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

Regulatory Challenges Arising from Sovereign Wealth Funds and National Security: Exacerbate Great Power Competition between China and the United States?

Charles Ho Wang Mak* and I-Ju Chen**

China is now a major player in some of the United States’ (US) most important sectors. China’s impact can be found through the acquisition by some of its most influential companies, which are later acquired by the sovereign wealth funds (SWFs) of China. US’ companies, for example, Apple and IBM, and their distributors, are indirectly controlled by China. This dynamic and tension of the two great economic power may play a significant role in the US-China trade war. Moreover, concerns about regulations of the SWFs and national security have never ceased in the US. While the US presidential election is in fall 2020, the foreign relationship between China and the US is an essential agenda in both Trump and Biden’s campaigns. This post examines regulatory challenges arising from the SWFs and national security under this new era of great power competition between China and the US.

National security is closely associated with the concept of state capitalism. This is because the states’ governments mostly control the enterprises that existed in states that adopted state capitalism. Therefore, investors (with political agendas) may invest in some state enterprises, which might affect national security. National security will be negatively affected by the SWFs made by state-owned enterprises. Inward SWFs might affect individual strategic firms (investing in infrastructure) and different sectors in the host countries. This is because those state-owned enterprises, which invest in those host countries by SWFs, can access sensitive information and technology of those strategic firms and then misuse that information. States investors seek to get improved access to sensitive technologies of other countries through investment. Therefore, to safeguard national interests, policies and strong regulations are necessary.

The Santiago Principle could be a reference for governments to govern international investment. Establishment of the Santiago Principle aims to depoliticise foreign investment flows and to structure and implement transparent and sound governance.[1] The Santiago Principle covers the following areas: legal framework and coordination with macroeconomic policies; institutional framework and governance structure; and investment and risk management framework.[2] Hence, the Santiago Principle is one of the most important features in reframing international perceptions of SWFs.

The balance between the protection of national security and open investment policy of SWFs is complex. In addition, SWFs raise ‘potentially controversial questions for international financial regulation and governance’.[3] China’s SWFs, such as the China Investment Corporation (CIC), have sought more access to markets in the US after Chinese deals are under more and stricter scrutiny. Chinese firms have criticized the US’ investment regulations imposing unfair restrictions on funding coming from China. Moreover, in a high-profile talk with the US government in 2015, Xi Jinping raised the issue of SWFs and relevant regulations in the US. Xi addressed that the US government should relax regulations of foreign investment in high-tech sectors.[4]

However, the investment flow of China into the US has prompted US’ concerns about the government of the People Republic of China’s influence. This is because, from the perspective of the US government, there is a potential risk of national security of SWFs. Although it is clear that the national interest ensures long-term capital availability – because much of it must come from SWFs now – several US pressure groups still urge restricting foreign investors’ choices lest they ‘steal’ technology, trade secrets or jobs.[5] On this controversial point, Bu’s research, however, indicated that China has no intention of investing in sensitive sectors pursuing the controlling stake because it has steered away from deals that would trigger any political backlash.[6]

The US has a series of critical legal regimes applicable to SWFs. The US adopted a protectionist approach towards the SWFs inward investments. Since 2000, the companies in the US that were invested by SWFs became a major issue. In the US the principal regulations that burdened SWFs are the Securities Exchange Act 1934, Foreign Investment and National Security Act (FINSA) 2007, Foreign Corrupt Practices Act of 1977 and Defense Production Act of 1950. FINSA codifies the contemporary views of the Committee of Foreign Investment in the United States (CFIUS). FINSA has dramatically strengthened the regulations introduced by CFIUS, those about inward investment, particularly for state-owned entitled such as SWFs. For instance, critical infrastructure needs to be protected against those SWFs that are invested with a political purpose, since those critical infrastructures will give rise an issue of national security. However, with respect to the unpredictability for the transaction parties, an issue arises as to whether the FINSA can strike a balance between the economic benefits of foreign investment and national security concerns about technology and critical infrastructure.[7] Nonetheless, Chinese scholar, Feng, comments that FINSA is unnecessary and even likely to be detrimental to the US capital markets and the overall economy.[8]

Furthermore, the case of Cede & Co. v. Technicolor, Inc. showed that directors and managers owe the duty of loyalty to both the company and shareholders by providing protections from SWFs’ geopolitical agendas. [9] The US government has treated inward investment by SWFs as an issue of national security. Therefore, Congress has greatly strengthened the regulations on equity investment, especially of state-owned bodies. Also, regarding the definition of strategy towards the notion of national security between the US and China, the US is the most protectionist jurisdiction. Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which predecessor (Trans-Pacific Partnership Agreement, TPP) was led by the US, pertains to regulations of SWFs. Definitions for SWFs are at the start of Chapter 17 of CPTPP.[10] In addition, SWFs must be member(s) of the International Forum of Sovereign Wealth Funds or endorse the Santiago Principles, or such other principles and practices as may be agreed to by the parties of the CPTPP.[11]

The US might adopt the European Union (EU) model in the future. To regulate foreign direct investment (FDI) into the EU within the context of SWFs, the EU and its Member States rely on the treaties and EU legislation. The free trade theory – the free movement of capital within the European Common Market is the most fundamental feature of the EU approach to regulating the SWFs. However, this fundamental freedom is restricted in a limited number of cases. This is because the Treaty on the Functioning of the European Union (TFEU) awarded the EU with the competence to adopt different measures to regulate the establishment of foreign investors within the EU. There are two ways to regulate the movement of capital. According to Article 64 of the TFEU, firstly, the EU can impose measures on the movement of capital from third countries involving direct investment, by a qualified majority; secondly, direct investments can be restricted by measures that are introduced by the EU.[12] Since the TFEU explicitly covers the relationship between the Member States and the so-called third party countries, it seems that the EU laws are favourable to the foreign investors in terms of their important rights vis-à-vis their investments in the EU. However, the principle of free movement of capital is subject to two limitations. The limitations are derogations and safeguard clauses respectively. The scope of the limitations determines the extent to which the governments could restrict FDI within their territories. The narrower these limitations are, the easier it is for SWFs to enter the EU market. On the other hand, if the limitations are broader, governments can impose more restrictions to limit access to the Common Market.

In terms of the securitisation of national security, Article 65 of the TFEU is the most important provision as it describes the power retained by the Member States to restrict the concept of free movement of capital within the European Common Market in the name of protection of public order or public security. It also sets out potential obstacles to SWFs that invest in the EU. O’Donnell acknowledged that there are several Member States in the EU which had adopted various measures to restrict investments of SWFs in the defence sector.[13] In Sanz de Lera and Others, the Court of Justice of the European Union (CJEU) produced mixed results for the development of the EU law on capital movements.[14] In this case, CJEU clarified the unconditional nature of Article 65 TFEU, that the principle of free movement of capital prohibits those obstacles between the Member States, and between third countries and the Member States. Until mid-2015, Article 65 had never been applied by any of the Member States to regulate SWFs. In October 2020, an EU regulation establishing a framework for the screening of FDI into the Union has entered into force.[15] This new EU regulation aims to better scrutinise direct investments coming from third countries on the grounds of security or public order. It enhances the European Commission’s existing powers to review foreign investments under the existing merger control rules and sector-specific legislations of the EU.

Currently, some commentators might argue that there are only a few rules that can be applied to regulate SWFs within the EU. Nonetheless, in no small extent, it seems that the legal framework of the EU has provided a comprehensive regime to tackle the phenomenon that the US can take as a reference. For instance, the US can take the new free trade agreement between the EU and, Singapore and Vietnam, and the parallel EU-Vietnam Investment Protection Agreement as a reference, to incorporate SWF provision in the future free trade agreement with China.

To conclude, it is a well-established principle of international law that sovereign immunity does not extend to a state’s commercial activities in another jurisdiction. Thus, SWFs are subject to be assessed by investment host countries’ national laws. However, too excessive scrutiny of SWFs investment is likely to fuel nationalism, and will further hamper the free foreign capital flow. Hence, it has been suggested that the potential consequence of protectionism caused by strict examinations of SWFs should be avoided.[16] Nevertheless, it has been unclear whether the Trump administration would take a tougher stance on trade and investment with China. Since the trade war between China and the US has not ceased yet, the new president of the US would have to deal with the SWFs issue for a mutually beneficial future of the two countries.

*Charles Ho Wang Mak is a PhD Candidate in international law at the University of Glasgow. He studied law at the University of Sussex in England (LL.B. (Hons.)), The Chinese University of Hong Kong (LL.M. in International Economic Law), and the City University of Hong Kong (LL.M.Arb.D.R.(with Credit)).

**Dr I-Ju Chen is assistant lecturer at Birmingham City University in the UK. She holds PhD in law from the University of Birmingham and LLM from University College London. She studied law at National Chung Hsing University in Taiwan (LLB and LLM).

  1. International working group of sovereign wealth funds: Generally accepted principles and practices, “Santiago Principles” 3, 2008. https://www.ifswf.org/sites/default/files/santiagoprinciples_0_0.pdf
  2. Id. at 5.
  3. Benjamin J. Cohen, Sovereign Wealth Funds and National Security: The Great Tradeoff 85(4) International Affairs (2009) 713, 713.
  4. Sui-Lee Wee, China’s $800 Billion Sovereign Wealth Fund Seeks More U.S. Access, Nytimes.com (2020), https://www.nytimes.com/2017/07/11/business/china-investment-infrastructure.html (last visited Aug 30, 2020).
  5. Patrick DeSouza & W. Michael Reisman, Sovereign Wealth Funds and National Security, in SOVEREIGN INVESTMENT: CONCERNS AND POLICY REACTIONS 283, 290 (Karl P. Sauvant, Lisa E. Sachs, and Wouter P.F. Schmit Jongbloed ed., 2012).
  6. Qingxiu Bu, ‘China’s Sovereign Wealth Funds: Problem or Panacea?’ 11(5) The Journal of World Investment and Trade (2010) 849, 868.
  7. Id, at 870.
  8. Zhao Feng, How Should Sovereign Wealth Funds be Regulated?, 3(2) Brook. J. Corp. Fin. & Com. L. 483, 484 (2009).
  9. Cede & Co. v. Technicolor [1988] 542 A.2d 1182.
  10. See Article 17.1, CPTPP.
  11. Id.
  12. Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community [2007] OJ C306, Article 64.
  13. O’Donnell C. M., ‘How should Europe respond to sovereign investors in its defence sector?’ (Centre For Euroopean Reform- Policy Brief, September, 2010), PAGE <http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2011/pb_swf_defence_sept10-203.pdf> accessed 21 June 2020.
  14. Sideek M Seyad, European Community Law on The Free Movement of Capital and EMU (Kluwer Law International 1999) 101-102.
  15. Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJEU, L 79I , 21.3.2019, p. 1–14, https://eur-lex.europa.eu/eli/reg/2019/452/oj.
  16. Bu, supra note 6, 871.

Stakeholder meeting on a possible future Multilateral Investment Court: Establishment of a Multilateral Investment Court (Brussels, 9 October 2019)

José Rafael Mata Dona[1]

 A week before the autumn session in Vienna of the UNCITRAL Working Group III, the EC held a Stakeholder meeting in Brussels on the subject of the establishment of a Multilateral Investment Court. The initiative took place as part of the EC Commitment to Transparency.

During the introductory speech, Collin Brown (Dispute Settlement and Legal Aspects of Trade Policy, Directorate General for Trade, European Commission) traced the history of the proposal for a multilateral court for the settlement of investment disputes back to September 2017. This was followed by Collin’s general comments on UNCITRAL discussions, mandate and the content covered through its three distinct phases of progress, the last of which ‘Development of relevant solutions for the reform of ISDS’ started on the 4th of April 2019 and is still ongoing in two parallel tracks: one focusing on structural reforms and another involving other types of solutions. Collin highlighted the celebration of inter-sessional meetings, as in September 2019 in Conakry, Guinea.

The EC’s expectation for the 14–18 October 2019 meeting is that the WG will agree to discuss substantive issues and proceed as per the UNCITRAL Secretariat paper on reform options. Also, the EC expects the WG to develop relations to other international bodies e.g. OECD and UNCTAD. Among the submissions to UNCITRAL WG III on possible reform of ISDS, Collin said particular attention should be paid to China’s proposal of a permanent appellate mechanism. He generally commented on the UNCITRAL Secretariat thematic papers and the multidisciplinary approach of the Academic Forum papers. Along those lines, he specifically mentioned the proposal for the creation of ‘An Advisory Centre on International Investment Law’ (See here and here). The slides of the presentation and the video of the meeting are available here.

All the foregoing led to the exchange of views described below.

 

In the first round of questions, participants asked about (i) the role of the USA in the WG (ii) the jurisdiction of the Multilateral Court (iii) the maintenance of the term ‘arbitrator’ in the EC proposal for a multilateral court (iv) the status of the EC in the WG and (v) any particular contribution the EU is or is not willing to support.

In reply to those questions, Collin clarified the US has not submitted a paper but takes a fairly active role in the WG with more focus on reforms already put in place.

He said the EU view on the jurisdiction of the MIC is that it should be kept fairly open, though that debate is yet to happen. Further, he mentioned the EC does not refer any longer either to ‘arbitrators’ nor ‘judges’ in its proposal. It now refers to ‘adjudicators’ as a more neutral term.

Collin signalled accreditation to the WG is directly handled by the UNCITRAL Secretary. The EC submitted a paper on behalf of both, the EU and EU Member States.

For the EC, the WG is not the appropriate forum to discuss about withdrawal of consent. On the contrary, the EC sees coming as a genuine part of the discussions the use of domestic remedies, which in its opinion should be encouraged but not necessarily exhausted.

In the second round of questions, participants asked about (i) the use of an opt-in clause (ii) the level of consent expressed by African groups during the regional meeting in Conakry (iii) expectations in Vienna regarding the two parallel tracks of work streams (iv) the support behind the MIC and how long it could take, (v) how many EU countries have ratified the Mauritius Convention and applied it (vi) the applicability of the New York Convention to the enforceability of the MIC decisions (vii) EU Law conformity in regard with Opinion 1/17 of the CJEU, and (viii) the ability of third parties to have more extended rights than an amicus curiæ.

Collin explained the idea of the opt-in clause is to create an umbrella treaty and remarked there is a discussion as to whether it would be automatically applicable or not. As previous examples of implementation, he quoted the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the ‘Mauritius Convention’) and the Convention on Mutual Administrative Assistance in Tax Matters developed jointly by the OECD and the Council of Europe.

Collin argued he could not speak on behalf of any African groups. Allegedly, there was a concern on costs, duration of proceedings, how to address more the use of Conciliation, Mediation and other ADRs, cultural diversity in arbitration and the difficulties developing countries face in managing to defend themselves.

As to the two parallel tracks of work streams, the EC will actively participate in both. However, its priority is to work more on a permanent structure. Collin said the idea of the multilateral court has found not only support but also interest. Countries realize there is an opportunity to engage in significant reform and are keen to do that. Obviously, it is quite difficult to predict how long this will take despite the celebration of intersectional sessions to accelerate the process to move forward.

Collin said the number of countries that have ratified the Mauritius Convention is growing steadily, but international law does not move very quickly. So, it takes time. During the last 4 years, the EU has been discussing a Council decision on the adoption of the Convention, but a very small number of EU States does not want to get there. Once that decision is made, it will open the door for EU Member States to ratify the Mauritius Convention, which already many EU Member States have signed.

On enforceability, Collin distinguished two elements. On the one hand, there should not be the ability for domestic courts to review a decision which has been subject to appeal. These rules should be modelled or similar to ICSID enforceability rules. On the other hand, the EC foresees an argument on the enforceability of the decisions of the MIC in third countries. According to the EC, the solution to the latter is to apply the New York Convention. And in this regard, the Iran-United States Claims Tribunal is quoted as an example of the applicability of the New York Convention to the enforceability of the decisions of a permanent body. This does not properly clear the fact that equality of the parties in the appointment of arbitrators constitutes a principle of international public policy. Article V(2)(b) of the New York Convention is understood as providing grounds for nonrecognition of awards for a lack of due process or violation of public policy.

As to EU Law conformity in regard with Opinion 1/17 of the CJEU, the EC envisions to ensure it in part in the MIC itself but much more likely also in the underlying treaties with non-binding decisions on EU Law and the same for the type of remedies.

For the EC, the question on the ability of third parties to have more extended rights than an amicus curiæ is not on the horizon of the discussions that will take place in Vienna from 14 to 18 October 2019. It is a subject for future discussion in a later stage of the reform.

Finally, during the last round of questions Collin observed that it is not immediately clear the Multilateral Court should be a specific structure or have a particular relation to the International Court of Justice.


[1] Member of the Brussels, Barcelona and Caracas Bars.

A New And Improved Investment Protection Regime: Truth Or Myth!

Shilpa Singh Jaswant, LLM (Hamburg)

The proposed investment court system by the European Commission aims to limit criticism revolved around Investor-State Dispute Settlement due to its lack of legitimacy, transparency and appellate mechanism. The investment regime under Comprehensive Economic and Trade Agreement with Canada (hereinafter “CETA”) and European Union-Viet Nam Free Trade Agreement (hereinafter “EUVFTA”) could be a solution by bringing transparency, consistency and institutionalisation in investment protection. The blog addresses the compatibility of the new system with EU law as any violation to autonomy of EU law as laid down in the previous judgments would not be optimistic to its future and followed by other blog in future would address the features of the Tribunal system and its difference from arbitration. Meanwhile Member states of the EU seek opinion from the Court of Justice (hereinafter “the CJEU”) though it is promising and would lay down stepping stones of an improved investment protection.

Achmea ruling and its effect to jurisdiction of the Tribunal under CETA and EUVFTA

Achmea ruling confirms that intra-EU BITs are incompatible with EU law while its effects reverberate to agreements entered by the EU with third countries. As per the CJEU in Achmea in para 58 (also in Opinion 1/09 of 08.03.201, para 89), arbitral tribunals under investment agreements, when entered between Member states, are outside the judicial system of the EU and incompatible with autonomy of EU law since arbitral tribunals were empowered under the principle of lex loci arbitri to include and interpret EU law (the Community treaties and secondary laws). However, the ruling may not be applicable in full since investment protection in CETA and EUVFTA are concluded as mixed agreements meaning the EU and its Member states are parties to them.

A logical conclusion is that the Tribunal established under CETA and EUVFTA would not fall within judicial framework of the EU since its jurisdiction is limited to claims related to breaches of investment agreements and to determine if a measure of a Member state and/ or of the EU is in violation of the standards set in the agreements. It can only resolve a dispute under the applicable law i.e., the provisions of investment agreement.

The CJEU places responsibility on arbitral tribunal to protect autonomy of EU law by not giving inconsistent interpretation to it. In the past the CJEU in Opinion 2/13 of 18.12.2014 and Opinion 1/09 in para 65 has protected autonomy of EU in many cases and call it as the “essential” characteristics originating from an independent source of law, i.e., the Treaties. Further saying that standard of review to protect autonomy of EU law is a matter of these tribunals and Member states too. Since the CJEU has never been eager to open doors of interpretation to a tribunal which is out of the EU judicial framework and Member states are obligated to bring issues related to EU law to the CJEU.

On the contrary, if the CJEU finds that the Tribunal under CETA and EUVFTA is part of judicial framework of the EU and that it could send for preliminary ruling under Article 267 TFEU departing from its previous judgments, even then it has responsibility to protect autonomy of EU law along with uniform and consistent interpretation and application of EU law. In both situations, an interpretation of EU law done by the tribunals may affect the consistency. However, by looking at the features (as discussed below) of the Tribunal assure that autonomy of EU law is protected, at least in theory.

Ensure jurisdiction of domestic courts and CJEU

CETA in Article 8.22(1)(f) & (g) and EUVFTA in Article 3.34 (1) preclude parallel proceedings at a domestic or international court or tribunal so as to not to undermine the authority of tribunals which could mean taking away exclusive jurisdiction of the CJEU.  Even when the agreements do not allow parallel proceedings for disputes related to an alleged measure which is inconsistent with agreements, the Tribunal is under obligation by Article 8.24 CETA and Article 3.34(8) EUVFTA to stay its proceedings or take into account proceedings under international agreement which may affect the findings of the Tribunal or the compensation awarded due to the use of “shall”. Article 8.28 CETA and Article 3.42 (1) EUVFTA assure that in case the Tribunal fail to do so, appellate body has authority to modify or reverse award on “manifest errors in the appreciation of facts, including….. relevant domestic law”. It is important that the tribunals under agreements take into consideration decisions of the CJEU and domestic courts effectively and importantly, ensure supremacy of EU law and full respect to decisions of the CJEU.

Perhaps the limited scope of disputes of the Tribunal done by the drafters of the agreements, especially interpretation and application of EU law is a solution to it. The tribunals under Article 8.31 CETA and Article 3.42(3) EUVFTA are not allowed to interpret and apply the provision of EU Treaties including prevailing domestic laws and shall follow the prevailing interpretation given to the domestic law. While determining consistency of measures, it has to consider the domestic law as matter of fact which also includes EU law.

Issue of competence and international responsibility

After the opinion of the CJEU on EU-Singapore FTA, it is important to look at nature of agreement concluded: CETA and EUVFTA are concluded as mixed. It is clear that the question of competence would not affect the interpretation of the investment agreements done by the tribunals. The question of determining obligation arising from the agreements whether it would be responsibility of the EU or Member states requires interpretation of the agreements and due to their drafting it would be within the jurisdiction of the CJEU. The agreements have placed obligation of international responsibility on the EU to determine respondent.

In other words, the right to access tribunal as per the rules to determine respondent by the EU in both agreements would allow foreign investors to initiate proceedings without affecting the autonomy of EU law, supremacy of EU law and would promote legal certainty. This conclusion would also put away any future doubts on competences, inter alia on law making and concluding the agreement between Member states and the EU which would be mutually exclusive of the determination of respondent done to fix international responsibility. The issue of competence would however justify the reason to conclude the agreements as mixed agreements since some areas are shared between the EU and its Member states.

Unique features of the Investment court system

The institutionalization would ensure legitimacy and consistency to decisions after introducing an appellate body. While allowing participation of non-disputing third parties and interpretations of provisions to the agreements from scholars and person of interest, having compulsory resolution through amicable mechanism like conciliation and mediation and transparency are front runners. The members of tribunals are appointed by a committee as per the agreement while cases are allotted on random basis to a roster of judges much like done in WTO panel. After the award, the Tribunal would be dissolved and question of sending back to the same tribunal after appellate body’s decision is still unanswered. Moreover, it does not contribute to ‘permanent structure’ since members are paid retainer fees and not salary, and are allowed to take up other occupation unless otherwise decided. It can still be said that the system is not balanced out and independent, instead it seems semi-permanent or hybrid.

Due to proliferation of investment agreements, the tribunals organized may give arise to different conclusions relating to similar commercial situation and similar investment rights to the similar in the provisions of these agreements questioning procedural fairness. None of the agreements deal with correlation of the tribunals. Also another procedural flaw observed that both the agreements do not directly deal with a question on jurisdiction and thus the parties have to wait until the final award is issued to appeal a positive or mixed jurisdiction award.

In sum, the investment protection in the agreement has room for improvement and that can be done by creating a new regime of investment protection with a multilateral investment court which would be permanent in nature with full tenured and impartial judges for the problem of coherence and determinacy. The consistency would be ensured with a permanent appellate mechanism and the treaties would be considered at par with one another. As concluding remarks, the present system in the agreements are a way forward to institutionalise investment protection but this optimism should not be taken blindly and hinder improvement and develop a better system.

The Relationship between EU State Aid law and Obligations Arising under Investment Treaties

by Alexandros Catalin Bakos, LL.M 

I. Introduction:

In recent years, a series of debates have emerged in regard to the relationship between the EU State Aid law[1], on the one hand, and obligations arising under Investment Treaties (to which the EU is not a formal party)[2], on the other hand. Those debates manifest themselves at different levels and have powerful implications: firstly, they clarify the scope of State Aid law and its relationship with one of the most important fields – that of Investment Law. Secondly, they clarify – or complicate, depending on the vantage point from which one analyses the issue – the relationship between EU law and Public International Law[3]. And, thirdly, they raise questions of interpretation of EU law, especially from a historical interpretation point of view and from a teleological point of view – this is a great tool to understand the limits of EU law (the real limits, not the attempts to politically force an interpretation which extends the limits of EU law beyond what the Member States had envisioned initially).

Needless to say, the practical importance of the relationship between State Aid law and obligations arising under ITs can hardly be overstated. One can only look at the recent Micula affair[4] and the unenviable position in which Romania finds itself: on the one hand, it is faced with severe opposition from the European Commission as regards the observing of certain obligations arising under ITs (more specifically, the obligation to pay compensation to the Micula brothers as the final award against Romania dictates). On the other hand, Romania cannot outright ignore the legal framework set by the ITs (including the binding effect of the awards within this field) and show total disregard to the interests (and even rights) of investors.

As such, I endeavour in this study to provide an analysis of this relationship between State Aid law and obligations arising under ITs. I will focus my attention only on the first tier of this issue – the relationship between State Aid law and obligations arising under ITs themselves – and, as such, I will not analyse more general issues such the relationship between General Public International Law and EU law. Moreover, I will ignore general issues of interpretation of EU law. However, those issues will be touched upon where relevant for the analysis conducted through the present study.

II. Analysis:

Before starting, it should be stated that this analysis is composed of two parts. Firstly, I will analyse the relationship between State Aid law and obligations arising under ITs signed by EU Member States (intra-EU ITs) (1). Subsequently, I will analyse what the relationship between State Aid law and obligations arising under ITs when the ITs’ signatories are both from within the EU and from outside the EU (2).

  1. The relationship between State Aid law and obligations arising under ITs signed by EU Member States (intra-EU ITs):

(a) Scope of analysis:

The problem with intra-EU ITs and State Aid law seems to be that compensation given to investors by member states, as a result of an investment tribunal award, is considered illegal state aid, in cases such as the Micula one.[5] As such, the analysis should address the following: can an investment award rendered by an investment tribunal on the basis of an intra-EU IT be considered illegal State Aid? If so, when can it be considered as such (b)? Following, the next question should be: notwithstanding specific issues of whether enforcement of an investment arbitral award can be considered illegal State Aid, is it justified to ever argue for the termination of an intra-EU IT relying on State Aid law? In other words, can the intra-EU IT, by itself, be considered as violating EU rules on State Aid (c)?

(b) Can an investment award rendered by an investment tribunal on the basis of an intra-EU IT be considered illegal state aid? If so, when can it be considered as such?

In order to address this question, the first issue which must be clarified is what exactly is considered illegal state aid[6]: under Article 107 of the Treaty on the Functioning of the European Union[7], state aid refers to any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods in so far as it affects trade between Member States.[8]

In other words, a number of four conditions must be met in order for a measure to be considered State aid: the State must intervene through that measure (and that measure must be imputable to the state[9]); the beneficiary of the intervention must be conferred an advantage; competition must be distorted; and the intervention must be likely to affect trade between member states.[10] As such, (when) is an investment award rendered by an arbitral tribunal on the basis of an intra-EU IT considered State Aid? In order to answer the question, a qualification of an investment award which leads to an obligation on the State to pay compensation to a wronged investor must be made (including its subsequent enforcement).[11] In simple terms, an award is a final judgement or decision, esp. one by an arbitrator or by a jury assessing damages.[12] Continuing, the enforcement of an award is the act or process of compelling compliance with a law, mandate, command, decree, or agreement.[13]

Of course, there is a question which arises, at this moment: supposing an arbitral tribunal renders an award against an EU member-state based on an intra-EU IT and the State enforces it, what is the legal basis for that? The answer can be found in the two most relied-on arbitration frameworks: the ICSID[14] Convention on the Settlement of Investment Disputes between States and Nationals of Other States[15] which provides that the award given under its framework shall be binding on the parties[16] and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards[17] which provides that each Contracting State shall recognize arbitral awards as binding and enforce them[18]. Thus, an obligation to respect and enforce arbitral awards arises for the state under Public International Law.[19]

This leads to an important question regarding State Aid law: is the condition that the measure must be imputable to the State met? The issue of imputable conduct has been defined by the CJEU as follows: this condition is met when the decisions of Member States by which, in pursuit of their own economic and social objectives, they give, by unilateral and autonomous decisions, resources to undertakings or other persons or procure for them advantages intended to encourage the attainment of the economic or social objectives sought.[20]

Can arbitral awards which are enforced as an obligation under Public International Law be considered as being unilateral and autonomous? Enforcement is, in the end, the latter part of a judicial proceeding. There is nothing autonomous or unilateral about it. And it would be artificial to separate the arbitral decision itself from the enforcement. Just because there is no central executive authority to enforce decisions rendered under Public International Law does not mean that the enforcement of those awards can be separated from the framework in which they arose: obligations owed to other legal subjects which, usually[21], have as their ultimate basis a treaty or customary relationship (a bilateral or multilateral relationship).

This view is shared by two other authors who base their approach on the fact that, when enforcing arbitral decisions, states do not act in their sovereign powers, but as agent(s) of the international community[22]. And there is undeniable merit to this view: that States, when undertaking obligations in their sovereign capacity, are giving up part of their sovereignty.[23] Moreover, even EU official bodies have constantly repeated this fact.[24] In other words, because States give up part of their sovereignty when undertaking legal obligations, they can no longer act unilaterally and autonomously within the fields and situations where they are under certain obligations.

Therefore, it can be concluded that, under EU law, as a rule, a state acting on the basis of an investor-state arbitration award, is not acting unilaterally and autonomously and, as such, the analysed measure regarding a possible issue of illegal State Aid cannot be imputable to the State – a condition for a measure to be considered State Aid.

In the following, I shall research whether there are exceptions to this rule and, as such, whether certain cases of compensating investors as a consequence of an arbitral award can be considered illegal State Aid. A practical case may offer better insights into this question.

Perhaps the most important case for the present analysis which could demonstrate whether there can exist exceptions to the rule that enforcement of arbitral awards rendered within the framework of ITs is not illegal State Aid is the Micula case. In short, this is what happened: the Micula brothers were handed, on the basis of a BIT (the Romanian – Swedish Bilateral Investment Treaty) certain custom duty exemptions. This happened before accession to the EU by Romania. Subsequently, close to the moment of accession (in 2004), Romania repealed the said exemptions, as a compliance mechanism with EU State Aid rules. On the basis of this measure, the Micula brothers challenged the measure in an arbitral tribunal under the relevant IT.

During proceedings, the EU Commission intervened as amicus curiae, effectively arguing against any reinstatement of the exemptions since that would amount to illegal State Aid. However, the arbitral tribunal ignored the Commission’s arguments and found against Romania, effectively ruling that a breach of the claimants’ legitimate expectations occurred, awarding damages.[25] As such, the claimants sought the enforcement of the arbitral decision in Romanian courts. They succeeded although the Commission had once again intervened looking to oppose the enforcement. This led the Commission to open a formal investigation into what they argued could constitute illegal State Aid. It was eventually decided by the Commission that the enforcement of the award (the payment of compensation) constituted illegal State Aid[26] and this bore upon Romania the obligation to recover the awarded compensation.[27] Moreover, the Micula brothers challenged the Commission’s decision in the CJEU, the case pending before the Court at the moment (case T-646/14).[28]

The entire Micula case complicates the matters. In order to better analyse the whole issue, two elements should be separated from the facts: on the one hand, there is the issue of the initial exemption, itself. Romania effectively considered the initial exemption to be illegal State Aid and, as a consequence, repealed it. Moreover, it seems that a formal analysis into the whole exemption leads to the same conclusion: this is an act imputable to the State, which offers the beneficiary an economic advantage, distorts competition and can affect trade between Member states. What complicates matters is that the relevant BIT, on the other hand, protects the legitimate expectations, not a specific exemption such as the custom duties exemption offered by Romania. Of course, once a specific benefit offered to the investors generated legitimate expectations, the standard of legitimate expectations set by the BIT becomes applicable and enforceable. However, there is a difference between the exemption and the obligation to guarantee legitimate expectations.

But the questions which have to be addressed now are: firstly, at the moment of the granting of the exemption, which was fairly close to the moment of Romania’s accession to the EU, were the exemptions granted by the Romanian State to be considered as having generated legitimate expectations? And secondly, what is the basis for ignoring the investment tribunal’s award, by the European Commission? I have already mentioned that I do not consider the EU Legal Regime as being totally autonomous. Thus, it is not separated from the framework of general Public International Law. It is just a system which, from a Public International Law point of view, is in (apparent) conflict with another system: that of Foreign Investment Law. Thus, which is to be considered as having primacy and why?

I will now address the first question: I argue that legitimate expectations indeed existed. I base my claim on two elements: firstly, the arbitral tribunal’s decision to award compensation to the Micula brothers, as a result of the repealing of the custom duties incentive scheme[29]. Secondly, it has been found in case-law regarding Foreign Investment that if a benefit awarded by a State to an investor was presented, by representations made to the investor, as having been in compliance with the legal requirements of the host state, the investment must be awarded the expected degree of protection (by respecting the awarded benefits on which the investor relied), even if, in reality it conflicts with the host state’s law.[30] It is true that in the previously-mentioned case the claimant relied on the principle of estoppel[31], which is a specific application of the legitimate expectations doctrine[32], but the principles applied in the Kardassopoulos v. Georgia case clarify the issue for the Micula case, as well.

Thus, it is not for the investor to bear the risk of an investment which is non-compliant with the legal rules of the host state, when the host state created the expectation of conformity. And this is what happened in the Micula case, because the investment had been protected for a few years, before the repealing of the incentive scheme, creating the proper expectations of legitimacy and legality. Therefore, legitimate expectations existed and were violated by Romania through its repealing act.

Subsequently, there is the issue of analysing the (apparent) conflict between obligations arising under BITs and ones arising under EU law. As mentioned earlier, those are two conflicting legal systems with no apparent hierarchy between them (neither the obligations under foreign investment law nor the ones under EU State Aid law can be considered jus cogens – norms of a peremptory character under International Law, from which no derogation is admitted; in other words, norms of a superior value). Therefore, because those norms are considered to be of equal value, the (apparent) conflict must be settled by relying on the principle of lex posterior derogat (legi) priori.[33]

Under this framework, it can be argued that the subsequent legal regime implemented by the EU State Aid legal regime would derogate from schemes of custom duties exemption such as the one presented earlier. Such exemptions constitute State Aid and since both Romania and Sweden are part of the EU Legal Regime, it can be considered that they have derogated from the possibility to implement such State Aid. As such, if there had been an obligation under the ITs to grant such an economic advantage to the investors, there could have been a real conflict between the ITs and the EU State Aid rules.

However, there did not exist any such obligation. And this is why I mentioned earlier that there was just an apparent conflict between those two international legal regimes – the EU legal regime and the Foreign Investment legal regime – and not a real one. The obligations under ITs are not conflicting with the EU State Aid Rules. What is conflicting is the effective benefit given by the Romanian State to the Micula brothers. While this is inherently linked to the IT, it is not identified with it. This may be a nuance, but it is an important one. It demonstrates that, at least as to the relationship between obligations arising under intra-EU ITs and EU State Aid rules there is no formal conflict.

Thus, this custom duties exemption is a different thing to the protection of legitimate expectations – the ones which are actually protected by the Romanian – Swedish BIT –, expectations which had been created before the EU laws prohibiting State Aid became effective. The legitimate expectations, as mentioned earlier, must be protected, even more so when the investors acted in good faith by relying on the representations of the Romanian officials.

Moreover, it has been proved that payment of compensation as a result of an investment tribunal’s award is not a form of State Aid, because it is neither unilateral nor autonomous, as needed for measure to be imputable to the State and, as such, to be considered State Aid. Therefore, the answer to the second question must be that, while the custom duties incentive scheme constitutes State Aid, the protection of legitimate expectations – through granting compensation –, especially when they were created at a moment when the conflicting rules on State Aid had not been effective, is not State Aid.

As such, there is no obligation for Romania, neither under International Law nor under EU law to recover the paid compensation. However, there are two authors who argue that a compensation rendered as an enforcement of an arbitration award under Foreign Investment Law can constitute a violation of Article 107 of the TFEU if the action leading to an obligation to compensate consists of repealing benefits that are themselves illegal state aid under Article 107 of the TFEU[34]. While I do agree, in principle, with the authors and the opinion of Advocate General Ruiz-Jarabo Colomer in Joined Cases C-346/03 and C-529/03 that if an entitlement to compensation is recognized, the damage cannot be regarded as being equal to the sum of amounts to be repaid, since this would constitute an indirect grant of the aid found to be illegal and incompatible with the common market[35], I cannot agree that this is applicable always, as an absolute rule.

The issue should be assessed on a case by case basis. The authors’ and the Advocate General’s statements do not take into account the legitimate expectations created to the investor. And from an Investment Law point of view, not only does the investor have locus standi under arbitral proceedings in Foreign Investment proceedings, but he is considered a subject of Public International Law[36]. As such, who is to make a hierarchy between the investor’s interests – the protection of his legitimate interests – and those of another subject of Public International Law, the EU – where the fundamental interest is that of the effectiveness of the Internal Market, through a proper competition framework which underpins the functional trade between the EU Member States? From a public international law perspective, the EC legal system remains a subsystem of international law.[37]

Thus, I find such a hierarchy between a subject of Public International Law within the Investment Law field, on the one hand, and the officials of the EU, on the other hand, arbitrary and in violation of basic principles of Public International Law. Moreover, as has been stated somewhere else regarding a similar issue of EU law: just because something is mentioned repeatedly does not turn it into reality.[38]

(c) Notwithstanding specific issues whether enforcement of an investment arbitration award can be considered illegal State Aid, is it justified to ever argue for the termination of an intra-EU IT on the basis of that treaty violating the rules on State Aid prohibition?

Can the intra-EU IT, by itself, be considered as violating EU rules on State Aid? The answer, in my view, is in the negative. This is because investment treaties govern issues such as what constitutes an investment[39], admission of investments[40] or what protection does an investor receive once an investment has been made[41]. In other words, such ITs govern the abstract rules applicable to all investments, not referring to a certain specific investment (of course, the specific investment will benefit from the protection, but on the basis of fitting the framework set by the treaty, not by other means). As such, there is no obligation, ipso jure, to grant an economic advantage which can be considered State Aid under EU rules. The choice to grant that advantage is an economic/ political choice of the State, not an obligation under ITs.

Therefore, it can be concluded that investment treaties are not prohibited under State Aid rules. However, this doesn’t render the issue of the validity of intra-EU Bilateral Investment Treaties obsolete. On the contrary, this is a different discussion, which takes into consideration the common trade policy set by the 2009 Lisbon Treaty[42] and various issues such as questions of jurisdiction of investment tribunals when the parties are an EU Member and an investor from another EU Member[43]. Nonetheless, this is a different issue, going beyond the scope of the present analysis.[44]

  1. What does the relationship between State Aid law and obligations arising under ITs entail when the ITs’ signatories are both from within the EU and from without the EU:

This issue should be easier to analyse, given all that has been presented until now. One of the main problems with the relationship between the obligations arising under intra-EU ITs, on the one hand, and EU State Aid rules, on the other hand, was that the parties to the TFEU were, at the same time, parties to those intra-EU ITs. This situation complicated matters because the conflict was noticeable (although from a different perspective than the one of this analysis – that of the validity of intra-EU ITs). In the case of EU State Aid rules and obligations arising under ITs concluded with third parties, the simple answer is that, because the third party is not a party to the EU, the rules on State Aid are not opposable to it.[45] This does not mean that the EU party granting benefits to an investor from a third State, after the TFEU became effective, is not liable for violations of Article 107. But, at the same time, this will not have any bearing on the earlier obligations arising under the ITs. In that case, if the EU member state decides to repeal any State Aid benefit, it may be in compliance with EU rules on State Aid, but its responsibility will be engaged under customary international law for violating a legal obligation arising under ITs. As a consequence, this breach of international obligations gives rise to an obligation of reparation[46], which does not constitute State Aid – as has been proven in the first part.

III. Conclusion:

The debate over whether there exists a conflict between the legal regime instituted by ITs (excluding those where the EU is a party), on the one hand, and the EU’s legal regime, on the other, is neither straightforward nor devoid of political and economic implications. Through this study, I have analysed a part of this debate: the relationship between ITs, on the one hand, and the legal regime of State Aid law, on the other. I demonstrated, firstly, that obligations specifically arising under ITs are not, by themselves, in conflict with State Aid rules, because there is no ratione materiae identity.

In this context, I made a differentiation between the measures which can be considered illegal State Aid and the ITs (and their provisions such as the ones related to the protection of legitimate expectations), which, although inherently linked to such measures (such as in the Micula case) are, in the end, different. Continuing, I demonstrated why something which tends to be considered an absolute truth – the supremacy of EU law – must be qualified in the international sphere: there is no legal basis under Public International Law to consider such a supremacy when the EU legal regime is in conflict with other international legal regimes. And, finally, I analysed the situation where an IT has signatories both from within and without the EU There, I made a clear differentiation between what can amount to liability of an EU State for violations of Article 107 TFEU and responsibility of the same State under the Customary Law on State Responsibility for violations of obligations contained within ITs. I have shown how an EU State can infringe both legal regimes, at the same time, and why the EU legal regime is relative (and opposable) to the EU States only.


[1]Hereinafter referred to as State Aid law

[2] Hereinafter referred to as IT

[3] For a critique of the concept of self-contained regimes (the idea that supranational or international regimes, such as the EU, are self-contained and cannot be influenced by Public International Law rules, such as Treaty Law or the Law on State Responsibility), see Bruno Simma and Dirk Pulkowski, Of Planets and the Universe: Self-Contained Regimes in International Law, The European Journal of International Law, Vol. 17, no. 3, 2006, hereinafter cited as Simma and Pulkowski. This aspect of mutual influence between those regimes is of utmost importance to the present study, since the starting premise of the present study is that there is a mutual link between semi-autonomous regimes – such as the EU –, on one hand, and general Public International Law rules, on the other. See, for the opposite view (that the EU Legal Regime is an autonomous legal order which is not influenced by Public International Law), Laurens Ankersmit, Is ISDS in EU Trade Agreements Legal under EU law?, https://www.iisd.org/itn/2016/02/29/is-isds-in-eu-trade-agreements-legal-under-eu-law-laurens-ankersmit/ (last visited on 10/02/2018, at 20:58)

[4] Kelyn Bacon, BIT arbitration awards and State aid – the Commission’s Micula decision, http://uksala.org/bit-arbitration-awards-and-state-aid-the-commissions-micula-decision/ (last visited on 10/02/2018, at 20:53)

[5] Christian Tietje, Clemens Wackernagel, Outlawing Compliance? – The Enforcement of intra-EU Investment Awards and EU State Aid law, Policy Papers on Transnational Economic Law, June 2014, p. 2, hereinafter cited as Tietje, Wackernagel

[6] Although a thorough analysis should begin with what constitutes an undertaking, under EU law – since those entities are the beneficiaries of state aid –, I will not undertake such an analysis, for reasons of brevity. Thus, the analysis is considered to refer, implicitly, to such elements.

[7] Hereinafter, referred to as The TFEU

[8] EC (European Commission): Communication from the Commission: Draft Commission Notice on the notion of State aid pursuant to Article 107 (1) TFEU, § 5, p. 4

[9] Tamás Kende, Arbitral Awards Classified as State Aid under European Union Law, ELTE Law Journal 2015/1, p. 40

[10] http://ec.europa.eu/competition/state_aid/overview/index_en.html (last visited on 10/02/2018, at 02:55)

[11] It is true that the situation varies from one case to the other, but I have decided to begin the analysis by qualifying an investment award in abstracto, in order to assess its legality under EU State Aid law and only afterwards I shall address specific cases.

[12] Bryan A. Garner (Editor in Chief), Black’s Law Dictionary. Ninth Edition, WEST. A Thomson Reuters business, St. Paul, MN, USA, 2009, p. 157

[13] Idem, p. 608

[14] The International Centre for Settlement of Investment Disputes

[15] Hereinafter referred to as The ICSID Convention

[16] Article 53 of The ICSID Convention

[17] Hereinafter referred to as The New York Convention

[18] Article III of The New York Convention

[19] According to Article 26 of the 1969 Vienna Convention on the Law of the Treaties, every treaty in force is binding upon the parties to it and must be performed by them in good faith.

[20] Case 61/79, Amministrazione delle finanze del- lo Stato v Denkavit italiana [1980] ECR 1205, § 31

[21] Under Public International Law, the sources of legal obligations can include unilateral conduct or general principles of law, as well (see, for a comprehensive analysis, Malcolm N. Shaw, International Law. Seventh Edition, Cambridge, United Kingdom, 2014, Chapter 3: Sources, pp. 49-91). But, for the present study, this is not important, since obligations arising in Investment Law are based mostly on investment treaties (more specifically, obligations to respect and enforce arbitral awards are the relevant ones for the present analysis), while those based on general principles of law cannot be considered to have appeared from a consensual relationship between the parties to a dispute in a specific dispute. Anyway, from a strictly technical point of view, no matter the source of obligation, the ensuing legal relationship is, in the end, always (at least) bilateral (the correlative existence of the right and of the duty): Arthur L. Corbin, Rights and Duties, 33 Yale Law Journal 501, 1923-1924, p. 502. But what is important, as a bottom-line, is that an arbitral award (and the subsequent obligation of enforcement) arose under a legal relationship outside the scope of the State’s discretionary powers.

[22] Tietje, Wackernagel, p. 7

[23] Sir Hersch Lauterpacht, The Function of Law in the International Community, Oxford University Press, Oxford, United Kingdom, 2011, pp. 3-4

[24] For example, see Case 26/62, Van Gend en Loos [1963], p. 2, § 2 and Case 6/64, Costa v. Enel [1964], p. 594

[25] Ioan Micula, Viorel Micula and others v. Romania: Final Award (ICSID Case No. ARB/05/20)

[26] Article 1 of Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid […] implemented by Romania – Arbitral award Micula v. Romania of 11 December 2013

[27] All the factual information regarding the Micula affair mentioned so far has been gathered from: Kelyn Bacon, BIT arbitration awards and State aid – the Commission’s Micula decision, http://uksala.org/bit-arbitration-awards-and-state-aid-the-commissions-micula-decision/ (last visited on 10/02/2018, at 20:53)

[28] Volterra Fietta, Further attempts by the European Commission to eradicate intra-EU BITs, https://www.volterrafietta.com/further-attempts-by-the-european-commission-to-eradicate-intra-eu-bits/ (last visited on 10/02/2018, at 20:54)

[29] Ioan Micula, Viorel Micula and others v. Romania: Final Award (ICSID Case No. ARB/05/20)

[30] Ioannis Kardassopoulos v. Georgia: Decision on Jurisdiction (ICSID Case no. ARB/05/18, §§ 191-192)

[31] Andreas Kulick, About the Order of Cart and Horse, Among Other Things: Estoppel in the Jurisprudence of International Investment Arbitration Tribunals, The European Journal of International Law, Vol. 27, no. 1, p. 119

[32] I will not get into a detailed discussion of what constitutes estoppel and what is the difference between it and other institutions, such as the one of legitimate expectations. For a detailed analysis of estoppel in International Law and its application by the International Court of Justice, see Alexander Ovchar, Estoppel in the Jurisprudence of the ICJ. A principle promoting stability threatens to undermine it, Bond Law Review, Volume 21, Issue 1.

[33] http://www.oxfordreference.com/view/10.1093/acref/9780195369380.001.0001/acref-9780195369380-e-1282 (last visited on 10/02/2018, at 20:55)

[34] Tietje, Wackernagel, p. 7

[35] Joined  Cases C-346/03 and C-529/03. Opinion of Advocate General Ruiz-Jarabo Colomier, delivered on 28 April 2005, § 198

[36] See Robert McCorquodale, The Individual and the International Law Legal System, in Malcolm D. Evans (ed.), International Law. First Edition, Oxford University Press, Oxford, UK, 2003, pp. 299, 311-314 and 321-322

[37] Simma and Pulkowski, p. 516

[38] Ibid.

[39] Matthias Herdegen, Principles of International Economic Law. Second Edition, Oxford University Press,  Oxford, United Kingdom, 2016, pp. 444-446

[40] Idem, pp. 448-450

[41] Idem, pp. 448-477

[42] Francesco Montanaro and Sophia Paulini, United in Mixity? The Future of the EU Common Commercial Policy in light of the CJEU’s recent case law, EJIL: Talk! Blog, https://www.ejiltalk.org/united-in-mixity-the-future-of-the-eu-common-commercial-policy-in-light-of-the-cjeus-recent-case-law/ (last visited on 10/02/2018, at 20:55)

[43] Emanuela Matei, The love-hate story of arbitral jurisdiction  over claims against states in the EU, EFILA Blog, https://efilablog.org/2016/10/25/the-love-hate-story-of-arbitral-jurisdiction-over-claims-against-states-in-the-eu/ (last visited on 10/02/2018, at 20:56)

[44] For an analysis of this aspect, see: Nikos Lavranos, The Lack of Any Legal Conflict Between EU law and intra-EU BITs/ECT Disputes, EFILA Blog, 25 February 2016, https://efilablog.org/2016/02/25/the-lack-of-any-legal-conflict-between-eu-law-and-intra-eu-bitsect-disputes/ (last visited on 10/02/2018, at 20:55)

[45] The 1969 Vienna Convention on the Law of the Treaties provides, in Article 30 (3.) (b) that when the parties to a later treaty (as is the case when various ITs had existed before the TFEU became effective) do not include all the parties to the earlier one […] as between a State party to both treaties and a State Party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations.

[46] See Article 31 of the ILC Articles on State Responsibility

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

The 2015 EFILA Inaugural Lecture: Escaping from Freedom?

We are pleased to offer you the full text of the 2015 EFILA Inaugural Lecture by Sophie Nappert, “Escaping from Freedom? The Dilemma of An Improved ISDS Mechanism“, delivered on 26 November 2015 in London.

In times such as ours, when freedom is often abandoned for security to be gained, Sophie Nappert’s lecture is a vindication of freedom endorsed by law.

Executive Summary

ISDS in its current international arbitration format has attracted criticism. In response, the EU proposal for ISDS in the TTIP consists of a two-tiered court system, comprising an appeal mechanism empowered to review first-instance decisions on both factual and legal grounds and, the EU says, paving the way for a “multilateral investment court”.

The EU proposal envisages that the courts of first instance and appeal be composed of pre-ordained, semi-permanent judges randomly assigned to cases and subject to compliance with a Code of Conduct worded in general terms.

As it stands the EU proposal walks away from the international arbitration format, and consequently the application of the New York Convention.

The Lecture expresses surprise at the EU proposal of a court mechanism given the CJEU’s unambiguous, historical unease with other similar, parallel international court systems, as most recently expressed in its Opinion 2/13 of 18 December 2014 on the draft Accession Agreement to the
European Convention on Human Rights.

The Lecture examines whether, and how, the EU proposal might provide solutions to critical issues presented in two recent cases taken as illustrations – the Awards in the cases of the Yukos shareholders against the Russian Federation, as well as the case of Croatia v Slovenia currently pending in the PCA.

The Lecture remarks that appeal mechanisms are not free from difficulty, not least of which the real risk of inconsistent decisions between the first and appeal instances, due to different, equally valid approaches to a developing area of international law.

The Lecture also notes that the proposed Code of Conduct provides no practical sanctions to deal with instances of arbitrator misconduct such as that featured in the Croatia v Slovenia matter, and expresses surprise that ethical challenges are to be decided by fellow Judges – probably one of the most problematic features of the current ICSID system.

The Lecture proposes a third way, aimed at addressing these concerns, whereby a Committee – stroke – Interpretive Body, informed by the intentions of the TTIP Parties, would take over the development of TTIP jurisprudence in a more linear and consistent manner, with a longer-term view, whilst ad hoc arbitration tribunals in their current form would focus on the settlement of the discrete factual dispute.

Dissociating the settlement of the factual dispute from the broader interpretive exercise would create a repository of the TTIP jurisprudential function, allowing for a more harmonious and authoritative development of TTIP interpretation and law and alleviating the phenomenon of “overreaching” currently burdening ad hoc tribunals – arguably the real source of the criticism aimed at ISDS.

The Committee/Interpretive Body could also more credibly act as decision-maker in ethical challenges than would fellow Judges, provided the Code of Conduct is reviewed to allow for realistic standards and practical sanctions.

This proposed “third way” retains the arbitration features necessary for the application of the New York Convention, and is not inconsistent with the EU’s own proposal, building as it does on Article 13(5) which contemplates an overseeing Committee that would be well-placed to take over the above role.

See the full text of the Lecture here.