Report on the AIA, EFILA and CIArb Event: Updates on EU Law Related Arbitration: A Selection of New, Controversial and Hot Topics

Nikoletta Kallasidou and Michal Mojto, AIA, Brussels

The Arbitration for International Arbitration (AIA), EFILA and the CIArb jointly organised a well-attended event  at the VUB University in Brussels on the 27th of May, bringing two panels of experts to discuss recent developments on EU-related arbitration. Contentious issues such as the Brussels I Bis Regulation, the arbitrability of EU competition claims, state aid, human rights and investment arbitration under BITs/ MITs were raised and discussed. A lively discussion during the Q&A session following each panel, greatly benefiting both the panellists and the audience.

Thoughts on  Brexit – Effects on Investment Arbitration

In light of the upcoming EU referendum due to take place on the 23th of June 2016, Dr. Christophe Guilbert de Bruet, the first speaker of the day, provided a particularly useful insight on potential consequences of a Brexit in the context of investment arbitration. The presentation began with an overview of the Brexit process. Article 50 of the Lisbon Treaty shall be interpreted as requiring both parties to negotiate in good faith as well as obliging the EU to conclude a withdrawal agreement. Dr Christophe highlighted the importance of the negotiation process as a means of mitigating potential adverse effects of the Brexit.

Turning to the options of the UK has upon withdrawal, he  discussed 3 major models. The EEA model prescribes the departure of the United Kingdom of the European Union without, however, depriving it access to the EU Single Market. This outcome is what he described as the ‘least harmful option’ for both  the EU but also the UK itself. Then he discussed the option of adopting a Swiss model of membership, which allows the UK and the EU to enter into bilateral agreements on particular sectors. The last potential outcome of a Brexit is a drastic severance of the UK from the EU without any immediate negotiations for a trade-related agreement, which, he argued, could lead to severe consequences in the context of investment arbitration.

In the next part of his presentation, he  explained the grounds upon which a successful claim could be brought against the United Kingdom in the case of a Brexit. First, he referred to the concept of ‘fair and equitable treatment’ (FET) as the relevant legal standard, which is accorded to investors by most BITs and is the most relied upon standard of protection in investment disputes. The popularity of FET lies in the flexibility and wide-ranging nature,  encompassing fundamental standards, such as good faith,  due process and non-discrimination. Certain key aspects of the FET principle have however been identified in arbitral jurisprudence, which include protection of the legitimate expectations of investors as well as the requirements of transparency and stability.

Focusing on legitimate expectations, he  highlighted the controversy surrounding the concept, which as he pointed out has been inconsistently interpreted by various arbitration tribunals and has been subject to ‘vociferous criticism’. In an attempt to explain how the concept operates in practice, he employed two factual scenarios of potential Investor-State Dispute Settlements. One of them was ‘The Indian Car Manufacturer’ scenario. Under the India – United Kingdom BIT,  ‘investments of investors of each contracting party shall at shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting party.’ Considering that the investment on the part of the Indian manufacturer in the UK was driven by an expectation to access the internal market,  one may effectively contemplate a breach of legitimate expectations, since in a Brexit situation, such access may be severed or impaired. The chances of success of the claim are higher if the relevant investment agreement had specific assurances of access to the EU Single Market in this regard.

In the context of intra-EU BITs, the United Kingdom has some 100 BITs with other states,  12 of which are with other EU countries. While the European Commission, in its amicus curiae submissions, put forward a range of inter-related arguments to support its position that BITS are superseded by and are incompatible with EU Law, the Tribunals have generally noted that the submissions of the Commission are of persuasive force at best and have sometimes stated explicitly that they do not agree with the Commission’s position. However, if the Commission is right, there is an uncertain future ahead for all these BITs of a post-Brexit British State.

Brussels I Regulation

Up next, Dr Assimakis Komninos, Partner at White and Case, sought to address the ruling of the CJEU in CDC v Akzo Nobel et al, a landmark decision regarding questions of jurisdiction under the Brussels I Regulation in the case of cartel damage proceedings. The preliminary ruling procedure was initiated a German Regional Court, which, inter alia asked the CJEU to elaborate on the bearing of jurisdiction and arbitration clauses in the supply contracts on the German court’s jurisdiction, in light of the requirement for effective enforcement of Article 101 TFEU and Article 53 EEA Agreement.

He first summarised the view given by AG Jaaskinen in delivering his Opinion, who argued that national courts were required by EU law not to apply an arbitration clause, or a jurisdiction clause not governed by Article 23 of the Brussels I Regulation, in cases where the implementation of such clause would  have hampered the effectiveness of Article 101 TFEU. This rather restrictive approach, he explained, was not followed by the Court of Justice. In fact, the CJEU refrained from explicitly addressing arbitration. Instead, the Court of Justice invited national courts to ensure that jurisdiction clauses ‘actually bind the parties’. In other words, the CDC judgment made it clear that jurisdiction clauses cover cartel damage disputes insofar the victim has specifically consented thereto.

He  submitted that the Court’s silence with respect to EU jurisdiction clauses to arbitration clauses was rather intentional, since it could have gone further in its findings, but it chose not to, and as such, the status quo of the more favourable reading of arbitration clauses by national courts should not be affected. If anything, he added, national courts may only exercise a certain degree of caution in the presence of cartel damages claims when ruling on the scope of the arbitration clause. However, he concluded, this does not imply that national courts should routinely require the plaintiff’s explicit consent in order to refer the case to arbitration, since this would amount to serious retrogression.

The arbitrability of competition law claims

Jean-Francois Bellis, Managing Partner at Van Bael & Bellis, gave  a presentation focusing on the arbitrability of competition law issues. Bellis began with a reference to the landmark Eco Swiss case which established by implication the doctrine of arbitrability of competition law. The ordre public nature that is attached to antitrust related disputes, Bellis explained, requires national Courts, when reviewing an arbitral award, to consider EU competition law rules and annul the award where they find the award to be contrary to such principles.

However, the standard of review that is required on the part of the national courts when observing EU Competition rules, was left untouched by the Court of Justice, rendering it one of the key areas of discussion in the field of arbitrability. He referred to the two standards of judicial review, namely the minimalist view, where the Courts render any further examination of competition law issues unnecessary if they are satisfied that the arbitrators have investigated and ruled on potential competition law breaches, and the maximalist view, where the courts perform an in-depth review on how the arbitral tribunal addressed competition law issues and are satisfied that the award did not violate public policy.

National law jurisprudence, he noted, reflects an overall hesitancy to exercise anything above an extrinsic control, which dates back to the case of Thales. In the latter, the French Courts ruled that in order to set aside an arbitral award, the violation of public policy in an international arbitration case must be ‘flagrant, effective and concrete’. The Thales standard has since been reaffirmed on multiple occasions by the French courts, in both enforcement and setting-aside proceedings. However, despite the little support for the maximalist approach, Advocate General Wathelet, in his recent opinion issued in Genentech v Hoechst, emphatically rejected the minimalist approach and called for a more detailed review on the part of the MS Courts on the basis that such fundamental public policy rules cannot be placed under the scope of arbitration proceedings.

In his concluding remarks, Bellis welcomed the new approach initiated by AG Wathelet, highlighting that the existence of an infringement to EU competition law may always be scrutinized ex officio, independent of whether the arbitral tribunal dealt with the issue and irrespective of whether the parties raised such question before the Courts. It now remains to be seen to which extent the CJEU would adopt AG’s Wathelet opinion in the future.

Moving further  from the Minimalist – Maximalist Approach: Let’s talk Pragmatism

Founding Partner of EDGE Legal, Dr Damien Geradin, on the other hand, argued that the two approaches, namely the minimalist and maximalist are extreme positions and endorsed a more pragmatic approach. In practice, he asserted, the reviewing process should not be restrained in its ability to review the award in any matter of depth when it is necessary. While in the vast majority of cases the minimalist approach is sufficient for review purposes, he emphasised that on certain occasions it is necessary for an in-depth review of the arbitral award to be implemented.

In support of his view, he referred to the opinion of AG Saggio in Eco Swiss, which highlighted the need to supervise arbitration awards to ensure that they are compatible with EU Competition rules, which are of great interest in the smooth functioning of the common market.

In relation to the means of investigation that can be used by a domestic Court in its review of the award, it was explained that the starting point is looking at the reasoning of the award. In most instances the reasoning of the award will suffice to identify whether the arbitral tribunal failed to detect anti-competitive behaviour which in turn amounted to a public policy breach. However, on situations where such reasoning is flawed, courts may need to go beyond the reasoning award.

More specifically, he  asserted that where the competition issues relevant to the dispute have been treated by the arbitral tribunal, the reviewing court should rely on the elements of fact that have been submitted to the tribunal without being necessarily bound by the legal characterization of these facts by the tribunal when it has reasons to  believe that it is incorrect. Yet, the reviewing court in principle should only require from the parties to submit factual elements that were not submitted to the tribunal or to produce testimonies in exceptional circumstances when the reviewing court has strong suspicions that the award may condone serious violations of competition law, such as for instance the existence of cartel, which would create a grave prejudice to the interests protected  by competition law. Hence, he  concluded that dismissing the minimalist – maximalist approach altogether and opting for a pragmatic approach, would enable a fair balance to be stricken between the finality of the award, a principle that sits at the core of international arbitration, and the need for domestic courts to ensure that the award does not amount to a serious breach of EU competition law, which is one of the main tools to protect free, undistorted trade within the EU internal market.

The new Investment Court System

Zena Prodromou, Associate in White and Case, followed up next, aiming to shed light on the European Commission’s radical proposal for a new Investment Court System for use in TTIP and future EU trade and investment negotiations. Prodromou opened her speech with some facts and figures on the TTIP and emphasised how the TTIP agreement is intended to enhance the EU-US partnership in the context of trade and investment. Subsequently, she explained that following the inclusion of ‘foreign direct investment’ as part of the common commercial policy under the Lisbon Treaty, the European Commission now negotiates on the basis of the mandates/negotiate directives given by the European Governments with various negotiating rounds. This negotiation, however, is no easy task, since, considering its material scope and the monumental size of economic relations.

Turning to the issue of dispute settlement between investors and states, which has been the most contentious point in the negotiations, she presented the latest proposal of the European Commission which seeks to replace the investor-state dispute mechanism and address scepticism against the ICS instrument. The new system comprises of standing tribunals at two instances: a Tribunal of First Instance, with 15 judges appointed jointly by the EU and the US governments, with 5 appointees each from among EU nationals, US nationals and third party nationals, and a Permanent Appeal Tribunal with 6 members jointly appointed for a six year term.

In terms of the interplay of the new Investment Protection System with domestic law, Prodromou highlighted the strict application of international law, since the Investment Courts would apply exclusively to the provisions of TTIP and would only be allowed to consider a domestic law of each Party taken into account as a matter of fact.  Where the Tribunal would be required to ascertain the meaning of a provision of a domestic law of a Party it would have to follow the interpretation made by that Party’s domestic courts.

Prodromou concluded by observing that the Commission’s proposal sought to address a sense of public distrust towards investment protection. The proposed changes to the ISDS, however, in essence touch upon the very fundamental elements and traits of arbitral proceedings. It is less clear whether, following this, we would be still talking about investment protection granted through arbitration or rather through a new dispute resolution mechanism.

The event was concluded by Dr. Nikos Lavranos, Secretary General of the European Federation for investment Law and Arbitration (EFILA). The animating and controversial topics continued to be discussed in the reception following the event, and all participants left with some new perspectives.

The Pechstein Judgment Emphasizes the Virtues of Arbitration

by Nikos Lavranos, Secretary General of EFILA

On June 7, 2016, the German Federal Court (Bundesgerichtshof, BGH) published a press release summarizing its judgment in the Pechstein case. Since the judgment itself has not yet been published, the following blogpost is solely based on this press release and other publicly available sources.

This case revolves around the attempt of Ms Pechstein, a world class speed skating champion, to annul an award by the Court of Arbitration for Sport (CAS), which had imposed a 2 year suspension on Ms Pechstein for suspicion of doping. Ms Pechstein always denied any doping and claimed that any strange blood levels are due to an inherited condition.

In order to be able to participate in international ice skate races, Ms Pechstein “voluntarily” signed an arbitration agreement with the International Skating Union (ISU) referring disputes to the CAS.

Ms Pechstein challenged the ban before the CAS, but in 2009 a CAS arbitral tribunal upheld the ban, finding no evidence of an inherited condition. She subsequently tried twice to have the award set aside before the Swiss Federal Tribunal in 2010, without success.

Ahead of the Winter Olympics in Vancouver in 2010, Pechstein turned again to CAS to challenge the German Olympic Committee’s not to select her for the national speed-skating team because of the ban. However, an arbitral tribunal of the CAS’s ad hoc Olympic division chaired by Yves Fortier QC rejected that challenge too on the basis of res judicata.

Subsequently, Ms Pechstein turned to the German courts, seeking €4 million in damages from the ISU for loss of income caused by its breach of its dominant position.

While in 2015 Ms Pechstein was successful before the Munich Higher Court, which accepted that her argument that she had not freely agreed to arbitrate at CAS as her consent was a condition of her participation in international competitive speed skating, the German Federal Court overturned that decision.

Most importantly, the Federal Court declared the CAS to be “a real tribunal for arbitration” and that “the global fight against doping is in the interest of both the organisations and those of athletes”. While the court agreed that the skating union is in a dominant position, it said that its conferral of exclusive jurisdiction on CAS to hear disputes is not an abuse of its position as it is based on the “mutual interests” of ensuring that sport is clean. The Federal Court also stressed that there was no “structural imbalance” at CAS, which would imply that the CAS arbitral tribunals’ decisions are skewed against athletes.

Whether or not the German Federal Court’s ruling is considered right or wrong, one  conclusion is clear: this judgment is a massive support for arbitration.

More specifically, the Federal Court considered the finality and speed of the CAS procedures to be of particular importance. The exclusivity of CAS arbitration ensures that parties cannot circumvent the system by turning to ordinary courts. In this way, consistency and finality of the arbitration proceedings are ensured.

Nonetheless, there has been critique on the CAS arbitration system, in particular regarding the closed list of arbitrators. Considering the CAS’ case-load of more than 500 new fillings last year alone, it is obvious that the closed list of arbitrators must be opened up, in order to avoid repetitive appointments of the same arbitrators, who have too many cases on their plates and therefore are unable to deliver their awards in a speedy manner.

Indeed, the CAS is a perfect example that speaks against the use of closed lists or rosters of arbitrators, which has become fashionable in recent investment treaties. Only the free choice of arbitrators will enable the parties to select the arbitrator they consider most suitable, which includes also the actual availability of the arbitrator.

The judgment of the Federal Court also underlines the importance of keeping domestic courts out of the arbitration proceedings. Turning to domestic courts in parallel to arbitration usually only increases the costs and delays the proceedings without a real chance of a “better” decision.

In sum, the Pechstein case is a very good example, which strongly supports the virtues of arbitration, which are finality, quality and speed. This is a message that the European Commission and the Member States should take into account when negotiating investment treaties with arbitration provisions such as for example TTIP.

 

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.

European Investment Law and Arbitration Review (EILARev) Launched

EFILA and Queen Mary University are delighted to launch the new legal journal entitled European Investment Law and Arbitration Review, which will be published by Brill/Martinus Nijhoff.

The Editor-in-Chief is Prof. Loukas Mistelis (QMU) and the Managing Editor is Dr. Nikos Lavranos (SG of EFILA).

The journal welcomes submissions within the scope of it. The deadline is 15 May 2016.

About the Review

With the entrance of the European Union into the field of International Investment Law and Arbitration, a new specialist field of law, namely “European investment law and arbitration” is in the making. This new field of law draws on EU Law, International Investment Law, International Arbitration Law and Practice, International Economic Law and Public International Law, while others fields of law such as Energy Law are also relevant.

The first EU integrated investment treaties with Canada (CETA), US (TTIP) and Singapore (EU-SING) are either negotiated or about to be signed and ratified by the EU and its Member States. These are “integrated” investment treaties in that they combine free trade agreement provisions with international investment agreement norms. Moreover, the Court of Justice of the EU (CJEU) is about to deliver its first judgments and Opinions directly relating to intra-EU BITs and the EU-SING FTA. More generally, the public debate and discussions within academic and practitioner circles about the pros and cons of investor-state dispute settlement (ISDS) and investment treaties in general is intensifying with the day.

This Review is the first law journal that is specifically dedicated to the field of “European Investment Law and Arbitration”. While the developments in Europe and the efforts of the EU institutions is the focus of this Review, the developments in other parts of the world are equally relevant. We therefore especially welcome submissions from all parts of the world, which are related to the developments of European Investment Law and Arbitration.

The Review covers long scholarly articles, shorter articles, case-notes and book reviews. The Review is peer-reviewed by the Editorial Board Members and will only publish high quality contributions.

Initially, the Review will be published once a year, but aims to publish twice a year in the future.

Call for Papers 2016

The Editorial Board invites submissions for publication for the 2016 issue.

The deadline for submission is: 15 May 2016.

​ Submissions should be in English and must be in conformity with the house style of the journal. ​All submissions must be unpublished and original material.

​Submissions should be send as MS-WORD doc to: EILARev2016@gmail.com

​ All submissions will be peer-reviewed. The Editorial Board reserves the right to accept, reject a submission or make publication conditional on modifications, which have been suggested to the author.

All information about the journal and the Call for Papers is available at: http://europeaninvestmentlawarbitrationreview.weebly.com/

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

The Shortcomings of the Proposal for an “International Court System” (ICS)

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

During 2015 it became clear that the European Commission was under mounting pressure from the European Parliament (EP), Trade Ministers of several EU Member States, anti-ISDS NGOs and the media to propose more “reforms” of the investor-State dispute settlement (ISDS) system that is contained in CETA and envisaged to be included in TTIP as well.

EFILA decided to establish a Task Force – consisting also of non-EFILA members – to analyse the final proposal for a so-called “International Court System” (ICS), which the European Commission formally adopted on 12 November 2015 and transmitted it to the US as a basis for further negotiations within the context of the TTIP negotiations.

During the debate in the European Parliament and among several Trade Ministers of EU Member States one key issue pointing towards a “solution” and which was continuously repeated was the creation of a permanent investment court consisting of publicly appointed judges. It was argued that in contrast to the current system of ad hoc arbitration consisting of party-appointed arbitrators, which has been characterized as “private”, behind closed doors dispute resolution, which biased towards the investor, a permanent investment court with judges would ensure fairer and better adjudication of investment disputes. Another related key issue, which was considered important for a “solution” was the creation of an appeal mechanism. Again the rather simplified characterization that ISDS disputes have no appeal possibility and are completely beyond the control of national courts, was used as a justification for the need of an appeal mechanism.

The European Commission had to incorporate these points otherwise a ratification of TTIP by the EP and the Member States would seem rather illusory. Having had significant experience as a disputing party in the WTO, which happens to include the Appellate Body as a permanent (quasi)judicial body, it was a small step for the European Commission to copy and paste many of the WTO dispute settlement elements into its ICS proposal.

The structure of the 60-pages EFILA Task Force analysis is as follows:

Chapter 1 analyses not only the ICS proposal as such, but also the process that preceded the proposal. This is important in order to understand the political context in which this proposal is embedded. It critiques certain aspects of the ICS proposal and raises a number of issues which the Task Force considers should be addressed in developing the ICS proposal further.

Chapter 2 provides an extensive overview of the already existing forms of appeal and annulment of investment awards. It also highlights the reform efforts in this regard by the PCA and the ICSID Secretariat. This overview provides a detailed picture of the status quo (including both the mechanisms and methods of operation), from which the ICS proposal departs. This analysis also draws critical attention to features or elements of the current system of ISDS which could be addressed in developing the ICS proposal.

Chapter 3 turns towards the WTO dispute settlement system by first explaining the features of the appeal system and then by examining to what extent this system could successfully be transplanted into the ICS and the limitations in so-doing.

Finally, Chapter 4 wraps up this analysis by providing some general conclusions as to matters which require consideration by the Contracting Parties in developing the ICS proposal further. In particular, the issues highlighted concern the methods of selection of the judges (and the implications of a move towards a system whereby the Respondent maintains, but the Claimant is deprived of, a role), the size of the pool of candidates for the two-tiered system, the relationship between the ICS and the CJEU and how the ICS will operate in the wider context of resolution of investor-state disputes under other instruments.

The conclusions of the Task Force report can be summarized as follows:

  1. The paper concludes that the ICS proposal is, first and foremost, a bold move to appease the EP and the public opinion in many EU Member States, which are critical against TTIP generally, and in particular against including any type of ISDS. The ICS proposal attempts to make the inclusion of an investor-state dispute settlement mechanism in TTIP politically acceptable, while at the same time trying to address the perceived shortcomings of the existing ISDS.
  1. The paper notes that – in contrast to the public perception – mechanisms for limited review of investment arbitration awards are already in place, such as the ICSID annulment mechanism and the setting aside procedure for non-ICSID awards by national courts. These mechanisms – while not perfect – provide useful corrective tools.
  1. The analysis of the WTO dispute settlement mechanism illustrates that caution should be exercised in simply transplanting it to investor-state disputes. The reason is that WTO law is structurally different from investment law, serves different purposes and has different users.
  1. Generally, it can be concluded that the ICS proposal clearly breaks with the current party-appointed, ad-hoc ISDS as provided for in practically all BITs and FTAs. The main result is that it deprives claimants of any role in the appointment of the judges, while giving the respondent States the exclusive authority to do so, albeit in advance of a particular case. The appointment of the judges by the Contracting Parties raises several problems, which the ICS proposal does not sufficiently address.
  1. The pre-selection of the TFI and AT judges by the Contracting Parties carries the inherent risk of selecting “pro-State” individuals, in particular since they are paid by the States (or rather their tax payers) alone. Apart from this danger, it remains doubtful whether a sufficient number of appropriately qualified individuals with the necessary expertise can be found. This is particularly true since many professionals currently working in arbitration may be excluded on the basis that they could be considered to be biased. The pool of TFI and AT judges would seem to be limited to academics, (former) judges and (former) Governmental officials. That might not be sufficient to guarantee the practical experience and expertise needed and/or independence from the State.
  1. The standard of impartiality and independence of the judges is highly subjective, and their independence on a practical level is not assured by the proposed text. Also, the system of challenging TFI judges and AT members can be further criticised for envisaging that the presiding judge will decide the challenge against one of his own colleagues on the bench, rather a decision being made by an independent outside authority.
  1. The system of determination of Respondent (in the case of the EU or Member States), in particular the binding nature of that determination, which is done by the EU and its Member States alone, creates significant disadvantages for the claimant and does not allow the ICS tribunals to correct any wrong determinations. This could result in cases being effectively thrown out because of a wrong determination of the Respondent.
  1. Since the ICSID Convention is not applicable to the EU, the recognition and enforcement of

ICS decisions remains limited to the EU and the US. The proposal also fails to clarify the difficulties elated to the New York Convention 1958.

  1. The ICS proposal does not address the difficult legal situation between the CJEU and other international courts and tribunals. There is no reason to believe that the CJEU would be more positive towards the ICS as compared to its outright rejection of the European Court of Human Rights when it comes to the potential interpretation or application of EU law. Also, the CJEU’s consistent rejection of any direct effect of WTO AB panel reports – even those that have been approved by the DSB and after the implementation deadline has lapsed – raises doubts as to the legal effects of ICS decisions within the European legal order.
  1. In sum, the suggested creation of a two-tier (semi)permanent court system would give the Contracting Parties a significantly stronger role in the whole dispute settlement process – potentially at the expense of both the investor/claimant and the authority of the ICS. In particular, the appeal possibility carries the risk of burdening small and medium investors by increasing the potential length of the proceedings and costs.
  1. While the US position towards the ICS proposal remains unclear for the time being, it also remains unclear how the ICS proposal could be multilateralized. Indeed, the perceived shortcomings of the current ISDS system is based on the fact that more than 3,000 BITs/FTAs are in place, which have been concluded by practically all countries in the world. The ICS proposal – limited to TTIP and perhaps extended to CETA – does not change that. The way the UNCITRAL Transparency Rules of 2014 are incrementally applied by way of an opt-in system established by a separate international treaty could be a possible way forward.
  1. As the TTIP negotiations between the US and the EU are now focusing on the ICS proposal, this is a perfect moment to further improve the proposal by addressing the matters identified in this analysis.
  1. Finally, the US and the EU should also consider whether it would not be more preferable to modify and improve existing systems, such as turning the ICSID annulment procedure into a full appeal mechanism.

This in-depth analysis is very timely and arguably one of the first ones following the formal adoption of the ICS proposal by the European Commission last November.

The EFILA Task Force paper raises many issues and provides some answers, but certainly leaves many problems untouched. At the EFILA Annual Conference which will take place on 5 February in Paris, the last panel will specifically discuss this report. All members of the investment arbitration community are welcome to (still) register for the conference or to submit their constructive comments to Dr. Nikos Lavranos, LLM, Secretary General of EFILA, at: n.lavranos@efila.org

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.