AIA and EFILA Event: Seminar on Arbitration and EU Law

Seminar on Arbitration and EU Law – 7th April 2016, Brussels, Belgium

 

 

Over the years, there has been increasing EU activity in private international law. The interaction and relationship of EU law and international commercial arbitration has had growing interest over the years. In this course, we will consider the key changes in the Brussels Regulation (recast) for commercial parties, the consequences and interpretation of the arbitration exceptions and the relationship between EU state aid and investment protection under bilateral investment treaties.  We will also discuss the procedure, minimum standards, application of Article 6 of the European Convention on Human Rights and compare BITs and EU law in investment arbitration.

 

Confirmed speakers for this event are Mr. K. Adamantopoulos, Mr. Jean-François Bellis, Mr. George A. Bermann, Mr. Damien Geradin, Mr. A. Komninos, Mr. N. Lavranos and mrs. Z. Prodromou.

unnamed

Just Because State Aid Is The Best Hammer Does Not Mean That All Issues Are Nails (Part II)

by Emanuela Matei, Associate Researcher – CELS*

This article represents Part 2/2 of a larger material regarding the interaction of EU state aid rules and international investment law in the context of recent EC Decisions. Part 1/2 was published earlier this week.

B.  Selectivity

Whether a regulatory measure is selective shall be examined within the context of the particular legal system by verifying whether the measure constitutes an advantage for certain undertakings in comparison with others, which are in a comparable legal and factual situation. Since the present case concerns a regional scheme, the financial autonomy of that region may justify a differentiation[i]. However, the mere fact of acting on the basis of a regional development or social cohesion policy would be insufficient in itself to justify a measure adopted within the framework of that policy[ii]. The disfavoured regions do not enjoy fiscal autonomy, thus the regional character of the measure would be sufficient to prove the selectivity of the aid. The Commission chose nonetheless a different line of argumentation.

‘…compensation for damages will not selectively benefit an individual undertaking only insofar as that compensation follows from the application of a general rule of law for government liability which every individual can invoke, so that it excludes that any compensation granted confers a selective benefit on certain groups in society’.

The Commission affirms that the compensation does not follow from the application of a general rule of law for government liability, since the access to justice is restricted to certain groups of individuals, i.e. foreign investors covered by the BITs. It concludes that to the extent that paying compensation awarded to an investor pursuant to a BIT amounts to granting an advantage, the advantage is selective.

In my view, first and most important, it is not necessary to go so long in order to prove the selectivity of the measure, since the scheme is regional and the award does nothing more than re-establishing the facilities granted by that scheme.

Secondly, if such definition of selectivity were admitted by the CJEU, the scope of the State aid would go beyond ‘wide’. It would potentially cover all situations, where a conflict between a State and an undertaking can be solved by arbitration. It would outlaw investor-State arbitration as such. The current solution for investor protection is based on a network of BIT-agreements including an ISDS-clause together with a worldwide affiliation to the ICSID Convention. The complexity of this structure consists in its apparent bilateralism and inward transnationalism. The Micula dispute may appear to be an issue between Romania and two associated Swedish investors, but in reality, it concerns the reliability of the current system of investor protection.

Thirdly, concerning the ‘selective’ access to justice examined vis-à-vis the matter of State aid control, there is no difference between intra- and extra-EU BITs. There is nothing in the State aid law that stipulates that the prohibition of State aid only applies, if the investor-beneficiary is national of a Member State. If the definition of selectivity is derived from the application of an exceptional rule of government liability, which not every individual can invoke, the extra-EU BITs would also be deemed illegal, unless they could qualify for an exemption as stated by Article 351 TFEU.

C.  Upon an undertaking

An investor can be involved in FDI or could act as a portfolio investor. Micula brothers are direct investors with a long-term strategical approach, so normally, no distinction can be made between the legal situations of a direct investor, who is a natural person and a legal person as vehicle of direct investment[iii]. I agree with the Commission that in the present case no difference can be made depending on whether the compensation collectively awarded to all five claimants by the Tribunal is paid out to the shareholders or to the companies owned by them.

However, I must point out, an important factor. A distinction must be made between the grant upon an undertaking i.e. a single economic unit and the recovery of State aid that obviously must be applied in relation to a person. A shareholder, who is directly involved in the day-by-day management of fully owned companies will be covered by the notion of undertaking[iv]. In the present case, it is the award that states who is entitled to payment and the recovery of aid shall follow the same assessment, as long as the award does nothing more than restoring the fiscal facilities put in place by EGO 24.

The previously distinct line between the grant of aid to an undertaking as element of State aid definition, which is an abstract concept and the matter of recovery, which is a concrete device, a legal remedy, has been blurred by a recent CJEU ruling[v]. This new theory of a maintained separate legal personality of the State aid beneficiary in relation to its controlling shareholder – even if it appears to be inconsistent with the usual understanding of the doctrine of single economic unit – could support the argumentation claiming that the shareholders’ interests as natural persons would depart from the interests of the three corporate claimants[vi].

D.  Imputability

The question of imputability is theoretically the most interesting. The initial advantage is granted by Romania to investors established in a certain disfavoured region, but the enforcement of the award may be ordered by any of the ICSID-members, inside and outside the EU. Would such a payment still be imputable to Romania?

According to the Commission, the answer is affirmative, since the voluntary agreement of Romania to enter into the BIT created the conditions for the selective advantage resulting from the award. Is the act of signing a BIT five years before the accession to the EU illegal under EU law? Is there a direct causal relation between this act and the grant of State aid? If the act were illegal would the culpability be attributed to Romania alone? If Romania had chosen to terminate the BIT in January 2007, the BIT sunset clause would have nonetheless maintained the protection for investments already in place until 2027. It would not have changed anything with regard to the Micula dispute.

The adoption of EGO 24 is definitely an act of State, but the enforced payment of the award by means of seizing assets abroad ordered by foreign courts or bailiffs cannot be attributed to Romania based on the simple observation that Romania did not terminate its BIT in 2007 or because it entered into a BIT agreement in 2002. The question of imputability is extremely complex and the State aid instrument is in my opinion too blunt to be able to cope with this complexity. While a payment ordered by a Romanian court or bailiff is imputable to the Member State in line with the obligations assumed according to the Treaties, a payment ordered by a Belgian or an U.S. federal court cannot be imputable to Romania, unless it can be substantiated that the act of engaging in BIT agreements is illegal per se under EU law.

III.          Conclusions

According to the available information, the adoption of EGO 24 established a derogation from the regime of ‘normal taxation’ implying an economic advantage. This advantage is selective due to its regional character and as any other regulatory measure is imputable to the state. It is supported by state resources, as a negative advantage that consists in a derogation from generally applicable fiscal obligations. The measure has not been notified to the Commission and it has been found illegal by the Romanian Council of Competition in May 2000. According to Atzeni a compensation that restores an illegal State aid cannot be allowed under EU law, therefore the Asteris exemption is not applicable.

The Commission tries instead to prove that the enforcement of the award issued in 2013 would in itself constitute unlawful State aid. I disagree with this line of argumentation. First, it would be redundant to prove a distinct aid entailed by the enforcement of the award and secondly, it would lead to unreasonable implications. The fact that Romania signed the BIT five years before its accession to the EU and three years before even becoming an acceding country, supports the idea that Romania cannot be held culpable under EU law for the decision to engage in such agreements. If the signing of a BIT had been forbidden under EU law, the attention of the Commission should have been directed towards the other party of the agreement, Sweden, a Member State with full rights and obligations at the relevant time.

Concerning the allegeable obligation to terminate the BIT, it must be said, first that the measure would have no effect on present investments and secondly, that Romania cannot be held as solely responsible for the maintaining of a parallel system of protection that potentially could threaten the autonomy of the Union legal order. The legality of the BIT in question should not be examined in isolation, since the practicability of the present system of investor protection relies on a network structure and the privileged access to arbitration of foreign investors. By disconnecting one node from the network, the problems indicated by the Commission in its decision at point 66, namely, the fact that the current system of State liability is not applicable to any investor, will not be solved.

The applicants in the present case personify the global community of foreign investors and represent the interests pleading in favour of maintaining the system of protection that pre-existed the EU law. State aid control is the appropriate tool for treating bi-dimensional relations between States and undertakings, but it does not seem to be adequate for dealing with triangular relations between a State and the community of foreign investors represented by the web of transnational institutions established under international law. Such matters of incompatibility between the pre- and post-Lisbon system of investor protection or between pre- and post-accession State aid measures should have been addressed by making use of other more appropriate instruments.


[i] Case C-88/03, Portugal/Commission [2006] ECR I-07115 [67].

[ii] Idem [82].

[iii] Case C-222/04 Cassa di Risparmio di Firenze SpA and Others [2006] ECR I-00289 [112].

[iv] Case C-170/83 Hydrotherm [1984] ECR I-2999 [11].

[v] Case C‑357/14 P Dunamenti v Commission, not yet reported [115].

[vi] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [59].


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

Just Because State Aid Is The Best Hammer Does Not Mean That All Issues Are Nails (Part I)

by Emanuela Matei, Associate Researcher – CELS*

This article represents Part 1/2 of a larger material regarding the interaction of EU state aid rules and international investment law in the context of recent EC Decisions. Part 2/2 will be published later this week.

 I.          Introduction

In May 2014, Obama defended a more relaxed foreign policy that entailed less military interventions, by stating, I cite: ‘Just because we have the best hammer does not mean that every problem is a nail[i]. The same observation can be made in relation to the Commission’s all-encompassing use of the versatile tool of State aid control. It would most probably not nail all forms of state liability. In particular with regard to regulatory measures adopted by a Member State before its accession to the EU, the application of State aid rules must be more precisely calibrated.

The Micula arbitral award established in December 2013 that by annulling an investment incentive scheme four years prior to its scheduled expiry in 2009, Romania failed to comply with its obligations assumed via the Romania-Sweden BIT, which had come into force in 2003.

In its decision of 30 March 2015, the Commission found that the compensation paid by Romania according of the named arbitral award breached the State aid prohibition. State aid is forbidden unless notified and approved by the European Commission. An extra intricacy of the present case relates to the fact that at the moment, when the notification had to be made, Romania was not yet a Member State of the Union. The standstill obligation existed according to the acquis, though the prerogatives of control were attributed to the Romanian Council of Competition.

II.      State aid Definition

According to the Commission, the revoked investment incentive scheme selectively favoured certain investors and was therefore deemed to be incompatible with the state aid rules. In order to classify a national measure as State aid, the following criteria must be examined and cumulatively fulfilled:

  • The measure must confer a selective economic advantage upon an undertaking;
  • The measure must be imputable to the state and financed through state resources;
  • The measure must distort or threaten to distort competition;
  • The measure must have the potential to affect trade between Member States.

Four conditions will be analysed in this post: the presence of an advantage, its selectivity, its imputability and the definition of an undertaking which may benefit from the aid.

A.  An economic advantage

A.1. A derogation from ‘normal taxation’ is an advantage

The concept of State aid is broader than that of a subsidy, since it comprises not merely positive benefits, such as subsidies themselves, but also interferences which, in diverse forms, mitigate the charges that are regularly included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are comparable in character and have the same effect[ii].

The concept of aid has constantly been interpreted by the CJEU as not covering measures that distinguish between undertakings in relation to charges, where that differentiation is the result of the nature and general scheme of the fiscal system. The very existence of an advantage may be established only when compared with ‘normal’ taxation’[iii].

The line of argumentation followed by the Commission asserts that ‘by repealing the EGO 24 scheme, Romania re-established normal conditions of competition on the market on which the claimants operate, and any attempt to compensate the claimants for the consequences of the revocation of the EGO 24 incentives grants an advantage not available under those normal market conditions’[iv]. I see no valid explanation for choosing the test of ‘normal market conditions’ instead of the benchmarking of ‘normal taxation’ in the present case.

In its recent negative decision in case SA.38375[v], the Commission repeats this choice while applying the ‘normal market conditions’ test (one form of it, the Market Economy Investor Principle) to a case concerning tax rulings, despite the fact that the measures concerned were administrative i.e. non-economic in nature[vi].

The Romanian legislation in Micula granted a derogation from the general regime of taxes and customs duties and the award re-established the initial economic advantage by ordering the compensation of those previously abolished fiscal facilities.

The AG Colomer[vii] has noticed in his Opinion in the Atzeni case that even if the entitlement to compensation is recognised, the amount prescribed cannot be equal to the sum that must be recovered according to the standstill prohibition enshrined in Article 108(3) TFEU and the article 14 of the Regulation No 659/1999[viii]. The Commission affirms that the Award was based on an amount corresponding to the fiscal facilities provided by EGO24 including lost profits plus interest.

The compensation provided for by the Award is based on an amount corresponding to the customs duties charged on raw materials, lost profits and interest on the total sum of damages awarded[ix].

However, the calculation of State aid cannot be based on the Award, but it must be assessed independently taking into consideration the difference between the ordinary expenses and the subsidised expenses under EGO24 with reference to the situation prior to payment of the aid[x]. In Dunamenti it has been established that even if the Article 107 TFEU became applicable on the accession date, the analysis of the measure must be done in the context of the period in which it had been granted.

The relevant factual circumstances of the grant cannot be disregarded solely because they have preceded the accession[xi]. In case, the Award exceeded the amount of aid granted under EGO24, which is the regulatory measure examined by the Romanian Council of Competition in its decision of May 2000, this excess cannot be deemed to constitute indirect State aid as established by the Atzeni Opinion.

A.2.   Compensation for damages is not an advantage

The principle of State responsibility for loss and damage caused to individuals because of breaches of European Union law for which the State can be held liable is enshrined by the system of the treaties on which the European Union is based[xii]. In Asteris, the CJEU established that State aid is fundamentally different in its legal nature from the amounts paid to individuals as compensation for the damage caused by public authorities and that, in consequence, such damages do not constitute aid for the purposes of Articles 107 and 108 TFEU[xiii].

Acknowledging the fact that EU law does not allow an unconditional permeation of obligations derived from international law, the main difference between a Micula entitlement and the Asteris right to bring an action for payment is the source of the obligations on which the claim for payment is based.[xiv] Greece was expected to implement EU law obligations, while Romania is responsible for implementing an obligation arisen from a BIT and affirmed by an ICSID-award.

The CJEU recognised a distinction between an action for damages under Article 340 TFEU and an action for payment concerning the liability of the national authorities responsible for implementing Union law, which individuals are seeking to establish before national courts[xv]. Hence, it can concluded that the Asteris liability is a distinct case, since it does not entail a sufficiently serious breach of an EU law obligation borne by the State.

On the other hand, the entitlement to payment in Micula ought to be interpreted in the light of the relevant rules of customary international law, which is part of the Union legal order and is compulsory for its institutions[xvi]. The BITs obligations go beyond the field of customary international law, ensuring a higher level of protection for the investor that can be recognised under EU law, only if it concurs with the specific characteristics and the autonomy of the Union legal order[xvii]. The Commission considered that the BIT obligations were not conform to EU law and subsequently, the action for payment could not be supported by an Asteris claim.


[i] Read more at: http://www.nationalreview.com/corner/378955/obama-west-point-because-we-have-best-hammer-does-not-mean-every-problem-nail-andrew.

[ii] Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961] ECR 1.

[iii] Case 173/73 Italy/Commission [1974] ECR I- 00709 [15].

[iv] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [92].

[v] Commission Decision, State aid SA. 38375 (2014/NN) (ex 2014/CP) Brussels, 11.06.2014. The final decision of 21 October 2015 not yet published. Read also my commentary (click here).

[vi] Read more at: http://www.kluwertaxlawblog.com/blog/2015/10/28/the-interplay-between-the-state-aid-rules-and-other-beps-preventing-tools-sa-38375/.

[vii] AG Opinion, AG Colomer, Joined Cases C-346/03 and C-529/03 Atzeni [2006] ECR I-01875 [198].

[viii] ‘It should be noted that, if an entitlement to compensation is recognised, the damage cannot be regarded as being equal to the sum of the amounts to be repaid, since this would constitute an indirect grant of the aid found to be illegal and incompatible with the common market’.

[ix] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [123].

[x] Case T‑473/12 Aer Lingus, not yet reported [83]. See, to that effect, C‑277/00 Germany /Commission [2004] ECR I-03925 [74-5].

[xi] Opinion AG Wathelet, Case C‑357/14 P Dunamenti Erőmű, not yet reported [121].

[xii] Joined Cases C-6/90 and C-9/90 Francovich and Others [1991] ECR I-5357 [35]; Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029 [31]; and Case C‑445/06 Danske Slagterier [2009] ECR I‑0000 [19].

[xiii] Joined cases 106 to 120/87 Asteris/Greece (Asteris III), [1988] ECR I-05515.

[xiv] Opinion 2/13 of 18 December 2014, not yet reported [201].

[xv] Asteris III [25-6].

[xvi] Case C‑179/13, Evans, not yet reported [35]

[xvii] Opinion 2/13 of 18 December 2014, not yet reported [174].


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

EFILA Annual Lecture 2015 – Sophie Nappert

In the wake of the release of the European Commission’s proposal for a new investment chapter in the Transatlantic Trade and Investment Partnership, EFILA is pleased to announce a launch of its Annual Lecture series.

The inaugural Annual Lecture of EFILA entitled: “Escaping from Freedom? The Dilemma of an Improved ISDS Mechanism” will take place on 26 November 2015 from 16.30 until 19.30 at the Brussels Press Club Europe (Rue Froissart 95, 1000 Bruxelles).

The inaugural Annual Lecture of EFILA will be delivered by Sophie Nappert, a highly regarded, experienced arbitrator and peer-nominated Moderator of OGEMID.

As stated by Sophie, the purpose of her speech is not to make the apology of ISDS in its current form, or to sing its eulogy.  Rather than clinging to a model that is showing cracks, she is far more interested in the challenging proposition of making investor-to-State, and most relevantly investor-to-EU, dispute resolution in the 21st century legitimate and authoritative at this fascinating intersection between EU law and international law, whilst remaining loyal to core values common to both the EU and international dispute settlement. For the abstract of Sophie’s lecture please click here.

Please register by sending an email with your name, affiliation and phone number to Ms Senta Marenz, s.marenz@efila.org.

We look forward to welcoming you to the Annual Lecture of EFILA.

Sponsors of the Annual Lecture 2015

The Proposed New Investment Court System for TTIP: The Right Way Forward?

by Mirjam van de Hel-Koedoot, NautaDutilh*

 

On 16 September 2015, the European Commission published a draft text for the investment chapter in the proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US. In the Proposal, the European Commission specifically mentions that the Proposal is an internal document of the EU and that it will consult the Member States and discuss the proposal with the European Parliament before presenting a formal text proposal to the US.

Since the beginning of the negotiations, the US and the EU tried to gain public support for TTIP. However, the draft agreement faces considerable opposition in Europe, with opponents fiercely trying to stop the negotiations and execution of TTIP. Part of the opposition focuses on the current provisions on investment protection and Investor-State Dispute Settlement (ISDS), with critics pointing to an alarming trend towards favouring private international multinationals by allowing them to sue states in private arbitration courts for any action that negatively influences their profits. In addition, critics have expressed concerns about a supposed lack of transparency and a lack of independence of arbitrators in investment disputes. In 2014, the European Commission launched a public consultation on the ISDS provisions in TTIP and, after receiving almost 150,000 replies, the results were published on 13 January 2015, showing a ‘huge scepticism against the ISDS instrument’. On 8 July 2015, the European Parliament voted against including ISDS provisions in TTIP, and recommended to the European Commission to have disputes heard by publicly appointed judges.

As expected, the Proposal introduces the establishment of a new court system (the Investment Court System or ICS), consisting of a Tribunal of First Instance (Investment Tribunal) with 15 jointly appointed judges (five US judges, five EU judges and five judges of third countries) and an Appeal Tribunal with 6 jointly appointed judges (members) (two US judges, two EU judges and two judges of third countries). The judges will be appointed for a six year term.

According to the European Commission, this Proposal will fundamentally transform the current ISDS system, which is characterised by its ad hoc nature with tribunals chosen for each case and the ability of the disputing parties to appoint the arbitrator of their choice. Obviously, the Proposal will be heavily reviewed and debated in the coming months. However, does the proposed Investment Court System indeed constitute an adequate response to the strong objections raised against the current investment arbitration system and, maybe even more importantly, is such a response desirable?

One of the objections against investment arbitration that the Proposal intends to resolve is a supposed lack of independence and impartiality of arbitrators. At first sight, the Proposal does seem to take away a large part of the concerns in this respect. However, a few issues will need further thought.

One of the most far-reaching provisions of the Proposal is Article 11(1), which provides that judges, upon appointment, shall refrain from acting as counsel in any pending or new investment protection dispute under TTIP or under any other agreement or domestic law. Furthermore, disputes under TTIP will be allocated randomly (and unpredictably) between the permanent judges, so disputing parties would have no influence on which of the three judges will be hearing a particular case. A monthly retainer fee will be paid to the judges in order to ensure their availability.

In addition, cases will be decided by divisions of three judges, and the Investment Tribunal will always contain one EU national, one US national and national of a third country, who will act as the chair, further preventing impartiality and/or independence of a judge. It should be noted that, with regard to the Appeal Tribunal, there are only two members that are nationals of a third country, as a result of which they will each chair over approximately 50% of the cases in appeal. In addition, these two members will be, on the basis of a two-year rotation, be President and Vice-President of the Appeal Tribunal, in which role they will, among other things, establish the composition of the panel hearing an appeal. All in all, this places a lot of responsibility on these two individuals and the European Commission may want to reconsider the initial number of, in any event, the members of the Appeal Tribunal.

On a more general, and more important note, the introduction of the Investment Court System will drastically limit the party autonomy, which is an important and fundamental pillar of investment arbitration. It entails that parties to investment treaty disputes are able to select the arbitral tribunal that will adjudicate the dispute, which is normally done by each party nominating an arbitrator of their choice and the third arbitrator being agreed upon jointly by the parties or the party-appointed arbitrators, or selected by an appointing authority. The introduction of the Investment Tribunal (and the Appeal Tribunal), with its permanent judges, takes away this right of a party to influence the appointment of the arbitrators. Furthermore, the ICS system is designed to be pro-State, also in respect of the judges deciding on a case, as the consequence of the new system will be that the claimant (the investor) will not be able to influence the appointment of arbitrators, while the respondents (the US and the Member States of the EU) will eventually jointly appoint the judges and can make sure that they are to their liking. Obviously, the US and the EU will be inclined to appoint judges that are pro-State. Finally, it is unclear who will eventually pay for the new ICS system. In this respect, the question arises why the European Commission did not propose to make use of institutions already in place, such as the International Centre for Settlement of Investment Disputes in Washington (ICSID) or the Permanent Court of Arbitration in The Hague (PCA)

The concerns relating to the independence and impartiality of arbitrators and, more in particular, the concerns about possible conflicts of interest, have further lead to the proposal of a Code of Conduct for the judges (in Annex II to the Proposal). This Code of Conduct contains strict ethical and professional requirements. In particular, judges will have to disclose any interest or relationship that is likely to affect their impartiality. Article 5 expressly provides that judges ‘shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party or disputing party or fear of criticism’. These extensive and rather elusive qualifications may give rise to a large number of challenges of the judges.

On a more general note, the existence of an Appeal Tribunal takes away another common objection against investment arbitration, which is the absence of the possibility to appeal. According to EU Trade Commissioner Cecilia Malmström, this criticism is caused by the fact that an arbitral tribunal can take a wrong decision and that the impossibility to appeal such decision makes the whole system less predictable. However, on the face of it, the possibility of full-fledged appeal with a permanent tribunal – which is an uncommon feature in investment arbitration – does not in itself enhance the predictability of the system. To the contrary, it will lead to more delays and costs, as it is to be expected that the majority of the losing parties will use the opportunity to appeal.

The second common point of criticism against the current ISDS system is a supposed lack of transparency in investment disputes which, due to their nature, are usually of high public importance. In order to overcome this supposed lack of transparency, the Proposal provides that the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration will be applicable to disputes under TTIP (Article 18 of the Proposal). In addition, the European Commission proposes to enlarge the list of documents which shall be made available to the public, including but not limited to the notice of challenge, the decision on challenge and all documents submitted to and issued by the Appeal Tribunal. Also, the Proposal intents to provide a more transparent regime in case of third party funding, requiring the disputing parties to disclose – to the other party and the tribunal – who is funding their claim. All these provisions will indeed enhance the level of transparency of the proceedings.

Thirdly, investment arbitration receives criticism because of the possibility to conduct parallel proceedings of the same matter before domestic courts and in arbitration. The Proposal expressly prohibits parallel proceedings, allowing the Investment Tribunal to dismiss the claim if parallel proceedings are pending, unless the claimant withdraws such claim before a final judgment has been delivered by the domestic court. The Reading Guide to the Proposal states that this approach tries to encourage the resolution of investor-to-state disputes in domestic courts, while leaving the possibility to access the ICS under TTIP where the treatment in the domestic system falls short of the very basis guarantees provided for in the investment protection provisions.

To conclude, the European Commission introduces a completely new system of investor-state dispute resolution, which drastically differs from the current system of ISDS and does take away at least part of the objections – whether valid or not – that have been raised against ISDS. However, it entirely disregards the advantages of investment arbitration, which has been a tested dispute resolution mechanism for decades, and especially disregards the party autonomy of an (investor) claimant, in taking away its ability to appoint the arbitrator of its choice, where the respondent state does still – albeit indirectly – have such influence. The Proposal apparently also fails to silence the opponents of the ISDS system, who already labelled the changes as being only ‘cosmetic’, ‘renaming ISDS’ or a ‘rebrand’, while still giving foreign investors the possibility to sue states through ‘private courts’.

It is not yet clear whether a final text proposal will be made to the US during the next round of negotiations regarding TTIP, which are scheduled to take place at the end of October and what the response of the US to the Proposal will be. However, the first responses from the US were not very hopeful: the U.S. Chamber of Commerce announced on the day of publication of the Proposal that ‘the proposal is deeply flawed’ and that the US ‘cannot in any way endorse today’s EU proposal as a model’.


Mirjam van de Hel-Koedoot, senior associate at NautaDutilh (mirjam.vandehel-koedoot@nautadutilh.com). A word of thanks to Tetyana Makukha for her assistance in writing this submission.

Defining International Investment Law for the 21st Century (A Reply)

by Emanuela Matei, Of Counsel – Mircea and Partners*

This post represents a reply to Horia Ciurtin’s material “The Future of Investment Treaties: Metamorphosis or Deconstruction?”, published on the EFILA Blog on 8th September. Another reply will follow from Horia Ciurtin in the following weeks.

Of Two Evils Choose Neither

We are living in a hologram designed by a very confused mind. Witnessing the 21st century we all experience a degree of restlessness and fuzziness. In this context, the choice between two evils may be no more than a false dilemma. The misconception of the limits of international law is part of this holographic picture.

In his post “The Future of Investment Treaties: Metamorphosis or Deconstruction?“, Horia Ciurtin revisits the challenging task of defining – in our not-so brave new world – the concept of international law, in general, and of investment treaties law, in particular. I both agree and disagree with the author’s concerns. I fully agree with him that international law and legal institutions can provide effective means to solve human problems. I disagree with the either-or equation though and I will describe it as a deceiving choice between two evils.

The First Evil

In a world where the interactions are multiple and ubiquitous, it is very often not possible to determine which event occurs first and define it as the cause of a subsequent event, called effect. State interests do not exist outside the social sphere and the actions of states are therefore influenced by the attitudes of non-state constituencies. In other words, the border between state and non-state has been blurred.

It is up to the observer to judge. If the observer believes that coercion is the source of order and well-being in the world, he will naturally think that international law cannot have an influence on actual state behaviour. Such an observer sees international law as a source of democratic concern, arguing against the implementation of international law norms domestically. In my view, this hostile approach is the first evil and – so far – Horia Ciurtin and I agree with each other.

The Second Evil

The affirmation that the sovereign entities are “no longer needed as ‘procedural proxies’ for aggrieved investors, being able themselves to directly involve in international litigation and be compensated for their losses” is on the other hand not immune to criticism. Having a right and being able to exercise it effectively should be seen as two sides of the same coin. A right, which is not enforceable has no legal significance. It has only a symbolic value. States comply with international law as long as the social sphere – in which their interests are continuously defined – requires them to do so.

Moreover, the author pleads for the de-politicisation of the disputes by unconditionally escaping the domestic remedies. My counterargument is that such disputes are nonetheless political in nature, so their de-politicisation would provide no more than an empty gesture.

For a legal pragmatist as I am, the ICSID-convention is a tool designed to serve a set of functions. It is nothing unexpected in the fact that this tool has been designed at a certain moment in time and that time is gone. The question that must be answered is what kind of functional design shall be chosen for the 21st century FTAs? Attention, the designer may be somebody else than before! Again, the political configuration which is part of the social sphere is different now compared with 1950!

Furthermore, the situation of intra-EU BITs is a special case. I believe that the comparison between the South America and the Central-Eastern Europe is a bit misplaced. A conflict between supra-state constitutional law and international law obligations on one side, and between individual rights derived from international law and the obligation of the state to implement supranational law, on the other, constitutes an extra-complication that must be faced by countries like Romania, Hungary or Slovak Republic.

The either-or dilemma is often projected by the advocates of arbitration as a support for the affirmation that without an ISDS-system the protection of the investor will be severely depreciated. It can be true that some strategic contrivances will no longer be available. However, it must be recognised that the accession to the EU of the Central-Eastern European countries had a positive impact on their legal systems and the socio-economic environment is now more stable than in the nineties and early noughties.

More than so, the capital is the most mobile of all factors of production. If some jurisdictions became hostile to investors, the capital would vote with its feet as it does in all other cases, where the regulatory choices of the state or supra-state give an incentive to corporations to move, stay or entry. Thus, my contemplation of the post-Westphalian field of battle is much more optimistic in this particular sense. The second evil – no protection for the investor in the 21st century – is nothing else than a false alarm!

The discussion starts to sound irresistibly interesting to me when we begin to imagine deterritorialised ideas of governance … but this is a different kind of story. This is the true and exciting post-Westphalian realm left unexplored by the mainstream despotique!


* Emanuela Matei, Jurismaster; Of Counsel – Mircea and Partners; Associate Researcher – Centre for European Legal Studies.

The Rule of Law as the Common Foundation of EU Law and International Investment Law

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

Ever since the EU started to get into international investment law by developing its own investment policy through the negotiation of several international investment agreements (IIAs), such as CETA, TTIP, EU-Japan, EU-Singapore, and the adoption of two EU Regulations (Regulation 1219/2012 and 912/2014), the relationship between EU law and international investment law has been characterized as being tense, conflicting or even opposite to each other.

EU law is characterized as being based on commonly accepted Rule of Law principles, disputes are resolved before domestic courts of the Member States, which are presumed to be transparent, impartial, independent and free from corruption and collusion, all which is supplemented and controlled by the CJEU and to some extent by the ECrtHR. In short, EU law is portrayed as a special sui generis legal order, based on constitutional foundations, which is to be distinguished from anything else. Or to put it differently, EU law is the perfect legal order, in which all is perfectly organized, democratically legitimized and in which the Rule of Law principles are equally applied in all Member States.

By contrast, international investment law, is based on a web of more than 3,000 IIAs, which delegates dispute settlement to party-appointed ad-hoc arbitral tribunals, which render their awards in clandestine, intransparent manner, without being controlled by any supreme court. In short, international investment law and in particular arbitral tribunals are depicted as uncontrollable bodies, full of conflicts of interests, which develop international investment law as they see fit without any means to restrain them.

Thus, it is no surprise that in light of these characterizations the relationship between EU law international investment law is considered to be full of tension, without little understanding of each other and even less common ground. Indeed, the title of EFILA’s Inaugural conference held in January 2015, “EU Law and Investment Treaty Law: Convergence, Conflict, or Conversation?” perfectly reflects this uneasiness between the two legal branches.

But upon closer inspection, it appears that EU law and international investment law actually have much more in common than is generally acknowledged. In fact, as will be shown below, the Rule of Law principles of which the EU and its Member States are so proud are in fact the common foundation for EU law and international investment law.

In March 2014 the European Commission published its Communication entitled: “A new EU Framework to strengthen the Rule of Law“. The Communication explains that:

“The principle of the rule of law has progressively become a dominant organisational model of modern constitutional law and international organisations (including the United Nations and the Council of Europe) to regulate the exercise of public powers. It makes sure that all public powers act within the constraints set out by law, in accordance with the values of democracy and fundamental rights, and under the control of independent and impartial courts.  The precise content of the principles and standards stemming from the rule of law may vary at national level, depending on each Member State’s constitutional system. Nevertheless, case law of the Court of Justice of the European Union (“the Court of Justice”) and of the European Court of Human Rights, as well as documents drawn up by the Council of Europe, building notably on the expertise of the Venice Commission, provide a non-exhaustive list of these principles and hence define the core meaning of the rule of law as a common value of the EU in accordance with Article 2 TEU. Those principles include:

  • legality, which implies a transparent, accountable, democratic and pluralistic process for enacting laws;
  • legal certainty;
  • prohibition of arbitrariness of the executive powers;
  • independent and impartial courts;
  • effective judicial review including respect for fundamental rights; and
  • equality before the law.”

For EU law practitioners this summary of the Rule of Law principles is well-known and unsurprising.

But the point that I want to make is that the very same Rule of Law principles are also  familiar to practitioners of international investment law, in particular arbitrators and legal counsels.

More specifically, most, if not all, of these Rule of Law principles have been found to be encapsulated in the fair and equitable treatment (FET), most favoured nation (MFN) and national treatment (NT) standards, which are contained in one form or another in practically all IIAs.

For example, the various elements of the FET standard used by the arbitral tribunal in Tecmed can be summarized as follows:

  • The protection of the investor’s legitimate expectations
  • Due process and denial of justice
  • Obligation of vigilance and protection
  • Transparency and Stability
  • Lack of arbitrariness and non discrimination
  • Proportionality
  • Abuse of Authority

Admittedly, the description of these elements is not identical with the EU’s Rule of Law principles, but the thrust and the main aim of all these principles is the same, namely, to protect fundamental rights and to deliver justice.

Domestic courts of the Member States, the CJEU, arbitral tribunals as well as the envisaged permanent investment court (if it were to be established) are all entrusted with same task of delivering justice. Moreover, it is expected and should be presumed that all these judicial bodies are composed of qualified persons who are impartial, independent and have the necessary expertise to exercise that task.

Obviously, that is not always the case, but what matters is that conceptually they are entrusted with same task and must base themselves on the similar Rule of Law principles.

If that is indeed the case, the Rule of Law principles as espoused in the EU’s Communication have to be recognized as the common foundation for EU law and international investment law alike.

Consequently, that common foundation could – and indeed – should provide the basis for a better mutual understanding, removing most of the perceived tensions and opening up the way for an effective co-existence and interplay between both legal branches.

In sum, rather than emphasizing the differences between EU law and international investment law, it makes more sense to appreciate the common foundation.


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