Micula is that by abiding by the rules of the BIT, the Member State in question endorses the submission of disputes concerning the interpretation or application of the Treaties to the arbitral tribunal[12]. The Bundesgerichtshof in Achmea expresses the opposite opinion, namely that only if the plaintiff is a Member State, then the Article 344 TFEU would apply[13].

Article 267 TFEU aims to avoid divergences in the interpretation of European Union law which the national courts have to apply[14]. In Achmea, the arbitral decision has been adopted under the UNCITRAL rules and therefore it shall be enforced in accordance with the New York Convention that allows the domestic court to take into consideration the issue of public policy. The domestic court would have thus the opportunity to refer for a preliminary ruling in this context. The situation is different under the ICSID convention though. In any case, the Bundesgerichtshof finds in its referral no case of incompatibility with Article 267 TFEU.

The Bundesgerichtshof reasoned on the other hand that the application of the ISDS clause might be precluded by Article 18 TFEU. The Bundesgerichtshof proposed in this case to extend the higher level of protection to all investors in a similar position. Apparently, this solution seems to be elegant and certain, however in my view the issue of potential incompatibility is more intricate than it may look at first sight. A higher level of investor protection may potentially counteract the effective application of a provision of Union law protecting a specific interest of the EU[15]. Because the risk of such conflicts exists, the exercise of balancing effectiveness against investor protection must be performed by the competent court or tribunal. The role of the CJEU is to ascertain that the court that performs the assessment does not rely on an erroneous or divergent interpretation of EU law. As I mentioned before, the Cilfit doctrine does not provide a sufficient insurance that national courts apply Union law consistently with the interpretation adopted by CJEU, but at least Member States may be brought to Court for not complying with EU law obligations.

However, the investor has no means to bring a case against the Member State before the CJEU, even if an instance of unfair unequitable treatment under the BIT-rules also implied an infringement of EU law. It could be argued that the arbitral proceedings do not constitute alternative means in relation to proceedings established under EU law. The path paved by Köbler does not constitute a genuine alternative to the system of international arbitration, since it fully relies on domestic remedies and the general principle of state liability for breaches of international law obligations[16].

The protection offered by Köbler jurisprudence is limited to serious infringements of individual rights conferred by EU law, thus its scope is far narrower than under IIA law. The state liability established by CJEU in Köbler aims to fill the gap left behind by the authors of the Treaties and it employs the notion of common legal traditions of Member States that enshrines a set of rules regarding a minimum standard of protection[17]. Moving beyond this minimum standard would require an amendment of the Treaties in the sense of extending the locus standi of individuals under EU law.

The opinion of Bundesgerichtshof that the higher standard imposed by the arbitration clause should be extended to cover all similar situations may be attuned with the principle of equivalence imposed on the domestic system of remedies in matters where the protection of rights derived from EU law is at stake. The CJEU held that ‘in the absence of [EU] rules governing the matter, it is for the domestic legal system of each Member State to designate, with due observance of the requirements stemming from [Article 47 of the Charter] and the principles of effectiveness and equivalence, the courts and tribunals with jurisdiction and to lay down the detailed procedural rules governing actions brought to safeguard rights which individuals derive from [EU] law[18].

However, even if the unfair treatment would in certain instances amount to an infringement of EU law, it is doubtful that the access to arbitral proceedings would constitute the benchmark for determining the equivalent treatment in matters of judicial protection of EU rights. It all comes down to one thing. The scope of a BIT is per definition limited to the natural or legal persons referred to in it. The Commission views this limitation as a reason to conclude that the intra-EU BITs – all of them – are not compatible with EU law, since by acceding to the EU, a Member State is obliged to grant the same advantages related to individual rights comprised within the scope of internal market law to all the other Member States.

In relation to the substantive rights guaranteed by a BIT and their wider application ratione personae adopted in order to cover the investors who are nationals of other Member States than the signatories of the BIT, one can suppose that this extension is – in theory – possible. However, in consideration of the procedural rights and the assessment of compatibility with EU law of a certain obligation derived from the enhanced version of the BIT, the possibility to extend the scope in order to cover natural persons not covered by the BIT is doubtful.

It is doubtful not only for reasons very well-established by the CJEU in its Opinions pursuant to Article 218(11) TFEU, but also because the access to arbitral proceedings is provided under the premise that based on the principle of reciprocity, the counterparty will match this benefit by assuming an identical obligation. The extension of the benefit must be matched by the extension of the obligation to guarantee the access to arbitral proceedings on all other Member States. It would definitely require harmonisation measures.

Moving from reciprocity towards the unconditional duty to carry out tasks flowing from the supranational law entails a big psychological stride in regard of sensitive domains, such as taxation or judicial remedies. It requires that the governments of the Member States refrain from (ab)using blue pills – false impressions of intact autonomy – and start to realise that harmonisation may offer a better way to maintain control over an issue, since this method would allow them to actually define in more concrete terms the limits of their duties under EU law. If the Commission plans to adopt a directive replacing the Arbitration Convention in order to enhance the protection of taxpayers, I see no reason why it could not consider a similar step in order to improve the protection of economic freedoms in general.


[1] Mc Donald’s SA 38945, 2016/C 258/03 and GDF Suez SA 44888, not published yet.

[2] Case C‑379/15 Association France Nature Environnement EU:C:2016:603 paragraph 52.  Under ECHR law, the national courts must state the reasons why they consider it unnecessary to seek a preliminary ruling. A refusal to refer a question for a preliminary ruling may constitute in itself a violation of Article 6 § 1 of the ECHR. However, again if the decision of the national court not to refer is based on an erroneous application of Cilfit, the ECtHR does not have jurisdiction to examine this question. In practice, a simple reference to Cilfit  finding that there was no reasonable doubt may be sufficient in order to avoid a breach of the right to a fair hearing within the meaning of Article 6 § 1. See Ullens de Schooten and Rezabek v. Belgium, nos. 3989/07 and 38353/07, § 62, 20 September 2011, and Dhahbi v. Italy, no. 17120/09, §§ 31-34, 8 April 2014.

[3] Case C‑379/15 Association France Nature Environnement EU:C:2016:603 paragraph 50.

[4] Case C-224/01 Köbler EU:C:2003:513 paragraphs 53 and 124.

[5] Report from the Commission on the Monitoring the application of Union law, 2014 Annual Report. COM/2015/0329 final.

[6] Opinion 1/09 EU:C:2011:123 paragraph 80.

[7] Opinion 2/13 EU:C:2014:2454 paragraph 213.

[8] Opinion 1/09 EU:C:2011:123 paragraph 85.

[9] Opinion 2/15, still pending, date of hearing 13 September 2016.

[10] Case C-284/16, Achmea, pending.

[11] Opinion 1/09 paragraph 63.

[12] Commission Decision 2015/1470 Micula points 102, 104, 112, 114.

[13] Bundesgerichtshof I ZB 2/15 Achmea ECLI:DE:BGH:2016:030316BIZB2.15.0.

[14] Opinion 1/09 paragraph 83.

[15] By analogy Joined Cases C-402/05 P and C-415/05 P Kadi EU:C:2008:461 paragraphs 353, 371-3. Case C‑105/14 Tarrico EU:C:2015:555 paragraphs 54-55, Case C‑237/15 PPU Lanigan EU:C:2015:474 paragraph 63.

[16] Köbler, supra footnote 4, paragraph 48.

[17] Lenaerts and Gutiérrez-Fons, 2010. The Constitutional Allocation of Powers and General Principles of EU Law, Common Market Law Review 47, pp 1635-6.

[18] Case C-583/11 P Inuit Tapiriit Kanatami and Others v Parliament and Council EU:C:2013:625 paragraphs 100 and 102.


Emanuela Matei,  Associate Researcher at the Centre of European Legal Studies, Bucharest. Juris Master in European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc in Economics & Business Administration (Lund University, June 2009).