DAA Investment Arbitration Committee Meeting 2019

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

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

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

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

Program

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

 

Registration

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

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 Provisional Application of CETA is Coming Close

by Nikos Lavranos, Secretary General of EFILA

The anti-CETA/TTIP campaign is reaching its climax.

After the anti-ISDS NGOs have managed to bring the TTIP-negotiations to halt – at least it has now been officially admitted that the negotiations cannot be concluded in 2016 and it remains unclear whether, and if so, how long the negotiations under the new US President will be under way.

The attention has now turned to CETA, in particular the – finally – scheduled signature of it on 27 October 2016 between the EU and Canada, which would entail the immediate provisional application of most parts of CETA, i.e., the trade, services, customs, rules of origin chapters, which fall under the exclusive competence of the EU.

Since the European Commission accepted that CETA is to be ratified as a mixed agreement, the anti-CETA groups have been focusing their efforts to stop CETA in some of the Member States, in particular Germany, the Netherlands and Austria.

On 12 October 2016, the Dutch Parliament approved the provisional application of CETA. So, the anti-CETA groups lost in that Member States.

On 13 October 2016, the German Constitutional Court rejected their injunction in their entirety. Accordingly, the German Government is free to agree to the provisional application of those chapters, which clearly fall into the exclusive competence of the EU. Of course, it remains to be seen how the Court will decide on the merits. This decision will be interesting in the light of the CJEU’s Opinion on the EU-Singapore FTA, which revolves around the question whether, and if so, to what extent, this agreement is a mixed agreement.

At this point in time, Austria and Belgium, in particular the regional Parliament of Wallonia, are other potential candidates for blocking CETA.

But let us not forget the European Parliament (EP). Much to the dismay of many of the MEPs, the Legal Service of the MEP recently concluded that there are no legal obstacles for agreeing to CETA. It remains to be seen whether the necessary majority for a “yes” vote will be found in the EP, that is, Article 218 TFEU requires the “consent” of the EP.

In short, the final fate of CETA is still unclear and will remain so for some time. Nonetheless, the green lights by the Netherlands and in particular Germany for the provisional application of CETA are important signals, which should persuade the doubters in other Member States.

Of course, Canada is not the US, so if CETA finally would enter into force in its entirety (after it has been ratified by all Member States – maybe not by the UK anymore), this could help giving TTIP a positive boost it so desperately needs.

But that will depend on the outcome of a whole series of elections, not only in the US, but also in France, Germany and the Netherlands.

Meanwhile, the time should be used to remind policy makers and the general public of the overall huge benefits of trade and investment agreements for all.

NOTICE:

Register for the 2nd  EFILA Annual Lecture to be delivered by Johnny Veeder, QC, with the timely title:

“The Phoenix to emerge from the ashes of TTIP and CETA: an international appellate court for investment disputes in Europe …”

Click here for all information regarding registration:

http://efila.org/events/next-annual-lecture-2016/

SAVE the DATE:

23 February 2017 Vienna: 3rd EFILA Annual Conference!

Click here for the flyer: http://efila.org/events/next-annual-lecture-2016/

 

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

Sophie Nappert, 3 Verulam Buildings

Nikos Lavranos, EFILA

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

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

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

ISDS

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

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

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

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

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

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

ICS proposal: the concerns

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

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

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

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

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

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

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

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

Macro-level implications

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

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

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

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

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

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

Micro-level implications

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

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

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

A real and potentially significant impact

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

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


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

Avoiding ISDS: National Contact Points for Investor Guidelines and Mediation

by Tabe van Hoolwerff* 

Imagine, you are an EU trade minister and you want to attract foreign investors by offering a stable investment climate. At the same time, you also want to avoid potential claims arising from government measures that seek to protect the environment or labor standards – a fear your non-business stakeholders have been very vocal about. You have also learned from the business sector that Investor-State Dispute Settlement (ISDS) is a means of last resort. So there must be room for maneuvering in the area of conflict prevention. Two keywords from your experience in the policy field of responsible business conduct spring to mind: transparency and mediation. How to go from there?

Despite the public belief that foreign investors will easily sue their host governments when faced with measures that impair their profitability, you realize that by far and large such measures remain uncontested at the investor-to-state level. Moreover, measures aimed at business activities in order to e.g. reduce their environmental impact are also in the self-interest of companies and a business sector as a whole. When a laggard in the industry fails to uphold common yet not mandatory levels of environmental protection, then that may put the social license to operate of the industry as a whole at risk.

So, new legislation requiring particular environmental standards to be upheld for that industry is likely to help them all in the long run. You smile when realizing that it ‘only’ takes a fine minister as yourself and your colleagues to find the right balance between adequate environmental protection and reasonable costs for the business sector. Typical Brussels jargon such as subsidiarity and proportionality may even spring to mind.

Back to transparency. Although you are not likely to be an expert in international investment law, you have learned that cases often center around ‘legitimate expectations’ of the investor. So in order to guide these expectations, you want to inform (potential) foreign investors about the basic regulatory framework in your country and the democratic process for making new laws and regulations, in which they could perhaps even participate. It would indeed be useful to compile this information on such issues as disclosure, corporate governance, labor and consumer rights, environmental standards, anti-bribery laws and taxation into one convenient document.

Of course you want to mention that these laws and regulations are upheld in a non-discriminatory manner, in case an investor might think he could be bullied on the basis of all these norms and standards. You decide to call them ‘Guidelines for Responsible Investment’ or something similar. You want to use that word ‘responsible’ because it reassures your non-business stakeholders what kind of investment and investors you want to attract and it tells investors to be responsible by making themselves aware of laws and regulations and how to appropriately engage in their making.

Obviously, these Guidelines need to be disseminated. If you do not yet have a special agency for attracting foreign investment, you might consider doing so now and give it a catchy name that will send the right signals to all stakeholders, like ‘National Contact Point for Responsible Investment’. This Contact Point can draw a communication plan, visit trade fairs and help organizing incoming trade missions where potential investors learn of both the opportunities and obligations when investing in your country.

But no matter how clearly you and your government communicate about laws, regulations, individual permit procedures and subsidy schemes, a conflict between your government and a foreign investor might still emerge one day. You know investors are not happy to resort to investor-state arbitration – it is expensive and the odds are not with the investors – and neither are you. Investor-state conflicts are bad publicity of course. Similar to legal disputes between private parties, you think that a state and a foreign investor should be able to try amicable venues first, such as mediation.

Of course, when offering mediation, you do want to keep some level of control, but also provide assurance to the investor that the entity providing its good offices knows about doing business and the various risks involved. Well, why not put that same Contact Point in charge here? All it needs is some procedural guidance on how to handle specific instances in which a foreign investor alleges discriminatory government measures have run counter to his legitimate expectations. The objective should not be to render verdicts about right or wrong, but to produce future-oriented recommendations that enable the investor to continue his/her business, so creating jobs and government revenue while observing applicable norms and standards that protect public goods.

In short, you could come up with the idea of drafting Guidelines for Responsible Investment that would be disseminated by a National Contact Point that would also deal with complaints by offering its good offices to aggrieved investors. It would be helpful of course if all your EU colleagues would apply a similar model, for purposes of a level playing field and exchanging experiences with handling investor complaints. Only then you realize that this plan sounds all too familiar. You call your investment policy expert to verify your thoughts. (S)He will indeed confirm that your plan strikingly resembles the 1976 OECD Guidelines for Multinational Enterprises, the related National Contact Points and their tasks, responsibilities and procedural guidance, most recently updated in 2011.

Only that it has been used in the past two decades by civil society to hold companies to account. But indeed, with some creativity the OECD Guidelines and NCPs could also be applied as an ISDS prevention mechanism. After all, the Guidelines are part of the OECD Declaration on International Investment and they include an encouragement of the use of arbitration as an appropriate means of dispute resolution between enterprises and host governments. How come nobody else ever thought of this? Would it not be worth exploring?


Tabe van Hoolwerff is a legal counsel with Shell. This blog was written and published on a personal title and not on behalf of Shell. The views reflected are Tabe’s own and do not necessarily reflect those of Shell.

A BIT-By-BIT Understanding of the EU’s Present & Future Investment Agreements

by Emma Spiteri-Gonzi*

Anyone with an interest in European investment and trade will undoubtedly have heard of the EU-US TTIP or, to use its full name, the Transatlantic Trade and Investment Partnership. Naturally, this makes sense as the US is the EU’s top trading partner and a trade agreement of this significance would unquestionably make headlines. The reality, however, is slightly different and the TTIP has made headlines for all the wrong reasons. One of these is the controversy generated from its investment chapter, more specifically its investor state dispute settlement provisions (ISDS). The aim of this piece is to shift focus away from this arduous debate and instead take a glance at the whole of the EU’s trade policy agenda.

Amidst the controversy of the TTIP negotiations the EU has already concluded a free trade agreement (FTA) with South Korea. The final text of the EU-Singapore FTA was also agreed upon, along with five Economic Partnership Agreements (EPAs) with Cote d’Ivoire, Cameroon, the Southern African Development Community, Ghana and the East African Community. These new generation EU investment agreements form part of an ambitious trade agenda by way of the EU’s Common Commercial Policy (CCP), Articles 206 and 207 of the Treaty on the Functioning of the European Union (TFEU), which call for the ‘harmonious development of world trade’ and ‘the progressive abolition of restrictions on foreign direct investment’. Prior to the CCP EU Member States entered into their own investment agreements with third countries. The first bilateral investment treaty was the German-Pakistan BIT, a bit ironic given the heated opposition to TTIP from that member state.  After the German-Pakistan BIT individual member states concluded around 1200 bilateral investment treaties. The Commission is now tasked with finding a consensus approach to trade agreements amongst member States.

For a moment, let’s ignore the hyperbolic headlines (e.g. ‘Trojan TTIP’) and review instead what these new generation agreements will mean for us. The Commission has said that if the EU was to complete all its current free trade talks tomorrow, it could add 2.2% to the EU’s GDP or €275 billion. This is equivalent to adding a country as big as Austria or Denmark to the EU economy. The agreements will cover goods, services, intellectual property and the procurement by government agencies of goods and services for a public function. Furthermore, these agreements will set out provisions on regulatory coordination and cooperation to facilitate trade in the covered areas, as well as establish rules to govern what qualifies as an investment and who qualifies for protection as an investor. They will contain commitments on customs duty reduction, access to services markets, and also consolidate and regulate technical barriers to trade (TBT) such as technical regulations relating to labeling or marking requirements.

The EU is also undergoing treaty negotiations with its second and third largest trading partners, China and the ASEAN [1] countries respectively. Chinese EU trade negotiations have reached their seventh round, with the eighth round scheduled to take place in Brussels at the end of November 2015. Also underway are negotiations for a FTA with JAPAN. Negotiations with Japan, the EU’s second biggest trading partner in Asia, are in their twelfth round, though as yet no agreement on an investment chapter has been reached. A Deep and Comprehensive Free Trade Agreement (DCFTA) with Morocco has entered the fourth round of negotiations. And, with recent or coming regime change in India, Burma and Argentina those countries are destined to move up the ladder on the EU’s trade negotiation agenda.

With Canada, the EU’s twelfth most important trading partner, the EU has concluded a Comprehensive Economic Trade Agreement (CETA). This agreement’s investment chapter is the investment chapter on which the TTIP’s investment chapter was modeled. Yet, the CETA managed to reach final form without attracting the scrutiny of TTIP critics. The EU has also entered into a DCFTA with Moldova and Georgia, which began to apply provisionally from September 2014. The EU-Ukraine DCFTA was completed and provisional application will begin once it has been ratified.

With the proliferation of present and pipeline new generation EU investment agreements, do critics use time wisely merely focusing on the TTIP and tarnishing ISDS? We stand to miss the forest for the trees. Europeans ought not lose focus on the end goal, the creation of favourable investment climate and the economic rewards that come with it.


[1] The EU is currently negotiating with three Association of Southeast Asian Nations (ASEAN) countries Malaysia, Vietnam and Thailand.


* Emma Spiteri Gonzi, Legal Counsel- Nemea Bank Plc.

ISDS in TPP and TTIP Negotiations – Lessons for the EU

by Prof. Loukas Mistelis, QMUL*

The Transatlantic Trade and Investment Partnership (TTIP) and, in particular, its Investor-State Dispute Settlement provisions (ISDS) have been the focal point of an intense and polarising debate within the EU. Opponents of TTIP, on the one hand, reject the very idea of a new multilateral trade and investment agreement and see this as a threat to democracy and unconditional surrender to global commercial interests, a development that fully undermines sustainable development and growth. Proponents of TTIP, on the other hand, argue that globalisation of trade is a fact and a developmental process so that the focus should now be on better treaty making; they suggest that globalisation empowers consumers and new multilateral agreements can effectively promote a social and human rights agenda.

In relation to ISDS (or what it used to be called Investment Treaty Arbitration) the attack is even more aggressive. While the negotiating parties consider whether TTIP should offer the opportunity to an investor to sue in arbitration a state signatory to the agreement (since the state is deemed – by virtue of the signature of the treaty and the relevant provisions of the treaty – to have consented to such arbitration), a number of NGOs and a good part of the press, including several well-established newspapers left-of-centre argue that ISDS is a threat to national sovereignty and a vehicle for further privatisation of justice for the benefit of few very wealthy arbitration lawyers and arbitrators. It is also suggested that ISDS cases are designed for the benefit of investors. This, however, is not corroborated by facts.

The EU itself, in its discussion of ISDS (pp. 7-8) summarised that:

  • 37% (132 cases) had been decided in favour of the State, with all claims dismissed either on jurisdictional grounds or on the merits;
  • 28% (101 cases) had been settled;
  • 25% (87 cases) were found in favour of the investor, with monetary compensation awarded;
  • 8% (29 cases) had been discontinued for reasons other than settlement or for unknown reasons;
  • 2% (7 cases) had found in favour of the investor, yet no monetary compensation had been awarded.

In other words in 73% of the cases the state prevailed or settled the cases while in only one in four cases (25%) a damages award was rendered.

In relation to EU Member States the data is even more compelling:

  • In 44% of the cases, all claims were dismissed or jurisdiction was declined;
  • In 36% of the cases, the dispute was settled or otherwise discontinued;
  • In 20% of the cases, the dispute led to an award upholding claims in part or in full.

In 80% of the cases involving an EU Member State as a respondent the state prevailed or settled the matter while only in one in five cases a damages award was rendered.

It is noteworthy that the arbitration community as well as the business community have not been particularly vocal or proactive in this debate, save for a few specialist conferences. It has also been rather impossible to bring together a wider and open public debate despite several efforts of EFILA and other organisations to engage in constructive discussions with NGOs.

In the recently published report of the US-EU TTIP Negotiations, which took place in Washington, D.C and Miami in October 2015, there is no reference to ISDS. This is particularly interesting given that the EU through Commissioner Malmstrom published on 16 September 2015 a comprehensive proposal for a permanent Investment Court System. I suspect that the EU Commission proposal was published too late to be tabled for and discussed during the October negotiations. From the EU press release one can draw the conclusion that the EU Commission is confident that it had addressed various concerns voiced by parts of the press and NGOs. It will be significant to see the reactions of Member States and the EU Parliament. See, for example, the brief report which indicates that the UK government appears to favour a traditional ISDS mechanism but also note that this is not the official UK government response.

This post does not address the merits and disadvantages of a permanent investment court but addresses the question of negotiation strategy and policy. The investment court system proposal was discussed in another EFILA Blog post on 14 October 2015. It perhaps useful to add here merely that the reaction of the USTR Ambassador Froman to the EU suggestion was lukewarm.

While the EU was authorised by the Member States in 2013 to conduct the TTIP negotiations it seems that the negotiations will take some time to conclude. The US presidential elections in 2016 will slow down the negotiations at least until mid or late 2017. A conclusion of TTIP will not be on the agenda for a few years to come.

This is in stark contrast with the conclusion of the Trans-Pacific Partnership (TPP text) which the US accelerated and recently completed. TPP has been signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US in Atlanta a few days ago. The TPP negotiations started in 2008 and it took good seven years to conclude.

The text of TPP will be scrutinised by the EU negotiators, the EU Commission and the Member States. It would suffice to say here that TPP is largely a typical US Trade and Investment Agreement with some variations from previous texts and that ISDS is included. It contains substantive protections found in many investment agreements and essentially mirrors the provisions found in the 2012 US Model BIT. As such TPP differs from the EU-Canada Comprehensive Economic Trade Agreement (CETA) and the EU-Singapore Free Trade Agreement.  For example, it grants minimum standard of treatment in accordance with customary international law. It is also reported that TPP includes a code of conduct (code of ethics for arbitrators) while at the same time more power is conferred upon arbitrators to dismiss summarily frivolous claims. There is also an exclusion for tobacco companies from using ISDS, further enhancing and strengthening the regulatory space of states.

The key conclusion to draw from the ISDS provisions in TPP is undoubtedly a strong and unequivocal endorsement of the current practice of private arbitration of investment disputes (traditional ISDS) where the focus has moved to substantive protection rules rather than arbitration as a method. In this respect TPP dispelled ISDS myths and focused on facts.

In light of the recently concluded TPP it is tactically unhelpful that the EU has published an alternative ISDS Model at this stage of negotiations. One could easily argue that the TPP model for ISDS is “state of art”, widely accepted by a number of developed economies such as Canada, the US, Australia, Japan and Singapore (in fact 40% of the world’s GDP) and that the EU should also operate in a similar system, increasing multilateralism rather than introducing further fragmentation of international investment law. It is also expected that both the EU and the US take a central role in promoting free trade and investment promotion and protection and it would be awkward, to say the least, to have different standards of investment promotion and protection depending on who the counterpart is. The introduction of “formal” discrimination could have negative impact of the global role of the EU as a preferred trading partner of developing countries.

Tactically a very early announcement of the EU basis of negotiation on ISDS in TTIP looks very much like a game theory faux pas. Or it may well be a very shrewd tactic. Any draft which is proposed to merely satisfy domestic or regional needed of the proposing side can be used by the other side to the proposing side’s detriment if the need for a quid pro quo settlement arises. Alternatively it may a tactic to silence the opponents of ISDS by proposing something that can easily be rejected so that both sides would, for example, be satisfied with a permanent investment appellate body while retaining private arbitration at first instance. In such a case the EU could argue that they fought hard for a permanent two-instance investment court and the permanent appellate body is a great success.

Rejecting private arbitration while the statistics are clear that most cases are in favour of states rather than investors and while it is also widely accepted that we should not be depriving investors the access to arbitration (or ISDS) seems to parochial rather than modern and protectionist rather than liberal. The attention should move to improving ISDS and private arbitration by drafting clearer treaties, better procedural rules and enforceable codes of conduct. Polarising the debate does not allow space for regulatory nuances nor does it help to create a convergent if not harmonised investment protection and promotion regime.


* Prof. Loukas Mistelis, Clive M. Schmitthoff Professor of Transnational Commercial Law and Arbitration, Queen Mary University of London, School of Law.

The Polish Government’s Standpoint on ISDS Inclusion in the Scope of TTIP

by Pawel Sikora, Kubas Kos Gałkowski

It is beyond any doubts that the ongoing procedure of negotiating Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States of America (US) raises essential controversies among the EU member states societies. However, it is not the first time such controversies occur, as just three years ago a similar confusion has risen in the course of talks over the Anti-Counterfeiting Trade Agreement (ACTA), which has been widely criticized.

Just to remind, the Polish Government initially had approved ACTA but changed its position under the pressure from the society and non-governmental organizations. The exactly same story is now happening in relation to TTIP and, in particular, the Investor-State Dispute Settlement Mechanism (ISDS). The Polish Government has presented its official position in which it widely supports the negotiations of TTIP and the idea of the inclusion of mechanism of ISDS in the scope of the future agreement. But that does not mean it will eventually happen.

As it is known, the common argumentation raised against TTIP and ISDS is i.e. that upon signing the treaty, the “flood of US investors’ claims” against EU countries may purportedly be expected, that would be heard by international arbitration tribunals instead of domestic courts. Altogether, amongst diverse organizations this may be considered as a forecast of one-sided dispute between the investors and states. However, Poland denotes that is does not have to be so – as it was otherwise in the past. Polish Ministry of Economy argues that the Republic of Poland is a party to over sixty bilateral treaties, including a Treaty with the United States of America concerning business and economic relations signed, entered into on March 21, 1990.

For almost three decades only six claims have been filed under the Treaty by US investors. In only one of these cases investor’s claims were partially allowed (approximately one fifth of the claimed amount has been awarded to the investor). In another two cases, claims were dismissed in whole, and one is still pending. Two cases ended with non-substantive decisions. What we need to keep in mind, is that Poland for many years has been an important direction for US investors. Currently, the value of US direct and indirect investments in Poland is estimated for PLN 25 billion (c.a. USD 6,5 billion). There are over 800 entities with US equity, employing over 200,000 people. This proves that there is no direct dependency between amount of claims and decisions in favor of the investor on existence of bilateral treaties and ISDS mechanism.

The Ministry of Economy validates that the future treaty will also introduce a better balance between the foreign investor rights and the state authorities’ right to regulate. In addition, it will guarantee a higher level of protection against the unreasonable lawsuits than currently existing. The TTIP opponents remain adamant to these arguments; also so called “social resistance” still tends to be strong. Seventy five Polish NGOs have recently teamed up in their struggle against the inclusion of the ISDS mechanism into the future treaty; they consequently keep pressing the officials. We are going to witness whether Polish Government’s stands firm with its current view or surrenders to this pressure. Due to the current situation in Poland, concerning the upcoming parliamentary elections (November 25th) and its outcome, this question is of vast importance.

Is ISDS Superior to Litigation before Domestic Courts? An EU View

by Prof. Marco Bronckers, VVGB Advocaten*

In my view, something important is missing in the current debate on an Investor-State Dispute Settlement Mechanism (ISDS) in the EU’s new and comprehensive trade agreements with Canada (CETA), Singapore, the United States (TTIP), and other countries. In a ‘concept paper’ published last May, the European Commission posits as a fact that domestic courts are not competent to deal with treaty-based claims of foreign investors. This would then explain the need for ISDS or, alternatively, an international investment court. The Commission published details on its plans for such an international court in mid-September.

First, the limited role domestic courts can play in resolving treaty-based claims is not a fact. This is largely the result of a surreptitious, and unfortunate policy choice of the EU institutions and Member States.  Second, even if one assumes that relying on domestic courts could be problematic where treaties are concerned, it makes little sense to allow only foreign investors a better shot at enforcing treaty provisions through some kind of international mechanism. The new generation of bilateral agreements cover multiple subjects, from trade to investment, from environment to labor rights. Accordingly, beyond foreign investors other private stakeholders also have an interest in the correct implementation of these agreements. By denying all these stakeholders the right to rely on treaties the governments are putting a firm brake on the benefits they were hoping to generate.  This contradicts the high expectations governments like to raise about the positive impact of the new bilateral trade agreements on economic growth, environmental protection etc.

In the overwhelming majority of cases referring private stakeholders to state-to-state dispute settlement is not promising. Few cases are taken up by governments for intergovernmental dispute resolution. Such disputes are politicized and governments do not have the resources anyway to deal with many, especially smaller cases.  In addition, intergovernmental dispute resolution by definition does not help private stakeholders who believe their own government is not complying with an international standard; their own government will not bring a case against itself. As a result, if one relies only state-to-state dispute settlement the impact of external benchmarks in bilateral agreements to check government conduct is considerably diluted.

In other words, the EU does not need a mechanism like ISDS in the agreements with the United States, Canada and so on for the same reasons that historically led to the inclusion of ISDS in agreements between developed and developing countries. In the old days, it was felt that foreign investors needed extra protection before committing their capital on a more permanent basis to a developing jurisdiction, which offered uncertain legal protection. Although foreign investors may still face some uncertainties in developed host countries, offering them protection in these more exceptional situations cannot be the driver for including an ISDS-type mechanism in the new comprehensive trade agreements amongst major developed countries.

The main reason to offer a private stakeholder a means to appeal to these bilateral agreements is to ensure that they will be effectively implemented. Yet effective implementation should not only be limited to the investment chapters, but to these agreements more broadly. This then is the principal reason in favour of allowing a broad class of private stakeholders, not just private investors, access to an international ISDS-type mechanism — or preferably access to domestic courts, who are empowered to deal with private treaty-based claims.

Domestic courts offer considerable advantages: access is broadly available, and is more affordable too compared to most international remedies. Furthermore, wherever the trias politica is recognized, domestic courts have a direct role to play in offering checks and balances, also to foreign parties, in respect of other government institutions.  Moreover, it would be rather surprising, in 2015, for anyone to have doubts about the capability of domestic courts to interpret international law.

This is not to say though that in the EU domestic courts can immediately replace ISDS or an international investment court. The EU institutions and the Member States would have to discontinue their campaign to prevent private parties from asserting rights based on bilateral trade agreements before domestic courts. Furthermore, the quality of the judiciary in a substantial number of EU Member States needs to be improved, in terms of independence and efficiency, before it is reasonable to expect that the treaty partners of the EU can have sufficient confidence in its domestic courts (see, e.g., World Economic Forum, Global Competitiveness Report 2014-2015).

Meanwhile, when designing an alternative mechanism for ISDS, the EU and its treaty partners must permit a much broader class of private stakeholders than foreign investors to invoke protection under the new bilateral trade agreements. Furthermore, in order to be effective and fair, such access needs to be affordable for smaller stakeholders too.  This will prove to be a challenging task for governments. Ultimately, domestic courts are best-placed to provide such a remedy. That is why it is advisable to put a time limit on any solution, which is now being considered as an alternative to ISDS.  Within a period of, say, ten years after the entry into force of an agreement like TTIP or CETA, the authorities should reconsider whether domestic courts cannot take over the role that was first assigned to an international tribunal of some kind.

I have developed these points in a longer study, just published: Marco Bronckers, Investor-State Dispute Settlement (ISDS) Superior to Litigation Before Domestic Courts? An EU View on Bilateral Trade Agreements, in 18 Journal of International Economic Law 655-677 (No. 3, 2015).


Prof. Marco Bronckers, VVGB Advocaten, Brussels; Professor of law at the University of Leiden.

Beyond the Blockade: Law and Politics in the Investment Law Debate (A Further Reply)

by Horia Ciurtin LL.M., Managing Editor of the EFILA Blog*

This post represents a counter-reply to Emanuela Matei’s material “Defining International Investment Law for the 21st Century (A Reply)”, published on the EFILA Blog on 11th September.

Prologue: Antagonism and Agonism

There is no doubt that false dichotomies and sophistically (a)moral choices between two imagined evils are at the cause of nowadays chaotic debate regarding international law. Such Manichaean positions tend to polarize theoreticians and practitioners, lawyers and civil society, EU law proponents and investment law defenders, sovereigntists and European federalists in a never-ending race toward the horizon of a new conceptual hegemony.

Therefore, Emanuela Matei is right to argue that such oppositions are nothing but straw men intended to move the attention far away from the pressing issue of the moment (and from a possible real solution). Moreover, all the parties are led – in this manner – into the temptation of legal (and political) self-righteousness, professing isolated monologues and autarchic systems of meaning that are not meant to meet the other side in a common space of discussion. Hostile antagonism thus prevents constructive agonism from arising.

The Dialectics of Investment Law

However, my initial thesis was slightly different than Emanuela Matei’s representation of it. I never argued that allowing any modification of the current BIT structure – and its ISDS clauses – would irremediably compromise the investment regime. Far from me to develop such an apocalyptic scenario or endorse the position of those that argue that the present investment law system is without fault and in need of no reformation.

Rather, the intention was to depict two alternative attitudes that claim to finally solve the ISDS problem: one by modifying its terms of reference and procedures, the other by totally obliterating the investment law regime. However, none of them presents a true solution, a way out of the normative labyrinth, but rather a self-defeating detour that prolongs the stumbling of the entire system.

The first of them, metamorphosis, is not – in my vision – a Kafkaesque transformation, not a tragic and grandiose loss of legal sense. Such a metamorphosis, as experienced by the investment regime today, is rather one in the vein of Apuleius, presenting a tragicomic and ridiculous shape-shifting which awaits a miraculous normative ‘deus ex machina’ to save the day at the end.

Thus, stricter FET qualifications, resisting the enforcement of arbitral awards on the basis of EU law requirements or increasing the presence of the state in the proceedings of fers no great relief from the real issues which confront the investment regime. In reality, such amendments to the system appear only as a ‘bait’ offered by nation-states in order to appease their increasingly vocal civil society and anti-ISDS campaigners. In tactical terms, this is only a different path to continue undisturbed. It is neither a solution for the pro-ISDS side, nor for the anti-ISDS one.

The second strategy, deconstruction, appears – at a first glance – as a postmodern loss of faith in the possibility of (international) law to solve the problems of the global economy. The solution: erasing bilateral treaties. However, such a gloomy vision upon the international normative sphere is genuinely inconsistent with the same ‘deconstructive’ states’ policy in other areas. There, international law seems to still do its old job. The essence of such a position is – generally – also tactic: avoiding present and future investment claims against the host state.

The Westphalian Labyrinth

However, there is (legal) life beyond these paths. And the labyrinth can clearly be evaded. Usually, putting the right questions gives a picture of the real problems and – afterwards – of true solutions. In this regard, one must first inquire about the conceptual origin of today’s legal aporia.

Why does international law – and its self-professed universality – seem to be problematic at the present moment? Why is international investment law even more problematic and why it faces such an intense critique? Until now, it seemed that no one was really interested in such a disparaged fragment of the system and it posed no stake for neither side of the ideological antagonism.

A brief diagnostic – as the space only allows – would lead me to answer that the obsession with Westphalia (either in strongly re-asserting it or in emphatically claiming that it is over) might really be at the root of the problem. Much of the proposed metamorphosis and/or deconstruction stems from either harsh sovereigntists or from post-sovereign proponents. None of them is content with the investment law hybrid and the procedures it offers.

Such a mixed litigation model offers no hegemonic position for state entities or for supra-national entities. It rather channels the dispute in a commercial-inspired manner which leaves little space for Westphalian language-games and public policy objections. Moreover, the investment regime tends to work both ways and it occasionally backlashes against the same actors that initiated it.

For these reasons, the genuine solution is neither Westphalian, nor post-Westphalian. It is non-Westphalian: a mode of thinking that does not need to sacrifice sovereignty in order to acknowledge supranational entities or transnational networks. This latter element is (almost) never taken into account by any side of the dispute: there are actors that shape public policy and international norms, without any tangency with (supra)sovereignty. The influence of such transnational networks and their global reach might – in the end – prove as necessary for the reformation of international investment law as the use of (supra)state normative power.

Clearing the Air: Politics and Legal Discourse

Thus, as Emanuela Matei correctly indicated, the solution might indeed not lie within the legal sphere itself. But it shall take a legal form nonetheless. Law is a privileged discourse of the political realm, its most important language-game. It channels power and gives it a definitive and efficient shape. Even the strongest realist interpretation (a la Hans Morgenthau) would admit that although the origin of the norm is not legal and neither is its purpose, the instrument shall undoubtedly be legal in a global world that takes positive legality as legitimacy.

In such conditions, even though states, supra-states and non-state networks might clash in a bid for hegemony, their normative horizon is inevitably shared. The way beyond the blockade resides in first establishing a common space for reasoned debate. Then – and only then – could a solution be offered to some of the investment regime’s shortcomings. Antagonism must turn into agonism, if any change should appear into the sunset…


 * Horia Ciurtin, Legal Adviser – International Arbitration, Scandic Distilleries S.A; Editor, VERSO Journal [Romania].