UK: Advocate General Finds That Ceta's "Investment Court System" Is Compatible With EU Law

One of the Advocates General to the Court of Justice of the European Union ("CJEU"), Advocate General Bot, has issued an opinion confirming that the mechanism for the settlement of disputes between investors and states provided for in the Comprehensive Economic and Trade Agreement between the EU and Canada (the "CETA") is compatible with European Union ("EU") law.

If the opinion is adhered to by the CJEU, it confirms the viability of the EU's mooted Investment Court System ("ICS") in terms of its co-existence with the EU legal order, and permits the EU to continue to pursue adoption of the ICS on a wider scale across all of the EU's trade agreements.

Background

On 30 October 2016, Canada and the EU signed the CETA containing detailed provisions on trade and investment. One of CETA's innovations is the creation of a Tribunal and an Appellate Tribunal and, in the longer term, a commitment to the establishment of a multilateral ICS which, in line with the Commission's objectives to transform investment treaty arbitration into a court-like system, departs from several long-standing features of investment arbitration, including party appointed arbitrators and the absence of an appeal mechanism.

On 6 September 2017, before ratifying CETA, Belgium asked the CJEU to assess the compatibility of this ICS with EU law (although it took no official position on the merits of its questions). Specifically, it asked questions covering three broad issues:

  1. The compatibility of the ICS with the principle that the CJEU has exclusive competence to provide the definitive interpretation of EU law

Belgium observed that the ICS allows the CETA Tribunal to examine the compatibility of the provisions of secondary EU law with the relevant provisions of CETA. Given that the CETA Tribunal can interpret EU law, and that there is no express mechanism in CETA for a preliminary reference on a question of EU law being made to the CJEU, this could result in the CETA Tribunal making final awards of a binding nature on EU law, potentially undermining the exclusive jurisdiction of the CJEU to provide the definitive interpretation of EU law.

  1. The compatibility of the ICS with the principle of equal treatment and the effective application of EU law

Belgium observed that the ICS under CETA could be seen as providing for a preferential judicial process for Canadian investors. Canadian undertakings investing in the EU will be able to bring a dispute either before an internal court of the EU (relying on domestic law) or before the CETA Tribunal, whereas EU undertakings investing in the EU will not have that choice.

  1. The compatibility of the ICS with the right of access to an independent and impartial tribunal

Belgium observed that the ICS arguably makes access to the CETA Tribunal excessively difficult for small and medium-sized enterprises (because costs and fees are born by the parties and legal aid is not available); that the remuneration of tribunal members is partially dependent on the number of disputes brought by investors, thus encouraging the development of case law favourable to investors; and that the rules relating to the appointment and removal of members of the CETA Tribunal may not be consistent with the principles of independence and impartiality.

The Advocate General's Opinion

  1. The compatibility of the ICS with the principle that the CJEU has exclusive competence to provide the definitive interpretation of EU law

Advocate General Bot opined that the ICS provisions of CETA did not undermine the principle that the CJEU has exclusive competence to provide the definitive interpretation of EU law.

The Advocate General distinguished the CJEU's recent judgment in Achmea v Slovak Republic, in which the CJEU concluded that international arbitration under an intra-EU bilateral investment treaty was incompatible with EU law. The reasoning in Achmea was inapplicable to this case, according to the Advocate General, because:

  • underlying the reasoning in Achmea was the fact that two Member States had agreed to remove EU law from their own domestic courts' jurisdiction to the detriment of the autonomy of the EU legal order which was contrary to the principles of mutual trust and sincere co-operation between Member States to ensure in their respective territories the application of EU law: the relationship between the Member States and Canada is not based on mutual trust and this is why the parties agree to reciprocal substantive and procedural protections;
  • the applicable law clause in the BIT in Achmea apparently gave the tribunal jurisdiction to hear and determine disputes relating to the "interpretation and application" of EU law, whereas the CETA Tribunal is restricted to application of the relevant provisions of CETA, as interpreted in accordance with international law. EU law can be taken into account by the CETA Tribunal only as a matter of fact.

The Advocate General opined that CETA's negotiators had deliberately ensured that the treaty's provisions interfered as little as possible with EU law, and provided sufficient guarantees to safeguard the role of the CJEU as the ultimate interpreter of EU law.

In particular, the Advocate General noted that whilst the CETA Tribunal can interpret EU law, it must follow the prevailing interpretation of domestic law of a Party by the courts or authorities of that Party, and the meaning it places on domestic law (including EU law) cannot bind the courts or authorities of a Party. He concluded, accordingly, that "the CETA Tribunal cannot therefore issue binding interpretations of EU law". The award therefore is "binding between the disputing parties in respect of that particular case" and the CJEU will retain jurisdiction to give a definitive interpretation of EU law.

Other safeguards referenced by the Advocate General include his view that (1) the CETA Tribunal has a narrowly circumscribed jurisdiction, namely, to hear a claim where an investor has suffered loss (it cannot hear claims in the abstract); (2) the CETA Tribunal does not have the power to order the annulment of a measure which it deems contrary to the agreement or to require that it be brought into line with that agreement; (3) the CETA Tribunal is not authorised to rule on the division of powers between the EU and its Member States; (4) obvious errors by the CETA Tribunal regarding EU law can be corrected by the Appellate Tribunal as part of its review; and (5) the CETA Tribunal does not affect the role of EU national courts in ensuring the effective application of EU law, nor does it deprive them of their ability to make references for a preliminary ruling.

  1. The compatibility of the ICS with the principle of equal treatment

The Advocate General rejected the notion that the ICS infringes on the general principle of equal treatment in respect of access to the dispute settlement mechanism and dismissed the possibility that by virtue of that access a Canadian investor may evade the financial consequences of the application of EU law.

According to the Opinion, the comparison made by Belgium was ill-conceived: the situation of Canadian investors who invest in the EU (making an international investment) is not comparable with the situation of European investors who also invest in the EU (making an intra-EU investment). Canadian or European investors can be compared only in relation to the investments which they make in the territory of the other party, and in these circumstances both have access to the CETA Tribunal. On the basis of this comparison, all investors who are in a comparable situation under CETA are treated comparably and the principle of equal treatment is not undermined.

  1. The compatibility of the ICS with the right of access to an independent and impartial tribunal

The Advocate General also considered that the ICS did not undermine the right of access to an independent and impartial tribunal.

The Advocate General referred to the procedural safeguards in place to ensure access to the ICS by small and medium-sized enterprises, such as the ability to request that a sole Member of the Tribunal hear the case to keep costs down; the CETA Tribunal's general discretion over costs; and the fact that the CETA Tribunal does not have exclusive jurisdiction over actions brought by investors – small and medium sized enterprises can still bring proceedings before domestic courts or tribunals where domestic law contains adequate standards of protection.

The Advocate General also dismissed concerns about the remuneration of CETA Tribunal members which Belgium had questioned as possibly undermining the right of access to an independent and impartial tribunal. There are two components to the remuneration of CETA Tribunal members, one of which is dependent on the volume and complexity of litigation brought, the other of which is fixed. The Advocate General considered that this system was appropriate for the hybrid nature of the ICS and the fact that CETA Tribunal members will initially not be working on a full-time basis.

Finally, the Advocate General stated that CETA has specific rules in place regarding the appointment and termination of CETA Tribunal members to guarantee their independence and impartiality, and that these rules are appropriate to the specific characteristics of the ICS's hybrid nature.

Comment

Advocate General Bot's opinion is the latest development in a rapidly changing investment treaty arbitration landscape. In terms of outcome, it is consistent with the Commission's policy of reforming investor state treaty dispute resolution clauses to introduce permanent standing bodies (such as those also found in the EU trade agreements with Mexico and Vietnam). The Advocate General's opinion is not determinative – the CJEU's judgment is anticipated later this year. In practice the CJEU usually follows the opinions of the Advocates General, although it recently departed from the opinion of Advocate General Wathelet in Achmea.

The Advocate General's opinion may be seen as generally supporting the EU's move away from the ad hoc system of investment arbitration. However, whilst the opinion attempts to navigate the areas of tension in this particular area of EU law and policy, the reasoning raises a number of questions. In particular, the opinion does not address the question of enforcement, which is notable in the context of the Advocate General's repeated emphasis that an award would not bind the EU or its institutions or Member State courts as to its findings on EU law and that the ICS would not preclude the courts of Member States from making a preliminary reference to the CJEU after an award has been made. It is not clear how this position can be reconciled with the EU's position taken to date in UNCITRAL Working Group III that awards of a multilateral investment court should not be subject to domestic review. It will be interesting to observe how the EU pursues its multilateral ICS agenda in the light of the Advocate General's pronouncements, as we await the CJEU's ruling.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions