The Contents of the European Investment Law and Arbitration Review, Vol. 5 (2020)

Prof. Nikos Lavranos & Prof. Loukas Mistelis (Co-Editors in Chief)

We are very pleased and proud to present the fifth issue of the European Investment Law and Arbitration Review (EILA Rev) 2020.

As of 23 December 2020, all articles of this volume can be ordered online at Brill Publishers:

The stormy developments of the past years regarding international investment law and arbitration broadly understood, which to a large extent were driven by various EU institutions – European Commission, Court of Justice of the EU and the European Parliament – have confirmed the need for a legal journal such as this Review that exclusively tracks these developments and provides a forum for debate on the current state of affairs and future developments.

The Achmea judgment, the termination agreement regarding intra- EU BITs, CETA, Opinion 1/17, Brexit, the ISDS reform efforts in the UNCITRAL Working Group III and the ECT, are just a few of the topics that have been featured and continue to feature in a broad range of different contexts in this Review.

This issue opens with an article by Sarah Vasani and Nathalie Allen, which highlights the need of effective investment protection in order to ensure that the Paris Climate targets are reached by an increase in foreign direct investments in renewable energy. Often investment protection and environmental protection are presented as opposing, mutually exclusive interests; however, the authors convincingly argue that the contrary is true.

Elizabeth Chan’s article turns to Brexit and its potential for post- Brexit UK to design its foreign investment policy anew – independent from the EU.

Subsequently, Alexander Leventhal and Akshay Shreedhar analyze the practice of the European Commission intervening in arbitration proceedings by way of using amicus curiae briefs. They discuss the question whether, and if so, to what extent the European Commission can be considered a neutral friend of the tribunal or rather must be considered a third party with a particular interest – usually in support of the Member State concerned – which would have to be qualified as a potential abuse of the amicus curiae briefs tool.

Brady Gordon’s article provides a critical and sceptical analysis of the CJEU’s case law regarding CETA.

This is followed by David Sandberg and Jacob Rosell Svensson’s article regarding the implications of Achmea for national court challenge proceedings. They highlight the huge impact of Achmea for many on- going proceedings before domestic courts in various jurisdictions.

Samantha Rowe and Nelson Goh (former Managing Editor of this Review) explain how perceived norm conflicts regarding the January 2019 EU Member States Declarations on the consequences of the Achmea judgment can be resolved through principles of treaty interpretation.

Nikos Lavranos concludes this series of Achmea related articles by offering his analysis on the recently signed termination agreement, which would effectively terminate most intra-EU BITs.

As in the past years, we also run an Essay Competition, which resulted in many outstanding submissions. Indeed, this year the quality was so high that the Editorial Team decided to award, next to the first prize winner, two joint second prize winners rather than a second and third prize winner.

Crawford Jamieson is the first prize winner of the Essay Competition 2020 with his submission, which assesses the CJEU’s decisions in Achmea and Opinion 1/ 17 regarding CETA in light of the proposed Multilateral Investment Court (MIC). He shows that there are considerable flaws and inconsistencies in the CJEU’s jurisprudence, which can only be explained by political motivations in order to lend support to the MIC.

Joint second prize winner, Robert Bradshaw, illustrates with his submission that international investment law is in need of a proportionality test. The other joint second prize winners, Florence Humblet and Kabir Duggal, provide an extensive analysis for using Article 37 of the EU Charter as a defence for Climate Change and environmental measures in Investor-State arbitration disputes.

The case-note section is opened by Cees Verburg who analyses the Hague Court of Appeals’ decision, which overturned the lower courts’ decision to annul the USD 50 billion Yukos award. This decision reinstated the award, while at the same time triggered an appeal by the Russian Federation before the Dutch Supreme Court. Thus, there will be another, final, round.

Bianca McDonnell examined the Adamakopoulos v. Cyprus Decision on Jurisdiction by the ICSID arbitral tribunal. This decision is particularly interesting regarding the dissenting opinion of one arbitrator concerning the alleged incompatibility of the bit s and the EU Treaties as well as regarding the aspect of the mass claim nature of the proceeding.

Finally, Alesia Tsiabus and Guillaume Croisant discuss the lessons learned from the Micula saga for the relationship between international investment law and EU competition law.

The focus section on the Young ITA event on investment arbitration and the environment continues the theme, that was initiated by the first article in this Review. The focus section encompasses several written contributions of the presentations given at the Young ITA event held on 5 November 2019 in London.

This section is opened by an extensive analysis of Laura Rees-Evans in which she explains the recent developments and prospects of reform regarding the protection of the environment in international investment agreements.

Crina Baltag looks at the doctrine of police powers in relation to the protection of the environment, while Anna Bilanova explains the option of using environmental counterclaims. This is followed by a discussion of Guarav Sharma on environmental claims by States in investment treaty arbitration.

Finally, Nikos Lavranos, the other Co- Editor-in-Chief of this Review, looks at the (ab)use of third- party submissions in investment treaty arbitration proceedings.

The EFILA focus section contains a summary of the keynote delivered by Meg Kinnear at the 5th EFILA Annual Conference with a particular focus on using ADR tools in investment disputes.

This is followed by the text of the 5th EFILA Annual Lecture delivered by Prof. Laurence Boisson de Chazournes on navigating multiple proceedings in the light of the proliferation of courts and tribunals.

Finally, three book reviews wrap up this issue. Nikos Lavranos looks at the new Practical Commentary on the ICSID Convention, while Nelson Goh (former Managing Editor of this Review) reviews a Case Book on International Law in Domestic Courts and Trisha Mitra (Co- Managing Editor of this Review) examines the book on the future of Investment Treat Arbitration in the EU.

We are confident that this year’s 480 page volume underscores again the raison d’être for publishing this Review, which covers such a dynamic field of law.

In order to produce an interesting volume next year yet again, we invite unpublished, high-quality submissions (long and short articles as well as case notes) that fall within the scope of this Review.

The Call for Papers and the house style requirements are published on the Review’s website:

In addition, we will also again run an Essay Competition. All information regarding the 2021 Essay Competition will be published on the Review’s website:

Table of Contents of the European Investment Law and Arbitration Review 2020

Articles

1 No Green without More Green: The Importance of Protecting FDI through International Investment Law to Meet the Climate Change Challenge 3

Sarah Z. Vasani and Nathalie Allen

2 The UK’s Post- Brexit Investment Policy: An Opportunity for New Design Choices 40

Elizabeth Chan

3 The European Commission: Ami Fidèle or Faux Ami? 70

Alexander G. Leventhal and Akshay Shreedhar

4 A Sceptical Analysis of the Enforcement of ISDS Awards in the EU Following the Decision of the CJEU on CETA 92

Brady Gordon

5 Achmea and the Implications for Challenge Proceedings before National Courts 146

David Sandberg and Jacob Rosell Svensson

6 Resolving Perceived Norm Conflict through Principles of Treaty Interpretation: The January 2019 EU Member State’s Declarations 167

Samantha J. Rowe and Nelson Goh

7 The World after the Termination of intra-EU BITs 196

Nikos Lavranos

Essay Competition 2020

8 Assessing the CJEU’s Decisions in Achmea and Opinion 1/ 17 in Light of the Proposed Multilateral Investment Court – Winner of the Essay Competition 2020 215

Crawford Jamieson

9 Legal Stability and Legitimate Expectations: Does International Investment Law Need a Sense of Proportion? – Joint 2nd Prize Winner of the Essay Competition 2020 240

Robert Bradshaw

10 If You are not Part of the Solution, You are the Problem: Article 37 of the EU Charter as a Defence for Climate Change and Environmental Measures in Investor- State Arbitrations – Joint 2nd Prize Winner Essay Competition 2020 265

Florence Humblet and Kabir Duggal

Case- Notes

11 The Hague Court of Appeal Reinstates the Yukos Awards 299

Cees Verburg

12 Theodoros Adamakopoulos and Others v. Republic of Cyprus, ICSID Case No Arb/15/49, Decision on Jurisdiction, 7 February 2020 315

Bianca McDonnell

13 Investment Arbitration and EU (Competition) Law – Lessons Learned from the Micula Saga

Alesia Tsiabus and Guillaume Croisant 330

Focus section on the Young ITA Event: Investment Arbitration and the Environment – Emerging Themes

14 The Protection of the Environment in International Investment Agreements – Recent Developments and Prospects for Reform 357

Laura Rees- Evans

15 Investment Arbitration and Police Powers: Emerging Issues 392

Crina Baltag

16 Environmental Counterclaims in Investment Arbitration 400

Anna Bilanová

17 Environmental Claims by States in Investment Treaty Arbitration 412

Gaurav Sharma

18 The (ab)use of Third- Party Submissions 426

Nikos Lavranos

Focus Section on EFILA

19 ADR in Investment Disputes: The Role of Complementary Mechanisms – Keynote to the 5th EFILA Annual Conference 2020 439

Meg Kinnear

20 The Proliferation of Courts and Tribunals: Navigating Multiple Proceedings – 5th EFILA Annual Lecture 2019 447

Laurence Boisson de Chazournes

Book Reviews

21 The ICSID Convention, Regulations and Rules – A practical Commentary 471

Nikos Lavranos

22 International Law in Domestic Courts: A Case Book 473

Nelson Goh

23 The Future of Investment Treaty Arbitration in the EU: intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment Court 475

Trisha Mitra

The End of West Takers in the UK? Anti-suit injunctions post-Brexit: The default ‘No-deal’ Scenario

David Ndolo, Coventry Law School, Coventry University

The UK parliament passed the European Union Withdrawal Act 2018 (“EUWA”) that gained royal accent on 26 June 2018. While the exit day is currently set for 29 March 2019, there is a proposed transition period until December 2020 in case a Brexit deal is agreed upon.

In any event, the default position is set under sections 1 and 2 of EUWA, that EU Law will no longer be a source of law in the United Kingdom after the exit day. This includes the decisions of the Court of Justice of the European Union (“CJEU”).

To avoid legal gaps and uncertainty, the EUWA 2018 copy pasted all EU law, including CJEU case law, into the domestic UK law. As a result, the first and second instance courts will remain bound by previous CJEU cases. The UK Supreme Court, however, under section 6(4) of the EUWA, has the power to depart from previous CJEU decisions in the same way it can depart from its own earlier case law.

In other words, the UK Supreme Court can depart from the West Tankers case removing the restriction on UK courts power to issue anti-suit injunctions to parties in EU national courts. As has been discussed here, the CJEU held in West Tankers [(C-185/07) EU:C:2009:69 (ECJ (Grand Chamber)] that the anti-suit injunctions of this nature run counter to the principle of mutual trust among the EU member states as required by the Brussels I Regulation (replaced by the Brussels Recast Regulation in 2015). As result, EU member state courts, including English courts, cannot issue an anti-suit injunction in favour of arbitration where a party starts foreign court proceedings in an EU state. Despite the controversy that the AG’s opinion raised in Gazprom OAO EU:C:2014:2414., the English courts re-affirmed that they still firmly apply the CJEU’s approach in West Takers in Nori Holdings Ltd v Bank Financial Corp [2018] EWHC 1343 (Comm).

The UK Supreme Court highly values its power to issue anti-suit injunctions in favour of arbitration. In fact, in Turner v Grovit [2001] UKHL 65, it formally referred to anti-suit injunctions as an ‘important valuable weapon’ (emphasis added) and sees it as giving London seat of arbitration an advantage over its competitors. The UK Supreme Court has also twice ruled in favour of court’s power to issue anti-suit injunction in West Tankers [2007] UKHL 4 and Turner v Grovit as not being contrary to principle of mutual trust under Brussels Regulation 1, albeit its decisions were overturned by the CJEU.

Moreover, despite the CJEU ruling in West Tankers, the English courts have continued to grant anti-suit injunctions in favour of arbitration proceeding directed to parties who stated foreign proceeding in non-EU national courts. In fact in 2013, in Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35,the UK courts further widen their power to grant anti-suit injunction in favour to restrain foreign proceedings brought in breach of an arbitration agreement, to cases where there is no existing or proposed arbitration.

Following this, it is likely that the UKSC is to overturn West Tankers after the exit day such that UK courts will regain the full power to issue anti-suit injunctions post-Brexit. However, if this were to happen, the adoption of the Brussels I Recast2015 into domestic UK law and the previous CJEU decisions in West Tankers and Turners v Grovit EU:C:2004:228 are indications that the English courts would need to reconsider its power to issue anti-suit injunctions especially those directed to parties EU national courts.

If the UK were to regain the power to issue anti-suit injunctions where the foreign court proceedings are commenced in a European court, this may give the London seat as a practical pro-arbitration advantage over its competitors within the EU. This is because it will give the parties guarantee where there is valid arbitration agreement, the English Court can compel the parties to comply with that voluntarily choice to settle via arbitration even where the proceedings are commenced in EU state court. Indeed, in a recent survey conducted by Queen Mary University the respondents indicated that they will continue to use English law after Brexit because of its support for arbitration and regain of such a remedy may further cement their decisions. (QMU & White Case, ‘International Arbitration Survey: The Evolution of International Arbitration’(2018) at 12 )

However, the corollary to such an approach is that there is also the risk that where an anti-suit injunction is granted to stop proceedings in EU State court, those courts might later refuse to recognise and enforce the arbitral award on the basis its being contrary to the EU member state’s public policy in reliance on the New York Convention, Article V(2)b. In addition to this, as West Tankers only applies to EU State courts, EU State courts would equally be free to grant anti-suit injunctions to restrain a party from pursuing a claim before the English courts. As a result, this approach can be seen by the parties as being too uncertain, restrictive and a disadvantage and thus they prefer an EU Seat where it is clear and well settled that EU state court cannot grant anti-suit injunction directed to a party in EU state court. In such a case it is likely that Paris as a seat of arbitration will most benefit. (QMU Survey 2018)

UK post-Brexit cannot escape the impact of EU law and of the Court of Justice of the EU  

 

Prof. Dr. Nikos Lavranos, LLM (Secretary General of EFILA)

In recent weeks, the UK has published several papers explaining its aims of leaving the EU and how it intends to shape its future trade relationship with the EU.

One of the aims repeatedly publicly stated by the UK will be “to end the direct jurisdiction of the Court of Justice of the EU (CJEU)” as declared in the UK’s paper on ‘Enforcement and dispute resolution’.

Moreover, in another UK paper on the ‘Future customs arrangements’, the UK stated that the “exit from the EU will provide considerable additional opportunities for UK business through ambitious new trade arrangements and comprehensive trade deals that play to the strengths of the UK economy”. In order to achieve that, the paper argues that “the UK will need an independent trade policy, with the freedom to set for ourselves the terms of our trade with the world”.

In other words, the UK is hoping that by leaving the EU it can escape the impact of EU law and of the Court of Justice of the EU (CJEU).

But is this really possible and realistic?

From the outset, the UK already admitted that EU law and the jurisprudence of the CJEU will continue to play an important role in the domestic legal order of the UK. Indeed, in the ‘Enforcement and dispute resolution’ paper, the UK explicitly admits that the “Repeal Bill will give pre-exit CJEU case law the same binding, or precedent, status in UK courts as decisions of our own Supreme Court to ensure a smooth and orderly exit”.

If that is taken as a starting point and one examines what will happen in the field of trade and investment law before the CJEU until March 2019 when Brexit is envisaged, it becomes crystal clear that the room for manoeuvre for the UK is highly limited.

The CJEU will shape the EU’s future trade and investment law

  1. Achmea case

The first case in line, is the Achmea (formerly known Eureko) case. This case concerns the preliminary ruling questions of the German Supreme Court (Bundesgerichtshof) in which it essentially asks the CJEU to rule whether investor-state dispute settlement (ISDS) proceedings based on an intra-EU BIT are compatible with EU law. Achmea had won an arbitration award of about 20 million EUR against the Slovak Republic, which the Slovak Republic is trying to set aside before German courts. Although, the German courts so far have rejected the efforts of the Slovak Republic, the Bundesgerichtshof decided to put this matter before the CJEU.

On 19 September 2017, Advocate General Wathelet delivered his Opinion in the Achmea case. Interestingly, he opined that intra-EU BITs and ISDS under these BITs are in full conformity with EU law. At the same time, he argued that international arbitral tribunals are to equalized with domestic courts/tribunals of EU Member States. Consequently, arbitral tribunals established on the bases of intra-EU BITs should be allowed to ask preliminary questions to the CJEU, while at the same time they are fully bound by EU law and CJEU jurisprudence.

It remains to be seen whether the CJEU will follow this rather innovative approach. However, if the CJEU were to decide in mid-2018 that arbitration on the basis of intra-EU BITs is incompatible with EU law, this would be the end of the ca. 190 intra-BITs. This would also affect the 10 intra-EU BITs, which the UK currently has with other EU Member States (i.e., with Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia). In this context, it is interesting to note that a UK investor has just brought a case against Poland based on their intra-EU BIT. That may soon not be possible anymore, if this and the other intra-EU BITs are judged by the CJEU to be incompatible with EU law. On the other hand, if the UK is able to maintain its intra-EU BITs after Brexit, it could become an interesting location for foreign investors to structure investments through the UK in order to benefit from them. The additional advantage would be that these BITs are based on the “Dutch gold standard” model BIT and thus provide a significantly higher level of protection that the so-called new general investment treaties such as CETA.

  1. Micula case

The other case, which will be of significant importance is the Micula case. This case concerns the enforcement of a 250 million USD ICSID award by Swedish investors against Romania. While Romania was ready to pay out the award, the European Commission has prohibited Romania to do so because the payment of the award would – according to the Commission – constitute illegal state aid to the Micula brothers. Romania – being forced to give priority to EU law – has thus stopped paying the award. The Micula’s have brought an annulment case before the CJEU. If the CJEU were to follow the European Commission, this could mean that ICSID awards may not be so easily and automatically enforceable within the EU as they are supposed to be in accordance with the ICSID Convention. In order to avoid such insecurity, which is caused by the Commission for its own policy interests, the UK post-Brexit may become the preferred place to enforce awards against other EU Member States.

  1. The Belgium questions on the compatibility of the Investment Court System (ICS)

Another very recent development concerns the questions, which Belgium has put to the CJEU as regards the compatibility of the Investment Court System (ICS) with EU law. It will be recalled, that Belgium had promised Wallonia to request an Opinion of the CJEU on this matter in return for Wallonia’s agreement to agree on CETA. As is well known, the ICS is already included in CETA and the FTA between the EU and Vietnam. Indeed, the European Parliament has repeatedly stated that it will only accept EU FTAs with the ICS included. However, the EU-Singapore FTA does not yet include the ICS because the negotiations were concluded long before the ICS proposal came out. Due to the position by the European Parliament, the European Commission has no choice but to re-open the negotiations with Singapore. However, it remains to be seen whether Singapore will accept the ICS.

If that is the case and the EU-Singapore FTA, which the UK has signed, would enter into force, it would replace all the BITs between the EU Member States and Singapore. This would also include the UK-Singapore BIT, which dates from the 1970s.

Consequently, if the EU-Singapore FTA would enter into force before the UK leaves the EU, the UK would lose its BIT with Singapore and would also have to leave the EU-Singapore FTA. In other words, the UK would be left with no investment treaty, unless the UK is able to delay the entering into force of the EU-Singapore FTA until after Brexit. In that case, the UK could maintain its BIT with Singapore and would not be affected by the EU-Singapore FTA – whether or not it has to include the ICS.

Either way, the Opinion of the CJEU on the compatibility of the ICS with EU law will be important for the UK post-Brexit.

Firstly, because the UK Government has already publicly admitted that it does not have the capacities to negotiate many new trade agreements on its own. Instead, it will – as far as possible and as far as the third countries agree – copy and paste the EU’s FTA texts.

Secondly, if the CJEU were to conclude that the ICS is compatible with EU law and this Opinion comes out before March 2019, it will also be binding on the UK.

Consequently, the UK may be forced to accept the ICS proposal in CETA, EU-Vietnam FTA and EU-Singapore FTA – whether or not it agrees with it.

In fact, it may very well be that third states will push the UK to copy and paste as much as possible the EU FTAs texts in order to reduce the degree of potential inconsistencies.

In this context, it should also be mentioned that CETA will provisionally enter into force on 21 September 2017, which means it will also be binding on the UK as of that date. Even though the ICS provisions are excluded from the provisional application, once the CJEU gives its green light on the ICS question, the ICS provisions will be applicable also to the UK – if the UK is still member of the EU. But even if these provisions become applicable only post-Brexit, Canada, Vietnam, Singapore and other states such as Australia and New Zealand are very likely to demand the inclusion of the ICS provisions in their new investment treaties with the UK.

The new dispute settlement body for the post-Brexit UK-EU trade relations

Another important and unresolved issue regarding the future relationship between the post-Brexit UK and the EU concerns the issue of who should settle any disputes between the two and their respective citizens and companies?

For the EU the only acceptable and obvious solution would be the CJEU. However, for the UK that would be an unbearable solution because it would prevent it from achieving its stated aim of “ending the direct jurisdiction of the CJEU”.

Arbitration, which the UK had suggested, is probably an untenable solution in light of the recent backlash against arbitration within the EU.

Equally, the International Court of Justice (ICJ) would not be a practical option for the EU.

Consequently, the only possible option seems to be the EFTA court or a new court similar to it. Prima facie, this would be an acceptable compromise for both parties. The UK could argue that this is not an EU court anymore and that it would no longer be under the “direct” jurisdiction of the CJEU. The EU could agree to it because the CJEU has accepted the EFTA court as the only other international court that is allowed to interpret and apply EU law – all be it by being required to copy and paste the CJEU case-law, which means that the CJEU “indirectly” exercises jurisdiction over the EFTA countries. Accordingly, while the EFTA court could be a workable solution, it would at the end of the mean that the CJEU would continue to have an “indirect” but nonetheless significant impact on the domestic courts of the UK, which is not what the Brexiteers promised.

A reality check: The UK cannot escape the impact of EU law and the CJEU

The only realistic conclusion from the above is that the UK cannot escape the impact of EU law and of the CJEU – long after it has left the EU. In fact, the next 18 months will be of paramount importance for the UK’s future trade and investment policy.

However, so far it seems that this reality has not yet fully been accepted by the UK Government and its negotiators. But a precondition for successful negotiations is to have a full and realistic understanding of one own’s position and the position of the other party in order to achieve an optimal result. Ignoring the impact which the above-mentioned CJEU decisions will have on the EU’s and UK’s trade and investment policy would be a costly mistake.

29 June: DAA Investment Committee meeting with the topic: Will arbitration survive the new era of protectionism?

As chair of the DAA Investment Committee, Nikos Lavranos is honored to invite you to the 2nd meeting with the following topic:

President Trump, Brexit and elections in Europe: will arbitration survive the new era of protectionism?

We will have two high-profile panels.

The first panel will discuss whether Protectionism in Europe and the United States will lead to more national investors first?

The panel consists of:

Marten van den Berg, Director General, Dutch Ministry of Foreign Affairs
Bart Legum, Partner, Dentons, Paris
Christoph Bondy, Partner, Volterra Fietta, London

The second panel will discuss the question: How to save commercial arbitration from the same criticism as investment arbitration?

The second panel consists:

Sabine Konrad, Partner, McDermott, Will & Emery, Frankfurt
Daniella Strik, Partner, Linklaters, Amsterdam
Mélanie Van Leeuwen, Partner, Derains & Gharavi, Paris

Since places are limited, please register ASAP by sending an email to: Jorian.HAMSTER@freshfields.com

date: 29 June 2017
location: Linklaters Amsterdam office
Zuidplein 180-WTC, 1077 XV Amsterdam

Norton Rose Fulbright and EFILA: Investor-State Disputes, What Will Change Post-Brexit?

by Cara Dowling, Norton Rose Fulbright (London)*

On Wednesday 29th March 2017, the UK government triggered Article 50 formally beginning the process of withdrawing the UK from the European Union. On that historic day, the London office of Norton Rose Fulbright and EFILA co-hosted a panel discussion with distinguished experts from industry, trade policy and investment treaty arbitration to discuss the impact of Brexit.

Deborah Ruff, international arbitration Partner at Norton Rose Fulbright chaired the discussion, which centred on such topics as what would change post-Brexit for trade, foreign direct investment and investor-state dispute settlement. The panel was comprised of Chris Southworth, Secretary General of the ICC UK, Norah Gallagher, Academic Director, Energy and Natural Resources Law Institute and EFILA board member, Ali Malek QC of 3 Verulam Buildings, and Milagros Miranda Rojas, special advisor on WTO and International Trade, Norton Rose Fulbright.

The evening quickly turned into a lively and engaged discussion amongst the panellists each of whom offered a unique perspective on the impact of Brexit from their respective fields of expertise. Members of the audience, many of whom hailed from different European countries and/or represented companies with a global or pan-European footprint, also passionately engaged with the panel, offering their own thoughts on both the issues and possible outcomes.

There was a general consensus that negotiating Brexit and future trade deals between the EU and UK would be complex not least because negotiating positions will be influenced by factors beyond simple economic considerations. The mood however was generally positive with all expressing a hope for constructive discourse leading to a trade agreement or at least an investment agreement providing states and foreign direct investors with effective dispute resolution mechanisms.

The session was, somewhat reluctantly, brought to a close, allowing panel members and guests to enthusiastically continue the conversation and debate over networking drinks on Norton Rose Fulbright’s terrace overlooking Tower Bridge. Thank you to all who participated in this thought-provoking evening.


Cara Dowling, Senior knowledge lawyer, Norton Rose Fulbright, London

Norton Rose Fulbright and EFILA: Investor-state disputes, what will change post Brexit?

Norton Rose Fulbright and EFILA invite you to attend a panel discussion on trade, foreign investment and investor-state dispute settlement post-Brexit.

Panel discussion and drinks reception

We are pleased to host an distinguished panel of experts from industry, trade policy and investment treaty arbitration.

Topics our panel will cover include:

  • The UK’s post-Brexit relationship with the EU and non-EU countries
  • The fate of intra-EU bilateral investment treaties (BITs)
  • Trade and foreign investment protections (inward and outward bound investment)
  • Investor-state dispute settlement procedures
  • The EU’s proposed International Court System (ICS)

Speakers include:

  • Deborah Ruff, Partner, Norton Rose Fulbright
  • Chris Southworth, Secretary General, ICC UK
  • Ali Malek QC, 3 Verulam Buildings
  • Norah Gallagher, Academic Director, Energy and Natural Resources Law Institute, EFILA Advisory Board

Places for this session are limited and will be allocated on a first come first served basis. If you would like to attend please RSVP here.

Date:

Wednesday, 29 March 2017

Time:

Registration: 6:00pm

Event start: 6:30pm

Drinks & canapes: 7:30pm

Where:

3 More London Riverside

London, SE1 2AQ

United Kingdom

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.

Brexit: Implications for the EU Reform of Investor-State Dispute Settlement

Sophie Nappert, 3 Verulam Buildings

Nikos Lavranos, EFILA

“Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7542 6664.”

Investor-state dispute settlement (ISDS) is an international arbitration mechanism that allows an investor from one country to bring arbitral proceedings directly against the state in which it has invested, provided that the investor’s home country and the host country of the investment have so agreed by treaty (see box ISDSbelow). ISDS is currently found in most modern international trade and investment agreements.

In the period since the entry into force of the Treaty of Lisbon, conferring on the EU exclusive competence over foreign direct investment in the European space, the European Parliament and the trade ministers of key member states, such as Germany, France and the Netherlands, have perceived that ISDS presents a number of shortcomings. These concerns were crystallised in the responses to a public consultation on the Transatlantic Trade and Investment Partnership (TTIP), currently being negotiated between the EU and the US (see Transatlantic Trade and Investment Partnership (TTIP): tracker).

ISDS

Investor-state dispute settlement (ISDS) is a dispute resolution mechanism modelled on international arbitration, allowing an investor from one country to bring arbitral proceedings directly against the country in which it has invested, pursuant to the provisions of a treaty between the investor’s home state and the state hosting the investment.

ISDS provisions are contained in most modern international agreements including free trade agreements, bilateral investment treaties and multilateral investment agreements. If an investor from one country (the “home state”) invests in another country (the “host state”), both of which have agreed to ISDS, and the host state violates the rights granted to the investor under the international agreement between the home state and the host state (such as the right not to have property expropriated without prompt, adequate and effective compensation), then that investor may take the host state to international arbitration rather than sue in the domestic courts of the host state.

As a result, the European Commission has now tabled a proposal for a new dispute settlement system, the international court system (ICS), to be used in the EU’s future trade and investment treaties and, in the Commission’s words, “paving the way for a multilateral investment court” (see Legal update, European Commission proposes Investment Court System for EU trade agreements).

Instead of investor-state disputes being determined by an arbitral tribunal appointed by the parties, the Commission’s proposal is to create a judicial, two-tiered body consisting of a Tribunal of First Instance and an Appellate Tribunal. Party-appointed arbitrators would be replaced with “judges” unilaterally pre-selected by the state parties. As a result, the resolution of investor-state disputes by way a one-shot final arbitral award will be replaced with a two-instance procedure allowing for appeals on points of both fact and law.

The ICS proposal constitutes a strong push towards the institutionalisation and judicialisation of investor-state dispute settlement and is inspired by the WTO (World Trade Organisation) dispute settlement model applicable to state-to-state trade disputes. The important hallmarks of arbitration such as flexibility, finality and party autonomy will be essentially erased (see box ICS proposal: the concerns).

The EU’s seismic shift on its ISDS policy coincides with the UK’s consideration of its future as a member of the EU. If Brexit comes to pass, there will be legal repercussions on a number of levels as regards the UK’s trade and investment commitments at international law, and the protections currently enjoyed by UK investors abroad, including the ability to enforce arbitration awards worldwide pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). This is uncharted territory in many respects, and the opacity surrounding the progress of the current negotiations on the TTIP with the US adds to the uncertainty and lack of clarity.

ICS proposal: the concerns

While ISDS has been tested for decades and is a known quantity, it remains to be seen whether the benefits claimed by the proponents of the ICS will actually materialise. The EU’s proposal assumes that the ICS will not be declared by the Court of Justice of the European Union to be incompatible with EU law, as the CJEU has done consistently for other international tribunals, latterly the European Court of Human Rights).

For example, critics of ISDS claim that it has failed to take proper account of other relevant policy areas such as human rights, environmental law, intellectual property law and the “regulatory policy space” of states generally. The current ICS proposal does not specifically address those issues, and thus on its face provides little more credibility and legitimacy than does ISDS.

Another example concerns the qualifications required by the “judges” and the process of their selection by the contracting parties.

The proposal states that the only qualifications required of ICS “judges” for appointment to the Tribunal of First Instance is that they should be qualified for judicial office or a “recognised jurist”. For the Appeal Tribunal, the requirements are of qualification for the highest judicial office or being a “recognised jurist”. Interestingly, while the ICS proposal insists on expertise in public international law for its judges, expertise in investment law is deemed merely to be “desirable”. There is no requirement that (any of) the judges should demonstrate expertise in the policy areas that have fired up public debate and the anti-ISDS sentiment, such as human rights or environmental law.

The ICS proposal leaves the judge selection process entirely to the contracting parties. No transparency, public hearing or consultation with users or investors is currently envisaged. In addition, the “judges” are to be paid by the contracting parties and can be re-appointed by them. The anti-ISDS debate at the root of the ICS proposal claimed that the party selection and payment of arbitrators cast doubt as to the independence and impartiality of those arbitrators. The ICS proposal is open to precisely the same criticism.

Moreover, ISDS has been recognised as providing flexibility and a dispute resolution process which engages both parties, the state and the investor, on an equal footing. By contrast, the ICS replaces this flexibility with a fixed set of rules, removing any participation from the investor claimant regarding for example the choice of arbitration rules and the selection of arbitrators.

These points highlight some of the concerns which call for further reflection and analysis regarding whether the ICS proposal is the improvement on the arbitration-modelled ISDS claimed by its proponents.

We set out below some of the potential implications, at both macro- and micro-levels.

Macro-level implications

The first macro-level issue is that Scotland and Northern Ireland have indicated that they may not wish to remain part of the UK post-Brexit. The prospect of a fragmented Britain (no longer the UK) raises the question of whether the EU or the US would consider it worthwhile to negotiate a trade and investment agreement with a dismembered Britain. It also raises the question of what leverage Britain in its new incarnation would have in such treaty negotiations, as opposed to that which it now enjoys as part of the EU.

Another question is Brexit’s potential impact on the existing 100 or so bilateral investment treaties (BITs) that the UK has with individual EU member states (intra-EU BITs), as well as with third states. A post-Brexit British state might be able to keep all these BITs containing the classic ISDS provisions assuming that its respective state counterparties agreed.

In this scenario, Britain would avoid the untested ICS proposal and its potential shortcomings, and become an interesting safe harbour for foreign investors who may find it attractive to structure their investments through it, thereby avoiding the current insecurity created by the ISDS reforms. If it considers it necessary and useful, post-Brexit Britain could seek to negotiate BITs with the EU (as a single entity), as well as those countries with which the EU has either signed or is negotiating trade and investment agreements, namely Canada, China, the US, Singapore and Vietnam.

The question arises, however, whether Britain, which currently appears to favour retaining ISDS over the ICS, would be able to impose ISDS provisions on potential counterparties given the EU’s push for the ICS to apply to future trade and investment treaties, and the willingness of at least some of the countries on this list to accept ICS.

Britain’s ability to do this is likely to be affected by which dispute settlement system ends up being included in the TTIP. If the ICS comes to feature in the TTIP, ISDS in its current, arbitration-based form faces an uncertain future.

One important aspect of post-Brexit Britain retaining ISDS in its arbitration form rests on the question whether Britain in its new incarnation has the ability to remain a party to the New York Convention, to which over 150 states are parties, and which is a significant part of the protection afforded to investors by ISDS.

Micro-level implications

At a micro-level, the international investment agreements (IIAs) that have recently been agreed by the EU and its relevant trading partners, but are still awaiting signature or ratification (namely, CETA (the Comprehensive Economic and Trade Agreement with Canada), the EU-Singapore Free Trade Agreement (FTA) and the EU-Vietnam FTA), would have to be amended to reflect Brexit.

Whether these trading partners would consider it attractive to negotiate new deals with Britain is an open question. The time and effort involved in the negotiation and conclusion of IIAs is not to be underestimated. The intervening period would be marked by legal uncertainty, to the detriment of UK investors abroad and Britain’s economy.

Another question is whether Brexit would have any impact on the ongoing TTIP negotiations, in particular with regard to the EU’s internal process of consulting with member states in adopting certain negotiating positions. Prime Minister David Cameron is said to be in favour of closing the TTIP as soon as possible because he considers it to have the potential of delivering huge benefits for the UK. At the same time, he appears generally untroubled by the anti-ISDS debate currently raging in many other EU member states.

A real and potentially significant impact

In conclusion, Brexit’s impact on the EU’s trade and investment policy would be real, as would its impact on post-Brexit Britain’s geo-political clout in the trade and investment arena. In contrast, it might offer interesting advantages, for both the UK as a host state and for investors who perceive the EU’s current investment policy as counter-productive. These advantages, however, are likely only to be felt after a significant period of uncertainty whilst post-Brexit Britain finds its footing, and in the short term are outweighed by that uncertainty.

Finally, the prospect of Brexit might cause the European Commission, the European Parliament and other member states to re-think the scope of their proposed “reforms” of investment treaties and ISDS.


Sophie Nappert is an arbitrator in independent practice at 3 Verulam Buildings, and Nikos Lavranos is Secretary General at EFILA.